SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-15405.
DATA TRANSMISSION NETWORK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 47-0669375
(State of Incorporation) (I.R.S. Employer ID Number)
9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (402) 390-2328
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of voting stock (based upon the "bid" price
as quoted on NASDAQ) of the registrant held by non-affiliates on March 1, 1999
was approximately $259,000,000.
At March 1, 1999, the registrant had outstanding 11,625,320 shares of
its common stock.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1998 are incorporated by reference into Parts I,
II, and IV.
2. Portions of the Registrant's definitive Proxy Statement filed for the
Registrant's Annual Meeting of Stockholders to be held April 28, 1999, are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
(a) General Development of Business:
Data Transmission Network Corporation (the "Company", "DTN") was
incorporated on September 17, 1987 to change the name and state of incorporation
of its predecessor company, Dataline, Inc. from Nebraska to Delaware pursuant to
an Agreement and Plan of Merger dated October 8, 1987. The Company was
originally incorporated in Nebraska on April 9, 1984, as Scoular Information
Services, Inc., a subsidiary of a regional grain company, later changing its
name to Dataline, Inc.
On December 19, 1985 and January 31, 1986, in related transactions,
certain employees of the Company purchased all of the outstanding stock of the
company from the regional grain company.
In January, 1987, the Company completed an initial public offering of
common stock selling 698,085 shares at $5.40 per share (pre-stock split).
(b) Financial Information About Industry Segments:
Financial Information about industry segments for the company is
on Page 6, of the company's 1998 Annual Report to stockholders
and is incorporated herein by reference.
(c) Narrative Description of Business:
Data Transmission Network Corporation (DTN) began operations in April 1984
and continues to provide comprehensive, time-sensitive information and
communication services for a variety of industries via all relevant distribution
technologies. DTN had over 159,000 subscribers throughout the U.S. and Canada at
the end of 1998 with the majority receiving agricultural, weather, financial and
energy related services. A review of these industries and services with the
year's highlights are discussed in this report.
The Company's subscription services are targeted at niche business markets
and designed to be timely, simple to use, and convenient. The Company's
distribution technology provides an efficient means of sending data and
information from point to multi-point. The development and enhancement of
cost-effective distribution methods such as electronic satellite delivery and
the Internet, plus a total commitment to customer service and information
quality has enabled the Company to become a major player in the communications
industry.
The Company continues take advantage of many engineering and software
advancements available for developing and improving distribution in an exciting
and growing industry.
INFORMATION DISTRIBUTION TECHNOLOGY
The Company is committed to researching and developing distribution
technologies to cost-effectively deliver the timely information that the
Company's subscribers demand. DTN supports several information distribution
technologies allowing the distribution, reception and display of information.
These technologies include small dish Ku-band satellite (Ku), the Internet, FM
radio side-band channels (FM), Fax, the vertical blanking interval within a
television signal sent via Cable TV (VBI), e-mail, leased lines and DIRECTV.
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The first technology used by the Company was FM radio side-band. The Ku
technology was added in 1989, providing the ability to reach customers outside
the geographic territory of the signal of the FM stations. Fax, VBI, e-mail,
Internet, leased lines and DIRECTV have since been added to further expand the
distribution network.
The Company provides the equipment necessary for subscribers to receive
certain services using FM, Ku or VBI technologies. This equipment includes a DTN
receiver, a video monitor, FM antenna or a small 30" Ku-band satellite dish. A
keyboard, mouse and printer may be provided depending on the service. DTN is
responsible for the normal maintenance and repair of subscriber equipment.
Prior to 1992, the Company utilized a "page-based" receiver and monochrome
display system. The monochrome system translates the Company's data stream into
text and is capable of receiving and displaying up to 246 different pages of
information. The monochrome receiver can also download information to a printer
or computer.
In 1992, the Company introduced the Advanced Communications Engine (ACE)
receiver, a color graphics receiver system, expanding the Company's ability to
provide information and communication services. The ACE receiver contains
multiple processors. One is dedicated to data communications and storage. The
second processor is for manipulating data, interacting with the user and
displaying high-resolution color pictures, graphics and text. A third processor
enables the unit to play audio clips for weather forecasts, voice advertisements
or audio alarms set for when a futures contract or stock price reaches a pre-set
price. In addition, this processor can send and retrieve information by using an
internal modem connected to a phone line. Additional processors may be present,
as necessary, based on the method of information distribution technology used,
such as satellite, VBI, etc.
The ACE receiver can also download information to a printer or computer.
This receiver is equipped with an internal hard drive allowing processed
information to be stored, archived and displayed. The receiver's built-in
control panel, keyboard or mouse allows subscribers to conveniently view this
information.
One of the unique aspects of the Company's information distribution
technology is the computer software developed by the Company for use with the
broadcast system that feeds data to the ACE receivers. This software manages
information from a wide array of input sources, runs routines, sets priorities
and then initiates transmission to the satellite. The software provides the
capability to individually address each receiver unit placed with a subscriber.
This permits the Company to transmit specific information to a specific
subscriber or group of subscribers.
The Company leases FM radio side-band channels, satellite channels and VBI
space to deliver the information to receivers used by the Company's subscribers.
All information is up-linked from Omaha to satellite (except Internet, Fax and
other telephone delivery technology) and downlinked from the satellite to
subscribers based on their distribution technology.
FM monochrome subscribers receive their information using FM antennas that
receive the information via side-band signals transmitted from radio stations.
The Ku subscribers utilize a 30" satellite dish, a direct downlink, to receive
their information.
Early in 1994, the Company began using a new cable TV distribution
technology involving vertical blanking intervals (VBI). The Company has
contracted with a major cable TV superstation to transmit information along with
the station's TV signal. This technology eliminates the need for FM antennas or
satellite dishes and is available to businesses or residences that are wired for
cable TV and receive the superstation's service.
The Company has introduced several Internet products since 1995. DTN
currently offers services via the Internet for the agricultural, weather,
financial and energy industries and plans to expand the services offered using
this information distribution technology. A major milestone for DTN's Internet
services was the leasing of Internet technology from SmartServ Online, Inc. for
the real-time streaming quote service offered by the Company's Financial
Services Division (www.dtniq.com)(see page 12).
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In 1998, the Company began delivering services to customers via direct
leased line circuits. This gives customers in major metropolitan areas the
ability to receive the Company's information where options, such as satellite
dishes, are impractical. In many instances, this technology provides a redundant
delivery method to insure maximum availability of the Company's information.
At the end of 1998, DTN Marine Center, a specialty weather service, began
delivering its information via DIRECTV's satellite system. Information is
received directly into the subscriber's computer from an 18-inch DIRECTV dish.
This initial product rollout is expected to be the first of many using the
newest information distribution technology. The new product launch also marks
the introduction of DTN for Windows, a software product for the PC using a
satellite dish which is capable of operating without an ACE receiver or other
external hardware devices.
<TABLE>
<CAPTION>
Information Distribution Technologies Subscribers
- ------------------------------------- -----------
<S> <C>
Ku-Band Satellite 144,800
Internet 4,700
FM Radio Side-band 8,400
VBI 1,300
Lease Lines/DIRECTV 100
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Total 159,300
</TABLE>
The following is a summary of subscribers by information distribution
technology at December 31, 1998. The Company has approximately 15,000 customers
receiving information using Fax technology. The e-mail business is primarily a
subscriber (an e-mail source) communicating specific messages to a group of
subscribers. There are over 1,200 e-mail sources delivering over 3,500 pages of
information to subscribers daily.
SERVICES OFFERED
The Company's revenue is derived primarily from six categories: (1)
monthly, quarterly or annual subscriptions, (2) equipment sales, (3) additional
(optional) services, (4) communication services, (5) advertising and (6) service
initiation fees. The percentage of total revenue for each category over the last
three fiscal years was:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Subscriptions 80 % 80 % 76 %
Equipment Sales 3 % - -
Optional Services 5 % 5 % 6 %
Communication services 7 % 8 % 9 %
Advertising 3 % 3 % 3 %
Service Initiation Fees 2 % 4 % 6 %
</TABLE>
Subscription revenue is generated from monthly, quarterly or annual
subscription fees for one of the Company's services. The Company offers a
discount to subscribers who pre-pay their subscriptions annually. A more
detailed review of each service is found later in this report.
A new business unit of the Company, DTN Kavouras Weather Services,
generates equipment sales of weather systems, workstations and weather radar
systems. DTN Kavouras Weather Services' weather systems and workstations allow
customers to receive weather information provided by the Company for monthly
subscriptions. This business unit also builds small and large doppler radar
systems.
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Optional services are offered to subscribers on an "a la carte" basis,
similar to premium channels on cable TV. A third party primarily provides
information for these services with DTN receiving a share of the subscription
revenue paid by the subscriber. Optional services revenue continues to grow in
total dollars at a rate commensurate with the overall growth of the Company due,
in part, to new technological innovations using the Internet.
The Company sells communication services allowing companies to
cost-effectively communicate a large amount of timely information to their
customers or field offices. This category includes revenue generated from FAX
and e-mail services. Communications revenue continued to grow in total dollars
and management believes this area offers opportunities for future growth.
The Company sells advertising interspersed among the pages of news and
information, similar to a newspaper or magazine. The advantage of an electronic
advertisement over typical print media is the ability to change or replace the
advertising message quickly and as frequently as market conditions dictate.
Advertising revenue maintained the same percentage of total revenue due to
subscriber and subscription revenue growth as well as the addition of new
services with available advertising space.
Service initiation fees are one-time charges for new subscriptions
depending on the service and the information distribution technology. DTN also
charges an initiation fee for those subscribers who convert to another service
(i.e. from a monochrome FM to a Ku color service).
The Agricultural Industry
The DTN Agricultural Division consists of five major services: DTN Ag
Services, DTNstant, DTN PROduce, DTNiron, and DTN Cotton Network.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ------------- -------------
<S> <C> <C> <C>
Revenues $88,300,000 $87,600,000 $69,700,000
Subscribers at year end 113,800 120,500 116,200
</TABLE>
New subscriptions are primarily sold by the Agricultural Division's own
dedicated sales force. These individual sales professionals began working under
the direct control of the Ag Division in August 1998. The ag sales force is made
up of district sales representatives, in-house sales staff, and independent,
commission-only sales representatives. By dissolving the former national sales
group into a smaller, more focused staff, the division is able to provide more
knowledgeable and service oriented sales professionals for current and
prospective customers. DTN AgServices, DTNstant and DTNiron each have their own
individual group of sales professionals, selling their basic products. For these
three services, the prospective customer base is essentially the same, and these
sales professionals are encouraged to sell any of the products associated with
Ag when the opportunity presents itself. DTN PROduce deals with a different
prospect than the normal livestock and grain farmer, and therefore DTN PROduce
sales professionals sell primarily to produce oriented prospects. The Ag
Division provides its sales force with leads that are obtained through
telemarketing, direct mail, print media advertising, customer referrals, and
Internet advertising.
The main competition to these services is the combination of printed
advisory services, radio, television, telephone, other satellite information
services, Internet services, and the changing of old information-gathering
habits.
There are over 200 premium (optional) services available to agricultural
subscribers to enhance the primary product subscriptions. These premium services
consist of advisory, informational and educational products as well as newswire,
association and additional free services. DTN subscribers can customize their
DTN unit to meet specific needs by choosing from a broad mix of these "a la
carte" services. DTN is continually developing new premium services to meet
customer demands by listening closely to the marketplace and to the customer.
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Premium services are marketed through a combination of individual free trials,
system-wide trials, on-screen advertising, direct mail, invoice stuffers,
equipment stuffers, and telemarketing. Premium Services' prices range from $6 to
$1,200 per quarter. The average subscription price is $60 per quarter. Effective
marketing campaigns helped to increase premium service sales in 1998.
Communication services (DTN InfoMail) plays an important role in providing
a cost effective means to reach a large number of targeted customers daily. At
the touch of a button, subscribers have instant access to messages 24 hours a
day. DTN InfoMail customers receive information tailored to their specific
needs. The service provides information for elevators, seed sales reps,
agronomists, chemical sales reps and technical advisors, commodity brokers,
processing plants, feedlots and anyone with a need to communicate to DTN
subscribers. Over 75 new InfoMail providers began messaging in 1998.
Advertising on DTN Ag Services plays a major role in the division's
revenue. The Advanced Communication Engine (ACE) satellite receiver, with its
animation and inter-active ability, provides an excellent avenue for advertising
sales. With the development of the ag Internet service, (www.agdayta.com),
advertising will have a new avenue in which to grow. In 1998, the Ag Division
sold over $3.2 million in advertising space to numerous ag industries, ag
chemical and seed companies, and equipment and finance businesses.
DTN Ag Services Review
Approximately 80% of DTN Ag Services' subscribers are farmers or livestock
producers with the balance consisting primarily of grain elevators,
agribusinesses and financial institutions. Subscribers to DTN Ag Services farm
nearly one third of the nations total cropland and market more that 50% of the
nation's cattle and hogs.
FarmDayta was the primary competition for DTN AgDaily until May 1996 when
DTN acquired Broadcast Partners. The addition of FarmDayta gives DTN AgServices
a fully integrated agricultural product line with price entry points across a
wide spectrum, expanding the marketing horizons for all DTN agricultural
services. DTN maintains the DTN FarmDayta facilities in Des Moines, Iowa.
DTN AgDaily
DTN AgDaily is an agricultural market information, quote and weather
service. Subscribers receive delayed commodity futures and options quotes, local
cash grain and livestock prices, selected regional and world weather updates,
and a variety of daily analysis, commentary and news that affect grain and
livestock prices. DTN AgDaily color graphics allows for an advanced weather
segment with national and regional radar maps (updated every 15 minutes),
infrared satellite cloud cover maps, precipitation, temperature, jet stream,
surface wind and snow cover maps, and much more. The subscriber can custom
design high resolution charts and/or select from a library that holds over 1,000
charts. The system is capable of custom programming the futures quotes pages to
display only the quotes desired. The service also includes information segments
for specific crop and livestock enterprises as well as general, business, sport
and entertainment news. AgDaily offers crop liability insurance and livestock
profitability calculators through use of the inter-activity feature, which
allows subscribers to search a comprehensive database.
DTN Pro Series
The DTN Pro/Premier services feature a more advanced AgDaily product. The
Pro Series enhanced functionality includes a high interest window to view future
or options quotes on any page as well as keyword search that automatically
searches the news story database for articles affecting the user's operation. It
also allows subscribers to customize a segment with up to five of the user's
favorite pages, and a personal library serving as a customized archive segment.
There are seven DTN Pro products, all of which include the complete AgDaily
service plus additional specific information: Weather Pro, News Pro, Chart Pro,
Intraday Pro, Stock Pro, Premier and Premier Plus.
DTN Weather Pro provides 32 programmable pages for creating unique weather
information. It allows subscribers to choose from over 70 weather maps
including detailed regional, state and zone forecasts, and lets them zoom
in on a particular spot on the map. These maps can also be put into
motion.
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DTN News Pro provides the AP Online service (a service of the Associated
Press), an audio summary of the day's agricultural news as well as the
general news of the day.
DTN Chart Pro includes 40 pages for programmable charts which allow
subscribers to create an extensive "chart book" for analyzing trends,
patterns, and cycles.
DTN Intraday Pro offers the ability to chart market sessions
minute-by-minute during the trading day. This allows subscribers to choose
time intervals for charting to keep them abreast of the markets.
DTN Stock Pro provides access to prices for over 50,000 issues of stocks,
bonds and funds. The service includes stock quotes using either the quick
quote feature or the programmable quotes pages. Additional features
include a personal library for storing news and information and high
interest windows allowing subscribers to constantly monitor up to six
futures, options, stock or bond quotes.
DTN Premier combines Weather Pro, News Pro, Chart Pro and Intraday Pro
into a comprehensive ag marketing and information package.
DTN Premier Plus includes all Pro products (Weather Pro, News Pro, Chart
Pro, Intraday Pro, and Stock Pro) into one complete package for farmers,
ranchers or agribusinesses needing all the market information available in
one convenient location.
DTN FarmDayta
DTN FarmDayta II is an agricultural market information, quote and weather
service delivering delayed commodity futures and options quotes, local cash
grain and livestock prices, selected regional and world weather updates, and a
variety of daily analysis, commentary and news that affects grain and livestock
prices.
DTNFarmDayta Elite HD includes all the DTN FarmDayta II features, plus
options quotes, charting, weather maps and a receiver with a hard drive,
which is critical to maintaining storage of information during a power
outage.
DTN FarmDayta Elite Plus includes all of the information provided on the
DTN FarmDayta Elite HD, plus more advanced news (Reuters Headline News),
quotes, weather (including motion and zoom capabilities) and programmable
charts. The Elite Plus product is similar in content to the DTN Pro
services. DTN FarmDayta Elite Plus is considered the "top of the line"
product in the FarmDayta line.
DTN AgDayta
DTN AgDayta (www.agdayta.com) is the Company's agricultural Internet
service. AgDayta combines DTN FarmDayta Elite Plus and DTN Premier Plus to
produce the most content rich product offered by DTN Ag Services. DTN AgDayta is
designed for the producer preferring to use his/her own personal computer to
receive information, or for the individual that is not able to utilize the
traditional satellite-based system supplied by DTN. The information on AgDayta
includes animated weather maps, satellite and summary maps, short and long range
forecast maps, news commentary and analysis, plus unlimited access to futures
and option quotes from all the major exchanges. Also available on AgDayta are
commodities for energy, finance, currency, metals and other exchanges as well as
instant access to daily, weekly and monthly commodity charts. The customization
capabilities allow for the organization of information that is most often used
for business decisions.
DTN AgBasic
DTN AgBasic was introduced in 1998 and is the most economical agricultural
color satellite system offered by DTN. The service came about through requests
from prospective customers for a more condensed version of the AgDaily/FarmDayta
products. AgBasic was developed as a "start up" color service for the first time
DTN customer. The service includes select quotes for 20 futures and two options,
the national radar map, local weather, state news, USDA Flash, USDA Pre-Report,
state grains and livestock bids, FarmDayta grains, livestock and other
commentaries.
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DTNstant
DTNstant is a leader in providing satellite delivery of real-time futures
and options quotes from the major commodity exchanges and headline commodity
news from multiple sources such as the Associated Press, Reuters, Futures World
News and Bridge. The service also provides market-leading cash grain and
livestock information, in-depth charting capabilities plus all the information
available on the DTN AgDaily color service.
In addition, the service provides information for the energy, metals,
softs (ie: orange juice, coffee, cocoa), transportation and lumber industries.
DTNstant uses compatible software to allow the "pass thru" of data and graphics
into a computer's local area network (LAN). With this capability, a DTN ACE
receiver can feed information to multiple users/traders on the LAN. This "pass
thru" software opens new markets by utilizing information distribution within a
customer's LAN, enhancing analytical capabilities.
Other valuable features are user-programmable formulas for data analysis,
high interest windows to include news stories, and increased keyboard
functionality.
DTNstant operates in a very competitive market with many providers of
instant commodity quotes. The primary subscribers are commercial grain companies
and elevators, feedlots, commodity brokers and commodity speculators. No other
service in the industry offers a more comprehensive news and information
service. Due to the nature of this industry, the Company provides on-site
service and installation by professional service technicians.
In February 1997, DTN acquired 500 subscribers (mainly grain elevators and
brokers) from Market Quoters and Northern Data Services. These subscribers are
located in Minnesota, the Dakotas and Iowa. In March of 1997 DTNstant acquired
2,400 subscribers from Market Communications Group LLC (MCG).
The MCG acquisition made it possible to redistribute Reuters news, a
renowned leader, to the DTNstant subscribers. The service now provides
unparalleled information and strategic news for commodity traders including
access to additional international information, news packages for softs (coffee,
sugar, cocoa and orange juice), metals and energy.
DTNiron
DTNiron is a cost-effective communication resource for the farm implement,
construction, truck and trailer dealers which provides an equipment locator and
advertising service for dealers at the wholesale and retail levels.
A detailed implement listing remains on the DTNiron system for a minimum
of 30 days, renewable at the dealer's request. Subscribers receive industry
news, financial information, economic indicators and information from the DTN
AgDaily service.
In 1997, DTNiron added retail equipment listings to its newly developed
web site on the Internet (www.dtniron.com). This allows subscribers to gain
additional exposure for their listings at no additional charge. Internet users
can easily locate equipment for sale by using a drill-down database search
engine directing them to DTNiron's complete web listing. Dealers can also
receive e-mail from potential buyers or, if they are not e-mail enabled, DTN
will call or fax the message to the dealer.
DTN PROduce
DTN PROduce is an authority in providing the produce industry with the
timeliest information available through use of satellite technology and the
Internet (www.dtn.com/ag/produce). Weather, market conditions, transportation
information, and news are the four main components with the greatest impact on a
subscriber's daily operation. DTN PROduce has become the industry's accepted
source for receiving this information.
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Price Link was introduced in 1997 allowing subscribers to send and receive
real-time pricing information for a fraction of the time and money of
conventional faxing methods. The service allows suppliers to advertise their
products or announce available inventories to buyers. Prices can be quickly
changed, added or downloaded from the DTN service to a personal computer.
DTN PROduce continues to network itself with the major players in the
produce industry by providing the necessary tools to save time, make money and
communicate pricing and other information at a fraction of the time and cost of
other existing systems.
DTN Cotton Network
DTN Cotton Network is an electronic communications system for the cotton
industry designed to operate on a user's personal computer using software
developed specifically for cotton accounting and marketing. Based in Lubbock,
Texas, with an office in Memphis, Tennessee, the Network serves its customer
base in the mid-South and Southeast.
Users dial into a DTN data center via modem to upload bale ownership
information and to list cotton for broadcast to prospective buyers. The
information is broadcast via DTN Ku-band satellite and passed through a serial
port into the personal computers located at both buyer and seller locations.
The Weather Industry
DTN Weather Center Service Review
DTN Weather Services consists of three major components, DTN Weather
Center Services, Kavouras, Inc. and Weather Services Corporation (WSC).
Kavouras, Inc. was acquired by DTN on July 1, 1998 and is now doing business as
DTN Kavouras Weather Services. DTN acquired WSC on December 11, 1998. The
addition of these two companies truly makes DTN a leader in the weather industry
providing critical weather information and meteorological equipment to small
businesses, military, federal government, broadcast television, major utilities,
Internet portals and everyone in between.
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues $25,800,000 $10,700,000 $5,600,000
Subscribers at year end 18,300 13,100 7,900
</TABLE>
DTN Weather Services' future plans are to concentrate on the untapped
middle markets where customers number in the tens of thousands. The Internet
also provides many additional opportunities for growth such as advertising
supported sites, monthly subscription sites, "pay-per-view" sites, etc.
DTN Weather Services employs a dedicated weather sales force made up of
nearly 100 sales professionals for its sales and marketing efforts. This sales
force is unique to DTN in the weather industry and is a major reason for the
success of the division.
Weather information is always in high demand for many small and large
businesses as well as individuals planning their vacation and outdoor
activities. DTN Weather Services has a handful of competition from several large
private weather companies. Television and the Internet also provide some
competition on a smaller scale, but lack the timeliness and local information
the DTN service provides. DTN Weather Services constantly looks for more and
better ways to provide this critical information to its customers in the
quickest, most dependable and cost effective way.
DTN Weather Center
DTN Weather Center is a comprehensive weather information system designed
to meet the weather information needs of many industries. Markets specifically
targeted by DTN Weather Center are golf courses, turf management, emergency
management, state transportation departments, public works departments,
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construction, broadcast and aviation. DTN Weather Center introduced new products
in 1998 designed especially for the broadcast, transportation and safety
industries.
DTN Weather Center provides more than 100 full-color maps and other
in-depth weather information, from local forecasts and regional radar maps to
national infrared satellite images. The service provides short-range (immediate
to 48-hour) forecasts, long-range (30-90 day) outlooks and 10-day city forecasts
for more than 550 major cities across the United States. A personal programmable
segment allows users to customize maps and the archive feature easily stores
maps for future reference.
DTN Weather Center provides the important weather information and planning
tools to make businesses safer, more profitable and easier to manage.
DTN Aviation Center
DTN Aviation Center is a comprehensive aviation weather package specially
designed for pilots, airports and Fixed Based Operators (FBO's), supplying them
with the extensive flight-plan information found on many premier "online"
systems.
This package includes U.S. and regional depiction maps, 24-hour low-level
significant weather prognosis, U.S. region winds and temperatures aloft and also
METAR (the aviation acronym for airport observations) and TAF (Terminal Aerodome
Forecast) information. Subscribers use DTN Aviation Center during flight
services to visualize current weather conditions while creating their flight
plans. This service also aids in determining alternate route destinations.
Subscribers choose from the Level I service, designed for the
local/regional flyers up to 18,000 feet, or the Level II service, designed for
pilots and airports flying nationally up to 45,000 feet. The Level II service
also provides European flight information.
DTN Broadcast Weather
DTN Broadcast Weather is a weather and news information service designed
for the broadcast industry. Along with the comprehensive local, regional and
national weather forecasts and information, subscribers receive National Oceanic
and Atmospheric Administration Warnings & Alerts (NOAA).
Learfield World & National News Summary provides hourly summaries of
international and national news. The segment contains 20 pages, formatted for
about two to three minutes of "rip and read". Announcers can organize the
material, print it out or read it right off the DTN screen.
DTN Contractor Weather
DTN Contractor Weather is designed for the construction industry and
includes construction-related news and information, which gives subscribers a
competitive advantage. This service provides valuable weather information
necessary for important day-to-day business decisions.
Job site weather management options include the DTN Weather Alert Paging
System, which provides immediate notification of severe weather directly to the
user's alpha pager, and DTNonline (Weather Center's Internet service). NOAA
Weather Wire and Severe Weather Maps are included in DTN Contractor Weather
Level II, along with the subscriber's choice of the Weather Alert Paging System
or DTNonline.
The service is a practical tool in improving employee safety, saving labor
and material costs, and providing effective scheduling and staffing management
for the construction industry.
DTN Forestry Center
DTN Forestry Center provides critical forest fire information to
subscribers. Previously, district forest service offices relied on a modem
network assembled in the late 1960's for crucial information on forest fire
locations and fire weather forecasts. With DTN Forestry Center, forecast service
district managers quickly access fire weather text bulletins along with a
comprehensive set of weather maps.
9
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Bulletins provided for the forest service markets are Forest Weather
Forecasts, Red Flag Warnings, Fire Danger Indexes, Fire Weather Observations and
Fire Weather Notices. A special chapter of fire weather maps provides additional
information such as Haines Fire Index, Current and Forecast Relative Humidity,
Current and Forecast Wind Speed and Direction, upper air analysis from 5,000 to
10,000 feet, and moisture index information from both the Crop Moisture Index
and Palmer Drought Index.
DTN Marine Center
DTN Marine Center provides satellite-delivered weather information for all
areas of the marine industry. The service provides information necessary for
cost-effective, efficient decision making regarding towing, shipping, salvage
and recreation. It includes Lake and Marine Text Bulletins, Buoy Reports, Lake
and Marine Maps and Tide Tables, as well as general weather information and sea
conditions.
New to the product in 1998 was the addition of DTN OnBoard, a service
allowing the user to receive DTN Marine Center through a DIRECTV dish on their
PC while at anchor or underway. Sea Surface Temperatures are also available as
an optional service.
DTN Transportation Weather
DTN Transportation Weather is designed for anyone responsible for road
maintenance or whose business depends on road conditions. Comprehensive local,
regional and national weather forecasts and information are available to
transportation professionals, allowing them to make informed decisions regarding
the weather.
Subscribers have the choice of the DTN Weather Alert Paging System or
DTNonline (DTN Weather Center's Internet service). The Weather Alert Paging
system provides immediate notification of severe weather directly to the user's
alpha pager. DTNonline enables the subscriber to make management decisions based
on weather at home or away from the office with a PC.
NOAA Weather Wire and Severe Weather Maps, Travel Cast Maps and Road
Conditions, and EarthSAT Winter Weather Information are important features of
this product.
DTN Travel Center
DTN Travel Center is an interactive hotel guest service designed for the
hospitality and travel industries. The service targets hotels and motels with
50+ rooms and includes NEXRAD Real-Time Radar Maps, travel forecasts and road
conditions, detailed city and national forecasts, national and world news,
sports and sports scores. In addition, the service provides business and
financial news and market quotes and indexes.
DTN Travel Center provides a comprehensive weather and news information
package for both the business and vacation traveler.
DTN Turf Manager
DTN Turf Manager is available to businesses and individuals involved in
turf-related operations such as golf courses, lawn maintenance, landscaping and
sod farms. The service provides the weather and chemical information needed for
effective turf management, making the safest, most cost-effective use of
chemicals, labor and other resources.
Material Safety Data Sheets (MSDS) are available with Turf Manager, along
with the C&P Press Turf Product Index, an information database of more than 275
turf pesticides. Plant Protection Chemical Product Labels were added to the
service in 1998. This important segment provides full information on chemicals
used in turf care and management.
ThorGuard, the only lightning prediction system available, warns of
lightning strikes before they happen and is available as an optional service.
Evapotranspiration Tables provide regional evapotranspiration rates to plan for
watering and chemical application.
10
<PAGE>
Golf information, such as ESPN Sports Ticker, the National Golf Course
Directory, GCSAA News and USGA News, is provided with DTN Turf Manager.
DTN Weather Safety Center
DTN Weather Safety Center provides weather information for anyone who is
responsible for protecting lives and property from the hazards of severe
weather. NOAA Weather Wire, the most comprehensive warning and alert system
available today, is available with the service, along with radar and satellite
images, local, regional and national outlooks.
DTN Weather Safety Center is invaluable for emergency management
professionals. Coupled with the DTN Weather Alert Paging System, subscribers
receive immediate notification of severe weather directly to their alpha pagers.
Weather watches, warnings and storm movement, along with local weather updates
twice daily for an 8-county area of the user's choice, are included in the
service.
DTN Kavouras Weather Service
Meteorological Equipment
Triton Doppler Radar Series
Triton Doppler Radar Series is a complete line of advanced, fully coherent
Klystron or TWT-based Doppler weather radars, representing the most powerful,
the most accurate, the most versatile and the most cost-effective Doppler radar
performance in the world. Users include broadcast television, aviation,
universities, government and military.
Triton RT
Triton RT is a real-time 3-D and 2-D weather and news graphics animation
system focused on, but not limited to, the broadcast television market. This
product uses weather data to create an informative and exciting weather show.
MetWork FileServer
MetWork FileServer is a robust and dynamic network solution for real-time
dissemination of meteorological information based on the versatile and efficient
NT format, supporting standard Internet communications protocol and various
network configurations.
Meteorological Services
Storm Pro
Storm Pro is a workstation that integrates real-time Doppler weather radar
with a geographic information data system to create an accurate display with
broadcast-quality appearance. The display can be individualized for a unique and
defining look important in the television market.
StormSentry
StormSentry is around-the-clock storm tracking software that identifies
dangerous weather cells, analyzes their characteristics, their locations, their
speeds, their directions, their estimated times of arrival...all automatically.
StormWatch
StormWatch is customizable software that monitors either a weather wire or
a DTN Kavouras MetWork Fileserver to generate color-coded maps and/or a crawl
message for important watch, warning or advisory weather situations. StormWatch
also allows a television station to edit and prioritize information for their
viewing areas.
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SchoolWatch
SchoolWatch is customizable software for the Triton RT that helps
television stations easily update, prioritize and display late-start and school
closing information. This software can also be configured to update information
on a station's web site.
Data and Customizable Forecasting Services provides a broad range of
standard data for a wide variety of markets. In addition, DTN Kavouras staff
provides 24-hour, 365 days a year coverage for tailor-made forecasts to meet
customers' special needs.
The Financial Services Industry
DTN Financial Services offers five primary information services, DTN.IQ
(www.dtniq.com), DTN Real--Time, DTN SPECTRUM, DTN Wall Street and DTN FirstRate
as well as a suite of business applications for the financial professional
through National Datamax, Inc., a wholly owned subsidiary.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- --------------- --------------
<S> <C> <C> <C>
Revenues $13,400,000 $10,300,000 $8,600,000
Subscribers at year end 15,800 12,900 11,300
</TABLE>
These services offer a complete line of fully integrated information for
financial professionals and individual investors. As a full-service provider,
DTN Financial Services brings together a broad selection of financial
information to accurately cover the markets, real-time or delayed quotes,
real-time business newswires, and an array of back-office applications including
client management systems and trading capabilities. DTN Financial Services' main
objective is to provide comprehensive, in-depth financial information at an
affordable cost to its subscribers. This objective is critical due to the highly
competitive nature of the industry.
DTN Financial Services integrates information from a variety of sources
such as Bridge, Liberty Brokerage and Market News Service, ZionsBank, UPI, New
York Times, PR Newswire, Business Wire, Futures World News, Dow Jones, AP Online
and others. In addition, a la carte, optional services offer subscribers an even
greater variety of financial data including stock selection and timing advice,
earnings estimates, fundamental stock market data, U.S. Treasury quotes and
other financial market-related services. This combination allows each service to
maintain its competitive advantage in the market.
Subscribers include individual investors, independent brokers, financial
advisors and financial institutions. With competition coming from sources such
as commodity news services, diversified media companies and smaller niche
providers, DTN Financial Services continues to differentiate itself in the
market by offering services that are broader in scope, yet remain strategically
priced.
DTN Financial Services revenue grew 29% in 1998, continuing its bullish
27% compounded revenue growth for the past five years.
DTN.IQ
In May 1998, DTN Financial Services acquired a technology license from
SmartServ Online (SSOL) along with their existing Internet customers. This
license granted DTN exclusive rights to market a real-time Internet-delivered
quote and news service previously developed by SmartServ Online. Renamed DTN.IQ
(www.dtniq.com), it was released in June 1998, with new pricing and
functionality.
DTN.IQ has begun to fulfill its initial promise of satisfying the needs of
investors and traders who prefer to use the Internet as a market data delivery
channel. By year-end, DTN.IQ had begun to generate positive cash flow and had
become the fastest-growing service released by DTN Financial Services.
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In addition to providing streaming real-time quotes and news, DTN.IQ
offers functionality not found in other DTN services. Primary among these is the
ability to retrieve a chart on any security at any time with up to two years of
daily history or five days of tick history. In addition, DTN.IQ takes full
advantage of 32-bit architecture, complete windowing capability, and the
flexibility of Internet delivery.
DTN RealTime
DTN REALTIME delivers real-time stock and stock option quotes as well as
real-time futures quotes, fixed income government securities quotes, market
statistics and indicators, news, commentary and other time-sensitive financial
market information. The service is delivered at a rate of 18,800 characters per
second, roughly three times faster than a computer modem operating at 56 kbs.
DTN REALTIME is two to four times faster than other dedicated, competitive,
real-time quote services.
As an adjunct service with DTN REALTIME, NASDAQ Level II quotes were made
available in the fourth quarter of 1998, an important step in DTN's effort to
gain market share among institutional customers. Level II quotes offer
institutional money managers and active day-traders more detailed information on
the bid and asked prices offered by NASDAQ market makers.
DTN REALTIME was the first DTN service delivered directly to a PC without
displaying information on a proprietary system or stand-alone unit. This allows
users maximum flexibility in displaying and manipulating the data.
As part of the service, subscribers are offered free use of DTN's
Chameleon software to display market data, news and other financial information.
Chameleon also provides market condition alarms, news alerts and archiving,
charting, and portfolio monitoring. There are several other popular third-party
software programs available for formatting, manipulating, analyzing and
displaying market data and news on a single PC or networked PC's.
DTN SPECTRUM
DTN SPECTRUM is an enhanced version of DTN Wall Street utilizing the ACE
receiver technology. The service provides advanced quote selection and custom
programming along with alarms, news search and charting capabilities appealing
to a broad market of individual investors and investment professions.
An extension of DTN SPECTRUM is the DTN SPECTRUM RT service. DTN SPECTRUM
RT provides real-time futures and commodity quotes along with exchange-delayed
stock quotes, news and other information.
DTN Wall Street
DTN Wall Street provides exchange-delayed quotes on stocks, bonds, mutual
and money market funds, futures, interest rates, currencies and real-time index
quotes. This service also provides in-depth economic, financial and business
news and other time-sensitive financial market information such as
company-specific news and earnings. The service allows subscribers to custom
program the system to track their selection of financial quotes.
The majority of subscribers to DTN Wall Street are individual investors,
independent brokers, financial advisors and financial institutions.
DTN FirstRate
DTN FirstRate is a service for the mortgage industry providing wholesale
mortgage rates in an easy-to-use standard format and intraday interest rate
information indicating the direction of mortgage loan rates. This service also
provides subscribers with snapshots of real-time rates from Fannie Mae and
Freddie Mac plus other news, commentary and analysis for mortgage lenders.
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DTN FirstRate+ is an enhanced color version of DTN FirstRate. This service
provides additional features which are well received by subscribers. Features
include keyword search, quick quote, alarms and zoom capabilities for weather.
National Datamax
In June 1998, DTN Financial Services acquired National Datamax, Inc.
(NDM), a provider of software and data services to financial planners and
independent broker-dealers. Within the financial services industry, NDM enjoys
strong name recognition and was one of the first firms to offer its unique
business solutions.
NDM solves two distinct problems faced by brokers. By consolidating client
account information from a variety of sources, NDM assists the broker in
presenting a comprehensive financial picture to his/her clients, no matter how
many securities or fund families are involved.
Brokers also need analysis tools to help them pinpoint the best investment
options for their clients. NDM offers fundamental data combined with
sophisticated scanning routines that help select appropriate mutual funds,
variable annuities and stocks based on client-defined risk/reward parameters.
NDM represents a key element in DTN's strategy to become an important
player in the institutional marketplace as well as add value to basic
information delivery.
The Energy Industry
Energy related services include DTNergy for the refined fuels, natural gas
industries and electric industries.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues $16,100,000 $14,300,000 $12,200,000
Subscribers at year end 8,400 8,400 7,700
</TABLE>
DTNergy Service Review
DTNergy provides pricing information and communication services for the
refined fuels industry. This service consists of several pages of delayed energy
futures and options quotes plus selected news and financial information.
DTNergy is designed to connect refiners (producers of refined fuels) to
wholesalers (distributors of refined fuels). The refiner sends refined fuel
prices to wholesalers authorized to receive this information. The refiner is
also capable of sending terminal alerts, electronic funds transfer
notifications, invoices, and other communications to the wholesaler. The DTNergy
system carries more than two million messages a month for this industry.
Subscribers can also select from a variety of optional services providing
additional prices or news related to the petroleum industry.
The strength of the DTNergy Refined Fuel service is the ability to
deliver, within seconds, accurate refiner terminal prices and other vital
communications to the wholesalers. This service is more reliable, timely and
less expensive than the competition, which utilize telephone delivered
printer-only systems and FAX services.
DTNergy generates revenue from two primary sources, the wholesaler and the
refiner. Wholesalers currently pay a monthly subscription fee of $40 for the
monochrome Ku-band satellite service. Refiners pay fees based on the number and
length of communications sent to wholesalers.
Refiners use DTNergy communications to link to their wholesalers with the
implementation in 1997 of EDI (Electronic Data Interchange) fuel invoices.
EDI/VAN (Value Added Network) services help automate customers' business
processes by converting refiner text invoices into an industry standard format.
Once these invoices are in a standard format, the invoice data is transferred
into a customer's accounting system from the ACE unit.
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<PAGE>
DTNergy also provides an information service for the natural gas and
electric industries. Subscribers receive instant or delayed NYMEX energy futures
and options quotes, a comprehensive weather package and industry specific news
and market information. This service targets energy producers and generators,
transporters, marketers, utilities and larger energy consumers.
Other Industries and Services
DTNauto Service Review
DTNauto is a communication and information service for the automobile
industry. This service offers automobile dealers precision information for
valuing trade-ins and locating used car inventory. DTNauto provides a host of
convenient features for the industry such as the ability for automobile auction
companies and manufacturers to communicate directly with the dealers.
DTNauto provides information on more than 125 pre-auction automobile
listings, results of past auctions, new and used car industry news, weather and
other news. The service allows subscribers to perform searches of upcoming and
past auction listings for specific automobile information.
DTNauto offers a variety of optional services providing information on
credit reporting (CREDCO), vehicle histories (CARFAX), warranty information (The
Warranty Guide) and residual value of leased vehicles (Lease Guide). The CARFAX
and CREDCO optional services extensively utilize the internal modem to send and
receive information. These services create a comprehensive information service
placing the "subscriber in the driver's seat".
DTN Joint Venture Services
DTN joined forces with several companies to market their services using
DTN technology. These services are DAT Transportation Terminal, TracElectric and
DTN Missing Children Information Center (MCIC).
DAT
The DAT (Dial-A-Truck) Transportation Terminal service, located in
Beaverton, OR, is an information communication system for the trucking industry.
The service provides load and truck matching performed on a database of 80,000
listings updated daily.
DAT allows subscribers to input their listings into the DTN receiver and
send this information to a database using the internal modem. The service
provides subscribers with the ability to perform extensive searches to locate
loads and trucks and to set alarms alerting users of a match.
The service also provides regional radar weather maps of major highways
and interstate systems, transportation news, diesel fuel prices and other
financial information related to the trucking industry.
DAT targets all freight brokers and carriers throughout the United States,
Canada and Mexico.
Trac Electric
TracElectric is an equipment locator service for the electrical equipment
industry. This service provides over 100 pages of new, remanufactured, surplus
and used electrical equipment listings. The service connects buyers and sellers
throughout the United States and Canada.
Missing Children Information Center
DTN Missing Children Information Center (MCIC) provides instant
transmission of data regarding children in danger to local, regional, national
and Canadian outlets. In an effort to assist parents, police and the National
Center for Missing and Exploited Children (NCMEC) in locating missing children
and the criminals involved, photos and information regarding these children are
posted as a public service on all DTN color systems.
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As a result of the close working relationship with NCMEC a national kiosk
program has been developed. Plans are underway to identify sponsors for the
kiosk units to be placed in high-pedestrian traffic areas such as shopping
malls, airports, grocery stores, theaters, government buildings, etc.
Employee Data
At December 31, 1998 the company had approximately 1,100 full and
part-time employees.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales:
Not applicable
ITEM 2. PROPERTIES.
The Company leases its executive and administrative offices in Omaha,
Nebraska. Approximately 108,000 square feet of office space is leased for these
offices for periods up through May 2005. The Company also occupies approximately
19,000 square feet of office space located in Urbandale, Iowa, through the
Broadcast Partners acquisition. As part of the acquisition of Kavouras, Inc.,
the Company acquired a building in Burnsville, Minnesota with approximately
52,000 square feet which is Kavouras' headquarters. the Company also leases
office space in Lubbock, Texas; Memphis, Tennessee; San Diego, California;
Milwaukee, Wisconsin; and Lexington, Massachusetts for business operations
related to acquisitions.
In addition, the Company leases three distribution centers for the purpose
of storing and distributing the electronic equipment needed by subscribers to
receive the company's services. The main distribution center is located in
Omaha, Nebraska and occupies approximately 28,000 square feet. The Company also
serves its Canadian subscribers with a 2,500 square foot distribution center
located in Winnipeg, Manitoba. Approximately 7,000 square feet, located in
Urbandale, Iowa, was added to the Company's distribution center by way of the
1996 acquisition. The leases related to these distribution centers are for
various periods up through December, 2003.
The information set forth in Footnote 10 "Leases" on page 59 of the
Company's 1998 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to nor is its property subject to any material
pending legal proceedings, other than ordinary routine litigation incidental to
its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders of the Company
during the fourth quarter of the fiscal year ended December 31, 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the current executive officers of the company is as
follows:
<TABLE>
<CAPTION>
Year Joined
Name Title Age the Company
<S> <C> <C> <C>
Roger R. Brodersen Chairman of the Board and 53 1984
Chief Executive Officer
Greg T. Sloma President and Chief 47 1993
Operating Officer
Brian L. Larson Vice President, Chief Financial 38 1993
Officer and Secretary
James J. Marquiss Senior Vice President, Director 54 1986
of Business Research and Product
Development
Roger W. Wallace Senior Vice President and 42 1984
President, Ag Services Division
Charles R. Wood Senior Vice President and 58 1989
President, Financial Services Division
William R. Davison Vice President and 44 1989
President, Ag Services
Scott A. Fleck Vice President and 31 1991
Director of Engineering
H. Wade German Vice President, 57 1992
Business Research
Daniel A. Petersen Corporate Controller and Treasurer 33 1990
Joseph Urzendowski Vice President, Operations 35 1992
</TABLE>
The executive officers serve annual terms, and are elected by the board of
directors at their annual board of directors meeting in April of each year.
17
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Information concerning the market for the Company's common stock, the
number of stockholders of record and the Company's dividend history is on pages
63 and 65 of the Company's 1998 Annual Report to Stockholders and is
incorporated herein by reference.
Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
The company's most restrictive loan covenant restricts cash dividend
payments to 25% of net income after taxes in the previous four quarters.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the Company is on page 40 of the company's
1998 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations is on pages 41 through 48 of the Company's 1998 Annual Report to
Stockholders and is incorporated herein by reference.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K and documents incorporated by
referenc) may contain statements which are not historical facts, so-called
"forward-looking statements". These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual future results may differ significantly from those
stated in any forward-looking statements. Forward-looking statements involve a
number of risks and uncertainties, including, but not limited to, product
demand, pricing, market acceptance, inflation, risks in product and technology
development, product competition, acquisitions, key personnel, and other risk
factors detailed in this Annual Report on Form 10-K and in the Company's other
Securities and Exchange Commission filings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company, together with the Independent
Auditors' Report, are on pages 49 through 62 of the Company's 1998 Annual Report
to Stockholders and are incorporated herein by reference.
Supplementary quarterly financial information is on page 63 of the
Company's 1998 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
18
<PAGE>
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT.
Information concerning the present directors of the Company and all
persons nominated to become directors at the Annual Meeting of Stockholders of
the Company to be held April 28, 1999, is contained in the section captioned
"Election of Directors" of the Proxy Statement for such annual meeting. Such
section is on pages 2 through 3 of such Proxy Statement, and is incorporated
herein by reference. Information concerning the registrant's executive officers
is furnished in a separate item captioned "Executive Officers of the Company",
included in Part I of this Form 10-K.
Compliance With Section 16(a) Of The Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
The Company believes that during the fiscal year ended December 31, 1998, its
executive officers, directors and holders of more than 10% of the Company's
common stock complied with all Section 16(a) filing requirements, except that
Mr. German and Mr. Sloma each filed one late report covering one transaction
each. In making these statements, the Company has relied solely upon a review of
Forms 3 and 4 furnished to the Company during its most recent fiscal year, Forms
5 furnished to the Company with respect to its most recent fiscal year, and
written representations from reporting persons that no Form 5 was required.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning executive compensation paid by the Company is
contained in the sections captioned "Executive Compensation" and "Compensation
Committee Report on Executive Compensation" on pages 8 through 12 of the Proxy
Statement for the Annual Meeting of Stockholders of the Company to be held April
28, 1999, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning the ownership of equity securities of the Company
by certain beneficial owners and management is contained in the sections
captioned "Ownership By Certain Beneficial Owners" and "Election of Directors"
on pages 2 through 7 of the Proxy Statement for the Annual Meeting of
Stockholders of the Company to be held April 28, 1999, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning transactions with management and others and
indebtedness of management is contained in the section captioned "Transactions
with Management" on page 19 of the Proxy Statement for the Annual Meeting of
Stockholders of the Company to be held April 28, 1999 and is incorporated herein
by reference.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. Financial Statements:
The Registrant's financial statements, together with the Independent
Auditors' Report, are incorporated herein by reference to the 1998 Annual Report
to Stockholders, pages 49 through 62. With the exception of the aforementioned
information and the information incorporated by reference into Items 2,5,6,7 and
8 of this report, the Annual Report to Stockholders for the year ended December
31, 1998, is not to be deemed filed as a part of this report. The supplemental
financial information listed below should be read in conjunction with the
financial statements in the Annual Report to Stockholders for the year ended
December 31, 1998.
(A) 2. Financial Statement Schedule: Page
Auditors' Report on Financial Statement Schedule 27
Schedule
Number Description of Schedule
II Valuation and Qualifying Accounts 28
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or notes thereto.
(B) Reports on Form 8-K:
1. The Registrant filed a report on 8-K dated June 11, 1998 related to the
Agreement to Lease Space on a more powerful satellite. The Registrant filed a
report on 8-K dated July 16, 1998 related to the acquisition of the capital
stock of Kavouras, Inc. The Registrant filed a report on 8-K/A dated September
11, 1998 related to the acquisition of the capital stock of Kavouras, Inc.
No reports on Form 8-K were filed by the Registrant during the fourth
quarter of the year ended December 31, 1998.
(C) Exhibits:
(3) (a) Certificate of Incorporation of Registrant.
(b) By-Laws of Registrant. (These documents are filed as exhibits to
the Registrant's Registration Statement on Form S-1 as filed
December 4, 1987.)
(4) (a) Specimen certificate representing shares of Common Stock,
$.001 par value, of Registrant. (This document is filed as an
exhibit to the Registrant's Registration Statement on Form S-1 as
filed November 4, 1988.)
(b) Certificate of Incorporation of Registrant. (This document is
filed as an exhibit to the Registrant's Registration Statement on
Form S-1 as filed December 4, 1987.)
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<PAGE>
(10) (a) Registrant's Stock Option Plan of 1989.
(This document is included as an exhibit to the Registrant's Proxy
Statement for the Annual Meeting of Shareholders held on April 26, 1989.)
(b) Registrant's Non-employee Directors Stock Option Plan.
(This document is included as an exhibit to the Registrant's Proxy
Statement for the Annual Meeting of Shareholders held on April 26, 1989.)
(c) Form of indemnification agreement between the Registrant and the
Officers and Directors of the Registrant.
(This document is filed as an exhibit to the Registrant's Registration
Statement on Form S-1 as filed May 22, 1989.)
(d) First Amendment to Registrant's Employee Stock Option Plan of
1989.
(e) First Amendment to Registrant's Non-employee Directors Stock
Option Plan.
(These documents are included as exhibits to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on April 25, 1990.)
(f) Second Amendment to Registrant's Employee Stock Option Plan of
1989.
(g) Second Amendment to Registrant's Non-employee Directors Stock
Option Plan.
(These documents are included as exhibits to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on April 24, 1991.)
(h) Third Amendment to Registrant's Stock Option Plan of 1989.
(i) Third Amendment to Registrant's Non-Employee Directors Stock
Option Plan.
(j) Fourth Amendment to Employee Stock Option Plan of 1989.
(k) Fourth Amendment to Non-Employee Directors Stock Option Plan .
(These documents are included as exhibits to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held April 27,
1994).
(l) Restated and amended Non-Employee Directors Stock Option Plan.
(This document is included as an exhibit to the Registrant's Proxy
Statement for the annual meeting of stockholders to be held April 26,
1995).
(m) Senior Subordinated Note dated June 30, 1994 between the
Registrant and Equitable Capital Private Income and Equity
Partnership II, L.P.
(These documents are included as exhibits to the Registrant's Annual
Report on Form 10-K as filed March 28, 1995).
(n) Lease agreement dated May 2, 1995 between the Registrant and The
Prudential Insurance Company of America.
(o) First Amendment to lease agreement dated May 2, 1995 between the
Registrant and The Prudential Insurance Company of America.
(p) Purchase and service agreement dated July 13, 1995 between the
Registrant and Knight-Ridder Financial.
21
<PAGE>
(q) Senior Subordinated Notes and Warrant Purchase Agreement dated
June 30, 1994 between Registrant and Equitable Capital Private
Income and Equity Partnership II, L.P.
(r) First Amendment to Senior Subordinated Notes and Warrant Purchase
Agreement dated June 30, 1994 between Registrant and Equitable
Capital Private Income and Equity Partnership II, L.P.
(These documents are included as exhibits to the Registrant's Annual
Report on Form 10-K as filed March 22, 1997).
(s) Independent Sales Representative Agreement dated September 1,
1997, between Registrant, Huston, Inc., and Phil Huston.
(t) Second Amendment to the lease agreement dated May 2, 1995,
between the Registrant and The Prudential Insurance Company of
America.
(u) Third Amendment to the lease agreement dated May 2, 1995, between
the Registrant and The Prudential Insurance Company of America.
(v) Fourth Amendment to the lease agreement dated May 2, 1995,
between the Registrant and LAFP-SF, Inc., successors in interest
to The Prudential Insurance Company of America.
(w) Second Amendment to the Senior Subordinated Notes and Warrant
Purchase Agreement dated June 30, 1994, between the Registrant
and Equitable Capital Private Income and Equity Partnership II,
L.P.
(These documents are included as exhibits to the Registrant's Annual
Report on Form 10-K as filed March 27, 1997).
(x) Fifth Amendment to Employee Stock Option Plan of 1989.
(This document is included as an exhibit to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 23,
1997).
(y) Purchase and Sale of Assets Agreement dated January 2, 1997,
between the Registrant, and Northern Data Communications and
Market Quoters, Inc.
(z) Purchase and Service Agreement dated October 24, 1997, between
the Registrant and the Arkansas Farm Bureau.
(aa) Purchase and Restrictive Covenant Agreement dated March 14, 1997,
between the Registrant and Market Communications Group, LLC.
(ab) Asset Purchase Agreement dated July 1, 1997, between the
Registrant and Cotton Communications Network, Inc.
(ac) Fifth Amendment to the lease agreement dated May 2, 1995, between
the Registrant and LAFP-SF, Inc., successors in interest to The
Prudential Insurance Company of America.
(ad) Sixth Amendment to the lease agreement dated May 2, 1995, between
the Registrant and LAFP-SF, Inc., successors in interest to The
Prudential Insurance Company of America.
(ae) Seventh Amendment to the lease agreement dated May 2, 1995,
between the Registrant and LAFP-SF, Inc., successors in interest
to The Prudential Insurance Company of America.
22
<PAGE>
(af) Eighth Amendment to the lease agreement dated May 2, 1995,
between the Registrant and LAFP-SF, Inc., successors in interest
to The Prudential Insurance Company of America.
(ag) Ninth Amendment to the lease agreement dated May 2, 1995, between
the Registrant and LAFP-SF, Inc., successors in interest to The
Prudential Insurance Company of America.
(ah) Tenth Amendment to the lease agreement dated May 2, 1995, between
the Registrant and LAFP-SF, Inc., successors in interest to The
Prudential Insurance Company of America.
(ai) 1997 Revolving Credit Agreement dated February 26, 1997, between
the Registrant and a group of banks.
(aj) First Amendment to the 1997 Revolving Credit Agreement dated
February 26, 1997, between the Registrant and a group of banks.
(ak) Second Amendment to the 1997 Revolving Credit Agreement dated
February 26, 1997, between the Registrant and a group of banks.
(al) 1997 Term Credit Agreement dated February 26, 1997 between the
Registrant and a group of banks.
(am) 1997 Security Agreement dated February 26, 1997 between the
Registrant and a group of banks.
(an) Sixth Amendment to Non-Employee Directors Stock Option Plan.
(ao) Seventh Amendment to Non-Employee Directors Stock Option Plan.
(These documents are included as exhibits to the Registrant's Annual
Report on Form 10-K as filed March 30, 1998).
(ap) Asset Purchase Agreement dated February 5, 1998 between the
Registrant and Market Information of Colorado, Inc.
(aq) Asset Purchase Agreement dated March 3, 1998 between the
Registrant, CDS Group, Inc. and Tim Huggins.
(ar) Stock Acquisition Agreement dated March 30, 1998 among the
Registrant, Stephen P. Kavouras 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.
(as) Stock Purchase Agreement dated March 30, 1998 among the
Registrant, Stephen P. Kavouras 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.
(at) License Agreement dated April 6, 1998 between Kavouras, Inc. and
Earthwatch Communications, Inc.
(au) Option Agreement dated April 6, 1998 between Kavouras, Inc. and
Earthwatch Communications, Inc.
23
<PAGE>
(av) Asset Purchase Agreement dated April 23, 1998 between the
Registrant and SmartServ Online.
(aw) Stock Purchase Agreement dated May 27, 1998 between the
Registrant and Donald W. Bowles, Excel Interfinancial
Corporation, Charter Financial Holdings, LLC, Steven L. Reynolds,
and Douglas Vanderbilt.
(ax) Purchase Agreement dated October 14, 1998 between the Registrant,
Asset Growth Corporation, Marcia C. Kennedy and Scott L. Brown.
(ay) Agreement and Plan of Merger dated November 12, 1998 between the
Registrant, Weather Services Corporation and ABRY Broadcast
Partners II, L.P.
(az) Issue of Common Stock Purchase Warrant dated December 11, 1998 to
Peter R. Leavitt, pursuant to the Agreement and Plan of Merger
dated as of November 12, 1998 between the Registrant, Merger Sub,
WSC, and ABRY.
(ba) Issue of Common Stock Purchase Warrant dated December 11, 1998 to
ABRY Broadcast Partners II, LP pursuant to the Agreement and Plan
of Merger dated as of November 12, 1998 between the Registrant
Merger Sub, WSC, and ABRY.
(bb) Amendment dated January 12, 1999 to Stock Purchase Agreement
dated May 27, 1998 between the Registrant and Donald W. Bowles,
Excel Interfinancial Corporation, Charter Financial Holdings,
LLC, Steven L. Reynolds, and Douglas Vanderbilt.
(bc) Letter of Intent dated January 26, 1999 to merge wholly owned
subsidiary of the Registrant with SmartServ Online, Inc.
(bd) Consent to Prepayment of Subordinated Debt dated March 16, 1998
between Registrant and a group of banks.
(be) Third Amendment to the 1997 Revolving Credit Agreement dated
February 26, 1997 between the Registrant and a group of banks.
(bf) Fourth Amendment to the 1997 Revolving Credit Agreement dated
February 26, 1997 between the Registrant and a group of banks.
(bg) Fifth Amendment to the 1997 Revolving Credit Agreement dated
February 26, 1997 between the Registrant and a group of banks.
(bh) First Amendment to the 1997 Term Credit Agreement dated February
26, 1997 between the Registrant and a group of banks.
(bi) Second Amendment to the 1997 Term Credit Agreement dated February
26, 1997 between the Registrant and a group of banks.
(bj) First Amendment to the 1997 Security Agreement dated February 26,
1997 between the Registrant and a group of banks.
(bk) 1998 Revolving Credit Agreement dated December 7, 1998 between
the Registrant and a group of banks.
24
<PAGE>
(bl) First Amendment to the 1998 Revolving Credit Agreement dated
December 7, 1998 between the Registrant and a group of banks.
(bm) 1998 Term Credit Agreement dated December 7, 1998 between the
Registrant and a group of banks.
(bn) 1998 Security Agreement dated December 7, 1998 between the
Registrant and a group of banks.
(bo) Subsidiary Security Agreement dated June 1, 1998 between National
Datamax, Inc. and a group of banks.
(bp) Subsidiary Security Agreement dated July 1, 1998 between
Kavouras, Inc. and a group of banks.
(12) Not applicable.
(13) Registrant's 1998 Annual Report to Stockholders.
(This document is hereby incorporated by reference.)
(16) None.
(18) None.
(21) Subsidiaries.
(22) None.
(23) Consent of Deloitte & Touche LLP.
(24) None.
(27) Financial Data Schedule.
(28) None.
(99) Proxy Statement for the Annual Meeting of Stockholders of the
Registrant to be held April 28, 1999. (This document is hereby
incorporated by reference.)
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Data Transmission Network Corporation,
a Delaware Corporation
By: /s/ Roger R. Brodersen
Roger R. Brodersen
Chief Executive Officer
Dated March 23, 1999.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Roger R. Brodersen March 23, 1999
-----------------------------------
Roger R. Brodersen, Chairman of the
Board, Chief Executive Officer
and Director
By: /s/ Greg T. Sloma March 23, 1999
-----------------------------------
Greg T. Sloma, President and
Chief Operating Officer
and Director
By: /s/ Roger W. Wallace March 23, 1999
-----------------------------------
Roger W. Wallace, Senior Vice
President, President-Ag Services
Division and Director
By: /s/ Scott A. Fleck March 23, 1999
-----------------------------------
Scott A. Fleck, VP and Director of
Engineering
By: /s/ Brian L. Larson March 23, 1999
-----------------------------------
Brian L. Larson, Vice President,
Chief Financial Officer, and
Secretary
By: /s/ David K. Karnes March 23, 1999
-----------------------------------
David K. Karnes, Director
By: /s/ J. Michael Parks March 23, 1999
-----------------------------------
J. Michael Parks, Director
By: /s/ Jay E. Ricks March 23, 1999
-----------------------------------
Jay E. Ricks, Director
By: /s/ Peter H. Kamin March 23, 1999
-----------------------------------
Peter H. Kamin, Director
</TABLE>
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Data Transmission Network Corporation
Omaha, Nebraska
We have audited the considered financial statements of Data Transmission
Network Corporation as of December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998 and have issued our report thereon
dated February 12, 1999; such financial statements and report are included in
the 1998 Annual Report to Stockholders and are incorporated herein by reference.
Our audits also included the financial statement schedule of Data Transmission
Network Corporation, listed in Item 14(a)2. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 12, 1999
27
<PAGE>
Schedule II
DATA TRANSMISSION NETWORK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Charged to Other End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------- ----------- ---------- ---------- ---------- -----------
Allowance for doubtful
accounts:
<S> <C> <C> <C> <C>
Year ended December 31, 1998: $810,000 $1,294,000 - $804,000 $1,300,000
Year ended December 31, 1997: $520,000 $ 842,000 - $552,000 $ 810,000
Year ended December 31, 1996: $300,000 $ 672,000 - $452,000 $ 520,000
</TABLE>
28
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made 5th day of
February, 1998 between Data Transmission Network Corporation, a Delaware
corporation ("DTN"), located at 9110 West Dodge Road, Suite 200, Omaha, Nebraska
68114, and Market Information of Colorado, Inc. ("MIC"), a Colorado corporation
located at 12445 E. 39th Ave., Suite 305, Denver, CO 80439.
RECITALS
A. DTN is the owner and operator of an electronic information system
using satellite data terminals (the "System") which continuously transmits
information to DTN's subscribers ("DTN Subscribers"). DTN provides various
information services (the "Services"), including a real time commodity service
(DTNstant), to DTN Subscribers over the System.
B. MIC is engaged in the business of sales, installation, and service
of systems which provide stock, commodities, and financial data using Trade
Station, Ensign and Market Center software to subscribers. Those subscribers
using Ensign and Market Center software ("MIC Subscribers") shall be included in
this Agreement.
C. MIC owns certain equipment such as data receivers, Ku satellite
receivers, LNBs cable, and satellite dishes. Some of this equipment may be used
by DTN in providing information to DTN Subscribers on the System. Other
equipment may be provided by DTN to replace MIC equipment for MIC Subscribers'
conversion to the Services.
D. MIC desires for DTN to make the Services available to the MIC
Subscribers and MIC is willing to promote DTN's Services as provided in this
Agreement. DTN desires to provide its Services to the MIC Subscribers who
contract to receive such Services.
E. DTN, at its option, desires to purchase certain of MIC's equipment
used by it in transmitting information to MIC Subscribers, and DTN is willing to
purchase such equipment pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the aforementioned recitals and the
covenants and conditions herein contained, the parties hereto agree as follows:
1. Sale and Purchase. DTN agrees to purchase from MIC, and MIC agrees
to sell to DTN the equipment and accessories now owned by MIC and currently
being used by the MIC Subscribers to receive MIC's information service. MIC
represents that there are approximately 100 Terminals installed with
approximately 70 MIC Subscribers. Such equipment and accessories may include a
data receiver, Ku satellite receiver, LNB, cable, and satellite dish. A
"Terminal" is defined as an independent location with hardware and software for
individual viewing of data displayed by either the Ensign/Vista or Market
Center, but not Trade Station, software. For purposes of this Agreement, the
term "Converted Subscribers" shall mean those MIC Subscribers who convert to and
become DTN Subscribes during the Transition Period upon the terms set forth in
this Agreement, including the minimum requirement of a 1-year subscription term.
The Units used by Converted Subscribers which are to be sold to DTN are
collectively referred to in this Agreement as the "Converted Subscriber Units".
For purposes of this Agreement, the term "Transition Period" shall mean prior to
1
- 29 -
<PAGE>
July 1, 1998, although the final day for MIC Subscribers to receive data from
the current MIC source is March 31, 1998. Units shall not include any equipment
of MIC Terminals not converted. For purposes of this Agreement, all Converted
Subscriber Terminals and Units shall be referred to in the aggregate as the
"Purchased Equipment".
2. Payments. In consideration for the Purchased Equipment and for the
services to be performed by MIC pursuant to this Agreement, DTN agrees to pay
MIC, and MIC agrees to accept from DTN as payment in full, $1330 per Terminal
for real time Subscribers as (1) listed in Exhibit A; and (2) Terminals from
Subscribers with Trade Station software but agreeing to convert during the
Transition Period and $865 per Terminal for delayed Subscribers. DTN shall have
no obligation to pay MIC for Subscribers who convert to and become DTN
Subscribers who are not listed in Exhibit A or are listed in Exhibit A and are
leasing their computer from MIC but do not wish to convert because they do not
want to purchase their own computer. MIC shall be responsible for any sales or
related taxes which may occur as a result of the payments made to MIC under this
Agreement. DTN shall remit payment to MIC consisting of 2/3 of total as of the
Date of the Agreement, 1/6 of total on April 16, 1998 and the remainder on June
30, 1998. MIC may add terminals to Exhibit A in their ordinary course of
business until March 31, 1998.
3. Conversion. For purposes of this Agreement the Conversion Period
will be the period of time from the date of this Agreement until April 15, 1998.
MIC and DTN shall share the responsibility for obtaining the DTN subscription
agreement signed by the MIC Subscriber for the Terminal(s) that will operate the
DTN Service. An MIC Subscriber will not be considered as a Converted Terminal
until the subscription agreement is accepted by DTN in Omaha, Nebraska.
Conversion Agents, who will be responsible for converting the MIC Subscribers,
will install a DTN ACE Databox configured to receive the DTN Service and
determine whether any existing equipment can be utilized. MIC will be
responsible for the cost of retrieving any equipment that is not utilized. MIC
and DTN will share the expenses incurred by two of the Conversion Agents,
Leonard Kotta and John Salewske, during this Conversion period. DTN shall be
responsible for providing other Conversion Agents required to complete the
conversion of the MIC Subscribers which will include entering into a separate
agreement with Spectrum Communications, as independent contractor, to retain
their services during this Conversion period.
4. Transition. DTN shall be responsible for installing the DTN
equipment for the Converted Subscriber Terminals and providing the necessary
assistance and support to assure MIC Subscribers a smooth conversion to the
System. DTN will be responsible for training these new DTN Subscribers on how to
use the DTN equipment. Under a separate agreement, DTN shall retain Spectrum
Communications as an independent contractor through December 31, 1998 to provide
continuous support services for the Converted Subscribers. DTN will begin
billing for its service on the first of the month following installation of the
services.
5. Term. The term of this Agreement shall be until June 30, 1998.
6. Promotion. During the term of this Agreement, MIC agrees to
encourage MIC Subscribers to use DTN's services, to promote to MIC Subscribers
the DTN services provided on the System, and to be available for occasional
phone-call assistance to DTN and Spectrum Communications during the Transition
Period. MIC agrees to cooperate with DTN to market DTN's services to MIC
2
- 30 -
<PAGE>
Subscribers; provided, however, MIC shall not be required to incur out-of-pocket
costs for such marketing, except as specifically below:
During the Conversion Period, MIC shall solicit (via telephone call,
written correspondence, or face to face meeting) each MIC Subscriber to
enter into DTN's standard form of subscription agreement for the DTN
Service on the System for at least a 12 month subscription term. MIC
agrees at its expense to send during the Conversion Period to each MIC
Subscriber a letter recommending DTN's Services to such MIC Subscriber,
which letter is to be accompanied by promotional materials furnished by
DTN. Such letter shall be in a form satisfactory to both DTN and MIC.
7. Bill of Sale. Concurrently with payment by DTN to MIC as specified
in paragraph 2 above, MIC agrees to sell, transfer, assign and convey to DTN the
Purchased Equipment by duly executed warranty bill of sale and assignment, free
and clear of all liens, encumbrances, security interests, leasehold interest,
actions, claims, and equities of any kind whatsoever. MIC agrees to take such
actions from time to time as may in the reasonable judgment of DTN to be
necessary or advisable to confirm the title of DTN to any of the items of
personal property acquired by DTN from MIC pursuant to this Agreement. DTN shall
be entitled to possession of the Purchased Equipment upon the payment to MIC for
such equipment.
8. Bulk Sales Transfer. If applicable, DTN waives compliance by MIC
with the Bulk Sales provisions of the Uniform Commercial Code or any equivalent
statute, and MIC agrees to indemnify DTN and to hold DTN harmless from any loss
or expense arising by reason of such non-compliance.
9. Representations of MIC. MIC warrants, represents and convenants to
and with DTN that MIC is the sole and lawful owner and has good and merchantable
title to all of the Purchased Equipment to be acquired by DTN pursuant to this
Agreement and that, upon the transfer and assignment of such property to DTN by
warranty bill of sale and assignment as hereinbefore mentioned, DTN will acquire
good and merchantable title thereto, free and clear of interests, leasehold
interests, and claims of any kind whatsoever. MIC further warrants, represents
and convenants to and with DTN that the Purchased Equipment, when it is received
by DTN, will be in the same condition as it was when located at the MIC
Subscriber sites and, otherwise, DTN accepts the Purchased Equipment in its
present condition. The representations, warranties, and convenants contained in
this Agreement shall survive the date of this Agreement and shall be binding
upon the parties hereto and their successors and assigns until four (4) days
following receipt by DTN of the equipment.
10. Indemnification. Each party hereto agrees to indemnify and hold
harmless the other part, its officers, directors, employees, and agents from and
against any and all claims, demands, liability, loss, cost, damage, penalty or
expense, including attorney's fees and costs of settlement, resulting from or
arising out of the failure of the indemnifying party to observe any covenant or
condition set forth in this Agreement, and the inaccuracy of any representations
made by the indemnifying party in this Agreement.
11. Covenant Not to Compete. After the Conversion Period, MIC and its
owners shall not, directly or indirectly, whether as an agent, consultant,
independent contractor, owner, partner or otherwise:
3
- 31 -
<PAGE>
a) Solicit for itself or others, or advise or recommend to any
other person that such person solicit, any customer or
prospective customer of DTN or any current or future subscriber
of MIC, for the purpose of obtaining the business of such
customer or subscriber, in competition with DTN; or
b) Offer, transmit, facilitate or promote the distribution or
transmission to MIC subscribers of information services in
competition with DTN.
The phrase "in conjunction with DTN" shall mean any business that distributes or
transmits via any electronic information system the same or similar type of
information as is currently offered by MIC.
The convenants contained in this paragraph are independent of one
another and are severable. In the event any part of the covenants set forth in
this Section shall be held to be invalid or unenforceable, the remaining parts
thereof will continue to be valid and enforceable. MIC acknowledges that the
restrictions contained in this paragraph are reasonable and necessary to protect
the goodwill of that portion of the business of MIC being acquired by DTN
hereunder.
12. Severability. In the event that one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any of the other provisions contained in this Agreement, which
provisions shall remain in full force and effect.
13. Relationship of Parties. Nothing contained in this Agreement shall
be deemed or construed to create the relationship of principal and agent or of
partnership, joint venture, or any association whatsoever between the parties,
it being expressly understood and agreed that each party shall be an independent
contractor with respect to the other party in connection with the work performed
hereunder. Except as otherwise provided in this Agreement, each party shall bear
its own expenses with respect to the subject matter of this Agreement.
14. Notices. Any and all written notices, communications or payments
shall be made to the respective parties as follows or at such other address as
the party may indicate in a written notice to the other party of this Agreement:
DTN 9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
Market Information POB 4400, 22 Shoshone Lane
Frisco, Colorado 80443
15. Choice of Law. This Agreement shall be subject to and interpreted
in accordance with the laws of the State of Nebraska.
16. Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto in separate counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
4
- 32 -
<PAGE>
17. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, legal
representatives, and assigns; provided, however, that the rights, duties, and
privileges of MIC hereunder may not be assigned or otherwise transferred by it,
in whole or in part, without the prior written consent of DTN which may be
withheld for any reason.
18. Entire Agreement. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement and shall supersede all prior offers, negotiations, and agreements
with respect to such subject matter. Any provision of any party's invoices,
statements, orders, acknowledgments, or other forms which is inconsistent with
or in addition to the provisions of this Agreement shall be of no force or
effect unless specifically consented to in writing by the party to be charged.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DATA TRANSMISSION NETWORK CORPORATION.
a Delaware corporation
By:/s/ Jim Payne
---------------------------------
Jim Payne, Vice President
MARKET INFORMATION OF COLORADO, INC.,
a Colorado corporation
By:/s/ Don Sather
---------------------------------
Don Sather, Vice President
5
- 33 -
<PAGE>
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS, that Market Information of
Colorado, Inc. (Seller), a Colorado corporation, in consideration of One Hundred
and Thirty-Three Thousand Two Hundred and Five Dollars ($133,205.00), to MIC, in
hand paid and with further promise to pay by Data Transmission Network
Corporation (Buyer), a Delaware corporation, the receipt whereof is hereby
acknowledged, has bargained and sold, and by these presents does grant, assign
and transfer to Buyer all equipment as listed on the Exhibit A hereto attached.
TO HAVE AND TO HOLD the same unto the said Buyer forever, the said
Seller covenants and agrees to and with the Buyer, to WARRANT AND DEFEND the
sale of said property, goods and chattels, against all and every person or
persons whomever.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed
by its Vice President thereunto duly authorized on this 5th day of February,
1998, at Minneapolis, Minnesota.
Market Information of Colorado, Inc.
By:/s/ Don Sather
-------------------------------
Don Sather, Vice President
6
- 34 -
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into this 3rd day of
March, 1998, by and among CDS Group, Inc., a Tennessee corporation ("Seller"),
Data Transmission Network Corporation, a Delaware corporation ("Buyer"), and Tim
Huggins, an individual (the "Stockholder").
RECITALS:
A. Seller is engaged in the business of selling computer hardware, selling
and licensing computer software, and supporting such hardware and software
through hardware maintenance contracts and software support contracts (the
"Business").
B. Seller desires to sell substantially all of the assets used by it in the
conduct of the Business with respect to those customers receiving any portion of
Seller's services related to the cotton industry (the "Cotton Customers"), and
Buyer desires to acquire such assets.
C. Stockholder, as the owner of all of the issued and outstanding stock of
Seller, joins in this Agreement to confirm certain representations, warranties
and agreements of Seller herein and to indemnify Buyer in connection with
certain matters.
In consideration of the mutual covenants and agreements set forth herein,
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, Seller, Stockholder and Buyer, intending to be
legally bound, agree as follows:
1. Purchase and Sale. Buyer agrees to purchase from Seller, and Seller
agrees to sell to Buyer, the following assets of the Business (except the
Excluded Assets as defined at the end of this Paragraph 1), to-wit:
(a) All of Seller's motor vehicles, equipment, inventory, supplies,
furniture, trade fixtures, leasehold improvements, tools, promotional
materials, and other tangible personal property used in the conduct of
the Business, including but not limited to the items listed on
Schedule 1 attached hereto and incorporated herein by this reference;
(b) All of Seller's intangible property used in the Business to the extent
assignable, including but not limited to rights, privileges, benefits
and interests under all contracts, agreements, consents and licenses;
computer software used or useful in the Business (including but not
limited to the software listed on Schedule 1 attached hereto); permits
or certificates of occupancy; agreements, leases and arrangements with
respect to intangible or tangible property or interests therein;
agreements with suppliers and the Cotton Customers; and Seller's
rights in and to the trade name "Cotton Data Systems";
1
- 35 -
<PAGE>
(c) All of Seller's accounts receivable, prepaid items, and unbilled costs
and fees arising from or with respect to the Cotton Customers,
including, without limitation, the accounts receivable and unbilled
costs and fees generated from Seller's general accounting software
services to the Cotton Customers, but excluding those items generated
from Seller's customers who are not the Cotton Customers;
(d) All of Seller's information, files, records, data, plans, and recorded
knowledge, including customer and supplier lists, related to the
Business and similar or related data, but excluding those items
related exclusively to Seller's customers other than the Cotton
Customers; and
(e) All of Seller's goodwill pertaining to or arising out of the Business.
The term "Excluded Assets" means (i) Seller's cash and cash equivalents, in hand
or in bank accounts, and all securities of Seller, (ii) Seller's computer
software furnished exclusively to customers other than the Cotton Customers,
(iii) contracts with customers other than the Cotton Customers, (iv) any records
not relating to the Business and all corporate, accounting and tax records
relating to the Business, and (v) Seller's rights under this Agreement.
2. Purchase Price. Buyer agrees to pay, and Seller agrees to accept, as the
entire aggregate purchase price for the assets of Seller being acquired by Buyer
pursuant to Paragraph 1, the lesser of (i) the aggregate amount of Seller's
unpaid liabilities described on Schedule 2 attached hereto or (ii) the sum of
$250,000 (hereinafter referred to as the "Purchase Price"). The Purchase Price
may be paid by Buyer to Seller or, at the sole discretion of Buyer, directly to
the creditors of Seller in amounts not to exceed Seller's liabilities to such
creditors as designated by Seller. The Purchase Price shall be paid upon the
execution of this Agreement, except for that portion of the Purchase Price
related to unsecured creditors as set forth on Schedule 2, which shall be paid
in compliance with the Tennessee Uniform Commercial Code Bulk Transfers Act.
3. Assumption of Liabilities. Buyer shall assume, agree to perform, and
discharge when due only those obligations of Seller arising out of the
contracts, leases and agreements listed on Schedules 7(j) and 7(k) with respect
to the period from and after the date of this Agreement (the Assumed
Liabilities"). Seller and Buyer agree that, other than the Assumed Liabilities,
Buyer does not agree to assume and shall have no responsibility for any of the
debts, obligations or liabilities of Seller (the "Excluded Liabilities"), all of
which shall remain the sole responsibility of and shall be paid and discharged
by Seller as they become due. The Excluded Liabilities include without
limitation all of the following:
(a) Any tax liability or tax obligation of Seller, its directors,
officers, shareholders and agents which has been or may be asserted by
any taxing authority, including without limitation any such liability
or obligation arising out of or in connection with this Agreement or
the transactions contemplated hereby.
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<PAGE>
(b) Any liability or obligation of Seller whether incurred prior to, at or
subsequent to the date of this Agreement for any amounts due or which
may become due to any person or entity who is or has been a holder of
any debt or equity security of Seller.
(c) Any trade account payable or note payable of Seller or any contract
obligation of Seller (other than the Assumed Liabilities) whether
incurred prior to, at or subsequent to the date of this Agreement.
(d) Any liability or obligation arising out of any litigation, suit,
proceeding, action, claim or investigation, at law or in equity or in
arbitration, related to Seller's operation of the Business prior to
the date of this Agreement.
(e) Any claim, liability or obligation, known or unknown, contingent or
otherwise, the existence of which is a breach of, or inconsistent
with, any representation, warranty or covenant of Seller set forth in
this Agreement.
(f) Any liability or obligation specifically stated in this Agreement or
the Schedules hereto as not to be assumed by Buyer.
4. Transfer Documents. Concurrently with the execution of this Agreement,
Seller shall sell, transfer, assign, convey, and deliver to Buyer the assets
referred to in Paragraph 1 by duly executed titles, warranty bill of sale and
assignment, and other good and sufficient instruments of sale, assignment,
conveyance and transfer as shall be required to effectively vest in Buyer all of
Seller's right, title, and interest in and to such assets, free and clear of all
liens, encumbrances, security interests, actions, claims and equities of any
kind whatsoever. Seller agrees to take such actions as may be necessary to make
available for use by Buyer in Tennessee the trade name "Cotton Data Systems.
Buyer shall be entitled to possession of such assets upon the execution of this
Agreement.
5. Additional Documents. Concurrently with the execution of this Agreement,
Seller shall cause its legal counsel to execute and deliver to Buyer the opinion
of such counsel in the form of Exhibit "A" hereto. Concurrently with the
execution of this Agreement, Seller and Buyer shall enter into a lease of the
premises used by Seller in the conduct of the Business (plus additional space as
described therein) in the form of Exhibit 2 hereto.
6. Obligations to Employees. Seller agrees that it shall be responsible for
any obligations to any of its employees which heretofore may have arisen or
hereafter may arise by reason of any services rendered by such employees,
including but not limited to salaries, bonuses, vacation pay, retirement
benefits, and other fringe benefits; and Seller hereby agrees to pay all of such
obligations directly to the employees involved when due. Seller agrees timely to
pay all payroll tax, withholding, and unemployment compensation payments
required to be made with respect to the compensation of such employees and to
hold Buyer harmless therefrom. Seller shall furnish to Buyer such evidence of
Seller's compliance with the provisions of this paragraph as Buyer reasonably
may request from time to time.
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<PAGE>
7. Representations and Warranties. Seller and the Stockholder jointly and
severally warrant, represent and covenant to and with Buyer:
(a) That Seller has full right and lawful authority to enter into this
Agreement and to sell the items of personal property to be acquired by
Buyer pursuant to this Agreement; that Seller's performance of its
obligations under this Agreement will not violate any agreement,
document, trust (constructive or otherwise), order, judgment or decree
to which Seller is a party or by which it is bound; and that, upon the
transfer and assignment of such property to Buyer as hereinbefore
mentioned, Buyer will acquire good and merchantable title thereto,
free and clear of any liens, encumbrances, security interests,
actions, claims, and equities of any kind whatsoever.
(b) That Seller is the sole and lawful owner of and has good and
marketable title to all of the items of personal property to be
acquired by Buyer pursuant to this Agreement, free and clear of any
liens, encumbrances, security interests, actions, claims, and equities
of any kind whatsoever.
(c) All material items of tangible personal property to be acquired by
Buyer pursuant to this Agreement are in good operating condition,
subject to normal wear.
(d) That there are no suits, arbitrations or other legal or governmental
proceedings pending or threatened against Seller which might
conceivably affect the title to the items of personal property to be
acquired by Buyer pursuant to this Agreement.
(e) That Seller has duly and timely filed all federal, state, and local
tax returns of every kind whatsoever required to be filed on or before
the date of this Agreement and has paid in full the tax liability
shown on such returns; that no unpaid deficiencies are in existence
which have been asserted against Seller by any official or agency as a
result of the filing of such returns; and that, to the knowledge of
Seller, there is not now pending any examination with respect to any
such returns nor does Seller know of any impending examination with
respect to any such returns.
(f) That promptly after the date of this Agreement Seller shall pay all
sales and use taxes imposed on or collectible by Seller and shall
furnish to Buyer evidence that all of Seller's sales and use taxes
have been paid.
(g) The property to be acquired by Buyer pursuant to this Agreement
includes all rights and property necessary to the conduct of the
Business by Buyer in the manner it is presently conducted by Seller
and no property excluded from Paragraph 1 hereof constitutes property
or rights material to the Business.
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<PAGE>
(h) There is no fact, development, or threatened development with respect
to the markets, products, customers, vendors, suppliers, operations,
assets or prospects of the Business which are known to Seller which
would materially adversely affect the business, operations or
prospects of the Business considered as a whole, other than such
conditions as may affect as a whole the economy generally.
(i) The financial statements of Seller for the year ended December 31,
1997, furnished to Buyer fairly and accurately represent the financial
operations of the Business for such year.
(j) That Seller has listed on Schedule 7(j) all of Seller's contracts
(oral or written) with the Cotton Customers and suppliers of the
Business; Seller has no other contracts (oral or written) with the
Cotton Customers or suppliers of the Business. Seller has delivered to
Buyer true, correct and complete copies of all written contracts
relating to the Business (other than those related exclusively to
customers other than the Cotton Customers), and written summaries of
the terms of all oral contracts relating to the Business (other than
those related exclusively to customers other than the Cotton
Customers), and all of such contracts are presently in full force and
effect and are assignable to Buyer. Seller has not received any
notices from any of the Cotton Customers or suppliers of the Business
that indicate that they intend to terminate any of such contracts and,
except as reflected in the copies delivered to Buyer or on Schedule
7(j), such contracts have not been amended and Seller and the other
parties to such contracts are not in default in any material respect
under such contracts. Seller has not been apprised and does not
currently believe or have reason to believe that any of the Cotton
Customers plan to cancel or reduce the volume under any of their
contracts.
(k) That Schedule 7(k) contains a complete list of all of Seller's
contracts (oral and written) relating to the Business (other than
those related exclusively to customers other than the Cotton
Customers), if any, other than the contracts with customers and
suppliers listed on Schedule 7(j). Seller has delivered to Buyer true,
correct and complete copies of all such other written contracts
relating to the Business and written summaries of the terms of all
such other oral contracts relating to the Business, and all of such
contracts are presently in full force and effect and are assignable,
and, except as reflected in the copies delivered to Buyer or on
Schedule 7(k), such contracts have not been amended and Seller and the
other parties to such contracts are not in default in any material
respect under such contracts.
8. Indemnification. Seller and the Stockholder jointly and severally agree
to indemnify Buyer and to hold Buyer harmless from any and all loss, damage,
cost, or expense incurred or sustained by Buyer by reason of the failure of any
warranty or representation contained in this Agreement to be true or as a result
of Seller's failure to abide by any covenant or agreement on its part contained
in this Agreement.
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9. Bulk Sales. Seller has taken any and all actions required under the bulk
transfer laws of the State of Tennessee with respect to the transactions
contemplated by this Agreement and will satisfy on or before the date of this
Agreement (or make arrangements satisfactory to Buyer in its sole discretion to
satisfy) all creditor claims, excluding Assumed Liabilities.
10. Survival. The representations, warranties, and covenants on the part of
Seller and/or the Stockholder contained in this Agreement shall survive the
closing of this Agreement and shall be binding upon Seller and the Stockholder
and their heirs, legal representatives, successors and assigns.
11. Payment of Liabilities. Seller agrees to pay as promptly as possible
any and all liabilities of Seller existing on the date of this Agreement and to
hold Buyer harmless therefrom. Buyer and Seller agree that Buyer is not assuming
and shall have no responsibility for any of the debts, obligations, or
liabilities of Seller, including but not limited to any liabilities or
obligations of Seller (whether fixed, absolute, contingent, known, unknown,
direct, indirect, or otherwise) whether incurred or accrued before or after the
date of this Agreement, which in any way relate to the performance or
non-performance of, or any other liability or obligation relating to any service
or product furnished or sold by Seller prior to or after the date of this
Agreement, and Seller hereby agrees to hold Buyer harmless from any cost or
expense arising out of or relating to any such debts, obligations, or
liabilities; provided, however, such indemnification by Seller does not extend
to any Assumed Liabilities.
12. Transfer Taxes. Seller shall pay all sales and other similar taxes
imposed on or collectible by Seller or Buyer by reason of the transfer of the
property being acquired by Buyer pursuant to this Agreement.
13. Noncompete. For a period of three (3) years after the date of this
Agreement, Seller and the Stockholder and their affiliates shall not, directly
or indirectly, whether as a shareholder, partner or investor possessing any
ownership interest, or as principal, agent, employee, proprietor, independent
contractor, consultant or in any other capacity:
(a) Solicit for itself or others, or advise or recommend to any other
person that such person solicit, any of the Cotton Customers for the
purpose of competing with Buyer in the Business.
(b) Offer, sell, license, lease, facilitate or promote the use of any
computer software or related services in competition with Buyer in
that portion of the Business serving the cotton industry anywhere
within those territories in the United States of America in which
Seller was conducting the Business on the date of this Agreement.
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If any court having jurisdiction at any time hereafter shall hold any of such
restrictive covenants to be unenforceable or unreasonable as to its scope,
territory, or period of time, and such court in its judgment or decree shall
declare or determine the scope, territory, or period of time which such court
deems to be reasonable, then such scope, territory or period of time, as the
case may be, shall be deemed automatically to have been reduced to that declared
or determined to be reasonable by such court. Notwithstanding the foregoing, if
any clause or provision of this paragraph shall be unenforceable, then such
clause or provision shall be deemed to be deleted from this paragraph, but every
other clause and provision shall continue in full force and effect. These
covenants are an integral part of the asset purchase transaction contemplated by
this Agreement and Buyer would not have entered into this Agreement in the
absence of such covenants. Seller and the Stockholder acknowledge that the
agreements contained in this paragraph are reasonable and necessary to protect
the Business being purchased by Buyer and that any breach thereof will result in
irreparable injury to Buyer for which Buyer has no adequate remedy at law.
Seller and the Stockholder therefore agree that, in the event either of them
breaches any of the agreements contained in this paragraph, Buyer shall be
authorized and entitled to seek from any court of competent jurisdiction (i) a
temporary restraining order, (ii) preliminary and permanent injunctive relief,
(iii) an equitable accounting of all profits or benefits arising out of such
breach, and (iv) direct, incidental, and consequential damages resulting from
such breach. Such rights or remedies shall be cumulative and in addition to all
other rights or remedies to which Buyer may be entitled.
14. Entire Agreement. This document constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be modified,
amended, or terminated except by a written agreement specifically referring to
this Agreement and signed by all of the parties hereto.
15. Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
16. Further Instruments. The parties hereto shall execute and deliver such
additional instruments and documents as may be reasonably requested by any of
them in order to carry out the purposes and intent of this Agreement and to
fulfill their respective obligations.
17. Further Actions. Seller agrees to take such actions from time to time
as may in the reasonable judgment of Buyer or its counsel be necessary or
advisable to confirm the title of Buyer to any of the items of property acquired
by Buyer from Seller pursuant to this Agreement.
18. Governing Law. This agreement shall be construed in accordance with the
laws of the State of Nebraska.
19. Severability. In the event that one or more of the provisions contained
in this Agreement shall for any reason be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any of the other provisions contained in this Agreement, which provisions shall
remain in full force and effect.
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<PAGE>
20. Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto in separate counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
21. Schedules and Exhibits. All references to Schedules and Exhibits
herein, unless otherwise stated, means the schedules and exhibits attached to
this Agreement which are hereby incorporated by reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
DATA TRANSMISSION NETWORK
CORPORATION, a Delaware corporation
By:/s/Jim Payne
------------------------------
Jim Payne, Vice President
CDS GROUP, INC., a Tennessee corporation
By:/s/ Tim Huggins
------------------------------
Tim Huggins, President
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<PAGE>
EXHIBIT "A"
[Insert form of opinion of Seller's counsel]
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<PAGE>
EXHIBIT "B"
[Insert form of lease]
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<PAGE>
SCHEDULE 1
List of Certain Assets
Tangible Personal Property
Computer Software
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<PAGE>
SCHEDULE 2
List of Seller's Unpaid Liabilities
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<PAGE>
SCHEDULE 7(j)
Contracts with Cotton Customers and Suppliers
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<PAGE>
SCHEDULE 7(k)
List of Other Contracts
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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
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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".
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
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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 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
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<PAGE>
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,
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
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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 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
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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
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;
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(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;
(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
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"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 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)
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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);
(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
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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
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.
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(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.
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
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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.
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
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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
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.
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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, 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;
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(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
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
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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.
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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
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.
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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.
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
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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.
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.
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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:
(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.
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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,
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
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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
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.
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(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
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).
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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
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,
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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
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
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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
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
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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 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.
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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
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
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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.
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.
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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.
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
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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.
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
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 ______________________________
Stephen P. Kavouras, Trustee
And ____________________________
Laura Burrow, Trustee
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EXHIBIT A
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of the _____ day of
____________, 1998, between KAVOURAS, INC. (the "Company"), a Minnesota
corporation, and STEPHEN P. KAVOURAS (the "Executive").
* * *
WHEREAS, the Company, a subsidiary of Data Transmission Network Corporation
("DTN"), desires to employ the Executive as its President and Chief Executive
Officer; and
WHEREAS, the Executive desires to accept such employment.
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. The Company hereby employs the Executive as its
President and Chief Executive Officer and agrees to cause the Executive during
the term of this agreement to be elected or appointed to such corporate offices
and as a director of the Company. The duties and responsibilities of the
Executive shall consist of the duties and responsibilities of the Executive's
corporate offices and positions which are set forth in the bylaws of the Company
from time to time and such other duties and responsibilities consistent with the
Executive's corporate offices and positions which the Board of Directors of the
Company may from time to time assign to the Executive. During the term of this
agreement, the Executive shall serve as a director of the Company without
additional compensation.
2. Term. The term of this agreement shall begin on the date of this
agreement and shall continue thereafter for a period of sixty (60) months,
unless terminated earlier in accordance with this agreement. The Executive shall
remain an employee at-will. Either the Executive or the Company may terminate
the employment relationship at any time, with or without any reason, subject to
the other provisions of this agreement. Each party shall provide the other party
with one hundred eighty (180) days advance written notice of his or its
intention to terminate this agreement, except in the event of the termination of
Executive's employment pursuant to any of the first three sentences of Section
11 of this agreement.
3. Place of Employment. During the term of this agreement, the Executive
will perform his duties at the Company's offices in Burnsville, Minnesota, and
he will not be required to relocate or transfer his principal residence during
the term of this agreement.
4. Compensation. The Company agrees to pay the Executive a signing bonus
(the "Signing Bonus") of Four Hundred Fifty Thousand Dollars ($450,000). The
Signing Bonus shall be paid in full on the date of this agreement, and is not
subject to forfeiture. In addition, the Company agrees to pay the Executive a
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base salary (the "Base Salary") of One Hundred Sixty Thousand Dollars ($160,000)
per year (it being understood, however, that Executive shall be eligible for
discretionary increases in such Base Salary in a manner similar to senior
executives of DTN). The Base Salary shall be paid in periodic installments in
accordance with the Company's regular payroll practices.
5. Annual Bonus. The Executive shall participate in the Company's annual
bonus plan in effect during the term of this agreement which will reward
targeted performance by the Executive in a manner similar to senior executives
under DTN's annual bonus plan in effect during the term of this agreement.
Without limiting the foregoing, if the goals by which the Executive's
performance is measured are reached for the first year of such plan, the annual
bonus would represent approximately 75% of the Executive's Base Salary.
6. Special Bonus. In addition to the Executive's Base Salary and any other
benefits to which the Executive is entitled under this agreement, the Executive
also shall be entitled to receive a bonus (the "Bonus") from the Company of
fifteen percent (15%) of the net proceeds, if any, received by the Company from
the sale, transfer or other disposition of the Class C Common Shares (or other
equity) issued or to be issued to the Company pursuant to that certain Master
Agreement dated October 15, 1997, between the Company and New Horizons
Telecasting, Inc. The Executive shall be eligible for the Bonus even if the
Executive is no longer an employee of the Company at the time of such sale,
provided that such eligibility shall terminate upon the fifth anniversary of the
termination of employment of the Executive (except if the Company terminates the
employment of the Executive without Cause, in which case such eligibility shall
terminate upon the later of such date and the tenth anniversary of the date of
this agreement. The Bonus shall be paid to the Executive promptly after the
proceeds of the sale, transfer or other disposition have been received by the
Company.
7. Expenses. During the term of this agreement, the Executive shall be
entitled to prompt reimbursement by the Company of all reasonable ordinary and
necessary travel, entertainment, and other expenses incurred by the Executive
(in accordance with the policies and procedures established by the Company for
its senior executive officers, which shall be similar to those for DTN's senior
executives) in the performance of his duties and responsibilities under this
agreement; provided, that the Executive shall properly account for such expenses
in accordance with Company policies and procedures.
8. Other Benefits. During the term of this agreement, the Executive shall
be entitled to all of the fringe benefits which are provided to employees of the
Company generally. During the term of this agreement, the Executive also shall
be entitled to participate in such other fringe benefits, benefit plans or
programs which the Company or DTN from time to time may make available either to
its employees generally or to its senior executive officers, such as but not
limited to the Data Transmission Network Corporation 401(k) plan.
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9. Vacations and Holidays. The Executive shall be entitled to paid
vacations and holidays in accordance with the Company's policies in effect from
time to time for its senior executive officers, which shall be similar to those
for DTN's senior executives.
10. Other Activities. The Executive shall devote substantially all of his
working time and efforts during the Company's normal business hours to the
business affairs of the Company and to the diligent and faithful performance of
the duties and responsibilities assigned to him pursuant to this agreement,
except for vacations and holidays. Despite the foregoing, the Executive shall be
free to invest his assets in such manner as will not require any substantial
services by the Executive in the conduct of the businesses or affairs of the
entities or in the management of the properties in which such investments are
made.
11. Termination. The Executive's employment under this agreement shall
terminate upon his death. If the Executive becomes incapable by reason of
physical injury, disease, or mental illness of substantially performing his
duties and responsibilities under this agreement for a period of six (6)
continuous months or more, then the Company may terminate the Executive's
employment under this agreement. The Company also may terminate the Executive's
employment under this agreement for Cause; however, for purposes of this
agreement, "Cause" shall mean only (i) confession or conviction of theft, fraud,
embezzlement, or any other crime involving dishonesty with respect to the
Company or any parent, subsidiary, or affiliate of the Company, (ii) material
violation of the provisions of any confidentiality agreement or non-competition
agreement in force between the Company or DTN and the Executive, (iii) habitual
and material negligence by the Executive in the performance of his duties under
or pursuant to this agreement, (iv) material non-compliance by the Executive
with his obligations under Section 10 (after having received written notice
thereof and a right to cure) or (v) failure of the Executive to abide by the
lawful directives of the Board of Directors of the Company that are not
inconsistent with the terms of this Agreement. In the event of the termination
of the Executive's employment pursuant to any of the first three sentences of
this Section 11 or if the Executive voluntarily terminates employment with the
Company, the Executive (or, in the event of the Executive's death, his estate)
shall be entitled to retain the entire Signing Bonus and that portion of the
Base Salary earned by the Executive up to the effective date of such
termination, provided that during any period when the Executive is incapable by
reason of physical injury, disease, or mental illness of substantially
performing his duties and responsibilities under this agreement, the Company may
subtract from such Base Salary the amount of any payments which the Executive
receives from Company-sponsored disability insurance as a reimbursement for lost
earnings or wages relating to such period.
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12. Termination Without Cause. If the Company terminates the employment of
the Executive for any reason other than those referred to in Section 11, the
Company shall pay the Executive, upon the effective date of such termination,
the then current present value of all remaining payments of Base Salary that
would have been paid hereunder but for such termination, less applicable
employee tax withholdings and deductions. For purposes of the foregoing present
value determination, a discount rate equal to the prime rate on corporate loans
at large U.S. money center commercial banks as quoted in the "Money Rates"
column of the Wall Street Journal on such effective date shall be used. Except
as provided in Sections 11 and 12 of this agreement, the Executive shall not
receive any additional severance pay upon his termination of employment,
regardless of the Company's severance policy for its employees generally.
13. Successors and Assigns. This agreement and all rights under this
agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors,
and assigns. This agreement is personal in nature, and neither of the parties to
this agreement shall, without the written consent of the other, assign or
transfer this agreement or any right or obligation under this agreement to any
other person or entity.
14. Notices. For purposes of this agreement, notices and other
communications provided for in this agreement shall be deemed to be properly
given if delivered personally or sent by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Stephen P. Kavouras
11400 Rupp Drive
Burnsville, MN 55337
If to the Company: Data Transmission Network Corporation
9110 West Dodge Road, Suite 200
Omaha, NE 68114
Attn: Greg T. Sloma, President
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt.
15. Miscellaneous. No provision of this agreement may be modified, waived,
or discharged unless such waiver, modification, or discharge is agreed to in
writing and is signed by the Executive and an officer of the Company (other than
the Executive) so authorized by the Board of Directors of the Company. No waiver
by either party to this agreement at any time of any breach by the other party
of, or compliance by the other party with, any condition or provision of this
agreement to be performed by the other party shall be deemed to be a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
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subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this agreement have been made by
either party that are not expressly set forth in this agreement.
16. Validity. The invalidity or unenforceability of any provision or
provisions of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which other provision shall remain in
full force and effect; nor shall the invalidity or unenforceability of a portion
of any provision of this agreement affect the validity or enforceability of the
balance of such provision. The provisions of this agreement are severable.
17. Counterparts. This document may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
18. Headings. The headings of the paragraphs contained in this document are
for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this agreement.
19. Applicable Law. This agreement shall be governed by and construed in
accordance with the internal substantive laws, and not the choice of law rules,
of the State of Nebraska.
20. Arbitration. In the event a dispute shall arise as to the parties'
respective rights, duties and obligations under this agreement, or in the event
of a claim for breach of this agreement by either party (collectively,
"Dispute"), the parties agree to utilize arbitration as the exclusive means for
resolution of the Dispute. With respect to any such Dispute, the arbitrator
shall be selected and the arbitration conducted in accordance with the most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The arbitration proceeding shall be held in Omaha, Nebraska,
Minneapolis, Minnesota, or such other location as may be acceptable to the
parties. The arbitrator shall make written findings, including any award, which
shall be signed by the arbitrator. The award shall be deemed final and binding
thirty (30) days after the award is made. The parties agree to abide by and
perform any award rendered by the arbitrator. The arbitrator shall be bound by
the provisions of this agreement in determining any award. The parties agree
that the proceedings and any decision by the arbitrator, including the amount of
any award, shall be kept confidential and not disclosed to any person other than
the parties, witnesses and their counsel (who also must each agree to maintain
the confidentiality of the proceedings and any decision). A party may enforce
any award in any court of competent jurisdiction.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
agreement on the day and year first above written.
KAVOURAS, INC., a Minnesota corporation
By: /s/ Stephen P. Kavouras
Title: ________________________________
------------------------------------
Stephen P. Kavouras
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EXHIBIT B
CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into as of the _____ day of
_________________, 1998, by Stephen P. Kavouras ("Shareholder") for the benefit
of Data Transmission Network Corporation, a Delaware corporation, and its
subsidiaries and affiliated corporations (collectively, "DTN").
R E C I T A L S:
A. Prior to the date hereof, Kavouras, Inc. has operated a business which
gathers, formats, and distributes various weather information services and
manufactures and sells world-wide radar equipment and other weather related
equipment and accessories. For purposes of this Agreement, all of the businesses
of Kavouras, Inc. are collectively referred to herein as the "Business".
B. Pursuant to the terms and conditions of that certain Stock Purchase
Agreement dated _____________, 1998, effective today, Data Transmission Network
Corporation acquired all of the capital stock of Kavouras, Inc. (the "Company")
and, accordingly, DTN has acquired beneficial ownership of the Business.
C. DTN operates communication and information service businesses which are
currently conducted throughout the United States of America and Canada.
D. Shareholder was the beneficial owner of a majority of the outstanding
shares of capital stock of the Company and Chief Executive Officer of the
Company. As a result of Shareholder's executive position with the Company,
Shareholder was entrusted with highly sensitive, confidential, and proprietary
information relating to the Business, including but not limited to knowledge
regarding the future plans, trade secrets, know-how, products, suppliers,
clients, and employees of the Business, which information DTN desires to
protect.
E. In order to prevent the improper use of confidential and proprietary
information relating to the Business and the resulting unfair competition and
misappropriation and diminution of the goodwill and other proprietary interests
of the Business which were acquired by DTN, Shareholder agrees that limitations
must be imposed on Shareholder's right to compete with the Business, or use
confidential information of the Business or its clients.
NOW, THEREFORE, in consideration of the foregoing recitals and DTN
acquiring the Business, the parties agree as follows:
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SECTION 1 - NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) "Confidential Information" means information, not generally known, that
is proprietary to the Business, including without limitation:
1) the financial and accounting data, sales records, profit and loss and
other performance reports, pricing manuals, training manuals, selling
and pricing procedures, financing methods, data processing and
communication information, technical data, securities information,
agreements with insurers, banks, and other service providers, and trade
secrets and know-how regarding the products and services of the
Business;
2) the personnel and salary information of the Business, including wages,
bonuses, commissions, and fringe benefits of the Business;
3) the production and processing procedures, formulae and systems of the
Business;
4) the vendor and supplier information of the Business;
5) the buying practices, sources of supply for components, the quality,
prices and usage of components, information and materials, manner of
vendor payment, profit margins, expense ratios, pricing, lead time and
other information concerning the buying activities of the Business;
6) the client lists and prospect lists of the Business, including, without
limitation, names of contacts, products and services purchased,
quantities of products and services purchased, pricing including
discounts and add-ons, terms, credit histories, timing of purchases,
and payment histories, special demands of particular clients, and
current and anticipated requirements of clients generally for products
or services of the Business;
7) the marketing information of the Business, including, without
limitation, research, development, testing and client surveys and
preferences regarding the current and new products or services of the
Business, and specifications of any new products or services under
development by or for the Business;
8) the business projections, strategic planning, marketing planning,
activity and practices, marketing systems and procedures, pricing
policies and practices, and inventory procedures and systems of the
Business; and
9) confidential information of the clients of the Business.
Notwithstanding the foregoing, "Confidential Information" shall not include any
of the items in this Section which (i) have become publicly known and made
generally available through no wrongful act of Shareholder or of others who
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Shareholder did not know and had no reasonable basis for knowing were under
confidentiality obligations as to the item or items involved or (ii) have become
available to Shareholder on a non-confidential basis from another source that
has represented that it is entitled to disclose it to the general public.
(b) Shareholder hereby agrees not to directly or indirectly disclose any
Confidential Information to any third party without the prior written consent of
DTN, except to the extent disclosure is required by law or regulatory or
judicial order. Shareholder further agrees not to use, directly or indirectly,
any Confidential Information for the benefit of Shareholder or any third party.
SECTION 2 - RESTRICTIONS AGAINST COMPETITION.
In order to prevent the improper use of Confidential Information and the
resulting unfair competition and misappropriation and diminution of the goodwill
and other proprietary interests of the Business which were acquired by DTN,
Shareholder hereby agrees that for a period of five (5) years after the date of
this Agreement (except as otherwise provided in clause (f) below), Shareholder
will not, directly or indirectly, on his own behalf or in the service or on
behalf of others:
a) solicit any client of the Business or DTN as of the date hereof, for
the purpose of obtaining the business of such client, in competition
with the Business;
b) advise or recommend to any other person that such person solicit any
client of the Business or DTN as of the date hereof, for the purpose of
obtaining the business of such client, in competition with the
Business;
c) solicit any prospective client of the Business or DTN as of the date
hereof, for the purpose of obtaining the business of such client, in
competition with the Business;
d) advise or recommend to any other person that such person solicit any
prospective client of the Business or DTN as of the date hereof, for
the purpose of obtaining the business of such client, in competition
with the Business;
e) work for himself or a competitor in an employee, managerial, marketing,
sales, consulting or other capacity in carrying on a business similar
to or in competition with (i) the Business or other weather information
services provided by DTN, or (ii) prospective services being developed
by the Business during Shareholder's employment with the Company, the
details of which Shareholder was privy to in Shareholder's position
with the Company; provided that notwithstanding the foregoing,
Shareholder shall thereafter still be restricted from using the
Confidential Information pursuant to Section 1 hereof; or
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f) for a period commencing the date hereof and continuing until the first
anniversary of Shareholder's termination of employment with the
Company, solicit or recruit for employment, or attempt to solicit or
recruit for employment, or advise or recommend to any other person that
such person solicit or recruit for employment, or attempt to solicit or
recruit for employment, any person who was employed by the Company and
worked in the Business during the twelve (12) month period immediately
preceding the effective date of the acquisition of the Company by DTN
and who continued to be employed by the Company after the effective
date of such acquisition.
The phrase "prospective client" shall mean those businesses with whom any
representative of either the Company or the weather services operators of DTN
had substantial and extended actual and personal contact during the twelve (12)
month period immediately preceding any such act to develop new business for the
Business, including developing sales strategies, marketing information and
proposals, and negotiating providing services to such prospective clients.
Shareholder agrees that it is reasonable to restrict the Shareholder's
competition during the time period described above in the entire geographic area
in which the Company or DTN operates and that the restrictions set forth in this
Agreement (including, but not limited to, the period of restriction, activity
and geographic area set forth) are fair and reasonable and are necessarily
required for the protection of the interests of DTN and to prevent the improper
use of Confidential Information and the resulting unfair competition and
misappropriation and diminution of the goodwill and other proprietary interests
of the Business acquired by DTN.
SECTION 3 - ENFORCEMENT OF RESTRICTIONS.
Shareholder understands and agrees that his access to the Confidential
Information and clients of the Business makes such restrictions both necessary
and reasonable.
Shareholder agrees with DTN that if Shareholder shall violate or threaten
to violate any of the terms of this Agreement, then DTN shall be entitled to
injunctive relief; such remedy shall be in addition to and not in limitation of
any rights or remedies to which DTN is or may be entitled to at law or in
equity.
The parties agree that the covenants contained in Sections 1 and 2 of this
Agreement are independent of one another and are severable. In the event any
part of the covenants contained in Section 1 or 2 of this Agreement shall be
held to be invalid or unenforceable, the remaining parts thereof shall
nevertheless continue to be valid and enforceable as though the invalid and
unenforceable part had not been included herein. If any provisions of these
covenants relating to the time period, activity and/or area of restriction shall
be declared by a court of competent jurisdiction to exceed the maximum time
periods, activities or areas which such court deems reasonable and enforceable,
the parties agree that the court making such a determination shall have the
power to reduce the time period, activity and/or area of restriction to the
maximum time period, activity and/or area which such court deems reasonable and
enforceable.
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SECTION 4 - CONSIDERATION.
As consideration for the performance and compliance by Shareholder
hereunder, DTN hereby covenants and agrees to pay Shareholder the aggregate sum
of Four Million Dollars ($4,000,000) payable as follows: (i) Two Million Dollars
($2,000,000) shall be paid to Shareholder on the date hereof and (ii) the
remaining amount shall be payable in five annual payments of Four Hundred
Thousand Dollars ($400,000) each commencing on the one year anniversary of the
date of this Agreement and continuing on each anniversary date thereafter until
fully paid. Upon any material breach of this Agreement by Shareholder (other
than unintentional breaches of Section 1 hereof), the obligations of DTN to make
such payments shall cease immediately.
SECTION 5 - ATTORNEY REVIEW.
Shareholder was advised and encouraged to review this Agreement with his
private attorneys before signing it. To the extent, if any, that the Shareholder
desired, Shareholder has taken advantage of this right. Shareholder has
carefully read and fully understands all of the provisions of this Agreement and
is voluntarily entering into this Agreement.
SECTION 6 - SUCCESSORS, ASSIGNS AND THIRD PARTY BENEFICIARIES.
This Agreement and all rights under this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the parties hereto and their
respective personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees, successors, and assigns.
SECTION 7 - MISCELLANEOUS.
This writing constitutes the entire agreement between the parties hereto
and supersedes any prior understanding or agreements among them respecting the
subject matter. Except as otherwise set forth in this Agreement, there are no
extraneous representations, arrangements, understandings, or agreements, oral or
written, among the parties hereto, except those fully expressed herein. No
amendments or modifications to the terms of this Agreement shall be made unless
made in writing and signed by all the parties hereto. The failure of either
party to enforce at any time any of the provisions of this Agreement shall not
be construed as a waiver of such provisions or of the right of such party
thereafter to enforce any such provisions. The existence of any claim or cause
of action by Shareholder against DTN, not based upon this Agreement, shall not
constitute a defense to the enforcement of this Agreement by DTN.
SECTION 8 - HEADINGS.
The headings of the paragraphs contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
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SECTION 9 - APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with the
internal substantive laws, and not the conflicts of law principles, of the State
of Minnesota.
[SIGNATURE PAGE FOLLOWS]
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SIGNATURE PAGE TO
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
----------------------------------------
Stephen P. Kavouras, Shareholder
DATA TRANSMISSION NETWORK
CORPORATION , a Delaware corporation
By:____________________________________
Its:___________________________________
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EXHIBIT C
(Opinion of AK&C)
Dated _______________ ,1998
The Stephen P. Kavouras Revocable Trust
under Agreement dated September 13, 1995,
The Irrevocable GST Trust for Stephen P. Kavouras
under Agreement dated July 29, 1997
and Stephen P. Kavouras
11400 Rupp Drive
Burnsville, MN 55337
Gentlemen:
We have acted as counsel to Data Transmission Network Corporation (the
"Company"), a Delaware corporation, in connection with the Company's purchase of
all of the issued and outstanding capital stock of Kavouras, Inc. pursuant to
that certain Stock Purchase Agreement dated as of March ___, 1998, among all of
the stockholders of Kavouras, Inc. and the Company (the "Stock Purchase
Agreement") and that certain Agreement Regarding Stock Acquisition dated as of
March ___, 1998, among the Company and you (the "Agreement"). This opinion is
being rendered to you pursuant to Section 5.02(b) of the Agreement. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Agreement.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion, including those relating to the authorization, execution and delivery
of the Stock Purchase Agreement and the Agreement. We reviewed the following
documents and agreements:
(i) the Stock Purchase Agreement and the Agreement (collectively the
"Acquisition Agreements");
(ii) the Certificate of Incorporation of the Company as certified by the
Secretary of State of the State of Delaware (the "Certificate of
Incorporation");
(iii) the Bylaws of the Company as certified by the Secretary of the
Company on the date of this opinion letter (the "Bylaws"); and
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<PAGE>
(iv) actions taken by the Board of Directors of the Company to authorize
the transactions contemplated by the Acquisition Agreements.
In such examination and review we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. As to any facts material to the
opinions hereafter expressed which we did not independently establish or verify,
we have relied without investigation upon certificates, statements and
representations of representatives of the Company. During the course of our
discussion with such representatives and our review of the documents described
above in connection with the preparation of these opinions, no facts were
disclosed to us that caused us to conclude that any such certificate, statement
or representation is untrue. In making our examination of the documents executed
by persons or entities other than the Company, we have assumed that each such
other person or entity had the power and capacity to enter into and perform all
his, her or its obligations thereunder and the due authorization of, and the due
execution and delivery of, such documents by each such person or entity.
As used in this opinion, the expression "to our knowledge" with reference
to matters of fact means that after an examination of documents in our files or
made available to us by the Company and after inquiries of officers of the
Company, and considering the actual knowledge of those attorneys in our firm who
have given substantive attention to legal matters for the Company, without
independent investigation or inquiry as to factual matters, but not including
any constructive or imputed notice of any information, we find no reason to
believe that the opinions expressed herein are factually incorrect. Beyond that,
we have made no independent factual investigation for the purpose of rendering
an opinion with respect to such matters.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
2. The Company has the corporate power and authority to execute, deliver,
and perform the Acquisition Agreements and to consummate the transactions
contemplated thereby. The Acquisition Agreements have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms. The
execution, delivery and performance of the Acquisition Agreements and the
consummation of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action on the part of the Company.
3. Except as set forth in the Acquisition Agreements, neither the
execution, delivery, nor performance of the Acquisition Agreements nor the
consummation of the transactions contemplated thereby (i) conflicts with or
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<PAGE>
violates any provisions of the Certificate of Incorporation or By-laws of the
Company, (ii) to our knowledge, violates any judgment, decree, order, writ or
injunction specifically naming the Company, (iii) to our knowledge, requires on
the part of the Company any filing with, or permit, authorization, consent or
approval of, any federal or state governmental agency, or (iv) to our knowledge,
violates any statute, rule or regulation.
This opinion relates solely to the laws of the State of Nebraska, and
applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions. We
have assumed that, and our opinions expressed in paragraph 2 above are based
upon our assumption that, the internal laws of the State of Nebraska and Federal
law govern the provisions of the Acquisition Agreements and the transactions
contemplated thereby.
Our opinions relating to validity, binding effect, and enforceability of
the Acquisition Agreements are subject to (i) applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance, and other
similar laws or judicial decisions affecting the validity and enforcement of
creditors' rights generally, (ii) Nebraska law which may restrict your right to
collect attorneys' fees from a defaulting party, (iii) public policy
considerations or statutory provisions which may limit a party's rights to
indemnification against liability for its own wrongful or negligent acts and to
obtain certain remedies (iv) provisions of Nebraska law which restrict the
concurrent exercise of multiple remedies, (v) principles of equity which permit
the exercise of judicial discretion (regardless of whether such enforceability
is considered in a proceeding in equity or at law). In applying the principles
of equity referred to in the preceding clause (v) a court, among other things,
might not allow a contractual party to declare a default deemed immaterial; such
principles of equity, as applied by a court, also might include a requirement
that a contractual party act reasonably and in good faith. We express no opinion
as to the enforceability of provisions of the Acquisition Agreements which
involve disclaimers, liability limitations with respect to third parties,
releases of legal or equitable defenses, liquidated damages, or waivers of
notices, rights, or remedies, or which impose penalties or forfeitures upon the
occurrence of a default. Certain remedial provisions of the Acquisition
Agreements may be unenforceable in whole or in part, but the inclusion of such
provisions does not affect the validity of the Acquisition Agreements; however,
the unenforceability of such provisions may result in delays in the enforcement
of the Buyer's rights and remedies under the Acquisition Agreements (and we
express no opinion as to the economic consequences, if any, of such delays).
We are opining only as to the matters expressly set forth herein, and no
opinion should be inferred as to other matters. The opinions expressed herein
are furnished by us, as counsel for the Company, solely for your benefit in
connection with the transactions contemplated by the Acquisition Agreements and
upon the understanding that we are not hereby assuming any responsibility to any
other person whatsoever. This opinion may not be quoted or relied upon by any
other person or used for any other purpose without our prior written consent.
This opinion is rendered as of the date hereof and we do not undertake to advise
you of matters which occur subsequent to the date hereof and which affect the
opinions expressed herein.
Very truly yours,
ABRAHAMS, KASLOW & CASSMAN
By:
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EXHIBIT D
CLOSING CERTIFICATE
The undersigned, being those parties collectively referred to as the
"Principals" in that certain Agreement Regarding Stock Acquisition (the
"Agreement") dated March ___, 1998, with Data Transmission Network Corporation
(the "Buyer"), do hereby certify to the Buyer as follows:
1. The undersigned have performed and complied in all material respects
with all agreements, obligations, conditions and covenants contained in the
Agreement and the Stock Purchase Agreement required to be performed and complied
with at or prior to the date hereof and all representations and warranties of
the undersigned set forth in the Agreement and 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 as of the date hereof.
2. There has been 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.
3. The undersigned hereby jointly and severally represent and warrant to
Buyer that the 1997 Audited Financial Statements (as defined in the Agreement)
(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.
DATED as of ______________, 1998
/s/ Stephen P. Kavouras
-----------------------------
Stephen P. Kavouras
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<PAGE>
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 E
[Insert Form of Opinion of Sellers' Counsel]
51
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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".
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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.
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
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<PAGE>
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.
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
3
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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.
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
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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
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
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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:
(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
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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.
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(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.
(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,
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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
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
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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
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
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(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.
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.
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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.
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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 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.
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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 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, Trustee
--------------------------------
Stephen P. Kavouras, Trustee
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IRREVOCABLE GST TRUST FOR STEPHEN
P. KAVOURAS UNDER AGREEMENT
DATED JULY 29, 1997
By ______________________________
Stephen P. Kavouras, Trustee
And ____________________________
Laura Burrow, Trustee
---------------------------------
Walter A. Lyons
---------------------------------
Darold L. Holden
---------------------------------
Mavis Holden
---------------------------------
Mrs. Michael Govotas
---------------------------------
Daniel Andrew Kavouras
---------------------------------
Larry Barnet Kavouras
---------------------------------
Patricia K. Kavouras
---------------------------------
Myron Hjermstead, Jr.
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---------------------------------
Darlene Hjermstead
---------------------------------
Paul Post
---------------------------------
__________ Post
---------------------------------
Dennis K. 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 Govotas 4 422,091
620 Lynwood Drive
Benton Harbor, MT 49022
Daniel Andrew Kavouras 2 $ 211,046
6035 Forest Circle Drive
Brooksville, FL 34601
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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
Hjermstead, Jr.
8340 Eastwood Drive, N.E.
Mounds View, MN 55112
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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LICENSE AGREEMENT
THIS LICENSE AGREEMENT is entered into as of this 6th day of April,
1998, by and between KAVOURAS, INC., a Minnesota corporation ("Kavouras") and
EARTHWATCH COMMUNICATIONS, INC., a Minnesota corporation ("EarthWatch").
WHEREAS, EarthWatch has developed and is the owner of certain software
which it desires to license to Kavouras, and which Kavouras desires to license
from EarthWatch, under the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Grant of License.
a. EarthWatch hereby grants to Kavouras, and Kavouras hereby
accepts, an exclusive (including as to EarthWatch), royalty-free
license under the Licensed Rights (as hereinafter defined) to make,
have made, use, market, license, sublicense, distribute, reproduce,
copy, sell and incorporate into derivative works the Licensed Products
(as defined hereinafter). As used herein, the term "Licensed Rights"
means:
(1) U.S. Patent No. 5,379,215, "Method for Creating a 3D
Image of Terrain and Associated Weather," any patent
resulting from a continuation application,
continuation-in-part application, divisional
application, re-examination application, re-issue
application or foreign application related to the
subject matter of U.S. Patent No. 5,379,215, "Method
for Creating a 3D Image of Terrain and Associated
Weather;"
(2) all other patents covering the manufacture, use or
sale of the Licensed Products;
(3) all copyrights related to the Licensed Products;
(4) all mask work registrations related to the Licensed
Products;
(5) all trade secrets, know-how and show-how related to
the Licensed Products;
(6) all shop rights related to the Licensed Products;
and
(7) any and all other rights now owned or hereafter
acquired by EarthWatch related to the Licensed
Products.
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As used herein, the term "Licensed Products" means:
(1) EarthWatch's Reality 3d Realtime Software
(including, without limitation, Reality 3D textured
skylines and the product referred to internally by
EarthWatch as "virtual set");
(2) EarthWatch's SchoolWatch Software (and all
work-in-progress thereon to the extent incomplete);
(3) EarthWatch's Showmaker Software;
(4) EarthWatch's StormWatch Software (provided that the
license to this software product only shall be
non-exclusive);
(5) all enhancements, other software, modules and
components used to produce real time
three-dimensional and fly-through effects used in
television broadcast, including those necessary to
create a fully functional on-air news and weather
graphics system (excluding EarthVision, also known
as WorldScape);
(6) all manuals or other documentation pertaining to any
of the foregoing; and
(7) all derivative works or other products developed by
or for Kavouras which relate in any way to any of
the foregoing.
b. EarthWatch hereby grants to Kavouras a non-exclusive,
royalty-free license to use and or sublicense the trademarks "Reality
3D," "Reality 3D Real Time" and "SchoolWatch." EarthWatch further
grants to Kavouras a non-exclusive, perpetual, royalty-free license to
use and sublicense the use of any other trademark, service mark, logo,
trade name or trade dress used by EarthWatch in connection with the
Licensed Products. Upon reasonable notice and during normal business
hours, EarthWatch shall have the right to review (1) how Kavouras is
using any mark licensed in advertising, promotional materials,
packaging and labeling; and (2) samples of the products with which
Kavouras is using the marks. All information obtained in conjunction
with such review shall be held in confidence by EarthWatch and used
exclusively for determining whether Kavouras is using the mark(s) in a
manner consistent with this Agreement and in connection with products
and services that are of good quality. Upon completion of such review,
EarthWatch may, at its option, deliver written notice to Kavouras
requesting specific reasonable changes to the advertisements,
promotional materials, packaging and labeling or products with which
Kavouras is using the marks. Kavouras shall then have a reasonable time
to implement any such changes reasonably requested by EarthWatch.
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<PAGE>
c. EarthWatch shall deliver to Kavouras all information and
materials required to carry out this Agreement, including, but not
limited to: (1) patents and patent applications, (2) trademark or
service mark applications and registrations, (3) copyright applications
and registrations, (4) mask works and mask work registrations, (5)
source code, (6) object code, (7) software, (8) know-how and show-how,
(9) drawings, specifications, designs, plans, proposals, data, and
other works, (10) manufacturing and production processes, techniques,
research and development information, and (11) notes, shop manuals,
formulae and prototypes.
d. Kavouras shall also have the right, at the sole cost and
expense of Kavouras, to take whatever steps it deems necessary to
protect the Licensed Rights and Licensed Products. EarthWatch agrees to
cooperate with such efforts and sign any papers required to acquire,
protect or enforce such rights.
e. It is agreed and understood that the exclusive licenses
hereby granted shall be subject only to the rights of those existing
licensees under existing agreements, all of whom and which are set
forth on Exhibit A attached hereto, provided that EarthWatch will not
renew and agrees to terminate any and all of such license agreements at
the earliest possible date upon the reasonable request of Kavouras with
respect to any specific licensee.
f. The term of the licenses granted herein shall be twenty
(20) years from the date hereof, provided that any sublicenses granted
to end users of the Licensed Products shall be perpetual.
2. License Fee. Contemporaneously herewith, Kavouras shall pay to
EarthWatch as the sole and only one-time license fee and fee for acquiring an
option to license pursuant to a separate agreement of even date herewith the sum
of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00). The
parties have agreed that Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) of the foregoing payment shall be escrowed pursuant to a escrow
agreement of even date herewith. No other payments shall be due or owing from
Kavouras for the rights granted hereunder.
3. Territory. The licenses granted herein, and the exclusivity rights
in connection therewith, shall extend throughout the world, with the exception
of the United States and Canada. The limitation of the Territory herein shall
only limit sales and distribution, which shall be limited to customers outside
the United States and Canada, but shall not limit or prohibit manufacturing,
packaging, software development, initiating marketing (e.g. placing phone calls
from, purchasing and preparing documentation in the United States and/or
Canada), and similar activities within the United States and/or Canada.
4. Representations and Warranties. EarthWatch hereby represents and
warrants to Kavouras that:
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a. EarthWatch is the sole and exclusive owner, free from any
liens, security interests or other encumbrances or claims of third
parties, of the Licensed Products including all copyright and other
proprietary rights therein, and of the ideas, procedures, processes,
systems, methods of operation and concepts which are embodied therein.
EarthWatch has been granted such rights under U.S. Patent No.
5,379,215, "Method for Creating a 3D Image of Terrain and Associated
Weather," and the license of the Licensed Products herein granted or
the use of the Licensed Products for the purposes permitted hereunder
will not constitute an infringement of any third party's intellectual
property rights or constitute a breach of any agreement between
EarthWatch and any third party, including, without limitation, that
certain Reseller License Agreement by and between EarthWatch and WSI
Corporation, as amended, that certain Software License Agreement by and
between EarthWatch and Weather Central, Inc. and that certain Exclusive
Distributor Agreement for EarthWatch Products in the Government Market
by and between EarthWatch and Sterling Software (U.S.), Inc. (the
parties agree that EarthWatch shall immediately request and shall
diligently pursue and obtain no later than fourteen days after the date
hereof a UCC-3 to release of record all filings in favor of Northern
Trust);
b. the right and license granted to Kavouras hereunder is
exclusive to Kavouras within the Territory except as expressly set
forth herein and no parties, other than the licensees under the
agreements set forth on Exhibit A, have rights to the Licensed Products
within the Territory;
c. the Licensed Products, and all portions thereof, are free
from material defects in material and workmanship and will, without
modification or supplementation, permit the user thereof to create
real-time 3D images of terrain and associated weather from data
supplied by or to the user, provided that Kavouras acknowledges that
the current version of the Licensed Products will not permit the user
thereof to create real-time 3D images of terrain and associated weather
from data supplied by or to the user using Kavouras data and that
Kavouras and EarthWatch are in the process, pursuant to a Consulting
Agreement, of creating the data interface to permit such functionality;
d. The individuals executing this Agreement on behalf of
EarthWatch have the requisite authority to execute this Agreement and
such other documents as are contemplated or to be delivered by
EarthWatch herein, and to bind EarthWatch thereto; and EarthWatch has
the full and complete authority to perform its obligations hereunder;
In the event of a breach of the representations and warrantees
contained above, EarthWatch agrees to diligently pursue and obtain at its sole
cost and expense all intellectual property and contract rights necessary to make
such representation and warranty true and correct and to provide Kavouras with
the exclusive rights to the Licensed Products granted hereunder. EarthWatch's
failure to do so within a reasonable time and in any event prior to the
suffering by Kavouras of any damages, whether to third parties or otherwise,
shall result in Kavouras having the rights and remedies provided in Section 5
hereof.
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5. Indemnification. EarthWatch agrees to indemnify, defend and hold
Kavouras harmless from and against any and all loss, cost, damage, judgments and
liabilities (including reasonable attorneys' fees) arising out of any breach of
the representations and warrantees made by EarthWatch herein. Without limiting
the foregoing, EarthWatch shall pay any and all damages, costs and attorneys'
fees awarded in any action against Kavouras based on such claim, as well as any
other damages which may be suffered by Kavouras by reason of its being deprived
of its rights hereunder or its having such rights limited, restricted or
infringed in any manner. Kavouras agrees to provide EarthWatch with notice of
any such claim within a reasonable time after Kavouras learns of such claim. In
addition to the foregoing indemnity and defense obligations, EarthWatch agrees
to provide to Kavouras at EarthWatch's sole cost and expense all necessary
assistance in evaluating and/or opposing any such claim, including, without
limitation, providing access to programmers, documentation and prior versions of
the Licensed Products. Notwithstanding and in limitation of the foregoing, the
parties agree that EarthWatch's liability under this paragraph 5 shall not
exceed the consideration paid to EarthWatch by Kavouras pursuant to this
Agreement, together with any sums paid to third party claimants as a result of
such breaches.
6. [Intentionally Deleted].
7. Source Code. Within ten (10) days after the date hereof, EarthWatch
agrees to provide Kavouras with a copy of the source code for the Licensed
Products, together with all other materials and intellectual property necessary
to permit Kavouras to fully exercise the rights granted to it hereunder and to
fulfill the obligations of EarthWatch hereunder. It is agreed that Kavouras may
copy or modify or incorporate such source code and other property, or any
portion thereof, into products to be created hereafter by or for Kavouras, which
products shall be the sole property of Kavouras.
8. Registration of License. EarthWatch agrees that Kavouras may, at the
sole costs and expense of Kavouras, file notice of its rights under this license
with the United States Copyright Office and/or the United States Patent and
Trademark Office and EarthWatch agrees to cooperate with any such filings,
including, without limitation, executing and delivering for no additional
consideration any assignments or similar documents necessary to accomplish such
filing.
9. Support. EarthWatch agrees that it will provide reasonable support
to Kavouras in the exercise of Kavouras' rights under this Agreement.
10. No Agency. Kavouras and EarthWatch are not, and shall not be deemed
or considered to be joint venturers, partners, agents, servants, employees,
fiduciaries or representatives of each other, and no party to this Agreement
shall have the right or power to bind or obligate any other party to this
Agreement.
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<PAGE>
11. No Waiver. Failure by either party to enforce any provision
hereunder shall not be deemed a waiver of such provision or of the right to
enforce such provision in the future.
12. Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota. Any action
brought under this Agreement shall be brought in the state or federal courts of
the State of Minnesota, provided that, notwithstanding this provision, Kavouras
shall have the right to implead EarthWatch in any action which falls within the
scope of EarthWatch's indemnification obligations under this Agreement, without
regard to the venue of such action.
13. Severability. In the event that any provision of this Agreement
shall be held by a court of competent jurisdiction to be unlawful or
unenforceable, the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected, impaired or invalidated in any
manner.
14. Assignment. Neither party may assign its rights hereunder without
the consent of the other, which consent will not be unreasonably withheld or
delayed, except in connection with a sale of all or substantially all of the
assets of a party. The parties hereto acknowledge and agree that the benefits,
but not the burdens, of the interests of Kavouras in this Agreement have been
assigned to DTN Market Communications Group, Inc. ("DTN") pursuant to that
certain Agreement Regarding Purchase of Contract and Contract Rights
("Assignment") dated March 30, 1998, among Kavouras, DTN and Data Transmission
Network Corporation, subject to such beneficial interests and rights reverting
back to Kavouras as provided in the Assignment; and that DTN shall have no
liabilities or obligations under this Agreement except the obligation to
Kavouras to pay the EarthWatch Payments as defined in and provided for in the
Assignment. While this Assignment remains in effect, EarthWatch shall send
copies of all notices given to Kavouras hereunder to Data Transmission Network
Corporation, 9110 West Dodge Road, Suite 200, Omaha, NE 68114, Attention Greg T.
Sloma, President.
15. Entire Agreement. This Agreement contains and states the entire
agreement of the parties with regard to the license granted hereby and
supersedes all proposals, oral or written, and all other communications between
the parties relating to this Agreement.
16. Amendment. No modification or amendment of this Agreement shall be
made except by an instrument in writing signed by both of the parties hereto.
17. Notices. Any notices required or permitted to be given hereunder
shall be in writing and shall be (i) personally delivered, (ii) sent by a
reputable overnight courier (e.g., Federal Express) or (iii) mailed by
registered or certified United States Mail, return receipt requested and shall
be deemed delivered (x) on the date of personal delivery, if such is a business
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<PAGE>
day or the next business day if not, (y) the day designated for delivery by the
overnight courier, or (z) three days after posting in the United States Mail in
the manner provided above. All such notices shall be directed to the receiving
party at the following addresses or such other address as a party may designate
by notice in accordance with the provisions hereof:
If to Kavouras: Kavouras, Inc.
11400 Rupp Drive
Burnsville, MN 55337-1279
Attention: Stephen Kavouras
With copy to: Malkerson Gilliland Martin LLP
1500 AT&T Tower
901 Marquette Avenue
Minneapolis, MN 55402
Attention: Michael S. Gilliland
If to EarthWatch: EarthWatch Communications, Inc.
Woodland Office Building
17113 Minnetonka Boulevard, Suite 120
Minnetonka, MN 55345
Attention: Douglas P. Kruehoeffer
With copy to: Leonard Street & Deinard
150 South Fifth Street, Suite 2300
Minneapolis, MN 55402
Attention: James J. Bertrand
18. Servicing. Commencing July 1, 1998, Kavouras shall assume
EarthWatch's written obligations to service and/or maintain the Reality 3D
software which has been licensed to third parties, excluding third parties in
the United States and Canada, and Kavouras shall be entitled to any and all fees
payable in connection with such servicing and/or maintenance, including any fees
which have been paid prior to the date hereof for service and maintenance which
will be performed by Kavouras. EarthWatch represents and warrants to Kavouras
that EarthWatch has disclosed to Kavouras in writing all of EarthWatch's written
obligations for servicing and/or maintenance of the Reality 3D software and all
fees which have been paid prior to the date hereof for service and maintenance
which will be performed by Kavouras (See attached Exhibit B). EarthWatch and
Kavouras agree that Kavouras shall have no responsibility to service or maintain
any other EarthWatch software unless the parties reach a separate written
agreement regarding such services.
19. Non-Competition. In consideration for the sums paid hereunder and
the agreements made herein, EarthWatch shall not, within the Territory (i) shall
not compete directly or indirectly with the Kavouras, DTN or their assignees, in
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the sale, license, distribution or development of weather and/or news graphics
and/or imagery products and services within the replayed or live broadcast
market, including, without limitation, television (broadcast, cable, satellite
and other broadcast means) and internet-delivered live or replayed broadcasts,
provided that EarthWatch may sell, license and distribute the product known as
Stormwatch, and (ii) shall not sell, license, distribute or develop products
which compete directly or indirectly with, or have the capabilities of competing
with, the Licensed Products, provided that the products known as StormWatch and
Earthvision, without modification to add real time effects or other
modifications that make such products more competitive with the Licensed
Products, are excepted from this subparagraph (ii).
EXECUTED by the parties hereto effective the day and year first above
written.
KAVOURAS, INC.
By:/s/ Laura Burrow
-----------------------------
Laura Burrow, Chief Operating Officer
EARTHWATCH COMMUNICATIONS, INC.
By:/s/Craig Burfeind
------------------------------
Craig Burfeind, President
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EXHIBIT A
Licensees and License Agreements
EXISTING LICENSEES/DISTRIBUTORS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Parties: EarthWatch Communications,
<S> <C> <C>
Inc. & Type of Agreement Date
- --------------------------------------------------------------------------------------------------------------------
Clever Telecom, S.A. Distributor Agreement 05/19/94
- --------------------------------------------------------------------------------------------------------------------
Digital Broadcast Systems Distribution Agreement 12/15/96
- --------------------------------------------------------------------------------------------------------------------
ATM Ltd. Distributor Agreement 05/12/94
- --------------------------------------------------------------------------------------------------------------------
ATLAS SA Distributor Agreement 05/18/94
- --------------------------------------------------------------------------------------------------------------------
Symbolic Technologies PTE LTD. Distributor Agreement 05/12/94
- --------------------------------------------------------------------------------------------------------------------
Video Graphics & Communication CO Ltd. Distributor Agreement 05/12/94
- --------------------------------------------------------------------------------------------------------------------
Salam Technical Services (Qatar) Distributor Agreement 06/23/94
- --------------------------------------------------------------------------------------------------------------------
Mitsui & Co. Ltd. Distributor Agreement 02/01/95
- --------------------------------------------------------------------------------------------------------------------
Advanced Communication Equipment
(Int'l) Co Ltd. Distributor Agreement 05/12/94
- --------------------------------------------------------------------------------------------------------------------
Reality Horizons Pty Ltd. Distribution Agreement 07/01/97
- --------------------------------------------------------------------------------------------------------------------
Quantum Pacific Pty Ltd. Distribution Agreement 12/01/96
- --------------------------------------------------------------------------------------------------------------------
Video Design Systems Inc. Distributor Agreement 05/20/94
- --------------------------------------------------------------------------------------------------------------------
Salam Technical Services/OMNIX Distributor Agreement 06/20/94
- --------------------------------------------------------------------------------------------------------------------
END USER LICENSEES
- --------------------------------------------------------------------------------------------------------------------
Sterling Software (U.S.), Inc. Exclusive Distributor Agreement 12/11/96
- --------------------------------------------------------------------------------------------------------------------
ICELAND AGREEMENT
</TABLE>
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EXHIBIT B
Written Servicing Obligations and Fees Already Received
10
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<PAGE>
EXHIBIT C
Existing Agreements for License or Distribution of Products Which May Compete
With the Licensed Products Within the Territory
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OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement"), is made as of the 6th day of
April, 1998, by and between KAVOURAS, INC., a Minnesota corporation whose
address is 11400 Rupp Drive, Burnsville, MN 55337 ("Kavouras") and EARTHWATCH
COMMUNICATIONS, INC., a Minnesota corporation whose address is Woodland Office
Building, 17113 Minnetonka Boulevard, Suite 120, Minnetonka, MN 55345
("EarthWatch").
WHEREAS, EarthWatch has developed and is the owner of certain software
which and Kavouras desires to obtain the option to license such software from
EarthWatch, under the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Option to Acquire License. EarthWatch hereby grants to Kavouras the
exclusive right and option ("Option"), to be exercised on or before the end of
the Option Term (as set forth in Section 2 hereof), to acquire an exclusive,
twenty (20) year, royalty-free license under the Licensed Rights (as hereinafter
defined) to make, have made, use, market, license, sublicense, distribute,
reproduce, copy, sell and incorporate into derivative works the Licensed
Products (as defined hereinafter), the territory of such license to be the
United States and Canada. As used herein, the term "Licensed Rights" means:
(1) U.S. Patent No. 5,379,215, "Method for Creating a 3D Image of
Terrain and Associated Weather," any patent resulting from a
continuation application, continuation-in-part application,
divisional application, re-examination application, re-issue
application or foreign application related to the subject matter
of U.S. Patent No. 5,379,215, "Method for Creating a 3D Image of
Terrain and Associated Weather;"
(2) all other patents covering the manufacture, use or sale of the
Licensed Products;
(3) all copyrights related to the Licensed Products;
(4) all mask work registrations related to the Licensed Products;
(5) all trade secrets, know-how and show-how related to the Licensed
products;
(6) all shop rights related to the Licensed Products; and
(7) any and all other rights now owned or hereafter acquired by
EarthWatch related to the Licensed Products.
As used herein, the term "Licensed Products" means:
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(1) EarthWatch's Reality 3d Realtime Software (including, without
limitation, Reality 3D textured skylines and the product referred
to internally by EarthWatch as "virtual set");
(2) EarthWatch's SchoolWatch Software (or all work-in-progress thereon
to the extent incomplete);
(3) EarthWatch's StormWatch Software (provided that the license to
this software product, only, shall be non-exclusive);
(4) EarthWatch's Showmaker Software;
(5) all enhancements, other software, modules and components used to
produce real time three-dimensional and fly-through effects used
in television broadcast, including those necessary to create a
fully functional on-air news and weather graphics system
(excluding EarthVision, also known as WorldScape);
(6) all manuals or other documentation pertaining to any of the
foregoing; and
(7) all derivative works or other products developed by or for
Kavouras which relate in any way to any of the foregoing.
EarthWatch hereby acknowledges the receipt of the sum of One Million
Five Hundred Thousand and no/100 Dollars ($1,500,000) in consideration for the
option granted herein and for a current license under the Licensed Rights of the
Licensed Products throughout the world except for the United States and Canada
pursuant to a separate agreement. The parties have agreed that Two Hundred Fifty
Thousand and No/100 Dollars ($250,000.00) of the foregoing payment has been
escrowed pursuant to a escrow agreement of even date herewith.
2. Option Term. The term of the Option (the "Option Term") shall
commence as of the date hereof and shall terminate at midnight on June 20, 1998.
3. Exercise of Option. The Option shall be deemed fully exercised if
written notice of election to exercise is given by Kavouras to EarthWatch and
the License Fee (as defined hereinafter) is paid at any time prior to expiration
of the Option Term. Notice shall be given as provided in Section 8 of this
Agreement. The date on which Kavouras exercises the Option shall be referred to
as the "Exercise Date". If Kavouras exercises the Option, EarthWatch and
Kavouras agree to enter into the License Agreement (as defined hereinafter)
according to the terms and conditions hereafter described.
4. One-Time License Fee. If the Option is exercised, Kavouras shall pay
to EarthWatch as a one-time license fee the sum of One Million Five Hundred
Thousand and No/100 Dollars ($1,500,000.00) (the "License Fee").
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5. License Agreement. Upon notice from Kavouras that it intends to
exercise the Option, the parties shall schedule a closing, to occur prior to
expiration of the Option Term, at which time Kavouras shall pay the License Fee
and EarthWatch and Kavouras shall enter into a license agreement in the form
attached hereto as Exhibit A, provided only that the "Territory" under such
license agreement shall be the United States and Canada (the "License
Agreement").
6. EarthWatch's Representations and Warranties. EarthWatch makes the
following representations and warranties to Kavouras that, as of the date
hereof:
(a) The individuals executing this Agreement on behalf of EarthWatch
have the requisite authority to execute this Agreement and such other documents
as are contemplated or to be delivered by EarthWatch herein, and to bind
EarthWatch thereto; and EarthWatch has the full and complete authority to
perform its obligations hereunder and under the License Agreement, when
executed;
(b) EarthWatch is the sole and exclusive owner, free from any liens,
security interests or other encumbrances or claims of third parties, of the
Licensed Products, including all copyright and other proprietary rights therein,
and of the ideas, procedures, processes, systems, methods of operation and
concepts which are embodied therein. EarthWatch has been granted such rights
under U.S. Patent No. 5,379,215, "Method for Creating a 3D Image of Terrain and
Associated Weather," and the license of the Licensed Products, the option to
acquire which is granted herein or the use of the Licensed Products for the
purposes permitted under such license, if acquired, will not constitute an
infringement of any third party's intellectual property rights or constitute a
breach of any agreement between EarthWatch and any third party, including,
without limitation, that certain Reseller License Agreement by and between
EarthWatch and WSI Corporation, as amended, that certain Software License
Agreement by and between EarthWatch and Weather Central, Inc. and that certain
Exclusive Distributor Agreement for EarthWatch Products in the Government Market
by and between EarthWatch and Sterling Software (U.S.), Inc.;
(c) The Licensed Products, and all portions thereof, are free from
material defects in material and workmanship and will, without modification or
supplementation, permit the user thereof to create real-time 3D images of
terrain and associated weather from data supplied by or to the user, provided
that Kavouras acknowledges that the current version of the Licensed Products
will not permit the user thereof to create real-time 3D images of terrain and
associated weather from data supplied by or to the user using Kavouras data and
that Kavouras and EarthWatch are in the process, pursuant to a Consulting
Agreement, of creating the data interface to permit such functionality;
(d) There are no licenses, contracts, purchase agreements, options or
other agreements relating to the Licensed Property other than as listed on the
attached Exhibit B;
(e) EarthWatch has entered into no agreements which would conflict
with, prohibit or limit the license to be granted upon exercise of the Option;
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<PAGE>
(f) EarthWatch has provided notice to WSI Corporation of the
non-renewal of that certain Reseller License Agreement by and between EarthWatch
and WSI Corporation dated as of June 7, 1994, as amended, and accordingly after
June 7, 1998 WSI Corporation will have no further rights under such agreement;
and
(g) EarthWatch is not in default in the performance of any of
EarthWatch's obligations to any third parties, including under any easement
agreement, covenant, condition, restriction or other instrument relating to the
Licensed Products.
7. Activities Prior to Expiration of Option Term. From and after the
date hereof until the exercise of the Option or the expiration of the Option
Term, EarthWatch shall not enter into any agreement, amend or extend any
agreement, or take or fail to take any other action which would impair, limit or
restrict the rights to be granted to Kavouras under the License Agreement or
prohibit EarthWatch from fully and timely performing its obligations hereunder.
8. Notices. All notices provided for in this Agreement shall be in
writing. The notice shall be effective when personally delivered at the address
set forth in the first paragraph hereof. If a party delivers a notice provided
for in this Agreement in a different manner than described in the preceding
sentence, notice shall be effective as of the date the other party actually
receives the notice.
9. Governing Law. This Agreement has been made under the laws of the
State of Minnesota and such laws shall control its interpretation.
10. Assignment. Neither party may assign its interest under this
Agreement without the prior written consent of the other, provided, however,
that Kavouras may assign its interest to an affiliate of Kavouras or a
corporation, partnership or other entity which acquires all or substantially all
of the assets of Kavouras. The parties hereto acknowledge and agree that the
benefits, but not the burdens, of the interests of Kavouras in this Agreement
have been assigned to DTN Market Communications Group, Inc. ("DTN") pursuant to
that certain Agreement Regarding Purchase of Contract and Contract Rights
("Assignment") dated March 30, 1998, among Kavouras, DTN and Data Transmission
Network Corporation, subject to such beneficial interests and rights reverting
back to Kavouras as provided in the Assignment; and that DTN shall have no
liabilities or obligations under this Agreement except the obligation to
Kavouras to pay the EarthWatch Payments as defined in and provided for in the
Assignment. While this Assignment remains in effect, EarthWatch shall send
copies of all notices given to Kavouras hereunder to Data Transmission Network
Corporation, 9110 West Dodge Road, Suite 200, Omaha, NE 68114, Attention Greg T.
Sloma, President.
11. Counterparts. This Agreement and any amendments to this Agreement
may be executed in counterparts, each of which shall be fully effective and all
of which together shall constitute one and the same instrument.
12. No Joint Venture, Partnership. EarthWatch and Kavouras, by entering
into this Agreement and consummating the transactions contemplated hereby, shall
not be considered joint venturers or partners.
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13. Severability. In case any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
14. Business Days. In the event that any deadline or performance date
set forth in this Agreement falls on a Saturday, Sunday or date that Norwest
Bank Minnesota is closed for a banking holiday, such deadline or performance
date shall be deemed to be postponed to the next business day thereafter.
15. Setoff. The parties agree that, if and to the extent that claims of
third parties against EarthWatch or the Licensed Products jeopardize the ability
of EarthWatch to perform or prevent EarthWatch from performing its obligations
under the License Agreement to be entered into pursuant to this Option
Agreement, Kavouras may (after exhausting the amounts placed in escrow for such
purpose pursuant to an escrow agreement by and between EarthWatch and Kavouras
of even date herewith) pay and settle such claims and setoff any such amounts so
paid against the amounts payable to EarthWatch under paragraph 4 hereof.
EXECUTED by the parties hereto effective the day and year first above
written.
KAVOURAS, INC.
By:/s/ Laura Burrow
---------------------------------
Laura Burrow, Chief Operating Officer
EARTHWATCH COMMUNICATIONS, INC.
By:/s/ Craig Burfeind
---------------------------------
Craig Burfeind, President
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into this 23rd day of
April, 1998, by and among SmartServ Online, Inc., a Delaware corporation
("Seller"), and Data Transmission Network Corporation, a Delaware corporation
("Buyer").
RECITALS:
A. Seller is engaged in the business of providing products and services on
the internet referred to as "SmartServ Pro", "TradeNet", and "BrokerNet" (the
"Business"). The Business shall not include any other portion of Seller's
operations including but not limited to (i) its telephone screen services, (ii)
its internet products and services not identified above, including order routing
services referred to as "Night Trade" or its derivatives, or (iii) its wireless
or PCS services.
B. Seller desires to sell certain of the assets used by it in the conduct
of the Business, and Buyer desires to acquire such assets.
C. To facilitate Buyer's future conduct of the Business, Seller agrees to
license to Buyer and maintain certain computer software programs as provided for
in this Agreement
In consideration of the mutual covenants and agreements set forth herein,
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, Seller and Buyer, intending to be legally bound,
agree as follows:
1. Purchase and Sale. Buyer agrees to purchase from Seller, and Seller
agrees to sell to Buyer, the following assets of the Business (the "Acquired
Assets"), to-wit:
(a) The three client servers listed on Schedule 1 attached hereto and
incorporated herein by this reference;
(b) The trade names "TradeNet" and "BrokerNet" and those maintenance
agreements and other contracts, if any, listed on Schedule 7(k); and
(c) All of Seller's contracts with customers to provide services of the
Business and the assignable agreements with suppliers pertaining to or
used in the Business (including, without limitation all contracts
listed on Schedule 7(j));
(d) All of Seller's goodwill pertaining to or arising out of the Business.
Notwithstanding the foregoing, the Acquired Assets shall not include any assets
of the Seller not enumerated above, including but not limited to (i) Seller's
cash and cash equivalents and all securities of Seller, (ii) Seller's computer
software to be licensed to Buyer pursuant to Paragraph 5 of this Agreement,
(iii) Seller's furniture, leasehold interests or real property interests, (iv)
any records not relating to the Business and all corporate, accounting and tax
records relating to the Business, (v) Seller's rights under this Agreement, (vi)
the name "SmartServ Pro" and (vii) any of Seller's assets not used in the
Business.
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2. Purchase Price. Buyer agrees to pay, and Seller agrees to accept, as the
entire aggregate purchase price for the Acquired Assets, the sum of Eight
Hundred Fifty Thousand Dollars ($850,000) less a credit for prepaid revenue and
unpaid accounts receivable of Seller for services of the Business to be
performed after the Closing as reflected on Seller's books and records
(hereinafter referred to as the "Purchase Price"). The Purchase Price shall be
paid by Buyer to Seller by wire transfer upon the Closing.
3. Assumption of Liabilities. Buyer shall assume, agree to perform, and
discharge when due only those obligations of Seller arising out of the contracts
and agreements listed on Schedules 7(j) and 7(k) with respect to the period from
and after the Closing (the Assumed Liabilities"). Seller and Buyer agree that,
other than the Assumed Liabilities, Buyer does not agree to assume and shall
have no responsibility for any of the debts, obligations or liabilities of
Seller (the "Excluded Liabilities"), all of which shall remain the sole
responsibility of Seller. The Excluded Liabilities include without limitation
all of the following:
(a) Any tax liability or tax obligation of Seller, which has been or may be
asserted by any taxing authority, including without limitation any such
liability or obligation arising out of or in connection with this
Agreement or the transactions contemplated hereby.
(b) Any liability or obligation of Seller whether incurred prior to, at or
subsequent to the Closing for any amounts due or which may become due
to any person or entity solely by reason of the fact that such person
or entity is or has been a holder of any debt or equity security of
Seller.
(c) Any trade account payable or note payable of Seller or any contract
obligation of Seller (other than the Assumed Liabilities) whether
incurred prior to, at or subsequent to the Closing.
(d) Any liability or obligation arising out of any litigation, suit,
proceeding, action, claim or investigation, at law or in equity or in
arbitration, related to Seller's operation of the Business prior to the
Closing.
(e) Any claim, liability or obligation, known or unknown, contingent or
otherwise, the existence of which is a breach of, or inconsistent with,
any representation, warranty or covenant of Seller set forth in this
Agreement.
(f) Any liability or obligation specifically stated in this Agreement or
the Schedules hereto as not to be assumed by Buyer.
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4. Transfer Documents; Additional Documents. Upon the Closing, Seller shall
sell, transfer, assign, convey, and deliver to Buyer the Acquired Assets by duly
executed titles, warranty bill of sale and assignment, and other good and
sufficient instruments of sale, assignment, conveyance and transfer as shall be
required to effectively vest in Buyer all of Seller's right, title, and interest
in and to such Assets, free and clear of all liens, encumbrances, security
interests, actions, claims and equities of any kind whatsoever and Buyer shall
assume by duly executed assumption of liability the Assumed Liabilities. Buyer
shall be entitled to possession of the Acquired Assets upon the Closing and
payment of the Purchase Price. Upon the Closing, Seller and Buyer shall enter
into the Software License and Maintenance Agreement in the form of Exhibit "A"
hereto and the Source Code Escrow Agreement in the form of Exhibit "B" hereto
with an escrow agent mutually acceptable to Seller and Buyer.
5. Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall occur on May 1, 1998, at a time and place
mutually acceptable to Seller and Buyer.
6. Obligations to Employees. Seller agrees that it shall be responsible for
any obligations to any of its employees which heretofore may have arisen or
hereafter may arise by reason of any services rendered by such employees prior
to the Closing, including but not limited to salaries, bonuses, vacation pay,
retirement benefits, and other fringe benefits; and Seller hereby agrees to pay
all of such obligations directly to the employees involved when due. Seller
agrees timely to pay all payroll tax, withholding, and unemployment compensation
payments required to be made with respect to the compensation of such employees
and to hold Buyer harmless therefrom. Seller shall furnish to Buyer such
evidence of Seller's compliance with the provisions of this paragraph as Buyer
reasonably may request from time to time.
7. Representations and Warranties of Seller. Seller warrants, represents,
and covenants to and with Buyer, now and as of the Closing:
(a) That Seller has full right and lawful authority to enter into this
Agreement and to sell the items of personal property to be acquired by
Buyer pursuant to this Agreement; that Seller's performance of its
obligations under this Agreement will not violate any agreement,
document, trust (constructive or otherwise), order, judgment or decree
to which Seller is a party or by which it is bound; and that, upon the
transfer and assignment of such property to Buyer as hereinbefore
mentioned, Buyer will acquire good and merchantable title thereto, free
and clear of any liens, encumbrances, security interests, actions,
claims, and equities of any kind whatsoever.
(b) That Seller is the sole and lawful owner of and has good and marketable
title to all of the items of personal property to be acquired by Buyer
pursuant to this Agreement, free and clear of any liens, encumbrances,
security interests, actions, claims, and equities of any kind
whatsoever.
(c) All material items of tangible personal property to be acquired by
Buyer pursuant to this Agreement are in good operating condition,
subject to normal wear.
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(d) That there are no suits, arbitrations or other legal or governmental
proceedings pending or threatened against Seller which might
conceivably affect the title to the items of personal property to be
acquired by Buyer pursuant to this Agreement.
(e) That Seller has duly filed all federal, state, and local tax returns of
every kind whatsoever required to be filed on or before the Closing and
has paid in full the tax liability shown on such returns; that no
unpaid deficiencies are in existence which have been asserted against
Seller by any official or agency as a result of the filing of such
returns; and that, to the knowledge of Seller, there is not now pending
any examination with respect to any such returns nor does Seller know
of any impending examination with respect to any such returns.
(f) Seller shall timely pay all sales and use taxes imposed on or
collectible by Seller and shall furnish to Buyer evidence that all of
Seller's sales and use taxes have been paid.
(g) The property to be acquired by Buyer pursuant to this Agreement,
together with the rights, property and services to be rendered or
furnished to Buyer pursuant to the Software License and Maintenance
Agreement attached as Exhibit "A" hereto, will include at Closing all
material rights and property necessary to the conduct of the Business
by Buyer in the manner it is conducted by Seller on the date of this
Agreement.
(h) There is no fact, development, or threatened development with respect
to the markets, products, customers, vendors, suppliers, operations,
assets or prospects of the Business which are known to Seller which
would materially adversely affect the business, operations or prospects
of the Business considered as a whole, other than such conditions as
may affect as a whole the economy generally.
(i) The financial statements of Seller for the year ended June 30, 1997 and
for the six month period ended December 31, 1997, furnished to Buyer
fairly and accurately represent the financial operations of Seller for
such periods.
(j) That Seller has listed on Schedule 7(j) all of Seller's contracts (oral
or written) with customers and suppliers of the Business; Seller has no
other contracts (oral or written) with customers and suppliers of the
Business. Seller has delivered to Buyer true, correct and complete
copies of all written contracts relating to the Business, and written
summaries of the terms of all oral contracts relating to the Business,
and all of such contracts are presently in full force and effect and
are assignable to Buyer unless otherwise indicated. Seller has not
received any notices from any customers or suppliers of the Business
that indicate that they intend to terminate any of such contracts and,
except as reflected in the copies delivered to Buyer or on Schedule
7(j), such contracts have not been amended and Seller and the other
parties to such contracts are not in default in any material respect
under such contracts. Seller has not been apprised and does not
currently believe or have reason to believe that any of the customers
of the Business plan to cancel or reduce the volume under any customer
contracts.
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<PAGE>
(k) That Schedule 7(k) contains a complete list of all of Seller's
contracts (oral and written) relating to the Business, if any, other
than the contracts with customers and suppliers listed on Schedule
7(j). Seller has delivered to Buyer true, correct and complete copies
of all such other written contracts relating to the Business and
written summaries of the terms of all such other oral contracts
relating to the Business, and all of such contracts are presently in
full force and effect and are assignable unless otherwise indicated,
and, except as reflected in the copies delivered to Buyer or on
Schedule 7(k), such contracts have not been amended and Seller and the
other parties to such contracts are not in default in any material
respect under such contracts.
(l) That Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Seller has the
corporate power and authority required to conduct the Business and to
own and use the properties currently owned and used by it. Seller has
the corporate power and authority to execute and deliver this Agreement
and to perform its respective obligations thereunder. The execution and
delivery of this Agreement by Seller and the performance of its
obligations thereunder have been duly and validly authorized by all
necessary corporate action. This Agreement has been duly and validly
executed and delivered by Seller and constitutes a legal, valid and
binding obligation of Seller, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance, and other similar laws
or judicial decisions affecting the validity and enforcement of
creditors' rights generally.
(m) That neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated thereby, (i) conflicts
with or violates any provision of the Certificate of Incorporation or
bylaws of Seller, (ii) requires on the part of Seller any filing with,
or permit, authorization, consent or approval of, any federal or state
governmental agency or entity, (iii) conflicts with, results in a
breach of, constitutes (with or without notice or lapse of time or
both) a default under, or requires any notice, consent or waiver under
any contract, lease, license, franchise, permit, indenture, agreement
or mortgage for borrowed money or other agreement to which Seller is a
party or by which Seller is bound or to which any of its assets is
subject, or (iv) violates any statute, rule or regulation, or any
order, writ, injunction or decree applicable to Seller or any
properties or assets of Seller.
(n) Unless otherwise approved by Buyer, Seller shall maintain and operate
the Business between the date of this Agreement and the Closing in the
ordinary course consistent with past practices.
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8. Representations and Warranties of Buyer. Buyer warrants, represents, and
covenants to and with Seller, now and as of the Closing:
(i) That Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Buyer has the
corporate power and authority to execute and deliver this Agreement and
to perform its respective obligations thereunder. The execution and
delivery of this Agreement by Buyer and the performance of its
obligations thereunder have been duly and validly authorized by all
necessary corporate action. This Agreement has been duly and validly
executed and delivered by Buyer and constitutes a legal, valid and
binding obligation of Buyer, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance, and other similar laws
or judicial decisions affecting the validity and enforcement of
creditors' rights generally.
(ii)That neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated thereby, (i) conflicts
with or violates any provision of the Certificate of Incorporation or
bylaws of Buyer, (ii) requires on the part of Buyer any filing with, or
permit, authorization, consent or approval of, any federal or state
governmental agency or entity, (iii) conflicts with, results in a
breach of, constitutes (with or without notice or lapse of time or
both) a default under, or requires any notice, consent or waiver under
any contract, lease, license, franchise, permit, indenture, agreement
or mortgage for borrowed money or other agreement to which Buyer is a
party or by which Buyer is bound or to which any of its assets is
subject, or (iv) violates any statute, rule or regulation, or any
order, writ, injunction or decree applicable to Buyer or any properties
or assets of Buyer.
9. Indemnification. Seller agrees to indemnify Buyer and to hold Buyer
harmless from any and all loss, damage, cost, or expense incurred or sustained
by Buyer by reason of the failure of any warranty or representation contained in
this Agreement to be true or as a result of Seller's failure to abide by any
covenant or agreement on its part contained in this Agreement or arising out of
any claim by a stockholder of Seller alleging that Seller improperly failed to
obtain stockholders approval of the transactions contemplated by this Agreement
or arising out of any claim made against Buyer alleging that Seller failed to
comply with the bulk sales laws of the State of Connecticut.
10. Survival. The representations, warranties, and covenants on the part of
Seller and Buyer contained in this Agreement shall survive the Closing and shall
be binding upon each party and their respective successors and assigns.
11. Payment of Liabilities. Seller agrees that it is responsible for all
liabilities of Seller existing on the Closing and to hold Buyer harmless
therefrom. Buyer and Seller agree that Buyer is not assuming and shall have no
responsibility for any of the debts, obligations, or liabilities of Seller,
including but not limited to any liabilities or obligations of Seller (whether
fixed, absolute, contingent, known, unknown, direct, indirect, or otherwise)
whether incurred or accrued before or after the Closing, which in any way relate
to the performance or non-performance of, or any other liability or obligation
relating to any service or product furnished or sold by Seller prior to or after
the Closing, and Seller hereby agrees to hold Buyer harmless from any cost or
expense arising out of or relating to any such debts, obligations, or
liabilities; provided, however, such indemnification by Seller does not extend
to any Assumed Liabilities. Buyer agrees to be responsible for any and all
liabilities of Buyer existing at the Closing or assumed by Buyer as a result of
this Agreement and to hold Seller harmless therefrom. Seller and Buyer agree
that if either receives any payment under a contract which is included among the
Acquired Assets which payment belongs to the other, it will promptly forward
such payment to the other.
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<PAGE>
12. Transfer Taxes. Seller shall pay all sales and other similar taxes
imposed on or collectible by Seller or Buyer by reason of the transfer of the
property being acquired by Buyer pursuant to this Agreement.
13. Noncompete. During the term of the Software License and Maintenance
Agreement to be entered into at the Closing, Seller shall not, directly or
indirectly, whether as a shareholder, partner or investor possessing any
ownership interest, or as principal, agent, employee, proprietor, independent
contractor, consultant or in any other capacity, solicit for itself or others,
or advise or recommend to any other person that such person solicit, any current
customer of the Business, for the purpose of competing with Buyer in the
Business. If any court having jurisdiction at any time hereafter shall hold any
of such restrictive covenants to be unenforceable or unreasonable as to its
scope, territory, or period of time, and such court in its judgment or decree
shall declare or determine the scope, territory, or period of time which such
court deems to be reasonable, then such scope, territory or period of time, as
the case may be, shall be deemed automatically to have been reduced to that
declared or determined to be reasonable by such court. Notwithstanding the
foregoing, if any clause or provision of this paragraph shall be unenforceable,
then such clause or provision shall be deemed to be deleted from this paragraph,
but every other clause and provision shall continue in full force and effect.
These covenants are an integral part of the asset purchase transaction
contemplated by this Agreement and Buyer would not have entered into this
Agreement in the absence of such covenants. Seller acknowledges that the
agreements contained in this paragraph are reasonable and necessary to protect
the Business being purchased by Buyer and that any breach thereof will result in
irreparable injury to Buyer for which Buyer has no adequate remedy at law.
Seller therefore agrees that, in the event either of them breaches any of the
agreements contained in this paragraph, Buyer shall be authorized and entitled
to seek from any court of competent jurisdiction (i) a temporary restraining
order, (ii) preliminary and permanent injunctive relief, (iii) an equitable
accounting of all profits or benefits arising out of such breach, and (iv)
direct, incidental, and consequential damages resulting from such breach. Such
rights or remedies shall be cumulative and in addition to all other rights or
remedies to which Buyer may be entitled.
14. Entire Agreement. This document constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be modified,
amended, or terminated except by a written agreement specifically referring to
this Agreement and signed by all of the parties hereto.
15. Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
16. Further Instruments. After the Closing, the parties hereto shall
execute and deliver such additional instruments and documents as may be
reasonably requested by any of them in order to carry out the purposes and
intent of this Agreement and to fulfill their respective obligations.
17. Further Actions. Seller agrees to take after the Closing such actions
from time to time as may in the reasonable judgment of Buyer or its counsel be
necessary or advisable to confirm the title of Buyer to any of the items of
property acquired by Buyer from Seller pursuant to this Agreement.
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<PAGE>
18. Governing Law. This agreement shall be construed in accordance with the
laws of the State of Nebraska.
19. Severability. In the event that one or more of the provisions contained
in this Agreement shall for any reason be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any of the other provisions contained in this Agreement, which provisions shall
remain in full force and effect.
20. Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto in separate counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
21. Schedules and Exhibits. All references to Schedules and Exhibits
herein, unless otherwise stated, means the schedules and exhibits attached to
this Agreement which are hereby incorporated by reference.
22. Notification. All notices which either party may be required or desire
to give to the other party shall be in writing and shall be given by personal
service, telecopy, registered air mail or certified air mail (or its equivalent)
to the other party at its respective address or telecopy telephone number set
forth below. Notices shall be deemed to be given upon actual receipt by the
party to be notified. Notices delivered by telecopy shall be confirmed in
writing by overnight courier.
If to Seller: SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902
Attn: Mario F. Rossi
Telecopy No. (203) 353-5962
If to Buyer: Data Transmission Network Corporation
9110 West Dodge Road, #200
Omaha, NE 68114
Attn: Eric Stokes
Telecopy No.: (402) 255-8088
8
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
DATA TRANSMISSION NETWORK
CORPORATION, a Delaware corporation
By:/s/ Charles R. Wood
------------------------------------
Charles R. Wood, Sr. Vice President
SMARTSERV ONLINE, INC., a
Delaware corporation
By:/s/ Sam Cassetta
------------------------------------
Sam Cassetta, Chairman & CEO
9
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<PAGE>
SCHEDULE 1
List of Tangible Personal Property
10
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<PAGE>
SCHEDULE 7(j)
Customer and Supplier Contracts
11
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<PAGE>
SCHEDULE 7(k)
List of Other Contracts
12
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<PAGE>
EXHIBIT "A"
SOFTWARE LICENSE AND
SERVICE AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of
____________________, 1998 (the "Effective Date") by and between SmartServ
Online, Inc., a Delaware corporation having an office at Metro Center, One
Station Place, Stamford, CT 06902 ("SmartServ") and Data Transmission Network
Corporation, a Delaware corporation, having an office at 9110 West Dodge Road,
Suite 200, Omaha, Nebraska 68114 ("DTN").
RECITALS
A. SmartServ is the owner of certain computer software as described in
Schedule "A" attached hereto and the documentation and related materials
therefore listed in Schedule "A" (as modified and enhanced in accordance with
this Agreement, the "Internet Software") and SmartServ desires to license the
Internet Software to DTN.
B. Pursuant to that certain Asset Purchase Agreement dated April 23, 1998
between SmartServ and DTN (the "Purchase Agreement"), DTN acquired from
SmartServ three client servers. Such servers will remain located at the premises
of SmartServ as provided herein. When used with such servers and additional
hardware and equipment owned exclusively by SmartServ (the use of which will be
provided by SmartServ as set forth in this Agreement), the Internet Software
will allow DTN's subscribers internet access to continuous market quotations and
other financial and news information services offered from time to time by DTN
(the "Internet Services").
C. SmartServ agrees to service, support, maintain and enhance the Internet
Software and the related computer hardware as more fully described herein so as
to allow DTN's subscribers to access the Internet Services at any time during
the term of this Agreement.
D. DTN desires to acquire such licenses and services from SmartServ as
described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. The following defined terms when used in this Agreement
shall have the meanings designated below:
Business Hours means the time period commencing one hour prior to and
ending one hour after the trading hours of the New York Stock Exchange.
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Confidential Information has the meaning given to such term in Paragraph
5.2 of this Agreement.
Documentation has the meaning given to such term in Paragraph 4.2 of this
Agreement.
Escrow Agent means the Escrow Agent under that certain Source Code Escrow
Agreement with SmartServ and DTN executed concurrently with this Agreement.
Escrow Release Events has the meaning given to such term in Paragraph
2.3(e) of this Agreement.
Hardware means the servers acquired by DTN pursuant to the Purchase
Agreement and Paragraph 4.7 of this Agreement and all replacements and additions
thereto which will be manipulated by the Internet Software to allow DTN's
subscribers to obtain the Internet Services.
Internet Software has the meaning given to such term in Recital A to this
Agreement.
License has the meaning given to such term in Paragraph 2.1 of this
Agreement.
License Fee has the meaning given to such term in Paragraph 3.1 of this
Agreement.
License Term has the meaning given to such term in Paragraph 7.1 of this
Agreement.
Maintenance Services has the meaning given to such term in Paragraph 4.1 of
this Agreement.
SmartServ Equipment means the computer hardware and equipment owned by
SmartServ and described in Schedule "B" and all replacements and additions
thereto (except as provided in Paragraph 4.7) which when used with the Hardware
and Internet Software will allow DTN's subscribers to obtain the Internet
Services.
Source Code Escrow Package has the meaning given to such term in Paragraph
2.3(a) of this Agreement.
Updates has the meaning given to such term in Paragraph 4.5 of this
Agreement.
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<PAGE>
ARTICLE 2
THE LICENSE
2.1 The Licensed Software. SmartServ hereby grants to DTN, its subsidiaries
and affiliates, a license (the "License") to use the Internet Software as part
of DTN's, and its subsidiaries' and affiliates', business operations and to
allow DTN's subscribers to use the Internet Software to access the Internet
Services. The License shall be a limited exclusive license as follows: SmartServ
agrees not to license, sell, convey or otherwise transfer (collectively,
"Transfer") to anyone other than DTN any rights in the Internet Software during
the term of this Agreement without DTN's prior written consent, which consent
will not be unreasonably withheld or delayed by DTN, provided that the agreement
under which SmartServ shall Transfer any rights in the Internet Software to a
third party shall provide that the transferee's use of the Internet Software
would not constitute a breach of Section 13 of the Purchase Agreement, if such
other party were SmartServ. In addition, SmartServ shall not use or allow anyone
other than DTN to use the Internet Software to compete with the Internet
Services. If during any calendar quarter ending after the first twelve months of
the License Term, DTN does not obtain at least 600 subscribers to the Internet
Services (exclusive of renewing subscribers, but not net of terminating
subscribers) and pay License Fees of $100,000, then the exclusivity with respect
to the License shall cease and the License shall become nonexclusive.
2.2 Object Code. SmartServ shall deliver the Internet Software to DTN in
object code form. DTN may reproduce the Internet Software as necessary to
include (a) a production version for DTN's use in accordance with this
Agreement; (b) a test version which may be run for testing and development
purposes; and (c) copies for archival and backup purposes. DTN shall also have
the right to maintain and modify or retain third party entities to maintain and
modify the Internet Software in the event of an Escrow Release Event or if
SmartServ fails to or is no longer obligated to maintain the Internet Software
under this Agreement or any future maintenance agreements between DTN and
SmartServ.
2.3 Source Code Escrow.
a. The term "Source Code Escrow Package" means the following:
i. a complete copy in machine-readable form of the source code and
object code of the Internet Software;
ii. a complete copy of any existing design documentation and user
documentation; and
iii. complete instructions for compiling and linking every part of the
source code into executable code, for purposes of enabling
verification of the completeness of the source code as provided
below. Such instructions shall include precise identification of
all compilers, library packages, and linkers used to generate
executable code.
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<PAGE>
b. Within five (5) days after the Closing, SmartServ shall deliver a
Source Code Escrow Package to Escrow Agent.
c. When and if SmartServ provides DTN with a maintenance release or
upgrade version of any part of the Internet Software, SmartServ shall
within ten (10) business days thereafter deposit with Escrow Agent, in
accordance with Section 2.3, a Source Code Escrow Package for the
maintenance release or upgrade version.
d. DTN, at its option and expense, may at any time verify the completeness
and accuracy of any Source Code Escrow Package. Unless otherwise agreed
at the time by SmartServ and DTN, verification will be performed
on-site at Escrow Agent's or SmartServ's premises at a time specified
by DTN. SmartServ shall make technical and support personnel available
as reasonably necessary for the verification. SmartServ may in its
discretion designate a representative to be present at the
verification.
e. The Source Code Escrow Package shall, upon request of DTN, be released
from escrow to DTN for use by DTN in accordance with this Agreement
upon the occurrence of one or more of the following "Escrow Release
Events" defined below:
i. SmartServ is in breach of its obligations under the Source Code
Escrow Agreement with DTN and Escrow Agent;
ii. if SmartServ files a petition for liquidation and dissolution
under Chapter 7 of the Bankruptcy Code of the United States, or
an involuntary petition in bankruptcy is filed against SmartServ
and is not dismissed or converted for reorganization under
Chapter 11 of the Bankruptcy Code of the United States within
sixty (60) days thereafter, or this Agreement is rejected in a
proceeding under Chapter 11 of the Bankruptcy Code of the United
States; or
iii. if SmartServ proves unable or otherwise fails to cure a breach
of this Agreement within the applicable cure period set forth in
this Agreement;
f. Within ten (10) days after the execution and delivery of this
Agreement, SmartServ shall deliver to DTN two (2) keys which shall
operate to open the (i) front door and (ii) door to the computer room,
respectively, of SmartServ's principal offices located at One Station
Place, Stamford, CT 06902. These keys may be used by a limited number
of employees of DTN for the purpose of accessing, operating and
maintaining the Internet Software and Hardware in the event that
SmartServ is unable to do so in accordance with the terms and
conditions set forth in this Agreement.
2.4 Competition. Nothing in this Agreement shall impair DTN's rights to use
or distribute similar ideas or programs which have been independently developed
by DTN or submitted by others to DTN, provided that SmartServ' patents,
copyrights and trade secrets are not infringed.
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ARTICLE 3
FEES AND PAYMENT
3.1 License and Maintenance Fee. Except as provided below, during the
License Term DTN shall pay to SmartServ a monthly license and maintenance fee
(the "License Fee") equal to the sum of the amounts determined by multiplying
the applicable percentages set forth below by the revenues earned and received
for such month by DTN from the corresponding number of subscribers to the
Internet Services at each level, in excess of the first 1,000 subscribers.
<TABLE>
<CAPTION>
Percentage of
Subscribers Subscriber Revenue
<C> <C>
1,001 - 2,000 20%
2,001 - 4000 25%
4,001 - 8,000 30%
Over 8,000 40%
</TABLE>
DTN shall guaranty a minimum monthly payment of $100,000 during the first twelve
months of the License Term. The minimum monthly payments during the first twelve
months of the License Term shall be paid in advance on the first day of such
month. Otherwise, the License Fee shall be paid within twenty (20) days after
the end of the month to which it relates. The License Fee shall be determined
using the average revenue per subscriber for such month. As an example, if the
revenues earned and received by DTN during a month are $800,000 from 4,000
subscribers, then the monthly payment to SSOL will be $140,000 computed as the
sum of (i) 20% of the product of $200 (the average revenue per subscriber for
such month) multiplied by 1,000 subscribers and (ii) 25% of the product of $200
multiplied by 2,000 subscribers. For purposes of such computation, the number of
subscribers in a month shall be the weighted average of the number of
subscribers for such month. Notwithstanding the foregoing, if SmartServ breaches
any of its obligations under Article 4 of this Agreement and fails to cure such
breach within thirty (30) days after written notice thereof, DTN may at its sole
cost elect to provide its own maintenance of the Internet Software and the
Hardware, in which case DTN shall have no further obligation to pay the License
Fee and SmartServ shall have no further obligations under Article 4 of this
Agreement.
3.2 Audit Rights. SmartServ and/or a SmartServ representative shall have
the right, exercisable not more than once per year, at any reasonable time to
inspect, audit and make copies of the books and records of DTN which relate to
the calculation of the License Fee. Except as set forth below, such audit shall
be at the expense of SmartServ. In the event any such inspection and audit
reveals that DTN underpaid the License Fee owing for any month, then DTN shall
promptly pay to SmartServ the amount of such underpayment together with interest
thereon from its due date at the rate of eight percent (8%) per annum. In the
event that DTN underpaid by more than five percent (5%) the License Fee owing
for any month, then DTN also shall promptly pay to SmartServ the reasonable
out-of-pocket costs and expenses actually incurred by SmartServ in conducting
such audit, up to an amount not in excess of such underpayment.
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ARTICLE 4
MAINTENANCE SERVICES
4.1 Services of SmartServ. During the License Term, SmartServ agrees to
service, support, maintain and enhance the Internet Software and the Hardware as
provided in this Article 4 (the "Maintenance Services"). SmartServ agrees to use
its best efforts in performing the Maintenance Services so as to allow DTN's
subscribers prompt access to the Internet Services at any time during the
License Term. It is agreed by the parties that SmartServ will have during the
first twelve months of the License Term a minimum of six (6) programming
resources trained in the Internet Software available at all reasonable times to
provide the Maintenance Services; provided, however, that SmartServ may be
required to have additional programming resources available to perform the
Maintenance Services during critical times as needed. DTN and SmartServ agree
that during the remainder of the License Term SmartServ will have a minimum of
three (3) programming resources trained in the Internet Software available at
all reasonable times to provide the Maintenance Services; provided, however,
that SmartServ may be required to have additional programming resources
available to perform the Maintenance Services during critical times as needed.
4.2 Correction of Internet Software. The Maintenance Services shall
include, without limitation, SmartServ correcting any failure of the Internet
Software to operate in accordance with the documentation for the Internet
Software (as modified pursuant to this Agreement, the "Documentation"). The
Documentation shall provide for the Internet Software to operate in an efficient
and responsive manner in accordance with the highest of industry standards.
4.3 Outages. SmartServ understands the need for DTN's subscribers to have
continuous access to the Internet Services. SmartServ warrants that it will use
its best efforts to maintain the Internet Software and the Hardware in a
condition which will allow DTN's subscribers to access the Internet Services 24
hours per day, 365 days per year. Notwithstanding the force majeure provisions
of Section 8.5, should outages occur during Business Hours due to the failure of
the Internet Software or the Hardware that exceed 1% in the aggregate during any
calendar month, SmartServ shall forfeit the entire License Fee for such month as
liquidated damages. Should outages occur during Business Hours due to the
failure of the Internet Software or the Hardware that exceed 2% in the aggregate
during any calendar month or 3% in the aggregate during each of two consecutive
calendar months, DTN may elect (without granting SmartServ a cure period) to
provide at its sole cost its own maintenance of the Internet Software and the
Hardware, in which case DTN shall have no further obligation to pay the License
Fee during the remainder of the License Term and SmartServ shall have no further
obligations under Article 4 of this Agreement.
4.4 Required Upgrades. DTN receives its market quotations and other news
and financial information from various third-party providers. DTN shall have the
right anytime during the License Term, in its sole discretion, to change the
third-party providers of information for the Internet Services. As part of
Maintenance Services, at no additional cost to DTN, but subject to the
limitations set forth in Paragraph 4.6, SmartServ shall provide all
modifications required to enable the Internet Software to operate in accordance
with any new or modified system requirements specified by such third-party
providers within the time periods specified in the contracts with such
third-party providers, which shall not be less than thirty (30) days after
receipt of notice from DTN of the new or modified system requirements.
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4.5 Updates. As part of Maintenance Services, at no additional cost to DTN,
SmartServ shall provide during the License Term (other than the first twelve
months thereof) all revisions, improvements, modifications, corrections,
releases and enhancements (the "Updates") to any portion of the Internet
Software. SmartServ shall use its best efforts to provide the Updates as
necessary to maintain the quality and competitive position of the Internet
Services in the industry. Such Updates shall not degrade the performance,
functioning or operation of the Internet Software. If any such Updates are not
acceptable to DTN, DTN may refuse to accept such Updates, and, in such event,
SmartServ agrees to maintain the Internet Software without such Updates. Once an
Update is incorporated in the Internet Software, it shall be considered part of
the Internet Software for all purposes hereunder.
4.6 Limitation on Expenditures. Excluding the first twelve months of the
License Term, SmartServ reserves the right to limit the expenditure of its
resources for performing the upgrades and Updates referred to in Sections 4.4
and 4.5 to twenty percent (20%) of its revenues earned hereunder (excluding such
initial twelve months) on a cumulative basis. Accordingly, if SmartServ uses 10%
of its revenues during one year, then it has 30% of its revenues available for
the next year.
4.7 Hardware Maintenance. So long as SmartServ is to provide the
Maintenance Services as provided herein, the Hardware shall be located at
SmartServ's premises at no additional cost to DTN, except for property taxes on
the Hardware which shall be the sole responsibility of DTN. As part of
Maintenance Services, at no additional cost to DTN, SmartServ shall make all
necessary adjustments and minor repairs to keep the Hardware in good operating
condition and functioning properly at the premises of SmartServ. SmartServ will
use its best efforts to advise DTN sufficiently in advance of any needed major
repairs or replacements to the Hardware and DTN will, at its cost, provide new
or equivalent used replacement parts for the Hardware. In addition, DTN will, at
its cost, furnish an additional client server for each additional 500
subscribers to the Internet Service in excess of the first 1,500 subscribers.
The SmartServ Equipment will accommodate three more servers, in addition to the
ones owned by DTN. Each server is capable of serving 500 additional subscribers
for a total of 3,000 subscribers. Adding additional subscribers, beyond 3,000
may require additional computer hardware to be added to the system, which DTN
will furnish at its cost and which will become Hardware for purposes of this
Agreement. The Hardware and all additions and replacements shall at all times
remain the property of DTN. Parts or replacements required for the Hardware as a
result of the negligence or fault of SmartServ shall be furnished by SmartServ
at its cost. During the License Term, SmartServ shall use its best efforts to
provide adequate facilities, including without limitation work space, heat,
light, ventilation, electric current and outlets, for operation of the Hardware.
SmartServ agrees that it shall not move, or permit to be moved, the Hardware
during the License Term without DTN's prior written consent. Notwithstanding any
contrary provision contained herein, DTN shall be responsible for all
telecommunication costs incurred in the operation of the Hardware and Internet
Software as contemplated in this Agreement. SmartServ agrees, at no additional
cost to DTN, to maintain casualty insurance on the Hardware with the same
coverage as it has for its own computer equipment and shall replace any loss to
the Hardware as a result of events covered by such insurance. Such policies of
insurance shall name DTN as an additional insured and may not be canceled
without at least ten days prior written notice to DTN.
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<PAGE>
4.8 Telephone Support. As part of Maintenance Services, at no additional
cost to DTN, SmartServ shall provide reasonable technical assistance and
consultation in the use of the Internet Software and the Hardware by telephone,
during DTN's normal working hours.
4.9 Training. As part of Maintenance Services, at no additional cost to
DTN, SmartServ shall provide such training as may reasonably be requested by DTN
to enable it to use the Internet Software and the Hardware for providing the
Internet Services.
4.10 SmartServ Equipment. The system to be used to provide the Internet
Services includes the SmartServ Equipment in addition to the Hardware and
Internet Software. During the License Term, SmartServ agrees to furnish the use
of the SmartServ Equipment so as to allow DTN's subscribers prompt access to the
Internet Services. In addition, SmartServ agrees to service, support, and
maintain the SmartServ Equipment, subject to the obligations of DTN set forth in
this Article 4.
ARTICLE 5
PROPRIETARY RIGHTS AND CONFIDENTIALITY
5.1 Ownership of the Internet Software. Subject to the rights granted to
DTN herein, all right, title and interest to the Internet Software shall at all
times remain in SmartServ, including but not limited to all applicable
copyrights, trade secrets and patents. DTN shall safeguard the Internet Software
with reasonable efforts using not less than the same degree of care that is
exercised by DTN for its own confidential and proprietary software.
5.2 Confidential Information. DTN and SmartServ acknowledge that in the
course of dealings between the parties, each party will acquire information
about the other party, its business activities and operations, its technical
information and trade secrets, of a highly confidential and proprietary nature
("Confidential Information"). The Confidential Information of each party shall
be safeguarded by the other at least to the same extent that it safeguards its
own confidential materials or data relating to its own business.
5.3 Confidential Computer Programs. Except as set forth herein, neither
party shall make copies of the computer programs and related materials of the
other party nor permit them to be used by or for any person or entity except as
set forth herein and all such computer programs and related materials shall be
considered Confidential Information hereunder.
5.4 Confidentiality Exclusions. Nothing in this Article 5 shall restrict
either party with respect to information or data identical or similar to that
contained in the Confidential Information but which (a) that party rightfully
possessed before it received such information from the other as evidenced by
written documentation; (b) subsequently becomes publicly available through no
fault of that party; (c) is subsequently furnished rightfully to that party by a
third party without restrictions on use or disclosure; or (d) is required to be
disclosed by law, provided that the disclosing party will exercise reasonable
efforts to allow the other party to obtain a protective order or other reliable
assurance that confidential treatment will be accorded to the Confidential
Information.
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<PAGE>
5.5 Remedy. SmartServ and DTN agree that if either of them, their officers,
employees or anyone obtaining access to the Confidential Information of the
other party by, through or under them, breaches any provision of this Article 5,
the non-breaching party would suffer irreparable harm and the total amount of
monetary damages for any injury to the non-breaching party from any violation of
this Article 5 would be impossible to calculate and would therefore be an
inadequate remedy. Accordingly, the parties agree that the non-breaching party
shall be entitled to temporary and permanent injunctive relief against the
breaching party, its officers or employees, and such other rights and remedies
to which the non-breaching party may be entitled to at law, in equity and under
this Agreement for any violation of this Article 5.
ARTICLE 6
WARRANTIES AND INDEMNIFICATION
6.1 Quiet Enjoyment. SmartServ warrants to DTN that: (i) SmartServ has the
right to furnish to DTN the Internet Software and other materials covered
hereunder free of all liens, claims, encumbrances and other restrictions, except
as stated to the contrary herein; (ii) DTN shall quietly and peacefully possess
the Internet Software and other materials furnished hereunder subject to and in
accordance with the provisions of this Agreement; and (iii) DTN's permitted use
and possession of the Internet Software and other materials will not be
interrupted or otherwise disturbed by any entity asserting a claim under or
through SmartServ.
6.2 Internet Software. SmartServ warrants that the Documentation faithfully
and accurately reflects the functionality provided by the Internet Software.
SmartServ warrants that the Internet Software (i) is free from known material
defects and (ii) materially performs in accordance with the Documentation.
SmartServ further warrants and represents that the occurrence in or use by the
Internet Software of dates on or after January 1, 2000 ("millennial dates") will
not adversely affect the performance of the Internet Software with respect to
data dependent data, compilations, output, or other functions (including but not
limited to calculating, comparing and sequencing) and that the Internet Software
will create, store, process and output information related to or including
millennial dates without error or omissions and at no additional cost to DTN.
6.3 Defect Correction. In the event that the Internet Software does not
perform as warranted in paragraph 6.2 hereof, SmartServ agrees to use its best
efforts to promptly make the Internet Software perform as so warranted. If
SmartServ is unable to make the Internet Software perform as so warranted, DTN
may, at its sole option, terminate this Agreement.
6.4 Services. SmartServ warrants that all services performed by SmartServ
hereunder, including but not limited to Maintenance Services, installing the
Internet Software, training, programming and consulting, will be performed in a
professional manner by qualified personnel.
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6.5 Warranty Period. Commencing upon the Effective Date and continuing at
all times during the License Term, subject to termination as provided in Section
3.1, SmartServ shall perform Maintenance Services, at no additional charge to
DTN, in accordance with Article 4 hereof.
6.6 Intellectual Property Indemnification. (a) SmartServ shall indemnify,
defend and hold DTN, its subsidiaries, affiliates and sublicensees harmless from
any claims, damages or judgments including all reasonable attorney's fees,
directly or indirectly resulting from any claimed infringement or violation of
any patent, copyright, trademark, trade secret or other intellectual property
right of a third party with respect to the Internet Software. Following notice
of a claim or threat thereof, SmartServ shall use its best efforts to either (i)
procure for DTN the right to continue to modify and use the Internet Software as
provided herein, at no additional costs to DTN, or (ii) provide DTN with a
noninfringing version of the Internet Software, provided that such new version
does not degrade the performance, functionality or operation of the Internet
Software in any material respect. If SmartServ is unable to perform either (i)
or (ii) above, DTN may upon reasonable notice terminate this Agreement and the
License. DTN agrees to give SmartServ reasonable notice of any such claim or
threat and reasonable cooperation with SmartServ in any defense or settlement of
any such claim or threat.
(b) DTN shall indemnify, defend and hold SmartServ, its subsidiaries and
affiliates harmless from any claims, damages or judgments including all
reasonable attorney's fees, directly or indirectly resulting from any
claimed infringement or violation of any patent, copyright, trademark,
trade secret or other intellectual property right of a third party with
respect to the Internet Services (other than with respect to the
Internet Software). SmartServ agrees to give DTN reasonable notice of
any such claim or threat and reasonable cooperation with DTN in any
defense or settlement of any such claim or threat.
ARTICLE 7
TERM AND TERMINATION
7.1 Term. The term of this Agreement shall commence upon the Effective Date
and, unless terminated earlier pursuant to Article 7, shall continue until
either party terminates this Agreement by written notice to the other party
given at least one year in advance of such termination, provided such
termination may not occur earlier than three years after the Effective Date.
Such term is referred to in this Agreement as the "License Term".
7.2 Termination for Cause. Either party shall have the right to terminate
this Agreement and/or the License upon: (a) violation, breach or default of the
other party, its officers or employees of any material provision of this
Agreement, including but not limited to proprietary rights and confidentiality
obligations; or (b) the other party becoming insolvent, commencing or becoming
subject to any proceedings under any bankruptcy or insolvency law or making any
assignment for the benefit of creditors, suffering or permitting the appointment
of a receiver for its business or assets or commencing the winding up or
liquidating its business or affairs, voluntarily or otherwise. In addition, DTN
may terminate this Agreement in accordance with paragraphs 6.3, 6.6 and 7.1
hereof.
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<PAGE>
7.3 Right to Cure. Notwithstanding the foregoing paragraph 7.2 hereof,
neither party may terminate this Agreement and/or the License pursuant thereto,
unless and until the party seeking to terminate has specified the cause for the
termination in writing, notifying the other party that it intends to terminate
this Agreement and/or the License, and such cause for the termination has not
been cured by the other party within thirty (30) days after receipt of such
written notice, except with respect to the breach of a confidentiality
obligation, in which case such cause must be cured within five (5) days after
receipt of such written notice.
7.4 Obligations Upon Termination. Upon termination of this Agreement and
the License, all rights and obligations granted herein shall cease, except as
otherwise provided, and each party shall forthwith return to the other party all
papers, materials, documentation, and any other properties of the other party
received pursuant to this Agreement, including but not limited to the Source
Code Escrow Package.
7.5 Survival of Certain Provisions. The terms and conditions in the
following paragraphs shall survive the termination of this Agreement: 5.1-5.5,
6.6, 7.4, 7.5, 8.1-8.4, 8.8-8.10.
ARTICLE 8
GENERAL
8.1 Agreement Interpretation and Construction. If any provision of this
Agreement is held invalid or unenforceable for any reason, such invalidity shall
not affect the validity of the remaining provisions of this Agreement, and the
parties shall substitute for the invalid provisions a valid provision which most
closely approximates the intent and economic effect of the invalid provision.
The recitals set forth on the first page of this Agreement are an integral part
of this Agreement and are incorporated by reference into the body of this
Agreement. The section headings in this Agreement are solely for convenience and
shall not be considered in its interpretation. The language of this Agreement
has been approved by the counsel for both parties and shall be construed as a
whole according to its fair meaning and neither of the parties hereto shall be
deemed to be the draftsman of this Agreement in any action which may hereafter
arise between the parties.
8.2 Non-waiver. The failure of either party at any time to require
performance by the other party of any provision of the Agreement shall not
affect in any way the full right to require such performance at any subsequent
time, nor shall the waiver by either party of a breach of any provision of this
Agreement be taken or held to be a waiver of the provision itself.
8.3 Attorneys' Fees. In any action between the parties to enforce any of
the terms of this Agreement, the prevailing party shall be entitled to recover
expenses, including reasonable attorneys' fees.
8.4 Notification. All notices which either party may be required or desire
to give to the other party shall be in writing and shall be given by personal
service, telecopy, registered air mail or certified air mail (or its equivalent)
to the other party at its respective address or telecopy telephone number set
forth below. Notices shall be deemed to be given upon actual receipt by the
party to be notified. Notices delivered by telecopy shall be confirmed in
writing by overnight courier.
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If to SmartServ: Metro Center
One Station Place
Stamford, CT 06902
Attn: Mario F. Rossi
Telecopy No. (203) 353-5962
If to DTN: Data Transmission Network Corporation
9110 West Dodge Road, #200
Omaha, NE 68114
Attn: Eric Stokes
Telecopy No.: (402) 255-8088
8.5 Force Majeure. Neither party shall be liable or deemed to be in default
for any delay or failure in performance under this Agreement resulting directly
or indirectly from acts of God or any causes beyond the reasonable control of
such party, provided that such party shall be without fault or negligence.
Performance time under this Agreement shall be extended for a period of time
equivalent to the time lost because of any delay which is excusable under this
paragraph. If any such excusable delay shall last for a period of more than
thirty (30) consecutive calendar days, the party not relying on the excusable
delay, at its option, may terminate this Agreement.
8.6 Independent Contractors. It is expressly agreed that SmartServ and DTN
are acting hereunder as independent contractors and under no circumstances shall
any of the employees of one party be deemed the employees of the other for any
purpose. This Agreement shall not be construed as authority for either party to
act for the other party in any agency or other capacity, or to make commitments
of any kind on the account of or on the behalf of the other except to the extent
and for the purposes provided for herein. All persons furnished by SmartServ
shall be considered solely SmartServ's employees or agents and SmartServ shall
be responsible for compliance with all laws, rules and regulations including,
but not limited to employment of labor, hours of labor, working conditions,
workers' compensation, payment of wages, and payment of taxes, such as
unemployment, social security and other payroll taxes, including applicable
contributions from such persons when required by law. SmartServ's employees and
agents shall have no right to any benefits that DTN grants its employees.
SmartServ shall indemnify and hold harmless, and, if required, defend DTN
against any claims or lawsuits arising out of SmartServ's failure to comply with
any such laws, rules or regulations.
8.7 Compliance with Laws. SmartServ, its employees and agents shall comply
with the applicable EEO, Fair Labor Standards Act and The Occupational Safety
and Health Act and all other federal, state, and local laws, ordinances,
regulations and codes including identification and procurement or required
permits, certificates, approvals and inspections, in performance under this
Agreement. SmartServ agrees to indemnify DTN for any loss or damage that may be
sustained by reason of any failure to do so.
8.8 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Nebraska, without regard to
principles of conflicts of laws.
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8.9 Jurisdiction. The parties hereby submit to the exclusive jurisdiction
of Nebraska in any legal action or proceeding arising out of or relating to this
Agreement or the legal relationship established by such Agreement, and the
parties hereby agree that all claims with respect to any such action or
proceeding shall be heard and determined in such courts. The parties hereby
waive any objection they may have to the existence of personal jurisdiction or
the laying of venue, and waive any defense of an inconvenient forum, with
respect to the maintenance of any such action or proceeding.
8.10 Publicity. Except as otherwise set forth herein, neither party shall
use the name of the other in advertising or publicity releases without securing
the prior written consent of the other party. Without the prior written consent
of the other party, neither party shall disclose, advertise or publish the
existence of this Agreement or any terms of this Agreement, except as is
required by law or regulation or for compliance with the requirements of NASDAQ.
8.11 Assignment. SmartServ's rights and obligations under this Agreement
are personal and SmartServ may not assign (either voluntarily or by operation of
law) or subcontract, its rights, duties or obligations under this Agreement
without the prior written consent of DTN; provided, however, SmartServ may
assign its rights under this Agreement in connection with a merger or sale of
all or substantially all of its assets so long as (i) SmartServ shall first give
DTN the right to acquire SmartServ or substantially all of its assets upon the
same terms as the proposed merger or sale (DTN shall have thirty days after
receipt of all material terms of the offer within which to accept the proposal)
and (ii) the proposed transferee is not listed on Schedule C attached hereto.
Subject to the foregoing, this Agreement shall inure to the benefit of and be
binding upon the parties and their successors and assigns.
8.12 Entire Agreement. This Agreement, including the Schedules hereto, and
the Purchase Agreement constitute the entire agreement between the parties with
respect to the subject matter hereof and supersedes all previous proposals, both
oral and written, negotiations, representations, commitments, writings and all
other communications between the parties. This Agreement may not be released,
discharged, modified or amended except by an instrument in writing signed by a
duly authorized representative of each of the parties.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
executed by their duly authorized officers as of the Effective Date. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
DATA TRANSMISSION NETWORK SMARTSERV ONLINE, INC.
CORPORATION
By:/s/ Charles R. Wood By:/s/Sam Cassetta
----------------------------- -----------------------------
Charles R. Wood, Sr. Vice President Sam Cassetta, Chairman & CEO
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SCHEDULE A
Internet Software Description,
Documentation and Related Materials
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SCHEDULE B
List of SmartServ Equipment
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SCHEDULE C
List of Prohibited Transferees
PC Quote
Data Broadcast Corp.
Bridge/Telerate
Quote.com
S&P Comstock
Telescan
Telemet America Inc.
A-T Financial
Hoovers, Inc.
Media General Financial Services Inc.
Zannett Securities Corp.
Thompson Financial
Bloomberg L.P.
Reuters
North American Quotes
ADP
Track Data
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<PAGE>
EXHIBIT "B"
SOURCE CODE ESCROW AGREEMENT
THIS AGREEMENT, made and entered into this _____ day of ________________,
1997, by and between DATA TRANSMISSION NETWORK CORPORATION, a Delaware
corporation (hereinafter "DTN"), SMARTSERV ONLINE, INC., a Delaware corporation
(hereinafter "SSOL"), and __________________________, a ____________________
(hereinafter "Escrow Agent").
W I T N E S S E T H:
WHEREAS, SSOL and DTN have entered into a Software License and Service
Agreement (the "Service Agreement") pursuant to which SSOL has agreed to (i)
license to DTN certain proprietary software programs (the "Internet Software")
utilized to provide Internet Services (as such term is defined in the Service
Agreement) to DTN's customers and (ii) provide other services to DTN (the "SSOL
Services");
WHEREAS, SSOL and DTN have agreed to place the source code for the Internet
Software in escrow to be released to DTN upon breach of SSOL's obligations set
forth in the Service Agreement or this Agreement;
NOW, THEREFORE, in consideration of the above recitals which are made a
contractual part of this Agreement, and in consideration of the mutual
agreements, provisions and covenants set forth in this Agreement, the parties do
hereby agree as follows:
SECTION 1
DEFINITIONS
For the purposes of this Agreement, in addition to definitions set forth
elsewhere in this Agreement, the definitions set forth in this Section 1 shall
apply to the respective capitalized terms immediately preceding each definition.
1.1 "Agreement". This Source Code Escrow Agreement, including any exhibits,
addenda, amendments, and modifications hereto.
1.2 "Source Code". Human-readable computer programming code, associated
procedural code, commentary and related and supporting documentation,
corresponding to the Internet Software and all subsequent versions thereof to be
provided to DTN during the term of the Service Agreement. The Source Code in
present form is more fully described in Exhibit "A" to this Agreement.
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SECTION 2
REPRESENTATIONS AND WARRANTIES OF SSOL
2.1 Ownership of Source Code. SSOL warrants and represents to DTN that it
is the owner of and holder of all rights in the Source Code and that SSOL has
the right to grant to DTN the license rights to the Source Code pursuant to
Section 7.1 of this Agreement and to deposit the Source Code with Escrow Agent
pursuant to the terms of this Agreement.
2.2 Licensed Programs Correspond With Source Code. SSOL warrants and
represents to DTN that the Source Code to be deposited with Escrow Agent is the
most current version of the source code of the Internet Software and conforms to
the description set forth in Exhibit "A" to this Agreement.
SECTION 3
PURPOSE OF AGREEMENT; DEPOSIT OF SOURCE CODE
3.1 Deposit of Source Code. The deposit of the Source Code and the license
of the Source Code to DTN pursuant to Section 7.1 of this Agreement is intended
to provide assurance to DTN of full and unrestricted access and right of use of
the Source Code in the event that SSOL fails to provide SSOL Services under the
Service Agreement, ceases to do business or is otherwise in breach of its
obligations under the Service Agreement or this Agreement. Escrow Agent agrees
to accept from SSOL and SSOL agrees to deposit with Escrow Agent, within five
(5) days of the date of this Agreement, a copy of the Source Code. SSOL will
furnish to Escrow Agent a list describing all Source Code so deposited. The
Source Code to be initially deposited with Escrow Agent is described in Exhibit
"A" to this Agreement, and such descriptions will be supplemented and updated by
SSOL with each subsequent deposit of Source Code by SSOL with Escrow Agent.
3.2 Update And Maintenance of Source Code. During the term of this
Agreement, SSOL shall keep the Source Code in escrow fully current by depositing
with Escrow Agent the listings and all supporting documentation and related
materials for each and every update, correction, or new release of the Internet
Software. Such deposits will be completed no later than ten (10) days after the
date that SSOL provides such update, correction or new release to DTN for the
performance of the Internet Services.
3.3 Verification and Testing of Source Code. DTN, its agents, designees, or
representatives, shall, upon written notice to SSOL, have the right to inspect,
test, and review the Source Code (under obligations of confidentiality) at the
time of the initial deposit and at the time of each subsequent deposit of the
Source Code in escrow to verify that it corresponds to the Internet Software.
Such verification and testing shall be done under the supervision of SSOL or its
designee.
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SECTION 4
TITLE TO SOURCE CODE
4.1 Title to the Source Code shall remain in SSOL, but in the event the
Source Code shall be delivered to DTN pursuant to this Agreement, DTN shall be
entitled to use the Source Code pursuant to the terms of the license granted in
Section 7.1. Upon the expiration of the License Term defined in the Service
Agreement, the Escrow Agent or DTN, as the case may be, shall return the Source
Code to SSOL.
SECTION 5
RELEASE OF SOURCE CODE TO DTN
5.1 Release of Code. The copy of the Source Code to be deposited in escrow
pursuant to this Agreement shall be released to DTN only upon the occurrence of
one or more of the Escrow Release Events as defined in the Service Agreement.
5.2 Notice of Escrow Release Event. If DTN shall conclude in good faith
that an Escrow Release Event has occurred, DTN shall so notify SSOL in writing,
specifying in reasonable detail the occurrence of such event and a copy of such
notice will be served simultaneously upon Escrow Agent. Escrow Agent shall
immediately deliver the Source Code to DTN pursuant to the terms of this
Agreement.
5.3 Injunctive Relief. SSOL and DTN acknowledge and agree that DTN will
suffer irreparable harm to its business and operations in the event that release
of the Source Code to DTN pursuant to the terms of this Agreement is wrongfully
delayed by SSOL. DTN may petition any court of competent jurisdiction in
Nebraska for injunctive or other equitable relief to prevent SSOL from seeking
to delay such release or to otherwise enforce the provisions of this Agreement,
and SSOL hereby waives the claim or defense that DTN has or may have an adequate
remedy at law. SSOL hereby consents to personal jurisdiction in any action
brought in any court within the State of Nebraska having subject matter
jurisdiction arising under this Agreement.
SECTION 6
CONFLICTING PROVISIONS
6.1 In the event of any conflict between the provisions of the Service
Agreement and the provisions of this Agreement regarding the release of the
Source Code to DTN upon the occurrence of an Escrow Release Event, the
provisions of the Service Agreement shall control.
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SECTION 7
LICENSE OF SOURCE CODE
7.1 In the event that the Source Code shall be delivered out of escrow to
DTN pursuant to the terms of this Agreement, SSOL does hereby grant a license to
DTN for the License Term defined in the Service Agreement, to use, modify,
maintain, and update the Source Code in all such respects as may be necessary
for DTN to maintain and update the Internet Software to perform the Internet
Services in accordance with the description of such services in the Service
Agreement and the object code resulting from such use shall be owned by DTN.
SECTION 8
RIGHT OF ESCROW AGENT TO FILE INTERPLEADER ACTION
8.1 Despite any other provision of this Agreement, in the event Escrow
Agent shall receive conflicting demands from SSOL and DTN respecting the release
of the Source Code to DTN under this Agreement, Escrow Agent may, in its sole
discretion, file an interpleader action in any court of competent jurisdiction
in Nebraska and deposit the Source Code with the clerk of the court or withhold
release of the Source Code until instructed otherwise by court order.
SECTION 9
LIMITATION ON OBLIGATION OF ESCROW AGENT
9.1 Escrow Agent shall not be required to inquire into the truth of any
statements or representations contained in any notices, certificates, or other
documents required or otherwise provided under this Agreement, and Escrow Agent
shall be entitled to assume that the signatures on such documents are genuine,
that the persons signing on behalf of any party thereto are duly authorized to
execute the same, and that all actions necessary to render any such documents
binding on the party purporting to be executing the same have been duly
undertaken. Without limiting the foregoing, Escrow Agent may in its discretion
require from SSOL or DTN additional documents that it deems to be necessary or
desirable to aid it in the course of performing its obligations under this
Agreement.
SECTION 10
RELEASE AND INDEMNIFICATION OF ESCROW AGENT
10.1 SSOL and DTN, severally, hereby do release Escrow Agent from any and
all liability for losses, damages, and expenses (including attorney fees) that
may be incurred on account of any action taken by Escrow Agent in good faith
pursuant to this Agreement, and SSOL and DTN do hereby severally indemnify
Escrow Agent and undertake to hold harmless Escrow Agent from and against any
and all claims, demands, or actions arising out of or resulting from such
performance by Escrow Agent under this Agreement.
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SECTION 11
CONFIDENTIALITY AND USE OF SOURCE CODE
11.1 Confidentiality Undertaking. The Source Code released to DTN pursuant
to this Agreement shall be used by DTN solely for the purposes permitted by the
Service Agreement. DTN shall treat and preserve the Source Code as a trade
secret of SSOL in accordance with the same practices employed by DTN to
safeguard its own trade secrets against unauthorized use and disclosure.
SECTION 12
INDEPENDENT CONTRACTOR STATUS
12.1 The parties to this Agreement are and shall be independent contractors
under this Agreement, and nothing herein shall be construed to create a
partnership, joint venture, or agency relationship between the parties to this
Agreement. No party to this Agreement shall have the authority to enter into
agreements of any kind on behalf of the other parties to this Agreement in any
manner.
SECTION 13
CONTINUED ABILITY TO PERFORM OBLIGATIONS
13.1 The parties to this Agreement represent and warrant that they have
full power and authority to undertake the obligations set forth in this
Agreement and that they have not entered into any other agreements nor will they
enter into any other agreements that would render them incapable of
satisfactorily performing their respective obligations under this Agreement.
SECTION 14
TERM OF AGREEMENT
14.1 The term of this Agreement shall commence as of the date first above
written and shall continue until the Source Code shall be transferred to DTN
pursuant to the terms of this Agreement, or, if such transfer shall not have so
occurred, the Agreement shall terminate and the Source Code shall be returned to
SSOL at the end of the License Term as defined in the Service Agreement.
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SECTION 15
MISCELLANEOUS
15.1 Compliance With Laws. The parties agree that they shall comply with
all applicable laws and regulations of governmental bodies or agencies in their
respective performance of obligations under this Agreement.
15.2 No Undisclosed Agency; No Assignment. Each party represents that it is
acting on its own behalf and is not acting as an agent for or on behalf of any
third party and agrees that it may not assign its rights or obligations under
this Agreement without the prior written consent of the other parties to this
Agreement.
15.3 Notices. All notices or other communications required or permitted to
be given pursuant to this Agreement shall be given in writing by telecopier,
personal messenger, overnight courier who shall obtain a written receipt
therefor or by deposit thereof in the United States mail, registered or
certified, return receipt requested, to the following addresses:
If to DTN: Data Transmission Network Corporation
9110 W. Dodge Rd.
Omaha, Nebraska 68114
Attention: Eric Stokes
If to SSOL: SmartServ Online, Inc.
Metro Center
One Station Place
Stanford, CT 06902
Attention: Mario F. Rossi
If to Escrow Agent: ________________________________
All notices and other communications shall be deemed delivered on the date the
receipt acknowledges that they were personally delivered to the other party, or,
for all notices and communications sent by mail, at the time reflected on the
return receipt. Either party may change the address to which notices are to be
delivered and may specify a copy address to which copy of all notices must be
sent by giving notice to the other party in the manner herein provided.
15.4 Governing Law. All questions concerning the validity, operation,
interpretation, and construction of this Agreement shall be governed by and
determined in accordance with the laws of the State of Nebraska.
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15.5 No Waiver. No party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other parties of any of the provisions of this Agreement. Further, the
waiver by any party of a particular breach of this Agreement by any other party
shall not be construed as or constitute a continuing waiver of such breach or of
other breaches of the same or other provisions of this Agreement.
15.6 Partial Invalidity. If any part, term, or provision of this Agreement
shall be held illegal, unenforceable, or in conflict with any law of a federal,
state, or local government having jurisdiction over this Agreement, the validity
of the remaining portions or provisions of this Agreement shall not be affected
thereby.
15.7 Binding Agreement. The parties acknowledge that each has read this
Agreement, understands it, and agrees to be bound by its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
DATA TRANSMISSION NETWORK SMARTSERV ONLINE, INC.,
CORPORATION, a Delaware a Delaware corporation
corporation
By:/s/ Charles R. Wood By:/s/Sam Cassetta
-------------------------- ----------------------------
Charles R. Wood, Senior Vice President Sam Cassetta, Chairman & CEO
a _________________________,
By:___________________________
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of May 27, 1998, by
and among Data Transmission Network Corporation, a Delaware corporation
("Buyer"), and Donald W. Bowles, Excel Interfinancial Corporation, Charter
Financial Holdings, LLC, Steven L. Reynolds and Douglas Vanderbilt (collectively
the "Sellers" and individually a "Seller"). Donald W. Bowles is sometimes
referred to in this Agreement as "Bowles".
WHEREAS, each Seller is the owner, beneficially and of record, of the
number of shares of the Common Stock of National Datamax, Inc., a California
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;
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; and
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,
Sellers agree to sell, assign, transfer and deliver to Buyer on the Closing Date
(as defined herein), free and clear of any and all liens, claims and
encumbrances, good, valid and marketable title to all of the outstanding shares
of capital stock of the Company (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 Sellers, and Sellers agree to accept from Buyer as
the entire purchase price for the Shares, the following amounts:
(a) Buyer shall pay to each Seller on the Closing Date the amount set
forth opposite such Seller's name in Schedule 1 attached hereto,
being an aggregate amount of Two Million Dollars ($2,000,000).
(b) Sellers will be paid pro rata, based on their percentage ownership
of the Shares, 640% of the amount (the "Excess Amount"), if any,
by which the Recurring Revenue (as hereinafter defined) for each
of the calendar quarters ending June 30, 1998, September 30, 1998,
December 31, 1998, March 31, 1999, and June 30, 1999 exceeds the
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Base Amount (as hereinafter defined). Such payments shall be made
within thirty (30) days after the end of each such calendar
quarter. Recurring Revenue shall mean all revenue received by the
Company which is based on repeating revenues or fees from its
customers including, but not limited to, subscription revenues,
maintenance fees, advertising revenues, and access or usage fees.
The Base Amount shall mean at the time of determination the
greater of (i) $338,087 or (ii) the highest Recurring Revenue for
any calendar quarter subsequent to the calendar quarter ended
March 31, 1998, and preceding the calendar quarter for which the
amount is being determined. The calendar quarter referred to in
clause (ii) as having the highest Recurring Revenue will be the
last calendar quarter for which there was an Excess Amount. As an
example, if the Recurring Revenue for the calendar quarter ending
June 30, 1998 is $300,000 (consequently, there being no Excess
Amount for such quarter) and the Recurring Revenue for the
calendar quarter ending September 30, 1998 is $388,087, then the
Excess Amount for such later calendar quarter is $50,000. If in
the calendar quarter ending December 31, 1998, the Recurring
Revenue is $438,087, then the Excess Amount for such quarter would
be $50,000.
(c) Sellers will be paid pro rata, based on their percentage ownership
of the Shares, 80% of all Non-recurring Revenue (as hereinafter
defined) received by the Company after the Closing Date and before
July 1, 1999. Such payments shall be made quarterly on or before
the date thirty days after the end of each calendar quarter.
Non-recurring Revenue shall mean all revenue received from sales
made or services rendered by the Company other than Recurring
Revenue (as defined above). Non-recurring Revenue shall not
include income from extraordinary items as determined pursuant to
generally accepted accounting principles.
1.03 Closing. The sale referred to in Section 1.01 (the "Closing")
shall take place at the office of the Company at 16955 Via Del Campo, Suite 215,
San Diego, California, on June 1, 1998, or at such later date as the parties
hereto shall by written instrument designate. 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 as of
the Closing Date, Sellers (without qualification in the case of Donald W. Bowles
and to their actual knowledge without inquiry in the cases of Sellers other than
Donald W. Bowles) each jointly and severally represents and warrants to Buyer as
follows:
2.01 Organization and Qualification. At the Closing Date, the Company
will be a corporation duly organized, validly existing and in good standing
under the laws of California and will have all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. California is the only jurisdiction in which the Company is qualified
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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. The authorized capital stock of
the Company consists of 10,000,000 shares of common stock, no par value (the
"Common Stock"), of which 873,300 shares are issued and outstanding as of the
date hereof and no shares are held in the Company's treasury. Sellers are the
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 this Agreement, there are no outstanding options, warrants,
calls or other rights to subscribe for or purchase or acquire from the Company
or Sellers 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. Each Seller represents and warrants only
with respect to that Seller and not with respect to any other Seller, that such
Seller (i) has good, valid and marketable title, beneficially and of record, to
the respective Shares set forth opposite his 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 or its ownership of record of such Shares, and (iii) at the
Closing Date, will have full right, power and authority to sell, transfer,
convey and deliver to Buyer, in accordance with the terms of this Agreement,
good, valid and marketable 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.
2.03 Subsidiaries. (a) The Company has no subsidiaries. Except as set
forth on Schedule 2.03, there is no corporation, partnership, joint venture or
other person or entity in which the 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. At the Closing Date, each Seller will have full power, capacity and
authority (corporate or otherwise) to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. At the Closing Date, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will have been duly and validly authorized on
behalf of all Sellers and no other proceedings on behalf of Sellers are or will
be 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) at the
Closing Date will constitute a legal, valid and binding agreement of Sellers,
enforceable against Sellers in accordance with its terms, subject to bankruptcy,
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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, neither the execution and delivery of this Agreement by Sellers,
nor the consummation of the transactions contemplated hereby, nor compliance by
any Seller with the provisions hereof, will (i) require 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 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; (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
Seller; (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 the Company or
any Seller is a party, or by which the Company or any Seller or any of their
respective properties or assets may be bound; or (iv) violate any order, writ,
injunction, decree or judgment of any court or governmental authority applicable
to the Company or any Seller or any of their material assets (provided, however,
as to this Section 2.05, each Seller so represents and warrants only with
respect to the Company and that Seller and not with respect to any other
Seller).
2.06 Financial Statements. Sellers have delivered to Buyer the
unaudited balance sheet of the Company as of April 30, 1998, and the statements
of income for the year ended December 31, 1997, and the three month period ended
March 31, 1998 (the "Financial Statements"). The 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 April 30, 1998 and
the results of operations for the year ended December 31, 1997, and the three
month period ended March 31, 1998, on a cash basis and otherwise in conformity
with generally accepted accounting principles. The 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.
2.07 Undisclosed Liabilities. Except (i) as provided for in the
Financial Statements, (ii) as disclosed in Schedule 2.07 or as specifically
identified on other Schedules to this Agreement or (iii) for normal trade
obligations incurred in the ordinary course of business subsequent to April 30,
1998, consistent with past practices, the Company has no liabilities or
obligations in excess of $10,000 individually or $25,000 in the aggregate of any
kind or nature, whether known or unknown or secured or unsecured (whether
absolute, accrued, contingent or otherwise, and whether due or to become due).
2.08 Absence of Certain Changes or Events. Except (i) as set forth in
Schedule 2.08, (ii) as disclosed in the other Schedules hereto, or (iii) as
reflected in the Financial Statements, since April 30, 1998, the Company has not
(a) taken any action specified in Sections 4.01 (a)-(o) herein (other than
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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, the Company does not own any real property. All of the properties, rights
and assets, tangible and intangible, now used in or, to the best knowledge of
Sellers, sufficient for the conduct by the Company of its business as presently
conducted will be indirectly transferred to Buyer by its purchase of the Shares.
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
not yet due, (ii) Liens which do not affect the use by, or value to, the Company
of its rights and assets, or (iii) Liens set forth on Schedule 2.09. 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, 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 permits, leases, contracts,
commitments, licenses and, to the best knowledge of Sellers, applicable laws.
With respect to all buildings which are owned or leased by the Company, except
for restrictions under applicable zoning laws and ordinances, to the best
knowledge of Sellers, no condition, law or regulation precludes or restricts the
use of such properties for the purposes for which they are used.
(c) All of the material assets used in the business of the Company are
in reasonably good and serviceable condition in accordance with industry
practice and as such are, to the best knowledge of Sellers, adequate to conduct
the business of the Company.
2.10 Material Contracts. Except as set forth in Schedule 2.10, 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
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of business or to compete with any other person or in any area, (h) any other
agreement, contract or commitment which involves $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
copies of all such written contracts, commitments, agreements or arrangements
described on Schedule 2.10 will have been made available to Buyer prior to
Closing. To the best knowledge of Sellers, Schedule 2.10 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, there is not, under any of the Material Contracts, any default or
event which, with notice or lapse of time or both, would constitute a default on
the part of the Company. Neither the Company nor any Seller has received any
notice from the other party to such Material Contracts of the termination or
threatened termination thereof and no Seller knows of the occurrence of any
event which would allow such other party to terminate such Material Contract
except as otherwise disclosed in the Schedules hereto. Except as set forth on
Schedule 2.10 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 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, 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 identifies the eighteen
(18) agreements in effect on the date of this Agreement that yielded the
greatest amount of Recurring Revenues to the Company for the calendar quarter
ended March 31, 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, 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;
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(b) Prior to Closing Bowles 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, 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;
(e) Except as set forth on Schedule 2.11, 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, 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, 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 hereto 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 $5,000. All
rents and additional rent due to date and to the Closing Date on such leases
have and will 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, 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.
(a) Schedule 2.13 contains a complete list of all trademarks, trade
names, assumed names, service marks, logos, patents, copyrights and copyright
registration, and any applications for registration 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 Proprietary Rights are used in or 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 the Company owns sufficient
right, title and interest in and to the material Proprietary Rights for the
conduct of its business. No material Proprietary Rights used by the Company
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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 Seller knows of any basis for such claim. The
Company has taken all 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, the consummation of the transactions
contemplated hereby will not alter or impair any such rights. Except as set
forth on Schedule 2.13, 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
any computer programs, databases or software used by the Company shall have been
made available to Buyer. The Company owns, leases or licenses and has the 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, all such computer programs,
databases and software and the source codes thereof, if applicable, have been
maintained only at the Company's offices at 16955 Via Del Campo, Suite 215, San
Diego, California. Except in the ordinary course of its business or as set forth
in Schedule 2.13, 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. The occurrence in or use by such
computer programs, databases and software of dates on or after January 1, 2000
("millennial dates") will not adversely affect the performance thereof with
respect to data dependent data, compilations, output, or other functions
(including but not limited to calculating, comparing and sequencing) and that
such computer programs, databases and software will create, store, process and
output information related to or including millennial dates without error or
omissions.
2.14 Litigation. Schedule 2.14 sets forth a complete list and an
accurate description of all claims, actions, suits, proceedings and
investigations pending and threatened, by or against or involving the Company or
its business and, in the case of collection claims, those involving claims in
excess of $10,000. No 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. The Company does 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
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, has
contributed to or has ever been obligated to contribute 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
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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 is a Group Medical Insurance Plan (the
"Company Plan"). A copy of the Company Plan has been furnished to Buyer.
(ii) To the best knowledge of Sellers, with respect to the Company
Plan:
(A) to the extent it 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);
(C) to the extent it is a group health plan (as such term is defined in
Code Section 162 (i)(3)), it 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) it 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 licenses, franchises,
permits and other governmental authorizations and, to the best knowledge of
Sellers, 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. Except as set forth on Schedule
2.16, 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, (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
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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 Bowles
believes to be sufficient for compliance with all requirements of law and of all
agreements to which the Company is a party and which 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 Closing Date will 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, the Company
has filed or will file or cause to be 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 Closing Date to be filed by, or with
respect to, it. Such returns and reports accurately reflect all liability for
taxes of the Company 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 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, (i) the Company is not
delinquent in the payment of any Taxes (as defined in Section 6.03 hereof), and
(ii) no extensions of time have been granted to the Company to file any return
required by applicable law to be filed by it prior to or on the Closing Date,
which have expired or will expire on or before the Closing Date 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").
(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, 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.
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2.20 Transactions with Affiliates. Except as expressly provided in this
Agreement or as set forth in Schedule 2.20, 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 of their affiliates. Except
as set forth on Schedule 2.20, neither Bowles nor any of his affiliates 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 persons known by any Seller 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, the
accounts receivable reflected on the April 30, 1998 balance sheet contained in
the Financial Statements and all accounts receivable arising between April 30,
1998 and the date hereof arose from bona fide transactions in the ordinary
course of business. Except as set forth on Schedule 2.21, 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. The amount
of all accounts receivable, unbilled invoices and other debts due or recorded in
the records and books of account of the Company as being due to the Company at
the Closing Date less the amount of $20,000 are good and collectible in full in
the ordinary course of business.
2.22 Environmental Matters. Except as set forth in Schedule 2.22:
(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 best knowledge of Sellers, there are no conditions at, on,
under or related to, the real property constituting the premises upon which the
business of the Company is conducted or otherwise owned, occupied or leased 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. To the best knowledge of Sellers, except
as set forth in Schedule 2.22, 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.
2.23 Brokers and Finders. No Seller has employed any broker or finder
and no broker or finder is entitled to any brokerage fees, commissions or
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finder's fees arising from any act, representation or promise of any of them in
connection with the transactions contemplated hereby; provided, however, each
Seller so represents and warrants only with respect to that Seller and not with
respect to any other Seller.
2.24 Books and Records. The minute books of the Company, as previously
made available to Buyer, contain accurate records in all material respects 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, 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 and direct control of the Company.
2.25 Bank Accounts. Sellers 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.
2.26 Other Information. The information furnished to Buyer by Bowles or
the Company or pursuant to this Agreement, including the exhibits hereto, the
schedules identified herein, and in any certificate or other document executed
or delivered pursuant hereto by Sellers (which for purposes of this Agreement
shall be deemed to be representations and warranties), is not materially false
or misleading, does not contain any misstatement of material fact, and does not
omit to state any material fact required to be stated in order to make the
statements therein not misleading in light of the circumstances under which they
were made.
2.27 No Changes Prior to Closing Date. During the period from the date
hereof to and including the Closing Date, the Company will not have taken any of
the actions specified in Section 4.01(a)-(o), without the prior written consent
of Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof and as of the Closing Date, Buyer represents and
warrants to 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 full 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
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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)
constitutes a legal, valid and binding agreement of Buyer, enforceable against
Buyer in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy and other laws of general application relating to
creditors' rights and 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 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) 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.
3.05 Brokers and Finders. Buyer has not employed any broker or finder
and, to Buyer's knowledge, 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.
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3.07 Access and Information. Between the Closing and June 30, 1999,
Buyer and its representatives shall and shall cause the Company and its
representatives to afford Bowles on behalf of Sellers and their representatives
full and free access to the Company's personnel, properties, contracts, books
and records, and other existing documents and data as Sellers may reasonably
request, and furnish Sellers with such additional financial, operating and other
data and information as Sellers may reasonably request to confirm compliance
with the terms of this Agreement. Such information shall be subject to the
restrictions set forth in Section 4.02 (b) of this Agreement.
3.08 Maintenance of Company Powers. Between the Closing and June 30,
1999, Buyer shall maintain and preserve the corporate existence of the Company
and all rights, privileges, licenses, trade names, franchises and other rights,
the absence of which would have a material adverse affect on the conduct of its
business; conduct its business in an orderly manner, without voluntary
interruption; maintain its properties in good working order and condition,
ordinary wear and tear and damage by casualty excepted; and from time to time
make all needed repairs to, and renewals or replacements of its properties so
that the efficiency of those properties shall be fully maintained and preserved.
3.09 Maintenance of Business Organization. Between the Closing and June
30, 1999, Buyer shall use its good faith efforts to maintain the relations and
good will of all material customers of the Company.
3.10 Continuation of Business. Between Closing and June 30, 1999, Buyer
shall continue to conduct the business operations of the Company in a
commercially reasonable manner calculated in good faith to increase the
Recurring Revenue and Non-Recruiting Revenue of the business of the Company.
3.11 Affirmative Undertakings. Without limiting the generality of
Section 3.10, Buyer specifically undertakes and agrees for the period commencing
on Closing and ending June 30, 1999, as follows:
(a) it will continue marketing support for the products and
services of the Company by providing funding, personnel and management support
for such efforts at levels not less than those provided in the ordinary course
of business prior to Closing;
(b) it will continue product development and enhancement efforts
for the Company's products and services by providing funding, personnel and
management support for such efforts at levels not less than those provided in
the ordinary course of business prior to Closing;
(c) it will maintain price structures for the products and
services of the Company in a commercially reasonable manner intended in good
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faith, along with the marketing plans for such products and services, to
increase the Recurring Revenues and Non-Recurring Revenue of the Company;
(d) it will use its good faith efforts to maintain market
identity and product integrity for each of the material products and services of
the Company and will market such products and services in a commercially
reasonable manner intended in good faith to increase Recurring Revenue and
Non-Recurring Revenue of the Company.
(e) it will maintain in full force and effect all existing
agreements between the Company and Buyer or modify such agreements only in a
commercially reasonable manner intended in good faith to increase the Recurring
Revenue and Non-Recurring Revenue of the Company and will neither cause nor
permit the occurrence of any event constituting, either currently or with the
passage of time, a breach or default by the Company or Buyer thereunder, subject
to applicable cure periods;
(f) it will use commercially reasonable efforts to maintain the
Major Customer Contracts in full force and effect in accordance with their terms
as of the Closing or modify such agreements only in a commercially reasonable
manner intended in good faith to increase the Recurring Revenue and
Non-Recurring Revenue of the Company and shall not cause or permit the
occurrence of any event constituting, either currently or with the passage of
time, a breach or default by the Company, subject to the applicable cure
periods, with respect to any such contract.
3.12 Negative Covenants. During the period from Closing to June 30,
1999, Buyer will not cause or permit the Company to:
(a) except as required by or necessary to bring in compliance
with generally accepted accounting principles (A) utilize accounting principles
different from those used in the preparation of the Financial Statements, (B)
change its method of maintaining its books or accounts and records from such
methods as in effect with respect to the preparation of the Financial Statements
so as to cause a material adverse affect in the financial condition of the
Company or its operations taken as a whole, 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;
(b) in any manner which would have a material adverse affect on
the financial condition of the Company or its operations taken as a whole,
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 lists;
(c) terminate or amend to fail to perform all of its obligations
under any material contract; or
(d) enter into an agreement to do any of the things described in
clauses 3.12 (a) through (c).
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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, Sellers will cause the Company to
(i) conduct its business and operations according to its ordinary course of
business consistent with past practice except as otherwise provided in this
Section 4.01, (ii) use its 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 Sellers and Buyer, and (iii) use its best efforts
to maintain the Major Customers Contracts in full force and effect in accordance
with their terms up to the Closing Date. Without limiting the generality of the
foregoing, prior to the Closing without the prior written consent of Buyer,
Sellers 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 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 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 amend in a material respect any
existing agreement to provide services or, by action or failure to act, renew or
cause to be renewed any Major Customer Contract or other customer contracts
designated by Buyer in writing in effect at the date hereof;
(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;
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(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;
(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 $10,000 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
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 or amend or fail to perform all of its obligations under
any Material Contract; or
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(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, Bowles 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.
4.03 Access to Information. (a) Between the date of this Agreement and
the Closing Date, Sellers 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 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.
(b) After the Closing Date, Sellers will, and will cause all of its
advisors, agents and affiliates (collectively, "representatives"), to maintain
all information, written or oral, specifically concerning the business of the
Company and unique to such business (the "Information") in confidence and not to
disclose any portion of such Information to any person or entity. In the event
that any Seller or any of their representatives is requested or required (by
oral question or request for information or documents in legal proceedings,
interrogatories, subpoena, civil investigative demand or similar process) to
disclose any Information, it is agreed that Buyer will be promptly notified of
such request or requirement so that it may seek an appropriate protective order,
and/or waive compliance with the provisions of this Section 4.03(b). If Buyer
does not promptly seek and obtain a protective order, any Seller or any of their
representatives may disclose such Information to the tribunal notwithstanding
the first sentence of this Section 4.03(b); provided that such person shall use
its reasonable best efforts to obtain, at the request of Buyer, reasonable
assurance that confidential treatment will be accorded to such portion of the
Information required to be disclosed as Buyer designates. The foregoing
provisions of this Section 4.03(b) shall not apply to (i) Information which at
the time of disclosure, is generally available to the public, or (ii)
Information which, after disclosure, becomes generally available to the public
other than as a consequence of a breach of this Section 4.03(b).
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 and expense (it being understood, however, that all
reasonable legal and accounting fees and expenses so incurred by Bowles shall be
paid by the 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. 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 assets of the
Company, 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.
4.06 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.
4.07 Filings. Buyer and Sellers will file pursuant to applicable
securities laws all requisite documents and notifications in connection with the
transactions contemplated by this Agreement. Buyer and each Seller will
coordinate and cooperate with each other in exchanging such information and
providing such reasonable assistance as the others may require to comply with
applicable securities laws.
4.08 Disclosure Supplements. From time to time prior to the Closing,
Sellers will promptly supplement or amend the Schedules ("Disclosure
Supplements") 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, 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.
4.09 Public Announcements. Sellers 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 transactions contemplated
hereby.
4.10 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 Sellers, and 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.
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4.11 No Solicitation. Sellers shall not, and 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"). Sellers will
suspend any pre-existing discussions involving any Acquisition Proposal and will
immediately advise Buyer if the Company or any Seller receives 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 Closing Date, Sellers 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, Sellers 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.
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) Bowles and Buyer shall have entered into as of the Closing Date the
agreement referred to in Section 7.01 and otherwise performed their respective
obligations under Article VII.
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 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, 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) Sellers shall have received an opinion from counsel to Buyer, dated
the Closing Date, to the effect set forth in Exhibit A hereto.
(c) Buyer shall have delivered to Sellers 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 and approvals, if
any, necessary to permit Sellers to consummate the transactions contemplated by
this Agreement shall have been received.
(f) All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto 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 the 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, and Buyer shall have received certificates to that effect signed by
Sellers 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 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.
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(b) Sellers 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 California, (ii) 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, and (iii) a certificate as
to the tax status of the Company in the State of California .
(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, the results of operations, or prospects of the Company, from April
30, 1998, and Sellers shall have delivered to Buyer a certificate, dated the
Closing Date, to such effect.
(d) No action or proceedings which have a reasonable likelihood of
success shall have been instituted or, to the best knowledge of Sellers,
threatened by any governmental body or authority to restrain or prohibit any of
the transactions contemplated hereby.
(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 by the parties hereto.
(f) Other than as disclosed in the schedules attached hereto, the
Company shall not have received any notice of cancellation of any Major Customer
Contract or real property lease or have any basis to believe any such
cancellation may occur.
(g) Buyer shall have received an opinion from counsel to Sellers, dated
the Closing Date, in form and substance satisfactory to Buyer and its counsel,
to the effect set forth in Exhibit B hereto.
(h) No injunction or other court order requiring that any part of the
business or assets of any 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.
(i) The Company shall not have taken any of the actions set forth in
Section 4.01(a) - (o) without the prior written consent of Buyer.
(j) 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) and directors of the Company as Buyer may request at
least 3 business days prior to Closing.
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(k) 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.
(l) Buyer and its counsel shall have approved (which approval shall not
be unreasonably withheld) (i) the form of stock certificate and related
instruments of transfer to be delivered to Buyer at the Closing, (ii) all other
proceedings to be effected at the Closing or otherwise in connection with the
transactions contemplated by this Agreement, and (iii) 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, provided that (x) any claim for indemnification which is asserted
within the time period set forth in Section 6.02(e) shall survive such one year
period, for the period set forth in such Section, and (y) claims under Section
6.03 with respect to liability for Taxes which are asserted prior to the
expiration of the applicable statute of limitation (including any extension
thereof) respecting such Tax liability or obligation shall also survive such one
year period for the period set forth in such Section.
6.02 Post-Closing Indemnification. (a) From and after the Closing Date,
Bowles shall 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 and in Section 6.03, any inaccuracy in or
breach of or omission from any of the representations or warranties made by
Bowles 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 Bowles in this Agreement to the extent not
waived by Buyer in writing; (ii) except for matters referred to in clause (iii)
hereof and in Section 6.03, any claim, action, suit, proceeding or investigation
of any kind relating to or arising from events occurring prior to the Closing
Date, instituted by or against or involving the Company or any of its business
or assets (other than those claims, actions, suits, proceedings and
investigations set forth in Schedule 2.14 of the Disclosure Schedule) regardless
of whether such claims, actions, suits, proceedings or investigations are made
or commenced before or after the Closing Date, provided that Damages relating to
claims, actions, suits, proceedings and investigations that relate to events
occurring both before and after the Closing Date shall be equitably allocated
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between Buyer and Sellers and; (iii) the failure or inability of the Company to
collect all accounts receivable reflected on the Financial Statements less the
amount of $20,000, provided, however, the Company and Buyer shall have used all
customary methods to collect such accounts receivable and provided further, that
if Bowles shall be required to pay any amounts hereunder, Buyer or the Company
shall assign uncollected accounts receivable to Bowles, who may use all
necessary reasonable means to collect it, including bringing an action in the
name of the Company.
(b) 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.
(c) From and after the Closing Date, each Seller other than Bowles
shall defend, indemnify and hold harmless the Buyer Indemnitee Group against and
in respect of any and all Damages 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 III 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.
(d) 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 thirty
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
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indemnified party or any of its affiliates, provided, however, 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.
(e) Claims for indemnification made under this Section 6.02 shall be
made within a period of one year from the Closing Date, provided, however,
notwithstanding the foregoing, claims for indemnification with respect to any
action, lawsuit, proceeding or investigation of any kind relating to or arising
out of the matters referred to in Section 6.02(a)(ii) and claims for
indemnification pursuant to Section 6.02(a)(iii) may be made within five years
from the Closing Date.
6.03 Tax Indemnity, Etc.
(a) Bowles shall be responsible for and pay all Taxes attributable to
the Company or its subsidiaries or for which the Company is liable for any
period or portion of a period that ends on or before the Closing Date
("pre-Closing Date") which have not been paid or adequately provided for in the
Financial Statements. Such Taxes shall include but not be limited to the Taxes
of any member of an affiliated group of which the Company was a member for
federal income tax purposes or any entity with which the Company filed a
combined return for state or local tax purposes.
(b) Subject to Section 6.04, Bowles shall indemnify Buyer, the Company
and their affiliates and their respective successors and assigns (each, a "Tax
Indemnified Party", and collectively, "Tax Indemnified Parties") against and
hold the Tax Indemnified Parties harmless on an after-tax basis from all
liability, loss or damage and from all expenses paid to third parties (including
reasonable attorneys' fees) with respect to all such Taxes described in the
immediately preceding clause (a) which are in excess of U.S. $5,000.
(c) If, in connection with the audit of any federal, state, local or
foreign return, any claim or demand is asserted in writing against a Tax
Indemnified Party which may result in a claim for indemnification under this
Section 6.03, such party shall notify Bowles of such claim or demand within
twenty-five (25) days of receipt thereof. Bowles shall have the right to control
at his own cost and expense, the defense of such claim or demand, provided,
however, he shall consult with Buyer with respect to such defense, and he shall
not compromise or settle such claim or demand without the consent of Buyer if
such compromise or settlement would adversely affect Buyer, which consent shall
not be unreasonably withheld. Subject to the foregoing, the Tax Indemnified
Party shall cooperate fully in such defense as and to the extent reasonably
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requested by Bowles. In the event Bowles does not timely pursue the defense of
the matter, the Tax Indemnified Party shall have the full right to defend
against such liability, and shall be entitled to settle or agree to pay in full
such claim or demand in its sole discretion and thereafter pursue its rights
under this Agreement.
(d) Bowles shall pay to the Tax Indemnified Party all indemnity amounts
within thirty (30) days after written demand therefor, or, if they timely
contest a claim or demand, within thirty (30) days after the matter is settled
or finally determined.
(e) Bowles and Buyer shall cooperate fully with each other in
accordance with the reasonable request of the other party, in connection with
any audit, litigation or other proceeding with respect to the Tax liability of
the Company and the preparation of any tax return with respect to the Company.
Such cooperation shall include the retention, and upon a party's request, the
provision to the other parties of records and information which are reasonably
relevant to any such proceeding or return, as well as making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Strict confidentiality shall be maintained
for such records and information.
(f) For purposes of this Section 6.03, in the case of any Taxes that
are imposed on a periodic basis and are payable for a period that begins before
the Closing Date and ends after the Closing Date, the portion of such Tax
payable for the period ending on the Closing Date shall (i) in the case of any
property taxes and other taxes determined at a fixed rate for a period, be
deemed to be the amount of such Tax for the entire period multiplied by a
fraction the numerator of which is the number of days in the period ending on
the Closing Date and the denominator of which is the number of days in the
entire period, and (ii) in the case of any other Taxes, be deemed equal to the
amount which would be payable if the taxable year ended on the Closing Date.
(g) 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
shall be terminated as of the Closing Date with respect to the Company. 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.
Subject to Section 6.04, the foregoing indemnity obligations of Bowles and the
covenants and agreements of the parties contained in this Section 6.03 shall
survive the Closing and be applicable for the applicable statute of limitations
(as such may be waived or extended).
(h) 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.
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6.04 Limitation on Indemnification. (a) Notwithstanding the provisions
of Sections 6.02 and 6.03 hereof, (i) Bowles shall not be obligated to indemnify
and hold harmless the Buyer Indemnitee Group and the Tax Indemnified Parties
unless and until the aggregate amount of all claims for which indemnification is
sought under Sections 6.02 and 6.03 exceeds Fifty Thousand Dollars ($50,000),
and then only as to the amount by which aggregate claims thereunder exceed
$50,000 and (ii) the aggregate liability with respect to the indemnifications
contained in Sections 6.02 and 6.03 shall not exceed ten percent (10%) of the
aggregate cash consideration paid or to be paid to Bowles pursuant to Sections
1.02 and 7.02 hereof; provided, however, the limitations contained in this
Section 6.04 shall not apply to an inaccuracy in or breach of the
representations and warranties of Bowles in Section 2.02 hereof, for which there
shall be no limitations (either minimum thresholds or maximum amounts)
applicable to the indemnifications therefore contained in Section 6.02(a)(i).
Notwithstanding the provisions of Section 6.02 hereof, Buyer shall not be
obligated to indemnify and hold harmless Sellers until the aggregate of all
claims for which indemnification is sought under Section 6.02 exceeds Fifty
Thousand Dollars ($50,000), and then only as to the amount by which aggregate
claims thereunder exceed $50,000.
(b) Except for liability provided for in Section 8.02(b) hereof and the
remedy of specific performance provided for in Section 9.12 hereof, Buyer
acknowledges and agrees that its sole and exclusive remedy with respect to any
and all claims relating to any inaccuracy in or breach of or omission from any
of the representations or warranties made by Bowles in Article II of this
Agreement shall be pursuant to the indemnification provisions set forth in this
Article VI. Except for liability provided for in Section 8.02(b) hereof and the
remedy of specific performance provided for in Section 9.12 hereof, Sellers
acknowledge and agree that their sole and exclusive remedy with respect to any
and all claims relating to any inaccuracy in or breach of or omission from any
of the representations or warranties made by Buyer in Article III of this
Agreement shall be pursuant to the indemnification provisions set forth in this
Article VI.
ARTICLE VII
ADDITIONAL AGREEMENTS WITH BOWLES
7.01 Non-Competition. At the Closing, Bowles and Buyer shall execute
and deliver to each other the Confidentiality and Non-competition Agreement in
the form attached hereto as Exhibit C, dated as of the Closing Date.
7.02 Purchase of Bowles' Goodwill. Subject to the Closing, Bowles
agrees to sell, assign and transfer to Buyer on the Closing Date, and Buyer
agrees to purchase all of the individual and personal goodwill of Bowles
pertaining to or arising out of the business of developing software and
providing financial and communication services for the financial services
industry (the "Goodwill"). Although the Goodwill was used by Bowles in the
conduct of the business of the Company up to the date of this Agreement, it is
acknowledged by Sellers to be a separate and valuable asset of Bowles apart from
the goodwill of the Company. Concurrently with the Closing, Bowles shall assign
the Goodwill to Buyer, free and clear of all liens, claims and encumbrances, by
a duly executed assignment in form reasonably requested by Buyer. In full
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consideration for the purchase by Buyer of the Goodwill, Buyer shall pay to
Bowles (i) 160% of the Excess Amount (as defined in Section 1.02(b)) for each of
the calendar quarters ending June 30, 1998, September 30, 1998, December 31,
1998, March 31, 1999, and June 30, 1999 and (ii) 20% of the Non-recurring
Revenue (as defined in Section 1.02(c)) received by the Closing after the
Closing Date and before July 1, 1999. Such payments shall be made quarterly
simultaneously with the payments to Sellers as provided in Section 1.02 (b) and
(c) hereof. Buyer shall have a right of setoff against these payments for any
liability of Bowles to Buyer pursuant to this Agreement.
7.03 Inactive Software Systems. All ownership and rights of the Company
to its currently inactive software systems known as "Mutual Fund and Variable
Annuity Hypothetical System" and "Wholesaler System", only to the extent
separable from other software programs or systems of the Company, will be
transferred to Bowles on or prior to the Closing Date, subject to (i) Buyer's
right of first refusal to acquire such software systems in the event of their
subsequent disposition or transfer; and (ii) such software systems not being
used in a manner which, if used by Bowles, would violate the restriction against
competition contained in the Confidentiality and Non-Competition Agreement
attached as Exhibit C hereto.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.01 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual consent of Sellers and Buyer; or
(b) by either Buyer or Bowles if the Closing shall not have occurred on
or before May 25, 1998 or such later date as may be agreed upon by Buyer and
Bowles.
8.02 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 8.01, 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 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 4.04, and (ii) solely with respect to terminations pursuant
to Section 8.01(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
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the extent provided by law; provided, however, that this subsection (b) (ii)
shall not be construed to limit the remedies otherwise available with respect to
such defaulting party.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of Buyer and Sellers.
9.02 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
9.02.
9.03 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.
9.04 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:
Donald W. Bowles
16955 Via Del Campo, Suite 215
San Diego, California 92127
with a copy to:
Fisher Thurber LLP
4425 Executive Square, Suite 1600
LaJolla, CA 92037
Attn: David A. Fisher
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(b) if to Buyer, to:
Data Transmission Network Corporation
9110 West Dodge Road
Suite 200
Omaha, Nebraska 68114
Attn: Charles R. Wood, Sr. Vice President
with a copy to:
Abrahams Kaslow & Cassman
8712 West Dodge Road
Suite 300
Omaha, Nebraska 68114
Attn: R. Craig Fry
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).
9.05 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.
9.06 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.
9.07 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.
9.08 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.
9.09 Entire Agreement. This Agreement, including the Exhibits hereto
and the 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.
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9.10 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.
9.11 Severability. The parties hereto acknowledge that the provisions
of this Agreement, including the territorial and time limitations set forth in
Section 7.01 hereof, are reasonable under the circumstances. The parties intend
that the covenants contained in Section 7.01 (a) and (b) shall be construed as
separate covenants as to each city, county and state in the United States in
which the Company is conducting business as of the Closing. 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.
9.12 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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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
Date: May 27, 1998 /s/ Charles R. Wood
-------------------------------
Charles R. Wood, Sr. Vice President
Date: May 28, 1998 /s/ Donald W. Bowles
----------------------------
Donald W. Bowles
EXCEL INTERFINANCIAL CORPORATION
Date: May 28, 1998 /s/ Richard Muir
----------------------------------
Richard Muir, Executive Vice President
CHARTER FINANCIAL HOLDINGS, LLC
Date: May 29, 1998 /s/ John L. O'Donnell
---------------------------------
John L. O'Donnell, Manager
Date: May 28, 1998 /s/ Steven L. Reynolds
--------------------------------
Steven L. Reynolds
Date: May 28, 1998 /s/ Douglas Vanderbilt
--------------------------
Douglas Vanderbilt
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<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Percentage of
Name and Number of Payment Due Balance of
Address Of Seller Shares Owned at Closing Purchase Price
<S> <C> <C> <C>
Donald W. Bowles 790,000 $1,809,200 90.46%
Excel Interfinancial 13,300 $ 30,400 1.52%
Corporation
Charter Financial 10,000 $ 23,000 1.15%
Holdings, LLC
Steven L. Reynolds 45,000 $ 103,000 5.15%
Douglas Vanderbilt 15,000 $ 34,400 1.72%
------- ---------- -----
TOTALS 873,300 $2,000,000 100%
</TABLE>
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EXHIBIT A
(Opinion of AK&C)
Dated _______________ ,1998
Mr. Donald W. Bowles
16955 Via Del Campo, Suite 215
San Diego, California 92127
Dear Mr. Bowles:
We have acted as counsel to Data Transmission Network Corporation (the
"Company"), a Delaware corporation, in connection with the Company's purchase of
all of the issued and outstanding capital stock of National Datamax, Inc.
pursuant to that certain Stock Purchase Agreement dated as of May ___, 1998,
among all of the stockholders of National Datamax, Inc. and the Company (the
"Agreement"). This opinion is being rendered to you pursuant to Section 5.02(b)
of the Agreement. Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Agreement.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion, including those relating to the authorization, execution and delivery
of the Agreement. We reviewed the following documents and agreements:
(i) the Agreement;
(ii) the Certificate of Incorporation of the Company as certified
by the Secretary of State of the State of Delaware (the
"Certificate of Incorporation");
(iii) the Bylaws of the Company as certified by the Secretary of the
Company on the date of this opinion letter (the "Bylaws"); and
(iv) actions taken by the Board of Directors of the Company to
authorize the transactions contemplated by the Agreement.
In such examination and review we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. As to any facts material to the
opinions hereafter expressed which we did not independently establish or verify,
we have relied without investigation upon certificates, statements and
representations of representatives of the Company. During the course of our
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<PAGE>
discussion with such representatives and our review of the documents described
above in connection with the preparation of these opinions, no facts were
disclosed to us that caused us to conclude that any such certificate, statement
or representation is untrue. In making our examination of the documents executed
by persons or entities other than the Company, we have assumed that each such
other person or entity had the power and capacity to enter into and perform all
his, her or its obligations thereunder and the due authorization of, and the due
execution and delivery of, such documents by each such person or entity.
As used in this opinion, the expression "to our knowledge" with
reference to matters of fact means that after an examination of documents in our
files or made available to us by the Company and after inquiries of officers of
the Company, and considering the actual knowledge of those attorneys in our firm
who have given substantive attention to legal matters for the Company, without
independent investigation or inquiry as to factual matters, but not including
any constructive or imputed notice of any information, we find no reason to
believe that the opinions expressed herein are factually incorrect. Beyond that,
we have made no independent factual investigation for the purpose of rendering
an opinion with respect to such matters.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware.
2. The Company has the corporate power and authority to execute,
deliver, and perform the Agreement and to consummate the transactions
contemplated thereby. The Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligations of the Company,
enforceable against the Company in accordance with its terms. The execution,
delivery and performance of the Agreement and the consummation of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Company.
3. Except as set forth in the Agreement, neither the execution,
delivery, nor performance of the Agreement nor the consummation of the
transactions contemplated thereby (i) conflicts with or violates any provisions
of the Certificate of Incorporation or By-laws of the Company, (ii) to our
knowledge, violates any judgment, decree, order, writ or injunction specifically
naming the Company, (iii) to our knowledge, requires on the part of the Company
any filing with, or permit, authorization, consent or approval of, any federal
or state governmental agency, or (iv) to our knowledge, violates any statute,
rule or regulation.
This opinion relates solely to the laws of the State of Nebraska, and
applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions. We
have assumed that, and our opinions expressed in paragraph 2 above are based
upon our assumption that, the internal laws of the State of Nebraska and Federal
law govern the provisions of the Agreement and the transactions contemplated
thereby.
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<PAGE>
Our opinions relating to validity, binding effect, and enforceability
of the Agreement are subject to (i) applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance, and other
similar laws or judicial decisions affecting the validity and enforcement of
creditors' rights generally, (ii) Nebraska law which may restrict your right to
collect attorneys' fees from a defaulting party, (iii) public policy
considerations or statutory provisions which may limit a party's rights to
indemnification against liability for its own wrongful or negligent acts and to
obtain certain remedies (iv) provisions of Nebraska law which restrict the
concurrent exercise of multiple remedies, (v) principles of equity which permit
the exercise of judicial discretion (regardless of whether such enforceability
is considered in a proceeding in equity or at law). In applying the principles
of equity referred to in the preceding clause (v) a court, among other things,
might not allow a contractual party to declare a default deemed immaterial; such
principles of equity, as applied by a court, also might include a requirement
that a contractual party act reasonably and in good faith. We express no opinion
as to the enforceability of provisions of the Agreement which involve
disclaimers, liability limitations with respect to third parties, releases of
legal or equitable defenses, liquidated damages, or waivers of notices, rights,
or remedies, or which impose penalties or forfeitures upon the occurrence of a
default. Certain remedial provisions of the Agreement may be unenforceable in
whole or in part, but the inclusion of such provisions does not affect the
validity of the Agreement; however, the unenforceability of such provisions may
result in delays in the enforcement of the Buyer's rights and remedies under the
Agreement (and we express no opinion as to the economic consequences, if any, of
such delays).
We are opining only as to the matters expressly set forth herein, and
no opinion should be inferred as to other matters. The opinions expressed herein
are furnished by us, as counsel for the Company, solely for your benefit in
connection with the transactions contemplated by the Agreement and upon the
understanding that we are not hereby assuming any responsibility to any other
person whatsoever. This opinion may not be quoted or relied upon by any other
person or used for any other purpose without our prior written consent. This
opinion is rendered as of the date hereof and we do not undertake to advise you
of matters which occur subsequent to the date hereof and which affect the
opinions expressed herein.
Very truly yours,
ABRAHAMS, KASLOW & CASSMAN
By:
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<PAGE>
EXHIBIT B
(Opinion of Fisher Thurber LLP)
Dated _______________ ,1998
Data Transmission Network Corporation
9110 West Dodge Road
Suite 200
Omaha, NE 68114
Gentlemen:
We have acted as counsel to National Datamax, Inc. (the "Company"), a
California corporation, and certain of its shareholders, Donald W. Bowles and
Charter Financial Holdings, LLC (collectively the "Shareholders"), in connection
with your purchase of all of the issued and outstanding capital stock of the
Company pursuant to that certain Stock Purchase Agreement dated as of May ___,
1998, among all of the stockholders of the Company and you (the "Agreement").
This opinion is being rendered to you pursuant to Section 5.03(g) of the
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Agreement.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion, including those relating to the authorization, execution and delivery
of the Agreement. We reviewed the following documents and agreements:
(i) the Agreement;
(ii) the Articles of Incorporation of the Company, as amended, as
certified by the Secretary of State of the State of California
(the "Articles of Incorporation");
(iii) the Bylaws of the Company, as amended, as certified by the
Secretary of the Company on the date of this opinion letter
(the "Bylaws");
(iv) the stock certificates and stock records of the Company; and
(v) actions taken by the stockholders and Board of Directors of
the Company to authorize the transactions contemplated by the
Agreement.
In such examination and review we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
37
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<PAGE>
authenticity of the originals of such copies. As to any facts material to the
opinions hereafter expressed which we did not independently establish or verify,
we have relied without investigation upon certificates, statements and
representations of representatives of the Company. During the course of our
discussion with such representatives and our review of the documents described
above in connection with the preparation of these opinions, no facts were
disclosed to us that caused us to conclude that any such certificate, statement
or representation is untrue. In making our examination of the documents executed
by persons or entities other than the Shareholders and the Company, we have
assumed that each such other person or entity had the power and capacity to
enter into and perform all his, her or its obligations thereunder and the due
authorization of, and the due execution and delivery of, such documents by each
such person or entity.
As used in this opinion, the expression "to our knowledge" with
reference to matters of fact means that after an examination of documents in our
files or made available to us by the Company and after inquiries of officers of
the Company, and considering the actual knowledge of those attorneys in our firm
who have given substantive attention to legal matters for the Company, without
independent investigation or inquiry as to factual matters, but not including
any constructive or imputed notice of any information, we find no reason to
believe that the opinions expressed herein are factually incorrect. Beyond that,
we have made no independent factual investigation for the purpose of rendering
an opinion with respect to such matters.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of California and has the corporate
power and authority and, to our knowledge, all franchises, licenses, and permits
from governmental authorities necessary to own and operate its properties and to
conduct its business as presently being conducted.
2. The Company is duly qualified to do business and is in good standing
in (i) the state of California, and (ii) to our knowledge, each jurisdiction in
which its ownership or lease of property or the conduct of its business requires
such qualification.
3. The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, $1.00 par value, of which 873,300 shares are outstanding
and no shares are held in the treasury of the Company. All of the outstanding
shares of Common Stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable with no personal liability
attaching to the ownership thereof. To our knowledge, except as disclosed in the
disclosure schedules to the Agreement, there are no outstanding subscriptions,
scrip, warrants, commitments, conversion rights, calls, options or agreements to
issue or sell additional securities of the Company, and no obligations
whatsoever requiring, or which might require, the Company to issue any
securities.
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<PAGE>
4. To our knowledge, the parties to the Agreement other than you have
good title to all of the outstanding shares of Common Stock of the Company, free
and clear of all liens, encumbrances, security interests, options, claims,
charges and restrictions.
5. Each of the Shareholders has the power, authority, and capacity to
execute, deliver, and perform the Agreement and to consummate the transactions
contemplated thereby, and the Agreement and all documents and instruments
delivered by the Shareholders thereunder have been duly executed and delivered
by them and constitute legal, valid and binding obligations of the parties
thereto other than Buyer, enforceable in accordance with their terms.
6. The execution, delivery, and performance of the Agreement and the
consummation of the transactions contemplated thereby will not, except as
disclosed in the disclosure schedules to the Agreement, result in a breach or
violation of or constitute a default under, or accelerate any obligation under,
or give rise to a right of termination of, the Articles of Incorporation or
By-laws of the Company or, to our knowledge, any judgment, decree, order,
governmental permit or license, authorization, agreement, indenture, instrument,
or statute or regulation to which the Shareholders or the Company is a party or
by which the Shareholders or the Company or its business, assets, or properties
may be bound or affected, and, to our knowledge, will not, except as disclosed
in the disclosure schedules to the Agreement, result in the creation of any
lien, claim, encumbrance or restriction on any part of the business or assets of
the Company.
7. To our knowledge, there is no legal action or governmental
proceeding or investigation pending or threatened against or affecting the
Company or its stockholders which prevents the parties other than Buyer from
entering into or being bound by the Agreement or from consummating the
transactions contemplated thereby or which questions the validity of the
Agreement or the transactions contemplated thereby.
8. To our knowledge, except as disclosed in the disclosure schedules to
the Agreement, there is no legal action or governmental proceeding or
investigation pending or threatened against or affecting the Company, which, if
decided adversely to the Company, would have a material adverse affect on the
properties, business, profits or condition (financial or otherwise) of the
Company, taken as a whole.
9. To our knowledge, except as disclosed in the disclosure schedules to
the Agreement, no consent, authorization or approval of, or exemption by, or
filing with, any court or administrative agency or authority of the United
States of America or the State of California is required in connection with the
delivery and performance by the Shareholders of the Agreement or any of the
instruments or agreements delivered by the Shareholders thereunder, or the
taking of any action therein contemplated.
10. All corporate proceedings required by the California General
Corporation Law to be taken by the Board of Directors or the stockholders of the
Company on or prior to the Closing Date in connection with the execution and
delivery of the Agreement and in connection with the sale of all of the capital
stock of the Company have been duly and validly taken.
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<PAGE>
This opinion relates solely to the laws of the State of California, and
applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions. We
have assumed that, and our opinions expressed in paragraph 5 above are based
upon our assumption that, the internal laws of the State of California and
Federal law govern the provisions of the Agreement and the transactions
contemplated thereby.
The opinion set forth in paragraph 5 above concerning the
enforceability of the obligations of the Shareholders under the Agreement is
subject to the effect of (i) bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent transfer and other similar laws affecting
creditors' rights generally, and (ii) the discretion of any court of competent
jurisdiction in awarding equitable remedies, including, without limitation,
specific performance or injunctive relief, and the effect of general principles
of equity embodied in California statutes and common law.
We are opining only as to the matters expressly set forth herein, and
no opinion should be inferred as to other matters. The opinions expressed herein
are furnished by us, as counsel for the Company and the Shareholders, solely for
your benefit in connection with the transactions contemplated by the Agreement
and upon the understanding that we are not hereby assuming any responsibility to
any other person whatsoever. This opinion may not be quoted or relied upon by
any other person or used for any other purpose without our prior written
consent. This opinion is rendered as of the date hereof and we do not undertake
to advise you of matters which occur subsequent to the date hereof and which
affect the opinions expressed herein.
Very truly yours,
FISHER THURBER LLP
By:
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EXHIBIT C
CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into as of the _____ day of
_________________, 1998, by Donald W. Bowles ("Shareholder") for the benefit of
Data Transmission Network Corporation, a Delaware corporation, and its
subsidiaries and affiliated corporations (collectively, "DTN").
R E C I T A L S:
A. Prior to the date hereof, National Datamax, Inc. (the "Company") has
operated a business which licenses software and provides information services
regarding publicly traded securities and related financial information to
broker/dealers, financial planners, and other customers. For purposes of this
Agreement, all of the businesses of the Company are collectively referred to
herein as the "Business".
B. Pursuant to the terms and conditions of that certain Stock Purchase
Agreement dated _____________, 1998, effective today, Data Transmission Network
Corporation acquired all of the capital stock of the Company.
C. The Company has carried on the Business throughout the United States
of America (the "Territory"). DTN operates communication and information service
businesses which are currently conducted throughout the United States of America
and Canada.
D. Shareholder was the owner of a majority of the outstanding shares of
capital stock of the Company and President of the Company. As a result of
Shareholder's executive position with the Company, Shareholder was entrusted
with highly sensitive, confidential, and proprietary information relating to the
Business, including but not limited to knowledge regarding the future plans,
trade secrets, know-how, products, suppliers, clients, and employees of the
Business, which information DTN desires to protect.
E. In order to prevent the improper use of confidential and proprietary
information relating to the Business and the resulting unfair competition and
misappropriation and diminution of the goodwill and other proprietary interests
of the Business which were acquired by DTN, Shareholder agrees that limitations
must be imposed on Shareholder's right to compete with the Business, or use
confidential information of the Business or its clients.
NOW, THEREFORE, in consideration of the foregoing recitals and DTN
acquiring the Business, the parties agree as follows:
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SECTION 1 - NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) "Confidential Information" means information, not generally known,
that is proprietary to the Business, including without limitation:
1) the financial and accounting data, sales records, profit and
loss and other performance reports, pricing manuals, training
manuals, selling and pricing procedures, financing methods,
data processing and communication information, technical data,
securities information, agreements with insurers, banks, and
other service providers, and trade secrets and know-how
regarding the products and services of the Business;
2) the personnel and salary information of the Business,
including wages, bonuses, commissions, and fringe benefits of
the Business;
3) the production and processing procedures, formulae and systems
of the Business;
4) the vendor and supplier information of the Business;
5) the buying practices, sources of supply for components, the
quality, prices and usage of components, information and
materials, manner of vendor payment, profit margins, expense
ratios, pricing, lead time and other information concerning
the buying activities of the Business;
6) the client lists and prospect lists of the Business,
including, without limitation, names of contacts, products and
services purchased, quantities of products and services
purchased, pricing including discounts and add-ons, terms,
credit histories, timing of purchases, and payment histories,
special demands of particular clients, and current and
anticipated requirements of clients generally for products or
services of the Business;
7) the marketing information of the Business, including, without
limitation, research, development, testing and client surveys
and preferences regarding the current and new products or
services of the Business, and specifications of any new
products or services under development by or for the Business;
8) the business projections, strategic planning, marketing
planning, activity and practices, marketing systems and
procedures, pricing policies and practices, and inventory
procedures and systems of the Business; and
9) confidential information of the clients of the Business.
(b) Shareholder hereby agrees not to directly or indirectly disclose
any Confidential Information to any third party without the prior written
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<PAGE>
consent of DTN or as required by applicable law. Shareholder further agrees not
to use, directly or indirectly, any Confidential Information for the benefit of
Shareholder or any third party. Confidential Information does not include any of
the items in this Section which have become publicly known and made generally
available through no wrongful act of Shareholder or of others who Shareholder
did not know and had no reasonable basis for knowing were under confidentiality
obligations as to the item or items involved.
SECTION 2 - RESTRICTIONS AGAINST COMPETITION.
In order to prevent the improper use of Confidential Information and
the resulting unfair competition and misappropriation and diminution of the
goodwill and other proprietary interests of the Business which were acquired by
DTN, Shareholder hereby agrees that for a period of three (3) years after the
date of this Agreement, Shareholder will not, directly or indirectly, on his own
behalf or in the service or on behalf of others:
a) solicit any client of the Business or DTN as of the date
hereof, for the purpose of obtaining the business of such
client, in competition with the Business;
b) advise or recommend to any other person that such person
solicit any client of the Business or DTN as of the date
hereof, for the purpose of obtaining the business of such
client, in competition with the Business;
c) solicit any prospective client of the Business or DTN as of
the date hereof, for the purpose of obtaining the business of
such client, in competition with the Business;
d) advise or recommend to any other person that such person
solicit any prospective client of the Business or DTN as of
the date hereof, for the purpose of obtaining the business of
such client, in competition with the Business;
e) work for himself or another, in an employee, managerial,
marketing, sales, consulting or other capacity, in carrying on
a business in competition with the Business within the
Territory or providing within the Territory other services now
currently provided by the Business or any prospective services
being developed by the Business during Shareholder's
employment with the Company, the details of which Shareholder
was privy to in Shareholder's position with the Company;
provided that notwithstanding the foregoing, Shareholder shall
thereafter still be restricted from using the Confidential
Information pursuant to Section 1 hereof; or
f) solicit or recruit for employment, or attempt to solicit or
recruit for employment, or advise or recommend to any other
person that such person solicit or recruit for employment, or
attempt to solicit or recruit for employment, any person who
was employed by the Company and worked in the Business during
the twelve (12) month period immediately preceding the
effective date of the acquisition of the Company by DTN and
who was employed by DTN after the effective date of such
acquisition.
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The phrase "prospective client" shall mean those businesses with whom
any representative of the Company had substantial and extended actual and
personal contact during the twelve (12) month period immediately preceding any
such act to develop new business for the Business, including developing sales
strategies, marketing information and proposals, and negotiating providing
services to such prospective clients.
Shareholder agrees that it is reasonable to restrict the Shareholder's
competition during the time period described above in the entire geographic area
in which the Company or DTN operates and that the restrictions set forth in this
Agreement (including, but not limited to, the period of restriction, activity
and geographic area set forth) are fair and reasonable and are necessarily
required for the protection of the interests of DTN and to prevent the improper
use of Confidential Information and the resulting unfair competition and
misappropriation and diminution of the goodwill and other proprietary interests
of the Business acquired by DTN.
SECTION 3 - ENFORCEMENT OF RESTRICTIONS.
Shareholder understands and agrees that his access to the Confidential
Information and clients of the Business makes such restrictions both necessary
and reasonable.
Shareholder agrees with DTN that if Shareholder shall violate or
threaten to violate any of the terms of this Agreement, then DTN shall be
entitled to injunctive relief; such remedy shall be in addition to and not in
limitation of any rights or remedies to which DTN is or may be entitled to at
law or in equity.
The parties agree that the covenants contained in Sections 1 and 2 of
this Agreement are independent of one another and are severable. In the event
any part of the covenants contained in Section 1 or 2 of this Agreement shall be
held to be invalid or unenforceable, the remaining parts thereof shall
nevertheless continue to be valid and enforceable as though the invalid and
unenforceable part had not been included herein. If any provisions of these
covenants relating to the time period, activity and/or area of restriction shall
be declared by a court of competent jurisdiction to exceed the maximum time
periods, activities or areas which such court deems reasonable and enforceable,
the parties agree that the court making such a determination shall have the
power to reduce the time period, activity and/or area of restriction to the
maximum time period, activity and/or area which such court deems reasonable and
enforceable.
SECTION 4 - CONSIDERATION.
As consideration for the performance and compliance by Shareholder
hereunder, DTN hereby covenants and agrees to pay Shareholder the sum of One
Million Dollars ($1,000,000) payable on the date of this Agreement.
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SECTION 5 - ATTORNEY REVIEW.
Shareholder was advised and encouraged to review this Agreement with
his private attorneys before signing it. To the extent, if any, that the
Shareholder desired, Shareholder has taken advantage of this right. Shareholder
has carefully read and fully understands all of the provisions of this Agreement
and is voluntarily entering into this Agreement.
SECTION 6 - SUCCESSORS, ASSIGNS AND THIRD PARTY BENEFICIARIES.
This Agreement and all rights under this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective personal or legal representatives, executors, administrators,
heirs, distributees, devisees, legatees, successors, and assigns.
SECTION 7 - MISCELLANEOUS.
This writing constitutes the entire agreement between the parties
hereto and supersedes any prior understanding or agreements among them
respecting the subject matter. Except as otherwise set forth in this Agreement,
there are no extraneous representations, arrangements, understandings, or
agreements, oral or written, among the parties hereto, except those fully
expressed herein. No amendments or modifications to the terms of this Agreement
shall be made unless made in writing and signed by all the parties hereto. The
failure of either party to enforce at any time any of the provisions of this
Agreement shall not be construed as a waiver of such provisions or of the right
of such party thereafter to enforce any such provisions. The existence of any
claim or cause of action by Shareholder against DTN, whether based upon this
Agreement or otherwise, shall not constitute a defense to the enforcement of
this Agreement by DTN.
SECTION 8 - HEADINGS.
The headings of the paragraphs contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
SECTION 9 - APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with
the internal substantive laws, and not the conflicts of law principles, of the
State of California.
[SIGNATURE PAGE FOLLOWS]
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SIGNATURE PAGE TO
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
/s/ Donald W. Bowles
------------------------------------
Donald W. Bowles, Shareholder
DATA TRANSMISSION NETWORK
CORPORATION , a Delaware corporation
By:_____________________________________
Its:____________________________________
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into this 14th day of
October, 1998, by and among Data Transmission Network Corporation, a Delaware
corporation (hereinafter referred to as "DTN"), Asset Growth Corporation, a
Delaware corporation (hereinafter referred to as "AGC"), Marcia C. Kennedy, a
shareholder of AGC (hereinafter referred to as "Kennedy"), and Scott L. Brown ,
a shareholder of AGC (hereinafter referred to as "Brown"). Brown and Kennedy are
sometimes hereinafter collectively referred to as the "Stockholders" and each
individually referred to as a "Stockholder").
RECITALS:
A. AGC is engaged in the negotiation and attempted acquisition of
various businesses (the "Targeted Businesses") owned and operated by Paragon
Software, Inc., an Illinois corporation ("Paragon"), A-T Financial Information,
Inc., an Illinois corporation ("ATFI"), Nirvana Systems, Inc., a Texas
corporation, Neurel Applications Corporation, an Iowa corporation, and Expert
Trading Ltd., a Maryland limited partnership doing business as Traders Library.
B. The parties hereto desire to enter into this Agreement regarding the
purchase by a subsidiary of DTN (hereinafter referred to as "Newco") of the
rights of AGC to acquire Paragon.
C. Assuming the consummation of the acquisition of Paragon by Newco,
DTN and AGC wish to provide for the management of Paragon by AGC until
consummation of the acquisition of ATFI by AGC.
D. Contemporaneously with the acquisition of ATFI by AGC, the parties
desire for Newco to acquire ninety percent of all shares of capital stock of AGC
issued and outstanding at that time.
E. Assuming the consummation of the acquisitions of Paragon by Newco
and ATFI by AGC, DTN and the Stockholders wish to provide for the employment of
the Stockholders by AGC and Stock Redemption Agreements between AGC and the
Stockholders.
In consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, AGC, the Stockholders and DTN,
intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.01 Terms Defined Above. As used in this Agreement, the terms "DTN",
"AGC", "Kennedy", "Brown", "Stockholders", "Stockholder", "Targeted Businesses",
"Newco", "Paragon", and "ATFI" shall have the respective meanings indicated
above.
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1.02 Certain Defined Terms. In addition, the following terms shall have
the indicated meanings, unless the context otherwise requires:
"Agreement" shall mean this Purchase Agreement, as the same may be
amended or supplemented from time to time.
"ATFI Purchase Agreement" shall mean a definitive agreement
entered into between AGC and ATFI regarding the acquisition by AGC of
all of the capital stock or substantially all of the assets of ATFI,
which agreement shall be in all aspects acceptable to DTN in its sole
and absolute discretion.
"ATFI Purchase Price" shall mean the aggregate cash payment to
ATFI or its shareholders as consideration for the purchase as provided
in the ATFI Purchase Agreement.
"Closing" shall mean the contemporaneous consummation of the
purchase and sale transactions contemplated in the ATFI Purchase
Agreement and the Stock Purchase Agreement.
"DTN Revolving Credit Rate" shall mean the rate per annum charged
to DTN from time to time under its bank revolving credit facility.
"Other Contract Rights" shall mean those preliminary, pending or
definitive contracts, understandings, proposals or other agreements,
written or oral, of AGC regarding the acquisition or proposed
acquisition by AGC of all of the capital stock of the owners of the
Targeted Businesses other than Paragon and ATFI or substantially all of
the assets of the Targeted Businesses other than the businesses of
Paragon and ATFI, which rights shall be in all aspects acceptable to
DTN in its sole and absolute discretion.
"Paragon Purchase Agreement" shall mean the definitive agreement
to be entered into between AGC and Paragon regarding the acquisition by
AGC of all of the capital stock of Paragon, which agreement shall be in
the form of attached hereto as Exhibit A.
"Paragon Purchase Price" shall mean the aggregate cash payment to
the shareholders of Paragon as consideration for the purchase of the
capital stock of Paragon as provided in the Paragon Purchase Agreement.
"Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust or other entity, and
shall include any successor (by merger or otherwise) to such entity.
"Stock Purchase Agreement" shall mean the definitive agreement to
be entered into among Newco and the Stockholders regarding the
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acquisition by Newco from the Stockholders of ninety percent of all of
the issued and outstanding capital stock of AGC, which agreement shall
be in the form attached hereto as Exhibit B.
ARTICLE II
ACQUISITION OF PARAGON
2.01 Assignment of Paragon Purchase Agreement. Contemporaneously with
the execution of this Agreement, AGC shall sell, transfer, assign, convey and
deliver to Newco all of AGC's right, title and interest as purchaser under the
Paragon Purchase Agreement by a duly executed assignment in form and substance
acceptable to DTN to effectively vest in Newco all right, title and interest of
purchaser under the Paragon Purchase Agreement, free and clear of all liens,
encumbrances, security interests, actions, claims and equities of any kind
whatsoever. In lieu of AGC's assignment as provided in this paragraph, AGC and
DTN may agree to have Newco enter into the Paragon Purchase Agreement directly
with Paragon.
2.02 Assumption of Paragon Purchase Agreement. From and after the
assignment to Newco of AGC's interest in the Paragon Purchase Agreement pursuant
to Section 2.01, DTN shall cause Newco to assume and perform all of the
obligations of the purchaser under the Paragon Purchase Agreement, including,
but not limited to, payment of the Paragon Purchase Price. To finance the
Paragon Purchase Price, DTN shall make a capital contribution to Newco of cash
in the amount of twenty percent (20%) of the Paragon Purchase Price and DTN
shall loan to Newco eighty percent (80%) of the Paragon Purchase Price.
2.03 Management Agreement. Contemporaneously with the execution of this
Agreement, AGC shall execute and deliver to DTN, and DTN shall cause Newco to
execute and deliver to AGC, the Management Agreement in the form attached as
Exhibit C.
2.04 AGC's Deliveries. Contemporaneously with the execution of this
Agreement, AGC shall deliver to DTN the following:
(i) A certificate from the Secretary of State of the State of
Delaware, dated within thirty days of the date of this
Agreement, to the effect that AGC is in existence and is in
good standing with respect to the payment of all franchise
and related taxes;
(ii) Certificates from the appropriate governmental authority of
each state wherein the business conducted by AGC makes
qualification necessary, dated within thirty days of the
date of this Agreement, to the effect that AGC is duly
qualified as a foreign corporation and is in good standing
with respect to the payment of all franchise and related
taxes;
(iii) A certificate of the Secretary of AGC, dated as of the date
of this Agreement, certifying (a) the Certificate of
Incorporation and Bylaws of AGC, (b) all corporate
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resolutions adopted by the shareholders and/or directors of
AGC as necessary to approve AGC's execution and performance
of this Agreement and (c) that the representations and
warranties of AGC contained in this Agreement are true and
correct on the date of this Agreement; and
(iv) Such other documents, instruments, certifications and
confirmations as may be reasonably required and designated
by DTN to effect and consummate fully the transactions
contemplated in this Article II.
ARTICLE III
PURSUIT AND ANALISIS OF ACQUISITIONS
3.01 Negotiation of Acquisitions. From and after the date of this
Agreement, AGC and the Stockholders shall use their best efforts and due
diligence to enter into the ATFI Purchase Agreement prior to December 31, 1998,
and to pursue the Other Contract Rights. The parties hereto shall cooperate
fully in connection with the negotiation and pursuit of the ATFI Purchase
Agreement and the Other Contract Rights and AGC shall allow DTN to actively
participate in such negotiations. Such cooperation shall include AGC's and the
Stockholders' furnishing to DTN all relevant and material information concerning
ATFI and the target companies under the Other Contract Rights and the
negotiations and proceedings related to such proposed acquisitions.
3.02 Due Diligence Review by DTN. Between the date of this Agreement
and the Closing, AGC and the Stockholders will cause AGC to afford DTN and its
representatives prompt and full access to all information, books and records in
their possession or control pertaining to or concerning ATFI and the target
companies under the Other Contract Rights and the negotiations and proceedings
related to such proposed acquisitions and use their best efforts to cause ATFI
and the target companies under the Other Contract Rights to furnish DTN and its
representatives all information, books and records in their possession or
control pertaining to or concerning their businesses, including, without
limitation, their financial and operating data and other information with
respect to the businesses and properties of such entities for the purpose of
permitting DTN to make such investigations of such businesses, properties, and
financial and legal conditions as DTN deems necessary or desirable to
familiarize itself therewith. In addition, AGC and the Stockholders will
promptly notify DTN in writing of any significant developments known to them
regarding ATFI and the target companies under the Other Contract Rights.
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ARTICLE IV
ACQUISITION OF ATFI AND STOCK OF AGC
4.01 Stock Purchase Agreement. Subject to the terms and conditions set
forth in this Article IV, at the Closing the Stockholders and Newco shall
execute, deliver and consummate the transactions contemplated by the Stock
Purchase Agreement.
4.02 Contributions to Capital of AGC. Contemporaneously with the
Closing, DTN shall cause Newco to make a capital contribution to AGC of (i) cash
in the amount of twenty percent (20%) of the ATFI Purchase Price, (ii) cash in
the amount referred to in Section 4.06(m) to fund AGC's obligations to
shareholders of AGC other than the Stockholders, and (iii) all of the capital
stock of Paragon, free and clear of all liens and encumbrances other than the
obligation to repay to DTN the sum of eighty percent (80%) of the Paragon
Purchase Price plus interest thereon at the DTN Revolving Credit Rate from the
date of this Agreement until repaid. AGC shall assume at Closing the
indebtedness referred to in clause (iii) of the preceding sentence.
Contemporaneously with the Closing, DTN shall loan to AGC eighty percent (80%)
of the ATFI Purchase Price, which loan shall bear interest at the DTN Revolving
Credit Rate from the date of Closing until repaid. AGC shall execute and deliver
to DTN at Closing documentation acceptable to DTN to evidence its payment
obligations referred to in this paragraph, which shall be payable to DTN on
demand, or such obligations may be accounted for internally by DTN.
4.03 Employment Agreements. Contemporaneously with the Closing, AGC and
each of the Stockholders shall enter into an Employment Agreement in the form
attached hereto as Exhibit E.
4.04 Stock Redemption Agreements. Contemporaneously with the Closing,
AGC and each of the Stockholders shall enter into a Stock Redemption Agreement
in the form attached hereto as Exhibit F.
4.05 Conduct of Business of AGC. During the period from the date of
this Agreement to the Closing, AGC shall (i) conduct its business and operations
according to its ordinary course of business consistent with past practice
except as otherwise provided in this Section 4.05, and (ii) use its best efforts
to preserve intact its business organization and its relationship with the
owners of the Targeted Businesses, its employees, and others having business
relationships with it, except as may otherwise be agreed by AGC and DTN. Without
limiting the generality of the foregoing, prior to the Closing without the prior
written consent of DTN, AGC shall not:
(a) change or amend its Certificate 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 operating expenses incurred in the ordinary course of business
consistent with past practice (except for liability of AGC incurred in
connection with the redemption of stock from its existing shareholders as
provided in this Agreement) or (ii) pay any debt, liability or obligation of any
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kind other than current liabilities incurred in the ordinary course of business
consistent with past practice 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; provided, however, normal operating expenses incurred in the ordinary
course of business will be considered consistent with past practices regardless
that such items were received free of charge by AGC in the past, including
without limitation office and equipment rental and administrative services.
(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 AGC, or redeem or otherwise acquire any of the capital
stock of AGC or split, combine or otherwise similarly change the capital stock
of AGC 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 (except AGC
shall be allowed to pay to the Stockholders the management fees received
pursuant to the Management Agreement referred to in Section 2.03, to the extent
such fees are not needed to pay expenses and liabilities incurred by AGC) 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 of its
assets or properties;
(f) except as otherwise permitted in this Section 4.05, enter into any
agreement or commitment for any borrowing, capital expenditure or capital
financing in excess of $1,000 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 as contemplated in this Agreement;
(i) 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
which are obtainable on substantially the same economic terms are in full force
and effect; provided, however that if AGC shall receive notice of any such
cancellation or termination, it shall so notify DTN 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,
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obtain simultaneously with such termination or cancellation such replacement
policies;
(j) license, transfer, grant, waive, release, permit to lapse or
otherwise fail to preserve any of its material proprietary rights or contract
rights, or dispose of or permit to lapse any material license, permit or other
form of authorization;
(k) terminate or amend or fail to perform any of its obligations under
any contract to which its is a party or take any other action which would have a
material adverse effect on AGC; or
(l) enter into an agreement to do any of the things described in
clauses (a) through (k) above.
4.06 Conditions to the Obligations of DTN to Effect the Transactions
Contemplated in Article IV. The obligations of DTN to effect the transactions
contemplated in Article IV shall be 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 DTN in writing:
(a) AGC and the Stockholders shall have performed and complied in all
material respects with all agreements, obligations, conditions and covenants
contained in this Agreement and in the Stock Purchase Agreement required to be
performed and complied with by them at or prior to the Closing and all the
representations and warranties of AGC and the Stockholders set forth in this
Agreement and in 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, and
DTN shall have received certificates to that effect signed by a duly authorized
officer of AGC and the Stockholders together with such other documents,
instruments and writings required to be delivered by the Stockholders or by AGC
at or prior to the Closing pursuant to this Agreement, the Stock Purchase
Agreement or otherwise required in connection herewith.
(b) AGC and the Stockholders shall have delivered to DTN (i) copies of
AGC's Certificate of Incorporation including all amendments thereto certified by
the Secretary of State of the State of Delaware, (ii) certificate from the
Secretary of State to the effect that AGC is in good standing and listing all
charter documents of AGC on file, and (iii) a certificate from the appropriate
governmental authority of each state wherein the business conducted by AGC makes
qualification necessary, dated within thirty days of the date of this Agreement,
to the effect that AGC is duly qualified as a foreign corporation and is in good
standing with respect to the payment of all franchise and related taxes.
(c) Prior to the Closing, there shall be no material adverse change in
the assets or liabilities, the business or condition, financial or otherwise,
the results of operations, or prospects of AGC, from the date of this Agreement,
and the Stockholders shall have delivered to DTN a certificate, dated as of the
Closing, to such effect.
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(d) No action or proceedings which have a reasonable likelihood of
success shall have been instituted or threatened by any governmental body or
authority to restrain or prohibit any of the transactions contemplated hereby.
(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 the Stock Purchase Agreement and the ATFI Purchase Agreement by
the parties thereto.
(f) The consummation by AGC of the purchase and sale transaction
contemplated in the ATFI Purchase Agreement upon terms acceptable to DTN in its
sole and absolute discretion and the approval of all aspects and the status of
the Other Contract Rights by DTN in its sole and absolute discretion.
(g) DTN shall have received an opinion from counsel to the
Stockholders, dated as of the Closing, in form and substance satisfactory to DTN
and its counsel, to the effect set forth in Exhibit D hereto.
(h) No injunction or other court order requiring that any part of the
business or assets of AGC be held separate or divested or that any business or
assets of DTN or any affiliate of DTN be divested, or imposing or involving any
conditions on DTN or its affiliates or AGC, 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 DTN or any
affiliate of DTN on the one hand, or AGC 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.
(i) AGC shall not have taken any of the actions set forth in Section
4.05(a) - (l) without the prior written consent of DTN.
(j) DTN shall have received satisfactory evidence of the resignation as
of the time of Closing of such of the present officers and directors of AGC as
DTN may request prior to Closing.
(k) There shall not be in effect at the Closing any contractual
provisions restricting the ability of AGC or any affiliate thereof to conduct
any business or compete with any person or restricting the area in which it may
conduct any business.
(l) DTN and its counsel shall have approved (i) the form of stock
certificates and related instruments of transfer to be delivered to Newco at the
Closing, (ii) all other proceedings to be effected at the Closing or otherwise
in connection with the transactions contemplated by the Stock Purchase Agreement
and the ATFI Purchase Agreement, and (iii) all other documents and instruments
to be delivered at the Closing or otherwise in connection with the transactions
contemplated by the Stock Purchase Agreement and the ATFI Purchase Agreement.
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(m) AGC shall redeem all of the capital stock held by its existing
shareholders (other than the Stockholders) for an aggregate redemption price of
not more than $700,000, which redemption price shall be a liability of AGC at
the Closing to be paid with funds received from Newco pursuant to this
Agreement.
4.07 Current Information. During the period from the date of this
Agreement to the Closing, AGC will promptly notify DTN 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 AGC and of
any governmental complaints, investigations or hearings of which AGC have been
advised involving AGC, or the institution or threat of the institution of any
litigation or proceedings involving AGC.
4.08 Access to Information. Between the date of this Agreement and the
Closing, AGC will (i) afford DTN and its designated representatives full access
to the premises, books and records of AGC, and (ii) cause AGC's officers, and
use its best efforts to cause AGC's advisors (including, without limitation,
their auditors, attorneys and other advisors) to furnish DTN and its designated
representatives (including DTN's auditors, accountants, attorneys and
representatives) with financial and operating data and other information with
respect to the business, properties and prospects of AGC for the purpose of
permitting DTN to make such investigation of the business, properties, financial
and legal condition of AGC as DTN deems necessary or desirable to familiarize
itself therewith.
4.09 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 Article IV.
4.10 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 Article IV.
ARTICLE V
FAILURE TO ACQUIRE ATFI
5.01 Election to Terminate. In the event that the consummation of the
purchase and sale transaction contemplated by the ATFI Purchase Agreement fails,
for any reason, to occur prior to December 31, 1998, or such later date as
designated by DTN in its sole and absolute discretion, but not later than March
31, 1999, then either DTN or AGC may, upon written notice to the other, elect to
terminate the provisions of and transactions contemplated by Article IV of this
Agreement (the "Termination"). From and after the Termination, the terms and
provisions of Article IV of this Agreement shall be void and of no further force
or effect. However, the provisions of this Section 5.01 are not intended to
waive, limit or preclude the rights which any party to this Agreement may have
against any other party hereto for any breach of the terms and provisions of
Article IV occurring prior to the Termination.
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5.02 Repurchase of Paragon. In the event of the Termination, AGC shall
have the right to purchase from Newco all of the shares of capital stock of
Paragon for an amount equal to the net book value of assets minus liabilities of
Paragon on the date of such purchase plus interest on the Paragon Purchase Price
from the date of this Agreement to the date such amount is paid in full to Newco
at the DTN Revolving Credit Rate in effect from time to time, such rate to be
adjusted upward or downward on each date upon which the DTN Revolving Credit
Rate changes. AGC shall have a period of six (6) months following the
Termination to obtain financing and pay to Newco in full in cash the purchase
price for the capital stock of Paragon determined as provided in this Section
5.02. Upon receipt of such amount by DTN within the six month period following
the Termination, Newco shall (i) deliver to AGC certificates for such capital
stock of Paragon duly endorsed for transfer and free and clear of any liens,
security interests, encumbrances, or claims other than the provisions of this
Agreement and (ii) pay to each of the Stockholders in cash the sum of $50,000 as
full and complete compensation to the Stockholders for their services related to
the transactions contemplated by this Agreement, subject to the Stockholders
executing and delivering a complete release in favor of DTN and Newco and their
shareholders, employees and agents relating to all matters arising out or
related to the transactions contemplated by this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01. Representations and Warranties. AGC and the Stockholders jointly
and severally warrant, represent and covenant to and with DTN:
(a) That AGC has full right and lawful authority to enter into
this Agreement and to sell, transfer, assign and convey all of
its right, title and interest in the Paragon Purchase
Agreement; that AGC's performance of its obligations under
this Agreement will not violate any agreement, document, trust
(constructive or otherwise), order, judgment or decree to
which AGC is a party or by which it is bound; and that, upon
the transfer and assignment of the Paragon Purchase Agreement
to Newco as provided in this Agreement, Newco will acquire
good and merchantable title thereto, free and clear of any
liens, encumbrances, security interests, actions, claims, and
equities of any kind whatsoever, other than the rights of the
parties as set forth in this Agreement.
(b) That AGC is the sole and lawful owner of and has good and
marketable title to all of the interests of the purchaser
under the Paragon Purchase Agreement to be acquired by Newco
pursuant to this Agreement, free and clear of any liens,
encumbrances, security interests, actions, claims, and
equities of any kind whatsoever, other than the rights of the
parties as set forth in this Agreement.
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(c) That AGC will be at Closing the sole and lawful owner of and
will have good and marketable title to all of the interests of
the purchaser under the ATFI Purchase Agreement and Other
Contract Rights, free and clear of any liens, encumbrances,
security interests, actions, claims, and equities of any kind
whatsoever, other than the rights of the parties as set forth
in this Agreement.
(d) That there are no suits, arbitrations or other legal or
governmental proceedings pending or, to the knowledge of AGC
or the Stockholders, threatened against AGC which might
conceivably affect the title to the Paragon Purchase Agreement
to be acquired by Newco pursuant to this Agreement.
(e) That AGC has duly and timely filed all federal, state, and
local tax returns of every kind whatsoever required to be
filed by AGC and has paid in full the tax liability shown on
such returns; that no unpaid deficiencies are in existence
which have been asserted against AGC by any official or agency
as a result of the filing of such returns; and that, to the
knowledge of AGC, there is not now pending any examination
with respect to any such returns nor does AGC know of any
impending examination with respect to any such returns.
(f) The Paragon Purchase Agreement and the ATFI Purchase Agreement
include all rights and interests necessary to acquire the
capital stock or assets being acquired thereunder by AGC.
(g) There is no fact, development, or threatened development with
respect to Paragon, ATFI or the target companies under the
Other Contract Rights or their markets, products, customers,
vendors, suppliers, operations, assets or prospects which are
known to AGC which would materially adversely affect their
businesses, operations or prospects considered as a whole,
other than such conditions as may affect as a whole the
economy generally or matters disclosed in writing to DTN.
(h) AGC has delivered with respect to the Paragon Purchase
Agreement and will deliver prior to Closing with respect to
the ATFI Purchase Agreement and the Other Contract Rights,
true, correct and complete copies of the Paragon Purchase
Agreement, the ATFI Purchase Agreement and all written
contracts relating to the Other Contract Rights, and all of
such contracts or contract rights are presently or will be at
Closing in full force and effect. AGC has not received any
notices from the sellers under the Paragon Purchase Agreement,
the ATFI Purchase Agreement or the Other Contract Rights that
indicate that they intend to terminate any of such contracts
and, except as reflected in the copies delivered to DTN, such
contracts have not been amended and AGC and the other parties
to such contracts are not in default in any material respect
under such contracts or contract rights.
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ARTICLE VII
INDEMNIFICATION
7.01 Indemnification. AGC and the Stockholders jointly and severally
agree to indemnify DTN and Newco and to hold DTN and Newco harmless from any and
all loss, damage, cost, or expense incurred or sustained by DTN or Newco by
reason of the failure of any warranty or representation contained in this
Agreement to be true or as a result of AGC's failure to abide by or perform any
covenant or agreement on its part contained in the Paragon Purchase Agreement,
the ATFI Purchase Agreement or the Other Contract Rights and accruing prior to
the Closing.
ARTICLE VIII
MISCELLANEOUS
8.01 Survival. The representations, warranties, and covenants on the
part of AGC and/or the Stockholders contained in this Agreement shall survive
both the execution of this Agreement and the Closing and shall be binding upon
AGC and the Stockholders and their heirs, legal representatives, successors and
assigns.
8.02 Payment of Liabilities. AGC and the Stockholders agree to pay as
promptly as possible and hold DTN and Newco harmless from any and all
liabilities of AGC existing on the date of this Agreement and those incurred or
accruing prior to the Closing, except for reasonable attorneys fees and
accounting expenses incurred by AGC after December 31, 1998, solely in
connection with the negotiations and proposed acquisition of ATFI, which shall
be reimbursed to AGC by Newco. The Stockholders and AGC agree that neither DTN
nor Newco is assuming and neither shall have responsibility for any of the
debts, obligations, or liabilities of AGC of any kind whatsoever incurred or
accrued before the Closing, except those obligations specifically assumed by
Newco pursuant to this Agreement. AGC and the Stockholders agree to hold DTN
harmless from any cost or expense arising out of or relating to any such debts,
obligations, or liabilities.
8.03 Transfer Taxes. AGC shall pay all sales and other similar taxes
imposed on or collectible by AGC or Newco by reason of the transfer of the
Paragon Purchase Agreement being acquired by Newco pursuant to this Agreement
and all taxes attributable to the payments to AGC and the Stockholders pursuant
to this Agreement shall be paid by AGC and the Stockholders, respectively.
8.04 Entire Agreement. This document and the exhibits attached hereto
constitute the entire agreement of the parties with respect to the subject
matter hereof and may not be modified, amended, or terminated except by a
written agreement specifically referring to this Agreement and signed by all of
the parties hereto.
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8.05 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
8.06 Further Instruments. The parties hereto shall execute and deliver
such additional instruments and documents as may be reasonably requested by any
of them in order to carry out the purposes and intent of this Agreement and to
fulfill their respective obligations.
8.07 Further Actions. AGC agrees to take such actions from time to time
as may in the reasonable judgment of DTN or its counsel be necessary or
advisable to confirm the title of Newco to any of the contracts or assets
acquired by Newco from AGC pursuant to this Agreement.
8.08 Governing Law. This Agreement shall be construed in accordance
with the substantive laws, but not the choice of law provisions, of the State of
Nebraska.
8.09 Severability. In the event that one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any of the other provisions contained in this Agreement, which
provisions shall remain in full force and effect.
8.10 Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto in separate counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
8.11 Schedules and Exhibits. All references to Schedules and Exhibits
herein, unless otherwise stated, means the schedules and exhibits attached to
this Agreement which are hereby incorporated by reference.
8.12 Notification. All notices which any party may be required or
desire to give to the other parties shall be in writing and shall be given by
personal service, telecopy, registered mail or certified mail (or its
equivalent) to any other party at its respective address or telecopy number set
forth below. Notices shall be deemed to be given upon actual receipt by the
party to be notified. Notices delivered by telecopy shall be confirmed in
writing by overnight courier.
If to AGC or Stockholders: Asset Growth Corporation
7324 Southwest Freeway, Suite 1000
Houston, Texas 77074
Attention: Marcia C. Kennedy
Telecopy No.: (713) 995-9585
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If to DTN or Newco: Data Transmission Network
Corporation
9110 West Dodge Road, #200
Omaha, NE 68114
Attn: Charles R. Wood
Telecopy No.: (402) 255-8088
8.13 Interpretation. The article and section headings in this Agreement
are solely for convenience and shall not be considered in its interpretation.
The language of this Agreement has been approved by counsel for each party and
shall be construed as a whole according to its fair meaning and none of the
parties hereto shall be deemed to be the draftsman of this Agreement in any
action which may hereafter arise between the parties. Time is of the essence of
this Agreement. Words denoting sex shall be construed to include the masculine,
feminine, and neuter, when such construction is appropriate, and specific
enumeration shall not exclude the general, but shall be construed as cumulative.
8.14 No Third Party Beneficiaries. Except as provided in this
Agreement, nothing in this Agreement shall confer any rights upon any Person
which is not a party or a permitted assignee of a party to this Agreement.
8.15 Remedies. In the event of a breach or default by any party to this
Agreement, the other parties shall be entitled to any and all remedies and
damages available to such party at law or in equity.
8.16 Expenses. All fees, expenses and costs incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such fees, expenses and costs.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
DATA TRANSMISSION NETWORK
CORPORATION, a Delaware corporation
/s/ Greg T. Sloma
--------------------------------
Greg T. Sloma, President
ASSET GROWTH CORPORATION,
a Delaware corporation
/s/ Marcia C. Kennedy,
------------------------------
Marcia C. Kennedy, President
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STOCKHOLDERS:
---------------------------------
Marcia C. Kennedy, an individual
---------------------------------
Scott L. Brown, an individual
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EXHIBIT A
Paragon Purchase Agreement
STOCK PURCHASE AGREEMENT
by and among
DEAN LOEW, MICHAEL PROTOFANOUSIS,
SAM PROTOFANOUSIS, ROBERT RAWLINS, RAY VOGEL,
MICHAEL PAOLELLA AND ROBERT PAOLELLA
("Sellers")
and
DTN ACQUISITION, INC.
("Purchaser")
October 14, 1998
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the 14th day of October 1998,
is made and entered into by and among DEAN LOEW ("Dean"), MICHAEL PROTOFANOUSIS
("Mike"), SAM PROTOFANOUSIS, ROBERT RAWLINS, RAY VOGEL, MICHAEL PAOLELLA and
ROBERT PAOLELLA ("Sellers"), and DTN ACQUISITION, INC. ("Purchaser"), a
corporation organized under the laws of the State of Nebraska evidences the
arrangements concerning the purchase by Purchaser from the Sellers of common
stock of PARAGON SOFTWARE, INC., an Illinois corporation ("Company").
WITNESSETH:
In consideration of the mutual covenants and agreements herein contained,
the Purchaser and the Sellers agree as follows:
ARTICLE I.
DEFINITIONS
1.01 Terms Defined Above. As used in this Stock Purchase Agreement, the
terms "Sellers", "Purchaser" and "Company" shall have the respective meanings
indicated above.
1.02 Certain Defined Terms. As used in this Stock Purchase Agreement, the
following terms shall have the indicated meanings, unless the context otherwise
requires:
"Affiliate" shall mean any Person, which, directly or indirectly, controls,
is controlled by, or is under common control with any other Person. Control
shall mean possession, directly or indirectly, of the power to direct or cause
the direction of management, policies or action through ownership of voting
securities, contract, voting trust, membership or otherwise through formal or
informal arrangements or business relationships.
"Agreement" shall mean this Stock Purchase Agreement, as the same may be
amended or supplemented from time to time.
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"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Texas.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended from time to time.
"Common Stock" shall mean the common stock, without par value, of the
Company.
"Company's Fiscal Year" shall mean each annual fiscal reporting period of
the Company ending December 31.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which together with the Company would be treated as a single
employer under Section 4001 of ERISA.
"Financial Statements" shall mean the statements of financial condition, as
at the point in time and for the period indicated and consisting of at least a
balance sheet and related statements of operations, stockholders' equity, and,
when the foregoing are audited, accompanied by the certification of independent
certified public accountants and footnotes to any of the foregoing, all of which
shall be prepared in accordance with GAAP.
"GAAP" shall mean generally accepted accounting principles established by
the Financial Accounting Standards Board and in effect in the United States from
time to time during the term of this Agreement.
"Insolvency Proceeding" shall mean application (whether voluntary or
instituted by another Person or Persons) for or the consent to the appointment
of a receiver, trustee, conservator, custodian or liquidator of any Person or of
all or a substantial part of such Person's Property, or the filing of a petition
commencing a case under Title 11 of the United States Code, seeking liquidation,
reorganization or rearrangement or taking advantage of any bankruptcy,
insolvency, debtor's relief or other similar law of the United States, the State
of Texas or any other jurisdiction.
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"Lien" shall mean any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on common law, statute or contract, and including, but not
limited to, the lien or security interest arising from a mortgage, encumbrance,
pledge, security agreement, conditional sale or trust receipt, or a lease,
consignment or bailment for security purposes and reservations, exceptions,
encroachments, easements, rights of way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property which
secure an obligation owed to, or a claim by, a Person other than the owner of
such Property (for the purposes of this Agreement, the Company shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person
for security purposes).
"Material Adverse Effect" shall mean any material and adverse effect on (a)
the material assets, liabilities, financial condition, business or operations of
the Company from those reflected in the Financial Statements of the Company or
from the facts represented or warranted in this Agreement, (b) the ability of
the Company to carry out in all material respects its business conducted as at
the date of this Agreement or (c) the ability of the Company to meet its
obligations generally, or the ability of the Company to meet its obligations
under this Agreement on a timely basis as provided herein.
"Multi-employer Plan" shall mean a Plan described in Section 4001(a)(3) of
ERISA which covers employees of the Company or any ERISA Affiliate.
"Non-competition Agreement" shall mean the agreements between Mike and Dean
and the Purchaser, in the form of agreements attached hereto as Exhibits 1.02(a)
and 1.02(b).
"Permitted Liens" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet due or which (if foreclosure, distraint,
sale or other similar proceedings shall not have been initiated) are being
contested in good faith by appropriate proceedings diligently conducted, and
such reserve as may be required by GAAP shall have been made therefor; (b) Liens
in connection with workers' compensation, unemployment insurance or other social
security (other than Liens created by Section 4068 of ERISA), old age pension or
public liability obligations which are not yet due or which are being contested
in good faith by appropriate proceedings diligently conducted by or on behalf of
the Company, if such reserve as may be required by GAAP shall have been made
therefor, provided that such Liens shall not extend to or cover any other
Property of the Company.
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"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization or a government or any agency or political
subdivision thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Plan" shall mean any pension plan that is covered by Title IV of ERISA and
maintained by the Company and any such plan to which the Company is required to
contribute.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"Purchase Price" shall mean the aggregate cash payment to Sellers of
$5,222,000.00.
"Subsidiary" means any corporation or limited liability company of which
more than fifty percent (50%) of the issued and outstanding securities having
ordinary voting power for the election of directors is owned or controlled,
directly or indirectly, by the Company or any Subsidiary.
1.03 Accounting Principles 1.03 Accounting Principles . Where the character
or amount of any asset or liability or item of income or expense is required to
be determined or any consolidation or other accounting computation is required
to be made for the purposes of this Agreement, this shall be done in accordance
with GAAP.
1.04 References 1.04 References . All references in this Agreement to
Article and Section numbers are to Articles and Sections of this Agreement,
unless expressly provided to the contrary, and the terms "herein",
"hereinabove", "hereinafter", "hereinbelow" and "hereunder" when used in this
Agreement shall refer to this Agreement in its entirety and not only to the
Section of this Agreement in which such term appears.
ARTICLE II.TERMS OF COMMON STOCK PURCHASEARTICLE II.
TERMS OF COMMON STOCK PURCHASE
2.01 Purchase and Sale of Common Stock. Contemporaneously with the
execution of this Agreement and subject to the terms and conditions and relying
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on the representations and warranties of the Purchaser, as to actions by the
Sellers, and of the Sellers, as to actions by the Purchaser, the Sellers shall
sell in the aggregate one thousand (1,000) shares of the Common Stock, and the
Purchaser shall purchase the Common Stock.
2.02 Consideration to Sellers 2.02 Consideration to Sellers .
Contemporaneously with the execution of this Agreement and the delivery of the
Common Stock, but subject to the provisions of this Agreement, the Purchaser
shall deliver to the Sellers the Purchase Price by certified check or wire
transfer as directed by the Sellers, at a time and place mutually acceptable to
Sellers and Purchaser; provided, however, such event shall not occur later than
October 31, 1998 ("Closing Date"). Schedule 2.02 sets forth instructions to
Purchaser of the allocation of the Purchase Price between Sellers.
2.03 Non-competition Agreements. Company and Dean and Mike shall have
executed and delivered the Noncompetition Agreements, effective the Closing
Date.
2.04 Consulting Arrangements. Dean and Mike, for one (1) year after the
Closing Date, shall make themselves available (provided that they shall not
individually be required to be available for more than fifty (50) hours in any
week without their prior consent, and if their services are requested, a minimum
of five (5) hours shall be billed to Purchaser for services rendered during such
week to Purchaser and Company upon reasonable request, to perform consulting
services at the rate of $100.00 per hour (including travel time plus
out-of-pocket expenses; provided, however, Dean and Mike at no time will be
entitled to any employee benefits and shall maintain the status of independent
contractors. Dean and Mike shall determine their schedules and the manner in
which such services are provided. Dean and Mike may provide such services by
telephone. Unavailability by reason of vacation shall not constitute a breach
hereof. For a period of thirty (30) days following the Closing Date, Dean and
Mike shall perform such consulting services without compensation other than
reimbursement of reasonable documented out-of-pocket expenses.
ARTICLE III.
CONDITIONS
The indicated obligations of the Purchaser and the Sellers under this
Agreement are subject to satisfaction of the following conditions precedent:
3.01 Conditions to Execution by Purchaser. The execution of this Agreement
by the Purchaser and the payment of the Purchase Price to the Sellers as set
forth in Section 2.02, is subject to satisfaction of the following conditions
precedent:
(a) Receipt of Certified Copy of Corporate Proceedings. The Purchaser
shall have received (i) certificates from the Secretary of State of the
State of Illinois, dated reasonably near the date of this Agreement, to the
effect that the Company is in existence and is in good standing with
respect to the payment of all franchise taxes, with its articles of
incorporation attached thereto, and the Company's bylaws and all amendments
thereto.
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(b) Receipt of Certificates of Incumbency. The Purchaser shall have
received from the Company a certificate of incumbency signed by its
respective secretary or assistant secretary setting forth (i) the names of
the officers of the Company, respectively, executing this Agreement and the
Common Stock, (ii) the office(s) to which such persons have been elected
and in which they presently serve and (iii) an original specimen signature
of each such person.
(c) Accuracy of Representations and Warranties. The representations
and warranties of the Company contained in Article IV shall be true and
correct in all material respects on the date of execution of this
Agreement.
(d) Receipt of Opinion of Counsel. The Purchaser shall have received
an opinion of counsel for the Sellers in the form and substance acceptable
to the Purchaser, which opinion shall be accompanied by such supporting
documentation as the Purchaser or its counsel shall reasonably require, and
addressing, among other matters, certain of the representations and
warranties of the Company made herein.
(e) Legal Matters Satisfactory to Counsel to Purchaser. All legal
matters incident to the execution of this Agreement shall be reasonably
satisfactory to the firm of Henderson & Hammon, L.L.P., counsel for the
Purchaser.
(f) No Material Adverse Effect. No Material Adverse Effect shall have
occurred since the date of any financial and other information regarding
the Company submitted to the Purchaser prior to the execution of this
Agreement.
(g) Receipt of Common Stock and Stock Purchase Agreement. Subject to
the provisions of Section 2.02, the Purchaser shall have received its
Common Stock and this Agreement, as requested by the Purchaser, duly
executed by the Sellers.
(h) Property of Company. The Property of the Company shall include,
but not be limited to, equipment, appliances, spare parts, accounts
receivable, works-in-progress, owned and leased real estate, leasehold
improvements, fixtures, general intangibles, intellectual property rights,
contractual rights, licenses, permits, security deposits, prepaid expenses,
cash portion of deferred revenue, accounting and personnel records, and
catalogs and brochures.
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3.02 Condition to Execution by Sellers. The execution of this Agreement by
the Sellers and the sale of the common stock to Purchaser is subject to
satisfaction of the condition precedent that the representations and warranties
of the Purchaser contained in Article IV shall be true and correct in all
material respects on the date of execution of this Agreement.
ARTICLE IV.REPRESENTATIONS AND WARRANTIESARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of Sellers 4.01 Representations and
Warranties of Sellers . In order to induce the Purchaser to enter into this
Agreement, Dean and Mike represent and warrant to the Purchaser (which
representations and warranties shall survive the delivery of the Common Stock as
provided herein) that:
(a) Existence and Good Standing. The Company is a corporation, duly
organized, legally existing and in good standing in the State of Illinois.
- --
(b) Authority. The execution and delivery by the Sellers of this
Agreement and the sale of the Common Stock as provided in this Agreement do
not and will not (A) require the consent of any regulatory authority or
governmental body, (B) contravene or conflict with any material provision
of applicable law or of the charter or bylaws of the Company, (C)
contravene or conflict with any material indenture, instrument or other
agreement to which the Company or any Sellers is a party.
(c) Capitalization. The authorized capital stock of the Company
consists of 10,000 shares of Common Stock, without par value of which one
thousand (1,000) shares are issued and outstanding. The outstanding shares
of Common Stock have been duly authorized and validly issued, and are fully
paid and nonassessable and have been issued in accordance with applicable
securities laws. There are no outstanding options, warrants or other rights
to purchase any of the Company's capital stock.
Sellers have full legal right to sell, assign and transfer the Common
Stock to Purchaser and will, upon delivery of the Common Stock to Purchaser
pursuant to the terms thereof, transfer to Purchaser good and valid title
to the Common Stock free and clear of all Liens, security interests,
claims, charges, encumbrances, rights, options to purchase, voting trusts
or other voting agreement (other than those voting trusts or agreements
which may be referred to herein), calls and commitments of every kind
affecting the Common Stock.
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(d) Valid and Binding Obligations. This Agreement, as and when
executed and delivered, constitutes legal, valid and binding obligations of
the Sellers enforceable against the Sellers in accordance with their
respective terms, except as limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of creditors'
rights and as limited by general equitable principles.
(e) Scope and Accuracy of Financial Statements. The Financial
Statements on a consolidated and consolidating basis, as of December 31,
1996, December 31, 1997 and June 30, 1998, are complete and correct in all
material respects, have been prepared in accordance with GAAP consistently
applied (except with respect to the June 30, 1998 Financial Statements for
year-end adjustments and with respect to all Financial Statements for the
absence of footnotes), and fully and accurately reflect respectively the
financial condition and the results of the operations of the Company in all
material respects as of the dates and for the periods stated therein and no
Material Adverse Effect has occurred since June 30, 1998.
(f) Liabilities, Litigation and Restrictions. The Company has no
liabilities, direct or contingent, required by GAAP to be disclosed on a
balance sheet, other than as disclosed in the Financial Statements as of
June 30, 1998, and other than liabilities incurred since June 30, 1998 in
the ordinary course of business. Except as set forth in such Financial
Statements, there is no litigation or other action of any nature pending
before any court, governmental instrumentality, regulatory authority or
arbitral body or, to the knowledge of the Company, threatened against or
affecting the Company which might reasonably be expected to result in any
Material Adverse Effect. No unusual or unduly burdensome restriction,
restraint or hazard exists by contract, law, governmental regulation or
otherwise relative to the business or material Property of the Company
other than such as relate generally to Persons engaged in the business
activities conducted by the Company.
(g) Rights in Properties. The Company has good and marketable title or
valid leasehold interests in its Property, real and personal, reflected in
the Financial Statements as of June 30, 1998, other than Property disposed
of in the ordinary course of business. None of the Property of the Company
is subject to any Lien, except for Permitted Liens.
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(h) Authorizations and Consents. Except as expressly contemplated by
this Agreement, no authorization, consent, approval, exemption, franchise,
permit or license of, or filing with, any governmental or public authority
or any third party is required to authorize or is otherwise required in
connection with the valid execution and delivery by the Sellers of this
Agreement and the sale of the Common Stock, or the performance by the
Sellers of its obligations under any of the foregoing, except those
authorizations, consents, approvals, exemptions, franchises, permits and
licenses which if not obtained would not have a Material Adverse Effect.
(i) Compliance with Laws, Rules, Regulations and Orders. Neither the
business nor any of the activities of the Company as presently conducted,
violates any law or any rule, regulation or directive of any applicable
judicial, administrative or other governmental instrumentality the result
of which violation would have a Material Adverse Effect; the Company
possesses all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its businesses in all
material respects as now conducted.
(j) Proper Filing of Tax Returns and Payment of Taxes Due. The Company
has duly and properly filed or duly extended all United States Income Tax
returns and all other tax returns which are required to be filed, and has
paid all taxes due pursuant to said returns or pursuant to any assessment
received, except such taxes, if any, as are being contested in good faith
and as to which adequate provisions and disclosures have been made; and the
charges and reserves on the books of the Company with respect to any taxes
or other governmental charges through the date hereof are adequate.
(k) ERISA. The Company does not presently nor has it ever established,
maintained or contributed to a Plan or similar program covered by ERISA.
(l) Casualties or Taking of Property. Neither the Sellers nor the
Company, after due inquiry, has any knowledge that, since the date of the
Financial Statements of the Company most recently delivered to the
Purchaser, the business of the Company or its Property has been materially
and adversely affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance,
embargo, requisition or taking of Property or cancellation of contracts,
permits or concessions by any domestic or foreign government or any agency
thereof, riot, activities of armed forces or acts of God.
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(m) No Material Misstatements. No information, exhibit or report
prepared by the Company or at the direction or supervision of Sellers and
furnished to the Purchaser in connection with the negotiation and
preparation of this Agreement, or to the knowledge of the Sellers, after
due inquiry, any information, exhibit or report prepared by any other
Person and so furnished to the Purchaser, contained any material
misstatement of fact.
(n) Location of Business and Offices. The principal place of business
and chief executive office of the Company is located at 324 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202.
(o) Subsidiaries. The Company has no Subsidiaries.
(p) No Registration Required. The sale and delivery of the Common
Stock pursuant to this Agreement does not require registration under the
Securities Act of 1933, as amended, nor under the securities acts of any
state of the United States.
(q) Brokers. The Sellers have not incurred any obligation or
liability, contingent or otherwise, for brokers' or finders' fees in
respect of the matters provided for in this Agreement, and, if any such
obligation or liability exists, it shall remain an obligation of the
Sellers, and the Purchaser shall have no responsibility therefor. The
Sellers shall indemnify and hold the Purchaser, and its Affiliates harmless
from any losses, costs or damages arising from any such obligation or
liability the Sellers have incurred.
(r) Year 2000 Compliance. The occurrence in or use by the computer
software internally developed by the Company, as currently used, of dates
on or after January 1, 2000 will not adversely affect the performance of
such computer software with respect to date dependent data, computations,
output or other functions, except where such affect will not have a
Material Adverse Effect. No representation is made, however, with respect
to computer software developed by any third party or any computer hardware.
(s) Cancellation Penalties. Except for those agreements described on
Schedule 4.01(u), there exists no agreements with cancellation penalties of
greater than $1,000.00, and prior to Closing Date, Company shall have not
entered into new agreements with cancellation penalties of greater than
$1,000.00.
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(t) Distributions to Sellers. As of the Closing Date, the Company has
cash in an amount not less than the deferred revenues of the Company.
4.02 Representations and Warranties of Purchaser 4.02 Representations and
Warranties of Purchaser . To induce the Sellers to enter into this Agreement,
the Purchaser represents and warrants to the Sellers (which representations and
warranties shall survive the delivery of the Common Stock as provided herein)
that:
(a) Status and Intent. The Purchaser is acquiring the Common Stock
solely for its own beneficial account, for investment purposes, and not
with a view to, or for resale in connection with, any distribution. The
Purchaser represents that it understands that the Common Stock has not been
registered under the Securities Act of 1933, as amended, or any state
securities laws by reason of specific exemptions under the provisions
thereof which depend in part upon the investment intent of such Purchaser.
The Purchaser understands that the Sellers are relying upon the
representations and warranties of such Purchaser contained in this
Agreement (and any supplemental information) for the purpose of determining
whether this transaction meets the requirements for such exemptions.
(b) Existence and Good Standing. The Purchaser is a corporation, duly
organized, legally existing and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing as a foreign
corporation in all jurisdictions wherein the Property owned or the business
transacted by it makes such qualification necessary.
(c) Authority. The execution and delivery by the Purchaser of this
Agreement (i) is within the power of the Purchaser; (ii) has been duly
authorized by all necessary action on behalf of the Purchaser, and (iii)
does not and will not (A) require the consent of any regulatory authority
or governmental body, (B) contravene or conflict with any provision of law
or of the charter or by-laws of the Purchaser, or (C) contravene or
conflict with any indenture, instrument or other agreement to which the
Purchaser is a party.
(d) Valid and Binding Obligations. This Agreement constitutes a legal,
valid and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and as limited by general equitable
principles.
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(e) Authorizations and Consents. Except as expressly contemplated by
this Agreement, no authorization, consent, approval, exemption, franchise,
permit or license of, or filing with, any governmental or public authority
or any third party is required to authorize or is otherwise required in
connection with the valid execution and delivery by the Purchaser of this
Agreement and the purchase of the Common Stock, or the performance by the
Purchaser of its obligations under any of the foregoing, except those
authorizations, consents, approvals, exemptions, franchises, permits and
licenses which if not obtained would not have a Material Adverse Effect.
(f) Brokers. Purchaser has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the
matters provided for in this Agreement, and, if any such obligation or
liability exists, it shall remain an obligation of the Purchaser, and the
Sellers shall have no responsibility therefor. The Purchaser shall
indemnify and hold the Seller , and its Affiliates harmless from any
losses, costs or damages arising from any such obligation or liability the
Sellers have incurred.
ARTICLE V.INDEMNIFICATION
5.01 Indemnification by Sellers. Sellers shall bear and pay all taxes
attributable to the sale of the Common Stock and Sellers' receipt of the
Purchase Price, and Dean and Mike shall assume and indemnify and hold harmless
Purchaser and its Affiliates, successors and assigns from and against any
claims, demands, losses, damages, or expenses (including reasonable attorney's
fees and expenses) which are caused by or arise out of (a) any breach or default
in the performance by Sellers or Company of any material covenant or material
agreement of Sellers or Company contained in this Agreement, (b) any breach of a
material warranty or any inaccurate or erroneous material representation made by
Sellers herein, in any exhibit hereto, or in any other instrument delivered by
or on behalf of Sellers or Company pursuant hereto, or (c) any and all actions,
suits, proceedings, claims, demands, and judgments incident to any of the
foregoing. Dean and Mike shall further indemnify and hold harmless Purchaser
from and against any claims, demands, losses, damages, or expenses (including
reasonable attorney's fees and expenses) which are caused by or arise out of
other events or circumstances that occur prior to the Closing Date and are not
disclosed in this Agreement relating to gross negligence or willful misconduct
of Sellers. If any third person shall assert a claim against Purchaser that, if
successful, might result in a breach or default by Sellers of this Agreement,
Purchaser shall give Sellers prompt written notice thereof, and Sellers shall
have the right to participate in the defense thereof and be represented, at its
expense, by counsel to be selected by it. No such claim, demand or other matter
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shall be compromised or settled by Purchaser or Sellers in any manner that might
adversely affect the interests of the other party without the prior written
consent of such other party. Except as otherwise provided hereinafter, any
claims in respect of which indemnification is sought must be made in writing
prior to the expiration of twelve (12) months after the Closing Date. Claims
pursuant to Paragraph 4.01(j) above must be made within the applicable federal,
state or local tax statutory limitations period plus thirty (30) days, including
authorized extensions thereof.
5.02 Time for Assertion 5.02 Time for Assertion . Except as otherwise
provided hereinafter, any claim in respect of which indemnification hereunder is
sought must be made in writing prior to the expiration of twelve (12) months
after the Closing Date. Claims pursuant to Section 4.01(j) must be made within
the applicable federal, state, or local tax statutory limitation period plus
thirty (30) days, including authorized extensions thereof.
5.03 Indemnification by Purchaser 5.03 Indemnification by Purchaser .
Purchaser shall indemnify and hold harmless Sellers and their respective heirs
and assigns from and against any claims, demands, losses, damages, or expenses
(including reasonable attorney's fees and expenses) caused by or arising out of
(a) any breach or default in the performance by Purchaser of any material
covenant or material agreement of Purchaser contained in this Agreement,(b) any
breach of a material warranty or an inaccurate or erroneous material
representation made by Purchaser herein or in any other instrument delivered by
or on behalf of Purchaser pursuant hereto, or (c) any and all actions, suits,
proceedings, claims, demands, or judgments incident to any of the foregoing. If
any third party shall assert a claim against Sellers that, if successful, might
result in a breach or default by Purchaser of this Agreement, Sellers shall give
Purchaser prompt written notice thereof, and Purchaser shall have the right to
participate in the defense thereof and to be represented, at the sole expense of
Purchaser, by counsel to be selected by it. No such claim, demand, or other
matter shall be compromised or settled by Sellers or Purchaser in any manner
that might adversely affect the interests of the other party without the prior
written consent of such other party. Except as otherwise provided hereinafter,
any claim in respect of which indemnification hereunder is sought must be made
in writing prior to the expiration of twelve (12) months after the Closing Date.
5.04 Contribution in Lieu of Indemnification 5.04 Contribution in Lieu of
Indemnification . If the indemnification provided for in this Article V is held
by a court of competent jurisdiction to be unavailable to Purchaser or Sellers
("Indemnified Party") with respect to any loss, liability, claim, damage, or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and the Indemnified
Party on the other in connection with the statements or omissions which resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other things,
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whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact related to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
5.05 Indemnification Limitation. Dean and Mike, on the one hand, and
Purchaser, on the other hand, shall be required to indemnify the Purchaser and
Sellers, respectively, under this Article V only to the extent and by the amount
that the aggregate amount of claims, demands, losses, damages and expenses
exceeds $150,000.00 and the aggregate liability of Dean and Mike, on the one
hand, and the Purchaser, on the other hand, under this Article V shall not
exceed $1,000,000. The amount for which indemnification is provided under this
Article V, shall be net of all amounts recovered or recoverable by the
indemnified party under insurance policies and shall be adjusted to take account
of any tax cost or benefit realized by the indemnified party as a result of the
incurrence or payment of any such claim, demand, loss, damage or expense.
5.06 Preparation of Tax Returns; Cooperation on Tax Matters.
(a) Tax periods ending on or Before the Closing Date. Sellers, at their
cost, shall prepare or cause to be prepared and file or cause to be filed all
tax returns for the Company for all tax periods ending on or before the Closing
Date which are filed after the Closing Date.
(b) Tax Periods Ending After the Closing Date. Purchaser, at its cost,
shall prepare or cause to be prepared and file or cause to be filed all tax
returns for the Company for all tax periods ending after the Closing Date.
(c) Cooperation. Sellers, Purchaser and the Company shall cooperate fully
in connection with the preparation and filing of tax returns pursuant to this
section and any audit, litigation or other proceeding with respect to any taxes.
Such cooperation shall include the retention and (upon the other party's
request) provision of records which are reasonably relevant to the preparation
of such returns and any such audit, litigation or other proceeding.
(d) Section 1377 Election. Within the time period permitted under the Code,
the parties hereto shall cause the Company to elect under Section 1377 of the
Code to have the rules provided in Section 1377 of the Code applied as if the
taxable year of the Company consisted of two taxable years, the first of which
shall terminate as of the closing date, and to file all necessary documents to
make such election with the Internal Revenue Service.
(e) Section 338(h)(10) Election. Sellers and Purchaser hereby agree:
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(i) at Purchaser's election, made within the period allowed by law,
Sellers and Purchaser shall cause (and shall cause the company) to join in
an election under Section 338(h)(10) and Section 338(g) of the Code and in
all comparable elections and in state and local tax laws so applicable (the
"Election");
(ii) Purchaser and Sellers agree to allocate the Purchase Price among
assets in accordance with applicable Treasury Regulations as set forth on
Exhibit 5.06(e)(i) (the "Price Allocation");
(iii) Purchaser and Sellers agree to follow the value and Price
Allocation above, for purposes of all federal, and where applicable, state
and local income tax returns to the extent said values are relevant for
such purpose; and
(iv) after Closing, neither Purchaser, Sellers, Company nor any of
their respective Affiliates shall take any action or fail to take any
action where such act or failure to act would result in or have the effect
of defeating the Election.
ARTICLE VI.MISCELLANEOUSARTICLE
6.01 Other Health Insurance Coverage Matters. Following the Closing Date,
the Purchaser shall cause the Company to provide "single" health insurance
coverage to all full-time employees of the Company as of the Closing Date at a
cost to such employee no greater than the cost to such employee of health care
coverage immediately prior to the closing. Furthermore, to the extent possible
and within the sole discretion of the Company, such coverage shall provide that
all pre-existing conditions and waiting periods shall be waived.
6.02 Other Negotiations. Sellers agree, until the earlier of the Closing
Date or Purchaser's indication that it no longer desires to pursue the purchase
of the Stock, not in any way solicit or contact, or hold discussions or
negotiations with, any one other than the Purchaser or its authorized
representatives concerning the sale of the Stock.
6.03 Company Employees. After the Closing, Purchaser may employ or attempt
to employ any employee involved in the Company's business.
6.04 Reasonable Inspection and Confidentiality. Sellers hereby agree to
permit Purchaser and its representatives to make such investigations of the
books, records and operations of the Company's business as Purchaser believes
necessary or advisable in connection with the purchase of the Stock. Sellers
hereby agree to permit the Purchaser and its representatives to have full access
to the assets and all the books and records of the Company's business, and
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Purchaser shall have the right to make copies thereof and excerpts therefrom.
Sellers shall furnish to Purchaser such financial and operating data and other
information with respect to the Company's business as Purchaser may reasonably
request. Purchaser and its representatives shall have the right to consult with
the officers, employees, attorneys, accountants and agents of Sellers in
connection with the foregoing. Purchaser hereby agrees that, if the transactions
contemplated hereby are not consummated for any reason, it (a) will return all
documents delivered to it by Sellers and all copies made by it and (b) will not
use for its own benefit or disclose to third parties any information other than
information which at the time of disclosure is in the public domain not as a
result of acts by Purchaser.
6.05 Publicity. Sellers and Purchaser each agree that no public statements
will be made with respect to the transactions contemplated hereby unless the
other party hereto has consented to such disclosure, such consent not to be
unreasonably withheld.
6.06 Expenses. All fees, expenses and costs incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such fees, expenses and costs; provided, however, that if the
Company or Sellers incur any fees, expenses or costs as a result of complying
with a request of Purchaser or in connection with the investigation of the
business and operations of the Company by Purchaser, such fees, expenses and
costs shall be paid by Purchaser upon presentation of an invoice therefor.
6.07 Survival of Representations, Warranties and Covenants 6.07 Survival of
Representations, Warranties and Covenants . All representations and warranties
of the Sellers and the Purchaser shall survive this Agreement for a period of
twelve (12) months and all covenants and agreements herein made shall survive
this Agreement and the sale of the Common Stock in accordance with their terms.
6.08 Notices and Other Communications 6.08 Notices and Other Communications
. Notices, requests and communications hereunder shall be in writing and shall
be sufficient in all respects if delivered to the relevant address indicated
below (including delivery by registered or certified United States mail, telex,
telegram, expedited courier service or hand):
(a) If to Purchaser:
DTN ACQUISITION, INC.
9110 West Dodge Road
Omaha, NE 68114
Attention: Charles R. Wood, Senior Vice President
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(b) If to Sellers:
Dean Loew Michael Protofanousis
10509 50th Ave. 405 Warren
Pleasant Prairie, WI 53158 Glenview, IL 60025
Any party may, by proper written notice hereunder to the other, change
the individuals or addresses to which such notices to it shall thereafter be
sent.
6.09 Parties in Interest 6.09 Parties in Interest . All covenants and
agreements herein contained by or on behalf of the Sellers and Purchaser shall
be binding upon the Sellers and Purchaser, their respective heirs, successors
and assigns and inure to the benefit of Sellers and Purchaser, their respective
heirs, successors and assigns.
6.10 No Waiver 6.10 No Waiver . No course of dealing on the part of either
party , its officers or employees, nor any failure or delay by either party with
respect to exercising any of their rights, powers or privileges under this
Agreement, the Common Stock or any other instrument referred to herein or
executed in connection with the Common Stock shall operate as a waiver thereof.
The rights and remedies of the parties under this Agreement and the Common Stock
or any other instrument referred to herein or executed in connection with the
Common Stock shall be cumulative and the exercise or partial exercise of any
such right or remedy shall not preclude the exercise of any other right or
remedy.
6.11 GOVERNING LAW 6.11 GOVERNING LAW . THIS AGREEMENT SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE SUBSTANTIVE LAWS OF THE STATE OF NEBRASKA NOTWITHSTANDING THE CHOICE OF
LAW PROVISIONS THEREOF.
6.12 Incorporation of Exhibits 6.12 Incorporation of Exhibits . The
Exhibits attached to this Agreement are incorporated herein for all purposes and
shall be considered a part of this Agreement.
6.13 Survival Upon Unenforceability 6.13 Survival Upon Unenforceability .
In the event any one or more of the provisions contained in this Agreement, the
Common Stock or in any other instrument referred to herein or executed in
connection with the Common Stock shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or any provision of
any other instrument referred to herein or executed in connection herewith.
6.14 Rights of Third Parties 6.14 Rights of Third Parties . All provisions
herein are imposed solely and exclusively for the benefit of the Purchaser and
the Sellers and no other Person shall have standing to require satisfaction of
such provisions in accordance with their terms.
6.15 Amendments or Modifications 6.15 Amendments or Modifications . Neither
this Agreement nor any provision hereof may be changed, waived, discharged or
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terminated orally. This Agreement may be amended, and the observance of any term
of this Agreement may be waived, with (and only with) the written consent of the
Sellers and the Purchaser.
6.16 Agreement as Entirety. This Agreement, for convenience only, has been
divided into Articles and Sections and it is understood that the rights, powers,
privileges, duties and other legal relations of the parties hereto shall be
determined from this instrument as an entirety and without regard to the
aforesaid division into Articles and Sections and without regard to headings
prefixed to said Articles or Sections.
6.17 Number and Gender 6.17 Number and Gender . Whenever the context
requires, reference herein made to the single number shall be understood to
include the plural and likewise the plural shall be understood to include the
singular. Words denoting sex shall be construed to include the masculine,
feminine, and neuter, when such construction is appropriate, and specific
enumeration shall not exclude the general, but shall be construed as cumulative.
6.18 Entire Agreement 6.18 Entire Agreement . This Agreement contains the
entire agreement between the parties relating to the transactions contemplated
hereby. All prior or contemporaneous understandings, representations, statements
and agreements, whether written or oral, are merged herein and superseded by
this Agreement. THIS WRITTEN AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
6.19 Controlling Provision Upon Conflict 6.19 Controlling Provision Upon
Conflict . In the event of a conflict between the provisions of this Agreement
or any other instrument referred to herein or executed in connection with the
issuance of the Common Stock, the provisions of this Agreement shall control.
IN WITNESS WHEREOF, this Stock Purchase Agreement is executed as of the
date first above written.
SELLERS:
/s/ DEAN LOEW
-------------------------
Dean Loew
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/s/ MICHAEL PROTOFANOUSIS
-------------------------------
Michael Protofanousis
/s/ SAM PROTOFANOUSIS
-------------------------------
Sam Protofanousis
/s/ ROBERT RAWLINS
-------------------------------
Robert Rawlins
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/s/ RAY VOGEL
------------------------------
Ray Vogel
/s/ MICHAEL PAOLELLA
-------------------------------
Michael Paolella
/s/ ROBERT PAOLELLA
------------------------------
Robert Paolella
PURCHASER:
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DTN ACQUISITION, INC.
By: /s/Charles R. Wood
--------------------------
Charles R. Wood, President
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Schedule & Exhibit Index
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Schedule 2.02 Instructions to Purchaser for Allocation of the Purchase Price
Schedule 4.01(u) Contracts Which May Exceed $1,000.00 Cancellation Penalties
Exhibit 1.02(a) Noncompetition Agreement - Michael Protofanousis
Exhibit 1.02(b) Noncompetition Agreement - Dean Loew
Exhibit 5.06(e)(i) Price Allocation
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Schedule 2.02
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Schedule 2.02
Instructions to Purchaser for Allocation of the Purchase Price
47 1/2 % of Purchase Price to Dean Loew by wire transfer
instructions
47 1/2 % of Purchase Price to Michael Protofanousis by wire transfer
instructions
1% of Purchase Price to Sam Protofanousis by certified check
1% of Purchase Price to Robert Rawlins by certified check
1% of Purchase Price to Ray Vogel by certified check
1% of Purchase Price to Michael Paolella by certified check
1% of Purchase Price to Robert Paolella by certified check
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Schedule 4.01(u)
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Schedule 4.01(u)
Contracts which may exceed $1,000 cancellation penalties:
Standard & Poors Comstock, Inc. (stock market data provider)
Bridge Information Systems, Inc. (stock market data provider)
Alpha dot Net, Inc. (internet service provider)
TCG, Inc. (leased T1 data line provider)
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Exhibit 1.02(a)
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NON-COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into as of the 14th day of October,
1998, by and between DTN ACQUISITION, INC., a Nebraska corporation, having its
principal office in Omaha, Nebraska ("Company"), and MICHAEL PROTOFANOUSIS, an
individual residing at 405 Warren, Glenview, Illinois 60025 ("Protofanousis").
WITNESSETH
WHEREAS, Protofanousis has heretofore been a shareholder and served as an
officer and director of PARAGON SOFTWARE, INC. ("Paragon"); and
WHEREAS, the Company, by Stock Purchase Agreement of even date herewith,
has acquired all of Protofanousis's common stock ("Common Stock") in Paragon for
cash; and
WHEREAS, Protofanousis acknowledges that he possesses certain unique and
special knowledge of the business and assets of Paragon; and
WHEREAS, Company desires to protect the business and assets of Paragon; and
WHEREAS, Protofanousis acknowledges that as part of the consideration for
Company acquiring the Common Stock from Protofanousis, Protofanousis has agreed
to certain covenants of nondisclosure and non-competition.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
payments herein contained, the Company and Protofanousis hereby agree as
follows:
1. Recitals Part of Agreement. The foregoing recitals are made a part of
this Agreement.
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2. Term of Agreement. Company and Protofanousis agree that this Agreement
shall be beginning on the date above given (the "Effective Date") and end on the
third anniversary thereof unless sooner terminated as hereinafter provided (the
"Noncompete Period").
3. Non-Competition. Protofanousis agrees as follows: Protofanousis
acknowledges that he possesses special knowledge of Paragon and may during the
Noncompete Period receive special knowledge of the Company. Protofanousis
acknowledges that included in the special knowledge received is the confidential
information identified in Section 4 below. Protofanousis acknowledges that this
confidential information is valuable to Company and Paragon and, therefore, its
protection and maintenance constitutes a legitimate interest to be protected by
Company by this covenant not to compete. Protofanousis further represents and
acknowledges that due to the nature of the business of Company and Paragon,
Protofanousis is able to compete with the Company and Paragon anywhere in the
world. Therefore, Protofanousis agrees that during the Noncompete Period,
Protofanousis will not, directly or indirectly either as an employee, employer,
consultant, agent, principal, partner, stockholder (other than in investment in
a public company of no greater than five percent (5%) of its outstanding stock),
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any business that is in competition with the
business of Paragon as presently conducted anywhere in the world.
4. Nondisclosure. Protofanousis agrees during the Noncompete Period to not
disclose to any person or entity copies, pictures, duplicates, facsimiles or
other reproductions or recordings of any abstracts or summaries of any reports,
studies, memoranda, correspondence, records, methods, plans, catalogs,
brochures, trade secrets, customer lists, customer data bases, patents,
application for patents, trademarks, inventions, engineering drawings, licenses,
copyrights and other intellectual property or other written, printed, or
otherwise recorded materials of any kind whatever belonging to or in the
possession of Company or Paragon or of any subsidiary or affiliate of Company or
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Paragon. Protofanousis shall have no right, title, or interest in any such
material. Protofanousis agrees that he will not, without the prior written
consent of Company, remove any such material from any premises of Company or of
any subsidiary or affiliate of Company at any time (if given access to or comes
into possession of any such material), and that he will surrender all such
material to Company immediately upon the request of Company. This paragraph
shall not apply to information which (i) is or becomes generally available to
the public or (ii) becomes available to Protofanousis on a non-confidential
basis from a source other than Company.
5. Consideration. In consideration for the agreements made by Protofanousis
herein, the Company shall pay Protofanousis a total of $250,000.00 in twelve
(12) quarterly installments of $20,833.34 each, the first such installment
commencing on the first day of the month following ninety (90) days from the
Effective Date.
6. Death of Protofanousis. In the event that Protofanousis dies during the
Noncompete Period, compensation due hereunder shall be paid to his estate in the
manner set forth in Paragraph 5 above.
7. Notices. Any notice required or permitted hereunder shall be sufficient
if in writing and if sent by certified mail, postage prepaid, return receipt
requested, to the addresses set forth on the execution page hereof, or to such
other address as may be designated by written notice similarly given by either
party to the other.
8. Assignment. This Agreement may not be assigned by Protofanousis.
9. Amendments. This Agreement may only be amended by a written instrument
captioned on its face as an "Amendment" hereto and duly executed by the Company
and Protofanousis.
10. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF NEBRASKA NOTWITHSTANDING THE CHOICE OF LAW
PROVISIONS THEREOF.
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11. Binding Effect. This Agreement shall inure to the benefit of and be
enforceable against the Company and Protofanousis and their respective
successors, heirs and permitted assigns.
12. Entire Agreement. This Agreement contains the entire agreement between
the parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by this agreement.
THIS WRITTEN AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
13. Controlling Provision Upon Conflict. In the event of a conflict between
the provisions of this Agreement or any other instrument referred to herein or
executed in connection with the purchase and sale of the Common Stock, the
provisions of this Agreement shall control.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and Protofanousis has executed this Agreement as of
the 14th day of October, 1998.
COMPANY:
DTN ACQUISITION, INC.
By:/s/ Charles R. Wood
----------------------------
Charles R. Wood
Senior Vice President
Address for Notices:
9110 West Dodge Road
Omaha, NE 68114
PROTOFANOUSIS:
/s/ Michael Protofanousis
----------------------------
Michael Protofanousis
Address for Notices:
405 Warren
Glenview, Illinois 60025
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Exhibit 1.02(b)
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NON-COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into as of the14th day of October, 1998,
by and between DTN ACQUISITION, INC., a Nebraska corporation, having its
principal office in Omaha, Nebraska ("Company"), and DEAN LOEW, an individual
residing at 10509 50th Avenue, Pleasant Prairie, Wisconsin 53158 ("Loew").
WITNESSETH
WHEREAS, Loew has heretofore been a shareholder and served as an officer
and director of PARAGON SOFTWARE, INC. ("Paragon"); and
WHEREAS, the Company, by Stock Purchase Agreement of even date herewith,
has acquired all of Loew's common stock ("Common Stock") in Paragon for cash;
and
WHEREAS, Loew acknowledges that he possesses certain unique and special
knowledge of the business and assets of Paragon; and
WHEREAS, Company desires to protect the business and assets of Paragon; and
WHEREAS, Loew acknowledges that as part of the consideration for Company
acquiring the Common Stock from Loew, Loew has agreed to certain covenants of
nondisclosure and non-competition.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
payments herein contained, the Company and Loew hereby agree as follows:
1. Recitals Part of Agreement. The foregoing recitals are made a part of
this Agreement.
2. Term of Agreement. Company and Loew agree that this Agreement shall be
beginning on the date above given (the "Effective Date") and end on the third
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anniversary thereof unless sooner terminated as hereinafter provided (the
"Noncompete Period").
3. Non-Competition. Loew agrees as follows: Loew acknowledges that he
possesses special knowledge of Paragon and may during the Noncompete Period
receive special knowledge of the Company. Loew acknowledges that included in the
special knowledge received is the confidential information identified in Section
4 below. Loew acknowledges that this confidential information is valuable to
Company and Paragon and, therefore, its protection and maintenance constitutes a
legitimate interest to be protected by Company by this covenant not to compete.
Loew further represents and acknowledges that due to the nature of the business
of Company and Paragon, Loew is able to compete with the Company and Paragon
anywhere in the world. Therefore, Loew agrees that during the Noncompete Period,
Loew will not, directly or indirectly either as an employee, employer,
consultant, agent, principal, partner, stockholder (other than in investment in
a public company of no greater than five percent (5%) of its outstanding stock),
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any business that is in competition with the
business of Paragon as presently conducted anywhere in the world.
4. Nondisclosure. Loew agrees during the Noncompete Period to not disclose
to any person or entity copies, pictures, duplicates, facsimiles or other
reproductions or recordings of any abstracts or summaries of any reports,
studies, memoranda, correspondence, records, methods, plans, catalogs,
brochures, trade secrets, customer lists, customer data bases, patents,
application for patents, trademarks, inventions, engineering drawings, licenses,
copyrights and other intellectual property or other written, printed, or
otherwise recorded materials of any kind whatever belonging to or in the
possession of Company or Paragon or of any subsidiary or affiliate of Company or
Paragon. Loew shall have no right, title, or interest in any such material. Loew
agrees that he will not, without the prior written consent of Company, remove
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any such material from any premises of Company or of any subsidiary or affiliate
of Company at any time (if given access to or comes into possession of any such
material), and that he will surrender all such material to Company immediately
upon the request of Company. This paragraph shall not apply to information which
(i) is or becomes generally available to the public or (ii) becomes available to
Loew on a non-confidential basis from a source other than Company.
5. Consideration. In consideration for the agreements made by Loew herein,
the Company shall pay Loew a total of $250,000.00 in twelve (12) quarterly
installments of $20,833.34 each, the first such installment commencing on the
first day of the month following ninety (90) days from the Effective Date.
6. Death of Loew. In the event that Loew dies during the Noncompete Period,
compensation due hereunder shall be paid to his estate in the manner set forth
in Paragraph 5 above.
7. Notices. Any notice required or permitted hereunder shall be sufficient
if in writing and if sent by certified mail, postage prepaid, return receipt
requested, to the addresses set forth on the execution page hereof, or to such
other address as may be designated by written notice similarly given by either
party to the other.
8. Assignment. This Agreement may not be assigned by Loew.
9. Amendments. This Agreement may only be amended by a written instrument
captioned on its face as an "Amendment" hereto and duly executed by the Company
and Loew.
10. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF NEBRASKA NOTWITHSTANDING THE CHOICE OF LAW
PROVISIONS THEREOF.
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11. Binding Effect. This Agreement shall inure to the benefit of and be
enforceable against the Company and Loew and their respective successors, heirs
and permitted assigns.
12. Entire Agreement. This Agreement contains the entire agreement between
the parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by this agreement.
THIS WRITTEN AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
13. Controlling Provision Upon Conflict. In the event of a conflict between
the provisions of this Agreement or any other instrument referred to herein or
executed in connection with the purchase and sale of the Common Stock, the
provisions of this Agreement shall control.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and Loew has executed this Agreement as of the 14th
day of October, 1998.
COMPANY:
DTN ACQUISITION, INC.
By:/s/ Charles R. Wood
---------------------------
Charles R. Wood
Senior Vice President
Address for Notices:
9110 West Dodge Road
Omaha, Nebraska 68114
LOEW:
/s/ Dean Loew
--------------------------------
DEAN LOEW
Address for Notices:
10509 50th Avenue
Pleasant Prairie, Wisconsin 53158
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Exhibit 506(e)(i)
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Exhibit 5.06(e)(i)
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Fixed Assets and Purchased Software on Balance
Sheet Dated June 30, 1998 $ 125,000.00
In-House Developed Software 400,000.00
Customer Lists, Goodwill, Etc. 4,695,000.00
TOTAL $ 5,220,000.00
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EXHIBIT B
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of ____________,
199__, by and among [Insert name of Newco], a Nebraska corporation ("Buyer"),
and Marcia C. Kennedy and Scott L. Brown (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 Asset Growth Corporation, a Delaware
corporation (the "Company"), set forth opposite his or her 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;
WHEREAS, Buyer wishes to purchase from Sellers and Sellers wish to sell
to Buyer ninety percent (90%) of all of the issued and outstanding capital stock
of the Company upon and subject to the terms and conditions set forth herein;
and
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), free and clear of any and all liens, claims and
encumbrances, good, valid and marketable title to the number of shares of
capital stock of the Company set forth opposite his or her name on Schedule 1 as
being sold to Buyer (all of such shares to be sold to Buyer hereunder being 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.
1.02 Price. In full consideration for the purchase by Buyer of the
Shares, Buyer shall pay to each Seller on the Closing Date the amount set forth
opposite such Seller's name in Schedule 1 attached hereto, being an aggregate
amount of Six Hundred Thousand Dollars ($600,000).
1.03 Closing. The sale referred to in Section 1.01 (the "Closing")
shall take place at the office of ______________ at
__________________________________________, on the date of the execution of this
Agreement, or at such later date as the parties hereto shall by written
instrument designate. Such time and date are herein referred to as the "Closing
Date".
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
As of the date hereof (except as otherwise specified herein) and as of
the Closing Date, Sellers each jointly and severally represents and warrants to
Buyer as follows:
2.01 Organization and Qualification. At the Closing Date, the Company
will be a corporation duly organized, validly existing and in good standing
under the laws of Delaware and will have all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. Texas is the only jurisdiction in which the Company is qualified or
licensed to do business. Buyer has heretofore received true and complete copies
of the Certificate of Incorporation and By-laws (or other similar charter
documents), as currently in effect, of the Company.
2.02 Capitalization; Title to Stock. The authorized capital stock of
the Company consists of (i) 75,000,000 shares of common stock, $0.01 par value
per share (the "Common Stock"), of which 200,000 shares are issued and
outstanding as of the date hereof and no shares are held in the Company's
treasury and (ii) 10,000,000 shares of preferred stock, $3.00 par value per
share, of which no shares are outstanding and none are in the Company's
treasury. Sellers are the 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 this Agreement, there are no outstanding
options, warrants, calls or other rights to subscribe for or purchase or acquire
from the Company or Sellers 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. Each Seller represents
and warrants only with respect to that Seller and not with respect to any other
Seller, that such Seller (i) has good, valid and marketable title, beneficially
and of record, to the respective Shares set forth opposite his 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 or its ownership of record of such Shares,
and (iii) at the Closing Date, will have full right, power and authority to
sell, transfer, convey and deliver to Buyer, in accordance with the terms of
this Agreement, good, valid and marketable 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.
2.03 Subsidiaries. The Company has no subsidiaries. Except as set forth
on Schedule 2.03, there is no corporation, partnership, joint venture or other
person or entity in which the 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).
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2.04 Authority Relative to the Transactions Contemplated by this
Agreement. At the Closing Date, each Seller will have full power, capacity and
authority (corporate or otherwise) to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. At the Closing Date, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will have been duly and validly authorized on
behalf of all Sellers and no other proceedings on behalf of Sellers are or will
be 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) at the
Closing Date will constitute a legal, 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.
2.05 Consents and Approval; No Violation. Except as set forth on
Schedule 2.05, neither the execution and delivery of this Agreement by Sellers,
nor the consummation of the transactions contemplated hereby, nor compliance by
any Seller with the provisions hereof, will (i) require 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 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; (ii)
conflict with or breach any provision of the Certificate of Incorporation,
By-laws or trust agreement (or other similar governing documents) of the Company
or any Seller; (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 the Company or any Seller is a party, or by which the Company or any
Seller or any of their respective properties or assets may be bound; or (iv)
violate any order, writ, injunction, decree or judgment of any court or
governmental authority applicable to the Company or any Seller or any of their
material assets.
2.06 Balance Sheet. Sellers have delivered to Buyer the unaudited
balance sheet of the Company as of September 30, 1998 (the "Balance Sheet"). The
Balance Sheet (i) has been prepared in accordance with the books and records of
the Company, and (ii) presents fairly the financial position of the Company as
of such date.
2.07 Undisclosed Liabilities. Except (i) as provided for in the Balance
Sheet, (ii) as disclosed in Schedule 2.07 or as specifically identified on other
Schedules to this Agreement or (iii) for normal trade obligations incurred in
the ordinary course of business subsequent to the date of the Balance Sheet,
consistent with past practices or as otherwise provided in this Agreement, the
Company has no liabilities or obligations in excess of $1,000 individually or
$10,000 in the aggregate of any kind or nature, whether known or unknown or
secured or unsecured (whether absolute, accrued, contingent or otherwise, and
whether due or to become due).
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2.08 Absence of Certain Changes or Events. Except as set forth in
Schedule 2.08, or as disclosed in the other Schedules hereto, the Company has
not (i) suffered any material adverse change in its assets, liabilities,
business, prospects, results of operations or financial condition, (ii) suffered
any damage, destruction or casualty loss adversely affecting any material assets
of the Company, or (iii) 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. Except as set forth on Schedule 2.09,
the Company does not own or lease any real property or office space. All of the
properties, rights and assets, tangible and intangible, now used in or, to the
best knowledge of Sellers, necessary for the conduct by the Company of its
business as presently conducted will be indirectly transferred to Buyer by its
purchase of the Shares. 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 not yet due, (ii) Liens which do not affect the use by,
or value to, the Company of its rights and assets, or (iii) Liens set forth on
Schedule 2.09. The term "Liens" shall mean any pledge, lien, security interest,
conditional sale agreement, or other similar encumbrance.
2.10 Material Contracts. Except as set forth in Schedule 2.10, 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 $1,000, (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 involves $10,000 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 $1,000 or more annually (all such
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oral or written agreements, contracts, arrangements and commitments are
hereinafter referred to as the "Material Contracts"). True, complete and correct
copies of all such written contracts, commitments, agreements or arrangements
described on Schedule 2.10 will have been made available to Buyer prior to
Closing. To the best knowledge of Sellers, Schedule 2.10 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, there is not, under any of the Material Contracts, any default or
event which, with notice or lapse of time or both, would constitute a default on
the part of the Company. Neither the Company nor any Seller has received any
notice from the other party to such Material Contracts of the termination or
threatened termination thereof and no Seller knows of the occurrence of any
event which would allow such other party to terminate such Material Contract
except as otherwise disclosed in the Schedules hereto. Except as set forth on
Schedule 2.10 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 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, 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 Leases. Schedule 2.11 hereto sets forth an accurate list of all
leases to which the Company is a party (as lessee). All rents and additional
rent due to date and to the Closing Date on such leases have and will 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 2.11, there is not, with
respect to leases referred to 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.
2.12 Proprietary Rights; Computer Programs, Databases and Software.
Schedule 2.12 contains a complete list of all trademarks, trade names, assumed
names, service marks, logos, patents, copyrights and copyright registration, and
any applications for registration 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 Proprietary Rights are used in or are necessary for the conduct of the
business of the Company as such business is presently conducted. Unless
otherwise indicated in such Schedule 2.12 the Company owns sufficient right,
title and interest in and to the material Proprietary Rights for the conduct of
its business. 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 Seller knows of any basis for such claim. The Company
has taken all 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 2.12, the consummation of the transactions contemplated
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hereby will not alter or impair any such rights. Except as set forth on Schedule
2.12, no person is known to be infringing on or violating the Proprietary Rights
used by the Company. Except in the ordinary course of its business or as set
forth in Schedule 2.12, 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. The occurrence in or use by such
computer programs, databases and software of dates on or after January 1, 2000
("millennial dates") will not adversely affect the performance thereof with
respect to data dependent data, compilations, output, or other functions
(including but not limited to calculating, comparing and sequencing) and that
such computer programs, databases and software will create, store, process and
output information related to or including millennial dates without error or
omissions.
2.13 Litigation. Schedule 2.13 sets forth a complete list and an
accurate description of all claims, actions, suits, proceedings and
investigations pending and threatened, by or against or involving the Company or
its business and, in the case of collection claims, those involving claims in
excess of $1,000. No 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. The Company does 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.
2.14 Employee Benefit Matters. 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, has contributed to or has ever
been obligated to contribute 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"). There are no employee
welfare benefit plans (as defined in ERISA Section 3(1)) maintained by the
Company.
2.15 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 licenses, franchises,
permits and other governmental authorizations and, to the best knowledge of
Sellers, 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. Except as set forth on Schedule
2.15, the Company has not received any notice of any alleged violation of any of
the foregoing.
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2.16 Labor Matters. Except as set forth in Schedule 2.16, (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.
2.17 Insurance. The Company maintains insurance coverage which Sellers
believes to be sufficient for compliance with all requirements of law and of all
agreements to which the Company is a party and which 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 Closing Date will 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.
2.18 Tax Matters. (a) 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 have been fully paid or adequately
disclosed and provided for in the Balance Sheet of the Company.
(b) The Company has not filed any election or caused any deemed
election under Section 338 of the Code.
(c) The Company is not delinquent in the payment of any taxes and no
extensions of time have been granted to the Company to file any return required
by applicable law to be filed by it prior to or on the Closing Date, which have
expired or will expire on or before the Closing Date without such return having
been filed.
2.19 Environmental Matters. The Company is in material compliance with,
and has not done anything to be in material violation of any federal, state or
local laws relating to the environment.
2.20 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; provided, however, each
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Seller so represents and warrants only with respect to that Seller and not with
respect to any other Seller.
2.21 Books and Records. The minute books of the Company, as previously
made available to Buyer, contain accurate records in all material respects of
all meetings of and corporate actions or written consents by the respective
stockholders and Boards of Directors of the Company.
2.22 Bank Accounts. Sellers 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.
2.23 Other Information. The information furnished to Buyer by Sellers
or the Company or pursuant to this Agreement, including the exhibits hereto, the
schedules identified herein, and in any certificate or other document executed
or delivered pursuant hereto by Sellers (which for purposes of this Agreement
shall be deemed to be representations and warranties), is not materially false
or misleading, does not contain any misstatement of material fact, and does not
omit to state any material fact required to be stated in order to make the
statements therein not misleading in light of the circumstances under which they
were made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof and as of the Closing Date, Buyer represents and
warrants to 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 Nebraska.
3.02 Authority Relative to this Agreement. Buyer has full 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)
constitutes a legal, valid and binding agreement of Buyer, enforceable against
Buyer in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy and other laws of general application relating to
creditors' rights and 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
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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 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 Articles 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) 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.
3.05 Brokers and Finders. Buyer has not employed any broker or finder
and, to Buyer's knowledge, 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.
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 and expense (it being understood, however, that all
legal and accounting fees and expenses so incurred by the Company shall be paid
by the Sellers).
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4.02 Public Announcements. Sellers 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 transactions contemplated
hereby.
4.03 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 Sellers, and 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.
4.04 No Dilution. During the three year period following the Closing,
Buyer will not permit the Company, through any consolidation, merger,
reorganization, dissolution, issue or sale of securities or other voluntary
action, to dilute the stock ownership of a Stockholder in the Company without
the prior written approval of such Stockholder.
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) The other parties hereto shall have performed and complied in all
material respects with all agreements, obligations, conditions and covenants
contained in the Purchase Agreement dated ________, 1998, among the Company,
Sellers and the Buyer (the "Purchase Agreement") required to be performed and
complied with by them at or prior to the Closing and all representations and
warranties of such other parties contained in the Purchase Agreement shall be
true and correct in all material respects as of the Closing Date.
(c) No actions or proceedings which have a material likelihood of
success shall have been instituted or threatened by any governmental body or
authority to restrain or prohibit any of the transactions contemplated hereby.
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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 the applicable statute of
limitation.
6.02 Post-Closing Indemnification. (a) From and after the Closing Date,
Sellers shall defend, indemnify and hold harmless Buyer and its affiliates
(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) any inaccuracy in or breach of
or omission from any of the representations or warranties made by Sellers in
Article II of this Agreement or pursuant hereto, or any nonfulfillment, partial
or total, of any of the covenants or agreements made by Sellers in this
Agreement to the extent not waived by Buyer in writing; or (ii) any claim,
action, suit, proceeding or investigation of any kind relating to or arising
from events occurring prior to the Closing Date, instituted by or against or
involving the Company or any of its business or assets (other than those claims,
actions, suits, proceedings and investigations set forth in Schedule 2.13 of the
Disclosure Schedule) regardless of whether such claims, actions, suits,
proceedings or investigations are made or commenced before or after the Closing
Date, provided that Damages relating to claims, actions, suits, proceedings and
investigations that relate to events occurring both before and after the Closing
Date shall be equitably allocated between Buyer and Sellers.
(b) 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.
(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 thirty
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
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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, 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 three years from the Closing Date, provided, however,
notwithstanding the foregoing, claims for indemnification with respect to any
action, lawsuit, proceeding or investigation of any kind relating to or arising
out of the matters referred to in Section 6.02(a)(ii) may be made within five
years from the Closing Date.
6.03 Tax Indemnity, Etc.
(a) Sellers shall be responsible for and pay all Taxes attributable to
the Company or its subsidiaries or for which the Company is liable for any
period or portion of a period that ends on or before the Closing Date which have
not been paid or adequately provided for in the Balance Sheet. Such Taxes shall
include but not be limited to the Taxes of any member of an affiliated group of
which the Company was a member for federal income tax purposes or any entity
with which the Company filed a combined return for state or local tax purposes.
(b) Sellers shall indemnify Buyer, the Company and their affiliates and
their respective successors and assigns (each, a "Tax Indemnified Party", and
collectively, "Tax Indemnified Parties") against and hold the Tax Indemnified
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Parties harmless on an after-tax basis from all liability, loss or damage and
from all expenses paid to third parties (including reasonable attorneys' fees)
with respect to all such Taxes described in the immediately preceding clause
(a).
(c) 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
shall be terminated as of the Closing Date with respect to the Company. The
Company shall have no obligation for the payment of any amount pursuant to any
such agreement, except as expressly provided for in the Balance Sheet. The
foregoing indemnity obligations of Sellers and the covenants and agreements of
the parties contained in this Section 6.03 shall survive the Closing and be
applicable for the applicable statute of limitations (as such may be waived or
extended).
(d) 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.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.01 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of Buyer and Sellers.
7.02 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
7.02.
7.03 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.
7.04 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:
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(a) if to Sellers, to:
Asset Growth Corporation
7324 Southwest Freeway
Suite 1000
Houston, Texas 77074
Attn: Marcia C. Kennedy
with a copy to:
Looper Reed Mark & McGraw
1300 Post Oak Boulevard
Suite 200
Houston, Texas 77056
Attn: Rob James
(b) if to Buyer, to:
Data Transmission Network Corporation
9110 West Dodge Road
Suite 200
Omaha, Nebraska 68114
Attn: Charles R. Wood, Sr. Vice President
with a copy to:
Abrahams Kaslow & Cassman
8712 West Dodge Road
Suite 300
Omaha, Nebraska 68114
Attn: R. Craig Fry
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).
7.05 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.
7.06 Governing Law. 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.
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7.07 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.
7.08 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.
7.09 Entire Agreement. This Agreement, including the Exhibits hereto
and the 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.
7.10 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.
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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.
[Insert name of Newco]
Date:_____________________ By:_____________________________________
Title:__________________________________
Date:_____________________ ________________________________________
Marcia C. Kennedy
Date:_____________________ ________________________________________
Scott L. Brown
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SCHEDULE 1
<TABLE>
<CAPTION>
Name and Number of Number of Payment Due
Address Of Seller Shares Owned Shares Being Sold at Closing
<S> <C> <C> <C>
Marcia C. Kennedy 100,000 90,000 $300,000
Scott L. Brown 100,000 90,000 $300,000
TOTALS 200,000 180,000 $600,000
</TABLE>
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DISCLOSURE SCHEDULE
No disclosures.
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EXHIBIT C
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made as of this ___ day
of _____________ 1998, by and between ASSET GROWTH CORPORATION, a Delaware
corporation ("AGC"), and [Insert name of Newco], a Nebraska corporation (the
"Company").
WHEREAS, AGC is a party to a Purchase Agreement (the "Purchase
Agreement") dated the same date as the date of this Agreement with Data
Transmission Network Corporation, a Delaware corporation ("DTN"), Marcia C.
Kennedy, a shareholder of AGC ("Kennedy"), and Scott L. Brown, a shareholder of
AGC ("Brown");
WHEREAS, pursuant to the Purchase Agreement, the Company is to acquire
all of the capital stock of Paragon Software, Inc., an Illinois corporation
("Paragon"), and AGC and the Company are to enter into this Agreement to provide
for AGC to manage the day to day affairs of the business of Paragon using the
management experience and expertise of Kennedy and Brown, subject to the terms
and conditions set forth in this Agreement; and
WHEREAS, Company desires to engage AGC to render such management
services and AGC desires to provide such services;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. Engagement. The Company hereby engages AGC to render management
services to the Company and Paragon upon the terms and conditions hereinafter
set forth, and AGC agrees to provide such management services upon the terms and
conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence on the date of this
Agreement. Unless sooner terminated in accordance with the provisions of
Paragraph 6, it shall continue until the earlier to occur of the Closing or the
Termination, as such terms are defined in the Purchase Agreement.
3. Compensation. In consideration of AGC's performance of the
management services as provided in this Agreement, the Company agrees to pay AGC
each calendar month during the term of this Agreement (or, in the case of a
partial month, a proportionate amount thereof based on the number of days of
such month within the term of this Agreement) an amount equal to the net income
before income taxes of the Company for such month. AGC shall invoice the Company
at the beginning of each month a reasonable estimate of the projected net income
before income taxes of the Company for such month. Newco shall pay such invoices
by the end of such month. Once the actual amount owed for such month is
determined, AGC shall refund to the Company the amount by which the estimate
exceeds the actual amount due for such month or the Company shall pay to AGC the
amount by which the actual amount due for such month exceeds the estimate.
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4. Duties of AGC. The duties of AGC under this Agreement generally
shall be to manage the day to day affairs of the business of Paragon, subject to
the control of the Board of Directors of Paragon. The precise nature of the
management services to be rendered by AGC during the term of this Agreement
shall be assigned and directed by the Board of Directors of Paragon and may be
modified from time to time at the direction of the Board of Directors of
Paragon. The services shall include, without limitation, the responsibility for
recommending the operational and managerial policies of Paragon as well as the
supervision of the employees of Paragon. During the term of this Agreement, the
Company shall cause Paragon to furnish to AGC at the office of Paragon
appropriate office space, equipment, and secretary and clerical assistance as
may be required from time to time to enable AGC to perform its duties under this
Agreement. It is understood that, except as expressly provided in this
Agreement, AGC shall be responsible for all expenses and costs incurred by it in
connection with the performance of its services under this Agreement.
5. Confidentiality. AGC acknowledges that in the course of performing
its services under this Agreement, AGC will be given access to proprietary and
confidential information of Paragon (collectively the "Proprietary Information")
which includes without limitation (a) the names, addresses and financial data
regarding customers, clients, or applicants of Paragon, (b) any data or
information that is competitively sensitive material including but not limited
to product planning information, marketing strategies, plans, finances,
operations, customer relationships, customer profiles, business plans, and
internal performance results relating to the past, present or future business
activities of Paragon and its affiliates and the customers, clients and
applicants of Paragon, and (c) all confidential or proprietary concepts,
documentation, reports, data, information, know-how and trade secrets, whether
or not patentable or copyrightable. AGC agrees to safeguard the Proprietary
Information and to prevent the unauthorized use or disclosure thereof. Either
during or after AGC's engagement with the Company, AGC will not directly or
indirectly disclose to anyone outside of the Company, Paragon or DTN (except in
the ordinary course of Paragon's business), nor use in other than Paragon's
business, except with the prior written permission of the President of the
Company, any Proprietary Information. Upon the request of the Company or Paragon
and, in any event upon termination of this Agreement, AGC shall surrender to the
Company or Paragon all memoranda, notes, records, and other documents or
materials (and all copies of same) pertaining to or including the Proprietary
Information. AGC acknowledges that use or disclosure of any Proprietary
Information in a manner inconsistent with this Agreement will give rise to
irreparable injury to the Company and Paragon. Accordingly, in addition to any
other legal remedies which may be available, at law or in equity, the Company
and Paragon shall be entitled to equitable or injunctive relief against such
unauthorized use or disclosure. Proprietary Information shall not include any
information or data known generally to the public (other than as a result of
unauthorized disclosure by AGC) or any information or data of a type not
generally considered confidential or proprietary by persons engaged in a
business similar to the business of Paragon. The obligations of AGC under this
paragraph shall survive the termination of this Agreement.
6. Termination. This Agreement shall terminate upon the occurrence of
any of the following events:
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(a) The bankruptcy, dissolution, liquidation or sale of
substantially all of the assets of the Company or Paragon.
(b) Notice from the Company in the event Paragon's revenues or net
earnings from operations before interest, income taxes for any
calendar month during the term of this Agreement are less than
the average monthly revenues or net earnings from operations
before interest, income taxes, respectively, of Paragon over
the three calendar months immediately preceding the date of
this Agreement.
(a) Notice from the Company if either Kennedy or Brown, for any
reason, including but not limited to their death, fails to
personally provide and perform to the best of their abilities
the primary responsibilities and obligations of AGC under this
Agreement.
(d) Written notice by the Company to AGC of the termination of
this Agreement for cause. For purposes of this Agreement,
"cause" shall mean (i) Kennedy's or Brown's confession or
conviction of theft, fraud, embezzlement or other crime
involving dishonesty, (ii) AGC's material violation of the
provisions of Paragraph 5, (iii) material negligence of AGC in
the performance of its duties under or pursuant to this
Agreement, or (iv) material non-compliance by AGC with its
obligations under this Agreement.
(f) The expiration of the stated term of this Agreement or the
earlier termination upon the mutual written agreement of the
parties to this Agreement.
7. Independent Contractor. AGC shall be an independent contractor with
respect to the Company and Paragon in connection with the work performed
hereunder. AGC does not have, and shall not hold itself out as having, any
authority to enter into any contract or create any obligation or liability on
behalf of, in the name of, or binding upon the Company or Paragon; and AGC shall
hold the Company and Paragon harmless from any claims resulting from any action
taken by AGC which is inconsistent with the provisions of this sentence.
8. Binding Effect; Assignment. This Agreement shall be binding upon,
and shall inure to the benefit of, AGC and the Company and their respective
heirs, legal representative, successors, and permitted assigns. The obligations
under this Agreement may not be assigned by the Company or AGC without the prior
written consent of the other party hereto, which consent may be withheld for any
reason whatsoever.
9. Notification. All notices which a party may be required or desire to
give to the other party shall be in writing and shall be given by personal
service, telecopy, registered mail or certified mail (or its equivalent) to the
other party at its respective address or telecopy number set forth below.
Notices shall be deemed to be given upon actual receipt by the party to be
notified. Notices delivered by telecopy shall be confirmed in writing by
overnight courier.
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<PAGE>
If to AGC: Asset Growth Corporation
7324 Southwest Freeway, Suite 1000
Houston, Texas 77074
Attention: Marcia C. Kennedy
Telecopy No.: ______________
If to the Company: Data Transmission Network
Corporation
9110 West Dodge Road, #200
Omaha, NE 68114
Attn: Charles R. Wood
Telecopy No.: (402) 255-8088
10. Entire Agreement. This document constitutes the entire agreement
between the parties hereto with respect to the subject matter of this Agreement;
and there are no other agreements, representations, warranties, or covenants,
written or oral, with respect to the transactions contemplated by this Agreement
which are not expressly set forth, referred to, or incorporated herein by this
document.
11. Amendment. This Agreement may be amended by letter or other
document which by its terms specifically states that it is an amendment to this
Agreement; provided, that such letter or other document shall be signed by both
parties hereto.
12. Governing Law. This Agreement shall be governed by and construed in
enforced in accordance with the substantive laws, but not the choice of law
rules, of the State of Nebraska.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Headings. The headings of the several paragraphs of this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
15. Construction. Whenever required by the context, references in this
Agreement in the singular shall include the plural and vice versa.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
ASSET GROWTH CORPORATION,
A Delaware corporation
By: __________________________________
Marcia C. Kennedy, President
[Insert name of Newco], a Nebraska corporation
By:___________________________________
Title:__________________________________
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EXHIBIT D
(Opinion of Looper, Reed, Mark & McGraw)
Dated __________, 199__
[Insert name of Newco]
c/o Data Transmission Network Corporation
9110 West Dodge Road
Suite 200
Omaha, NE 68114
Gentlemen:
We have acted as counsel to Asset Growth Corporation (the "Company"), a
Delaware corporation, and its shareholders, Marcia C. Kennedy and Scott L. Brown
(collectively the "Shareholders"), in connection with your purchase of ninety
percent (90%) of the issued and outstanding capital stock of the Company
pursuant to that certain Stock Purchase Agreement dated as of __________, 199__
among the Shareholders and you (the "Agreement"). Capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Agreement.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion, including those relating to the authorization, execution and delivery
of the Agreement. We reviewed the following documents and agreements:
(i) the Agreement;
(ii) the Certificate of Incorporation of the Company, as amended,
as certified by the Secretary of State of the State of
Delaware (the "Certificate of Incorporation");
(iii) the Bylaws of the Company, as amended, as certified by the
Secretary of the Company on the date of this opinion letter
(the "Bylaws");
(iv) the stock certificates and stock records of the Company; and
(v) actions taken by the stockholders and Board of Directors of
the Company to authorize the transactions contemplated by the
Agreement.
In such examination and review we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. As to any facts material to the
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opinions hereafter expressed which we did not independently establish or verify,
we have relied without investigation upon certificates, statements and
representations of representatives of the Company. During the course of our
discussion with such representatives and our review of the documents described
above in connection with the preparation of these opinions, no facts were
disclosed to us that caused us to conclude that any such certificate, statement
or representation is untrue. In making our examination of the documents executed
by persons or entities other than the Shareholders and the Company, we have
assumed that each such other person or entity had the power and capacity to
enter into and perform all his, her or its obligations thereunder and the due
authorization of, and the due execution and delivery of, such documents by each
such person or entity.
As used in this opinion, the expression "to our knowledge" with
reference to matters of fact means that after an examination of documents in our
files or made available to us by the Company and after inquiries of officers of
the Company, and considering the actual knowledge of those attorneys in our firm
who have given substantive attention to legal matters for the Company, without
independent investigation or inquiry as to factual matters, but not including
any constructive or imputed notice of any information, we find no reason to
believe that the opinions expressed herein are factually incorrect. Beyond that,
we have made no independent factual investigation for the purpose of rendering
an opinion with respect to such matters.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and has the corporate
power and authority and, to our knowledge, all franchises, licenses, and permits
from governmental authorities necessary to own and operate its properties and to
conduct its business as presently being conducted.
2. The Company is duly qualified to do business and is in good standing
in (i) the state of Delaware, and (ii) to our knowledge, each jurisdiction in
which its ownership or lease of property or the conduct of its business requires
such qualification.
3. The authorized capital stock of the Company consists of (i)
75,000,000 shares of Common Stock, $0.01 par value per share, of which 200,000
shares are outstanding and no shares are held in the treasury of the Company and
(ii) 10,000,000 shares of Preferred Stock, $3.00 par value per share, of which
no shares are outstanding and none are held in the treasury of the Company. All
of the outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable with no
personal liability attaching to the ownership thereof. To our knowledge, except
as disclosed in the disclosure schedules to the Agreement, there are no
outstanding subscriptions, scrip, warrants, commitments, conversion rights,
calls, options or agreements to issue or sell additional securities of the
Company, and no obligations whatsoever requiring, or which might require, the
Company to issue any securities.
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4. To our knowledge, the parties to the Agreement other than you have
good title to all of the outstanding shares of Common Stock of the Company, free
and clear of all liens, encumbrances, security interests, options, claims,
charges and restrictions.
5. Each of the Shareholders has the power, authority, and capacity to
execute, deliver, and perform the Agreement and to consummate the transactions
contemplated thereby, and the Agreement and all documents and instruments
delivered by the Shareholders thereunder have been duly executed and delivered
by them and constitute legal, valid and binding obligations of the parties
thereto other than Buyer, enforceable in accordance with their terms.
6. The execution, delivery, and performance of the Agreement and the
consummation of the transactions contemplated thereby will not, except as
disclosed in the disclosure schedules to the Agreement, result in a breach or
violation of or constitute a default under, or accelerate any obligation under,
or give rise to a right of termination of, the Certificate of Incorporation or
By-laws of the Company or, to our knowledge, any judgment, decree, order,
governmental permit or license, authorization, agreement, indenture, instrument,
or statute or regulation to which the Shareholders or the Company is a party or
by which the Shareholders or the Company or its business, assets, or properties
may be bound or affected, and, to our knowledge, will not, except as disclosed
in the disclosure schedules to the Agreement, result in the creation of any
lien, claim, encumbrance or restriction on any part of the business or assets of
the Company.
7. To our knowledge, there is no legal action or governmental
proceeding or investigation pending or threatened against or affecting the
Company or its stockholders which prevents the parties other than Buyer from
entering into or being bound by the Agreement or from consummating the
transactions contemplated thereby or which questions the validity of the
Agreement or the transactions contemplated thereby.
8. To our knowledge, except as disclosed in the disclosure schedules to
the Agreement, there is no legal action or governmental proceeding or
investigation pending or threatened against or affecting the Company, which, if
decided adversely to the Company, would have a material adverse affect on the
properties, business, profits or condition (financial or otherwise) of the
Company, taken as a whole.
9. To our knowledge, except as disclosed in the disclosure schedules to
the Agreement, no consent, authorization or approval of, or exemption by, or
filing with, any court or administrative agency or authority of the United
States of America or the State of Delaware is required in connection with the
delivery and performance by the Shareholders of the Agreement or any of the
instruments or agreements delivered by the Shareholders thereunder, or the
taking of any action therein contemplated.
10. All corporate proceedings required by the Delaware General
Corporation Law to be taken by the Board of Directors or the stockholders of the
Company on or prior to the Closing Date in connection with the execution and
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delivery of the Agreement and in connection with the sale of all of the capital
stock of the Company have been duly and validly taken.
This opinion relates solely to the laws of the State of Delaware, and
applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions. We
have assumed that, and our opinions expressed in paragraph 5 above are based
upon our assumption that, the internal laws of the State of Delaware and Federal
law govern the provisions of the Agreement and the transactions contemplated
thereby.
The opinion set forth in paragraph 5 above concerning the
enforceability of the obligations of the Shareholders under the Agreement is
subject to the effect of (i) bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent transfer and other similar laws affecting
creditors' rights generally, and (ii) the discretion of any court of competent
jurisdiction in awarding equitable remedies, including, without limitation,
specific performance or injunctive relief, and the effect of general principles
of equity embodied in Delaware statutes and common law.
We are opining only as to the matters expressly set forth herein, and
no opinion should be inferred as to other matters. The opinions expressed herein
are furnished by us, as counsel for the Company and the Shareholders, solely for
your benefit in connection with the transactions contemplated by the Agreement
and upon the understanding that we are not hereby assuming any responsibility to
any other person whatsoever. This opinion may not be quoted or relied upon by
any other person or used for any other purpose without our prior written
consent. This opinion is rendered as of the date hereof and we do not undertake
to advise you of matters which occur subsequent to the date hereof and which
affect the opinions expressed herein.
Very truly yours,
Looper, Reed, Mark & McGraw
By:
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EXHIBIT E
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of the _____ day
of ____________, 199__, between Asset Growth Corporation (the "Company"), a
Delaware corporation, and [Insert name of the Stockholder] (the "Executive").
* * *
WHEREAS, the Company, a subsidiary of Data Transmission Network
Corporation ("DTN"), desires to employ the Executive; and
WHEREAS, the Executive desires to accept such employment.
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. The Company hereby employs the Executive as
its __________________________________. The duties and responsibilities of the
Executive shall consist of the duties and responsibilities of the Executive's
corporate offices and positions which are set forth in the bylaws of the Company
from time to time and such other duties and responsibilities consistent with the
Executive's corporate offices and positions which the Board of Directors of the
Company may from time to time assign to the Executive.
2. Term. The term of this agreement shall begin on the date of this
agreement and shall continue thereafter for a period of thirty six (36) months,
unless terminated earlier in accordance with this agreement. The Executive shall
remain an employee at-will. Either the Executive or the Company may terminate
the employment relationship at any time, with or without any reason, subject to
the other provisions of this agreement. Each party shall provide the other party
with thirty (30) days advance written notice of such party's intention to
terminate this agreement, except in the event of the termination of Executive's
employment pursuant to any of the first three sentences of Section 11 of this
agreement.
3. Place of Employment. During the term of this agreement, the
Executive will perform the duties of the Executive at the Company's offices in
_________________, and the Executive will not be required to relocate or
transfer the principal residence of the Executive during the term of this
agreement.
4. Compensation. The Company agrees to pay the Executive a signing
bonus (the "Signing Bonus") of One Hundred Fifty Thousand Dollars ($150,000).
The Signing Bonus shall be paid in full on the date of this agreement, and is
not subject to forfeiture. The Company agrees to pay the Executive a base salary
(the "Base Salary") of One Hundred Seventy Five Thousand Dollars ($175,000) per
year (it being understood, however, that Executive shall be eligible for
discretionary increases in such Base Salary to the extent approved by the Board
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of Directors of DTN after recommendation by its Compensation Committee). The
Base Salary shall be paid in periodic installments in accordance with the
Company's regular payroll practices.
5. Annual Bonus. The Executive shall participate in the Company's
annual bonus plan in effect during the term of this agreement which will reward
targeted performance by the Executive in a manner similar to executives with
similar base salaries under DTN's annual bonus plan in effect during the term of
this agreement. If the goals by which the Executive's performance is measured
are reached for the particular year, the annual bonus would represent from 50%
to 100% of the Executive's Base Salary for such year. The targeted performance
of the Executive will be established near the beginning of the year and will
consider growth from ongoing operations as well as growth through acquisitions,
as applicable.
6. Board of Directors. During the term of this agreement, the Executive
shall serve, without additional compensation, as a director of the Company and
as a director of each of the subsidiaries of the Company.
7. Expenses. During the term of this agreement, the Executive shall be
entitled to prompt reimbursement by the Company of all reasonable ordinary and
necessary travel, entertainment, and other expenses incurred by the Executive
(in accordance with the policies and procedures established by the Company for
its executive officers, which shall be similar to those for DTN's executives) in
the performance of the duties and responsibilities of the Executive under this
agreement; provided, that the Executive shall properly account for such expenses
in accordance with Company policies and procedures.
8. Other Benefits. During the term of this agreement, the Executive
shall be entitled to all of the fringe benefits which are provided to employees
of the Company generally, excluding any stock option plans or similar programs.
During the term of this agreement, the Executive also shall be entitled to
participate in such other fringe benefits, benefit plans or programs which the
Company or DTN from time to time may make available either to its employees
generally or to its executive officers, such as but not limited to the Data
Transmission Network Corporation 401(k) plan, but excluding any stock option
plans or similar programs.
9. Vacations and Holidays. The Executive shall be entitled to four
weeks of paid vacation per year and paid holidays in accordance with the
Company's policies in effect from time to time.
10. Other Activities. The Executive shall devote substantially all of
the Executive's working time and efforts during the Company's normal business
hours to the business affairs of the Company and to the diligent and faithful
performance of the duties and responsibilities assigned to the Executive
pursuant to this agreement, except for vacations and holidays. Despite the
foregoing, the Executive shall be free to broker proposed acquisitions which the
Company has elected not to pursue so long as such activities by the Executive do
not require any substantial services by the Executive and do not interfere with
or impair the performance of the Executive's duties and responsibilities under
this agreement.
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11. Termination. The Executive's employment under this agreement shall
terminate upon the death of the Executive. If the Executive becomes incapable by
reason of physical injury, disease, or mental illness of substantially
performing the duties and responsibilities of the Executive under this agreement
for a period of six (6) continuous months or more, then the Company may
terminate the Executive's employment under this agreement. The Company also may
terminate the Executive's employment under this agreement for Cause; however,
for purposes of this agreement, "Cause" shall mean only (i) confession or
conviction of theft, fraud, embezzlement, or any other crime involving
dishonesty with respect to the Company or any parent, subsidiary, or affiliate
of the Company, (ii) material violation of the provisions of any confidentiality
agreement or non-competition agreement in force between the Company or DTN and
the Executive, (iii) habitual and material negligence in the performance of the
duties of the Executive under or pursuant to this agreement, (iv) material
non-compliance with the obligations of the Executive under Section 10 or (v)
failure of the Executive, within thirty days after written notice of such
failure, to abide by the lawful directives of the Board of Directors of the
Company that are not inconsistent with the terms of this Agreement. In the event
of the termination of the Executive's employment pursuant to any of the first
three sentences of this Section 11 or if the Executive voluntarily terminates
employment with the Company, other than as provided in Section 12(b), the
Executive (or, in the event of the Executive's death, the estate of the
Executive) shall be entitled to retain that portion of the Base Salary earned by
the Executive up to the effective date of such termination, provided that during
any period when the Executive is incapable by reason of physical injury,
disease, or mental illness of substantially performing his or her duties and
responsibilities under this agreement, the Company may subtract from such Base
Salary the amount of any payments which the Executive receives from
Company-sponsored disability insurance as a reimbursement for lost earnings or
wages relating to such period.
12. Severance Pay. Except as provided in Sections 11 and 12 of this
agreement, the Executive shall not receive any additional severance pay upon the
termination of employment of the Executive, regardless of the Company's
severance policy for its employees generally.
(a) Termination Without Cause. If the Company terminates the
employment of the Executive for any reason other than those referred to in
Section 11, the Company shall pay the Executive, upon the effective date of such
termination, the then current present value of all remaining payments of Base
Salary that would have been paid hereunder but for such termination, less
applicable employee tax withholdings and deductions. Such present value shall be
determined using the discount rate referred to in Section 12 (c).
(b) Voluntary Termination Upon Change in Control of DTN. If the
Executive voluntarily terminates employment with the Company within sixty (60)
days after receiving notice of a Change in Control Transaction, as hereinafter
defined, the Company shall pay the Executive, upon the effective date of such
termination, the then current present value of those payments of Base Salary
that would have been paid hereunder, but for such termination, during the
shorter of (i) the one year period following the effective date of such
termination or (ii) the remaining portion of the initial term of this agreement
after the effective date of such termination. Such present value amount shall be
reduced by applicable employee tax withholdings and deductions. Such present
value shall be determined using the discount rate referred to in Section 12(c).
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For purposes of this Section 12(b), "Change in Control Transaction" shall mean
the occurrence of any of the following: (a) the acquisition by any person or
entity (other than an Exempt Person as hereinafter defined) of securities of DTN
representing 30% or more of the combined voting power of DTN's then-outstanding
securities; (b) DTN shall consolidate with, or merge with and into, any other
person or entity; or (c) any person or entity shall consolidate with DTN, or
merger with and into DTN and DTN shall be the continuing or surviving
corporation of such merger, and, in connection with such merger, all or part of
DTN's capital stock shall be changed into or exchanged for stock or securities
of any other person or entity or cash or any other property. "Exempt Person"
shall mean DTN or any subsidiary of DTN, in each case including, without
limitation, in its fiduciary capacity, or any employee benefit plan of DTN or of
any subsidiary of DTN, or any entity or trustee holding the capital stock of DTN
for or pursuant to the terms of any such plan or for the purpose of funding any
such plan or funding other employee benefits for employees of DTN or of any
subsidiary of DTN.
(c) Discount Rate. For purposes of the present value
determinations referred to in this Section 12, a discount rate equal to the
prime rate on corporate loans at large U.S. money center commercial banks as
quoted in the "Money Rates" column of the Wall Street Journal on such effective
date shall be used.
13. Successors and Assigns. This agreement and all rights under this
agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors,
and assigns. This agreement is personal in nature, and neither of the parties to
this agreement shall, without the written consent of the other, assign or
transfer this agreement or any right or obligation under this agreement to any
other person or entity.
14. Notices. For purposes of this agreement, notices and other
communications provided for in this agreement shall be deemed to be properly
given if delivered personally or sent by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: ________________________
________________________
________________________
If to the Company: Data Transmission Network
Corporation
9110 West Dodge Road, #200
Omaha, NE 68114
Attn: Charles R. Wood
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt.
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15. Miscellaneous. No provision of this agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and is signed by the Executive and an officer of the Company
(other than the Executive) so authorized by the Board of Directors of the
Company. No waiver by either party to this agreement at any time of any breach
by the other party of, or compliance by the other party with, any condition or
provision of this agreement to be performed by the other party shall be deemed
to be a waiver of similar or dissimilar provisions or conditions at the same or
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter of this
agreement have been made by either party that are not expressly set forth in
this agreement.
16. Validity. The invalidity or unenforceability of any provision or
provisions of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which other provision shall remain in
full force and effect; nor shall the invalidity or unenforceability of a portion
of any provision of this agreement affect the validity or enforceability of the
balance of such provision. The provisions of this agreement are severable.
17. Counterparts. This document may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
18. Headings. The headings of the paragraphs contained in this document
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this agreement.
19. Applicable Law. This agreement shall be governed by and construed
in accordance with the internal substantive laws, and not the choice of law
rules, of the State of Nebraska.
20. Arbitration. In the event a dispute shall arise as to the parties'
respective rights, duties and obligations under this agreement, or in the event
of a claim for breach of this agreement by either party (collectively,
"Dispute"), the parties agree to utilize arbitration as the exclusive means for
resolution of the Dispute. With respect to any such Dispute, the arbitrator
shall be selected and the arbitration conducted in accordance with the most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The arbitration proceeding shall be held in Omaha, Nebraska, or
such other location as may be acceptable to the parties. The arbitrator shall
make written findings, including any award, which shall be signed by the
arbitrator. The award shall be deemed final and binding thirty (30) days after
the award is made. The parties agree to abide by and perform any award rendered
by the arbitrator. The arbitrator shall be bound by the provisions of this
agreement in determining any award. The parties agree that the proceedings and
any decision by the arbitrator, including the amount of any award, shall be kept
confidential and not disclosed to any person other than the parties, witnesses
and their counsel (who also must each agree to maintain the confidentiality of
the proceedings and any decision). A party may enforce any award in any court of
competent jurisdiction.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
agreement on the day and year first above written.
Asset Growth Corporation, a
Delaware corporation
By: _____________________________________
Title: ____________________________________
___________________________________________
[Insert name of the Stockholder]
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EXHIBIT F
STOCK REDEMPTION AGREEMENT
THIS STOCK REDEMPTION AGREEMENT, dated as of ___________, 199__, is
entered into between Asset Growth Corporation, a Delaware corporation (the
"Company") and [Insert name of Stockholder] (the "Shareholder").
W I T N E S S E T H:
WHEREAS, the Shareholder presently owns _____ shares of the common
stock of the Company and desires to agree upon certain matters relating to the
ownership of the shares of such stock now or hereafter owned by the Shareholder;
and
WHEREAS, the Company deems it to be in its best interests and the best
interests of its shareholders to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth in this Agreement, the parties to this Agreement agree as
follows:
1. Definitions. As used in this Agreement, unless the context otherwise
requires:
(a) "DTN" means Data Transmission Network Corporation, a Delaware
corporation, and its successors and affiliates. The Company is
a subsidiary of DTN.
(b) "Employment Agreement" means the Employment Agreement dated
the same date as this Agreement between the Shareholder and
the Company, as the same may be amended from time to time.
(c) "Shares" means all or any portion of the shares of the common
stock of the Company now or in the future owned by the
Shareholder or any interest therein acquired by a Transfer.
(d) "Termination of Employment" means the termination of the
Shareholder's employment with the Company for any reason
whatsoever, including but not limited to death, voluntary
termination by the Shareholder, and Termination Without Cause.
(e) "Termination Without Cause" means termination of Shareholder's
employment by the Company for any reason other than those
referred to in Section 11 of the Employment Agreement.
Termination Without Cause does not include termination of
employment by the Shareholder.
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(f) "Transfer" as a verb means to directly or indirectly issue,
sell, transfer, assign, pledge, mortgage, create a security
interest in, or in any other way encumber or dispose of
Shares. "Transfer" as a noun means any issuance, sale,
transfer, assignment, pledge, mortgage, creation of a security
interest in, or any other encumbrance or disposition of
Shares.
(g) "Trigger Event" means any event described in Section 3 or 4
which triggers the redemption of all or any portion of the
Shares.
2. Restriction on Transfer of Shares. Without the prior written consent
of the then holders of all of the shares of capital stock of the Company, the
Shareholder shall not Transfer any Shares that he or she now or hereafter may
hold or beneficially own, nor shall any of the Shares be transferable, except
pursuant to or in compliance with the terms of this Agreement. Any attempt by
the Shareholder to Transfer any Shares other than in compliance with the terms
of this Agreement shall be null and void and of no force or effect, and the
Company shall not recognize and shall give no effect to any such attempt to
Transfer any Shares. The restrictions contained in this paragraph shall be
applicable to all Shares acquired by the Shareholder from any source after the
date of this Agreement as well as to the Shares owned or held by the Shareholder
on the date of this Agreement.
3. Shareholder Election for Redemption of Shares. Upon the
Shareholder's written notice to the Company of his or her election to have the
Company redeem all or a portion of the Shares, subject to the limitations set
forth in this Section 3, the Shareholder shall sell to the Company, and the
Company shall purchase from the Shareholder, the number of shares the
Shareholder elects to have redeemed as provided in such written notice. The
Shares being purchased pursuant to this Section 3 are collectively referred to
as the "Redemption Shares". The purchase price to be paid for the Redemption
Shares shall be the Base Value Per Share determined in accordance with Section
5. The purchase price for the Redemption Shares shall be paid to the Shareholder
in full in cash promptly after the purchase price has been determined as
provided herein, but no later than sixty (60) days after the occurrence of the
Trigger Event. The Shareholder shall deliver to the Company at such time
certificates for the Redemption Shares duly endorsed for transfer and free and
clear of any liens, security interests, encumbrances, or claims of any kind
whatsoever. Notwithstanding the foregoing, the Shareholder may not elect to have
redeemed, in the aggregate, more than one-third of the Shares prior to the first
anniversary of the date of this Agreement or more than two-thirds of the Shares
prior to the second anniversary of the date of this Agreement.
4. Redemption of Shares Upon Termination of Employment. Upon the
Termination of Employment, the Shareholder or the Shareholder's estate shall
sell to the Company, and the Company shall purchase from the Shareholder, all of
the Shares. If the Termination of Employment (other than a Termination Without
Cause) occurs prior to the first anniversary of the date of this Agreement, the
purchase price to be paid for each of the Shares shall be one-third of the Base
Value Per Share determined in accordance with Section 5. If the Termination of
Employment (other than a Termination Without Cause) occurs after the first
anniversary of the date of this Agreement but prior to the second anniversary of
the date of this Agreement, the purchase price to be paid for each of the Shares
shall be two-thirds of the Base Value Per Share determined in accordance with
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Section 5. If the Termination of Employment occurs after the second anniversary
of the date of this Agreement or is a Termination Without Cause, the purchase
price to be paid for each of the Shares shall be the Base Value Per Share
determined in accordance with Section 5. The purchase price for the Shares shall
be paid to Seller in full in cash promptly after the purchase price has been
determined as provided herein, but no later than sixty (60) days after the
Termination of Employment occurs; and the Shareholder or the Shareholder's
estate shall deliver to the Company at such time certificates for the Shares
duly endorsed for transfer and free and clear of any liens, security interests,
encumbrances, or claims of any kind whatsoever.
5. Base Value Per Share. For purposes of this Agreement, the "Base
Value Per Share" shall be determined by reducing the EBITDA Value (as
hereinafter defined) by the long-term debt of the Company at the end of the
calendar month immediately preceding the Trigger Event and dividing the result
by the total number of issued and outstanding shares of capital stock of the
Company. The term "EBITDA Value" shall mean the Operating Cash Flow of the
Company for the twelve full calendar months immediately preceding the Trigger
Event multiplied by the Cash Flow Multiple. In the event the Company has not
been in operation during the entire twelve month period, the Operating Cash Flow
of the Company for such period shall be annualized based upon the operations of
the Company preceding the Trigger Event. The EBITDA Value shall be determined
using the following meanings:
(i) "Operating Cash Flow" shall mean the average annual net
earnings from operations before interest, income taxes, depreciation
and amortization over a specified period.
(ii) "Cash Flow Multiple" shall mean the DTN Enterprise Value
divided by the Operating Cash Flow of DTN over the eight fiscal
quarters immediately preceding the Trigger Event.
(iii) "DTN Enterprise Value" shall mean the sum of (i) the
average of the Market Value on the last day of each calendar month
during the eight fiscal quarters of DTN immediately preceding the
Trigger Event and (ii) the average of the daily long-term debt of DTN
on the last day of each calendar month during the same eight fiscal
quarters.
(iv) "Market Value" shall mean the most recent closing market
price of DTN's capital stock as reported on NASDAQ multiplied by the
total number of shares of such stock issued and outstanding.
Accounting terms used in this Section 5 without definition shall have the
meanings generally ascribed to such terms in conformity with generally accepted
accounting principles and otherwise using accounting procedures followed by DTN
for purposes of reporting its financial performance.
6. Right to Terminate Shareholder. Nothing in this Agreement shall be
construed (i) to confer upon the Shareholder the right to continue in the
employment of the Company or (ii) to affect the right of the Company to
terminate the Shareholder's employment at any time.
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7. Legend on Certificates. Upon the execution of this Agreement, the
Shareholder shall deliver to the Company the certificates for the Shares so that
the Company can place a legend in substantially the following form on the
reverse side of such certificates:
"The shares of stock represented hereby are subject to the
terms and conditions of a Stock Redemption Agreement dated [Insert date
of this Agreement], between Asset Growth Corporation and [Insert name
of Shareholder] (the "Agreement") restricting the transferability of
this certificate and of the shares represented hereby. A copy of the
Agreement is filed with the corporate records of Asset Growth
Corporation.
8. Dilution and Other Adjustments. In the event of any change in the
outstanding shares of the Company by reason of any stock split, stock dividend,
recapitalization, merger, consolidation, reorganization, combination or exchange
of shares, or other similar event that equitably requires an adjustment in the
number, price, or kind of shares that have been sold pursuant hereto, then such
adjustment shall be made by the Company.
9. Notices. Any notice, offer, request, instruction, or other document
to be given hereunder by either party to the other shall be in writing and shall
be delivered personally or sent by registered mail, if to the Company, addressed
to the President of DTN at DTN's principal place of business, and if to the
Shareholder, addressed to the Shareholder at his or her residence.
10. Nonassignability. The rights and obligations of the Shareholder
arising under this Agreement shall not be assignable by the Shareholder. Nothing
expressed or implied in this Agreement is intended to confer upon any person,
other than the parties hereto, and their respective successors, heirs, legal
representatives and permitted assigns, any rights, remedies, obligations, or
liabilities by reason of this Agreement. In the event of the death of the
Shareholder, the provisions of this Agreement shall be binding upon the personal
representative of the Shareholder's estate.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws, and not the choice of law rules,
of the State of Nebraska. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same agreement.
12. Entire Agreement. This document contains the entire agreement
between the parties hereto with respect to the matters contained herein. This
Agreement may not be changed orally but only by a written instrument signed by
both the Company and the Shareholder. The headings of the paragraphs in this
Agreement are solely for convenient reference.
13. Waivers. The waiver by the Company of any provision of this
Agreement shall not operate as or be construed to be a subsequent waiver of the
same provision or a waiver of any other provision hereof.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name, and the Shareholder has hereunto affixed his or
her signature, all as of the day and year first above written.
Asset Growth Corporation
By:________________________________
Title: ______________________
________________________________________
[Insert name of Stockholder]
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AGREEMENT AND PLAN OF MERGER
AMONG
WEATHER SERVICES CORPORATION,
DATA TRANSMISSION NETWORK CORPORATION
and
ABRY BROADCAST PARTNERS II, L.P.
DATED
November 12, 1998
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TABLE OF CONTENTS
ARTICLE I
THE MERGER....................................................................1
1A. Formation of Merger Sub. ...........................................1
1B. General..............................................................1
1C. Effect on WSC Share Equivalents......................................1
1D. Certificate of Incorporation.........................................2
1E. Bylaws...............................................................2
1F. Board of Directors and Officers......................................2
1G. Name.................................................................2
1H. Exchange Procedures..................................................2
1I. No Further Rights; Transfer of WSC Stock.............................2
ARTICLE II
MERGER CONSIDERATION AND CLOSING..............................................3
2A. Merger Consideration.................................................3
2B. Deliveries at the Closing............................................3
2C. Closing..............................................................3
2D. Other Closing Transactions...........................................4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF WSC.........................................4
3A. Existence and Good Standing..........................................4
3B. Corporate Power; Authorization; Enforceable Obligations..............4
3C. No Defaults..........................................................4
3D. Litigation...........................................................5
3E. Brokers..............................................................5
3F. Capital Stock and Related Matters....................................5
3G. Subsidiaries; Investments. .........................................5
3H. Financial Statements.................................................5
3I. Accounts Receivable..................................................6
3J. No Material Adverse Change...........................................6
3K. Absence of Certain Developments......................................6
3L. Assets...............................................................7
3M. Tax Matters..........................................................7
3N. Contracts and Commitments............................................7
3O. Intellectual Property Rights.........................................8
3P. Insurance............................................................9
3Q. Employees............................................................9
3R. Compliance with Laws.................................................9
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3S. Employee Benefits....................................................9
3T. Books of Account....................................................10
3U. Software............................................................10
3V. Director Action.....................................................10
3W. Net Book Deficit....................................................10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ABRY.......................................11
4A. Existence and Good Standing.........................................11
4B. Limited Partnership Power; Authorization; Enforceable Obligations...11
4C. No Defaults.........................................................11
4D. Litigation..........................................................11
4E. Brokers.............................................................12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
DTN AND THE MERGER SUB.......................................................12
5A. Incorporation.......................................................12
5B. Corporate Action....................................................12
5C. No Defaults.........................................................12
5D. Brokers.............................................................13
5E. Litigation..........................................................13
ARTICLE VI
COVENANTS OF WSC AND ABRY....................................................13
6A. Maintenance of WSC Business until the Commencement Time.............13
6B. Confidential Information............................................14
6C. Efforts to Consummate...............................................14
6D. Non-Solicitation....................................................14
6E. Non-Competition.....................................................15
6F. Confidentiality.....................................................15
ARTICLE VII
COVENANTS OF DTN AND THE MERGER SUB..........................................15
7A. Confidential Information............................................15
7B. Efforts to Consummate...............................................15
7C. Continued Employment................................................16
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF WSC
AND WSC STOCKHOLDERS AT THE CLOSING..........................................16
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8A. Representations, Warranties, Covenants..............................16
8B. Sufficient Funds to Satisfy Obligations.............................17
8C. DTN Legal Opinion...................................................17
8D. Other...............................................................17
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF DTN AND
THE MERGER SUB AT THE CLOSING................................................17
9A. Representations, Warranties, Covenants..............................17
9B. WSC Legal Opinion...................................................18
9C. ABRY Legal Opinion..................................................18
9D. Other...............................................................18
ARTICLE X
PRECLOSING COVENANTS.........................................................18
10A. Public Announcements................................................18
10B. WSC Stockholder Meeting.............................................18
10C. Management and Consulting Agreement.................................18
ARTICLE XI
TERMINATION..................................................................20
11A. Termination.........................................................20
11B. Effect of Termination...............................................20
11C. Waiver of Right to Terminate........................................20
ARTICLE XII
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING...............................21
12A. Survival of Representations and Warranties..........................21
12B. Mutual Assistance and Records.......................................21
12C. Access..............................................................21
12D. Expenses............................................................21
12E. Taxes; Recording Charges............................................21
12F. Indemnification by ABRY............................................21
ARTICLE XIII
MISCELLANEOUS................................................................23
13A. Amendment and Waiver................................................23
13B. Notices.............................................................24
13C. Assignment..........................................................25
13D. Severability........................................................25
13E. No Strict Construction..............................................25
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13F. Captions............................................................25
13G. Third Parties.......................................................25
13H. Complete Agreement..................................................25
13I. Counterparts........................................................25
13J. Governing Law.......................................................26
13K. Specific Performance................................................26
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into on
November 12, 1998 by and among Weather Services Corporation, a Massachusetts
corporation ("WSC"), Data Transmission Network Corporation, a Delaware
corporation ("DTN"), on behalf of itself and a subsidiary to be formed by it
pursuant to Section 1A below, and ABRY Broadcast Partners II, L.P., a Delaware
limited partnership ("ABRY").
WHEREAS, WSC is engaged in the business of compiling, marketing and
distributing meteorological information for the purpose of weather forecasting
(the "WSC Business"); and
WHEREAS, DTN desires to acquire the capital stock of WSC by means of a
merger; and
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1A. Formation of Merger Sub. On or prior to November 18, 1998, DTN will
form a wholly-owned Subsidiary which will be a Massachusetts corporation. Such
Subsidiary will be the "Merger Sub" referred to in this Agreement. DTN will
cause such Subsidiary to become a party to this Agreement by executing and
delivering to WSC a counterpart thereof.
1B. General. Upon and subject to the terms and conditions stated in this
Agreement, on the Closing Date, effective as of the Effective Time, the Merger
Sub will merge with and into WSC in accordance with the terms and conditions of
this Agreement. WSC will be the corporation which survives such merger (the
"Merger") and in such capacity is sometimes referred to in this Agreement as
"Post-Merger WSC."
1C. Effect on WSC Share Equivalents. Immediately after the Closing,
subject to the terms and conditions of this Agreement (1) the Merger will be
effected by filing Articles of Merger with the Secretary of the State of
Massachusetts; (2) each WSC Share Equivalent outstanding at the Effective Time,
by said occurrence and with no further action on the part of the holder thereof,
will be transformed and converted into the right to receive the Merger
Consideration for such WSC Share Equivalent, without interest or any similar
payment thereon or with respect thereto, upon surrender of the certificate
representing such WSC Share Equivalent; (3) each share of common stock of the
Merger Sub outstanding immediately prior to the Effective Time will, by said
occurrence and with no further action on the part of the holder thereof, be
transformed and converted into one share of common stock of Post-Merger WSC, so
that immediately thereafter DTN will be the sole and exclusive owner of all
equity securities of Post-Merger WSC; and (4) Post-Merger WSC will be the owner
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of the business, assets, rights, privileges, immunities, powers, franchises and
other attributes of WSC and the Merger Sub.
1D. Certificate of Incorporation. Immediately after the Effective Time,
the certificate of incorporation of Post-Merger WSC will be the certificate of
incorporation of the Merger Sub as in effect immediately prior to the Effective
Time.
1E. Bylaws. Immediately after the Effective Time, the bylaws of
Post-Merger WSC will be the bylaws of the Merger Sub as in effect immediately
prior to the Effective Time.
1F. Board of Directors and Officers. The board of directors and officers
of the Merger Sub immediately prior to the Effective Time will be the board of
directors and the officers, respectively, of Post-Merger WSC immediately after
the Effective Time, and such individuals will serve in such positions for the
respective terms in accordance with the bylaws of Post-Merger WSC until their
respective successors are elected and qualified.
1G. Name. The name of Post-Merger WSC will be designated by DTN.
1H. Exchange Procedures. At or after the Closing, each holder of record of
WSC Share Equivalents will deliver to Post-Merger WSC for cancellation the
certificate(s) representing such WSC Share Equivalents (the "Old WSC
Certificates"). Upon surrender of any Old WSC Certificate for cancellation,
subject to the provisions of this Agreement, (a) the holder of such Old WSC
Certificate will receive in exchange therefor the Merger Consideration for the
WSC Share Equivalents represented by such Old WSC Certificate, and (b) such Old
WSC Certificate will be canceled. Until surrendered as contemplated by this
Section 1H, each Old WSC Certificate will, at and after the Effective Time, be
deemed to represent only the right to receive, upon surrender of such Old WSC
Certificate, the Merger Consideration for the WSC Share Equivalents represented
by such Old WSC Certificate. Each share of common stock of the Merger Sub issued
and outstanding immediately prior to the Effective Time shall continue to be one
share of common stock of the surviving corporation, with the same rights, powers
and privileges as such share of common stock of the Merger Sub immediately prior
to the Effective Time.
1I. No Further Rights; Transfer of WSC Stock. The Merger Consideration
paid for any WSC Share Equivalent in accordance with the terms of this Agreement
will be deemed to have been paid in full satisfaction of all rights pertaining
to such WSC Share Equivalent. At the Effective Time, the stock transfer books of
WSC will be closed and no transfer of WSC Share Equivalents will thereafter be
made.
ARTICLE II
MERGER CONSIDERATION AND CLOSING
2A. Merger Consideration.
(1) Amount for all WSC Share Equivalents in the Aggregate. Subject to
the terms and conditions of this Agreement, the "Merger Consideration" for
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all WSC Share Equivalents shall be warrants (the "DTN Warrants")
representing the right to purchase twenty thousand (20,000) shares of
common stock of DTN in the aggregate at a price of $34 per share in
accordance with the terms and conditions of one or more Common Stock
Purchase Warrant certificates substantially in the form attached as
Exhibit 2A hereto, which will be issued solely to accredited investors (as
that term is defined in the rules promulgated pursuant to the Securities
Act of 1933, as amended). The DTN Warrants will be issued on the Closing
Date and will expire on the seventh anniversary of the Closing Date.
(2) Amount for any Particular WSC Share Equivalent. With respect to
any particular WSC Share Equivalent, the "Merger Consideration" means the
portion of the aggregate Merger Consideration for all WSC Share
Equivalents which is equal to the amount that the holder of such WSC Share
Equivalent would receive in respect of such WSC Share Equivalent if:
(a) all WSC Rights (other than WSC's Series C Preferred Stock)
outstanding immediately prior to the Effective Time were converted
into or exercised or exchanged for WSC Shares to the fullest extent
permitted by the terms of such WSC Rights, immediately prior to the
Effective Time, and
(b) WSC thereafter distributed to the holders of the WSC Shares
outstanding immediately prior to the Effective Time (after giving
effect to the conversions, exercises and exchanges referred to in
clause (a) above), in accordance with the provisions of its articles
of organization, an amount equal to the aggregate Merger Consideration
for the WSC Share Equivalents,
reduced, in the case of any WSC Right, by the exercise price (if any)
payable upon the exercise of such WSC Right as described in clause (a)
above. For purposes of this Section 2A(2), each DTN Warrant will be deemed
to have a value of $1.00.
2B. Deliveries at the Closing. All actions on the Closing Date will be
deemed to occur simultaneously, and no document or payment to be delivered or
made on the Closing Date will be deemed to be delivered or made until all such
documents and payments are delivered or made to the reasonable satisfaction of
WSC, the Merger Sub and their respective legal counsel.
2C. Closing. Subject to the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") will
occur at the offices of Kirkland & Ellis, in New York, New York, at 10:00 a.m.
on the first business day after all conditions precedent set forth in this
Agreement have been satisfied or at such other time and/or place as the parties
shall agree, but in no event later than December 11, 1998 (the "Closing Date").
2D. Other Closing Transactions. At the Closing, Post-Merger WSC will pay
in full all principal and interest owing under the Loan Agreements as of the
Closing Date and all accrued management fees under the Management Agreement as
of the Commencement Time and expense reimbursements owed to ABRY as of the
Closing Date, after giving effect to the forgiveness and annulment described in
the following sentence. At the Closing, the Management Agreement will be
terminated and all other liabilities of WSC to ABRY will be forgiven and
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annulled, to the extent that the existence of such liabilities would cause the
net book deficit of WSC, as defined in Section 3W, to be greater than
$3,000,000. In addition, at the Closing, Post-Merger WSC will pay to Peter R.
Leavitt the sum of $102,105 and to Michael S. Leavitt the sum of $42,292,
representing the full amount of all salaries, severance or reimbursement for
expenses accrued or owing to Peter R. Leavitt and Michael S. Leavitt,
respectively. DTN will cause Post-Merger WSC to pay all of the foregoing amounts
at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF WSC
In order to induce DTN to enter into this Agreement, WSC represents and
warrants to DTN and to the Merger Sub that, except as set forth on the attached
Exceptions Schedule:
3A. Existence and Good Standing. WSC is a corporation duly organized,
validly existing and, where applicable, in good standing under the laws of the
Commonwealth of Massachusetts. WSC has the power and authority to own, lease and
operate its property and to carry on its business as now being conducted and to
own or lease the assets owned or leased by it. WSC is duly qualified or
licensed, or otherwise in good standing, to do business in each jurisdiction in
which it owns or leases properties, conducts operations or maintains a stock of
goods, with full power and authority to carry on the business in which it is
engaged and to execute and deliver and carry out the transactions contemplated
by this Agreement.
3B. Corporate Power; Authorization; Enforceable Obligations. Subject to
obtaining requisite approval of its stockholders (which approval will be
obtained prior to the Closing), WSC has, and on the Closing Date will have, the
corporate power, authority and legal right to execute, deliver and perform this
Agreement, and on the Closing Date the execution, delivery and performance of
this Agreement by WSC will have been duly authorized by all necessary corporate
and shareholder action. This Agreement has been, and on the Closing Date the WSC
Closing Documents to which WSC will be a party will be, duly executed and
delivered on behalf of WSC by its duly authorized officers or representatives or
attorney-in-fact, and this Agreement constitutes, and on the Closing Date the
WSC Closing Documents to which WSC will be a party when executed and delivered
will constitute, the legal, valid and binding obligations of WSC, enforceable
against WSC in accordance with their respective terms, subject to the effect of
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
arrangement, moratorium or similar laws affecting the rights of creditors
generally and the availability of equitable remedies.
3C. No Defaults. On the Closing Date (after giving effect to all approvals
and consents which have been obtained) neither the execution and delivery by WSC
of this Agreement, nor the consummation by WSC of the Merger or the other
transactions contemplated by this Agreement to be consummated by WSC, requires
any consent under, will constitute, or, with the giving of notice or the passage
of time or both, would constitute, a material violation of or would conflict in
any material respect with or result in any material breach of or any material
default under, or will result in the creation of any Lien (other than any
Permitted Encumbrance) under, any of the terms, conditions, or provisions of any
law, rule or regulation of any governmental authority, or any agreement,
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instrument, license or permit, or of any order, writ, injunction or decree to
which WSC is subject, or of the certificate of incorporation or bylaws of WSC.
3D. Litigation. On the date of this Agreement, there is no litigation
pending by or against, or to the knowledge of WSC threatened against, WSC which
interferes in a material respect with, or could reasonably be expected to
interfere in a material respect with, (a) the WSC Business as presently
conducted or (b) the ability of WSC or the WSC Stockholders to carry out the
transactions contemplated to be carried out by them pursuant to this Agreement,
and at the Commencement Time, no such pending or threatened litigation will have
or will reasonably be expected to have such effect.
3E. Brokers. There is no broker or finder or other Person who would have
any valid claim against WSC for a commission or brokerage fee in connection with
this Agreement or the transactions contemplated hereby as a result of any
agreement or understanding of, or action taken by, WSC, the Merger Sub or any
Affiliate of any of them.
3F. Capital Stock and Related Matters. As of the Closing, WSC shall not
have outstanding any securities convertible or exchangeable for any shares of
its capital stock, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or securities
convertible into or exchangeable for its capital stock. As of the Closing, WSC
shall not be subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock. As of the Closing, all of
the outstanding shares of WSC's capital stock shall be validly issued, fully
paid and nonassessable.
3G. Subsidiaries; Investments. WSC does not own or hold any rights to
acquire any shares of stock or any other security, interest or investment in any
other Person, and WSC has never had any Subsidiary.
3H. Financial Statements. Attached hereto as Exhibit 3H are the following
financial statements:
(i) the balance sheet of WSC as of December 31, 1997 and the related
statements of income and cash flows for the twelve-month period then ended,
reviewed by its independent accounting advisors, Price Waterhouse Coopers; and
(ii) the unaudited balance sheet of WSC as of September 30, 1998 (the
"Latest Balance Sheet"), for the nine-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) was accurate and complete in all material respects as of the
date thereof, is consistent with the books and records of WSC (which, in turn,
are accurate and complete) and has been prepared in accordance with generally
accepted accounting principles, consistently applied ("GAAP") (except, in the
case of the Latest Balance Sheet, for the absence of footnotes and year-end
adjustments).
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3I. Accounts Receivable. The uncollected accounts receivable of WSC arising
from the WSC Business prior to the Commencement Time (the "Accounts Receivable")
will be valid and genuine and will have arisen solely out of bona fide sales and
deliveries of goods, the performance of services and other business transactions
in the ordinary course of business consistent with past practice. The Accounts
Receivable will not be subject to valid defenses, set-offs or counterclaims and
will be collectible during the period ending eleven months after the Closing
Date at the full recorded amount thereof.
3J. No Material Adverse Change. Since the date of the Latest Balance Sheet,
there has been no change or event which has had a Material Adverse Effect.
3K. Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement, since the date of
the Latest Balance Sheet, WSC has not:
(a) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock
or other equity securities or purchased or redeemed any shares of its
capital stock or other equity securities;
(b) sold, assigned or transferred any of its material assets,
except in the ordinary course of business, or canceled any debts or
claims;
(c) sold, assigned or transferred any material Intellectual
Property Rights;
(d) suffered any extraordinary losses or waived any rights of
value;
(e) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(f) made any charitable contributions or pledges in excess of
$2,000 in the aggregate; or
(g) suffered any damage, destruction or casualty loss exceeding
in the aggregate $100,000, whether or not covered by insurance.
(ii) WSC has not at any time made any payments for political contributions
or made any bribes, kickback payments or other illegal payments.
3L. Assets. WSC has good and marketable title to, or a valid leasehold
interest in, the material properties and assets used by it, located on its
premises or shown on the Latest Balance Sheet or acquired thereafter, free and
clear of all consensual Liens, except for properties and assets disposed of in
the ordinary course of business since the date of the Latest Balance Sheet and
except for Liens disclosed on the Latest Balance Sheet (including any notes
thereto). WSC's buildings, equipment and other material tangible assets are fit
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for use in the ordinary course of business. WSC owns, or has a valid leasehold
interest in, all assets necessary for the conduct of its respective businesses
as presently conducted and as presently proposed by WSC to be conducted.
3M. Tax Matters.
(1) WSC has filed all material tax returns which it is required to
file under applicable laws and regulations; all such tax returns are
complete and correct in all material respects; WSC has not waived any
statute of limitations with respect to any taxes or agreed to any
extension of time with respect to any tax assessment or deficiency; the
federal income tax returns of WSC have been audited and closed for all tax
years through December 31, 1992; WSC has received no notice and does not
have reason to believe that any foreign, federal, state or local tax
audits or administrative or judicial proceedings are pending or are being
conducted with respect to WSC, no information related to tax matters has
been requested by any foreign, federal, state or local taxing authority
and no written notice indicating an intent to open an audit or other
review has been received by WSC from any foreign, federal, state or local
taxing authority; and there are no material unresolved questions or claims
concerning WSC's tax liability with any foreign, federal, state or local
taxing authority.
(ii) WSC has not made an election under ss.341(f) of the Internal
Revenue Code of 1986, as amended (the "Code"). WSC is not liable for the
Taxes of another Person under (a) Treas. Reg. ss. 1.1502-6 (or comparable
provisions of state, local or foreign law), (b) as a transferee or
successor, (c) by contract or indemnity or (d) otherwise. WSC is not a
party to any tax sharing agreement. WSC has not made any payments, is
obligated to make payments or is a party to an agreement that could
obligate it to make any payments that would not be deductible under Code
ss.280G.
3N. Contracts and Commitments.
(ii) The attached Exceptions Schedule lists all material contracts to
which WSC is a party.
(ii) To WSC's knowledge, all of the contracts, agreements and
instruments listed on the Exceptions Schedule are valid, binding and
enforceable in accordance with their respective terms. Except as would not
have a Material Adverse Effect: (a) WSC has performed all obligations
required to be performed by it under the contracts, agreements and
instruments listed on the Exceptions Schedule and is not in default under
or in breach of nor in receipt of any claim of default or breach under any
contract, agreement or instrument listed on the Exceptions Schedule; (b)
no event has occurred which with the passage of time or the giving of
notice or both would result in a default, breach or event of noncompliance
by WSC under any contract, agreement or instrument listed on the
Exceptions Schedule; (c) WSC does not have any present expectation or
intention of not fully performing all such obligations; and (d) WSC does
not have knowledge of any breach or anticipated breach by the other
parties to any contract, agreement, instrument or commitment listed on the
Exceptions Schedule.
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(iii) DTN's special counsel has been supplied with or has had access
to a true and correct copy of each of the written instruments, plans,
contracts and agreements and an accurate description of each of the oral
arrangements, contracts and agreements which are referred to on the
Exceptions Schedule, together with all amendments, waivers or other
changes thereto.
3O. Intellectual Property Rights.
(i) WSC owns all right, title and interest to, or has the right to use
pursuant to a valid license, all Intellectual Property Rights necessary
for the operation of the business of WSC as presently conducted and as
presently proposed to be conducted (the "Required Intellectual Property"),
free and clear of all consensual Liens. Since the date of the Latest
Balance Sheet, the loss or expiration of any Intellectual Property Right
or related group of Intellectual Property Rights owned or used by WSC has
not had a Material Adverse Effect, and no such loss or expiration is, to
WSC's knowledge, threatened or pending. WSC has taken all reasonably
necessary and desirable actions to maintain and protect the Intellectual
Property Rights which it owns.
(ii) There have been no claims made against WSC asserting the
invalidity, misuse or unenforceability of any Required Intellectual
Property, and, to WSC's knowledge, there are no grounds for the same. WSC
has not received any notices of, and is not aware of any facts which
indicate a likelihood of, any infringement or misappropriation by, or
conflict with, any third party with respect to Required Intellectual
Property (including, without limitation, any demand or request that WSC
license any rights from a third party), the conduct of WSC's business has
not infringed, misappropriated or conflicted with and does not infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons, nor would any future conduct as presently contemplated infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons, in each case to the extent that the results of such conduct would
cause a Material Adverse Effect. To WSC's knowledge, the Intellectual
Property Rights owned by or licensed to WSC have not been infringed,
misappropriated or conflicted by other Persons. The transactions
contemplated by this Agreement shall have no adverse effect on WSC's
right, title and interest in and to the Required Intellectual Property.
(iii) The Exceptions Schedule lists all patents, trademarks, service
marks, trade names, and copyrights used in the WSC Business that are
registered by WSC or for which applications for registration are pending.
3P. Insurance. WSC is not in default with respect to its obligations under
any insurance policy maintained by it.
3Q. Employees. WSC has complied with all laws relating to the employment
of labor (including, without limitation, provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other taxes), and WSC is not aware that it has any labor relations
problems (including, without limitation, any union organization activities,
threatened or actual strikes or work stoppages or grievances). Neither WSC nor,
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to WSC's knowledge, any of its employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of WSC, except for agreements between WSC and its present and former
employees. WSC has not employed more than one-hundred (100) employees on a
full-time basis at any given time since March 1, 1998.
3R. Compliance with Laws. WSC has not violated any law or any governmental
regulation or requirement which violation has had or would have a Material
Adverse Effect, and WSC has not received notice of any such violation. WSC is
not subject to, nor has reason to believe it may become subject to, any
liability (contingent or otherwise) or corrective or remedial obligation arising
under any Environmental and Safety Requirements which has had or would
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, (i) WSC has obtained all permits, licenses and
authorizations required under, and have complied with, all Environmental and
Safety Requirements, (ii) no notice has been received by WSC regarding any
violation of, or any claim, liability or corrective or remedial obligation
under, any Environmental and Safety Requirements and (iii) no facts or
circumstances exist with respect to the past or present operations or facilities
of WSC which would give rise to a liability or corrective or remedial obligation
under any Environmental and Safety Requirements.
3S. Employee Benefits.
(1) The Exceptions Schedule contains an accurate and complete list of
(a) each "employee benefit plan" (as such term is defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained by WSC and (b) each other retirement, savings,
thrift, deferred compensation, severance, stock ownership, stock purchase,
stock option, performance, bonus, incentive, fringe benefit,
hospitalization or other medical, disability, life or other insurance, and
any other welfare benefit maintained by WSC for the benefit of any present
or former employee, officer or director of WSC, other than any such plan
which is solely discretionary. Each such item listed on the Exceptions
Schedule is referred to herein as a "Benefit Plan." None of the Benefit
Plans is a defined benefit pension plan or a Multi-employer plan.
(2) Each Benefit Plan that is intended to be qualified within the
meaning of Section 401(a) of the Code has received a determination from
the Internal Revenue Service that such Benefit Plan is qualified under
Section 401(a) of the Code, and nothing has occurred since the date of
such determination that could adversely affect the qualification of such
Benefit Plan.
(3) Except as would not have a Material Adverse Effect: (a) each
Benefit Plan has been maintained, funded and administered in compliance
with its respective terms and in compliance in all material respects with
all applicable laws and regulations, including ERISA and the Code; and (b)
there are no pending or threatened actions, suits, investigations or
claims with respect to any Benefit Plan (other than routine claims for
benefits) which could result in liability to WSC (whether direct or
indirect). WSC has complied with the health care continuation requirements
of Part 6 of Title I of ERISA.
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3T. Books of Account. The books, records and accounts of WSC maintained
with respect to the WSC Business accurately and fairly reflect, in all material
respects, the transactions and the assets and liabilities of WSC with respect to
the WSC Business. WSC has not engaged in any material transaction with respect
to its business operations, maintained any bank account for the WSC Business or
used any of the funds of WSC in the conduct of the WSC Business except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the WSC Business.
3U. Software. Any software used by WSC in the conduct of the WSC Business
and not licensed from third parties has been developed entirely by the employees
of WSC during the time they were employees only of WSC and does not include any
inventions of the employees made prior to the time such employees became
employees of WSC nor any intellectual property of any previous employer of such
employee. With respect to any software used by WSC in the conduct of the WSC
Business and licensed by WSC for such use from third parties, WSC is in material
compliance with obligations arising under all related licensing agreements with
such third parties.
3V. Director Action. The Board of Directors of WSC (at a meeting duly
called and held or otherwise by valid consent) has by the requisite vote of all
directors present (a) determined that the Merger is advisable and in the best
interests of WSC and the WSC Stockholders, (b) approved this Agreement and the
transactions contemplated hereby, and (c) directed that the Merger be submitted
for consideration by the WSC Stockholders.
3W. Net Book Deficit. As of the Commencement Time, the "net book deficit"
of WSC will not be greater than $3,000,000; provided that the "net book deficit"
of WSC at any time means the amount by which WSC's total liabilities at such
time exceeds the amount of WSC's total assets at such time, in each case, as
determined in accordance with GAAP (except for the absence of year-end
adjustments). For purposes of determining the net book deficit, all Accounts
Receivable will be valued at their respective face amounts, without allowance
for uncollectible or doubtful accounts. In the event that the net book deficit
is greater than $3,000,000 at the Commencement Time, the amount that Post-Merger
WSC will pay to ABRY at Closing pursuant to Section 2D will be reduced in an
amount equal to the amount by which the net book deficit exceeds $3,000,000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ABRY
In order to induce DTN to enter into this Agreement, ABRY represents and
warrants to DTN and to the Merger Sub as follows:
4A. Existence and Good Standing. ABRY is a limited partnership duly
organized, validly existing and, where applicable, in good standing under the
laws of the State of Delaware. ABRY has the power and authority to own, lease
and operate its property and to carry on its business as now being conducted and
to own or lease the assets owned or leased by it. ABRY is duly qualified or
licensed, or otherwise in good standing, to do business in each jurisdiction in
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which it owns or leases properties, conducts operations or maintains a stock of
goods, with full power and authority to carry on the business in which it is
engaged and to execute and deliver and carry out the transactions contemplated
by this Agreement.
4B. Limited Partnership Power; Authorization; Enforceable Obligations.
ABRY has the power, authority and legal right to execute, deliver and perform
this Agreement. The execution, delivery and performance of this Agreement by
ABRY has been duly authorized by all necessary action by the limited partnership
and its partners. This Agreement has been duly executed and delivered on behalf
of ABRY by its duly authorized officers or representatives or attorney-in-fact,
and this Agreement constitutes the legal, valid and binding obligations of ABRY,
enforceable against it in accordance with its terms, subject to the effect of
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
arrangement, moratorium or similar laws affecting the rights of creditors
generally and the availability of equitable remedies.
4C. No Defaults. On the Closing Date (after giving effect to all approvals
and consents which have been obtained) neither the execution and delivery by
ABRY of this Agreement, nor the consummation by ABRY of the Merger or the other
transactions contemplated by this Agreement to be consummated by ABRY, requires
any consent under, will constitute, or, with the giving of notice or the passage
of time or both, would constitute, a material violation of or would conflict in
any material respect with or result in any material breach of or any material
default under, or will result in the creation of any Lien (other than any
Permitted Encumbrance) under, any of the terms, conditions, or provisions of any
law, rule or regulation of any governmental authority, or any agreement,
instrument, license or permit, or of any order, writ, injunction or decree to
which ABRY is subject, or of the certificate of partnership or the partnership
agreement of ABRY.
4D. Litigation. On the date of this Agreement, there is no litigation
pending by or against, or to the knowledge of ABRY threatened against, ABRY
which interferes in a material respect with, or could reasonably be expected to
interfere in a material respect with, (a) the WSC Business as presently
conducted or (b) the ability of WSC to carry out the transactions contemplated
to be carried out by them pursuant to this Agreement, and at the Commencement
Time, no such pending or threatened litigation will have or will reasonably be
expected have such effect.
4E. Brokers. There is no broker or finder or other Person who would have
any valid claim against WSC for a commission or brokerage fee in connection with
this Agreement or the transactions contemplated hereby as a result of any
agreement or understanding of, or action taken by, WSC, the Merger Sub or any
Affiliate of any of them.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
DTN AND THE MERGER SUB
DTN and the Merger Sub, jointly and severally, represent and warrant as
follows:
5A. Incorporation. DTN is a corporation duly organized, validly existing,
and in good standing (or has comparable active status) under the laws of the
State of Delaware, and DTN has the corporate power and authority to enter into
and consummate the transactions contemplated by this Agreement. From and after
the time it is formed, the Merger Sub will be a corporation duly organized,
validly existing, and in good standing (or has comparable active status) under
the laws of the Commonwealth of Massachusetts and will have the corporate power
and authority to enter into and consummate the transactions contemplated to be
consummated by this Agreement.
5B. Corporate Action. Each action necessary to be taken by or on the part
of either DTN or the Merger Sub in connection with the execution and delivery of
this Agreement and the consummation of transactions contemplated hereby and
necessary to make the same effective will be duly and validly taken by, and be
effective at, the time by which such action is required to be taken. This
Agreement has been duly and validly authorized, executed, and delivered by each
of DTN and the Merger Sub and constitutes a valid and binding agreement,
enforceable against each of them in accordance with and subject to its terms,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, arrangement, moratorium or similar laws affecting the
rights of creditors generally and the availability of equitable remedies.
5C. No Defaults. On the Closing Date (after giving effect to all approvals
and consents which have been obtained), neither the execution and delivery by
DTN or the Merger Sub of this Agreement, nor the consummation by DTN or the
Merger Sub of the Merger and the other transactions contemplated by this
Agreement, will constitute, or, with the giving of notice or the passage of time
or both, would constitute, a material violation of or would conflict in any
material respect with or result in any material breach of or any material
default under, any of the terms, conditions, or provisions of any law, rule or
regulation of any governmental authority, or any license or permit, or of any
order, writ, injunction or decree to which DTN or the Merger Sub is subject, or
of DTN's or the Merger Sub's certificate of incorporation or by-laws or similar
organizational documents, or of any material contract, agreement, or instrument
to which DTN or the Merger Sub is a party or by which DTN or the Merger Sub is
bound.
5D. Brokers. There is no broker or finder or other Person what would have
any valid claim against DTN or against the Merger Sub for a commission or
brokerage fee in connection with this Agreement or the transactions contemplated
hereby as a result of any agreement or understanding of, or action taken by,
DTN, the Merger Sub or any Affiliate of any of them.
5E. Litigation. On the date of this Agreement, there is no litigation
pending by or against, or to DTN's or the Merger Sub's knowledge threatened
against, DTN or the Merger Sub which interferes in a material respect with, or
could reasonably be expected to interfere in a material respect with the ability
of DTN or of the Merger Sub to carry out the transactions contemplated to be
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carried out by them pursuant to this Agreement and at the Commencement Time, no
such pending or threatened litigation will have or will reasonably be expected
to have such effect.
5F. Collection of Accounts Receivable. Following the Commencement Time,
DTN and the Merger Sub shall use their respective best efforts to collect any
and all Accounts Receivable provided that DTN and Post-Merger WSC will not be
required to use greater efforts than those employed by WSC prior to the
Commencement Time. All collections from any Person who is a debtor with respect
to an Account Receivable will be applied in the chronological order of the
respective due dates of the amounts owing by such Person to WSC, DTN and
Post-Merger WSC (i.e., to the oldest unpaid amount first), unless such Person
indicates in writing that a payment is to be applied in another, specified
manner (in which case such payment will be applied in the manner specified).
From the Commencement Time and through the eleven months after the Closing Date,
none of DTN, Post-Merger WSC or ABRY will directly or indirectly encourage any
such debtor to specify that any payment by such debtor to any of them be applied
in any manner other than in the chronological manner described above. In the
event that DTN or Post-Merger WSC makes a claim for indemnification under
Section 12F arising out of a breach of a representation or warranty set forth in
Section 3I, to the extent that any Accounts Receivable remain uncollected after
eleven months following the Closing Date, DTN and the Merger Sub will assign to
ABRY (for the benefit of the WSC Stockholders) the right to collect all such
uncollected Accounts Receivable and to exercise all rights and remedies in
connection thereto. DTN and the Merger Sub promptly will turn over to ABRY the
proceeds of all collections in respect of the Accounts Receivable received after
such eleven-month period, and the net proceeds of such collections received by
ABRY will constitute additional Merger Consideration.
ARTICLE VI
COVENANTS OF WSC AND ABRY
6A. Maintenance of WSC Business until the Commencement Time
(1) Operation in Ordinary Course . Until the Commencement Time, WSC
will use reasonable efforts to (a) continue to carry on the WSC Business,
keep the books of account, records, and files of WSC, and realize upon the
Accounts Receivable of WSC, in the ordinary and usual course, in a manner
which is consistent with its past practices, and (b) timely file (taking
into account any extensions of which WSC or any of its Subsidiaries may
avail itself) federal, state, local and foreign Tax Returns and Tax
reports required to be filed by WSC or any of its Affiliates.
(2) Access Generally. From time to time at the request of DTN, WSC
will give or cause to be given to the officers, employees, accountants,
counsel, and representatives of DTN:
(a) access (in the presence of any representative designated by
WSC, at WSC's option), upon reasonable prior notice, during normal
business hours, to all facilities, property, accounts, books, deeds,
title papers, insurance policies, licenses, agreements, contracts,
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commitments, records, equipment, machinery, fixtures, furniture,
vehicles, accounts payable and receivable, and inventories of WSC
(but, in any event, not personnel, unless WSC otherwise consents)
related to the WSC Business; and
(b) all such other information in WSC's and its Affiliates'
possession concerning the WSC Business as DTN may reasonably request,
in each case at DTN's expense; provided that the foregoing does not
disrupt or interfere with the business and operations of WSC in any
material respect.
6B. Confidential Information. If for any reason the transactions
contemplated in this Agreement are not consummated, WSC will not use or disclose
to any Person (except to its agents, representatives and advisors, to its
lenders and security holders and their respective agents, representatives and
advisors, or as may be required by any applicable law) any confidential
information received from DTN or any of their respective agents, representatives
and advisors (each a "disclosing party" for purposes of this Section 6B) in the
course of investigating, negotiating, and completing the transactions
contemplated by this Agreement.
6C. Efforts to Consummate. Subject to the provisions of this Agreement,
WSC and ABRY will each use reasonable efforts to fulfill and perform all
conditions and obligations on its part to be fulfilled and performed under this
Agreement and to cause the conditions set forth in Articles VIII and IX to be
fulfilled and cause the Merger and the other transactions contemplated by this
Agreement in connection with the Merger to be fully carried out. In addition,
promptly after WSC (prior to the Commencement Time) or ABRY (prior to the
Closing) becomes aware of any fact of circumstance which constitutes or would
constitute a breach of any representation or warranty of WSC, DTN, ABRY or the
Merger Sub set forth in this Agreement, WSC or ABRY will give DTN notice
thereof.
6D. Non-Solicitation. From the date of this Agreement until the Closing or
the earlier termination of this Agreement, ABRY will not, and will not cause
(and will use reasonable efforts not to permit) any of its Subsidiaries,
Affiliates, directors, officers, employees, representatives or agents to,
directly or indirectly solicit, or initiate, entertain or enter into any
discussions or transactions with, or encourage or provide any information to,
any Person (other than any Person described in Section 6B), concerning any sale
of any of the assets of WSC or of its Affiliates or any merger, stock
acquisition or similar transaction involving WSC or its Affiliates; provided
that nothing in this Section 6D will prohibit ABRY from furnishing, or causing
or permitting any other Person to furnish, information concerning WSC or its
Affiliates to any governmental authority or court of competent jurisdiction or
any other Person as may be required by law.
6E. Non-Competition. ABRY covenants and agrees, as an inducement to DTN to
enter into this Agreement and to consummate the transactions contemplated
herein, that for a period of three years following the Closing Date neither ABRY
nor any Affiliate of ABRY (for so long but only for so long as it remains an
Affiliate of ABRY) will, directly or indirectly, carry on or participate in the
ownership, management or control of, or license Intellectual Property to be used
in a manner competitive with the WSC Business by, any business enterprise that
competes anywhere in the world with the WSC Business as it is being conducted on
the Closing Date; provided that this Section 6E will not prohibit ABRY or any
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Affiliate of ABRY from owning less than 10% of the common stock of any
publicly-traded company or from owning any interest in, managing, controlling or
participating in the management or control of, or licensing any Intellectual
Property to, any business enterprise that so competes but the primary business
of which is not the WSC Business.
6F. Confidentiality. After the Closing, ABRY shall continue to maintain
the confidentiality of all information, documents and materials relating to the
WSC Business which remain in ABRY's possession, except to the extent disclosure
of any such information is (a) required by law, (b) authorized by DTN or (c)
reasonably occurs in connection with disputes over, or arising under, the terms
of this Agreement. In the event that ABRY reasonably believes after consultation
with counsel that it is required by law to disclose any confidential information
described in this Section 6F, ABRY will (a) provide DTN with prompt notice
before such disclosure in order that DTN may attempt to obtain a protective
order or other assurance that confidential treatment will be accorded such
confidential information and (b) cooperate with DTN in attempting to obtain such
order or assurance. The provisions of this Section 6F shall not apply to any
information, documents or materials which are, as shown by appropriate written
evidence, in the public domain or, as shown by appropriate written evidence,
shall come into the public domain, other than by ABRY or its Affiliates.
ARTICLE VII
COVENANTS OF DTN AND THE MERGER SUB
7A. Confidential Information. If for any reason the transactions
contemplated in this Agreement are not consummated, each of DTN and the Merger
Sub will not use or disclose to any Person (except to its agents,
representatives and advisors, to its lenders and their respective agents,
representatives and advisors, or as may be required by any applicable law) any
confidential information received from WSC, any of its Affiliates, or any of
their respective agents, representatives and advisors (each a "disclosing party"
for purposes of this Section 7A) in the course of investigating, negotiating,
and completing the transactions contemplated by this Agreement.
7B. Efforts to Consummate. Subject to the provisions of this Agreement,
each of DTN and the Merger Sub will use reasonable efforts to fulfill and
perform all conditions and obligations on its part to be fulfilled and performed
under this Agreement and to cause the conditions set forth in Articles VIII and
IX to be fulfilled and cause the Merger and the transactions contemplated by
this Agreement in connection with the Merger to be fully carried out. In
addition, promptly after DTN or the Merger Sub becomes aware prior to the
Closing of any fact or circumstance which constitutes or would constitute a
breach of any representation or warranty of DTN, the Merger Sub, WSC or ABRY set
forth in this Agreement, DTN will give ABRY notice thereof.
7C. Continued Employment. WSC or the Merger Sub, in its capacity as
Post-Merger WSC after the Effective Time, will pay to each Person who is a
common law employee of WSC at the Commencement Time and to whom it does not
offer continued employment after the Closing Date at the same rate of base pay
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and the other terms and conditions applicable to such employment at such time,
severance compensation in the form of a payment equal to one (1) week's base
pay, and DTN and the Merger Sub agree to indemnify and hold harmless the WSC
Stockholders and the present and former officers, directors, employees and
agents of each of the WSC Stockholders and their respective Affiliates in
respect of any loss, liability, cost, damage, claim or expense which may be
incurred by or asserted against any of them arising out of or relating to any
failure or refusal to so employ any such Person (including any change in any
term or condition of such employment), or the termination of the employment of
any such Person, at or after the Closing Date. Without limiting the foregoing
indemnity, it is acknowledged that such employees will continue to be at-will
employees, and the respective employers may terminate their employment or change
their terms of employment at will, and/or WSC, Post-Merger WSC or their
respective Affiliates may cover such employees under existing or new benefit
plans, programs, and arrangements, and may amend or terminate the terms of any
such plans, programs, or arrangements at any time (in each case, without
reducing the indemnity obligation set forth in the preceding sentence). No
employee or beneficiary of WSC, Post-Merger WSC or their respective Affiliates
may sue to enforce the terms of this Agreement, including specifically this
Section 7C, and no such employee or beneficiary shall be treated as a third
party beneficiary of this Agreement.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF WSC
AND WSC STOCKHOLDERS AT THE CLOSING
The obligation of WSC and to the WSC Stockholders to consummate the Merger
is, at WSC's and the WSC Stockholders' option, subject to the fulfillment of the
following conditions at the time of the Closing:
8A. Representations, Warranties, Covenants.
(1) Each of the representations and warranties of DTN and the Merger
Sub set forth in Article V, considered without regard to any materiality
qualifiers contained therein, will be deemed to be made again at and as of
the time of the Closing, and taken as a whole such representations and
warranties, as so remade, will be true and accurate in all material
respects, except to the extent of deviations therefrom permitted or
contemplated by this Agreement; and
(2) each of DTN and the Merger Sub will in all material respects have
performed and complied with the covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the time
of the Closing, taken as a whole (other than the delivery of the Merger
Consideration for the WSC Share Equivalents and the payments described in
Section 2D).
8B. Sufficient Funds to Satisfy Obligations. WSC will have received
evidence which is reasonably satisfactory to WSC to the effect that the Merger
Sub will have the funds described in Section 2D.
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8C. DTN Legal Opinion. WSC and ABRY shall have received an opinion from
Abrahams, Kaslow, & Cassman (or another firm reasonably acceptable to WSC and
ABRY), counsel to DTN and the Merger Sub, dated the Closing Date, substantially
in the form of the attached Exhibit 8C and otherwise reasonably satisfactory to
WSC and ABRY.
8D. Other. The Merger will have been approved by the requisite members of
the board of directors and stockholders of the Merger Sub.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF DTN AND
THE MERGER SUB AT THE CLOSING
The obligations of the Merger Sub to pay the Merger Consideration for the
WSC Share Equivalents and consummate the Merger on the Closing Date are, at the
Merger Sub's option, subject to the fulfillment of the following conditions at
the time of the Closing:
9A. Representations, Warranties, Covenants.
(1) Each of the representations and warranties of WSC and ABRY set
forth in Article III (other than Sections 3I or 3W) and Article IV,
considered without regard to any materiality qualifiers contained therein,
will be deemed to be made again at and as of the Commencement Time (or at
the time of the Closing, in the case of the representations and warranties
set forth in Section 3B), and taken as a whole such representations and
warranties, as so remade, will be true and accurate, except to the extent
of deviations therefrom which are permitted or contemplated by this
Agreement or which, in the aggregate, do not constitute and have not
caused a Material Adverse Change;
(2) WSC will in all material respects have performed and complied with
the covenants and agreements required by this Agreement to be performed or
complied with by it prior to or at the Closing, taken as a whole; and
(3) ABRY will in all material respects have performed and complied
with the covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the time of the Closing,
taken as a whole.
9B. WSC Legal Opinion. DTN and the Merger Sub shall have received an
opinion from Lucash Gesmer & Updegrove (or another firm reasonably acceptable to
DTN), counsel to WSC, dated the Closing Date, substantially in the form of the
attached Exhibit 9B and otherwise reasonably satisfactory to DTN.
9C. ABRY Legal Opinion. DTN and the Merger Sub shall have received
opinions from Testa, Hurwitz & Thibeault (or another firm reasonably acceptable
to DTN), counsel to ABRY, dated the Closing Date, substantially in the form of
the attached Exhibit 9C and otherwise reasonably satisfactory to DTN, with
customary qualifications, exceptions and assumptions reasonably satisfactory to
DTN.
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9D. Other. The Merger will have been approved by the requisite members of
the board of directors and the WSC Stockholders.
ARTICLE X
PRECLOSING COVENANTS
10A. Public Announcements. WSC, ABRY and DTN shall consult with each other
before issuing any press releases or otherwise making any public statements with
respect to the Merger and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
10B. WSC Stockholder Meeting. WSC will serve notice to all WSC
Stockholders of a shareholder meeting to be held in connection with the
transactions contemplated herein at least 20 days prior to the date of such
meeting and hold such meeting in accordance with the Massachusetts Business
Corporation Law. Such notice will contain a statement of the rights of
dissenting shareholders in accordance with Section 87 of the Massachusetts
Business Corporation Law. WSC shall notify DTN of the results of the meeting.
10C. Management and Consulting Agreement.
(1) Engagement. WSC, ABRY and DTN agree as follows:
(a) As of the close of business on the date of this Agreement
(the "Commencement Time"), WSC hereby engages DTN as manager of the
WSC Business and as consultant thereto and DTN will provide such
management and consulting services to WSC as DTN deems necessary or
appropriate for the purpose of operating the WSC Business in the
ordinary course until the Closing. As of the Commencement Time, DTN
shall have all authority required to direct the operations of WSC
Business in the ordinary course, including the authority to cause WSC
to obtain funds available to WSC under the Bank Loan Agreement to be
used for the purpose of managing the ordinary operations of the WSC
Business; and WSC will use its best efforts to cause its employees to
act in accordance with DTN's instructions given pursuant to such
authority.
(b) DTN will perform management and consulting services under
this Section 10C as an independent contractor, retaining control over
and responsibility for its own operations and personnel. Neither DTN
nor its officers, employees or agents will be considered employees or
agents of WSC, ABRY or any of their Affiliates as a result of this
Section 10C, nor will any of them have authority to contract in the
name of or bind WSC by reason of this Section 10C, or to terminate any
employee of WSC, except as WSC may expressly agree in writing.
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(c) DTN shall not be paid any fees or remuneration by WSC, ABRY
or any of their Affiliates for providing management and consulting
services pursuant to this Section 10C.
(2) Liability. Neither DTN nor any of its Affiliates, stockholders,
officers, employees or agents will be liable to WSC, ABRY or any of their
Affiliates for Damages arising out of or in connection with the
performance of services contemplated by this Section 10C, unless such
Damages are a result of the gross negligence or willful misconduct of such
Person; provided that if, prior to the termination of this Agreement, each
of the conditions to the obligations of DTN and the Merger Sub at the
Closing under Article IX is satisfied or waived and the Agreement is
nonetheless terminated by DTN, DTN will reimburse WSC for all amounts
borrowed under the Bank Loan Agreement after the Commencement Time,
together with interest thereon at the rate provided in the Bank Loan
Agreement, to the extent not paid or repaid by WSC prior to such
termination. Prior to the Closing Date, DTN will not cause WSC to borrow
any funds in connection with the performance of services contemplated by
this Section 10C other than under the Bank Loan Agreement.
(3) No Breach. Notwithstanding any provision to this Agreement, none
of the following (i) will be deemed to constitute a breach by WSC or ABRY
of any representation, warranty, covenant or agreement set forth in this
Agreement or (ii) will give rise to any claim for indemnification by ABRY
pursuant to Section 12F of this Agreement:
(a) any fact or circumstance which occurs primarily as a result
of any action or omission to act of DTN;
(b) any action taken or omission to act by WSC or any of its
employees, officers or directors in compliance with any direction by
DTN or any representative thereof; or
(c) any fact or circumstance which occurs primarily as a result
of any item described in clause 10C(3)(b) above.
In addition, an opinion of legal counsel to WSC which is substantially in the
form of the attached Exhibit 9B, except only in those respects that are
consequences of items described in clauses (a), (b) and (c) above, will
nonetheless be deemed to satisfy the condition set forth in Section 9B.
Notwithstanding anything in this Section 10C, DTN will not have the authority
prior to the Closing to take or direct WSC or any of its employees, officers or
directors to take any action on WSC's behalf with respect to this Agreement (as
distinct from actions relating to the conduct of the WSC Business).
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ARTICLE XI
TERMINATION
11A. Termination. This Agreement may be terminated at any time prior to
the Closing only as follows:
(1) by the mutual written consent of DTN and WSC;
(2) by WSC, if there has been a material breach by DTN or by the
Merger Sub of any material covenant, representation or warranty contained
in this Agreement which has prevented the satisfaction of any condition to
the obligations of WSC at the Closing and such breach has not been waived
by WSC or, in the case of a covenant breach, cured by DTN or by the Merger
Sub, as the case may be, on or prior to the earlier of December 11, 1998
or the tenth (10th) day after written notice thereof from WSC;
(3) by DTN, if there has been a material breach by WSC or by ABRY of
any material covenant, representation or warranty contained in this
Agreement which has prevented the satisfaction of any condition to the
obligations of DTN or of the Merger Sub at the Closing and such breach has
not been waived by DTN or the Merger Sub or, in the case of a covenant
breach, cured by WSC on or prior to December 11, 1998, or the tenth (10th)
day after written notice thereof from DTN;
(4) by either WSC or DTN if the transactions contemplated hereby have
not been consummated by December 11, 1998; or
(5) by DTN, if the WSC Stockholders have not approved the transactions
contemplated hereby as required pursuant to the applicable provisions of
the Massachusetts Business Corporation Law on or prior to December 11,
1998; provided, however, that neither WSC nor DTN shall be entitled to
terminate this Agreement pursuant to this Section 11A if such Person's
breach of this Agreement has prevented the consummation of the
transactions contemplated hereby.
11B. Effect of Termination. In the event that this Agreement shall be
terminated pursuant to Section 11A, all further obligations of the parties
hereto under this Agreement or otherwise shall terminate without further
liability or obligation of WSC, ABRY, DTN or the Merger Sub; provided, however,
that no party shall be released from liability hereunder if this Agreement is
terminated pursuant to Section 11A by reason of such party's breach of this
Agreement, and Sections 7A and 10C(2) shall survive any termination of this
Agreement.
11C. Waiver of Right to Terminate. WSC and DTN shall be deemed to have
waived their respective rights to terminate this Agreement upon the completion
of the Closing. No such waiver shall constitute a waiver of any other rights
arising from the non-fulfillment of any condition precedent set forth in Article
VIII or IX hereof or any misrepresentation or breach of any warranty, covenant
or agreement contained herein unless such waiver is made in writing and then any
such written waiver shall only constitute a waiver of the specific matters set
forth therein.
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ARTICLE XII
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING
12A. Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of WSC and ABRY set forth in this Agreement
or in any writing delivered to DTN or to the Merger Sub in connection with this
Agreement shall survive the Closing to the extent provided in Section 12F.
12B. Mutual Assistance and Records. Each of DTN and WSC agree that they
will mutually cooperate in the expeditious filing of all notices, reports and
other filings with any governmental authority required to be submitted jointly
by DTN and WSC in connection with the execution and delivery of this Agreement,
the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby or thereby. Subsequent to the Closing, ABRY and
DTN, at their own cost, will assist each other (including making records
available) in the preparation of their respective Tax Returns and the filing and
execution of any Tax elections, if required, as well as any audits or litigation
that may ensue as a result of the filing thereof, to the extent that such
assistance is reasonably requested.
12C. Access. DTN and WSC agree that after the Commencement Time WSC shall
provide ABRY with reasonable access to any books, records, correspondence, files
and other information retained by WSC hereunder, at ABRY's expense.
12D. Expenses. DTN, WSC and ABRY will pay all of their own fees and
expenses in connection with the Agreement and the consummation of the
transactions contemplated hereby.
12E. Taxes; Recording Charges. All sales, use, transfer, stamp,
conveyance, value added or other Taxes arising out of the Merger or otherwise on
account of this Agreement or the consummation of the transactions contemplated
hereby and all charges for or in connection with the recording of any document
or instrument contemplated hereby shall be paid by the Merger Sub.
12F. Indemnification by ABRY.
(1) After Closing and subject to the terms and conditions set forth in
this Agreement, ABRY will indemnify DTN and Post-Merger WSC (the
"Indemnified Parties") against, and agrees to hold them harmless from, any
and all Damages incurred or suffered by any of them, arising out of or
related in any way to (i) any misrepresentation or breach of any
representation, warranty or covenant of WSC or ABRY set forth in this
Agreement, or the operation of the WSC Business prior to the Commencement
Time, (ii) any amount owed by WSC to Peter R. Leavitt or Michael S.
Leavitt, or claimed by them from WSC, or any other claim asserted by Peter
R. Leavitt or Michael S. Leavitt against DTN or Post-Merger WSC, existing
or arising out of, facts or circumstances existing at, or prior to, the
Closing in excess of the $144,397 described in Section 2D, (iii) any
Damages related to or in connection with the exercise of rights under
Sections 86 to 98 of the Massachusetts Business Corporation Law by any WSC
Stockholder who dissents from a vote to consummate the transactions
26
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<PAGE>
contemplated herein, or any liability of DTN or Post-Merger WSC as a
result of the exercise of such rights or remedies and (iv) any Damages
arising from or related to any claim by John C. Keelan against WSC as
described in that certain demand letter, dated July 2, 1998; provided that
ABRY's liability pursuant to this Section 12F will be subject to the
following limitations:
(a) ABRY will not be liable for any Damages described in clause
(1)(i) above unless and until the aggregate amount of all such Damages
exceeds $50,000 (the "Threshold Amount"), in which event ABRY will be
liable for such Damages to the extent that such aggregate amount
exceeds the Threshold Amount. The Threshold Amount shall not apply to
(i) any Taxes related to or in connection with the conduct of the WSC
Business up to the Commencement Time ("Pre-Commencement Taxes"), or
(ii) any breach of any representation or warranty set forth in Section
3I or 3W of this Agreement. ABRY will not be liable for any Damages
described in clause (1)(i) above relating to any breach of any
representation or warranty set forth in Section 3I of this Agreement
unless and until the aggregate amount of all such Damages exceeds
$60,000 (the "Receivables Threshold Amount"), in which event ABRY will
be liable for such Damages to the extent such aggregate amount exceeds
the Receivables Threshold Amount.
(b) ABRY will not be liable for any Damages (other than Pre-
Commencement Taxes) described in clause (1)(i) above unless DTN gives
ABRY written notice asserting the misrepresentation, breach or other
matter in question prior to the first anniversary of the Closing Date.
(c) ABRY will not be liable for any Damages (other than
Pre-Commencement Taxes) described in clause (1)(i) above to the extent
that the aggregate amount of all Damages (other than Pre-Commencement
Taxes) described in clause (1)(i) above exceeds the sum of $500,000.
In the case of any claim described in clause (1)(i), (ii), (iii) and (iv) above,
Damages will include compensation for the business time spent by DTN employees
to testify or be deposed as may be required by judicial process or requested by
ABRY in any proceeding brought by a third party and business time spent in any
related travel (such business time to be reimbursed at a rate equal to one and
one-half times the rate of base pay of the employee in question) and reasonable
out-of-pocket expenses incurred in connection with such required testimony,
deposition or travel.
(2) Notice of Claims. If any Person believes that it will suffer or
has suffered, or will incur or has incurred, any Damages as to which a
remedy may be had by it pursuant to this Section 12F, such Person shall
notify ABRY promptly in writing describing such Damages, the amount
thereof, if known, and the method of computation of such Damages, all with
reasonable particularity.
(3) Defense of Third Party Claims. ABRY will have the right to conduct
and control through counsel of its own choosing any related third party
claim, action, or suit, but DTN or Post-Merger WSC may at their election,
27
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<PAGE>
participate in the defense of any such claim, action, or suit at their own
cost and expense; provided that, if ABRY fails to defend any such claim,
action, or suit, then DTN or Post-Merger WSC may
(a) defend such claim, action or suit through counsel of its own
choosing such claim, action, or suit,
(b) so long as it gives ABRY at least fifteen (15) days prior
written notice of the terms of the proposed settlement thereof and
permits ABRY to then undertake the defense thereof, settle such claim,
action or suit, and
(c) recover from ABRY the amount of such settlement or of any
judgment and the costs and expenses of such defense.
ABRY will not compromise or settle any such third party claim, action, or
suit unless (1) as a result of such compromise or settlement, DTN and
Post-Merger WSC will be released from all liability to such third party or
(2) ABRY obtains the prior written consent of DTN and Post-Merger WSC to
such compromise or settlement, which consent will not be unreasonably
withheld or delayed.
(4) Assignment of Rights Against Peter R. Leavitt and Michael S.
Leavitt. At or after the Closing, DTN and Post-Merger WSC will take such
actions as may be required, at ABRY's election, either to assign to ABRY
or otherwise permit ABRY to have, the right to pursue all remedies that
WSC may have against Peter R. Leavitt or Michael S. Leavitt existing or
arising out of any fact or circumstance existing at or prior to the
Closing (including any claim for any breach of representation or warranty
or fraud in connection with transactions consummated on or about January
22, 1997), and (if such assignment has not occurred) ABRY will have the
right to commence, conduct and control through counsel of its own choosing
any claim, action or suit in connection with the pursuit of such remedies.
Any such assignment or other action by DTN and/or Post-Merger WSC will be
at ABRY's request and expense at or any time after Closing. Without
limiting the foregoing, DTN and Post-Merger WSC agree that ABRY will be
entitled to exercise such rights or pursue such remedies in the name of
DTN and/or Post-Merger WSC and that ABRY will be entitled to all proceeds
resulting from any such remedy, less any reasonable expenses (including
any Tax) incurred by DTN or Post-Merger WSC in connection with the pursuit
of such remedies (which expenses will be reimbursed by ABRY in any event).
ARTICLE XIII
MISCELLANEOUS
13A. Amendment and Waiver. This Agreement may be amended, and any
provision of this Agreement may be waived, only if such amendment or waiver is
set forth in a writing executed by WSC, DTN and ABRY. No course of dealing
between or among any persons having any interest in this Agreement will be
deemed effective to modify, amend or discharge any part of this Agreement or any
rights or obligations of any person under or by reason of this Agreement. No
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<PAGE>
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute, a waiver of any other provisions, whether or not similar, nor shall
any waiver constitute a continuing waiver. The remedies provided herein are
cumulative and not exclusive of any remedies available at law or in equity.
13B. Notices. All notices, demands and other communications to be given or
delivered to DTN, the Merger Sub, WSC or ABRY under or by reason of the
provisions of this Agreement will be in writing and will be deemed to have been
given when personally delivered, sent by reputable overnight courier, or mailed
by first class mail, return receipt requested, to the address indicated below
(unless another address is so specified in writing):
Notices to WSC:
---------------
Weather Services Corporation
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: P. Koenig
With a copy (which will not constitute notice) to each of:
Lucash Gesmer & Updegrove
40 Broad Street
Boston, MA 02109-4310
Attention: William Contente, Esq.
Notices to ABRY:
----------------
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: P. Koenig
with a copy (which will not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: J. Kuehn, Esq.
Notices to DTN, the Merger Sub or Post-Merger WSC:
--------------------------------------------------
Data Transmission Network Corporation
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
Attention: G.T. Sloma
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<PAGE>
with a copy (which will not constitute notice) to:
Abrahams, Kaslow & Cassman
8712 West Dodge Road
Suite 300
Omaha, NE 68114-3419
Attention: M.M. Lofgren, Esq.
13C. 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 assigns. Neither this Agreement nor any rights, benefits or
obligations set forth herein may be assigned by WSC, DTN or Post-Merger WSC,
except that DTN or Post-Merger WSC may assign its rights under this Agreement
and any of the provisions hereof, as collateral security to any lender, in
connection with the sale of the business or assets of Post-Merger WSC, or to any
Affiliate of DTN.
13D. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
13E. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any Person.
13F. Captions. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and shall not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
13G. Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person, firm or corporation,
other than the parties hereto and their respective permitted successors and
assigns, any rights or remedies under or by reason of this Agreement, such third
parties specifically including but without limitation any investors of DTN or
WSC or employees of WSC.
13H. Complete Agreement. This document and the documents referred to
herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
13I. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
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<PAGE>
13J. Governing Law. The internal law, but not the law of conflicts, of the
Commonwealth of Massachusetts will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement.
13K. Specific Performance. Each of WSC and ABRY recognizes and agrees that
a breach by it of any of its covenants and agreements in this Agreement could
cause irreparable harm to DTN, that DTN's remedies at law in the event of such
breach would be inadequate, and that, accordingly, in the event of such breach a
restraining order or injunction or both may be issued against the breaching
Person in addition to any other rights and remedies that may be available to DTN
under applicable law. If the agreement set forth in Section 6E is more
restrictive than permitted by the applicable laws of the jurisdiction in which
DTN or the Merger Sub seeks enforcement thereof, Section 6E shall be limited to
the extent required to permit enforcement under such applicable laws.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
WSC:
----
WEATHER SERVICES CORPORATION
By:/s/ Robert MacInnis
Its:Treasurer
DTN:
----
DATA TRANSMISSION NETWORK CORPORATION
By:/s/ Joseph M. Urzendowski
Its: Vice President Operations
ABRY:
-----
ABRY BROADCAST PARTNERS II, L.P.
By ABRY Capital, L.P.
Its General Partner
By: ABRY Holdings, Inc.
Its General Partner
By:/s/ Peggy Koenig
Its:
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<PAGE>
APPENDIX
"ABRY" shall have the meaning set forth in the introductory paragraph of
this Agreement.
"Accounts Receivable" shall have the meaning set forth in Section 3I.
"Affiliate" of any Person means any other Person which is controlled by,
controls, or is under common control with, such first Person.
"Agreement" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"Bank Loan Agreement" shall have the meaning set forth in the definition
of the term "Loan Agreements."
"Benefit Plan" shall have the meaning set forth in Section 3S(i).
"Closing" shall have the meaning set forth in Section 2C.
"Closing Date" shall have the meaning set forth in Section 3C.
"Code" shall have the meaning set forth in Section 3M.
"Commencement Time" shall have the meaning set forth in Section 10C(1).
"Damages" shall mean all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement, including,
without limitation, reasonable costs, fees and expenses of attorneys, experts,
accountants, appraisers, consultants, witnesses, investigators and any other
gents or representatives of such Person (with such amounts to be determined net
of any resulting Tax benefit actually received or realized and net of any refund
or reimbursement of any portion of such amounts actually received or realized,
including, without limitation, reimbursement by way of insurance or third party
indemnification), but specifically excluding (i) except as otherwise provided in
this Agreement, any costs incurred by or allocated to Indemnified Parties with
respect to time spent by employees of the Indemnified Parties or any of its
Affiliates and (ii) any lost profits or opportunity costs or exemplary or
punitive damages (except to the extent assessed in connection with a third-party
claim with respect to which the Person against which such damages are assessed
is entitled to indemnification hereunder).
"DTN" shall have the meaning set forth in the introductory paragraph of
this Agreement.
"DTN Warrant" shall have the meaning set forth in Section 2A.
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<PAGE>
"Effective Time" means the time of the filing of the Articles of Merger
described in Section 1C.
"Environmental and Safety Requirements" means all federal, state, local
and foreign statutes, regulations, ordinances and other provisions having the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety and pollution or
protection of the environment (including, without limitation, all those relating
to the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, process ing, discharge,
release, threatened release, control or cleanup of any hazardous or otherwise
regulated materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation).
"ERISA" shall have the meaning set forth in Section 3S(i).
"GAAP" shall have the meaning set forth in Section 3H.
"Intellectual Property Rights" means all (i) patents, patent applications,
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names, logos and corporate names and registrations and applications for
registration thereof together with all of the goodwill associated therewith,
(iii) copyrights (registered or unregistered) and copyrightable works and
registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation thereof, (vi) trade secrets and other
confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"Indemnified Parties" shall have the meaning set forth in 12F(1).
"Intellectual Property" shall mean all United States and foreign patents,
patent applications, registered and unregistered Marks (as hereinafter defined)
and all applications for registration thereof, registered and unregistered
copyrights and all applications for registration thereof, industrial designs and
industrial design applications, computer software programs, data bases,
inventions, trade secrets, proprietary know-how, invention disclosures, ideas,
formulae, ingredient compositions, recipes, manufacturing and production
processes and techniques, technical data, standards, specifications, plans,
proposals, financial business and marketing plans, customer and supplier lists
and proprietary information of any type, whether or not written.
34
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<PAGE>
"Latest Balance Sheet" shall have the meaning set forth in Section 3H(ii).
"Lien" means any mortgage, pledge, hypothecation, encumbrance, lien
(statutory or otherwise), preference, priority or other security agreement of
any kind or nature whatsoever (includ ing any conditional sale or other title
retention agreement and any lease having substantially the same effect as any of
the foregoing and any assignment or deposit arrangement in the nature of a
security device).
"Loan Agreements" shall mean (i) the Credit Agreement by and among WSC and
BankBoston, N.A., dated as of August 8, 1997, as amended (the "Bank Loan
Agreement"), and the Master Lease Agreement and Master Lease Finance Agreement
by and among WSC and BankBoston Leasing, Inc., dated as of July 22, 1997, as
amended, (ii) the Convertible Promissory Notes issued by WSC to ABRY on
September 29, 1997, October 30, 1997, November 26, 1997, October 15, 1998 but
effective as of January 14, 1998 and on October 15, but effective as of January
29, 1998, (iii) the Credit Agreement by and among WSC and ABRY, dated as of
October 15, 1998 but effective as of January 29, 1998, and (iv) the Promissory
Note, dated as of August 13, 1997, issued by WSC to Elizabeth Ann Wallace and
David A. Wallace, trustees of the John E. Wallace Non-Exempt Marital Trust,
dated October 19, 1972.
"Management Agreement" shall mean the Management and Consulting Services
Agreement dated as of January 22, 1997 between ABRY Partners, Inc. and WSC.
"Material Adverse Effect" shall mean a material adverse effect on the
general business affairs, financial condition or results of operations of the
WSC Business other than as a result of seasonal variations.
"Merger" shall have the meaning set forth in Section 1B.
"Merger Consideration" shall have the meaning set forth in Section 2A(1).
"Merger Sub" shall have the meaning set forth in
"Old WSC Certificates" shall have the meaning set forth in Section 1H.
"Permitted Encumbrance" means (i) Liens arising by operation of law and
securing the payment of Taxes which are not yet due and payable, (ii) with
respect to any property leased by WSC, the interest of the lessor in such
property and (iii) easements, rights-of-way, reservations of rights, conditions
or covenants, zoning, building or similar restrictions or other non-monetary
Liens or defects that do not, individually or in the aggregate, materially
interfere with the WSC Business as presently conducted.
A "Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated association or government or
department thereof.
"Pre-Commencement Taxes" shall have the meaning set forth in Section
12F(1)(a).
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<PAGE>
"Post-Merger WSC" shall have the meaning set forth in Section 1B.
"Receivables Threshold Amount" shall have the meaning set forth in Section
12F(1)(a).
"Required Intellectual Property" shall have the meaning set forth in
Section 3O(i).
With respect to any Person, a "Subsidiary" means any corporation,
partnership, limited liability company, association or other business entity of
which, at the time of such reference, (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof, or a majority economic interest, is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
will be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons will be allocated a majority of partnership, company, association or
other business entity gains or losses or will be or control the managing
director or general partner of such partnership, company, association or other
business entity.
"Taxes" means all Taxes, assessments, charges, duties, fees, levies or
other governmental charges, including, without limitation, all Federal, state
provincial, local, foreign and other income, capital (including large
corporations), franchise, profits, capital gains, capital stock, transfer,
sales, use, goods and services and other value-added, occupation, property,
excise, severance, windfall profits, stamp, license, payroll, withholding,
estimated and other Taxes of any kind whatsoever, and deficiency assessments, as
well as all additions to Tax, penalties and interest imposed with respect to the
foregoing.
"Tax Return" shall mean any return, declaration, report, claim for refund,
information return or other document (including any related or supporting
schedule, statement or information) filed or required to be filed in connection
with the determination, assessment or collection of any Tax of any party or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"Threshold Amount" shall have the meaning set forth in 12F.
"WSC Business" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"WSC Closing Documents" means all agreements, certificates, instruments
and other documents required by this Agreement to be executed and delivered by
WSC or the WSC Stockholders, as the case may be, at or before the Closing.
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"WSC Right" means any security or right issued by WSC which is not a WSC
Share, which is outstanding immediately prior to the Effective Time and which is
directly or indirectly convertible into or exercisable or exchangeable for any
capital stock of WSC at such time.
"WSC Share Equivalent" means any WSC Right or WSC Share.
"WSC Share" means any share of capital stock of WSC which is outstanding
immediately prior to the Effective Time.
"WSC Stockholders" means any Person who owns beneficially or of record WSC
Rights or WSC Shares.
37
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DATA TRANSMISSION NETWORK CORPORATION
COMMON STOCK PURCHASE WARRANT
Expiring December 11, 2005
1
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<PAGE>
TABLE OF CONTENTS
1. Exercise of Warrant ................................................ 1
1.1. Manner of Exercise ........................................ 1
1.2. When Exercise Deemed Effected ............................. 2
1.3. Delivery of Stock Certificates, Etc. ...................... 2
1.4. Company to Reaffirm Obligations ........................... 3
2. Adjustments ........................................................ 3
2.1. Number of Shares; Warrant Price ........................... 3
2.2. Adjustment of Warrant Price ............................... 3
2.2.1. Issuance of Additional Shares of Common Stock..... 3
2.2.2. Extraordinary Dividends and Distributions ........ 4
2.3. Treatment of Options and Convertible Securities ........... 4
2.4. Treatment of Stock Dividends, Stock Splits, Etc. .......... 7
2.5. Computation of Consideration .............................. 7
2.6. Adjustments for Combinations. Etc. ........................ 8
2.7. Dilution in Case of Other Securities ...................... 8
2.8. Minimum Adjustment of Warrant Price ....................... 9
3. Consolidation, Merger, Sale of Assets, Reorganization, Etc. ........ 9
3.1. General Provisions......................................... 9
3.2. Assumption of Obligations .................................11
4. Other Dilutive Events ..............................................11
5. No Dilution or Impairment ..........................................11
6. Accountants' Report as to Adjustments...............................12
7. Notices of Corporate Action ........................................12
8. Restrictions on Transfer ...........................................13
8.1. Restrictive Legends........................................13
8.2. Notice of Proposed Transfer; Opinions of Counsel ..........13
8.3. Termination of Restrictions................................14
8.4 Holder's Representations and Warranties....................14
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9. Registration Under Securities Act, Etc. ............................15
9.1. Incidental Registration ...................................15
9.2. Registration Procedures ...................................17
9.3. Underwritten Offerings ....................................21
9.3.1. Incidental Underwritten Offerings ................21
9.3.2. Holdback Agreements ..............................21
9.4. Preparation; Reasonable Investigation .....................22
9.5. Rights of Requesting Holders ..............................22
9.6. Indemnification ...........................................22
9.7. Adjustments Affecting Registrable Securities ..............25
9.8. Other Registration of Common Stock ........................25
9.9. Nominees for Beneficial Owners ............................25
9.10. Rule 144 and Rule 144A ....................................26
10. Availability of Information ........................................26
11. Reservation of Stock. Etc. .........................................26
12. Listing on Securities Exchange .....................................26
13. Ownership, Transfer and Substitution of Warrants ...................26
13.1. Ownership of Warrants .....................................26
13.2. Transfer and Exchange of Warrants .........................27
13.3. Replacement of Warrants ...................................27
14. Definitions ........................................................27
15. Remedies ...........................................................32
16. No Rights or Liabilities as Stockholder ............................32
17. Notices ...........................................................33
18. Expiration; Notice .................................................33
19. Miscellaneous ......................................................33
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THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND SUCH SHARES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFERABILITY SET FORTH IN THIS WARRANT.
Common Stock Purchase Warrant
Expiring December 11, 2005
Omaha, Nebraska
December 11, 1998
DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation (the
"Company"), for value received, hereby certifies that Peter R. Leavitt, or
registered assigns, is entitled to purchase from the Company 5,176 duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock,
par value $.001 per share, of the Company (the "Common Stock") at the purchase
price per share of $34.00, at any time or from time to time prior to 3 P.M., New
York City time, on December 11, 2005, all subject to the terms, conditions and
adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants issued in
connection with the Company's acquisition of all of the issued and outstanding
capital stock of Weather Services Corporation, a Massachusetts corporation
("WSC"), pursuant to the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of November 12, 1998 between the Company, Merger Sub, WSC, and ABRY.
Certain capitalized terms used in this Warrant are defined in Section 14. If a
capitalized term used in this Warrant is not defined in Section 14, or elsewhere
in this Warrant, such term shall have the meaning given such term in the Merger
Agreement.
1. Exercise of Warrant.
1.1. Manner of Exercise.
(a) This Warrant may be exercised by the holder hereof, in whole
or in part, during normal business hours on any Business Day prior to
the expiration of this Warrant by surrender of this Warrant, with the
form of subscription at the end hereof (or a reasonable facsimile
thereof) duly executed by such holder, to the Company at its principal
office (or, if such exercise shall be in connection with an
underwritten Public Offering of shares of Common Stock (or Other
Securities) subject to this Warrant, at the location at which the
Company shall have agreed to deliver the shares of Common Stock (or
Other Securities) subject to such offering), accompanied by payment, in
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cash or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying (a) the number of shares
of Common Stock (without giving effect to any adjustment therein)
designated in such form of subscription by (b) the Warrant Price, and
such holder shall thereupon be entitled to receive the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) determined as provided in Sections 2
through 4.
(b) Holder may elect in writing delivered to the Company as
provided above to receive, without payment of additional consideration,
shares of Common Stock equal to the value of this Warrant or any
portion hereof by the surrender of this Warrant or such portion to the
Company at its principal office. Thereupon, the Company shall issue to
such holder such number of fully paid and nonassessable shares of
Common Stock as is computed using the following formula:
X = Y (A-B)
A
where X = the number of shares to be issued to such holder pursuant
to this subsection 1.1(b).
Y = the number of shares covered by this Warrant in
respect of which the net issue election is made
pursuant to this subsection 1.1(b).
A = the Market Price of one share of Common Stock as at
the time the net issue election is made pursuant to
this subsection 1.1(b).
B = the Warrant Price in effect under this Warrant at
the time the net issue election is made pursuant to
this subsection 1.1(b).
1.2. When Exercise Deemed Effected. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 1.3 shall be deemed to have become the holder or holders of record
thereof.
1.3. Delivery of Stock Certificates, Etc. As soon as practicable
after the exercise of this Warrant, in whole or in part, and in any event within
ten (10) Business Days thereafter (unless such exercise shall be in connection
with an underwritten Public Offering of shares of Common Stock (or Other
Securities) subject to this Warrant, in which event concurrently with such
exercise), the Company at its expense (including the payment by it of any taxes
(other than transfer taxes) applicable to the Company) will cause to be issued
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in the name of and delivered to the holder hereof or, subject to Section 8, as
such holder (upon payment by such holder of any applicable transfer taxes) may
direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share of such Common Stock
(or Other Securities) on the Business Day next preceding the date of
such exercise, and
(b) in case such exercise is in part only, a new Warrant of like
tenor, calling in the aggregate on the face thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment
therein) to the number of such shares called for on the face of this
Warrant minus the number of such shares designated by the holder upon
such exercise as provided in Section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the
time of or at any time after each exercise of this Warrant, upon the request of
the holder hereof or of any shares of Common Stock (or Other Securities) issued
upon such exercise, acknowledge in writing its continuing obligation to afford
to such holder all rights (including, without limitation, any right of
registration of any shares of Common Stock (or Other Securities) issuable upon
exercise of this Warrant pursuant to Section 9) to which such holder shall
continue to be entitled after such exercise in accordance with the terms of this
Warrant, provided that if any such holder shall fail to make any such request,
the failure shall not affect the continuing obligation of the Company to afford
such rights to such holder.
2. Adjustments.
2.1. Number of Shares; Warrant Price. The number of shares of
Common Stock which the holder of this Warrant shall be entitled to receive upon
each exercise hereof shall be determined by multiplying the number of shares of
Common Stock which would otherwise (but for the provisions of this Section 2) be
issuable upon such exercise, as designated by the holder hereof pursuant to
Section 1.1, by a fraction of which (a) the numerator is $34.00 and (ii) the
denominator is the Warrant Price in effect on the date of such exercise. The
"Warrant Price" shall initially be $34.00 per share, and shall be adjusted and
readjusted from time to time as provided in this Section 2 and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Section 2.
2.2. Adjustment of Warrant Price.
2.2.1. Issuance of Additional Shares of Common Stock. In case the
Company, at any time or from time to time after December 11, 1998 (the "Initial
Date"), shall issue or sell Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 2.3 or
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2.4) without consideration or for a consideration per share less than the Base
Price in effect, in each case, on the date of and immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.8, such Warrant
Price shall be reduced, concurrently with such issue or sale, to a price
(calculated to the nearest .001 of a cent) determined by multiplying such
Warrant Price by a fraction,
(a) the numerator of which shall be (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus
(ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the Base Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 2.2.1 (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding,
and (y) treasury shares shall not be deemed to be outstanding.
2.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the Initial Date shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on any Common Stock, other
than (a) a dividend payable in Additional Shares of Common Stock or in Options
for Common Stock or (b) a dividend payable in cash and declared out of the
earned surplus of the Company, then, and in each such case, subject to Section
2.8, the Warrant Price in effect immediately prior to the close of business on
the record date fixed for the determination of holders of any class of
securities entitled to receive such dividend or distribution shall be reduced,
effective as of the close of business on such record date, to a price
(calculated to the nearest .001 of a cent) determined by multiplying such
Warrant Price by a fraction,
(x) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of
ex-dividend trading, less the value of such dividend or
distribution (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Common Stock,
and
(y) the denominator of which shall be such Current Market
Price.
2.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the Initial Date shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
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Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be issued for purposes of
Section 2.2 as of the time of such issue, sale, grant or assumption or, in case
such a record date shall have been fixed, as of the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), provided that such Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Base Price in effect, in each case, on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
which Additional Shares of Common Stock are deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made upon
the subsequent issue or sale of Additional Shares of Common Stock or
Convertible Securities upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which
shall not have been exercised (or upon purchase by the Company and
cancellation or retirement of any such Options which shall not have
been exercised or of any such Convertible Securities the rights of
conversion or exchange under which shall not have been exercised), the
Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration (or such cancellation or retirement, as the
case may be), be recomputed as if:
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(x) in the case of options for Common Stock or of Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
received therefor was (i) an amount equal to (A) the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such options, whether or not exercised, plus (B)
the consideration actually received by the Company upon such
exercise, minus (C) the consideration paid by the Company for any
purchase of such Options which were not exercised, or (ii) an
amount equal to (A) the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Convertible Securities which were actually converted or exchanged,
plus (B) the additional consideration, if any, actually received
by the Company upon such conversion or exchange, minus (C) the
consideration paid by the Company for any purchase of such
Convertible Securities the rights of conversion or exchange under
which were not exercised, and
(y) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon
the exercise of such Options were issued at the time of the issue,
sale, grant or assumption of such options, and the consideration
received by the Company for the Additional Shares of Common Stock
deemed to have then been issued was an amount equal to (i) the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such options, whether or not
exercised, plus (ii) the consideration deemed to have been
received by the Company (pursuant to Section 2.4) upon the issue
or sale of the Convertible Securities with respect to which such
options were actually exercised, minus (iii) the consideration
paid by the Company for any purchase of such Options which were
not exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Warrant Price by an amount in excess
of the amount of the adjustment thereof originally made in respect of
the issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms
not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Warrant Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision (c)
above.
In case at any time after the Initial Date the Company shall be
required to increase the number of Additional Shares of Common Stock subject to
any Option or into which any Convertible Securities (other than the Warrants)
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are convertible or exchangeable pursuant to the operation of anti-dilution
provisions applicable thereto, such Additional Shares of Common Stock shall be
deemed to be issued for purposes of Section 2.2 as of the time of such increase.
2.4. Treatment of Stock Dividends, Stock Splits, Etc. In case the
Company at any time or from time to time after the Initial Date shall declare or
pay any dividend or other distribution on any class of stock of the Company
payable in Common Stock, or shall effect a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
then, and in each such case, Additional Shares of Common Stock shall be deemed
to have been issued (a) in the case of any such dividend, immediately after the
close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend, or (b) in the case of any
such subdivision, at the close of business on the day immediately prior to the
day upon which such corporate action becomes effective.
2.5. Computation of Consideration. For the purposes of this
Section 2:
(a) The consideration for the issue or sale of any Additional
Shares of Common Stock or for the issue, sale, grant or assumption of
any Options or Convertible Securities, irrespective of the accounting
treatment of such consideration, shall
(x) insofar as it consists of cash, be computed at the amount
of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensation
paid or concessions or discounts allowed to underwriters, dealers
or others performing similar services and any accrued interest or
dividends in connection with such issue or sale,
(y) insofar as it consists of consideration (including
securities) other than cash, be computed at the fair value thereof
at the time of such issue or sale, as determined in good faith by
the Board of Directors of the Company, without deducting any
expenses paid or incurred by the Company for any commissions or
compensation paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services and
any accrued interest or dividends in connection with such issue or
sale, and
(z) in case Additional Shares of Common Stock are issued or
sold or Convertible Securities are issued, sold, granted or
assumed together with other stock or securities or other assets of
the Company for a consideration which covers both, be the
proportion of such consideration so received, computed as provided
in subdivisions (x) and (y) above, allocable to such Additional
Shares of Common Stock or Convertible Securities, as the case may
be, all as determined in good faith by the Board of Directors of
the Company.
(b) All options issued, sold, granted or assumed together with
other stock or securities or other assets of the Company for a
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consideration which covers both, all Additional Shares of Common Stock,
Options or Convertible Securities issued in payment of any dividend or
other distribution on any class of stock of the Company and all
Additional Shares of Common Stock issued to effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock) shall be deemed to have been issued without
consideration.
(c) Additional Shares of Common Stock deemed to have been issued
for consideration pursuant to Section 2.3, relating to Options and
Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
(x) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption
of the Options or Convertible Securities in question, plus the
minimum aggregate amount of additional consideration (as set forth
in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise in full of
such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, in each
case computing such consideration as provided in the foregoing
subdivision (a), by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(d) Additional Shares of Common Stock issued or deemed to have
been issued pursuant to the operation of anti-dilution provisions
applicable to Convertible Securities (other than the Warrants), Options
or other securities of the Company (either as a result of the
adjustments provided for by the Warrants or otherwise) shall be deemed
to have been issued without consideration.
2.6. Adjustments for Combinations, Etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any Common Stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person referred to in
Section 3) or to subscription, purchase or other acquisition pursuant to any
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options issued or granted by the Company (or any such other issuer or Person)
for a consideration such as to dilute, on a basis consistent with the standards
established in the other provisions of this Section 2, the purchase rights
granted by this Warrant, then, and in each such case, the computations,
adjustments and readjustments provided for in this Section 2 with respect to the
Warrant Price shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of this Warrant, so as to protect the holder of this Warrant
against the effect of such dilution.
2.8. Minimum Adjustment of Warrant Price. If the amount of any
adjustment of the Warrant Price required pursuant to this Section 2 would be
less than one-tenth of one percent of the Warrant Price in effect at the time
such adjustment is otherwise so required to be made, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate at least one-tenth
of one percent of such Warrant Price; provided that, upon the exercise of this
Warrant, all adjustments carried forward and not theretofore made up to and
including the date of such exercise shall be made to the nearest one
one-hundredth of a cent.
3. Consolidation, Merger, Sale of Assets, Reorganization. Etc.
3.1. General Provisions. In case the Company, after the Initial
Date, (a) shall consolidate with or merge into any other Person and shall not be
the continuing or surviving corporation of such consolidation or merger, or (b)
shall permit any other Person to consolidate with or merge into the Company and
the Company shall be the continuing or surviving Person but, in connection with
such consolidation or merger, Common Stock or Other Securities shall be changed
into or exchanged for cash, stock or other securities of any other Person or any
other property, or (c) shall transfer all or substantially all of its properties
and assets to any other Person, or (d) shall effect a capital reorganization or
reclassification of Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of additional Shares
of Common Stock for which adjustment in the Warrant Price is provided in Section
2.2.1 or 2.2.2), then, and in the case of each such transaction, the Company
shall give written notice thereof to the holder of this Warrant not less than 30
days prior to the consummation thereof and proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Section 3,
the holder of this Warrant, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive, at the aggregate
Warrant Price in effect at the time of such consummation for all Common Stock
(or other Securities) issuable upon such exercise immediately prior to such
consummation, in lieu of the Common Stock (or Other Securities) issuable upon
such exercise prior to such consummation, either of the following, as such
holder shall elect by written notice to the Company on or before the date
immediately preceding the date of the consummation of such transaction (and, in
the absence of such notice, the provisions of subdivision (y) below shall be
deemed to have been elected by such holder):
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(x) the highest amount of cash, securities or other property
to which such holder would actually have been entitled as a
shareholder upon such consummation if such holder had exercised
this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Section 2 and this Section 3,
provided that if a purchase, tender or exchange offer shall have
been made to and accepted by the holders of Common Stock under
circumstances in which, upon completion of such purchase, tender
or exchange offer, the maker thereof, together with members of any
group (within the meaning of Section 13(d)(3) of the Exchange Act)
of which such maker is a part, and together with any affiliate or
associate of such maker (within the meaning of Rule 12b-2 under
the Exchange Act) and any members of any such group of which any
such affiliate or associate is a part, own beneficially (within
the meaning of Rule 13d-3 under the Exchange Act) more than 50% of
the outstanding shares of Common Stock, and if the holder of this
Warrant so designates in such notice given to the Company, the
holder of this Warrant shall be entitled to receive the highest
amount of cash, securities or other property to which such holder
would actually have been entitled as a shareholder if the holder
of this Warrant had exercised this Warrant prior to the expiration
of such purchase, tender or exchange offer, accepted such offer
and all of the Common Stock held by such holder had been purchased
pursuant to such purchase, tender or exchange offer, subject to
adjustments (from and after the consummation of such purchase,
tender or exchange offer) as nearly equivalent as possible to the
adjustments provided for in Section 2 and this Section 3; or
(y) the number of shares of Voting Common Stock (or
equivalent equity interests) of the Acquiring Person or, if the
Acquiring Person fails to meet, but its Parent meets, the
requirements set forth in the proviso below, of its Parent,
subject to adjustments (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in
Section 2 and this Section 3, determined by dividing (i) the
product obtained by multiplying (A) the number of shares of Common
Stock (or Other Securities) to which the holder of this Warrant
would have been entitled had such holder exercised this Warrant
immediately prior to the consummation of such transaction, times
(B) the greater of the Acquisition Price and the Warrant Price in
effect on the date immediately preceding the date of such
consummation, by (ii) the Current Market Price per share of the
Voting Common Stock (or equivalent equity interests) of the
Acquiring Person or its Parent, as the case may be, on the date
immediately preceding the date of such consummation;
provided that the Company shall not effect any of the transactions described in
subdivisions (a) through (d) above unless, immediately after the date of the
consummation of such transaction, the Acquiring Person or its Parent is required
to file, by virtue of having an outstanding class of Voting Common Stock (or
equivalent equity interests), reports with the Commission pursuant to Section 13
or Section 15(d) of the Exchange Act, and such Voting Common Stock (or
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equivalent equity interest) is listed or admitted to trading on a national
securities exchange or is quoted in the NASD automated quotation system. In the
event that the Acquiring Person fulfills the requirements contained in the
immediately preceding proviso, then, if the holder of this Warrant shall elect
(or shall be deemed to elect) to receive Voting Common Stock (or equivalent
equity interests) pursuant to subdivision (y) above, such holder shall be
entitled to receive, upon the basis stated in such subdivision (y), only the
Voting Common Stock (or equivalent equity interests) of the Acquiring Person.
3.2. Assumption of Obligations. Notwithstanding anything contained
in this Warrant or the Merger Agreement to the contrary, the Company will not
effect any of the transactions described in subdivisions (a) through (d) of
Section 3.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any cash, stock or other
securities or other property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the holder of this Warrant, (a) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant) and
(b) the obligation to deliver to such holder such cash, stock or other
securities or other property as, in accordance with the foregoing provisions of
this Section 3, such holder may be entitled to receive, and such Person shall
have similarly delivered to such holder an opinion of counsel for such Person,
which counsel shall be reasonably satisfactory to such holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of Section 2 and this
Section 3) shall be applicable to the cash, stock or other securities or other
property which such Person may be required to deliver upon any exercise of this
Warrant or the exercise of any rights pursuant hereto.
4. Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the failure
to make any adjustment would not fairly protect the purchase rights represented
by this Warrant in accordance with the essential intent and principles of such
sections, then, in each such case, the Company shall appoint a firm of
independent public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in Sections 2 and 3, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon receipt of such
opinion the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against dilution or other impairment. Without limiting the
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generality of the foregoing, the Company (a) will not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed the
amount payable therefor upon such exercise, (b) will take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock upon the exercise of all
outstanding warrants issued by the Company (including this Warrant) from time to
time, and (c) will not take any action which results in any adjustment of the
Warrant Price if the total number of shares of Common Stock (or Other
Securities) issuable after the action upon the exercise of all outstanding
warrants issued by the Company (including this Warrant) would exceed the total
number of shares of Common Stock (or other Securities) then authorized by the
Company's certificate of incorporation and available for the purpose of issue
upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant, and will prepare a certificate of the chief financial officer of
the Company setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including without limitation a
statement of (a) the consideration received or to be received by the Company for
any Additional Shares of Common Stock issued or sold or deemed to have been
issued, (b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Warrant Price in effect immediately prior to such issue
or sale and as adjusted and readjusted (if required by Section 2) on account
thereof. The Company will forthwith mail a copy of each such certificate to each
holder of a Warrant and will, upon the written request at any time of the holder
of this Warrant, furnish to such holder a like certificate setting forth the
Warrant Price at the time in effect and showing in reasonable detail how it was
calculated. In addition, with respect to any fiscal year of the Company during
which any such adjustment or readjustment shall have been made, the Company will
cause the independent public accountants reporting upon the Company's financial
statements for such fiscal year to verify, concurrently with their annual audit
of the Company's financial statements, the computations made by the Company
during such fiscal year and to prepare and to deliver to the holder of this
Warrant a report setting forth substantially the information described above in
this Section 6 with respect to all such adjustments and readjustments. The
Company will also keep copies of all such certificates and reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by the holder of this Warrant or any
prospective purchaser of this Warrant designated by the holder thereof.
7. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, or
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(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and any
other Person or any transfer of all or substantially all the assets of
the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the holder of this Warrant a notice specifying (x) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (y) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 20 days prior to the date therein specified, in the case of any
date referred to in the foregoing subdivision (x), and at least 30 days prior to
the date therein specified, in the case of the date referred to in the foregoing
subdivision (y).
8. Restrictions on Transfer.
8.1. Restrictive Legends. Except as otherwise permitted by this
Section 8, each certificate for Common Stock (or Other Securities) issued upon
the exercise of this Warrant and each certificate issued upon the direct or
indirect Transfer of any such Common Stock (or Other Securities) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred except in
compliance with such Act and applicable state securities laws. Such
shares are also subject to certain restrictions on transferability
imposed by a Common Stock Purchase Warrant expiring December 11, 2005,
a copy of which is on file at the offices of the Company."
8.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to
any Transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act (other than a Transfer
pursuant to Rule 144 or any comparable rule under such Act), the holder thereof
will give written notice to the Company of such holder's intention to effect
such Transfer and to comply in all other respects with this Section 8.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
Transfer in sufficient detail to enable counsel to render the opinions referred
to below, and (b) shall designate counsel for the holder giving such notice (who
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may be internal counsel for such holder). The holder giving such notice will
submit a copy thereof to the counsel designated in such notice and the Company
will promptly submit a copy thereof to its counsel. The following provisions
shall then apply:
(x) If in the opinion of such counsel for the holder the
proposed Transfer may be effected without registration (a copy of
which opinion shall be delivered to the Company), and if such
opinion is reasonably satisfactory to the Company, such holder
shall thereupon be entitled to Transfer such Restricted Securities
in accordance with the terms of the notice delivered by such
holder to the Company. Each Warrant or certificate, if any, issued
upon or in connection with such Transfer shall bear the
appropriate restrictive legend set forth in Section 8.1 unless, in
the opinion of such counsel and the Company's counsel, such legend
is no longer required to insure compliance with the Securities
Act.
(y) If the opinion of such counsel for the holder is not to
the effect that the proposed Transfer may legally be effected
without registration of such Restricted Securities under the
Securities Act, such holder shall not be entitled to Transfer such
Restricted Securities (other than in a Transfer pursuant to Rule
144 or any comparable rule under the Securities Act) until the
conditions specified in subdivision (x) above shall be satisfied
or until registration of such Restricted Securities under the
Securities Act has become effective.
Notwithstanding the foregoing provisions of this Section 8.2, the holder of any
Restricted Securities shall be permitted to Transfer any such Restricted
Securities pursuant to Rule 144A under the Securities Act, provided that each
transferee agrees in writing to be bound by all the restrictions on transfer of
such Restricted Securities contained in this Section 8.2.
8.3. Termination of Restrictions. The restrictions imposed by this
Section 8 upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when such securities
shall have been effectively registered under the Securities Act and disposed of
in accordance with the registration statement covering such Restricted
Securities, (a) when, in the opinions of both counsel for the holder thereof and
counsel for the Company, such restrictions are no longer required in order to
insure compliance with the Securities Act, or (c) when such securities may be
immediately sold by the holder as determined under Rule 144 under the Securities
Act. Whenever such restrictions shall terminate as to any Restricted Securities,
as soon as practicable thereafter and in any event within ten Business Days, the
holder thereof shall be entitled to receive from the Company, without expense
(other than transfer taxes, if any), new securities of like tenor not bearing
the applicable legend set forth in Section 8.1 hereof.
8.4. Holder's Representations and Warranties. Holder hereby
represents and warrants to the Company as follows:
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(a) Holder is acquiring this Warrant and any shares of Common
Stock acquired upon exercise of this Warrant for its own account, for
investment and not with a view to any "distribution" within the meaning
of the Securities Act.
(b) Holder is knowledgeable and experienced in making venture
capital investments, is able to bear the economic risk of loss of its
investment in the Company, has been granted the opportunity to make an
investigation of the affairs of the Company and has used such
opportunity either directly or through its authorized representative.
(c) Holder understands that because the shares of Common Stock
issuable under this Warrant have not been registered under the
Securities Act, it cannot dispose of any or all of such shares of
Common Stock unless such shares are subsequently registered under the
Securities Act or exemptions from registration are available. Holder
acknowledges and understands that, except as provided in this Warrant,
it has no registration rights. By reason of these restrictions, Holder
understands that it may be required to hold such shares of Common Stock
for an indefinite period of time.
(d) Holder is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act.
9. Registration under Securities Act, Etc.
9.1. Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time on or prior to December 11, 2005 proposes to register any of its
securities under the Securities Act (other than by a registration on
Form S-4 or S-8 or any successor or similar forms), whether or not for
sale for its own account, in a manner which would permit registration
of Registrable Securities for sale to the public under the Securities
Act, it will each such time give prompt written notice to all holders
of Registrable Securities of its intention to do so and of such
holders' rights under this Section 9.1. Upon the written request of any
such holder made within 20 days after receipt of any such notice (which
request shall specify the Registrable Securities intended to be
disposed of by such holder and the intended method of disposition
thereof), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities
which the Company has been so requested to register by the holders
thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the
securities which the Company proposes to register, provided that (x)
the Company shall not be required to effect the registration pursuant
to this Section 9.1 of any Warrants (but shall be required to effect
the registration of Registrable Securities described in clauses (b) and
(c) of the definition of Registrable Securities) and (y) if, at any
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time after giving written notice of its intention to register any
securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of
such securities, the Company may, at its election, give written notice
of such determination to each holder of Registrable Securities and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay
the Registration Expenses in connection therewith), and (ii) in the
case of a determination to delay registering, shall be permitted to
delay registering any Registrable Securities for the same period as the
delay in registering such other securities. The Company will pay all
Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 9.1.
(b) Priority in Incidental Registrations. If a registration
pursuant to this Section 9.1 involves an underwritten offering and the
managing underwriter advises the Company in writing that, in its
opinion, that the dollar amount or number of shares of Registrable
Securities and other shares of Common Stock or Other Securities to be
included in the offering exceeds the maximum dollar amount or number
that can be sold in such offering without adversely affecting the
proposed offering price, the timing, the distribution method or the
probability of success of such offering (the "Maximum Number of
Shares"), then the Company shall include in such registration:
(x) if the registration is a primary offering for the
Company, (i) first, the shares of Common Stock or Other Securities
that the Company proposes to sell for its own account which can be
sold without exceeding the Maximum Number of Shares; (ii) second,
to the extent the Maximum Number of Shares has not been reached
under the foregoing clause (i), the shares of Common Stock or
Other Securities requested to be included in such registration by
the holders thereof with registration rights granted prior to the
date hereof which can be sold without exceeding the Maximum Number
of Shares (allocated pro rata among such other security holders,
as nearly as practicable, on the basis of the number of shares of
Common Stock or Other Securities requested to be included in such
offering by such other security holders); and (iii) third, to the
extent the Maximum Number of Shares has not been reached under the
foregoing clauses (i) and (ii), the Registrable Securities and
shares of Common Stock or Other Securities requested to be
included in such registration by the holder of this Warrant and
other security holders with registration rights which can be sold
without exceeding the Maximum Number of Shares (allocated pro rata
among such holder and other security holders, as nearly as
practicable, on the basis of the number of shares of Registrable
Securities and Common Stock or Other Securities requested to be
included in such offering by the holder and such other security
holders); and
(y) if the registration is for a secondary offering for any
of the Company's securityholders, (i) first, if the registration
was requested by other security holders with demand registration
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rights, then the shares of Common Stock or Other Securities that
such other security holders have requested to be included in such
offering which can be sold without exceeding the Maximum Number of
Shares; (ii) second, to the extent the Maximum Number of Shares
has not been reached under the foregoing clause (i), the shares of
Common Stock or Other Securities requested to be included in such
registration by other security holders with registration rights
granted prior to the date hereof which can be sold without
exceeding the Maximum Number of Shares (allocated pro rata among
such other security holders, as nearly as practicable, on the
basis of the number of shares of Common Stock or Other Securities
requested to be included in such offering by such other security
holders); and (iii) third, to the extent the Maximum Number of
Shares has not been reached under the foregoing clauses (i) and
(ii), the Registrable Securities and shares of Common Stock or
Other Securities requested to be included in such registration by
the holder of this Warrant and other security holders with
registration rights which can be sold without exceeding the
Maximum Number of Shares (allocated pro rata among such holder and
other security holders, as nearly as practicable, on the basis of
the number of shares of Registrable Securities and Common Stock or
Other Securities requested to be included in such offering by the
holder and such other security holders).
9.2. Registration Procedures. If and whenever (x) the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 9.1 or (y) there is a
Requesting Holder in connection with any other proposed registration by the
Company under the Securities Act, the Company will as expeditiously as possible:
(a) prepare and file with the Commission the requisite
registration statement (including such audited financial statements as
may be required by the Securities Act or the rules and regulations
promulgated thereunder) to effect such registration and use its best
efforts to cause such registration statement to become effective,
provided that before filing such registration statement or any
amendments thereto, the Company will furnish to the counsel selected by
the holders of Registrable Securities whose Registrable Securities are
to be included in such registration copies of all such documents
proposed to be filed, which documents will be subject to the review of
such counsel, and provided, further, that the Company may discontinue
any registration of its securities which are not Registrable Securities
at any time prior to the effective date of the registration statement
relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to maintain the effectiveness
of such registration statement and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of such time
as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement and the expiration of 90 days
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after such registration statement becomes effective, except with
respect to any such registration statement filed pursuant to Rule 415
(or any successor Rule) under the Securities Act, in which case such
period shall be 2 years;
(c) furnish to each seller of Registrable Securities covered by
such registration statement and each Requesting Holder such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request;
(d) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as
each seller thereof and each Requesting Holder shall reasonably
request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for
the requirements of this subdivision (d) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(e) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(f) furnish to each seller of Registrable Securities and each
Requesting Holder a signed counterpart, addressed to such seller (and
the underwriters, if any), of
(x) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten Public Offering, dated the
date of any closing under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, and
(y) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten Public Offering, dated the date of any closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement (it being understood that
such letter, if the cost thereof does not constitute a
"Registration Expense", is to be delivered only at the request of,
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and at the expense of, any seller of Registrable Securities or
Requesting Holder),
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to the underwriters in underwritten Public
Offerings of securities and, in the case of the accountants' letter, such other
financial matters, as such seller (or the underwriters, if any) may reasonably
request;
(g) immediately notify each seller of such Registrable Securities,
and (if requested by any such seller) confirm such advice in writing,
(w) when the prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become
effective, (x) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (y) of the issuance by the Commission of any
stop order suspending the effectiveness of the registration statement
or the initiation of any proceedings for that purpose, and (z) of the
receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding
for such purpose;
(h) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of the registration statement at
the earliest possible time;
(i) immediately notify each holder of Registrable Securities
covered by such registration statement and each Requesting Holder, at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any
such holder promptly prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month
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after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and not file any amendment or supplement to such
registration statement or prospectus to which any such seller or any
Requesting Holder shall have reasonably objected on the grounds that
such amendment or supplement does not comply in all material respects
with the requirements of the Securities Act or of the rules or
regulations thereunder, having been furnished with a copy thereof at
least five (5) business days prior to the filing thereof;
(k) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement not later than the effective date of such registration
statement;
(1) cooperate with the sellers of such Registrable Securities to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which securities shall
not bear any restrictive legends and shall be in a form eligible for
deposit with The Depository Trust Company; and enable such Registrable
Securities to be in such denominations and registered in such names as
such sellers may request at least two business days prior to any sale
of Registrable Securities;
(m) use its best efforts (x) to cause all such Registrable
Securities covered by such registration statement to be listed on a
national securities exchange (if such Registrable Securities are not
already so listed) and on each additional national securities exchange
on which similar securities issued by the Company are then listed, if
the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (y) to secure designation of all such
Registrable Securities covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule
llAa2-1 of the Commission or, failing that, secure NASDAQ authorization
for such Registrable Securities and, without limiting the generality of
the foregoing, to arrange for at least two market makers to register as
such with respect to such Registrable Securities with the NASD;
(n) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the applicable registration statement;
and
(o) enter into such agreements and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each holder of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such holder and the distribution of such securities as the Company may from time
to time reasonably request in writing.
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9.3. Underwritten Offerings.
9.3.1. Incidental Underwritten Offerings. If the Company at any
time proposes to register any of its securities under the Securities Act as
contemplated by Section 9.1 and such securities are to be distributed by or
through one or more underwriters, the Company will, subject to the provisions of
Section 9.1(b), use its best efforts, if requested by any holder of Registrable
Securities, to arrange for such underwriters to include the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. No holder of Registrable
Securities shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such holder and such holder's intended method
of distribution and any other representation required by law.
9.3.2. Holdback Agreements.
(x) Each holder of Registrable Securities agrees, if so
required by the managing underwriter, not to effect any public
sale or distribution of securities of the Company of the same
class as the securities included in such Registration Statement,
during the seven days prior to the date on which any underwritten
registration pursuant to Section 9.1 has become effective and the
90 days thereafter, except as part of such underwritten
registration or to the extent that such holder is prohibited by
applicable law from agreeing to withhold Registrable Securities
from sale or is acting in its capacity as a fiduciary or an
investment adviser. Without limiting the scope of the term
"fiduciary," a holder shall be deemed to be acting as a fiduciary
or an investment adviser if its actions or the Registrable
Securities proposed to be sold are subject to ERISA, the
Investment Company Act of 1940 or the Investment Advisers Act of
1940 or if such Registrable Securities are held in a separate
account under applicable insurance law or regulation.
(y) The Company agrees (i) not to effect any public sale or
distribution of its equity securities or securities convertible
into or exchangeable or exercisable for any of such securities
during the seven (7) days prior to the date on which any
underwritten registration pursuant to Section 9.1 has become
effective and the 90 days thereafter, except as part of such
underwritten registration and except pursuant to registrations on
Form S-4 or S-8 or any successor or similar forms thereto, and
(ii) to cause each holder of its equity securities or of any
securities convertible into or exchangeable or exercisable for any
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of such securities, in each case purchased from the Company at any
time after the date of this Agreement (other than in a Public
Offering), to agree not to effect any such public sale or
distribution of such securities, during such period, except as
part of such underwritten registration.
9.4. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act,
the Company will give the holders of Registrable Securities registered under
such registration statement, their underwriters, if any, each Requesting Holder
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
9.5. Rights of Requesting Holders. The Company will not file any
registration statement under the Securities Act, whether or not pursuant to
registration rights granted to other holders of its securities and whether or
not for sale for its own account (other than by a registration on Form S-4, S-8
or any successor form thereto), unless it shall first have given to each Person
which holds any Registrable Securities issued by the Company at least 30 days'
prior written notice thereof. Any such holder who shall so request within 30
days after such notice (a "Requesting Holder") shall have the rights of a
Requesting Holder provided in Sections 9.2, 9.4 and 9.6. In addition, if any
registration statement refers to any Requesting Holder by name or otherwise as
the holder of any securities of the Company, then such holder shall have the
right to require (a) the insertion therein of language, in form and substance
reasonably satisfactory to such holder, to the effect that, if true, the holding
by such holder of such securities does not necessarily make such holder a
"controlling person" of the Company within the meaning of the Securities Act and
is not to be construed as a recommendation by such holder of the investment
quality of the Company's debt or equity securities covered thereby and that such
holding does not imply that such holder will assist in meeting any future
financial requirements of the Company, or (b) in the event that such reference
to such holder by name or otherwise is not required by the Securities Act or any
rules and regulations promulgated thereunder, the deletion of the reference to
such holder.
9.6. Indemnification.
(a) The Company will, and hereby does, indemnify, to the extent
permitted by applicable law, each holder of Registrable Securities and
its Affiliates and their respective officers and directors, if any, and
each Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
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any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (and as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus or caused by any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities
(or proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement contained in or by any
omission or alleged omission from information furnished in writing to
the Company by such holder expressly for use therein. If the offering
pursuant to any registration statement provided for under this Warrant
is made through underwriters, no action or failure to act on the part
of such underwriters (whether or not any such underwriter is an
Affiliate of any holder of Registrable Securities) shall affect the
obligations of the Company to indemnify any holder of Registrable
Securities or any other Person pursuant to the preceding sentence. If
the offering pursuant to any registration statement provided for under
this Agreement is made through underwriters, the Company agrees to
enter into an underwriting agreement in customary form with such
underwriters and the Company agrees to indemnify such underwriters,
their officers and directors, if any, and each Person, if any, who
controls such underwriters within the meaning of Section 15 of the
Securities Act to the same extent as hereinbefore provided with respect
to the indemnification of the holders of Registrable Securities;
provided that the Company shall not be required to indemnify any such
underwriter, or any officer or director of such underwriter or any
Person who controls such underwriter within the meaning of Section 15
of the Securities Act, to the extent that the loss, claim, damage,
liability (or proceedings in respect thereof) or expense for which
indemnification is claimed results from such underwriter's failure to
send or give a copy of the amended or supplemented final prospectus to
the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of
the sale of Registrable Securities to such Person if such statement or
omission was corrected in such amended or supplemented final prospectus
prior to such written confirmation and the underwriter was given notice
of the availability of such amended or supplemented final prospectus.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder
will indemnify, to the extent permitted by applicable law, the Company,
its officers and directors and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act, against
any losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses resulting from any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement
or prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement is
contained in or such omission is from information so furnished in
writing by such holder expressly for use therein, provided that such
holder's obligations hereunder shall be limited to an amount equal to
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the proceeds to such holder of the Registrable Securities sold pursuant
to such registration statement.
(c) Any Person entitled to indemnification under the provisions of
this Section 9.6 shall (x) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification (but the
failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 9.6, except to the extent that
the indemnifying party is actually prejudiced by such failure) and (y)
unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in
respect of such claim, permit such indemnifying party to assume the
defense of such claim, with counsel reasonably satisfactory to the
indemnified party; and if such defense is so assumed, such indemnifying
party shall not enter into any settlement without the consent of the
indemnified party if such settlement attributes liability to the
indemnified party and such indemnifying party shall not be subject to
any liability for any settlement made without its consent (which shall
not be unreasonably withheld); and any underwriting agreement entered
into with respect to any registration statement provided for under this
Agreement shall so provide. In the event an indemnifying party shall
not be entitled, or elects not, to assume the defense of a claim, such
indemnifying party shall not be obligated to pay the fees and expenses
of more than one counsel or firm of counsel for all parties indemnified
by such indemnifying party in respect of such claim, unless in the
reasonable judgment of any such indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties in respect to such claim. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on behalf of a participating holder of Registrable Securities, its
officers, directors or any Person, if any, who controls such holder as
aforesaid, and shall survive the transfer of such securities by such
holder.
(d) If the indemnification provided for in this Section 9.6 shall
for any reason be held by a court to be unavailable to an indemnified
party under Section 9.6(a) or (b) hereof in respect of any loss, claim,
damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 9.6(a) or (b), the indemnified
party and the indemnifying party under Section 9.6(a) or (b) shall
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection
with investigating the same), (x) in such proportion as is appropriate
to reflect the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the registration statement
which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or
action or proceeding in respect thereof, as well as any other relevant
equitable considerations or (y) if the allocation provided by clause
(x) above is not permitted by applicable law, in such proportion as
shall be appropriate to reflect the relative benefits received by the
Company and such prospective sellers from the offering of the
securities covered by such registration statement, provided, that for
purposes of clauses (x) or (y), the relative benefits received by the
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prospective sellers shall be deemed not to exceed the amount of
proceeds received by such prospective sellers and no holder of
Registrable Securities shall be required to contribute any amount in
excess of the amount such holder could have been required to pay to an
indemnified party if the indemnity under subsection (a) of this Section
9.6 was available. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Such sellers' obligations to contribute
as provided in this Section 9.6(d) are several in proportion to the
relative value of their respective Registrable Securities covered by
such registration statement and not joint. In addition, no Person shall
be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld.
(e) Indemnification and contribution similar to that specified in
the preceding subdivisions of this Section 9.6 (with appropriate
modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or
other qualification of securities under any federal or state law or
regulation of any governmental authority other than the Securities Act.
(f) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 9.6 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due or payable.
9.7. Adjustments Affecting Registrable Securities. The Company
will not effect or permit to occur any combination or subdivision of shares
which would materially and adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in any
registration of its securities contemplated by this Section 9 or the
marketability of such Registrable Securities under any such registration.
9.8. Other Registration of Common Stock. If any shares of the
Common Stock required to be reserved for purposes of issuance upon exercise of
this Warrant in connection with their sale in a registration pursuant to Section
9.1 require registration with or approval of any governmental authority under
any federal or state law (other than the Securities Act) before such shares may
be issued upon such exercise, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered or approved, as the case may be.
9.9. Nominees for Beneficial Owners. For purposes of this Section
9, in the event that any Registrable Securities are held by a nominee for the
beneficial owner thereof, the beneficial owner thereof may, at its election, be
treated as the holder of such Registrable Securities for purposes of any request
or other action by any holder or holders of Registrable Securities pursuant to
this Section 9 or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Section 9. If the beneficial owner of any Registrable
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Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
9.10. Rule 144 and Rule 144A. The Company shall take all actions
reasonably necessary to enable holders of Registrable Securities to sell such
securities without registration under the Securities Act within the limitation
of the provisions of Rule 144 and Rule 144A under the Securities Act, as such
rules may be amended from time to time, or any similar rules or regulations
hereafter adopted by the Commission, including, without limitation, filing on a
timely basis all reports required to be filed pursuant to the Exchange Act.
10. Availability of Information. The Company will cooperate with each
holder of any Restricted Securities in supplying such information as may be
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to the holder of this Warrant,
promptly upon their becoming available, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Company to its stockholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Commission.
11. Reservation of Stock, Etc. The Company will at all times reserve
and keep available, solely for issuance and delivery upon exercise of this
Warrant, the number of shares of Common Stock (or Other Securities) from time to
time issuable upon exercise of this Warrant at the time outstanding. All shares
of Common Stock (or Other Securities) shall be duly authorized and, when issued
upon such exercise, shall be validly issued and, in the case of shares, fully
paid and nonassessable, with no liability on the part of the holders thereof.
12. Listing on Securities Exchange. The Company will (a) list on each
national securities exchange on which any Common Stock may at any time be
listed, subject to official notice of issuance upon exercise of this Warrant,
and will maintain such listing of, all shares of Common Stock from time to time
issuable upon exercise of this Warrant or (b) secure and maintain designation of
all shares of Common Stock from time to time issuable upon exercise of this
Warrant as a NASDAQ "national market system security" within the meaning of Rule
llAa2-1 of the Commission or, failing that, secure NASDAQ authorization for such
shares of Common Stock.
13. Ownership, Transfer and Substitution of Warrants.
13.1. Ownership of Warrants. The Company may treat the person in
whose name this Warrant is registered on the register kept at the principal
office of the Company as the owner and holder thereof for all purposes,
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notwithstanding any notice to the contrary, except that, if and when any Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer thereof as the owner of such Warrant for all purposes,
notwithstanding any notice to the contrary. Subject to Section 8, a Warrant, if
properly assigned, may be exercised by a new holder without first having a new
Warrant issued.
13.2. Transfer and Exchange of Warrants. Upon the surrender of any
Warrant, properly endorsed, for registration of transfer or for exchange at the
principal office of the Company, the Company at its expense will (subject to
compliance with Section 8, if applicable) execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like tenor, in
denominations of at least 1,000 shares, in the name of such holder or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered.
13.3. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than the Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the principal office of the Company, the Company at its expense
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
14. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Acquiring Person: the continuing or surviving corporation or other
entity of a consolidation or merger with the Company (if other than the
Company), the transferee of substantially all of the properties and assets of
the Company, the corporation or other entity consolidating with or merging into
the Company in a consolidation or merger in connection with which the Common
Stock is changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or, in the case of a capital
reorganization or reclassification, the Company.
Acquisition Price: as applied to the Common Stock, with respect to
any transaction to which Section 3 applies, (a) the price per share equal to the
greater of the following, determined in each case as of the date immediately
preceding the date of consummation of such transaction: (x) the Market Price of
the Common Stock and (y) the highest amount of cash plus the Fair Value of the
highest amount of securities or other property which the holder of this Warrant
would have been entitled as a shareholder to receive upon such consummation if
such holder had exercised this Warrant immediately prior thereto, or (b) if a
purchase, tender or an exchange offer is made by the Acquiring Person (or by any
of its affiliates) to the holders of the Common Stock and such offer is accepted
by the holders of more than 50% of the outstanding shares of Common Stock, the
greater of (i) the price determined in accordance with the foregoing subdivision
(a), and (ii) the price per share equal to the greater of the following,
determined in each case as of the date immediately preceding the acceptance of
such offer by the holders of more than 50% of the outstanding shares of Common
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Stock: (A) the Market Price of the Common Stock and (B) the highest amount of
cash plus the Fair Value of the highest amount of securities or other property
which the holder of this Warrant would be entitled as a shareholder to receive
pursuant to such offer if such holder had exercised this Warrant immediately
prior to the expiration of such offer and accepted the same.
Additional Shares of Common Stock: all shares (including treasury
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the Initial Date, whether or not
subsequently reacquired or retired by the Company, other than (a) shares of
Common Stock issued upon the exercise of any Warrants and (b) not more than
3,010,000 shares of Common Stock issued upon the exercise of stock options
granted to directors, officers and other employees of the Company pursuant to
the DTN Stock Option Plan of 1989, as amended, and the DTN Non-Employee Director
Option Plan, as amended, and (c) 75,000 shares of Common Stock issuable upon the
exercise of existing warrants.
Base Price: on any date specified herein, the lesser of (a) the
Current Market Price or (b) the Warrant Price.
Business Day: any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are authorized
by law to be closed, provided that, in determining the period within which
certificates or Warrants are to be issued and delivered pursuant to Section 1.3
at a time when shares of Common Stock (or Other Securities) are listed or
admitted to trading on any national securities exchange or in the
over-the-counter market and in determining the Market Price of any securities
listed or admitted to trading on any national securities exchange or in the
over-the-counter market, "Business Day" shall mean any day when the principal
exchange in which securities are then listed or admitted to trading is open for
trading or, if such securities are traded in the over-the-counter market in the
United States, such system is open for trading, and provided, further, that any
reference to "days" (unless Business Days are specified) shall mean calendar
days.
Commission: the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange Act,
whichever is the relevant statute for the particular purpose.
Common Stock: the Company's common stock, par value $.001 per
share, as constituted on the date hereof, any stock into which such common stock
shall have been changed or any stock resulting from any reclassification of such
common stock, and all other stock of any class or classes (however designated)
of the Company the holders of which have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
Company: Data Transmission Network Corporation, a Delaware
corporation.
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Convertible Securities: any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
Current Market Price: on any date specified herein, (a) with
respect to Common Stock or to Voting Common Stock (or equivalent equity
interests) of an Acquiring Person or its Parent, (x) the average daily Market
Price during the period of the most recent 20 consecutive Business Days ending
on such date, or (y) if shares of Common Stock or such Voting Common Stock (or
equivalent equity interests), as the case may be, are not then listed or
admitted to trading on any national securities exchange and if the closing bid
and asked prices thereof are not then quoted or published in the
over-the-counter market, the Market Price on such date; and (b) with respect to
any other securities, the Market Price on such date.
Exchange Act: the Securities Exchange Act of 1934, or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time of determination.
Fair Value: with respect to any securities or other property, the
fair value thereof as of a date which is within 15 days of the date as of which
the determination is to be made (a) determined by an agreement between the
Company and the Requisite Holders or (b) if the Company and the Requisite
Holders fail to agree, determined jointly by an independent investment banking
firm retained by the Company and by an independent investment banking firm
retained by the Requisite Holders, either of which firms may be an independent
investment banking firm regularly retained by the Company or any such holder or
(c) if the Company or such holders shall fail so to retain an independent
investment banking firm within five Business Days of the retention of such firm
by such holders or the Company, as the case may be, determined solely by the
firm so retained or (d) if the firms so retained by the Company and by such
holders shall be unable to . reach a joint determination within 15 Business Days
of the retention of the last firm so retained, determined by another independent
investment banking firm which is not a regular investment banking firm of the
Company or any such holder chosen by the first two such firms. Each of the
Company and the holders of the Warrants shall be responsible for the fees and
expenses of the investment banking firm retained by them under the foregoing
clause (b) and shall share equally the fees and expenses of any investment
banking firm retained under the foregoing clause (d).
Initial Date: the meaning specified in Section 2.2.
Market Price: on any date specified herein, (a) with respect to
Common Stock or to Voting Common Stock (or equivalent equity interests) of an
Acquiring Person or its Parent, the amount per share equal to (x) the last sale
price of shares of such security, regular way, on such date or, if no such sale
takes place on such date, the average of the closing bid and asked prices
thereof on such date, in each case as officially reported on the principal
national securities exchange on which the same are then listed or admitted to
trading, or (y) if no shares of such security are then listed or admitted to
trading on any national securities exchange but such security is designated as a
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national market system security by the NASD, the last trading price of such
security on such date, or if such security is not so designated, the average of
the reported closing bid and asked prices thereof on such date as shown by the
NASDAQ system or, if no shares thereof are then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any successor
organization, and in either case as reported by any member firm of the New York
Stock Exchange selected by the Company, or (z) if no shares of such security are
then listed or admitted to trading on any national exchange or designated as a
national market system security and if no closing bid and asked prices thereof
are then so quoted or published in the over-the-counter market, the higher of
(x) the book value thereof as determined by agreement between the Company and
the Requisite Holders, or if the Company and the Requisite Holders fail to
agree, by any firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company, as of the last day of any
month ending within 60 days preceding the date as of which the determination is
to be made and (y) the fair value thereof determined in good faith by the Board
of Directors of the Company thereof as of a date which is within 15 days of the
date as of which the determination is to be made; and (b) with respect to any
other securities, the fair value thereof determined in good faith by the Board
of Directors of the Company as of a date which is within 15 days of the date as
of which the determination is to be made.
Maximum Number of Shares: the meaning specified in Section 9.1(b).
Merger Agreement: the meaning specified in the opening paragraphs
of this Warrant.
NASD: the National Association of Securities Dealers.
NASDAO: the Automated Quotation System of the NASD.
Options: rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which the
holder of this Warrant at any time shall be entitled to receive, or shall have
received, upon the exercise of this Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
Parent: as to any Acquiring Person, any corporation or other
Person which (a) controls the Acquiring Person directly or indirectly through
one or more intermediaries, (b) is required to include the Acquiring Person in
its consolidated financial statements under generally accepted accounting
principles and (c) is not itself included in the consolidated financial
statements of any other Person (other than its consolidated subsidiaries).
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Person: an individual, a partnership, limited liability company,
an association, a joint venture, a corporation, a business, a trust, an
unincorporated organization or a government or any department, agency or
subdivision thereof.
Public Offering: any offering of Common Stock to the public
pursuant to an effective registration statement under the Securities Act.
Registrable Securities: (a) this Warrant, (b) any shares of Common
Stock or Other Securities issued or issuable upon exercise of this Warrant and
(c) any securities issued or issuable with respect to any Common Stock or Other
Securities referred to in subdivision (b) by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (x) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (y) they shall have been sold as permitted under Rule 144 (or any
successor provision) under the Securities Act, or (z) they shall have ceased to
be outstanding.
Registration Expenses: all expenses incident to the Company's
performance of or compliance with Section 9, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance (provided that "Registration Expenses" will
not include any "cold comfort" letter requested solely by the holders of
Registrable Securities in connection with any registration if the Company shall
not have elected or been required by the underwriters with respect to such
registration to cause such a letter to be delivered), the reasonable fees and
disbursements of a single counsel and single firm of accountants retained by the
holders of the Registrable Securities being registered, premiums and other costs
of policies of insurance against liabilities arising out of the public offering
of the Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the
Company, or other expenses for the preparation of financial statements or other
data normally prepared by the Company in the ordinary course of its business or
which the Company would have incurred in any event.
Requesting Holder: the meaning specified in Section 9.5.
Requisite Holders: the holders of more than 50% of the Registrable
Securities issued and outstanding at such time.
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Restricted Securities: (a) any Warrants bearing the applicable
legend set forth in Section 8.1, (b) any shares of Common Stock (or Other
Securities) which have been issued upon the exercise of Warrants and which are
evidenced by a certificate or certificates bearing the applicable legend set
forth in such Section 8.1, and (c) unless the context otherwise requires, any
shares of Common Stock (or Other Securities) which are at the time issuable upon
the exercise of Warrants and which, when so issued, will be evidenced by a
certificate or certificates bearing the applicable legend set forth in Section
8.1.
Securities Act: the Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time of determination.
Subsidiary: any corporation, association or other business entity
a majority (by number of votes) of the Voting Common Stock of which is at the
time owned by the Company or by one or more Subsidiaries or by the Company and
one or more Subsidiaries.
Transfer: unless the context otherwise requires, any sale,
assignment, pledge or other disposition of any security, or of any interest
therein, which could constitute a "sale" as that term is defined in Section 2(3)
of the Securities Act.
Voting Common Stock: with respect to any corporation, association
or other business entity, stock of any class or classes (or equivalent interest)
, if the holders of the stock of such class or classes (or equivalent interests)
are ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or persons performing similar
functions) of such corporation, association or business entity, even if the
right so to vote has been suspended by the happening of such a contingency.
Warrant Price: the meaning specified in Section 2.1.
Warrants: the Common Stock Purchase Warrants issued by the Company
under the Merger Agreement.
15. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
16. No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any voting or
other rights as a stockholder of the Company or as imposing any liabilities on
such holder to purchase any securities or as a stockholder of the Company,
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whether such liabilities are asserted by the Company or by creditors or
stockholders of the Company or otherwise.
17. Notices. All notices and other communications under this Warrant
shall be in writing and shall be mailed by registered or certified mail, return
receipt requested, addressed (a) if to the holder of this Warrant or any holder
of any Common Stock (or Other Securities), at the registered address of such
holder as set forth in the register kept at the principal office of the Company,
or (b) if to the Company, to the attention of its Chief Financial Officer at its
principal office, provided that the exercise of any Warrant shall be effected in
the manner provided in Section 1.
18. Expiration; Notice. The Company will give the holder of this
Warrant no less than 45 days' nor more than 90 days' notice of the expiration of
the right to exercise this Warrant. The right to exercise this Warrant shall
expire at 3 P.M., New York City time, December 11, 2005. The registration rights
provided in Section 9 shall expire at 3 P.M., New York City time, December 11,
2005 with respect to any shares of Common Stock issued previously to such time
upon the exercise hereof.
19. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The agreements of the Company contained in this Warrant other than
those applicable solely to the Warrants and the holders thereof shall inure to
the benefit of and be enforceable by any holder or holders at the time of any
Common Stock (or Other Securities) issued upon the exercise of Warrants, whether
so expressed or not. This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of New York. The section headings in
this Warrant are for purposes of convenience only and shall not constitute a
part hereof.
DATA TRANSMISSION NETWORK CORPORATION
By: ________________________________
Its: _______________________________
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<PAGE>
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To: _______________________
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, ____________
shares of Common Stock of Data Transmission Network Corporation, a Delaware
corporation, and herewith makes payment of $____________ therefor, and requests
that the certificates for such shares be issued in the name of
____________________________, and delivered to __________________, whose address
is ____________________________.
Dated: ___________________.
------------------------------------
(Signature must conform in all respects
to the name of holder as specified on the
face of this Warrant)
[insert address]
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<PAGE>
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto ____________________________
the right represented by such Warrant to purchase shares of Common Stock of Data
Transmission Network Corporation, a Delaware corporation, to which such Warrant
relates, and appoints ______________________ Attorney to make such transfer on
the books of _________________ maintained for such purpose, with full power of
substitution in the premises.
Dated: _________________.
------------------------------------
(Signature must conform in all respects
to the name of holder as specified on the
face of this Warrant)
[insert address]
Signed in the presence of:
- ----------------------------
38
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DATA TRANSMISSION NETWORK CORPORATION
COMMON STOCK PURCHASE WARRANT
Expiring December 11, 2005
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TABLE OF CONTENTS
Page
1. Exercise of Warrant ....................................... 1
1.1. Manner of Exercise ............................... 1
1.2. When Exercise Deemed Effected .................... 2
1.3. Delivery of Stock Certificates, Etc. ............. 2
1.4. Company to Reaffirm Obligations .................. 3
2. Adjustments ............................................... 3
2.1. Number of Shares; Warrant Price ................... 3
2.2. Adjustment of Warrant Price ....................... 3
2.2.1. Issuance of Additional Shares of Common Stock.. 3
2.2.2. Extraordinary Dividends and Distributions .... 4
2.3. Treatment of Options and Convertible Securities ....... 4
2.4. Treatment of Stock Dividends, Stock Splits, Etc. ....... 7
2.5. Computation of Consideration .......................... 7
2.6. Adjustments for Combinations. Etc. .................... 8
2.7. Dilution in Case of Other Securities .................. 8
2.8. Minimum Adjustment of Warrant Price ................... 9
3. Consolidation, Merger, Sale of Assets, Reorganization, Etc. .... 9
3.1. General Provisions..................................... 9
3.2. Assumption of Obligations ............................. 11
4. Other Dilutive Events .................................... 11
5. No Dilution or Impairment ................................. 11
6. Accountants' Report as to Adjustments..................... 12
7. Notices of Corporate Action .............................. 12
8. Restrictions on Transfer .................................. 13
8.1. Restrictive Legends............................... 13
8.2. Notice of Proposed Transfer; Opinions of Counsel .. 13
8.3. Termination of Restrictions........................ 14
8.4 Holder's Representations and Warranties............ 14
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9. Registration Under Securities Act, Etc. .................... 15
9.1. Incidental Registration ............................ 15
9.2. Registration Procedures ........................... 17
9.3. Underwritten Offerings ............................ 21
9.3.1. Incidental Underwritten Offerings ........ 21
9.3.2. Holdback Agreements ....................... 21
9.4. Preparation; Reasonable Investigation ............. 22
9.5. Rights of Requesting Holders ........................ 22
9.6. Indemnification .................................... 22
9.7. Adjustments Affecting Registrable Securities ........ 25
9.8. Other Registration of Common Stock .................. 25
9.9. Nominees for Beneficial Owners ...................... 25
9.10. Rule 144 and Rule 144A .............................. 26
10. Availability of Information .................................. 26
11. Reservation of Stock. Etc. ................................... 26
12. Listing on Securities Exchange ............................... 26
13. Ownership, Transfer and Substitution of Warrants ............. 26
13.1. Ownership of Warrants ............................... 26
13.2. Transfer and Exchange of Warrants ................... 27
13.3. Replacement of Warrants ............................. 27
14. Definitions .................................................. 27
15. Remedies ..................................................... 32
16. No Rights or Liabilities as Stockholder ...................... 32
17. Notices ..................................................... 33
18. Expiration; Notice ........................................... 33
19. Miscellaneous ............................................... 33
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<PAGE>
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND SUCH SHARES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFERABILITY SET FORTH IN THIS WARRANT.
Common Stock Purchase Warrant
Expiring December 11, 2005
Omaha, Nebraska
December 11, 1998
DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation (the
"Company"), for value received, hereby certifies that ABRY Broadcast Partners
II, L.P., a Delaware limited partnership, or registered assigns, is entitled to
purchase from the Company 14,824 duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock, par value $.001 per share, of the Company
(the "Common Stock") at the purchase price per share of $34.00, at any time or
from time to time prior to 3 P.M., New York City time, on December 11, 2005, all
subject to the terms, conditions and adjustments set forth below in this
Warrant.
This Warrant is one of the Common Stock Purchase Warrants issued in
connection with the Company's acquisition of all of the issued and outstanding
capital stock of Weather Services Corporation, a Massachusetts corporation
("WSC"), pursuant to the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of November 12, 1998 between the Company, Merger Sub, WSC, and ABRY.
Certain capitalized terms used in this Warrant are defined in Section 14. If a
capitalized term used in this Warrant is not defined in Section 14, or elsewhere
in this Warrant, such term shall have the meaning given such term in the Merger
Agreement.
1. Exercise of Warrant.
1.1. Manner of Exercise.
(a) This Warrant may be exercised by the holder hereof, in whole or
in part, during normal business hours on any Business Day prior to the
expiration of this Warrant by surrender of this Warrant, with the form of
subscription at the end hereof (or a reasonable facsimile thereof) duly
executed by such holder, to the Company at its principal office (or, if
such exercise shall be in connection with an underwritten Public Offering
4
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<PAGE>
of shares of Common Stock (or Other Securities) subject to this Warrant,
at the location at which the Company shall have agreed to deliver the
shares of Common Stock (or Other Securities) subject to such offering),
accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company, in the amount obtained by multiplying
(a) the number of shares of Common Stock (without giving effect to any
adjustment therein) designated in such form of subscription by (b) the
Warrant Price, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (or Other Securities) determined as provided in
Sections 2 through 4.
(b) Holder may elect in writing delivered to the Company as provided
above to receive, without payment of additional consideration, shares of
Common Stock equal to the value of this Warrant or any portion hereof by
the surrender of this Warrant or such portion to the Company at its
principal office. Thereupon, the Company shall issue to such holder such
number of fully paid and nonassessable shares of Common Stock as is
computed using the following formula:
X = Y (A-B)
A
where X = the number of shares to be issued to such holder pursuant to
this subsection 1.1(b).
Y = the number of shares covered by this Warrant in respect of
which the net issue election is made pursuant to this subsection
1.1(b).
A = the Market Price of one share of Common Stock as at the time
the net issue election is made pursuant to this subsection
1.1(b).
B = the Warrant Price in effect under this Warrant at the time the
net issue election is made pursuant to this subsection 1.1(b).
1.2. When Exercise Deemed Effected. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1, and at such time the person or persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise as provided in Section 1.3
shall be deemed to have become the holder or holders of record thereof.
1.3. Delivery of Stock Certificates, Etc. As soon as practicable after the
exercise of this Warrant, in whole or in part, and in any event within ten (10)
Business Days thereafter (unless such exercise shall be in connection with an
underwritten Public Offering of shares of Common Stock (or Other Securities)
subject to this Warrant, in which event concurrently with such exercise), the
Company at its expense (including the payment by it of any taxes (other than
transfer taxes) applicable to the Company) will cause to be issued in the name
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<PAGE>
of and delivered to the holder hereof or, subject to Section 8, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash in an amount equal to the same fraction of the
Market Price per share of such Common Stock (or Other Securities) on the
Business Day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant of like
tenor, calling in the aggregate on the face thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment
therein) to the number of such shares called for on the face of this
Warrant minus the number of such shares designated by the holder upon such
exercise as provided in Section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the time of or
at any time after each exercise of this Warrant, upon the request of the holder
hereof or of any shares of Common Stock (or Other Securities) issued upon such
exercise, acknowledge in writing its continuing obligation to afford to such
holder all rights (including, without limitation, any right of registration of
any shares of Common Stock (or Other Securities) issuable upon exercise of this
Warrant pursuant to Section 9) to which such holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided that if any such holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Company to afford such
rights to such holder.
2. Adjustments.
2.1. Number of Shares; Warrant Price. The number of shares of Common Stock
which the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Section 2) be issuable
upon such exercise, as designated by the holder hereof pursuant to Section 1.1,
by a fraction of which (a) the numerator is $34.00 and (ii) the denominator is
the Warrant Price in effect on the date of such exercise. The "Warrant Price"
shall initially be $34.00 per share, and shall be adjusted and readjusted from
time to time as provided in this Section 2 and, as so adjusted or readjusted,
shall remain in effect until a further adjustment or readjustment thereof is
required by this Section 2.
2.2. Adjustment of Warrant Price.
2.2.1. Issuance of Additional Shares of Common Stock. In case the Company,
at any time or from time to time after December 11, 1998 (the "Initial Date"),
shall issue or sell Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 2.3 or 2.4)
without consideration or for a consideration per share less than the Base Price
6
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<PAGE>
in effect, in each case, on the date of and immediately prior to such issue or
sale, then, and in each such case, subject to Section 2.8, such Warrant Price
shall be reduced, concurrently with such issue or sale, to a price (calculated
to the nearest .001 of a cent) determined by multiplying such Warrant Price by a
fraction,
(a) the numerator of which shall be (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus (ii)
the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at the Base Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 2.2.1 (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding,
and (y) treasury shares shall not be deemed to be outstanding.
2.2.2. Extraordinary Dividends and Distributions. In case the Company at
any time or from time to time after the Initial Date shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on any Common Stock, other than (a) a dividend
payable in Additional Shares of Common Stock or in Options for Common Stock or
(b) a dividend payable in cash and declared out of the earned surplus of the
Company, then, and in each such case, subject to Section 2.8, the Warrant Price
in effect immediately prior to the close of business on the record date fixed
for the determination of holders of any class of securities entitled to receive
such dividend or distribution shall be reduced, effective as of the close of
business on such record date, to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Warrant Price by a fraction,
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the value of such dividend or distribution (as determined in
good faith by the Board of Directors of the Company) applicable to one
share of Common Stock, and
(y) the denominator of which shall be such Current Market Price.
2.3. Treatment of Options and Convertible Securities. In case the Company
at any time or from time to time after the Initial Date shall issue, sell, grant
or assume, or shall fix a record date for the determination of holders of any
class of securities entitled to receive, any Options or Convertible Securities,
then, and in each such case, the maximum number of Additional Shares of Common
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<PAGE>
Stock (as set forth in the instrument relating thereto, without regard to any
provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be issued for purposes of Section 2.2 as of the
time of such issue, sale, grant or assumption or, in case such a record date
shall have been fixed, as of the close of business on such record date (or, if
the Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), provided that such Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 2.5) of such shares would be less than
the Base Price in effect, in each case, on the date of and immediately prior to
such issue, sale, grant or assumption or immediately prior to the close of
business on such record date (or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading), as the
case may be, and provided, further, that in any such case in which Additional
Shares of Common Stock are deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made upon
the subsequent issue or sale of Additional Shares of Common Stock or
Convertible Securities upon the exercise of such Options or the conversion
or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Warrant Price
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion
or exchange under such Convertible Securities, which are outstanding at
such time;
(c) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which shall
not have been exercised (or upon purchase by the Company and cancellation
or retirement of any such Options which shall not have been exercised or
of any such Convertible Securities the rights of conversion or exchange
under which shall not have been exercised), the Warrant Price computed
upon the original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of
ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
8
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<PAGE>
(x) in the case of options for Common Stock or of Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
received therefor was (i) an amount equal to (A) the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such options, whether or not exercised, plus (B)
the consideration actually received by the Company upon such
exercise, minus (C) the consideration paid by the Company for any
purchase of such Options which were not exercised, or (ii) an amount
equal to (A) the consideration actually received by the Company for
the issue, sale, grant or assumption of all such Convertible
Securities which were actually converted or exchanged, plus (B) the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, minus (C) the consideration paid
by the Company for any purchase of such Convertible Securities the
rights of conversion or exchange under which were not exercised, and
(y) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such options, and the consideration received
by the Company for the Additional Shares of Common Stock deemed to
have then been issued was an amount equal to (i) the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such options, whether or not exercised, plus (ii)
the consideration deemed to have been received by the Company
(pursuant to Section 2.4) upon the issue or sale of the Convertible
Securities with respect to which such options were actually
exercised, minus (iii) the consideration paid by the Company for any
purchase of such Options which were not exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Warrant Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment
shall be made in the manner provided in subdivision (c) above.
In case at any time after the Initial Date the Company shall be
required to increase the number of Additional Shares of Common Stock subject to
any Option or into which any Convertible Securities (other than the Warrants)
are convertible or exchangeable pursuant to the operation of anti-dilution
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<PAGE>
provisions applicable thereto, such Additional Shares of Common Stock shall be
deemed to be issued for purposes of Section 2.2 as of the time of such increase.
2.4. Treatment of Stock Dividends, Stock Splits, Etc. In case the Company
at any time or from time to time after the Initial Date shall declare or pay any
dividend or other distribution on any class of stock of the Company payable in
Common Stock, or shall effect a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then, and in each such
case, Additional Shares of Common Stock shall be deemed to have been issued (a)
in the case of any such dividend, immediately after the close of business on the
record date for the determination of holders of any class of securities entitled
to receive such dividend, or (b) in the case of any such subdivision, at the
close of business on the day immediately prior to the day upon which such
corporate action becomes effective.
2.5. Computation of Consideration. For the purposes of this Section 2:
(a) The consideration for the issue or sale of any Additional Shares
of Common Stock or for the issue, sale, grant or assumption of any Options
or Convertible Securities, irrespective of the accounting treatment of
such consideration, shall
(x) insofar as it consists of cash, be computed at the amount of
cash received by the Company, without deducting any expenses paid or
incurred by the Company or any commissions or compensation paid or
concessions or discounts allowed to underwriters, dealers or others
performing similar services and any accrued interest or dividends in
connection with such issue or sale,
(y) insofar as it consists of consideration (including
securities) other than cash, be computed at the fair value thereof
at the time of such issue or sale, as determined in good faith by
the Board of Directors of the Company, without deducting any
expenses paid or incurred by the Company for any commissions or
compensation paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services and any
accrued interest or dividends in connection with such issue or sale,
and
(z) in case Additional Shares of Common Stock are issued or sold
or Convertible Securities are issued, sold, granted or assumed
together with other stock or securities or other assets of the
Company for a consideration which covers both, be the proportion of
such consideration so received, computed as provided in subdivisions
(x) and (y) above, allocable to such Additional Shares of Common
Stock or Convertible Securities, as the case may be, all as
determined in good faith by the Board of Directors of the Company.
(b) All options issued, sold, granted or assumed together with other
stock or securities or other assets of the Company for a consideration
which covers both, all Additional Shares of Common Stock, Options or
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Convertible Securities issued in payment of any dividend or other
distribution on any class of stock of the Company and all Additional
Shares of Common Stock issued to effect a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common
Stock) shall be deemed to have been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been issued for
consideration pursuant to Section 2.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(x) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise in full of such Options or
the conversion or exchange of such Convertible Securities or, in the
case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange of
such Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a), by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(d) Additional Shares of Common Stock issued or deemed to have been
issued pursuant to the operation of anti-dilution provisions applicable to
Convertible Securities (other than the Warrants), Options or other
securities of the Company (either as a result of the adjustments provided
for by the Warrants or otherwise) shall be deemed to have been issued
without consideration.
2.6. Adjustments for Combinations, Etc. In case the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. Dilution in Case of Other Securities. In case any Other Securities
shall be issued or sold or shall become subject to issue or sale upon the
conversion or exchange of any Common Stock (or Other Securities) of the Company
(or any issuer of Other Securities or any other Person referred to in Section 3)
or to subscription, purchase or other acquisition pursuant to any options issued
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<PAGE>
or granted by the Company (or any such other issuer or Person) for a
consideration such as to dilute, on a basis consistent with the standards
established in the other provisions of this Section 2, the purchase rights
granted by this Warrant, then, and in each such case, the computations,
adjustments and readjustments provided for in this Section 2 with respect to the
Warrant Price shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of this Warrant, so as to protect the holder of this Warrant
against the effect of such dilution.
2.8. Minimum Adjustment of Warrant Price. If the amount of any adjustment
of the Warrant Price required pursuant to this Section 2 would be less than
one-tenth of one percent of the Warrant Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one-tenth of one
percent of such Warrant Price; provided that, upon the exercise of this Warrant,
all adjustments carried forward and not theretofore made up to and including the
date of such exercise shall be made to the nearest one one-hundredth of a cent.
3. Consolidation, Merger, Sale of Assets, Reorganization. Etc.
3.1. General Provisions. In case the Company, after the Initial Date, (a)
shall consolidate with or merge into any other Person and shall not be the
continuing or surviving corporation of such consolidation or merger, or (b)
shall permit any other Person to consolidate with or merge into the Company and
the Company shall be the continuing or surviving Person but, in connection with
such consolidation or merger, Common Stock or Other Securities shall be changed
into or exchanged for cash, stock or other securities of any other Person or any
other property, or (c) shall transfer all or substantially all of its properties
and assets to any other Person, or (d) shall effect a capital reorganization or
reclassification of Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of additional Shares
of Common Stock for which adjustment in the Warrant Price is provided in Section
2.2.1 or 2.2.2), then, and in the case of each such transaction, the Company
shall give written notice thereof to the holder of this Warrant not less than 30
days prior to the consummation thereof and proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Section 3,
the holder of this Warrant, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive, at the aggregate
Warrant Price in effect at the time of such consummation for all Common Stock
(or other Securities) issuable upon such exercise immediately prior to such
consummation, in lieu of the Common Stock (or Other Securities) issuable upon
such exercise prior to such consummation, either of the following, as such
holder shall elect by written notice to the Company on or before the date
immediately preceding the date of the consummation of such transaction (and, in
the absence of such notice, the provisions of subdivision (y) below shall be
deemed to have been elected by such holder):
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(x) the highest amount of cash, securities or other property to
which such holder would actually have been entitled as a shareholder
upon such consummation if such holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to
such consummation) as nearly equivalent as possible to the
adjustments provided for in Section 2 and this Section 3, provided
that if a purchase, tender or exchange offer shall have been made to
and accepted by the holders of Common Stock under circumstances in
which, upon completion of such purchase, tender or exchange offer,
the maker thereof, together with members of any group (within the
meaning of Section 13(d)(3) of the Exchange Act) of which such maker
is a part, and together with any affiliate or associate of such
maker (within the meaning of Rule 12b-2 under the Exchange Act) and
any members of any such group of which any such affiliate or
associate is a part, own beneficially (within the meaning of Rule
13d-3 under the Exchange Act) more than 50% of the outstanding
shares of Common Stock, and if the holder of this Warrant so
designates in such notice given to the Company, the holder of this
Warrant shall be entitled to receive the highest amount of cash,
securities or other property to which such holder would actually
have been entitled as a shareholder if the holder of this Warrant
had exercised this Warrant prior to the expiration of such purchase,
tender or exchange offer, accepted such offer and all of the Common
Stock held by such holder had been purchased pursuant to such
purchase, tender or exchange offer, subject to adjustments (from and
after the consummation of such purchase, tender or exchange offer)
as nearly equivalent as possible to the adjustments provided for in
Section 2 and this Section 3; or
(y) the number of shares of Voting Common Stock (or equivalent
equity interests) of the Acquiring Person or, if the Acquiring
Person fails to meet, but its Parent meets, the requirements set
forth in the proviso below, of its Parent, subject to adjustments
(subsequent to such corporate action) as nearly equivalent as
possible to the adjustments provided for in Section 2 and this
Section 3, determined by dividing (i) the product obtained by
multiplying (A) the number of shares of Common Stock (or Other
Securities) to which the holder of this Warrant would have been
entitled had such holder exercised this Warrant immediately prior to
the consummation of such transaction, times (B) the greater of the
Acquisition Price and the Warrant Price in effect on the date
immediately preceding the date of such consummation, by (ii) the
Current Market Price per share of the Voting Common Stock (or
equivalent equity interests) of the Acquiring Person or its Parent,
as the case may be, on the date immediately preceding the date of
such consummation;
provided that the Company shall not effect any of the transactions described in
subdivisions (a) through (d) above unless, immediately after the date of the
consummation of such transaction, the Acquiring Person or its Parent is required
to file, by virtue of having an outstanding class of Voting Common Stock (or
equivalent equity interests), reports with the Commission pursuant to Section 13
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or Section 15(d) of the Exchange Act, and such Voting Common Stock (or
equivalent equity interest) is listed or admitted to trading on a national
securities exchange or is quoted in the NASD automated quotation system. In the
event that the Acquiring Person fulfills the requirements contained in the
immediately preceding proviso, then, if the holder of this Warrant shall elect
(or shall be deemed to elect) to receive Voting Common Stock (or equivalent
equity interests) pursuant to subdivision (y) above, such holder shall be
entitled to receive, upon the basis stated in such subdivision (y), only the
Voting Common Stock (or equivalent equity interests) of the Acquiring Person.
3.2. Assumption of Obligations. Notwithstanding anything contained in this
Warrant or the Merger Agreement to the contrary, the Company will not effect any
of the transactions described in subdivisions (a) through (d) of Section 3.1
unless, prior to the consummation thereof, each Person (other than the Company)
which may be required to deliver any cash, stock or other securities or other
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant) and (b) the obligation to deliver
to such holder such cash, stock or other securities or other property as, in
accordance with the foregoing provisions of this Section 3, such holder may be
entitled to receive, and such Person shall have similarly delivered to such
holder an opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of Section 2 and this Section 3) shall be applicable to
the cash, stock or other securities or other property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
4. Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent
and principles of such sections, then, in each such case, the Company
shall appoint a firm of independent public accountants of recognized
national standing (which may be the regular auditors of the Company),
which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in
Sections 2 and 3, necessary to preserve, without dilution, the purchase
rights represented by this Warrant. Upon receipt of such opinion the
Company will promptly mail a copy thereof to the holder of this Warrant
and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant against dilution
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or other impairment. Without limiting the generality of the foregoing, the
Company (a) will not permit the par value of any shares of stock
receivable upon the exercise of this Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock upon the exercise of
all outstanding warrants issued by the Company (including this Warrant)
from time to time, and (c) will not take any action which results in any
adjustment of the Warrant Price if the total number of shares of Common
Stock (or Other Securities) issuable after the action upon the exercise of
all outstanding warrants issued by the Company (including this Warrant)
would exceed the total number of shares of Common Stock (or other
Securities) then authorized by the Company's certificate of incorporation
and available for the purpose of issue upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable
upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the
terms of this Warrant, and will prepare a certificate of the chief
financial officer of the Company setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation
thereof and the facts upon which such adjustment or readjustment is based,
including without limitation a statement of (a) the consideration received
or to be received by the Company for any Additional Shares of Common Stock
issued or sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the Warrant
Price in effect immediately prior to such issue or sale and as adjusted
and readjusted (if required by Section 2) on account thereof. The Company
will forthwith mail a copy of each such certificate to each holder of a
Warrant and will, upon the written request at any time of the holder of
this Warrant, furnish to such holder a like certificate setting forth the
Warrant Price at the time in effect and showing in reasonable detail how
it was calculated. In addition, with respect to any fiscal year of the
Company during which any such adjustment or readjustment shall have been
made, the Company will cause the independent public accountants reporting
upon the Company's financial statements for such fiscal year to verify,
concurrently with their annual audit of the Company's financial
statements, the computations made by the Company during such fiscal year
and to prepare and to deliver to the holder of this Warrant a report
setting forth substantially the information described above in this
Section 6 with respect to all such adjustments and readjustments. The
Company will also keep copies of all such certificates and reports at its
principal office and will cause the same to be available for inspection at
such office during normal business hours by the holder of this Warrant or
any prospective purchaser of this Warrant designated by the holder
thereof.
7. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
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(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any
other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the holder of this Warrant a notice specifying (x) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (y) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 20 days prior to the date therein specified, in the case of any
date referred to in the foregoing subdivision (x), and at least 30 days prior to
the date therein specified, in the case of the date referred to in the foregoing
subdivision (y).
8. Restrictions on Transfer.
8.1. Restrictive Legends. Except as otherwise permitted by this Section 8,
each certificate for Common Stock (or Other Securities) issued upon the exercise
of this Warrant and each certificate issued upon the direct or indirect Transfer
of any such Common Stock (or Other Securities) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933 and may not be transferred except in compliance
with such Act and applicable state securities laws. Such shares are also
subject to certain restrictions on transferability imposed by a Common
Stock Purchase Warrant expiring December 11, 2005, a copy of which is on
file at the offices of the Company."
8.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to any
Transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act (other than a Transfer
pursuant to Rule 144 or any comparable rule under such Act), the holder thereof
will give written notice to the Company of such holder's intention to effect
such Transfer and to comply in all other respects with this Section 8.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
Transfer in sufficient detail to enable counsel to render the opinions referred
to below, and (b) shall designate counsel for the holder giving such notice (who
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may be internal counsel for such holder). The holder giving such notice will
submit a copy thereof to the counsel designated in such notice and the Company
will promptly submit a copy thereof to its counsel. The following provisions
shall then apply:
(x) If in the opinion of such counsel for the holder the
proposed Transfer may be effected without registration (a copy of
which opinion shall be delivered to the Company), and if such
opinion is reasonably satisfactory to the Company, such holder shall
thereupon be entitled to Transfer such Restricted Securities in
accordance with the terms of the notice delivered by such holder to
the Company. Each Warrant or certificate, if any, issued upon or in
connection with such Transfer shall bear the appropriate restrictive
legend set forth in Section 8.1 unless, in the opinion of such
counsel and the Company's counsel, such legend is no longer required
to insure compliance with the Securities Act.
(y) If the opinion of such counsel for the holder is not to the
effect that the proposed Transfer may legally be effected without
registration of such Restricted Securities under the Securities Act,
such holder shall not be entitled to Transfer such Restricted
Securities (other than in a Transfer pursuant to Rule 144 or any
comparable rule under the Securities Act) until the conditions
specified in subdivision (x) above shall be satisfied or until
registration of such Restricted Securities under the Securities Act
has become effective.
Notwithstanding the foregoing provisions of this Section 8.2, the holder of any
Restricted Securities shall be permitted to Transfer any such Restricted
Securities pursuant to Rule 144A under the Securities Act, provided that each
transferee agrees in writing to be bound by all the restrictions on transfer of
such Restricted Securities contained in this Section 8.2.
8.3. Termination of Restrictions. The restrictions imposed by this Section
8 upon the transferability of Restricted Securities shall cease and terminate as
to any particular Restricted Securities (a) when such securities shall have been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering such Restricted Securities, (a) when,
in the opinions of both counsel for the holder thereof and counsel for the
Company, such restrictions are no longer required in order to insure compliance
with the Securities Act, or (c) when such securities may be immediately sold by
the holder as determined under Rule 144 under the Securities Act. Whenever such
restrictions shall terminate as to any Restricted Securities, as soon as
practicable thereafter and in any event within ten Business Days, the holder
thereof shall be entitled to receive from the Company, without expense (other
than transfer taxes, if any), new securities of like tenor not bearing the
applicable legend set forth in Section 8.1 hereof.
8.4. Holder's Representations and Warranties. Holder hereby represents and
warrants to the Company as follows:
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(a) Holder is acquiring this Warrant and any shares of Common Stock
acquired upon exercise of this Warrant for its own account, for investment
and not with a view to any "distribution" within the meaning of the
Securities Act.
(b) Holder is knowledgeable and experienced in making venture
capital investments, is able to bear the economic risk of loss of its
investment in the Company, has been granted the opportunity to make an
investigation of the affairs of the Company and has used such opportunity
either directly or through its authorized representative.
(c) Holder understands that because the shares of Common Stock
issuable under this Warrant have not been registered under the Securities
Act, it cannot dispose of any or all of such shares of Common Stock unless
such shares are subsequently registered under the Securities Act or
exemptions from registration are available. Holder acknowledges and
understands that, except as provided in this Warrant, it has no
registration rights. By reason of these restrictions, Holder understands
that it may be required to hold such shares of Common Stock for an
indefinite period of time.
(d) Holder is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act.
9. Registration under Securities Act, Etc.
9.1. Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time on or prior to December 11, 2005 proposes to register any of its
securities under the Securities Act (other than by a registration on Form
S-4 or S-8 or any successor or similar forms), whether or not for sale for
its own account, in a manner which would permit registration of
Registrable Securities for sale to the public under the Securities Act, it
will each such time give prompt written notice to all holders of
Registrable Securities of its intention to do so and of such holders'
rights under this Section 9.1. Upon the written request of any such holder
made within 20 days after receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such
holder and the intended method of disposition thereof), the Company will
use its best efforts to effect the registration under the Securities Act
of all Registrable Securities which the Company has been so requested to
register by the holders thereof, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the
securities which the Company proposes to register, provided that (x) the
Company shall not be required to effect the registration pursuant to this
Section 9.1 of any Warrants (but shall be required to effect the
registration of Registrable Securities described in clauses (b) and (c) of
the definition of Registrable Securities) and (y) if, at any time after
giving written notice of its intention to register any securities and
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prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to
each holder of Registrable Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration
(but not from its obligation to pay the Registration Expenses in
connection therewith), and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to
this Section 9.1.
(b) Priority in Incidental Registrations. If a registration pursuant
to this Section 9.1 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, that the
dollar amount or number of shares of Registrable Securities and other
shares of Common Stock or Other Securities to be included in the offering
exceeds the maximum dollar amount or number that can be sold in such
offering without adversely affecting the proposed offering price, the
timing, the distribution method or the probability of success of such
offering (the "Maximum Number of Shares"), then the Company shall include
in such registration:
(x) if the registration is a primary offering for the Company,
(i) first, the shares of Common Stock or Other Securities that the
Company proposes to sell for its own account which can be sold
without exceeding the Maximum Number of Shares; (ii) second, to the
extent the Maximum Number of Shares has not been reached under the
foregoing clause (i), the shares of Common Stock or Other Securities
requested to be included in such registration by the holders thereof
with registration rights granted prior to the date hereof which can
be sold without exceeding the Maximum Number of Shares (allocated
pro rata among such other security holders, as nearly as
practicable, on the basis of the number of shares of Common Stock or
Other Securities requested to be included in such offering by such
other security holders); and (iii) third, to the extent the Maximum
Number of Shares has not been reached under the foregoing clauses
(i) and (ii), the Registrable Securities and shares of Common Stock
or Other Securities requested to be included in such registration by
the holder of this Warrant and other security holders with
registration rights which can be sold without exceeding the Maximum
Number of Shares (allocated pro rata among such holder and other
security holders, as nearly as practicable, on the basis of the
number of shares of Registrable Securities and Common Stock or Other
Securities requested to be included in such offering by the holder
and such other security holders); and
(y) if the registration is for a secondary offering for any of
the Company's securityholders, (i) first, if the registration was
requested by other security holders with demand registration rights,
then the shares of Common Stock or Other Securities that such other
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security holders have requested to be included in such offering
which can be sold without exceeding the Maximum Number of Shares;
(ii) second, to the extent the Maximum Number of Shares has not been
reached under the foregoing clause (i), the shares of Common Stock
or Other Securities requested to be included in such registration by
other security holders with registration rights granted prior to the
date hereof which can be sold without exceeding the Maximum Number
of Shares (allocated pro rata among such other security holders, as
nearly as practicable, on the basis of the number of shares of
Common Stock or Other Securities requested to be included in such
offering by such other security holders); and (iii) third, to the
extent the Maximum Number of Shares has not been reached under the
foregoing clauses (i) and (ii), the Registrable Securities and
shares of Common Stock or Other Securities requested to be included
in such registration by the holder of this Warrant and other
security holders with registration rights which can be sold without
exceeding the Maximum Number of Shares (allocated pro rata among
such holder and other security holders, as nearly as practicable, on
the basis of the number of shares of Registrable Securities and
Common Stock or Other Securities requested to be included in such
offering by the holder and such other security holders).
9.2. Registration Procedures. If and whenever (x) the Company is required
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 9.1 or (y) there is a Requesting
Holder in connection with any other proposed registration by the Company under
the Securities Act, the Company will as expeditiously as possible:
(a) prepare and file with the Commission the requisite registration
statement (including such audited financial statements as may be required
by the Securities Act or the rules and regulations promulgated thereunder)
to effect such registration and use its best efforts to cause such
registration statement to become effective, provided that before filing
such registration statement or any amendments thereto, the Company will
furnish to the counsel selected by the holders of Registrable Securities
whose Registrable Securities are to be included in such registration
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and provided, further, that the
Company may discontinue any registration of its securities which are not
Registrable Securities at any time prior to the effective date of the
registration statement relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to maintain the effectiveness of
such registration statement and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
by such registration statement until the earlier of such time as all of
such securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement and the expiration of 90 days after such
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registration statement becomes effective, except with respect to any such
registration statement filed pursuant to Rule 415 (or any successor Rule)
under the Securities Act, in which case such period shall be 2 years;
(c) furnish to each seller of Registrable Securities covered by such
registration statement and each Requesting Holder such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(d) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as each
seller thereof and each Requesting Holder shall reasonably request, to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities owned
by such seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of this
subdivision (d) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(f) furnish to each seller of Registrable Securities and each
Requesting Holder a signed counterpart, addressed to such seller (and the
underwriters, if any), of
(x) an opinion of counsel for the Company, dated the effective
date of such registration statement (and, if such registration
includes an underwritten Public Offering, dated the date of any
closing under the underwriting agreement), reasonably satisfactory
in form and substance to such seller, and
(y) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten Public Offering, dated the date of any closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement (it being understood that
such letter, if the cost thereof does not constitute a "Registration
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Expense", is to be delivered only at the request of, and at the
expense of, any seller of Registrable Securities or Requesting
Holder),
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten Public Offerings of securities and, in the case of the
accountants' letter, such other financial matters, as such seller (or the
underwriters, if any) may reasonably request;
(g) immediately notify each seller of such Registrable Securities,
and (if requested by any such seller) confirm such advice in writing, (w)
when the prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to the registration statement
or any post-effective amendment, when the same has become effective, (x)
of any request by the Commission for amendments or supplements to the
registration statement or the prospectus or for additional information,
(y) of the issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the initiation of any
proceedings for that purpose, and (z) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(h) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the
earliest possible time;
(i) immediately notify each holder of Registrable Securities covered
by such registration statement and each Requesting Holder, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of any such holder promptly
prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances under which they were made;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective
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date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act, and not
file any amendment or supplement to such registration statement or
prospectus to which any such seller or any Requesting Holder shall have
reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder, having been
furnished with a copy thereof at least five (5) business days prior to the
filing thereof;
(k) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement not later than the effective date of such registration
statement;
(1) cooperate with the sellers of such Registrable Securities to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which securities shall not
bear any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company; and enable such Registrable Securities
to be in such denominations and registered in such names as such sellers
may request at least two business days prior to any sale of Registrable
Securities;
(m) use its best efforts (x) to cause all such Registrable
Securities covered by such registration statement to be listed on a
national securities exchange (if such Registrable Securities are not
already so listed) and on each additional national securities exchange on
which similar securities issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules
of such exchange, or (y) to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national
market system security" within the meaning of Rule llAa2-1 of the
Commission or, failing that, secure NASDAQ authorization for such
Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such
with respect to such Registrable Securities with the NASD;
(n) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the applicable registration statement; and
(o) enter into such agreements and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each holder of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such holder and the distribution of such securities as the Company may from time
to time reasonably request in writing.
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9.3. Underwritten Offerings.
9.3.1. Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 9.1 and such securities are to be distributed by or
through one or more underwriters, the Company will, subject to the provisions of
Section 9.1(b), use its best efforts, if requested by any holder of Registrable
Securities, to arrange for such underwriters to include the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. No holder of Registrable
Securities shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such holder and such holder's intended method
of distribution and any other representation required by law.
9.3.2. Holdback Agreements.
(x) Each holder of Registrable Securities agrees, if so required
by the managing underwriter, not to effect any public sale or
distribution of securities of the Company of the same class as the
securities included in such Registration Statement, during the seven
days prior to the date on which any underwritten registration
pursuant to Section 9.1 has become effective and the 90 days
thereafter, except as part of such underwritten registration or to
the extent that such holder is prohibited by applicable law from
agreeing to withhold Registrable Securities from sale or is acting
in its capacity as a fiduciary or an investment adviser. Without
limiting the scope of the term "fiduciary," a holder shall be deemed
to be acting as a fiduciary or an investment adviser if its actions
or the Registrable Securities proposed to be sold are subject to
ERISA, the Investment Company Act of 1940 or the Investment Advisers
Act of 1940 or if such Registrable Securities are held in a separate
account under applicable insurance law or regulation.
(y) The Company agrees (i) not to effect any public sale or
distribution of its equity securities or securities convertible into
or exchangeable or exercisable for any of such securities during the
seven (7) days prior to the date on which any underwritten
registration pursuant to Section 9.1 has become effective and the 90
days thereafter, except as part of such underwritten registration
and except pursuant to registrations on Form S-4 or S-8 or any
successor or similar forms thereto, and (ii) to cause each holder of
its equity securities or of any securities convertible into or
exchangeable or exercisable for any of such securities, in each case
purchased from the Company at any time after the date of this
Agreement (other than in a Public Offering), to agree not to effect
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any such public sale or distribution of such securities, during such
period, except as part of such underwritten registration.
9.4. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act,
the Company will give the holders of Registrable Securities registered under
such registration statement, their underwriters, if any, each Requesting Holder
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
9.5. Rights of Requesting Holders. The Company will not file any
registration statement under the Securities Act, whether or not pursuant to
registration rights granted to other holders of its securities and whether or
not for sale for its own account (other than by a registration on Form S-4, S-8
or any successor form thereto), unless it shall first have given to each Person
which holds any Registrable Securities issued by the Company at least 30 days'
prior written notice thereof. Any such holder who shall so request within 30
days after such notice (a "Requesting Holder") shall have the rights of a
Requesting Holder provided in Sections 9.2, 9.4 and 9.6. In addition, if any
registration statement refers to any Requesting Holder by name or otherwise as
the holder of any securities of the Company, then such holder shall have the
right to require (a) the insertion therein of language, in form and substance
reasonably satisfactory to such holder, to the effect that, if true, the holding
by such holder of such securities does not necessarily make such holder a
"controlling person" of the Company within the meaning of the Securities Act and
is not to be construed as a recommendation by such holder of the investment
quality of the Company's debt or equity securities covered thereby and that such
holding does not imply that such holder will assist in meeting any future
financial requirements of the Company, or (b) in the event that such reference
to such holder by name or otherwise is not required by the Securities Act or any
rules and regulations promulgated thereunder, the deletion of the reference to
such holder.
9.6. Indemnification.
(a) The Company will, and hereby does, indemnify, to the extent
permitted by applicable law, each holder of Registrable Securities and its
Affiliates and their respective officers and directors, if any, and each
Person, if any, who controls such holder within the meaning of Section 15
of the Securities Act, against all losses, claims, damages, liabilities
(or proceedings in respect thereof) and expenses (under the Securities Act
or common law or otherwise), joint or several, caused by any untrue
statement or alleged untrue statement of a material fact contained in any
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registration statement or prospectus (and as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses are caused by any untrue statement or alleged untrue
statement contained in or by any omission or alleged omission from
information furnished in writing to the Company by such holder expressly
for use therein. If the offering pursuant to any registration statement
provided for under this Warrant is made through underwriters, no action or
failure to act on the part of such underwriters (whether or not any such
underwriter is an Affiliate of any holder of Registrable Securities) shall
affect the obligations of the Company to indemnify any holder of
Registrable Securities or any other Person pursuant to the preceding
sentence. If the offering pursuant to any registration statement provided
for under this Agreement is made through underwriters, the Company agrees
to enter into an underwriting agreement in customary form with such
underwriters and the Company agrees to indemnify such underwriters, their
officers and directors, if any, and each Person, if any, who controls such
underwriters within the meaning of Section 15 of the Securities Act to the
same extent as hereinbefore provided with respect to the indemnification
of the holders of Registrable Securities; provided that the Company shall
not be required to indemnify any such underwriter, or any officer or
director of such underwriter or any Person who controls such underwriter
within the meaning of Section 15 of the Securities Act, to the extent that
the loss, claim, damage, liability (or proceedings in respect thereof) or
expense for which indemnification is claimed results from such
underwriter's failure to send or give a copy of the amended or
supplemented final prospectus to the Person asserting an untrue statement
or alleged untrue statement or omission or alleged omission at or prior to
the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such amended or
supplemented final prospectus prior to such written confirmation and the
underwriter was given notice of the availability of such amended or
supplemented final prospectus.
(b) In connection with any registration statement in which a holder
of Registrable Securities is participating, each such holder will
indemnify, to the extent permitted by applicable law, the Company, its
officers and directors and each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, against any
losses, claims, damages, liabilities (or proceedings in respect thereof)
and expenses resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or
prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement is contained
in or such omission is from information so furnished in writing by such
holder expressly for use therein, provided that such holder's obligations
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hereunder shall be limited to an amount equal to the proceeds to such
holder of the Registrable Securities sold pursuant to such registration
statement.
(c) Any Person entitled to indemnification under the provisions of
this Section 9.6 shall (x) give prompt notice to the indemnifying party of
any claim with respect to which it seeks indemnification (but the failure
of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 9.6, except to the extent that the
indemnifying party is actually prejudiced by such failure) and (y) unless
in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of
such claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party; and
if such defense is so assumed, such indemnifying party shall not enter
into any settlement without the consent of the indemnified party if such
settlement attributes liability to the indemnified party and such
indemnifying party shall not be subject to any liability for any
settlement made without its consent (which shall not be unreasonably
withheld); and any underwriting agreement entered into with respect to any
registration statement provided for under this Agreement shall so provide.
In the event an indemnifying party shall not be entitled, or elects not,
to assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm of
counsel for all parties indemnified by such indemnifying party in respect
of such claim, unless in the reasonable judgment of any such indemnified
party a conflict of interest may exist between such indemnified party and
any other of such indemnified parties in respect to such claim. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of a participating holder of
Registrable Securities, its officers, directors or any Person, if any, who
controls such holder as aforesaid, and shall survive the transfer of such
securities by such holder.
(d) If the indemnification provided for in this Section 9.6 shall
for any reason be held by a court to be unavailable to an indemnified
party under Section 9.6(a) or (b) hereof in respect of any loss, claim,
damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 9.6(a) or (b), the indemnified
party and the indemnifying party under Section 9.6(a) or (b) shall
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating the same), (x) in such proportion as is appropriate to
reflect the relative fault of the Company and the prospective sellers of
Registrable Securities covered by the registration statement which
resulted in such loss, claim, damage or liability, or action or proceeding
in respect thereof, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action or proceeding
in respect thereof, as well as any other relevant equitable considerations
or (y) if the allocation provided by clause (x) above is not permitted by
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applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by the Company and such prospective sellers
from the offering of the securities covered by such registration
statement, provided, that for purposes of clauses (x) or (y), the relative
benefits received by the prospective sellers shall be deemed not to exceed
the amount of proceeds received by such prospective sellers and no holder
of Registrable Securities shall be required to contribute any amount in
excess of the amount such holder could have been required to pay to an
indemnified party if the indemnity under subsection (a) of this Section
9.6 was available. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Such sellers' obligations to contribute as
provided in this Section 9.6(d) are several in proportion to the relative
value of their respective Registrable Securities covered by such
registration statement and not joint. In addition, no Person shall be
obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent,
which consent shall not be unreasonably withheld.
(e) Indemnification and contribution similar to that specified in
the preceding subdivisions of this Section 9.6 (with appropriate
modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation
of any governmental authority other than the Securities Act.
(f) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this Section
9.6 to or for the account of the indemnified party from time to time
promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable.
9.7. Adjustments Affecting Registrable Securities. The Company will not
effect or permit to occur any combination or subdivision of shares which would
materially and adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in any registration of its
securities contemplated by this Section 9 or the marketability of such
Registrable Securities under any such registration.
9.8. Other Registration of Common Stock. If any shares of the Common Stock
required to be reserved for purposes of issuance upon exercise of this Warrant
in connection with their sale in a registration pursuant to Section 9.1 require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
such exercise, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered or
approved, as the case may be.
9.9. Nominees for Beneficial Owners. For purposes of this Section 9, in
the event that any Registrable Securities are held by a nominee for the
beneficial owner thereof, the beneficial owner thereof may, at its election, be
treated as the holder of such Registrable Securities for purposes of any request
or other action by any holder or holders of Registrable Securities pursuant to
this Section 9 or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable Securities
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contemplated by this Section 9. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
9.10. Rule 144 and Rule 144A. The Company shall take all actions
reasonably necessary to enable holders of Registrable Securities to sell such
securities without registration under the Securities Act within the limitation
of the provisions of Rule 144 and Rule 144A under the Securities Act, as such
rules may be amended from time to time, or any similar rules or regulations
hereafter adopted by the Commission, including, without limitation, filing on a
timely basis all reports required to be filed pursuant to the Exchange Act.
10. Availability of Information. The Company will cooperate with each holder
of any Restricted Securities in supplying such information as may be
necessary for such holder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to
the availability of an exemption from the Securities Act for the sale of
any Restricted Securities. The Company will furnish to the holder of this
Warrant, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, and copies of all regular
and periodic reports and all registration statements and prospectuses
filed by the Company with any securities exchange or with the Commission.
11. Reservation of Stock, Etc. The Company will at all times reserve and keep
available, solely for issuance and delivery upon exercise of this Warrant,
the number of shares of Common Stock (or Other Securities) from time to
time issuable upon exercise of this Warrant at the time outstanding. All
shares of Common Stock (or Other Securities) shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case
of shares, fully paid and nonassessable, with no liability on the part of
the holders thereof.
12. Listing on Securities Exchange. The Company will (a) list on each national
securities exchange on which any Common Stock may at any time be listed,
subject to official notice of issuance upon exercise of this Warrant, and
will maintain such listing of, all shares of Common Stock from time to
time issuable upon exercise of this Warrant or (b) secure and maintain
designation of all shares of Common Stock from time to time issuable upon
exercise of this Warrant as a NASDAQ "national market system security"
within the meaning of Rule llAa2-1 of the Commission or, failing that,
secure NASDAQ authorization for such shares of Common Stock.
13. Ownership, Transfer and Substitution of Warrants.
13.1. Ownership of Warrants. The Company may treat the person in whose
name this Warrant is registered on the register kept at the principal office of
the Company as the owner and holder thereof for all purposes, notwithstanding
any notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes, notwithstanding
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any notice to the contrary. Subject to Section 8, a Warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
13.2. Transfer and Exchange of Warrants. Upon the surrender of any
Warrant, properly endorsed, for registration of transfer or for exchange at the
principal office of the Company, the Company at its expense will (subject to
compliance with Section 8, if applicable) execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like tenor, in
denominations of at least 1,000 shares, in the name of such holder or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered.
13.3. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than the Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the principal office of the Company, the Company at its expense
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
14. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Acquiring Person: the continuing or surviving corporation or other entity
of a consolidation or merger with the Company (if other than the Company), the
transferee of substantially all of the properties and assets of the Company, the
corporation or other entity consolidating with or merging into the Company in a
consolidation or merger in connection with which the Common Stock is changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or, in the case of a capital reorganization or
reclassification, the Company.
Acquisition Price: as applied to the Common Stock, with respect to any
transaction to which Section 3 applies, (a) the price per share equal to the
greater of the following, determined in each case as of the date immediately
preceding the date of consummation of such transaction: (x) the Market Price of
the Common Stock and (y) the highest amount of cash plus the Fair Value of the
highest amount of securities or other property which the holder of this Warrant
would have been entitled as a shareholder to receive upon such consummation if
such holder had exercised this Warrant immediately prior thereto, or (b) if a
purchase, tender or an exchange offer is made by the Acquiring Person (or by any
of its affiliates) to the holders of the Common Stock and such offer is accepted
by the holders of more than 50% of the outstanding shares of Common Stock, the
greater of (i) the price determined in accordance with the foregoing subdivision
(a), and (ii) the price per share equal to the greater of the following,
determined in each case as of the date immediately preceding the acceptance of
such offer by the holders of more than 50% of the outstanding shares of Common
Stock: (A) the Market Price of the Common Stock and (B) the highest amount of
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cash plus the Fair Value of the highest amount of securities or other property
which the holder of this Warrant would be entitled as a shareholder to receive
pursuant to such offer if such holder had exercised this Warrant immediately
prior to the expiration of such offer and accepted the same.
Additional Shares of Common Stock: all shares (including treasury shares)
of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be
issued) by the Company after the Initial Date, whether or not subsequently
reacquired or retired by the Company, other than (a) shares of Common Stock
issued upon the exercise of any Warrants and (b) not more than 3,010,000 shares
of Common Stock issued upon the exercise of stock options granted to directors,
officers and other employees of the Company pursuant to the DTN Stock Option
Plan of 1989, as amended, and the DTN Non-Employee Director Option Plan, as
amended, and (c) 75,000 shares of Common Stock issuable upon the exercise of
existing warrants.
Base Price: on any date specified herein, the lesser of (a) the Current
Market Price or (b) the Warrant Price.
Business Day: any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in the City of New York are authorized by law to
be closed, provided that, in determining the period within which certificates or
Warrants are to be issued and delivered pursuant to Section 1.3 at a time when
shares of Common Stock (or Other Securities) are listed or admitted to trading
on any national securities exchange or in the over-the-counter market and in
determining the Market Price of any securities listed or admitted to trading on
any national securities exchange or in the over-the-counter market, "Business
Day" shall mean any day when the principal exchange in which securities are then
listed or admitted to trading is open for trading or, if such securities are
traded in the over-the-counter market in the United States, such system is open
for trading, and provided, further, that any reference to "days" (unless
Business Days are specified) shall mean calendar days.
Commission: the Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act or the Exchange Act,
whichever is the relevant statute for the particular purpose.
Common Stock: the Company's common stock, par value $.001 per share, as
constituted on the date hereof, any stock into which such common stock shall
have been changed or any stock resulting from any reclassification of such
common stock, and all other stock of any class or classes (however designated)
of the Company the holders of which have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
Company: Data Transmission Network Corporation, a Delaware corporation.
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Convertible Securities: any evidences of indebtedness, shares of stock
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
Current Market Price: on any date specified herein, (a) with respect to
Common Stock or to Voting Common Stock (or equivalent equity interests) of an
Acquiring Person or its Parent, (x) the average daily Market Price during the
period of the most recent 20 consecutive Business Days ending on such date, or
(y) if shares of Common Stock or such Voting Common Stock (or equivalent equity
interests), as the case may be, are not then listed or admitted to trading on
any national securities exchange and if the closing bid and asked prices thereof
are not then quoted or published in the over-the-counter market, the Market
Price on such date; and (b) with respect to any other securities, the Market
Price on such date.
Exchange Act: the Securities Exchange Act of 1934, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time of determination.
Fair Value: with respect to any securities or other property, the fair
value thereof as of a date which is within 15 days of the date as of which the
determination is to be made (a) determined by an agreement between the Company
and the Requisite Holders or (b) if the Company and the Requisite Holders fail
to agree, determined jointly by an independent investment banking firm retained
by the Company and by an independent investment banking firm retained by the
Requisite Holders, either of which firms may be an independent investment
banking firm regularly retained by the Company or any such holder or (c) if the
Company or such holders shall fail so to retain an independent investment
banking firm within five Business Days of the retention of such firm by such
holders or the Company, as the case may be, determined solely by the firm so
retained or (d) if the firms so retained by the Company and by such holders
shall be unable to . reach a joint determination within 15 Business Days of the
retention of the last firm so retained, determined by another independent
investment banking firm which is not a regular investment banking firm of the
Company or any such holder chosen by the first two such firms. Each of the
Company and the holders of the Warrants shall be responsible for the fees and
expenses of the investment banking firm retained by them under the foregoing
clause (b) and shall share equally the fees and expenses of any investment
banking firm retained under the foregoing clause (d).
Initial Date: the meaning specified in Section 2.2.
Market Price: on any date specified herein, (a) with respect to Common
Stock or to Voting Common Stock (or equivalent equity interests) of an Acquiring
Person or its Parent, the amount per share equal to (x) the last sale price of
shares of such security, regular way, on such date or, if no such sale takes
place on such date, the average of the closing bid and asked prices thereof on
such date, in each case as officially reported on the principal national
securities exchange on which the same are then listed or admitted to trading, or
(y) if no shares of such security are then listed or admitted to trading on any
national securities exchange but such security is designated as a national
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market system security by the NASD, the last trading price of such security on
such date, or if such security is not so designated, the average of the reported
closing bid and asked prices thereof on such date as shown by the NASDAQ system
or, if no shares thereof are then quoted in such system, as published by the
National Quotation Bureau, Incorporated or any successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected by the Company, or (z) if no shares of such security are then listed or
admitted to trading on any national exchange or designated as a national market
system security and if no closing bid and asked prices thereof are then so
quoted or published in the over-the-counter market, the higher of (x) the book
value thereof as determined by agreement between the Company and the Requisite
Holders, or if the Company and the Requisite Holders fail to agree, by any firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company, as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made and (y) the
fair value thereof determined in good faith by the Board of Directors of the
Company thereof as of a date which is within 15 days of the date as of which the
determination is to be made; and (b) with respect to any other securities, the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within 15 days of the date as of which the
determination is to be made.
Maximum Number of Shares: the meaning specified in Section 9.1(b).
Merger Agreement: the meaning specified in the opening paragraphs of this
Warrant.
NASD: the National Association of Securities Dealers.
NASDAO: the Automated Quotation System of the NASD.
Options: rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: any stock (other than Common Stock) and other securities
of the Company or any other Person (corporate or otherwise) which the holder of
this Warrant at any time shall be entitled to receive, or shall have received,
upon the exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock or Other Securities pursuant to Section 3 or
otherwise.
Parent: as to any Acquiring Person, any corporation or other Person which
(a) controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in its
consolidated financial statements under generally accepted accounting principles
and (c) is not itself included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).
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Person: an individual, a partnership, limited liability company, an
association, a joint venture, a corporation, a business, a trust, an
unincorporated organization or a government or any department, agency or
subdivision thereof.
Public Offering: any offering of Common Stock to the public pursuant to an
effective registration statement under the Securities Act.
Registrable Securities: (a) this Warrant, (b) any shares of Common Stock
or Other Securities issued or issuable upon exercise of this Warrant and (c) any
securities issued or issuable with respect to any Common Stock or Other
Securities referred to in subdivision (b) by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (x) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (y) they shall have been sold as permitted under Rule 144 (or any
successor provision) under the Securities Act, or (z) they shall have ceased to
be outstanding.
Registration Expenses: all expenses incident to the Company's performance
of or compliance with Section 9, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance (provided that "Registration Expenses" will
not include any "cold comfort" letter requested solely by the holders of
Registrable Securities in connection with any registration if the Company shall
not have elected or been required by the underwriters with respect to such
registration to cause such a letter to be delivered), the reasonable fees and
disbursements of a single counsel and single firm of accountants retained by the
holders of the Registrable Securities being registered, premiums and other costs
of policies of insurance against liabilities arising out of the public offering
of the Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the
Company, or other expenses for the preparation of financial statements or other
data normally prepared by the Company in the ordinary course of its business or
which the Company would have incurred in any event.
Requesting Holder: the meaning specified in Section 9.5.
Requisite Holders: the holders of more than 50% of the Registrable
Securities issued and outstanding at such time.
34
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<PAGE>
Restricted Securities: (a) any Warrants bearing the applicable legend set
forth in Section 8.1, (b) any shares of Common Stock (or Other Securities) which
have been issued upon the exercise of Warrants and which are evidenced by a
certificate or certificates bearing the applicable legend set forth in such
Section 8.1, and (c) unless the context otherwise requires, any shares of Common
Stock (or Other Securities) which are at the time issuable upon the exercise of
Warrants and which, when so issued, will be evidenced by a certificate or
certificates bearing the applicable legend set forth in Section 8.1.
Securities Act: the Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time of determination.
Subsidiary: any corporation, association or other business entity a
majority (by number of votes) of the Voting Common Stock of which is at the time
owned by the Company or by one or more Subsidiaries or by the Company and one or
more Subsidiaries.
Transfer: unless the context otherwise requires, any sale, assignment,
pledge or other disposition of any security, or of any interest therein, which
could constitute a "sale" as that term is defined in Section 2(3) of the
Securities Act.
Voting Common Stock: with respect to any corporation, association or other
business entity, stock of any class or classes (or equivalent interest) , if the
holders of the stock of such class or classes (or equivalent interests) are
ordinarily, in the absence of contingencies, entitled to vote for the election
of a majority of the directors (or persons performing similar functions) of such
corporation, association or business entity, even if the right so to vote has
been suspended by the happening of such a contingency.
Warrant Price: the meaning specified in Section 2.1.
Warrants: the Common Stock Purchase Warrants issued by the Company under
the Merger Agreement.
15. Remedies. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for
the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
16. No Rights or Liabilities as Stockholder. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any voting or
other rights as a stockholder of the Company or as imposing any
liabilities on such holder to purchase any securities or as a stockholder
35
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<PAGE>
of the Company, whether such liabilities are asserted by the Company or by
creditors or stockholders of the Company or otherwise.
17. Notices. All notices and other communications under this Warrant shall be
in writing and shall be mailed by registered or certified mail, return
receipt requested, addressed (a) if to the holder of this Warrant or any
holder of any Common Stock (or Other Securities), at the registered
address of such holder as set forth in the register kept at the principal
office of the Company, or (b) if to the Company, to the attention of its
Chief Financial Officer at its principal office, provided that the
exercise of any Warrant shall be effected in the manner provided in
Section 1.
18. Expiration; Notice. The Company will give the holder of this Warrant no
less than 45 days' nor more than 90 days' notice of the expiration of the
right to exercise this Warrant. The right to exercise this Warrant shall
expire at 3 P.M., New York City time, December 11, 2005. The registration
rights provided in Section 9 shall expire at 3 P.M., New York City time,
December 11, 2005 with respect to any shares of Common Stock issued
previously to such time upon the exercise hereof.
19. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. The agreements of the Company contained in this
Warrant other than those applicable solely to the Warrants and the holders
thereof shall inure to the benefit of and be enforceable by any holder or
holders at the time of any Common Stock (or Other Securities) issued upon
the exercise of Warrants, whether so expressed or not. This Warrant shall
be construed and enforced in accordance with and governed by the laws of
the State of New York. The section headings in this Warrant are for
purposes of convenience only and shall not constitute a part hereof.
DATA TRANSMISSION NETWORK CORPORATION
By: /s/ Joseph M. Urzendowski
Its: Vice President - Operations
36
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<PAGE>
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To: _______________________
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ____________ shares of
Common Stock of Data Transmission Network Corporation, a Delaware corporation,
and herewith makes payment of $____________ therefor, and requests that the
certificates for such shares be issued in the name of
____________________________, and delivered to __________________, whose address
is ____________________________.
Dated: ___________________.
------------------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of this
Warrant)
[insert address]
37
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<PAGE>
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto ____________________________
the right represented by such Warrant to purchase shares of Common Stock of Data
Transmission Network Corporation, a Delaware corporation, to which such Warrant
relates, and appoints ______________________ Attorney to make such transfer on
the books of _________________ maintained for such purpose, with full power of
substitution in the premises.
Dated: _________________.
------------------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of this Warrant)
[insert address]
Signed in the presence of:
- ----------------------------
38
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AMENDMENT TO
STOCK PURCHASE AGREEMENT
This AMENDMENT TO STOCK PURCHASE AGREEMENT ("Amendment") is dated as of
January 12, 1999, and is entered into by and among Data Transmission Network
Corporation, a Delaware corporation ("Buyer"), and Donald W. Bowles, Excel
Interfinancial Corporation, Charter Financial Holdings, LLC, Steven L. Reynolds
and Douglas Vanderbilt (collectively the "Sellers" and individually a "Seller").
RECITALS:
A. Buyer and Sellers are all of the present parties to that certain
Stock Purchase Agreement dated May 27, 1998 (the "Agreement").
B. Buyer and Sellers desire to extend by three months the term of
certain earnout payments to Sellers under the Agreement as specifically set
forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth therein and herein, the parties hereto agree as follows:
1. Amendments to Agreement. (a) The first sentence of Subsection (b) of
Section 1.02 of the Agreement is amended by deleting it in its entirety and
inserting the following sentence in its place:
"Sellers will be paid pro rata, based on their percentage ownership of
the Shares, 640% of the amount (the "Excess Amount"), if any, by which
the Recurring Revenue (as hereinafter defined) for each of the calendar
quarters ending June 30, 1998, September 30, 1998, December 31, 1998,
March 31, 1999, June 30, 1999, and September 30, 1999 exceeds the Base
Amount (as hereinafter defined)."
(b) The first sentence of Subsection (c) of Section 1.02 of the
Agreement is amended by substituting the date of October 1, 1999 in place of the
date of July 1, 1999 in such sentence.
(c) The third sentence of Section 7.02 of the Agreement is
amended by deleting it in its entirety and inserting the following sentence in
its place:
"In full consideration for the purchase by Buyer of the Goodwill, Buyer
shall pay to Bowles (i) 160% of the Excess Amount (as defined in
Section 1.02(b)) for each of the calendar quarters ending June 30,
1998, September 30, 1998, December 31, 1998, March 31, 1999, June 30,
1999, and September 30, 1999 and (ii) 20% of the Non-recurring Revenue
(as defined in Section 1.02(c)) received by the Company after the
Closing Date and before October 1, 1999."
1
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<PAGE>
2. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of Buyer and Sellers and their respective successors and permitted
assigns.
3. Superseding. From and after the date hereof, all references to the
Agreement shall mean the Agreement, as amended by this Amendment.
4. Confirmation. Except as otherwise expressly set forth in this
Amendment, the Agreement is hereby ratified and confirmed and remains in full
force and effect.
5. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.
DATA TRANSMISSION NETWORK
CORPORATION
By: /s/ Charles R. Wood
Charles R. Wood, Sr. Vice President
/s/ Donald W. Bowles
--------------------------
Donald W. Bowles
EXCEL INTERFINANCIAL CORPORATION
By: /s/ Richard Muir
-------------------------------------
Richard Muir, Executive Vice President
CHARTER FINANCIAL HOLDINGS, LLC
By: /s/ John L. O'Donnell
------------------------------------
John L. O'Donnell, Manager
2
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<PAGE>
/s/ Steven L. Reynolds
----------------------------------------
Steven L. Reynolds
/s/ Douglas Vanderbilt
----------------------------------------
Douglas Vanderbilt
3
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January 26, 1999
Mr. Sebastian E. Casseta, Chief Executive Officer
SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902
Re: Possible Merger with Data Transmission Network Corporation ("DTN")
Dear Mr. Casseta:
This letter sets forth our agreement in principle whereby a wholly
owned subsidiary of DTN ("Merger Sub") would merge with SmartServ Online, Inc.
("SSOL") (the "Merger") upon the terms, and subject to the conditions, generally
described below.
ECONOMIC TERMS
1. Merger. The Merger would be accomplished in a manner which would
qualify it as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, and, if possible, permit it to be accounted
for as a "pooling-of-interests". Either Merger Sub or SSOL would be the
surviving corporation following the Merger, but the articles of incorporation,
bylaws, directors and officers of the surviving corporation immediately
following the Merger would be as specified by DTN.
2. Merger Agreement. It is understood that SSOL and DTN will attempt in
good faith to negotiate and sign a definitive merger agreement (the "Definitive
Agreement") upon the terms and subject to the conditions set forth in this
letter of intent. The parties to this letter of intent other than SSOL and DTN
(the "Principal Stockholders") will be the holders of 46% or more of the SSOL
Common Stock on an as if converted and fully diluted basis. On or before the
execution of the Definitive Agreement, the Principal Stockholders will agree to
exercise their warrants, options and other rights to acquire SSOL Common Stock
and vote their SSOL Common Stock in favor of approval of the Merger; provided,
however, Sebastian Casseta and Mario Rossi will not be obligated to do so if it
would cause a short-swing profit recapture pursuant to Section 16(b) of the
Securities Exchange Act of 1934. If such recapture would result, then the
parties shall agree to cooperate in any reasonable arrangement designed to
assure the vote of such SSOL Common Stock in favor of approval of the Merger and
yet avoid such recapture. If no such reasonable arrangement is available, DTN
could elect to either proceed without the exercise of the options and warrants
of Messrs. Casseta and Rossi or terminate the Definitive Agreement.
1
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<PAGE>
3. Merger Consideration. In the Merger, the holders of outstanding
stock of SSOL on an as if converted and fully diluted basis (the "SSOL
Stockholders") would receive shares of Data Transmission Network Corporation
Common Stock ("DTN Common Shares") having an aggregate market value equal to the
lesser of $14,800,000 or the amount determined by multiplying $3.50 by the
number of shares of SSOL Common Stock held by SSOL Stockholders on an as if
converted and fully diluted basis (the "Merger Consideration"). The market value
of a DTN Common Share for purposes of the Merger would be based upon the average
of its closing prices on the Nasdaq Stock Market on each of the 10 trading days
ending on the third trading day prior to the date of the closing ("Closing") of
the Merger, but would not be lower than $28.35 or higher than $34.65.
RELATED MATTERS
4. Registration of Securities. DTN would agree to file a federal
registration statement prior to the Closing covering all of the DTN Common
Shares issued to the SSOL Stockholders in the Merger. The registration would be
on Form S-4 or such other form as DTN elects. The registration, if effective,
would permit the SSOL Stockholders to sell the DTN Common Shares into the public
market. DTN would pay the cost of such registration. DTN would agree to use its
best efforts to cause the registration statement (and required state
registrations, if any) to become effective upon the consummation of the Merger
and as soon as reasonably practicable following the execution of the Definitive
Agreement. DTN also would use its best efforts to list the DTN Common Shares to
be issued to the SSOL Stockholders on the Nasdaq Stock Market promptly after the
Closing.
5. Confidentiality and Non-Competition Agreements. Each of Sebastian
Casseta and Mario Rossi would enter into a Confidentiality and Non-Competition
Agreement (the "Non-Competition Agreements") in form mutually satisfactory to
DTN and such employees. The Non-Competition Agreements would be for a duration
which is the longer of three years following the Closing or two years following
the employee's termination of employment with the surviving corporation, would
be for the maximum geographic territory permitted by applicable law, and would
have the maximum scope of precluded conduct permitted by applicable law (or such
lesser period, territory and/or scope as DTN may elect).
6. Employment Agreements. Each of Sebastian Casseta and Mario Rossi
would enter into an Employment Agreement (the "Employment Agreements") in form
mutually satisfactory to DTN and such employees, which would be equivalent to
the compensatory terms of their existing employment agreements with SSOL. The
Employment Agreements would be for a duration of three years following the
Closing, would be subject to termination by the surviving corporation with or
without cause, except upon termination by the surviving corporation other than
for cause or death or disability of such employee, such employee shall receive
upon termination the present value of the compensation such employee would have
received during the remaining term of the Employment Agreement.
2
- 429 -
<PAGE>
CONDITIONS TO OBLIGATIONS
7. Subject to Definitive Merger Agreement. This letter of intent
expresses the parties' intent to move forward with the Merger and the terms upon
which they would move forward. This letter of intent is based upon certain
assumptions which need to be verified through a due diligence review process by
DTN. Except for the provisions of Sections 9 through 13 which shall be binding
upon the parties in accordance with their terms through June 30, 1999, the
provisions of this letter of intent shall not obligate the parties to consummate
the Merger or provide the basis for liability of one party to another if such
Merger is not consummated for any reason. A party's obligations to consummate
the Merger shall arise only if and when a Definitive Agreement, if any, is
entered into by the parties. The parties agree to negotiate in good faith to try
to reach a Definitive Agreement by March 31, 1999. The Definitive Agreement
would contain representations, warranties, indemnities, covenants, conditions,
provisions for opinions, etc. as are customary in transactions of this nature.
8. Special Conditions. In addition to the conditions to Closing which
customarily would be contained in the Definitive Agreement, the parties'
obligations to consummate the Merger would be subject to the following
conditions being satisfied as of Closing:
a. Final Due Diligence. DTN shall be satisfied in good faith with
the results of its continued due diligence with respect to matters arising,
matters changing, or matters coming to its attention during the period between
the date of the Definitive Agreement and the Closing.
b. Entering into Other Agreements. The parties, as applicable,
shall have negotiated and entered into the Confidentiality and Non-Competition
Agreements and Employment Agreements. In addition, DTN shall have negotiated and
entered into an agreement with Spencer Trask Securities, Inc. regarding the
payment of expenses and fees by SSOL pursuant to that certain Letter of Intent
dated August 11, 1998 concerning a proposed private placement of securities of
SSOL, which agreement shall be satisfactory to DTN in its sole and absolute
discretion.
c. Board and Stockholder Approval. The parties' respective Boards
of Directors, the SSOL Stockholders and the sole stockholder of Merger Sub shall
have approved the Merger and authorized the execution and delivery of the
Definitive Agreement and other closing documents. Principal Stockholders would
agree to vote their SSOL Common Stock in favor of approval of the Merger.
d. Options, Warrants, and Conversion Rights. All outstanding
options, warrants and conversion rights with respect to SSOL capital stock shall
have been exercised or the rights thereunder shall have been relinquished by
such holders prior to Closing or shall have been replaced at Closing with DTN
Common Shares or options and warrants for DTN Common Shares.
e. No Material Change. DTN's and Merger Sub's obligations shall
be subject to there not having been a material adverse change in SSOL's
business, operations, prospects, assets, liabilities, financial position or
results of operations, as determined by DTN in its reasonable judgment. SSOL's
and the SSOL Stockholders' obligations shall be subject to there not having been
a material adverse change in DTN's business, operations, prospects, assets,
liabilities, financial position or results of operations, as determined by SSOL
in its reasonable judgment.
3
- 430 -
<PAGE>
f. Litigation. DTN's and Merger Sub's obligations shall be
subject to SSOL not having any claims, litigation, proceedings or regulatory
changes pending which, in DTN's reasonable judgment, materially adversely affect
the Merger. SSOL's and the SSOL Stockholders' obligations shall be subject to
DTN not having any claims, litigation, proceedings or regulatory changes pending
which, in SSOL's reasonable judgment, materially adversely affect the Merger.
g. Dissenting Stockholders. DTN's and Merger Sub's obligations
shall be subject to the condition that no SSOL Stockholders holding in the
aggregate more than five percent (5%) of the SSOL Common Stock on an as if
converted and fully diluted basis shall have perfected their dissenters' rights
or demanded payment for their SSOL Common Shares under Delaware statutory
dissenters' rights provisions.
h. Effective Registration Statement. The federal registration of
the DTN Common Shares as contemplated in Section 4 shall be effective at the
Closing.
i. Pooling-of-Interests and Tax-Free Reorganization Treatment.
Nothing shall have occurred which would disqualify the Merger as a
"reorganization" within the meaning of Section 368 of the Code. In addition, if
the Merger can be accounted for as a "pooling-of-interests", nothing shall have
occurred after the execution of this letter of intent which would disqualify the
Merger as a "pooling-on-interests" for accounting purposes.
j. Pooling Letters. If the Merger can be accounted for as a
"pooling-of-interests", each of DTN and SSOL shall have received from their own
independent accountants a letter, dated the date of the Closing, to the effect
that, for financial reporting purposes, the Merger qualifies for
"pooling-of-interests" accounting treatment under generally accepted accounting
principles if consummated in accordance with the Definitive Agreement.
k. Fairness Opinion. The Board of Directors of SSOL shall have
received an opinion of its financial advisor to the effect that the
consideration to be received by the SSOL Stockholders in the Merger is fair to
the SSOL Stockholders from a financial point of view.
COVENANTS
9. Covenants. In addition to the covenants pending Closing which
customarily would be contained in a Definitive Agreement, SSOL and, solely with
respect to paragraph g below, the Principal Stockholders agree to:
a. Conduct of Business. Conduct SSOL's business only in the
ordinary course, and not engage in any extraordinary transactions without DTN's
prior consent.
b. Disposition of Assets. Not dispose of any assets of SSOL,
except in the ordinary course of business.
c. Employee Matters. Except with the approval of DTN, not
materially increase the annual level of compensation or benefits of any employee
or grant any unusual or extraordinary bonuses, benefits or other forms of direct
or indirect compensation to any employee, officer, director or consultant.
4
- 431 -
<PAGE>
d. Issuance of Securities. Not issue any equity securities or
rights to acquire equity securities except with the prior approval of DTN.
e. Dividends or Distributions. Not pay any dividends, redeem any
securities, or otherwise cause assets of SSOL to be distributed to any SSOL
Stockholder or affiliate.
f. Borrowings. Not borrow any funds, under existing lines of
credit or otherwise, except as reasonably necessary for the ordinary operation
of SSOL's business in a manner, and in amounts, in keeping with historical
practices.
g. No Other Negotiations. Between the date hereof and May 31,
1999, not initiate, solicit, encourage, or participate in any discussions with,
or provide any information to, any corporation, partnership, person, entity or
group, other than DTN and its employees and agents, concerning any merger,
consolidation, sale of assets or similar transaction involving SSOL, or any sale
of capital stock of SSOL, including securities convertible into or exchangeable
for such securities. If a Definitive Agreement is entered into by the parties,
this standstill shall extend until Closing or termination of the Definitive
Agreement in accordance with its terms. SSOL and the Principal Stockholders
acknowledge that DTN is relying upon the provisions of this paragraph in
incurring the time and expense of due diligence and preparation of documents.
MISCELLANEOUS
10. Access and Due Diligence Updates. SSOL shall make available to DTN
and its representatives full access to SSOL's books, records, files, contracts,
documents, facilities, attorneys, accountants and employees for purposes of
DTN's due diligence review.
11. Confidential Information. The parties by signing this letter of
intent agree that DTN, Merger Sub, SSOL and the Principal Stockholders will each
keep confidential and will not disclose, except as required by law (including
SEC and Nasdaq requirements), to anyone except employees and agents on a "need
to know" basis for purposes of evaluating, negotiating, preparing documents for
and consummating the anticipated Merger, all information provided by the other
parties about its business which could reasonably be expected to be proprietary
or confidential information. Prior to any disclosure of this letter of intent,
or the proposed Merger or other confidential information which may be required
by law, the party seeking to make such disclosure shall advise the other parties
so that appropriate protective action may be taken as needed. The parties shall
consult with each other regarding the content of the press release to announce
this letter of intent. If negotiations between the parties terminate for any
reason, each party will promptly return all proprietary and confidential
information received from the other parties and shall not use any such
information, directly or indirectly, for their personal benefit. The obligations
of this paragraph shall survive the termination of negotiations.
5
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<PAGE>
12. Expenses. Each party to this letter of intent shall bear its own
expenses associated with the due diligence process and the negotiation and
preparation of a Definitive Agreement and related documents and the consummation
of the Merger; provided, however, all of SSOL's investment banking, appraisal,
brokerage, legal, accounting and other related fees in connection with the
Merger must be approved by DTN in advance.
13. Broker. Except for the Letter of Intent between SSOL and Spencer
Trask Securities, Inc. referred to in Section 8(b), each party represents that
it has not retained a broker in connection with this transaction.
If you agree that this reflects our agreement in principle, please sign
the enclosed copy of this letter and return it to us.
Very truly yours,
Data Transmission Network Corporation
/s/ Charles R. Wood
----------------------
Charles R. Wood, Sr. Vice President
AGREED:
SmartServ Online, Inc.
/s/ Sebastian E. Cassetta
- --------------------------
Sebastian E. Cassetta, Chairman and CEO
Principal Stockholders:
- --------------------------
- --------------------------
- --------------------------
- --------------------------
6
- 433 -
CONSENT TO PREPAYMENT OF SUBORDINATED DEBT
The undersigned, being all of the lenders (both revolving and term, the
"Lenders") to Data Transmission Network Corporation (the "Company") under the
1997 Revolving Credit Agreement (the "Revolving Credit Agreement") , dated as of
February 26, 1997, as amended from time to time, among the Company and the
Lenders and the 1997 Term Credit Agreement (the "Term Credit Agreement"), dated
as of February 26, 1997, as amended from time to time, among the Company and
certain of the Lenders, hereby consent under Section 4.16 of the Revolving
Credit Agreement and Section 5.16 of the Term Credit Agreement that the Company
may prepay on or about March 16, 1998 $15,000,000 of the 11.25% Senior
Subordinated Notes due 2004, together with accrued interest and prepayment
amounts due in connection with such prepayment.
This CONSENT TO PREPAYMENT OF SUBORDINATED DEBT is effective as of
February 26, 1998.
FIRST NATIONAL BANK OF OMAHA
By
/s/ James P. Bonham
James P. Bonham
Its Vice President
1
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<PAGE>
FIRST NATIONAL BANK
WAHOO, NEBRASKA
By /s/ Elizabeth Rezac
--------------------------
Elizabeth Rezac
Its 2nd Vice President
------------------------------
2
- 435 -
<PAGE>
NBD BANK
By /s/ Nathan L. Bloch
-------------------------------
Nathan L. Bloch
Its First Vice President
------------------------------
3
- 436 -
<PAGE>
NORWEST BANK
NEBRASKA, N.A.
By /s/ Kevin Munro
-------------------------------
Kevin Munro
Its Vice President
------------------------------
4
- 437 -
<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Michael F. Murphy
-------------------------------
Michael F. Murphy
Its Vice President and Manager
------------------------------
5
- 438 -
<PAGE>
MERCANTILE BANK OF ST. LOUIS, N.A.
By /s/ Joseph L. Sooter, Jr.
-------------------------------
Joseph L. Sooter, Jr.
Its Vice President
------------------------------
6
- 439 -
<PAGE>
FIRST BANK, NATIONAL ASSOCIATION
By/s/ Beth Morgan
-------------------------------
Beth Morgan
Its Vice President
------------------------------
7
- 440 -
<PAGE>
BANK OF MONTREAL
By
-------------------------------
Its
------------------------------
8
- 441 -
<PAGE>
LASALLE NATIONAL BANK,
a national banking association
By /s/ Tom Harmon
-------------------------------
Tom Harmon
Its Assistant Vice President
------------------------------
9
- 442 -
<PAGE>
NATIONSBANK, N.A (successor in interest to
The Boatmen's National Bank of St. Louis)
By /s/ Roger Bettlach
-------------------------------
Roger Bettlach
Its Assistant Vice President
------------------------------
10
- 443 -
THIRD AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT to 1997 REVOLVING CREDIT AGREEMENT (the "Third
Amendment") is intended to amend the terms of the 1997 Revolving Credit
Agreement (the "Agreement") dated as of February 26, 1997, as previously
amended, among DATA TRANSMISSION NETWORK CORPORATION; FIRST NATIONAL BANK OF
OMAHA; FIRST NATIONAL BANK, WAHOO, NEBRASKA; NBD BANK, N.A.; NORWEST BANK
NEBRASKA, N.A.; THE SUMITOMO BANK, LIMITED; MERCANTILE BANK OF ST. LOUIS, N.A.;
FIRST BANK, NATIONAL ASSOCIATION; BANK OF MONTREAL; LASALLE NATIONAL BANK; and
NATIONSBANK, N.A. (successor to THE BOATMEN'S NATIONAL BANK OF ST. LOUIS). All
terms and conditions of the Agreement shall remain in full force and effect
except as expressly amended herein. All capitalized terms herein shall have the
meanings prescribed in the Agreement. The Agreement shall be amended as follows:
The parties hereby acknowledge that, effective as of the date hereof,
$16,000,000 of the revolving credit facility available to Borrower under the
Agreement shall be advanced to Borrower for the purpose of prepaying certain
subordinated debt and such advance shall be immediately converted to a term loan
in accordance with Section 2.4 of the Agreement. Notwithstanding Section 2.5 of
the Agreement, such loan shall bear interest at the fixed rate of 7.5% per
annum. In Section 2.1 of the Agreement, the reference to the maximum amount of
revolving credit available to be advanced shall be reduced from $33,000,000 to
$17,000,000, and the references to each Bank's maximum advance limit shall be
reduced accordingly on a pro rata basis, as shown on Exhibit A. No further
increases in the Base Revolving Credit Facility are available to be implemented
under Section 2.1 of the Agreement.
In connection with this Third Amendment the Borrower is
contemporaneously executing and delivering to the Banks Converted Notes dated as
of the date hereof in the respective principal amounts shown on Exhibit A
hereto. This Third Amendment shall not affect and there remain outstanding from
the Borrower to the Banks, the Existing Term Notes and the Related Bank Debt.
This Third Amendment may be executed in several counterparts and such
counterparts together shall constitute one and the same instrument.
Except as expressly agreed herein, all terms of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this THIRD AMENDMENT
TO 1997 REVOLVING CREDIT AGREEMENT dated as of March 16, 1998.
1
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<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
By /s/ Brian L. Larson
-------------------------------
Title:Vice President, CFO & Secretary
2
- 445 -
<PAGE>
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
-------------------------------
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
3
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<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Michael F. Murphy
-------------------------------
Title:Vice President and Manager
By /s/ Teresa A. Lekich
-------------------------------
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4
- 447 -
<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By /s/ Elizabeth Rezac
------------------------------
Title Second Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
5
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<PAGE>
NBD BANK
By Nathan L. Bloch
-----------------------------
Title:First Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
6
- 449 -
<PAGE>
NORWEST BANK NEBRASKA, N.A.
By /s/ Kevin Munro
-------------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
- 450 -
<PAGE>
LASALLE NATIONAL BANK, a national
banking association
By /s/ Tom Harmon
-------------------------------
Title:Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
- 451 -
<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By Joseph L. Sooter, Jr.
-------------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
- 452 -
<PAGE>
FIRST BANK, NATIONAL
ASSOCIATION
By /s/ Beth Morgan
----------------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
10
- 453 -
<PAGE>
NATIONSBANK, N.A. (successor in interest to
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By /s/ Roger Bettlach
---------------------------------------
Title: Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
11
- 454 -
<PAGE>
BANK OF MONTREAL, a Canadian bank
By /s/ Kevin Cullen
---------------------------------
` Title: Associate
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
12
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<PAGE>
Exhibit A
to
THIRD AMENDMENT TO
1997 REVOLVING CREDIT AGREEMENT
Maximum Amount
<TABLE>
<CAPTION>
Current Revolving Available Under
Bank Pro Rata % Revolving Facility Revolving Facility*
<S> <C> <C> <C>
FNB-O 20.7% $ 6,831,000 $ 3,519,000
FNB-W .5% 165,000 85,000
NBD 11.9% 3,927,000 2,023,000
Norwest 4.8 % 1,584,000 816,000
LaSalle 19.9% 6,567,000 3,383,000
Sumitomo 10.0% 3,300,000 1,700,000
Mercantile 10.3% 3,399,000 1,751,000
Montreal 11.6% 3,828,000 1,972,000
First Bank 10.3% 3,399,000 1,751,000
---------------------------------------------
$33,000,000 $17,000,000
*Includes current amounts, if any, outstanding after Conversion
13
- 456 -
</TABLE>
FOURTH AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT to 1997 REVOLVING CREDIT AGREEMENT (the "Fourth
Amendment") is intended to amend the terms of the 1997 Revolving Credit
Agreement (the "Agreement") dated as of February 26, 1997, as previously
amended, among DATA TRANSMISSION NETWORK CORPORATION; FIRST NATIONAL BANK OF
OMAHA; FIRST NATIONAL BANK, WAHOO, NEBRASKA; NBD BANK, N.A.; NORWEST BANK
NEBRASKA, N.A.; THE SUMITOMO BANK, LIMITED; MERCANTILE BANK OF ST. LOUIS, N.A.;
U.S. BANK, NATIONAL ASSOCIATION (formerly known as First Bank, National
Association); BANK OF MONTREAL; LASALLE NATIONAL BANK; and NATIONSBANK, N.A.
(successor to THE BOATMEN'S NATIONAL BANK OF ST. LOUIS). All terms and
conditions of the Agreement shall remain in full force and effect except as
expressly amended herein. All capitalized terms herein shall have the meanings
prescribed in the Agreement. The Agreement shall be amended as follows:
1. The definitions in Article I of the Agreement are amended as follows:
Lenders: FNB-O, FNB-W, NBD, Norwest, LaSalle, Mercantile, U.S. Bank,
Montreal and Nationsbank, in their capacity as Revolving Lenders
under this Agreement, the Term Lenders, lenders of the Related
Bank Debt, Nationsbank, as successor in interest to Boatmen's
(as to Articles VI and VII and as to Section 8.6 only), and such
additional lenders as may be added hereto or thereto from time
to time.
Revolving FNB-O, FNB-W, NBD, Norwest, LaSalle, Mercantile, U.S. Bank,
Lenders: Montreal and Nationsbank, and such additional Revolving Lenders
as may be added as Revolving Lenders under Section 2.1 hereto
from time to time by mutual written agreement of the parties.
2. The following shall be added to the definitions in Article I of the
Agreement:
Nationsbank: Nationsbank, N.A., a national banking association, having an
office at 800 Market Street, 12th Floor, St. Louis, Missouri
63101-2506, and its successors and assigns.
U.S Bank: U.S. Bank, formerly known as First Bank, a national banking
association having its principal place of business at 13th and M
Streets, Lincoln, Nebraska 68508, and its successors and
assigns.
1
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<PAGE>
3. Section 2.1 of the Agreement is hereby amended to read as follows:
2.1 Revolving Credit. Until the earlier of June 30, 2000, or the date
on which the loan hereunder is converted to a term loan in accordance
with Section 2.4, the Revolving Lenders severally agree to advance
funds for general corporate purposes not to exceed $65,000,000 (the
"Base Revolving Credit Facility") to the Borrower on a revolving credit
basis (amounts outstanding under the Acquisition Notes, Existing Term
Notes and Related Bank Debt shall not be counted against such Base
Revolving Credit Facility limit). Such Advances shall be made on a pro
rata basis by the Revolving Lenders, based on the following maximum
advance limits and applicable percentages for each Revolving Lender:
(i) as to FNB-O, $13,000,000 (20.0%); (ii) as to FNB-W, $325,000
(.50%); (iii) as to NBD, $2,015,000 (3.1%); (iv) as to Norwest,
$6,500,000 (10.0%); (v) as to LaSalle, $8,320,000 (12.8%); (vi) as to
Nationsbank, $8,515,000 (13.1%); (vii) as to Mercantile, $11,245,000
(17.3%), (viii) as to U.S. Bank, $8,515,000 (13.1%); and (ix) as to
Montreal, $6,565,000 (10.1%). The Borrower shall not be entitled to any
Advance hereunder if, after the making of such Advance, the Leverage
Ratio would exceed thirty-six (36), determined at the time of the
Advance. Nor shall the Borrower be entitled to any further Advances
hereunder after the occurrence of a material adverse change in its
management personnel, as described in Section 4.14(b), or after the
occurrence of any Event of Default with respect to the Borrower.
Advances shall be made, on the terms and conditions of this Agreement,
upon the Borrower's request. Requests shall be made by 12:00 noon Omaha
time on the Business Day prior to the requested date of the Advance.
Requests shall be made by presentation to FNB-O of a drawing
certificate in the form of Exhibit B. The Borrower's obligation to make
payments of principal and interest on the foregoing revolving credit
indebtedness shall be further evidenced by the Revolving Credit Notes.
4. Section 2.5 of the Agreement is hereby amended to read as follows:
2.5 Interest on Converted Notes. After Conversion, interest shall
accrue on the Principal Loan Amount outstanding on the respective
Converted Note from time to time at a variable rate, which shall
fluctuate on a monthly basis, which is equal to the Revolving Credit
Rate plus one quarter of one percent (.25%). For purposes of computing
such variable rate, changes in the Base Rate shall be effective on the
first day of each month based on the Base Rate in effect on such day.
Notwithstanding anything in the foregoing to the contrary, after
Conversion, the Borrower may elect to have a fixed interest rate apply
to the outstanding Principal Loan Amount converted and outstanding
after the date of giving notice of such fixed rate election (the "Fixed
Rate Notice"). Such fixed rate shall be the greater of:
(a) the Revolving Credit Rate in effect on the date of the notice1,
plus three-eighths of one percent (.375%), or
(b) the average of the yields on constant maturity Treasury Bonds
with maturities of three (3) years and five (5) years, as quoted
in the immediately preceding monthly Release for the month
preceding such Release, plus the incremental percentage shown
below:
Leverage Ratio1 Incremental %
Greater than 36 2.25%
Greater than 24 but
not in excess of 36 2.00%
24 or less 1.75%
2
- 458 -
<PAGE>
Any election of a fixed rate by the Borrower shall be final and
irrevocable. Interest shall be due each month concurrently with the
Borrower's principal payment. Notwithstanding anything to the contrary
elsewhere herein, after an Event of Default has occurred interest shall
accrue on the entire outstanding balance of principal and interest on all
indebtedness hereunder at a fluctuating rate equal to the Default Rate. All
interest due under this Agreement shall be calculated on the basis of the
actual number of days outstanding and a 360-day year. Interest shall
continue to accrue on the full unpaid balance of all indebtedness hereunder
notwithstanding any permitted or unpermitted failure of the Borrower to
make a scheduled payment or the fact that a scheduled payment day falls on
a day other than a Business Day. If the Borrower's most recent Quarterly
Compliance Certificate shows that, as of the end of the prior quarter, the
Leverage Ratio was at such date more than thirty-six (36), the current
quarter shall be deemed a "Restricted Quarter." If, any time during a
Restricted Quarter (including, without limitation, during any period in
such quarter prior to delivery of the Quarterly Compliance Certificate),
the interest rate accruing on any Existing Term Note or Converted Note is
less than seven and one-half percent (7.50%) per annum, a "Trigger Event"
shall be deemed to have occurred. Upon the occurrence of a Trigger Event,
the Borrower shall be obligated to pay the following fees: (i)
three-eighths of one percent (.375%) of the outstanding principal balance
as of the date preceding the Trigger Event of each Existing Term Note or
Converted Note which accrues interest at less than seven and one-half
percent (7.50%) per annum, which amount shall be payable promptly upon
invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable
on the six (6) month anniversary of the Trigger Event; and (iii) the same
amount as computed in clause (i), payable on the twelve (12) month
anniversary of the Trigger Event.
- -----------------
1 Determined based on the Leverage Ratio calculated on the Total Indebtedness
and Operating Cash Flow as ofthe last day of the preceding month, adjusted to
show any increases in teh Leverage Ratio as a result of additional Total
Indebtedness incurred (reduced by any principal payments on such Total
Indebtedness) during the quarter in which the rate is being fixed as described
above.
3
- 459 -
<PAGE>
5. Section 4.4 (a) is hereby amended to read as follows:
(a) The Borrower shall not at any time permit the Leverage Ratio to
exceed forty-eight (48).
6. Section 4.19 is hereby amended to read as follows:
4.19 Capital Expenditures. The Borrower shall not incur in any fiscal
year, commencing with the fiscal year beginning January 1, 1998,
capital expenditures, determined in accordance with generally accepted
accounting principles, of more than $2,000,000; provided, however, that
capital expenditures for (a) equipment to be used by Subscribers of the
Borrower, and (b) telecommunication equipment, computer equipment,
software, and software consulting shall not be counted for purposes of
this annual limitation.
7. Section 4.20 is hereby amended to read as follows:
4.20 Acquisitions. The Borrower shall not acquire any stock or any
equity interest in, or warrants therefor or securities convertible into
the same, or a substantial portion of the assets of, another entity
without the prior written consent of the Revolving Lenders; provided,
however, that the Borrower shall be permitted to make on a cumulative
basis from and after July 1, 1998, such acquisitions in an amount not
to exceed Twenty Million Dollars ($20,000,000) in the aggregate without
the consent of the Revolving Lenders if:
(a) such acquisitions are in or from entities which:
(i) are in the business of electronically communicating
time-sensitive information to subscribers;
(ii) have their principal place of business in the United States or
Canada; and
(iii) have a positive operating cash flow, calculated in the same
method as is used to calculate the Borrower's Operating Cash
Flow for purposes of this Agreement; and
(b) the Borrower or any Subsidiary is not, and immediately after
making such acquisition, will not be in default under any
covenant or provisions of this Agreement (including, without
limitation, the covenants and provisions pertaining to minimum
net worth and limitations on indebtedness); and
(c) no one acquisition exceeds Ten Million Dollars ($10,000,000).
4
- 460 -
<PAGE>
8. Exhibits A, B and C are hereby amended to read as shown on the attached
Exhibits A, B and C to this Fourth Amendment.
9. All references to June 30, 1999, in the Agreement shall be amended to
read June 30, 2000.
10. Effective as of May 15, 1998, the Borrower shall issue new Notes in the
form specified in Exhibit A hereto to the Revolving Lenders. On such
date, the Revolving Lenders shall either lend, or be repaid, the
principal amounts shown on Exhibit D hereof, so that the principal
amounts outstanding on the Base Revolving Credit Facility will match
the percentages shown for each Revolving Lender in Section 2.1 of the
Agreement as amended by this Fourth Amendment. Upon the delivery of the
new Notes, the existing Revolving Credit Lenders will cancel and will
return to the Borrower the existing Revolving Credit Notes. Effective
as of May 15, 1998, The Sumitomo Bank, Limited will cease to be a
Revolving Lender. On such date, the Borrower shall repay to The
Sumitomo Bank, Limited the principal amount shown on Exhibit D hereto
and shall pay all accrued interest and any other amounts then due and
payable to The Sumitomo Bank, Limited. Upon receipt of such amounts
from or on behalf of the Borrower, The Sumitomo Bank, Limited will
cancel and return to the Borrower its Revolving Credit Note.
11. In connection with this Fourth Amendment the Borrower is
contemporaneously executing and delivering to the Banks revised Notes
dated as of the date hereof in the respective principal amounts shown
in Section 3 above.
12. This Fourth Amendment shall not affect and there remain outstanding
from the Borrower to the Banks, the Existing Term Notes and the Related
Bank Debt.
13. This Fourth Amendment may be executed in several counterparts and such
counterparts together shall constitute one and the same instrument.
Except as expressly agreed herein, all terms of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this FOURTH AMENDMENT
TO 1997 REVOLVING CREDIT AGREEMENT dated as of May 15, 1998.
DATA TRANSMISSION NETWORK CORPORATION
By /s/ Brian L. Larson
----------------------------------
Brian L. Larson
Title: Vice President, Secretary &
Treasurer
5
- 461 -
<PAGE>
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
-------------------------------
James P. Bonham
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
6
- 462 -
<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Brian M. Smith
-------------------------------
Brian M. Smith
Title: Sr. Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
- 463 -
<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By /s/ Elizabeth Rezac
-------------------------------
Elizabeth Rezac
Title: Second Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
- 464 -
<PAGE>
NBD BANK
By
-------------------------------
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
- 465 -
<PAGE>
NORWEST BANK NEBRASKA, N.A.
By /s/ Kevin Munro
-------------------------------
Kevin Munro
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
10
- 466 -
<PAGE>
LASALLE NATIONAL BANK, a national
banking association
By /s/ Tom Harmon
-------------------------------
Tom Harmon
Title: Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
11
- 467 -
<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By /s/ Joseph L. Sooter, Jr.
-------------------------------
Joseph L. Sooter, Jr.
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
12
- 468 -
<PAGE>
U.S. BANK, NATIONAL ASSOCIATION
By /s/ Beth Morgan
-------------------------------
Beth Morgan
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
13
- 469 -
<PAGE>
NATIONSBANK, N.A.
By
-------------------------------
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
14
- 470 -
<PAGE>
BANK OF MONTREAL,
Chicago Branch
By /s/ W. T. Calder
-------------------------------
W. T. Calder
Title: Director
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
15
- 471 -
<PAGE>
EXHIBIT A
TO 1997 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
NATIONSBANK, N.A.,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
AND
LASALLE NATIONAL BANK
FORM OF NOTES
16
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<PAGE>
SECURED BUSINESS PROMISSORY NOTE
Omaha, Nebraska $
, 19 June 30, 2000
- ----------------- ---- ------------------
(Note Date) (Maturity Date)
REVOLVING NOTE TERMS
On or before June 30, 2000, DATA TRANSMISSION NETWORK CORPORATION ("Maker")
promises to pay to the order of [REVOLVING LENDER] ("Lender") the principal sum
hereof, which shall be the lesser of Dollars, or so much
thereof as may have been advanced by Lender, either directly under this Note or
as an advance pursuant to the 1997 Revolving Credit Agreement dated as of
February 26, 1997, as amended from time to time (the "Agreement") among Maker
and Lender, First National Bank of Omaha, First National Bank, Wahoo, Nebraska,
NBD Bank, Norwest Bank Nebraska, N.A., LaSalle National Bank, Nationsbank, N.A.,
Mercantile Bank of St. Louis, N.A., Bank of Montreal, and U.S. Bank, National
Association (collectively, the "Lenders"). All capitalized terms not defined
herein shall have their respective meanings as set forth in the Agreement.
Interest shall accrue on the principal sum hereof from and including the
Note Date above to the earlier of the Maturity Date or the date of Conversion
(as such term is defined hereafter) at a variable rate, which shall fluctuate on
a monthly basis, equal to the rate announced from time to time by FNB-O as its
"National Base Rate" minus a margin as determined below. The margin shall be
adjusted quarterly after receipt of Maker's Quarterly Compliance Certificate (as
defined in the Agreement), commencing with the Quarterly Compliance Certificate
for the quarter ended June 30, 1998. Adjustments shall be retroactive to the
beginning of the current quarter.
(a) If the Quarterly Compliance Certificate shows that, as of the end
of the prior quarter, the Leverage Ratio was greater than 42, the margin
for the current quarter (meaning the quarter in which the certificate is
required to be delivered) shall be .25%.
(b) If the Quarterly Compliance Certificate shows that, as of the end
of the prior quarter, the Leverage Ratio was greater than 36 but equal to
or less than 42, the margin for the current quarter shall be .50%.
(c) If the Quarterly Compliance Certificate shows that, as of the end
of the prior quarter, the Leverage Ratio was greater than 30 but equal to
or less than 36, the margin for the current quarter shall be .75%.
17
- 473 -
<PAGE>
(d) If the Quarterly Compliance Certificate shows that, as of the end
of the prior quarter, the Leverage Ratio was greater than 24 but equal to
or less than 30, the margin for the current quarter shall be 1.00%.
(e) If the Quarterly Compliance Certificate shows that, as of the end
of the prior quarter, the Leverage Ratio was greater than 18 but equal to
or less than 24, the margin for the current quarter shall be 1.25%.
(f) If the Quarterly Compliance Certificate shows that, as of the end
of the prior quarter, the Leverage Ratio was equal to or less than 18, the
margin for the current quarter shall be 1.375%.
The Base Rate minus the applicable margin as determined above is hereinafter
referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be
effective on the first day of each month, based on the Base Rate in effect as of
such day. Interest shall be due upon the rendering of each monthly invoice
therefor by FNB-O.
TERM NOTE TERMS
Upon the earlier of: (i) June 30, 2000; or (ii) Maker's giving notice of
its election to convert the revolving credit loan evidenced by this Note, or any
portion thereof, to a term loan, the revolving loan referenced above (or
applicable portion thereof) shall be deemed converted to a term loan (the
"Conversion"). Any such term loan shall be evidenced by notes (the "Converted
Notes") separate from the initial Revolving Credit Notes. Upon the issuance of
Converted Notes, the Revolving Credit Facility shall be reduced by the principal
amount of such Converted Notes and no further Advances shall be made by the
Revolving Lenders on the converted amount. The then outstanding principal
hereunder shall become due and payable in forty-eight equal installments of
principal, with the first such installment due on the last day of the month
following Conversion, or, if such day is not a Business Day, on the next
succeeding Business Day, subsequent installments due on the last day of each
consecutive month thereafter. In any event, the total amount of all unpaid
principal and accrued interest hereunder shall be due and payable no later than
June 30, 2004.
After Conversion, interest shall accrue on the principal outstanding from
time to time at a variable rate, which shall fluctuate on a monthly basis, which
is equal to the Revolving Credit Rate plus .25%. For purposes of computing such
variable rate, changes in the Base Rate shall be effective on the first day of
each month based on the Base Rate in effect on such day. Notwithstanding
anything in the foregoing to the contrary, after Conversion, Maker may elect to
have a fixed interest rate apply to the outstanding Principal Loan Amount
converted and outstanding after the date of giving notice of such fixed rate
election (the "Fixed Rate Notice"). Such fixed rate shall be equal to the
greater of:
18
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<PAGE>
(a) the Revolving Credit Rate in effect on the date of the notice2,
plus .375%, or
(b) the average of the yields on constant maturity Treasury Bonds with
maturities of three years and five years, as quoted in the immediately
preceding monthly Federal Reserve Statistical Release (the "Release") plus
the following incremental percentage determined based upon the Leverage
Ratio3: (x) if the Leverage Ratio is greater than 36, the incremental
percentage shall be 2.25%; (y) if the Leverage Ratio is greater than 24 but
not in excess of 36, the incremental percentage shall be 2.00%; and (z) if
the Leverage Ratio is 24 or less, the incremental percentage should be
1.75%;
Any election of a fixed rate by Maker shall be final and irrevocable. Interest
shall be due each month concurrently with the Maker's principal payment.
Notwithstanding anything to the contrary elsewhere herein, after an Event of
Default has occurred interest shall accrue on the entire outstanding balance of
principal and interest at a fluctuating rate equal to the Default Rate. Interest
shall be calculated on the basis of the actual number of days outstanding and a
360-day year. Interest shall continue to accrue on the full unpaid balance
hereunder notwithstanding any permitted or unpermitted failure of Maker to make
a scheduled payment or the fact that a scheduled payment day falls on a day
other than a Business Day. If Maker's most recent Quarterly Compliance
Certificate shows that, as of the end of the prior quarter, the Leverage Ratio
was in excess of thirty-six (36), the current quarter shall be deemed a
"Restricted Quarter." If, any time during a Restricted Quarter (including,
without limitation, during any period in such quarter prior to delivery of the
Quarterly Compliance Certificate), the interest rate accruing on any Existing
Term Note (as defined in the Agreement) or Converted Note is less than 7.50% per
annum, a "Trigger Event" shall be deemed to have occurred. Upon the occurrence
of a Trigger Event, Maker shall be obligated to pay the following fees: (i)
.375% of the outstanding principal balance as of the date preceding the Trigger
Event of each Existing Term Note or Converted Note which accrues interest at
less than seven and one-half percent (7.50%) per annum which amount shall be
payable promptly upon invoicing by FNB-O; (ii) the same amount as computed in
clause (i), payable on the six-month anniversary of the Trigger Event; and (iii)
the same amount as computed in clause (i), payable on the twelve-month
anniversary of the Trigger Event.
2 Determined based on the Leverage Ratio calculated on the Total Indebtedness
and Operating Cash Flow as of the last day of the preceding month, adjusted to
show any increases in the Leverage Ratio as a result of additional Total
Indebtedness incurred (reduced by any principal payments on such Total
Indebtedness) during the quarter in which the rate is being fixed as described
above .
19
- 475 -
<PAGE>
Maker may at any time prepay in whole or in part the Principal Loan Amount
outstanding under this Revolving Credit Note or a Converted Note if the Maker
has given the Revolving Lenders at least two (2) business days prior written
notice of its intention to make such prepayment. Any such prepayment may be made
without penalty except for a Converted Note as to which interest is accrued at a
fixed rate in accordance with clause (a) or (b) above, in which event a
prepayment penalty shall be due to the Lender, at Lender's option, either: (1)
the Make-Whole Premium due in respect of such prepayment; or (2) the applicable
prepayment fee as set forth below. The applicable prepayment fee for any
Converted Note shall be: (i) if the notice electing fixed interest was given
within twelve (12) months of Conversion, the fee shall be 1.50% of the amount of
such prepayment; (ii) if the notice electing fixed interest was given after
twelve (12) months of Conversion, but within twenty-four (24) months of
Conversion, the fee shall be .75% of the amount of such prepayment; and (iii) if
the notice electing fixed interest was given after twenty- four (24) months of
Conversion, but within thirty-six (36) months of Conversion, the fee shall be
.30% of the amount of such prepayment.
GENERAL TERMS
Payment of this Note and the performance of Maker's obligations under the
Agreement ("Obligations") are secured by a security interest granted to First
National Bank of Omaha, as agent for the Lenders and others ("Agent"), under the
Security Agreement in:
All of Maker's accounts, accounts receivable, chattel paper, documents,
instruments, goods, inventory, equipment, general intangibles, contract
rights, all rights of Maker in deposits and advance payments made to
Maker by its customers and Subscribers, accounts due from advertisers
and all ownership, proprietary, copyright, trade secret and other
intellectual property rights in and to computer software (and
specifically including, without limitation, all such rights in DTN
transmission computer software used in the provision of the Basic DTN
Subscription Service and Farm Dayta Service to Maker's Subscribers) and
all documentation, source code, information and works of authorship
pertaining thereto, all now owned or hereafter acquired and all
proceeds and products thereof; and
such additional collateral as is more specifically described in the
Security Agreement.
Maker's liability under its Obligations shall not be affected by any of the
following:
Acceptance or retention by Lender or Agent of other property or interests
as security for the Obligations, or for the liability of any person other
than a Maker with respect to the Obligations;
The release of all or any of the Collateral or other security for any of
the Obligations to any Maker;
20
- 476 -
<PAGE>
Any release, extension, renewal, modification or compromise of any of the
Obligations or the liability of any obligor thereon; or
Failure by Lender or Agent to resort to other security or any person liable
for any of the Obligations before resorting to the Collateral.
Neither Lender nor Agent is required to take any action whatsoever in
respect of the Collateral. Impairment or destruction of the Collateral shall not
release Maker of its liability hereunder.
Maker represents, warrants and covenants as follows:
Maker is authorized to grant to Agent a security interest in the
Collateral;
This Note, the Agreement and the Security Agreement have been duly
authorized, executed and delivered by the Maker and constitute legal,
valid and binding obligations of Maker;
This Note evidences a loan for business or agricultural purposes; and
Maker agrees to pay all costs of collection in connection with this
Note, the Agreement and the Security Agreement, including reasonable
attorneys' fees and legal expenses.
Upon the failure of Maker to make any payment of principal or interest when
due hereunder or the occurrence of any Event of Default, all of the Obligations
shall, at the option of Agent and without notice or demand, mature and become
immediately due and payable; and Agent shall have all rights and remedies for
default provided by the Uniform Commercial Code, any other applicable law and/or
the Obligations.
All costs and expenses incurred by Lender or Agent in enforcing its rights
under this Note or any mortgage, endorsement, surety agreement, guaranty
relating thereto are the obligation of Maker and are immediately due and
payable. Interest shall accrue on such costs and expenses from the date of
incurrence at the rate specified herein for delinquent Note payments. Each
Maker, endorser, surety and guarantor hereby waives presentment, protest,
demand, notice of dishonor, and the defense of any statute of limitations.
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder or Agent may, without notice, renew or extend the time for
payment, accept partial payments, release or impair any Collateral or other
security for the payment of this Note or agree to sue any party liable on it.
Neither Lender nor Agent shall be deemed to have waived any of its rights
upon or under this Note, or under any mortgage, endorsement, surety agreement or
guaranty, unless such waivers be in writing and signed by Lender or Agent, as
the case may be. No delay or omission on the part of Lender or Agent in
exercising any right shall operate as a waiver of such right or any other right.
A waiver on any one occasion shall not be construed as a bar to or waiver of any
right on any future occasion. All rights and remedies of Lender or Agent on
liabilities or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly or
concurrently.
21
- 477 -
<PAGE>
Maker, if more than one, shall be jointly and severally liable hereunder
and all provisions hereof regarding the liabilities or security of Maker shall
apply to any liability or any security of any or all of them. This Note shall be
binding upon the heirs, executors, administrators, assigns or successors of
Maker; shall constitute a continuing agreement, applying to all future as well
as existing transactions, whether or not of the character contemplated at the
date of this Note, and if all transactions between Lender and Maker shall be at
any time closed, shall be equally applicable to any new transactions thereafter,
provided that Lender's interest in the Collateral shall be limited to the extent
provided in the Security Agreement; shall benefit Lender, its successors and
assigns; and shall so continue in force notwithstanding any change in any
partnership party hereto, whether such change occurs through death, retirement
or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of First National Bank of Omaha in Omaha, Nebraska or at such other
address as may be designated by Bank in writing.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the content otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
This Note is given in substitution of that certain Secured Business
Promissory Note dated June 30, 1997, in the original principal amount of
$____________. This Note shall not affect, and there remains outstanding from
the Maker to one or more of the Lenders the Related Bank Debt, certain Secured
Business Promissory Notes issued under the Term Agreement, and certain Converted
Notes, and all extensions, renewals, and substitutions of or for the foregoing.
Executed as of this _____ day of _____________, _____.
DATA TRANSMISSION NETWORK CORPORATION
By:
------------------------------
Title:
22
- 478 -
<PAGE>
PROMISSORY NOTE SCHEDULE
Loan Advances and Payments of Principal
DATA TRANSMISSION NETWORK CORPORATION
REVOLVING NOTE ADVANCES AND PAYMENTS:
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
- ---- ---------- -------------- ------------- --------- --------
23
- 479 -
<PAGE>
TERM NOTE:
Date of Conversion:
Amount Due at Date of Conversion:
Fixed Rate Notice Date: Fixed Rate: %
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Payment or Prepaid Interest Paid Balance Made By
- ---- ---------- -------------- ------------- --------- --------
24
- 480 -
<PAGE>
EXHIBIT B
TO 1997 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
NATIONSBANK, N.A.,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
AND
LASALLE NATIONAL BANK,
DRAWING CERTIFICATE
25
- 481 -
<PAGE>
DRAWING CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
To induce the First National Bank of Omaha, First National Bank, Wahoo,
Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., LaSalle National Bank,
Nationsbank, N.A., Mercantile Bank of St. Louis, N.A., U.S. Bank, National
Association, and Bank of Montreal (the "Revolving Lenders") to make an advance
under the 1997 Revolving Credit Agreement (the "Agreement") dated as of February
26, 1997, between the undersigned (the "Borrower"), Nationsbank, N.A. as the
successor in interest to The Boatmen's National Bank of St. Louis ("Boatmen's),
and the Revolving Lenders (as to Boatmen's and the Revolving Lenders together,
(the "Banks"), the Borrower hereby certifies to the Banks that its Operating
Cash Flow (as defined in the Agreement) as represented below is true and correct
and that there is no default under the aforementioned Agreement, or on any other
liability of the Borrower to the Banks.
All information as of: Date
a) Maximum Revolving Credit Facility $
b) Principal on Converted Notes,
Acquisition Notes, Existing Term Notes,
and Related Bank Debt Outstanding $
c) Principal on Revolving Credit $
d) ADVANCE REQUEST $
e) Total Proposed Bank Debt
(line b + line c + line d, but $
not to exceed line a)
f) Most recent month's operating cash flow $
g) Prior month's operating cash flow $
h) Operating Cash Flow
(average of line f and line g) $
i) Total Indebtedness $
j) Leverage Ratio (line i divided by line h), not to exceed
36 $
Name of Borrower: Data Transmission Network Corporation
Signature:
Title:
26
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<PAGE>
EXHIBIT C
TO 1997 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
NATIONSBANK, N.A.,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
AND
LASALLE NATIONAL BANK
OFFICER'S CERTIFICATE
27
- 483 -
<PAGE>
COMPLIANCE CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
First National Bank of Omaha Date
Attn: James Bonham ----------
16th & Dodge Streets
Omaha, Nebraska 68102
I certify that Data Transmission Network Corporation is in compliance with the
requirements set forth in the 1997 Revolving Credit Agreement (the "Agreement")
dated as of February 26, 1997, between First National Bank of Omaha, First
National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., LaSalle
National Bank, Nationsbank, N.A., Mercantile Bank of St. Louis, N.A., U.S. Bank,
National Association, and Data Transmission Network Corporation.
The following calculations are as of _____ (statement date) as required by
Section 4.1(d) of said Agreement:
Evaluations:
Total Indebtedness (TI):
Operating Cash Flow: most recent month previous month
ending ending
------------------ ------------------
Net Income (loss)
---------- ----------
Interest Expense
---------- ----------
Depreciation
---------- ----------
Amortization
---------- ----------
Deferred Income
Taxes ---------- ----------
Non-Ordinary
Non-Cash
Charges (Credits)
---------- ----------
Total a) b)
---------- ----------
Operating Cash Flow = OCF = (a+b)/2 =
---------
Leverage Ratio (TI/OCF):
Section 2.3
Pricing: If the Leverage Ratio is greater than 42 then the margin is
.25%. If the Leverage Ratio is greater than 36 but equal to
or less than 42 then the margin is .50%. If the Leverage
Ratio is greater than 30 but equal to or less than 36 then
the margin is .75%. If the Leverage Ratio is greater than 24
but equal to or less than 30 then the margin is 1.00%. If the
Leverage Ratio is greater than 18 but equal to or less than
24 then the margin is 1.25%. If the Leverage Ratio is equal
to or less than 18 then the margin is 1.375%.
Position: The Revolving Credit Rate is the Base Rate minus _________
28
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<PAGE>
Section 2.5
Trigger Fee: If the Leverage Ratio is more than 36, then a one time
fee, paid in three installments of 3/8% of the then
outstanding principal balances, on any of the Existing Term
Notes, Acquisition Notes or Converted Notes which have an
interest rate less than 7.5% per annum is due.
Position: A Trigger Event has/has not occurred.
Section 4.3
Net Worth:A minimum Net Worth (exclusive of subordinated debt) of
$23,500,000 plus fifty percent (50%) of the net income (but
not losses) of the Borrower for each fiscal year, commencing
with the fiscal year beginning January 1, 1997; provided,
however, solely for purposes of determining compliance with
the provisions of this Section 5.3, "Net Worth" shall not
include any subordinated debt.
Minimum Net Worth (exclusive of subordinated debt)=
$23,500,000.
Net Income Year ending Addition (50%)
$____________ 12/31/97 $___________
Total Minimum Net
Worth $
Position: Total Net Worth (exclusive of subordinated debt) = $_____________
The Borrower [is/is not] in compliance with Section 4.3.
Section 4.4
Indebtedness: At no time will the Leverage Ratio exceed 48
Position: Leverage Ratio =
Total
Indebtedness
plus
subordinated
debt plus
guaranty
contingencies
(Adjusted
Total
Indebtedness or
ATI):4 At no time will Adjusted Total Indebtedness exceed 60 x OCF
29
- 485 -
<PAGE>
Position: Adjusted Total Indebtedness = $ (60 x OCF) - (ATI) = $ The
Borrower [is/is not] in compliance with Section 4.4.
Section 4.7
Distributions: Neither the Borrower nor any Subsidiary shall declare
any dividends (other than dividends payable in stock of the
Borrower or dividends or distributions from any consolidated
Subsidiary) or make any cash distribution in respect of any
shares of its capital stock or warrants of its capital stock,
without the prior written consent of the Lenders; provided
that the Borrower need not obtain the Lenders' consent with
respect to dividends in any one (1) year which are in the
aggregate less than 25% of the Borrower's Net Operating
Profit After Taxes in the previous four (4) quarters, as
reported to the Lenders pursuant to Section 4.1.
Position: Net Operating Profit
After Taxes for
last four (4) quarters = ______________
x .25
Available for dividends
or distributions in the most
recent quarter plus the
prior three (3) quarters = ______________
Dividends and distributions
(excluding dividends payable
solely in stock of the Borrower and distributions
from consolidated Subsidiaries) declared or paid
in the most recent quarter plus the prior three
(3) quarters =
--------------
The Borrower [is/is not] in compliance with Section 4.7.
Section 4.15
Interest The ratio of OCF to Interest Expense ("IE")at the
Coverage: end of each quarter will not be less than 2.25 to 1.0 (225%).
Position: OCF = $
IE = $
OCF/IE = %
30
- 486 -
<PAGE>
The Borrower [is/is not] in compliance with Section 4.15.
Section 4.19
Capital The Borrower shall not make capital expenditures (other than
Expenditures: permitted earning assets specified in Section 4.19) in any
fiscal year, commencing with the fiscal year beginning
January 1, 1998, in excess of $2,000,000.
Position: Capital Expenditures (other than permitted earning assets
specified in Section 4.19) this fiscal year = $_____________
The Borrower [is/is not] in compliance with Section 4.19.
Section 4.20
Acquisitions: The Borrower shall not make acquisitions which in the
aggregate exceed $20,000,000 and in any one instance exceed
$10,000,000 except certain permitted unlimited acquisitions.
Position: Acquisitions (other than permitted unlimited acquisitions) in
the aggregate since the date of the Agreement = _________.
Date Amount Acquired Company
Permitted Unlimited Acquisition:
Date Amount Acquired Principal Line
Company Place of Of
Business Business
The Borrower [is/is not] in compliance with Section 4.20.
Additional Representations:
There have/have not been any sale(s) of assets which would require
prepayment of the Notes under Section 4.2.
There has/has not been:
(i) a Change of Control or a material adverse change in management
personnel as defined in Section 4.14 of the Agreement;
(ii) a default under Section 6.1(j) or 6.1(l) regarding a change in
ownership or control of the Company; or.
(iii) an indemnity claim by Broadcast Partners under Section 6.1(m).
Name of Borrower: Data Transmission Network Corporation
Signature:
Title:
31
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT D
TO
FOURTH AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT
Lender Current Current Revised Revised Adjustment5
% Outstanding % Outstanding
<S> <C> <C> <C> <C> <C>
FNB-O 20.7 $931,500 20.0% $900,000 ($ 31,500)
FNB-W .5 22,500 .5 22,500 -------
NBD 11.9 535,500 3.1 139,500 ( 396,000)
Norwest 4.8 216,000 10.0 450,000 234,000
LaSalle 19.9 895,500 12.8 576,000 ( 319,500)
Nationsbank 0.0 ------ 13.1 589,500 589,500
Sumitomo 10.0 450,000 0.0 ------ ( 450,000)
Mercantile 10.3 463,500 17.3 778,500 315,000
Montreal 11.6 522,000 10.1 454,500 ( 67,500)
U.S. Bank 10.3 463,500 13.1 589,500 126,000
- --------- ------- ------- --------
TOTALS $4,500,000 $4,500,000 $ -------
- --------
32
- 488 -
<FN>
3
4 This section need not be completed unless Borrower has subordinated debt or
guaranty contingencies.
5 Plus interest through May 15, 1998
</FN>
</TABLE>
FIFTH AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT
THIS FIFTH AMENDMENT to 1997 REVOLVING CREDIT AGREEMENT (the "Fifth
Amendment") is intended to amend the terms of the 1997 Revolving Credit
Agreement (the "Agreement") dated as of February 26, 1997, as previously
amended, among DATA TRANSMISSION NETWORK CORPORATION; FIRST NATIONAL BANK OF
OMAHA; FIRST NATIONAL BANK, WAHOO, NEBRASKA; NBD BANK, N.A.; NORWEST BANK
NEBRASKA, N.A.; THE SUMITOMO BANK, LIMITED; MERCANTILE BANK OF ST. LOUIS, N.A.;
U.S. BANK, NATIONAL ASSOCIATION (formerly known as First Bank, National
Association); BANK OF MONTREAL; LASALLE NATIONAL BANK; and NATIONSBANK, N.A.
(successor to THE BOATMEN'S NATIONAL BANK OF ST. LOUIS). All terms and
conditions of the Agreement shall remain in full force and effect except as
expressly amended herein. All capitalized terms herein shall have the meanings
prescribed in the Agreement. The Agreement shall be amended as follows:
1. The definitions in Article I of the Agreement are amended as
follows:
Revolving Credit Notes: The following sentence is added to the
end of such definition:
Solely for purposes of Section 7.2 of
this Agreement and any reference to such
Section 7.2, the Revolving Credit Notes
shall include the amounts, if any, due
to (a) FNB-O and/or the Revolving
Lenders under the Letter of Credit
Facility, and (b) Norwest in connection
with the Norwest Letters of Credit.
2. The following shall be added to the definitions in Article I of
the Agreement:
Base Revolving Credit
Facility: The amount specified in
Section 2.1 of this Agreement, which
shall include the aggregate amounts
which may be available under the
Revolving Credit Notes and the Lender
Letter of Credit Facility.
FNB-O Letter of Credit
Facility: An amount not to exceed
$500,000 at any time which FNB-O may
elect in its discretion to provide to
the Borrower and one or more of its
Subsidiaries under Section 2.11 (a)
hereof.
1
- 489 -
<PAGE>
FNB-O Letter(s) of Credit:Letter(s)
of Credit issued under the FNB-O Letter
of Credit Facility.
Lender Letter of Credit
Facility: The letter of credit
facility provided for in Section 2.11
(b) hereof.
Lender Letter(s) of Credit:
Letter(s) of Credit issued under the
Lender Letter of Credit Facility, the
outstanding face amount of which shall
not exceed $1,000,000 at any time.
Letter of Credit Facility:Either the
FNB-O or the Lender Letter of Credit
Facility or, if the context so requires,
both such letter of credit facilities.
Letter of Credit Fees: The Letter of
Credit Fees specified in Section 2.11
(d) of the Agreement.
Letter(s) of Credit: Either the
FNB-O Letter(s) of Credit or the Lender
Letter(s) of Credit, or if the context
so requires, both such types of letters
of credit.
Norwest Letters of Credit:The
letters of credit indicated below which
were issued by Norwest for the account
of Kavouras, Inc.: (a) letter of credit
no. S405712, in the amount of
$132,954.00 with an expiration date of
August 15, 1998; and (b) letter of
credit no. S405444, in the amount of
$130,949.00 with an expiration date of
July 30, 1999; but not letters of credit
issued in exchange, renewal, extension
or substitution of such original letters
of credit.
2
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<PAGE>
3. The following shall be added as Section 2.11 of the Agreement:
2.11 Letter of Credit Facilities. In order to accommodate the
needs of the Borrower or one or more of its Subsidiaries, from time to time
FNB-O on its own behalf may, or FNB-O as the Agent of the Revolving Lenders
under this Agreement shall, upon application of the Borrower and, if requested
by FNB-O the applicable Subsidiary, issue letters of credit on the terms, and
upon satisfaction of the conditions, specified below:
(a) FNB-O Letter of Credit Facility. FNB-O may elect to
issue letters of credit solely on its own behalf ("FNB-O Letters
of Credit"); provided, however, that at the time of issuance of
such FNB-O Letters of Credit, the aggregate amount available to
be drawn on Letters of Credit issued and outstanding under this
FNB-O Letter of Credit Facility shall not exceed $500,000. The
issuance of FNB-O Letters of Credit shall not cause the Base
Revolving Credit Facility to be reduced.
(b) Lender Letter of Credit Facility. Whenever FNB-O elects
not to issue an FNB-O Letter of Credit or the aggregate amount
available to be drawn on FNB-O Letters of Credit exceeds, or upon
the issuance of a new Letter of Credit will exceed, $500,000, the
Agent on behalf of the Revolving Lenders shall issue from time to
time for the account of the Borrower or one or more of its
Subsidiaries letters of credit in the name of First National Bank
of Omaha but which are designated as Lender Letters of Credit
(the "Lender Letters of Credit"); provided, however, the Agent
shall have no obligation to issue any such Lender Letter of
Credit unless at such time the Borrower meets all the conditions
for an Advance under the Base Revolving Credit Facility and,
after such issuance, the aggregate face amount of Lender Letters
of Credit outstanding will not exceed $1,000,000 and will not
exceed the then available Base Revolving Credit Facility, as
reduced by the outstanding principal amount of the Converted
Notes and the Revolving Credit Notes, as more specifically set
forth in this Agreement. The Revolving Lenders shall be obligated
to fund pro rata according to their respective pro rata
percentages shown in Section 2.1 of this Agreement any draws on
such Lender Letters of Credit and shall be entitled to share pro
rata in the Letter of Credit Fees and reimbursement amounts
received in connection with such Lender Letters of Credit. The
sum of (i) amounts drawn under such Lender Letters of Credit
which have not been reimbursed by the Borrower, and (ii) the
amounts available to be drawn under outstanding Lender Letters of
Credit shall operate to reduce the Base Revolving Credit Facility
by such sum.
(c) Letter of Credit Documents, Fees. Prior to the issuance
by FNB-O of any Letters of Credit, the Borrower and, if requested
by FNB-O, the applicable Subsidiary, shall execute and deliver to
3
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<PAGE>
FNB-O an application and continuing letter of credit agreement,
such agreements to be in the forms attached hereto as Exhibit C
to this Fifth Amendment, as such forms may be amended from time
to time for general use in connection with letters of credit
issued by FNB-O.
(d) Letter of Credit Fees. In addition to all costs incurred
by FNB-O in the issuance and enforcement of the Letters of Credit
which are to be reimbursed by the Borrower in accordance with the
application and continuing letter of credit agreement executed in
connection with each Letter of Credit, the Borrower shall pay to
FNB-O (on its own behalf as to FNB-O Letters of Credit and as
Agent as to Lender Letters of Credit) a letter of credit fee (the
"Letter of Credit Fee") equal to one percent (1%) per annum of
the undrawn amount of such Letter of Credit, such fee to be paid
quarterly in arrears based on the average amount outstanding
during such quarter; provided, however, that at any time that an
Event of Default has occurred and is continuing under the
Agreement, such fee shall be equal to five percent (5%) per
annum). Interest shall accrue on amounts drawn under any Letter
of Credit, until such amount is reimbursed, at the then current
rate for amounts outstanding under the Revolving Note and, for
any period that such draw remains unreimbursed more than two
Business Days after such draw, at the Default Rate. In addition,
the Borrower shall pay such other administrative fees, including
a fee for opening the Letter of Credit, as are agreed in writing
between FNB-O and the Borrower. Amounts received by the Agent for
opening a Lender Letter of Credit or as administrative fees other
than the Letter of Credit remain the property of the Agent and
shall not be shared pro rata with the Revolving Lenders.
(e) Security. Amounts due in connection with the Letters of
Credit and the Norwest Letters of Credit are secured by the
Collateral pledged under the Security Agreement and any security
agreement given by a Subsidiary in favor of the Lenders. In
addition, the Agent shall have the right to require additional
collateral, including cash collateral equal to 100% of the
aggregate of the amounts available to be drawn under the Letters
of Credit, upon the occurrence of an Event of Default under the
Agreement.
4. The Drawing Certificate attached to the Agreement as Exhibit B shall
be amended as shown on Exhibit B to this Fifth Amendment.
5. This Fifth Amendment shall not affect and there remain outstanding
from the Borrower to the Banks, the Existing Term Notes and the Related Bank
Debt.
6. This Fifth Amendment may be executed in several counterparts and
such counterparts together shall constitute one and the same instrument.
Except as expressly agreed herein, all terms of the Agreement shall
remain in full force and effect.
4
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this FIFTH AMENDMENT
TO 1997 REVOLVING CREDIT AGREEMENT dated as of July 10, 1998.
DATA TRANSMISSION NETWORK
CORPORATION
By /s/ Brian L. Larson
-----------------------
Title: Vice President, CFO
and Secretary
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
5
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<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/Brian M. Smith
------------------------
Title: Senior Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
6
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<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By/s/ Elizabeth E. Rezac
--------------------------
Title: Second Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
-495 -
<PAGE>
NBD BANK
By /s/ Nathan L. Bloch
------------------------
Title:First Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
- 496 -
<PAGE>
NORWEST BANK NEBRASKA, N.A.
By /s/ Kevin D. Munro
----------------------------------
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
- 497 -
<PAGE>
LASALLE NATIONAL BANK, a national
banking association
By/s/ Tom Harmon
--------------------------------
Title:Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
10
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<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By/s/ Joseph L. Sooter, Jr.
--------------------------------
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
11
- 499 -
<PAGE>
U.S. BANK, NATIONAL
ASSOCIATION
By /s/ Beth Morgan
-------------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
12
- 500 -
<PAGE>
NATIONSBANK, N.A.
By/s/ Michael F. Murphy
--------------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
13
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<PAGE>
BANK OF MONTREAL,
Chicago Branch
By/s/ Karen Klapper
-------------------------------
Title: Director
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
14
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<PAGE>
EXHIBIT B
TO 1997 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
NATIONSBANK, N.A.,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
AND
LASALLE NATIONAL BANK,
DRAWING CERTIFICATE
15
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<PAGE>
DRAWING CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
To induce the First National Bank of Omaha, First National Bank, Wahoo,
Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., LaSalle National Bank,
Nationsbank, N.A., Mercantile Bank of St. Louis, N.A., U.S. Bank, National
Association, and Bank of Montreal (the "Revolving Lenders") to make an advance
under the 1997 Revolving Credit Agreement (the "Agreement") dated as of February
26, 1997, between the undersigned (the "Borrower"), Nationsbank, N.A. as the
successor in interest to The Boatmen's National Bank of St. Louis ("Boatmen's),
and the Revolving Lenders (as to Boatmen's and the Revolving Lenders together,
(the "Banks"), the Borrower hereby certifies to the Banks that its Operating
Cash Flow (as defined in the Agreement) as represented below is true and correct
and that there is no default under the aforementioned Agreement, or on any other
liability of the Borrower to the Banks.
All information as of: Date
a) Maximum Revolving Credit Facility $
b) Principal on Converted Notes $___________
c) Acquisition Notes, Existing Term Notes,
and Related Bank Debt Outstanding $
d) Principal on Revolving Credit Notes $
e) Unreimbursed amounts drawn under Lender Letters
of Credit $
f) Amount available to be drawn under outstanding
Lender Letters of Credit
g) ADVANCE REQUEST ( not to exceed line a - line b
- line d - line e - line f) $
h) Total Proposed Bank Debt
(line b + line c + line d + line e + line f + line g) $
i) Most recent month's operating cash flow $
j) Prior month's operating cash flow $
k) Operating Cash Flow
(average of line i and line j) $
l) Total Indebtedness $
m) Leverage Ratio (line l divided by line m), not to exceed
36 $
Name of Borrower: Data Transmission Network Corporation
Signature:
Title:
16
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<PAGE>
EXHIBIT C
TO 1997 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
NATIONSBANK, N.A.,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
AND
LASALLE NATIONAL BANK,
FORMS OF APPLICATION AND CONTINUING LETTER OF CREDIT AGREEMENT
17
- 505 -
FIRST AMENDMENT TO 1997 TERM CREDIT AGREEMENT
THIS FIRST AMENDMENT to 1997 TERM CREDIT AGREEMENT (the "First
Amendment") is intended to amend the terms of the 1997 Term Credit Agreement
(the "Agreement") dated as of February 26, 1997, among DATA TRANSMISSION NETWORK
CORPORATION; FIRST NATIONAL BANK OF OMAHA; FIRST NATIONAL BANK, WAHOO, NEBRASKA;
NBD BANK, N.A.; NORWEST BANK NEBRASKA, N.A.; THE SUMITOMO BANK, LIMITED;
MERCANTILE BANK OF ST. LOUIS, N.A.; FIRST BANK, NATIONAL ASSOCIATION; BANK OF
MONTREAL; and LASALLE NATIONAL BANK. All terms and conditions of the Agreement
shall remain in full force and effect except as expressly amended herein. All
capitalized terms herein shall have the meanings prescribed in the Agreement.
The Agreement shall be amended as follows:
The parties hereby acknowledge that, effective as of the date hereof:
1. Section 5.20 of the Agreement is amended to read as follows:
5.20 Acquisitions. The Borrower shall not acquire any stock or any
equity interest in, or warrants therefor or securities into the same,
or a substantial portion of the assets of, another entity without the
prior written consent of the Lenders; provided, however, that the
Borrower shall be permitted to make on a cumulative basis from and
after July 1, 1997 such acquisitions in an amount not to exceed Fifteen
Million Dollars ($15,000,000) in the aggregate without the consent of
the Lenders if such acquisitions are in or from entities which: (a) are
in the business of electronically communicating time-sensitive
information to subscribers;
(b) have their principal place of business in the United States or
Canada; and
(c) have a positive operating cash flow, calculated in the same
method as is used to calculate the Borrower's Operating Cash Flow for
purposes of this Agreement; and
the Borrower or any Subsidiary is not, and immediately after the
making of such acquisition, will not be in default under any other
covenant or provision of this Agreement (including, without limitation,
the covenants and provisions pertaining to minimum net worth and
limitations on indebtedness).
This First Amendment shall not affect and there remain outstanding from
the Borrower to the Banks, the existing Notes and the Related Bank Debt.
This First Amendment may be executed in several counterparts and such
counterparts together shall constitute one and the same instrument.
Except as expressly agreed herein, all terms of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT
TO 1997 TERM CREDIT AGREEMENT dated as of February 1, 1998.
DATA TRANSMISSION NETWORK CORPORATION
By/s/ Brian L. Larson
---------------------------------
Title: Vice President, CFO and Secretary
1
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<PAGE>
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
----------------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
2
- 507 -
<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Michael F. Murphy
Title:Vice President and Manager
By/s/ Teresa A. Lekich
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
3
- 508 -
<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By/s/ Elizabeth Rezac
Title:Second Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4
- 509 -
<PAGE>
NBD BANK
By /s/ Nathan L. Bloch
Title:First Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
5
- 510 -
<PAGE>
NORWEST BANK NEBRASKA, N.A.
By /s/ Kevin Munro
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
6
- 511 -
<PAGE>
LASALLE NATIONAL BANK, a national
banking association
By/s/ Tom Harmon
Title:Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
- 512 -
<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By/s/ Joseph L. Sooter, Jr.
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
- 513 -
<PAGE>
FIRST BANK, NATIONAL ASSOCIATION
By /s/Beth Morgan
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
- 514 -
<PAGE>
BANK OF MONTREAL,
Chicago Branch
By_________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
10
- 515 -
SECOND AMENDMENT TO 1997 TERM CREDIT AGREEMENT
THIS SECOND AMENDMENT to 1997 TERM CREDIT AGREEMENT (the "First
Amendment") is intended to amend the terms of the 1997 Term Credit Agreement
(the "Agreement") dated as of February 26, 1997, among DATA TRANSMISSION NETWORK
CORPORATION; FIRST NATIONAL BANK OF OMAHA; FIRST NATIONAL BANK, WAHOO, NEBRASKA;
NBD BANK, N.A.; NORWEST BANK NEBRASKA, N.A.; THE SUMITOMO BANK, LIMITED;
MERCANTILE BANK OF ST. LOUIS, N.A.; U.S. BANK, NATIONAL ASSOCIATION (formerly
First Bank, National Association); BANK OF MONTREAL; and LASALLE NATIONAL BANK.
All terms and conditions of the Agreement shall remain in full force and effect
except as expressly amended herein. All capitalized terms herein shall have the
meanings prescribed in the Agreement. The Agreement shall be amended as follows:
The parties hereby acknowledge that, effective as of the date hereof:
1. The following definitions in Article I of the Agreement are amended as
follows:
Banks: FNB-O, FNB-W, U.S. Bank, Mercantile, NBD, Norwest,
Sumitomo, Nationsbank, LaSalle and Montreal, and such additional
banks as may be added hereto from time to time by mutual written
agreement of the parties.
Operative
Documents: This 1997 Loan Agreement, the Notes, the Security
Agreement, the financial statements regarding the Collateral and
the documents and certificates, other than the Purchase Agreement,
delivered pursuant to Article VI.
2. Section 2.2 shall be amended to read as follows:
2.2 Notes. The Notes shall bear interest on the principal
loan amount thereof outstanding through June 30, 1999, at the rate
of 8.25% per annum; thereafter the interest rate for the balance
of the term shall be set on June 30, 1999, at two percent (2.00%)
above the yield on constant maturity Treasury Bonds with
maturities of three years, as quoted for the Business Day
immediately preceding June 30, 1999 in the applicable Release.
Notwithstanding the foregoing, the Notes issued to the following
Lenders shall bear interest as follows: (i) as to U.S. Bank, at
the rate of 8.36% per annum through June 30, 1999 (whereupon the
interest rate reset described above shall be applicable); and (ii)
as to Mercantile, NBD, Sumitomo, Norwest, FNB-W and Montreal, at a
variable rate per annum equal to New York Prime minus one-half of
one percent (0.5%). After an Event of Default has occurred,
interest shall accrue: (i) with respect to the fixed rate Notes,
on the entire outstanding balance of principal and interest at a
fluctuating rate equal to the Revolving Credit Rate plus four
percent (4.00%); and (ii) as to the floating rate Notes, on the
principal loan amount thereof at a rate per annum equal to three
and one-half percent (3.5%) above New York Prime. Interest shall
be calculated on actual days elapsed and a year of 360 days. If
the Borrower's most recent Quarterly Compliance Certificate shows
that, as of the end of the prior quarter, the Leverage Ratio was
at such date more than thirty-six (36), the current quarter shall
be deemed a "Restricted Quarter." If, any time during a Restricted
Quarter (including, without limitation, during any period in such
quarter prior to delivery of the Quarterly Compliance
Certificate), the interest rate accruing on any Note is less than
seven and one-half percent (7.50%), a "Trigger Event" shall be
deemed to have occurred. Upon the occurrence of a Trigger Event,
the Borrower shall be obligated to pay the Lenders the following
fees: (i) three-eighths of one percent (.375%) of the outstanding
principal balance of such Note as of the date preceding the
Trigger Event, which amount shall be payable promptly upon
invoicing by FNB-O; (ii) the same amount as computed in clause
(i), payable on the six-month anniversary of the Trigger Event;
and (iii) the same amount as computed in clause (i), payable on
the twelve-month anniversary of the Trigger Event.
1
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<PAGE>
3. Section 5.4 (a) shall be amended to read as follows:
(a) The Borrower shall not at any time permit the Leverage
Ratio to exceed forty-eight (48).
4. Section 5.19 shall be amended to read as follows:
5.19 Capital Expenditures. The Borrower shall not incur in
any fiscal year, commencing with the fiscal year beginning January
1, 1998, capital expenditures, determined in accordance with
generally accepted accounting principles, of more than $2,000,000;
provided, however, that capital expenditures for (a) equipment to
be used by subscribers of the Borrower, and (b) telecommunications
equipment, computer equipment, software and software consulting
shall not be counted for purposes of this annual limitation.
5. Section 5.20 is hereby amended to read as follows:
5.20 Acquisitions. The Borrower shall not acquire any stock
or any equity interest in, or warrants therefor or securities into
the same, or a substantial portion of the assets of, another
entity without the prior written consent of the Lenders; provided,
however, that the Borrower shall be permitted to make on a
cumulative basis from and after July 1, 1998 such acquisitions in
an amount not to exceed Twenty Million Dollars ($20,000,000) in
the aggregate without the consent of the Lenders if:
(a) such acquisitions are in or from entities which:
(i) are in the business of electronically communicating
time-sensitive information to subscribers;
(ii)have their principal place of business in the United
States or Canada; and
(iii) have a positive operating cash flow, calculated in
the same method as is used to calculate the
Borrower's Operating Cash Flow for purposes of this
Agreement; and
(b) the Borrower or any Subsidiary is not, and immediately
after the making of such acquisition, will not be in default under
any other covenant or provision of this Agreement (including,
without limitation, the covenants and provisions pertaining to
minimum net worth and limitations on indebtedness); and
(c) no one acquisition shall exceed Ten Million Dollars
($10,000,000).
2
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<PAGE>
6. Exhibit B is hereby amended to read as shown on Exhibit B to this
Second Amendment.
7. This Second Amendment shall not affect and there remain outstanding
from the Borrower to the Banks, the existing Notes and the Related Bank
Debt.
8. This Second Amendment may be executed in several counterparts and such
counterparts together shall constitute one and the same instrument.
Except as expressly agreed herein, all terms of the Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT TO
1997 TERM CREDIT AGREEMENT dated as of May 15, 1998.
DATA TRANSMISSION NETWORK CORPORATION
By /s/ Brian L. Larson
Title:VP, CFO and Secretary
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
3
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<PAGE>
THE SUMITOMO BANK, LIMITED
By________________________________
Title:
By________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4
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<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
5
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<PAGE>
NBD BANK
By________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
6
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<PAGE>
NORWEST BANK NEBRASKA, N.A.
By________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
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<PAGE>
LASALLE NATIONAL BANK, a national
banking association
By________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
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<PAGE>
MERCANTILE BANK OF ST. LOUIS, N.A.
By________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
U.S. BANK, NATIONAL ASSOCIATION
By________________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
BANK OF MONTREAL,
Chicago Branch
By_______________________________
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
11
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<PAGE>
EXHIBIT B
TO 1997 TERM CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
THE SUMITOMO BANK, LIMITED,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
AND
LASALLE NATIONAL BANK
OFFICER'S CERTIFICATE
12
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<PAGE>
COMPLIANCE CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
First National Bank of Omaha Date
Attn: James Bonham
16th & Dodge Streets
Omaha, Nebraska 68102
I certify that Data Transmission Network Corporation is in compliance with the
requirements set forth in the 1997 Term Credit Agreement (the "Agreement") dated
as of February 26, 1997, between First National Bank of Omaha, First National
Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., LaSalle National
Bank,The Sumitomo Bank, Ltd., Mercantile Bank of St. Louis, N.A., U.S. Bank,
National Association, and Data Transmission Network Corporation.
The following calculations are as of (statement date) as required by Section
5.1(d) of said Agreement:
Evaluations:
Total Indebtedness (TI):
Operating Cash Flow: most recent month previous month
ending ending
Net Income (loss) ------------ ------------
Interest Expense ------------ ------------
Depreciation ------------ ------------
Amortization ------------ ------------
Deferred Income
Taxes ------------ ------------
Non-Ordinary
Non-Cash
Charges (Credits) ------------ ------------
Total a) b)
---------- ----------
Operating Cash Flow = OCF = (a+b)/2 =
------------
Leverage Ratio (TI/OCF):
Section 2.2
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<PAGE>
Trigger Fee: If the Leverage Ratio is more than 36, then a one time
fee is due, paid in three installments of 3/8% of the then
outstanding principal balances, on any of the Notes which
have an interest rate less than 7.5% per annum.
Position: A Trigger Event has/has not occurred.
Section 5.3
Net Worth: A minimum Net Worth (exclusive of subordinated debt) of
$23,500,000 plus fifty percent (50%) of the net income (but
not losses) of the Borrower for each fiscal year, commencing
with the fiscal year beginning January 1, 1997; provided,
however, solely for purposes of determining compliance with
the provisions of this Section 5.3, "Net Worth" shall not
include any subordinated debt.
Minimum Net Worth (exclusive of subordinated debt)= $
23,500,000.
Net Income Year ending Addition (50%)
$____________ 12/31/97 $___________
Total Minimum Net
Worth $
Position:
Total Net Worth (exclusive of subordinated debt) = $_____________
The Borrower [is/is not] in compliance with Section 5.3.
Section 5.4
Indebtedness: At no time will the Leverage Ratio exceed 48
Position: Leverage Ratio =
---------
Total
Indebtedness
plus
subordinated
debt plus
guaranty
contingencies
(Adjusted
Total
Indebtedness or
ATI)1: At no time will Adjusted Total Indebtedness
exceed 60 x OCF
Position: Adjusted Total Indebtedness = $
(60 x OCF) - (ATI) = $
The Borrower [is/is not] in compliance with Section 5.4.
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<PAGE>
Section 5.7
Distributions: Neither the Borrower nor any Subsidiary shall declare any
dividends (other than dividends payable in stock of the
Borrower or dividends or distributions from any consolidated
Subsidiary) or make any cash distribution in respect of any
shares of its capital stock or warrants of its capital stock,
without the prior written consent of the Lenders; provided
that the Borrower need not obtain the Lenders' consent with
respect to dividends in any one (1) year which are in the
aggregate less than 25% of the Borrower's Net Operating
Profit After Taxes in the previous four (4) quarters, as
reported to the Lenders pursuant to Section 5.1.
Position: Net Operating Profit
After Taxes for
last four (4) quarters = ______________
x .25
Available for dividends
or distributions in the most
recent quarter plus the
prior three (3) quarters = ______________
Dividends and distributions
(excluding dividends payable
solely in stock of the Borrower
and distributions from consolidated
Subsidiaries) declared or paid
in the most recent quarter plus
the prior three (3) quarters = _______________
The Borrower [is/is not] in compliance with Section 5.7.
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<PAGE>
Section 5.15
Interest The ratio of OCF to Interest Expense ("IE")
Coverage: at the end of each quarter will not be less than
2.25 to 1.0 (225%).
Position: OCF = $
IE = $
OCF/IE = %
The Borrower [is/is not] in compliance with section 5.1.5.
Section 5.19
Capital Expenditures:
The Borrower shall not make capital expenditures (other than
permitted earning assets specified in Section 5.19) in any
fiscal year, commencing with the fiscal year beginning
January 1, 1998, in excess of $2,000,000.
Position: Capital Expenditures (other than permitted earning
assets specified in Section 5.19) this fiscal year
= $_____________
The Borrower [is/is not] in compliance with Section 5.19.
Section 5.20
Acquisitions: The Borrower shall not make acquisitions which in the
aggregate exceed $20,000,000 and in any one instance exceed
$10,000,000 except certain permitted unlimited acquisitions.
Position: Acquisitions (other than permitted unlimited
acquisitions) in the aggregate since the date of
the Agreement = _________.
Date Amount Acquired Company
--------------------------- ----------------
Permitted Unlimited Acquisition:
Date Amount Acquired Principal Line
- ---- ------ Company Place of Of
-------- Business Business
--------- --------
The Borrower [is/is not] in compliance with Section 5.20.
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<PAGE>
Additional Representations:
There have/have not been any sale(s) of assets which would require
prepayment of the Notes under Section 5.2.
There has/has not been:
(i) a Change of Control or a material adverse change in
management personnel as defined in Section 5.14 of the
Agreement;
(ii) a default under Section 7.1(j) or 7.1(l) regarding a change
in ownership or control of the Company; or.
(iii) an indemnity claim by Broadcast Partners under Section
7.1(m).
Name of Borrower: Data Transmission Network Corporation
Signature: /s/ Brian L. Larson
Title:VP, CFO and Secretary
- --------
1This section need not be completed unless Borrower has subordinated debt or
guaranty contingencies.
17
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FIRST AMENDMENT TO 1997 SECURITY AGREEMENT
This First Amendment to 1997 Security Agreement is made as of May 15, 1998
to the 1997 Security Agreement (the "Agreement") dated as of February 26, 1997,
among Data Transmission Network Corporation, First National Bank of Omaha, First
National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., U.S.
Bank, National Association (formerly known as First Bank, National Association),
The Sumitomo Bank, Ltd., Mercantile Bank of St. Louis, N.A., Bank of Montreal,
LaSalle National Bank, and Nationsbank, N.A. ("Nationsbank," as successor in
interest to The Boatmen's National Bank of St. Louis).
The parties hereto acknowledge and agree that all references in the
Agreement to The Boatmen's National Bank of St. Louis shall be deemed to refer
to Nationsbank and that First National Bank of Omaha shall hold the Collateral
described in the Agreement on behalf of the lenders named therein and on behalf
of Nationsbank as a new Revolving Lender under the 1997 Revolving Credit
Agreement dated as of February 26, 1997, as amended from time to time by the
parties thereto.
DATA TRANSMISSION NETWORK CORPORATION
By /s/ Brian L. Larson
Its: VP, CFO and Secretary
FIRST NATIONAL BANK OF OMAHA, as agent for itself
and the other banks party to the Agreement
By /s/ James P. Bonham
Its: Vice President
1
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1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK
and
NATIONAL BANK OF CANADA
1
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<PAGE>
TABLE OF CONTENTS
I. DEFINITIONS 2
II. REVOLVING FACILITY 10
2.1 Revolving Credit 10
2.2 Revolving Credit Fees 11
2.3 Interest on Revolving Credit 11
2.4 Conversion 12
2.5 Interest on Converted Notes 12
2.6 Payments 14
2.7 Prepayments 14
2.8 Security 14
2.9 Existing Term Notes 14
2.10 Related Bank Debt 15
2.11 Letter of Credit Facilities 15
III. REPRESENTATIONS AND WARRANTIES 16
3.1 Corporate Existence 16
3.2 Corporate Authority 16
3.3 Validity of Agreements 17
3.4 Litigation 17
3.5 Governmental Approvals 17
3.6 Defaults Under Other Documents 17
3.7 Judgments 17
3.8 Compliance with Laws 17
3.9 Taxes. 17
3.10 Collateral 18
3.11 Pension Benefits. 18
3.12 Margin Regulations 18
3.13 Financial Condition 18
4.1 Financial Reports 18
4.2 Corporate Structure and Assets 20
4.3 Net Worth 20
4.4 Indebtedness 20
4.5 Use of Proceeds 21
4.6 Notice of Default 21
4.7 Distributions 22
4.8 Compliance with Law and Regulations 22
4.9 Maintenance of Property; Accounting; Corporate Form; Taxes;
Insurance 22
4.10 Inspection of Properties and Books 23
4.11 Guaranties 23
4.12 Collateral 23
4.13 Name; Location 23
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<PAGE>
4.14 Notice of Change in Ownership or Management 23
4.15 Interest Coverage 24
4.16 Subordinated Debt 24
4.17 Subsidiaries 24
4.18 Amendments to Purchase Agreement 24
4.19 Capital Expenditures 24
4.20 Acquisitions 25
V. CONDITIONS PRECEDENT 25
5.1 Closing Conditions 25
VI. DEFAULTS AND REMEDIES 25
6.1 Events of Default 26
6.2 Remedies 28
VII. INTER-CREDITOR AGREEMENTS 28
7.1 FNB-O as Servicer 28
7.2 Application of Payments 29
7.3 Liability of FNB-O 30
7.4 Transfers 31
7.5 Reliance 31
7.6 Relationship of Lenders 31
7.7 New Lenders 31
VIII. MISCELLANEOUS 31
8.1 Entire Agreement 31
8.2 Governing Law 31
8.3 Notices 31
8.4 Headings 32
8.5 Counterparts 32
8.6 Survival; Successors and Assigns 32
8.7 Severability 32
8.8 Assignment 32
8.9 Amendments 32
8.10 Consent to Form of Security Agreement, Term Agreement 32
SCHEDULE I: Subsidiaries
EXHIBIT A: Form of Note
EXHIBIT B: Drawing Certificate
EXHIBIT C: Letter of Credit Forms
EXHIBIT D: Compliance Certificate
SCHEDULE A: Permitted Encumbrances
3
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<PAGE>
1998 REVOLVING CREDIT AGREEMENT
This 1998 REVOLVING CREDIT AGREEMENT (the "Agreement") is entered into as of
the 7th day of December, 1998, among DATA TRANSMISSION NETWORK CORPORATION, a
Delaware corporation having its principal place of business at Suite 200, 9110
West Dodge Road, Omaha, Nebraska 68114 (the "Borrower"), FIRST NATIONAL BANK OF
OMAHA, a national banking association having its principal place of business at
One First National Center, Omaha, Nebraska 68102 ("FNB-O"), FIRST NATIONAL BANK,
WAHOO, NEBRASKA, a national banking association having its principal place of
business at Wahoo, Nebraska 68066 ("FNB-W"), THE FIRST NATIONAL BANK OF CHICAGO,
a national banking association having its principal place of business at One
First National Plaza, Chicago, Illinois 60670-0173 ("First of Chicago"), NORWEST
BANK NEBRASKA, N.A., a national banking association having its principal place
of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"),
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, being represented by its
office at 75 Wall Street, New York, New York 10005 ("Dresdner"), MERCANTILE BANK
OF ST. LOUIS, N.A., a national banking association having its principal place of
business at One Mercantile Center, 7th and Washington Streets, St. Louis,
Missouri 63101 ("Mercantile"), U.S. BANK, NATIONAL ASSOCIATION, a national
banking association having its principal place of business at 13th and M
Streets, Lincoln, Nebraska 68508 ("U.S. Bank"), BANK OF MONTREAL, a Canadian
bank represented by its office at 430 Park Avenue, New York, New York 10022
("Montreal"), LASALLE NATIONAL BANK, a national banking association being
represented by its offices at One Metropolitan Square, 211 North Broadway, St.
Louis, Missouri 63102 ("LaSalle"); and NATIONAL BANK OF CANADA, a Canadian bank
being represented by its office at 1200 17th Street, Suite 2760, Denver,
Colorado 80202 ("NBC").
WITNESSETH:
WHEREAS, the Borrower and certain of the Lenders (as such term is
hereinafter defined) are parties to a 1997 Term Credit Agreement dated as of
February 26, 1997, which has been amended, (the "1997 Term Credit Agreement"),
the proceeds of which were used to acquire substantially all of the assets of
Broadcast Partners, a general partnership having its principal place of business
in Des Moines, Iowa;
WHEREAS, the Borrower and certain of the Lenders are parties to a 1997
Revolving Credit Agreement dated as of February 26, 1997, which has been amended
(the "1997 Revolving Credit Agreement"), which 1997 Revolving Credit Agreement
provided a revolving credit facility for general corporate purposes;
4
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<PAGE>
WHEREAS, the Borrower desires to increase the amount of the revolving credit
facility which was the subject of the 1997 Revolving Credit Agreement; and
WHEREAS, the parties do not intend for this 1998 Revolving Credit Agreement
to be deemed to extinguish any existing indebtedness of the Borrower or to
release, terminate or affect the priority of any security therefor, but the
parties do intend that this 1998 Revolving Credit Agreement shall supersede and
replace the terms of the above-referenced 1997 Revolving Credit Agreement;
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
I. DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
Acquisition
Notes: The Notes issued by the Borrower to the Term Lenders
under the Term Agreement dated as of May 3, 1996, and all
extensions, renewals and substitutions, if any, of or for
the same.
Advance: Any advance of funds to the Borrower by the Revolving
Lenders or any of them under the revolving credit
facility provided in this Agreement.
Agreement: This 1998 Revolving Credit Agreement dated as of December
7, 1998, between the Borrower and certain Lenders, as
amended or restated from time to time.
Base Rate: The floating interest rate announced from time to
time by FNB-O as its "National Base Rate." The National
Base Rate is set by FNB-O, solely in its discretion, to
reflect generally the rates charged by national money
center banks as their reference rates. (Previously, the
rate was announced by FNB-O as its "New York Base Rate.")
Rates charged by FNB-O may be at, above or below the
National Base Rate, as determined by FNB-O as to each
respective customer.
Base Revolving
Credit Facility: The amount specified in Section 2.1 of this
Agreement, which shall include the aggregate amounts
which may be available under the Revolving Credit Notes
and the Lender Letter of Credit Facility.
5
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<PAGE>
Boatmen's: The Boatmen's National Bank of St. Louis, a national
banking association having its principal place of
business at One Boatmen's Plaza, 800 Market Street, St.
Louis, Missouri 63166-0236 (now known as NationsBank,
N.A.), and its successors and assigns.
Borrower: Data Transmission Network Corporation, a Delaware
corporation having its principal place of business at
Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114.
Broadcast
Partners:Broadcast Partners, a general partnership having its
current principal place of business at 11275 Aurora
Avenue, Des Moines, Iowa 50322.
Business
Day: Any day other than a Saturday, Sunday or a legal holiday
on which banks in the State of Nebraska are not open for
business.
Change of
Control: (a) At any time when any of the equity securities of the
Borrower shall be registered under Section 12 of the
Securities Exchange Act of 1934 as amended from time to
time (the "Exchange Act"), (i) any person, entity or
"group" (within the meaning of Section 13(d)(3) of the
Exchange Act) (other than any person which is a
management employee, or any such "group" which consists
entirely of management employees, of the Borrower) being
or becoming the beneficial owner, directly or indirectly,
of more than 50% of the voting stock of the Borrower, or
(ii) a majority of the members of the Borrower's board of
directors (the "Board") consisting of persons other than
Continuing Directors (as hereinafter defined); and (b) at
any other time, less than 50% of the voting stock of the
Borrower being owned beneficially, directly or
indirectly, by employees of the Borrower or its
subsidiaries. As used herein, the term "Continuing
Director" means any member of the Board on June 29, 1995,
and any other member of the Board who shall be
recommended or elected to succeed a Continuing Director
by a majority of Continuing Directors who are the members
of the Board.
Collateral: All personal property of the Borrower described in the
Security Agreement, whether now owned or hereafter
acquired, including, without limitation:
(a) all of the Borrower's accounts, accounts
receivable, Subscriber contract rights, chattel paper,
documents, instruments, goods, inventory, equipment,
general intangibles; and
(b) all proceeds and products of the foregoing.
6
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<PAGE>
Conversion: This term shall have the meaning set forth in Section
2.4.
Converted
Notes: Any note evidencing Conversion under or of all or a
portion of the Revolving Credit Notes (or any such
similar notes issued to any additional Revolving Lenders
hereinafter added to this Agreement), and all extensions,
renewals and substitutions of or for the foregoing.
Default Rate: The floating interest rate announced from time to
time by FNB-O as its "National Base Rate" plus 4.0%. The
National Base Rate is set by FNB-O, solely in its
discretion, to reflect generally the rates charged by
national money center banks as their reference rates.
(Previously, the rate was announced by FNB-O as its "New
York Base Rate.") Rates charged by FNB-O may be at, above
or below the National Base Rate, as determined by FNB-O
as to each respective customer.
Dresdner Dresdner Bank AG, New York and Grand Cayman
Branches, being represented by its office at 75 Wall
Street, New York, New York 10005, and its successors and
assigns.
Existing
Term Notes: That certain promissory note from the Borrower to
FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's (now
NationsBank, N.A.) dated as of February 27, 1995; and
those certain promissory notes from the Borrower to
FNB-O, FNB-W, NBD, Norwest, Sumitomo, Mercantile, First
Bank, Montreal, and LaSalle dated as of March 31, 1997,
and March 16, 1998, and, as to each, all extensions,
renewals, and substitutions of or for the foregoing.
FNB-O: First National Bank of Omaha, a national banking
association having its principal place of business at One
First National Center, Omaha, Nebraska 68102, and its
successors and assigns.
FNB-O Letter of
Credit Facility: An amount not to exceed $500,000 at any time
which FNB-O may elect in its discretion to provide to the
Borrower and one or more of its Subsidiaries under
Section 2.11 (a) hereof.
FNB-O Letter(s)
of Credit: Letter(s) of Credit issued under the FNB-O Letter
of Credit Facility.
7
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FNB-W: First National Bank, Wahoo, Nebraska, a national banking
association having its principal place of business at
Wahoo, Nebraska 68066, and its successors and assigns.
First Bank: First Bank, National Association, a national
banking association having its principal place of
business at 13th and M Streets, Lincoln, Nebraska 68508,
and its successors and assigns (it being acknowledged
that First Bank is the successor in interest to
FirsTier.)
First of
Chicago: The First National Bank of Chicago, a national banking
association having its principal place of business at One
First National Plaza, Chicago, Illinois 60670-0173, and
its successors and assigns.
FirsTier FirsTier Bank, National Association, having its principal
place of business at 13th and M Streets, Lincoln,
Nebraska 68508 (predecessor to U.S. Bank).
Fixed Rate
Notice: This term shall have the meaning set forth in Section
2.5.
Interest Rate
Protection Contract
Amounts: "Interest Rate Protection Contract Amounts" shall mean
amounts due from the Borrower under interest rate
protection contracts between the Borrower and one or more
Lenders as to (i) the interest differential amounts due
in respect of periodic netting payments under any such
contract, and (ii) any amount due as a result of marking
to market the Borrower's obligations under any such
contract upon the occurrence of an event of default
under, or other early termination of, such contract; in
either case without inclusion of fees and other expenses
related to such contract. Such Interest Rate Protection
Contract Amounts shall be reported in writing to FNB-O
and the Borrower by the applicable Lender at such times
as shall be appropriate to carry out the intent of this
Agreement.
LaSalle: LaSalle National Bank, a national banking association
having its principal place of business at 135 South
LaSalle Street, Chicago, Illinois 60603.
Lender Letter of
Credit Facility: The letter of credit facility provided for in
Section 2.11 (b) hereof.
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Lender Letter(s)
of Credit: Letter(s) of Credit issued under the Lender
Letter of Credit Facility, the outstanding face amount of
which shall not exceed $1,000,000 at any time.
Lenders: FNB-O, FNB-W, First of Chicago, Norwest, LaSalle,
Dresdner, Mercantile, U.S. Bank, Montreal, and NBC, in
their capacity as Revolving Lenders under this Agreement,
the Term Lenders, lenders of the Related Bank Debt,
NationsBank, formerly Boatmen's (as to Articles VI and
VII and as to Section 8/6 only), and the Existing Term
Notes , and such additional lenders as may be added
hereto or thereto from time to time.
Letter of Credit
Facility: Either the FNB-O or the Lender Letter of Credit Facility
or, if the context so requires, both such letter of
credit facilities.
Letter of Credit
Fees: The Letter of Credit Fees specified in Section 2.11 (d)
of this Agreement.
Letter(s) of
Credit: Either the FNB-O Letter(s) of Credit or the Lender
Letter(s) of Credit, or if the context so requires, both
such types of letters of credit.
Leverage
Ratio: The number which is obtained at the time of determination
by dividing Total Indebtedness at the applicable time by
Operating Cash Flow at the applicable time.
Make-Whole
Premium: An amount which shall be sufficient, as determined by the
relevant Lender in good faith and on a reasonable basis
and certified to the Borrower in writing, to compensate
the Lender for any loss (including any lost yield), cost
or expense incurred by the Lender (i) in liquidating or
redeploying deposits or other funds acquired by the
Lender to fund or maintain the loan prepaid and (ii) in
unwinding, amending, canceling or otherwise modifying or
terminating any match funding, swap or other arrangement
entered into by the Lender in connection with acquiring
or maintaining the funding for the loan prepaid.
Mercantile: Mercantile Bank of St. Louis, N.A., a national banking
association having its principal place of business at One
Mercantile Center, 7th and Washington Streets, St. Louis,
Missouri 63101, and its successors and assigns.
Montreal: Bank of Montreal, a Canadian bank being represented by
its offices at 430 Park Avenue, New York, New York 10022.
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NBC: National Bank of Canada, a Canadian bank being
represented by its offices at 1200 17th Street, Suite
2760, Denver, Colorado 80202.
NBD: NBD Bank, a bank organized under the laws of the State of
Michigan and having its principal place of business at
611 Woodward Avenue, Detroit, Michigan 48226, and its
successors and assigns.
NationsBank: NationsBank, N.A., a national banking association having
an office at 800 Market Street, 12th Floor, St. Louis,
Missouri 63101-2506 (successor to The Boatmen's National
Bank of St. Louis), and its successors and assigns.
Net Operating
Profit After
Taxes: For any period, the net earnings (or loss) after taxes of
Borrower and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period and
determined in conformity with generally accepted
accounting principles; provided that there shall be
excluded (i) the income (or loss) of any entity accrued
prior to the date it becomes a Subsidiary of Borrower or
is merged into or consolidated with Borrower and (ii) any
extraordinary gains or losses for such period determined
in accordance with generally accepted accounting
principles.
Net Worth: The Borrower's consolidated net worth as
determined in accordance with generally accepted
accounting principles plus subordinated debt. For
purposes of this definition, "subordinated debt" means
indebtedness of the Borrower which is subordinate, in a
manner satisfactory to the Lenders, to the indebtedness
due to the Lenders, and the repayment of which is
forbidden during the existence of any Event of Default
hereunder; provided however, that any such indebtedness
shall not be deemed subordinated debt to the extent of
the amount of principal payments that are due thereon
within one (1) year from the date of determination.
Norwest: Norwest Bank Nebraska, N.A., a national banking
association having its principal place of business at
20th and Farnam Streets, Omaha, Nebraska 68102, and its
successors and assigns.
Norwest Letter
of Credit: The letter of credit no. S405444, in the amount
of $130,949.00 with an expiration date of July 30, 1999,
which was issued by Norwest for the account of Kavouras,
Inc.; but not letters of credit issued in exchange,
renewal, extension or substitution of such original
letter of credit.
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Notes: (i) The Revolving Credit Notes, the Converted Notes, the
Existing Term Notes, the Acquisition Notes, and such
additional similar notes as may be issued to certain
additional Lenders, and all extensions, renewals, and
substitutions of or for the foregoing; and (ii) notes
and, in the case of interest rate protection contracts,
such contracts evidencing the obligations of the Borrower
to any Lender under the Related Bank Debt.
Operating
Cash Flow: The Borrower's consolidated average monthly
earnings or loss before interest, depreciation,
amortization and taxes, less current tax expense and plus
or minus any non-ordinary non-cash charges or credits to
earnings, which average shall be based on the Borrower's
actual financial results in the two (2) full calendar
months preceding the date of determination. For purposes
of calculating Operating Cash Flow for this Agreement,
the Borrower shall not permit deferred commission
expenses to be capitalized for any period in excess of
twelve (12) months.
Operative
Documents: This Agreement, the Notes, the Security Agreement, the
financing statements regarding the Collateral and the
documents and certificates delivered pursuant to Section
5.1.
Principal
Loan Amount: As to the Revolving Credit Notes, the aggregate
principal amount of all unpaid Advances outstanding at
any time (not including the unpaid balance under the
Related Bank Debt, Existing Term Notes or any Acquisition
Notes, or any amounts converted to a term loan
hereunder), and as to Converted Notes hereunder, the
unpaid principal amount thereof.
Purchase
Agreement: The Asset Purchase and Sale Agreement dated as of May 3,
1996, between the Borrower and Broadcast Partners, as
amended from time to time.
Quarterly
Compliance
Certificate: The certificate delivered to the Lenders by the Borrower
pursuant to Section 4.1(d).
Related
Bank Debt: The aggregate unpaid balance of all indebtedness,
now or hereafter existing (including future advances)
under certain interest rate protection contracts entered
into from time to time by the Borrower with one or more
of the Lenders.
Release: The Federal Reserve Statistical Release.
Restricted
Quarter: This term shall have the meaning set forth in Section 2.5
hereof.
Revolving
Credit Notes: The Notes issued to the Revolving Lenders pursuant
to Section 2.1, and such additional similar notes as may
be issued to Revolving Lenders hereinafter added to this
Agreement by mutual written agreement of the parties, and
all extensions, renewals, and substitutions of or for the
same. Such notes shall be in the form of Exhibit A
hereto. Solely for purposes of Section 7.2 of this
Agreement and any reference to such Section 7.2, the
Revolving Credit Notes shall include the amounts, if any,
due to (a) FNB-O and/or the Revolving Lenders under the
Letter of Credit Facility, and (b) Norwest in connection
with the Norwest Letter of Credit.
Revolving
Credit Rate: The Base Rate minus the applicable margin as
determined pursuant to Section 2.3.
Revolving
Lenders: FNB-O, FNB-W, First of Chicago, Norwest, LaSalle,
Dresdner, Mercantile, U.S. Bank, Montreal and NBC, and
such additional Revolving Lenders as may be added as
Revolving Lenders under Section 2.1 hereto from time to
time by mutual written agreement of the parties.
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Security
Agreement: The 1998 Security Agreement dated as of the date hereof,
between the Borrower and FNB-O, as agent for the Lenders,
(which amends and restates the 1997 Security Agreement
dated as of February 26, 1997, as amended by the First
Amendment to 1997 Security Agreement dated as of May 15,
1998), and as further amended or restated from time to
time.
Subscribers: Those customers of the Borrower which have subscribed for
the Borrower's "Basic DTN Subscription Service" and/or
"Farm Dayta Service" and/or other similar services and
who are not in default of their payment or other
obligations with respect thereto.
Subsidiary: Any corporation business association, partnership, joint
venture, limited liability company or other business
entity in which the Borrower, or one or more of its
Subsidiaries, or the Borrower and one or more of its
Subsidiaries has either (i) more than 50% of the equity
ownership thereof, or (ii) the power to elect a majority
of the directors or to control the identification of the
managing or general partners or similar governing persons
thereof.
Sumitomo: The Sumitomo Bank, Limited, a Japanese bank being
represented by its office at 200 North Broadway, Suite
1625, St. Louis, Missouri 63102, and acting through its
Chicago branch, and its successors and assigns.
Term
Agreement: The 1998 Term Credit Agreement dated as of the date
hereof, among the Borrower and certain Lenders specified
therein, (which amends and restates the 1997 Term Credit
Agreement dated as of February 26, 1997, as amended by
the First Amendment to 1997 Term Credit Agreement dated
as of February 1, 1998; and the Second Amendment to 1997
Term Credit Agreement dated as of May 15, 1998), and as
further amended or restated from time to time.
Term
Lenders: "Lenders" to the Borrower as such term is defined in the
Term Agreement.
Total
Indebtedness: All loans and other obligations of the Borrower and its
Subsidiaries, without duplication, for borrowed money
(including, without limitation, the indebtedness due to
the Lenders) regardless of the maturity thereof. For
purposes of this definition of "Total Indebtedness,"
indebtedness under an interest rate protection agreement
shall mean the amount if any, at the time of
determination, of the unpaid Interest Rate Protection
Contract Amounts; provided, however, that solely for
purposes of voting under this Agreement by the Lenders,
"Total Indebtedness" will not include such Interest Rate
Protection Contract Amounts.
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Trigger
Event: This term shall have the meaning set forth in Section 2.5
hereof.
U.S. Bank: U.S.Bank, National Association, formerly known as
First Bank, a national banking association having its
principal place of business at 13th and M Streets,
Lincoln, Nebraska 68508, and its successors and assigns.
All accounting terms not otherwise defined herein shall have the meaning
ordinarily applied under generally accepted accounting principles.
II. REVOLVING FACILITY
2.1 Revolving Credit. Until the earlier of June 30, 2000, or the date on
which the loan hereunder is converted to a term loan in accordance with Section
2.4, the Revolving Lenders severally agree to advance funds for general
corporate purposes not to exceed $80,800,000 (the "Base Revolving Credit
Facility") to the Borrower on a revolving credit basis (amounts outstanding
under the Acquisition Notes, Existing Term Notes and Related Bank Debt shall not
be counted against such Base Revolving Credit Facility limit). Such Advances
shall be made on a pro rata basis by the Revolving Lenders, based on the
following maximum advance limits and applicable percentages for each Revolving
Lender: (i) as to FNB-O, $16,000,000 (19.80%); (ii) as to FNB-W, $325,000
(.40%); (iii) as to First of Chicago, $2,015,000 (2.49%); (iv) as to Norwest,
$6,500,000 (8.04%); (v) as to LaSalle, $8,320,000 (10.30%); (vi) as to Dresdner,
$8,515,000 (10.54%); (vii) as to Mercantile, $11,245,000 (13.92%), (viii) as to
U.S. Bank, $8,515,000 (10.54%); (ix) as to Montreal, $6,565,000 (8.13%); and (x)
as to NBC, $12,800,000 (15.84%). The Borrower shall not be entitled to any
Advance hereunder if, after the making of such Advance, the Leverage Ratio would
exceed thirty-six (36), determined at the time of the Advance. Nor shall the
Borrower be entitled to any further Advances hereunder after the occurrence of a
material adverse change in its management personnel, as described in Section
4.14(b), or after the occurrence of any Event of Default with respect to the
Borrower. Advances shall be made, on the terms and conditions of this Agreement,
upon the Borrower's request. Requests shall be made by 12:00 noon Omaha time on
the Business Day prior to the requested date of the Advance. Requests shall be
made by presentation to FNB-O of a drawing certificate in the form of Exhibit B.
The Borrower's obligation to make payments of principal and interest on the
foregoing revolving credit indebtedness shall be further evidenced by the
Revolving Credit Notes.
2.2. The Borrower shall pay to the Revolving Lenders a commitment fee equal
to the product of the per annum unused commitment fee percentage shown below
times the unadvanced portion of the Maximum Revolving Credit Facility described
above:
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Leverage Ratio Unused Commitment Fee Percentage
Greater than 42 .375%
Greater than 24 but not in
excess of 42 .250%
24 or less .125%
Such fee shall be paid to FNB-O quarterly (calendar quarters) in arrears and
based on the average unused portion of the revolving credit commitment during
the applicable quarter and the Leverage Ratio in effect on the last day of the
month preceding such quarter. FNB-O shall distribute to each Revolving Lender
its pro rata share of such fee based on the maximum advance limits set forth
above. Furthermore, the Borrower will pay to FNB-O an agenting fee equal to
$40,000 annually, payable quarterly in arrears.
2.3 Interest on Revolving Credit. Until the earlier of June 30, 2000, or the
date on which the revolving credit loan hereunder is converted to a term loan,
interest shall accrue on the Principal Loan Amount outstanding from time to time
at a variable rate, which shall fluctuate on a monthly basis, equal to the Base
Rate minus a margin as determined below. The margin shall be adjusted quarterly
after receipt of the Borrower's Quarterly Compliance Certificate. Adjustments
shall be retroactive to the beginning of the current quarter.
Leverage Ratio Margin Below Base Rate
Greater than 42 .25%
Greater than 36 but not more
than 42 .50%
Greater than 30 but not more
than 36 .75%
Greater than 24 but not more
than 30 1.00%
Greater than 18 but not more
than 24 1.25%
18 or less 1.375%
The Base Rate minus the applicable margin as determined above is hereinafter
referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be
effective on the first day of each month, based on the Base Rate in effect as of
such day. Interest shall be due upon the rendering of each monthly invoice
therefor by FNB-O. Notwithstanding anything to the contrary elsewhere herein,
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after an Event of Default has occurred interest shall accrue on the entire
outstanding balance of principal and interest on all indebtedness hereunder at a
fluctuating rate equal to the Default Rate.
2.4 Conversion. Upon the earlier of: (i) June 30, 2000; or (ii) the
Borrower's giving notice of its election to convert the revolving credit loan
hereunder, or any portion thereof, to a term loan, the revolving credit loan
described above (or applicable portion thereof) shall be deemed converted to a
term loan (hereinafter referred to as "Conversion"). Any such term loans shall
be evidenced by notes (the "Converted Notes") separate from the initial
Revolving Credit Notes. Upon the issuance of Converted Notes, the Revolving
Credit Facility will be reduced by the principal amount of such Converted Notes
(and shall be increased to the extent permitted in Section 2.1(b) hereof), and
no further Advances shall be made by the Revolving Lenders on the converted
amount. The then outstanding Principal Loan Amount of each respective Converted
Note shall become due and payable in forty-eight (48) equal installments of
principal, with the first such installment due on the last day of the month
following Conversion, or, if such day is not a Business Day, on the next
succeeding Business Day, and subsequent installments due on the last day of each
consecutive month thereafter. In any event, the total amount of all unpaid
principal and accrued interest hereunder shall be due and payable no later than
June 30, 2004.
2.5 Interest on Converted Notes. After Conversion, interest shall accrue on
the Principal Loan Amount outstanding on the respective Converted Note from time
to time at a variable rate, which shall fluctuate on a monthly basis, which is
equal to the Revolving Credit Rate plus one quarter of one percent (.25%). For
purposes of computing such variable rate, changes in the Base Rate shall be
effective on the first day of each month based on the Base Rate in effect on
such day. Notwithstanding anything in the foregoing to the contrary, after
Conversion, the Borrower may elect to have a fixed interest rate apply to the
outstanding Principal Loan Amount converted and outstanding after the date of
giving notice of such fixed rate election (the "Fixed Rate Notice"). Such fixed
rate shall be the greater of:
(a) the Revolving Credit Rate in effect on the date of the notice1,
plus three-eighths of one percent (.375%), or
(b) the average of the yields on constant maturity Treasury Bonds with
maturities of three (3) years and five (5) years, as quoted in the
immediately preceding monthly Release for the month preceding such Release,
plus the incremental percentage shown below:
Leverage Ratio1 Incremental %
Greater than 36 2.25%
Greater than 24 but not in
excess of 36 2.00%
24 or less 1.75%
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Any election of a fixed rate by the Borrower shall be final and irrevocable.
Interest shall be due each month concurrently with the Borrower's principal
payment. Notwithstanding anything to the contrary elsewhere herein, after an
Event of Default has occurred interest shall accrue on the entire outstanding
balance of principal and interest on all indebtedness hereunder at a fluctuating
rate equal to the Default Rate. All interest due under this Agreement shall be
calculated on the basis of the actual number of days outstanding and a 360-day
year. Interest shall continue to accrue on the full unpaid balance of all
indebtedness hereunder notwithstanding any permitted or unpermitted failure of
the Borrower to make a scheduled payment or the fact that a scheduled payment
day falls on a day other than a Business Day. If the Borrower's most recent
Quarterly Compliance Certificate shows that, as of the end of the prior quarter,
the Leverage Ratio was at such date more than thirty-six (36), the current
quarter shall be deemed a "Restricted Quarter." If, any time during a Restricted
Quarter (including, without limitation, during any period in such quarter prior
to delivery of the Quarterly Compliance Certificate), the interest rate accruing
on any Existing Term Note or Converted Note is less than seven and one-half
percent (7.50%) per annum, a "Trigger Event" shall be deemed to have occurred.
Upon the occurrence of a Trigger Event, the Borrower shall be obligated to pay
the following fees: (i) three-eighths of one percent (.375%) of the outstanding
principal balance as of the date preceding the Trigger Event of each Existing
Term Note or Converted Note which accrues interest at less than seven and
one-half percent (7.50%) per annum, which amount shall be payable promptly upon
invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable on
the six (6) month anniversary of the Trigger Event; and (iii) the same amount as
computed in clause (i), payable on the twelve (12) month anniversary of the
Trigger Event.
2.6 Payments. All obligations of the Borrower under the Related Bank Debt
(other than obligations under any interest rate protection contract), Revolving
Credit Notes and Converted Notes and under the other Operative Documents shall
be payable in immediately available funds in lawful money of the United States
of America at the principal office of FNB-O in Omaha, Nebraska or at such other
address as may be designated by FNB-O in writing. In the event that a payment
day is not a Business Day, the payment shall be due on the next succeeding
Business Day.
2.7 Prepayments. The Borrower may at any time prepay the Principal Loan
Amount outstanding under the Revolving Credit Notes or any of the Converted
Notes if the Borrower has given the Revolving Lenders at least two (2) Business
Days prior written notice of its intention to make such prepayment. Any such
prepayment may be made without penalty except for Converted Notes as to which
interest is accruing at a fixed rate in accordance with Section 2.5, in which
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event a prepayment penalty shall be due to each Revolving Lender, at each
Revolving Lender's option, either: (1) the Make-Whole Premium due to such
Revolving Lender in respect of such prepayment; or (2) such Revolving Lender's
applicable prepayment fee as set forth below. The applicable prepayment fee for
any Converted Note shall be: (i) if the notice electing fixed interest was given
within twelve (12) months of Conversion, the fee shall be one and one-half
percent (1.50%) of the amount of such prepayment; (ii) if the notice electing
fixed interest was given after twelve (12) months of Conversion but within
twenty-four (24) months of Conversion, the fee shall be three-fourths of one
percent (.75%) of the amount of such prepayment; (iii) if the notice electing
fixed interest was given after twenty-four (24) months of Conversion but within
thirty-six (36) months of Conversion, the fee shall be three-tenths of one
percent (.30%) of the amount of such prepayment. The applicable prepayment fee
for any Existing Term Note shall be as specified in such Existing Term Note.
2.8 Security. All obligations of the Borrower hereunder and under the
Operative Documents, including, without limitation, the Borrower's obligations
to make payments of principal and interest on the Notes shall be secured by a
first security interest in the Collateral, as more specifically described in the
Security Agreement.
2.9 Existing Term Notes. The Borrower's obligations under the Existing Term
Notes shall continue in full force and effect in accordance with the terms
thereof. Such notes shall be deemed amended to include this 1998 Revolving
Credit Agreement within the definition of Obligations in such notes, it being
understood that this 1998 Revolving Credit Agreement, rather than the 1997
Revolving Credit Agreement, shall be controlling with respect to defaults,
covenants and all other relevant matters arising under the Existing Term Notes
and the Notes executed and delivered in connection with this 1998 Revolving
Credit Agreement. The Existing Term Notes shall continue to be secured by the
security interest provided in the Security Agreement.
2.10 Related Bank Debt. Nothing herein shall be deemed to alter or amend
the Borrower's obligations under the Related Bank Debt or any collateral
security therefor, all of which shall continue in full force and effect in
accordance with the terms thereof.
2.11 Letter of Credit Facilities. In order to accommodate the needs of the
Borrower or one or more of its Subsidiaries, from time to time FNB-O on its own
behalf may, or FNB-O as the Agent of the Revolving Lenders under this Agreement
shall, upon application of the Borrower and, if requested by FNB-O the
applicable Subsidiary, issue letters of credit on the terms, and upon
satisfaction of the conditions, specified below:
(a) FNB-O Letter of Credit Facility. FNB-O may elect to issue letters of
credit solely on its own behalf ("FNB-O Letters of Credit"); provided, however,
that at the time of issuance of such FNB-O Letters of Credit, the aggregate
amount available to be drawn on Letters of Credit issued and outstanding under
this FNB-O Letter of Credit Facility shall not exceed $500,000. The issuance of
FNB-O Letters of Credit shall not cause the Base Revolving Credit Facility to be
reduced.
(b) Lender Letter of Credit Facility. Whenever FNB-O elects not to issue an
FNB-O Letter of Credit or the aggregate amount available to be drawn on FNB-O
Letters of Credit exceeds, or upon the issuance of a new Letter of Credit will
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exceed, $500,000, the Agent on behalf of the Revolving Lenders shall issue from
time to time for the account of the Borrower or one or more of its Subsidiaries
letters of credit in the name of First National Bank of Omaha but which are
designated as Lender Letters of Credit (the "Lender Letters of Credit");
provided, however, the Agent shall have no obligation to issue any such Lender
Letter of Credit unless at such time the Borrower meets all the conditions for
an Advance under the Base Revolving Credit Facility and, after such issuance,
the aggregate face amount of Lender Letters of Credit outstanding will not
exceed $1,000,000 and will not exceed the then available Base Revolving Credit
Facility, as reduced by the outstanding principal amount of the Converted Notes
and the Revolving Credit Notes, as more specifically set forth in this
Agreement. The Revolving Lenders shall be obligated to fund pro rata according
to their respective pro rata percentages shown in Section 2.1 of this Agreement
any draws on such Lender Letters of Credit and shall be entitled to share pro
rata in the Letter of Credit Fees and reimbursement amounts received in
connection with such Lender Letters of Credit. The sum of (i) amounts drawn
under such Lender Letters of Credit which have not been reimbursed by the
Borrower, and (ii) the amounts available to be drawn under outstanding Lender
Letters of Credit shall operate to reduce the Base Revolving Credit Facility by
such sum.
(c) Letter of Credit Documents, Fees. Prior to the issuance by FNB-O of any
Letters of Credit, the Borrower and, if requested by FNB-O, the applicable
Subsidiary, shall execute and deliver to FNB-O an application and continuing
letter of credit agreement, such agreements to be in the forms attached hereto
as Exhibit C to this 1998 Revolving Credit Agreement, as such forms may be
amended from time to time for general use in connection with letters of credit
issued by FNB-O.
(d) Letter of Credit Fees. In addition to all costs incurred by FNB-O in
the issuance and enforcement of the Letters of Credit which are to be reimbursed
by the Borrower in accordance with the application and continuing letter of
credit agreement executed in connection with each Letter of Credit, the Borrower
shall pay to FNB-O (on its own behalf as to FNB-O Letters of Credit and as Agent
as to Lender Letters of Credit) a letter of credit fee (the "Letter of Credit
Fee") equal to one percent (1%) per annum of the undrawn amount of such Letter
of Credit, such fee to be paid quarterly in arrears based on the average amount
outstanding during such quarter; provided, however, that at any time that an
Event of Default has occurred and is continuing under the Agreement, such fee
shall be equal to five percent (5%) per annum). Interest shall accrue on amounts
drawn under any Letter of Credit, until such amount is reimbursed, at the then
current rate for amounts outstanding under the Revolving Note and, for any
period that such draw remains unreimbursed more than two Business Days after
such draw, at the Default Rate. In addition, the Borrower shall pay such other
administrative fees, including a fee for opening the Letter of Credit, as are
agreed in writing between FNB-O and the Borrower. Amounts received by the Agent
for opening a Lender Letter of Credit or as administrative fees other than the
Letter of Credit remain the property of the Agent and shall not be shared pro
rata with the Revolving Lenders.
(e) Security. Amounts due in connection with the Letters of Credit and the
Norwest Letter of Credit are secured by the Collateral pledged under the
Security Agreement and any security agreement given by a Subsidiary in favor of
the Lenders. In addition, the Agent shall have the right to require additional
collateral, including cash collateral equal to 100% of the aggregate of the
amounts available to be drawn under the Letters of Credit, upon the occurrence
of an Event of Default under the Agreement.
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III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that as of the date hereof and as of
the date of each and every request for an Advance hereunder, the following are
and shall be true and correct:
3.1 Corporate Existence. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and each
Subsidiary is a corporation duly organized, validly existing and in good
standing in its state of incorporation as shown on Schedule I, and it and each
of its Subsidiaries is duly qualified and in good standing in all states where
it is doing business except where the failure to be so qualified would not have
a material adverse effect on it and it has full power and authority to own and
operate its properties and to carry on its business. As of the date of this
Agreement, the Borrower has no Subsidiaries other than those shown on Schedule
I.
3.2 Corporate Authority. It has full corporate power, authority and legal
right to execute, deliver and perform the Operative Documents to which it is a
party, and all other instruments and agreements contemplated hereby and thereby,
and to perform its obligations hereunder and thereunder; and such actions have
been duly authorized by all necessary corporate action, and are not in conflict
with any applicable law or regulation, or any order, judgment or decree of any
court or other governmental agency or instrumentality or its articles of
incorporation or bylaws, or with any provisions of any indenture, contract or
agreement to which it or any of its Subsidiaries is a party or by which it or
any of its Subsidiaries or any of its or their property may be bound.
3.3 Validity of Agreements. The Borrower's Operative Documents have been
duly authorized, executed and delivered and constitute its legal, valid and
binding agreements, enforceable against the Borrower in accordance with their
respective terms (except to the extent that enforcement thereof may be limited
by any applicable bankruptcy, reorganization, moratorium or similar laws now or
hereafter in effect, or by principles of equity).
3.4 Litigation. Neither the Borrower nor any Subsidiary is a party to any
pending lawsuit or proceeding before or by any court or governmental body or
agency, which is likely to have a materially adverse effect on the Borrower's
ability to perform its obligations under its Operative Documents; nor is the
Borrower aware of any threatened lawsuit or proceeding, to which it or any
Subsidiary may become a party or of any investigation of any Court or
governmental body or agency into its affairs, which if instituted would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents.
3.5 Governmental Approvals. The execution, delivery and performance by the
Borrower of the Operative Documents do not require the consent or approval of,
the giving of notice to, the registration with, or the taking of any other
action in respect of, any federal, state or other governmental authority or
agency other than as contemplated herein and therein.
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3.6 Defaults Under Other Documents. Neither the Borrower nor any Subsidiary
is in default or in violation (nor has any event occurred which, with notice or
lapse of time or both, would constitute a default or violation) under any
document or any agreement or instrument to which it may be a party or under
which it or any of its properties may be bound and the result of which would
have a material adverse effect upon the Borrower's ability to perform its
obligations under its Operative Documents.
3.7 Judgments. There are no outstanding or unpaid judgments (which are not
adequately bonded) of the Borrower or any Subsidiary which would have a material
adverse effect upon the Borrower's ability to perform its obligations under its
Operative Documents.
3.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is in
violation of any laws, regulations or judicial or governmental decrees in any
respect which could have any material adverse effect upon the validity or
enforceability of any of the terms of the Borrower's Operative Documents or
which could have a material adverse effect upon the Borrower's ability to
perform its obligations under its Operative Documents.
3.9 Taxes. All tax returns of the Borrower and its Subsidiaries for
material taxes required to be filed have been filed or extensions permitted by
law have been obtained; all taxes of the Borrower and its Subsidiaries of a
material nature and which are due and payable as reflected on such returns have
been paid, other than taxes which are due but for which only a nominal late
payment penalty is payable and for which the taxing authority is not yet
entitled to enforce its remedies for payment thereof and other than taxes being
contested in good faith and with respect to which adequate reserves have been
established; and no material amounts of taxes of the Borrower and its
Subsidiaries not reflected on such returns are payable.
3.10 Collateral. The Borrower has good and marketable title to the
Collateral and the Collateral is free from all liens, encumbrances or security
interests, except as disclosed on Schedule A attached hereto. The Borrower's
principal place of business, chief executive office, and the principal place
where it keeps its records concerning the Collateral is Suite 200, 9110 West
Dodge Road, Omaha, Nebraska 68114. The Borrower also keeps certain of its
records regarding the Collateral at 11275 Aurora Avenue, Des Moines, Iowa 50322.
3.11 Pension Benefits. Neither the Borrower nor any Subsidiary maintains a
"Plan" as defined in Section 3 of the Employees Retirement Income Security Act
of 1974 ("ERISA"), or each such entity is in compliance with the minimum funding
requirements with respect to any such "Plan" maintained by it and it has not
incurred any material liability to the Pension Benefit Guaranty Corporation
("PBGC") or otherwise under ERISA in connection with any such Plan.
3.12 Margin Regulations. No part of the proceeds of any Advance hereunder
shall be used to purchase or carry any "margin stock" (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System of the
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United States) or any "margin security" (within the meaning of Regulation G of
said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of the
proceeds of any Advance hereunder shall be used for any purpose that violates,
or which is inconsistent with, the provisions of Regulation G, T, U or X of said
Board of Governors.
3.13 Financial Condition. The financial condition of the Borrower and its
Subsidiaries is truly and accurately set forth in the most recent financial
statement which has been provided to the Lenders and no material adverse change
has occurred which would make such financial statement inaccurate or misleading.
IV. COVENANTS
The Borrower hereby covenants that:
4.1 Financial Reports
(a) Within forty-five (45) days after the end of each month, the
Borrower, at its sole expense, shall furnish the Lenders a consolidated
balance sheet, a statement of earnings of the Borrower and its consolidated
Subsidiaries and a statement of cash flows of the Borrower and its
consolidated Subsidiaries, and such financial statements on a consolidating
basis as to the Borrower, all such financial statements to be prepared in
accordance with generally accepted accounting principles consistently
applied and certified as completed and correct, subject to normal changes
resulting from year-end audit adjustments, by the chief financial officer
of the Borrower.
(b) Within ninety (90) days after the close of the Borrower's
fiscal year, the Borrower, at its sole expense, shall furnish the Lenders:
(i) a consolidated balance sheet, a statement of earnings of the Borrower
and its consolidated Subsidiaries and a statement of cash flows of the
Borrower and its consolidated Subsidiaries, certified by Deloitte & Touche,
or other independent certified public accountants acceptable to the
Lenders, that such financial reports fairly present the financial condition
of the Borrower and its consolidated Subsidiaries and have been prepared in
accordance with generally accepted accounting principles consistently
applied; and (ii) a certificate from such accountants certifying that in
making the requisite audit for certification of the Borrower's financial
statements, the auditors either (1) have obtained no knowledge, and are not
otherwise aware of, any condition or event which constitutes an Event of
Default or which with the passage of time or the giving of notice would
constitute an Event of Default under Sections 4.3, 4.4, 4.7, 4.9(b),
4.9(d), 4.11, 4.19, or 4.20; or (2) have discovered such condition or
event, as specifically set forth in such certificate, which constitutes an
Event of Default or which with the passage of time or the giving of notice
would constitute an Event of Default under such sections. The auditors
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shall not be liable to the Lenders by reason of the auditors' failure to
obtain knowledge of such event or condition in the ordinary course of their
audit unless such failure is the result of negligence or willful misconduct
in the performance of the audit.
(c) Within thirty (30) days after submission to the Securities and
Exchange Commission, the Borrower shall provide to the Lenders copies of
its Forms 10K and 10Q, as submitted to the Securities and Exchange
Commission during the term of this Agreement.
(d) Within twenty (20) days after the end of each quarter, the
Borrower, at its expense, shall furnish the Lenders a certificate of the
chief financial officer of the Borrower in the form of Exhibit D, setting
forth such information (including detailed calculations) sufficient to
verify the conclusions of such officer after due inquiry and review, that:
(i) The Borrower and each Subsidiary, either (y) is in
compliance with the requirements set forth in this Agreement or
(z) is NOT in compliance with the foregoing for reasons
specifically set forth therein; and
(ii) The chief financial officer of the Borrower has
reviewed or caused to be reviewed all of the terms of the
Operative Documents of the Borrower and that such review either
(1) has NOT disclosed the existence of any condition or event
which constitutes an event of default or any condition or event
which with the passage of time or the giving of notice would
constitute an event of default under the Operative Documents or
(2) has disclosed the existence of a condition or event which
constitutes an event of default, or a condition or event which
with the passage of time or the giving of notice would constitute
an event of default, under the aforesaid instrument or instruments
and the specific condition or event is specifically set forth.
(e) The Borrower shall provide the Lenders with such other
financial reports and statements as the Lenders may reasonably request.
4.2 Corporate Structure and Assets. The Borrower shall not merge or
consolidate with any other corporation or entity unless the Borrower shall be
the surviving entity, nor sell any assets except items that are obsolete or no
longer necessary for operation of the business, other than in the ordinary
course of business without the prior written consent of the Lenders. The Lenders
shall be entitled to receive as a prepayment on the Notes the proceeds of any
sale of assets of the Borrower which are prohibited by the preceding sentence.
Notwithstanding the foregoing prepayment requirements, any such prohibited sale
shall remain a violation of this Agreement. In addition, the Borrower shall not
engage in any business materially different from that in which it is presently
engaged without the prior written consent of the Lenders, which consent shall
not be unreasonably withheld. The foregoing restrictions on mergers and
consolidations shall not apply if: (i) in the case of a merger, the Borrower is
the surviving entity and expressly reaffirms its obligations hereunder; (ii) in
the case of a consolidation, the resulting corporation expressly assumes the
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obligations of the Borrower hereunder; (iii) the surviving or resulting
corporation is organized under the laws of the United States or a jurisdiction
thereof; (iv) after giving effect to such merger or consolidation, the surviving
or resulting corporation will be engaged in substantially the same lines of
business as are now engaged in by the Borrower; and (v) immediately after giving
effect to such merger or consolidation, no Event of Default will exist
hereunder.
4.3 Net Worth. The Borrower shall maintain a minimum Net Worth during the
term of this Agreement of at least $23,500,000, plus fifty percent (50%) of the
net income (but not losses) of the Borrower for each fiscal year, commencing
with the fiscal year beginning January 1, 1997; provided, however, solely for
purposes of determining compliance with the provisions of this Section 4.3, "Net
Worth" shall not include any subordinated debt.
4.4 Indebtedness
(a) The Borrower shall not at any time permit the Leverage Ratio
to exceed forty-eight (48).
(b) On the day the Borrower or a Subsidiary becomes liable with
respect to any debt and immediately after giving effect thereto and to the
concurrent retirement of any other debt, the sum of Total Indebtedness,
plus the amount of any outstanding subordinated debt of the Borrower and
its Subsidiaries, plus the contingent obligations of the Borrower and its
Subsidiaries under any guaranty of the debt of any other person or entity
(other than unsecured debt of a Subsidiary incurred in the ordinary course
of business for other than borrowed money or to finance the purchase price
of any property or business) shall not exceed an amount equal to sixty (60)
times Operating Cash Flow at such date.
4.5 Use of Proceeds. The Borrower shall not use the proceeds of the
Advances hereunder to purchase or carry any "margin stock" (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System of the
United States) or any "margin security" (within the meaning of Regulation G of
said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of such
proceeds shall be used for any purpose that violates, or which is inconsistent
with, the provisions of Regulation G, T, U or X of said Board of Governors. This
section shall not preclude the Borrower from repurchasing any of its own issued
and outstanding common stock; provided, however, that such repurchase does not
result in the occurrence of any other Event of Default hereunder.
4.6 Notice of Default. The Borrower shall give to the Lenders prompt
written notification of the existence or occurrence of:
(a) any fact or event which results, or which with notice or the
passage of time, or both, would result in an Event of Default hereunder;
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(b) any proceedings instituted by or against the Borrower in any
federal, state or local court or before any governmental body or agency, or
before any arbitration board, or any such proceedings threatened against
the Borrower by any governmental agency, which is likely to have a material
adverse effect upon the Borrower's ability to perform its obligations under
its Operative Documents;
(c) any default or event of default involving the payment of money
under any agreement or instrument which is material to the Borrower or any
Subsidiary to which such entity is a party or by which it or any of its
property may be bound, and which default or event of default would have a
material adverse effect upon the Borrower's ability to perform its
obligations under its Operative Documents; and
(d) the Borrower shall give immediate notice of the commencement
of any proceeding under the Federal Bankruptcy Code by or against the
Borrower or any Subsidiary.
4.7 Distributions
(a) Neither Borrower nor any Subsidiary shall declare any
dividends or make any cash distribution in respect of any shares of its
capital stock or warrants of its capital stock, without the prior written
consent of the Lenders; provided, however, that the Borrower may declare
stock dividends; provided, further, that the Borrower need not obtain the
Lenders' consent with respect to (i) dividends in any one (1) year which
are, in the aggregate, less than 25% of the Borrower's Net Operating Profit
After Taxes in the previous four (4) quarters, as reported to the Lenders
pursuant to Section 4.1; or (ii) dividends or distributions from any
consolidated Subsidiary.
(b) Neither the Borrower nor any Subsidiary other than a
Subsidiary which is wholly-owned by the Borrower shall purchase, redeem, or
otherwise retire any shares of its capital stock or warrants of its capital
stock if, immediately after the making of such purchase or redemption, the
Borrower or any Subsidiary will be in default of any other covenant or
provision of this Agreement (including, without limitation, the covenants
and provisions pertaining to minimum net worth and limitations on
indebtedness).
4.8 Compliance with Law and Regulations. The Borrower and each Subsidiary
shall comply in all material respects with all applicable federal and state laws
and regulations.
4.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance
(a) The Borrower and each Subsidiary shall maintain its property
in good condition in all material respects, ordinary wear and tear
excepted, and make all renewals, replacements, additions, betterments and
improvements thereto necessary for the efficient operation of its business.
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(b) The Borrower and each Subsidiary shall keep true books of
record and accounts in which full and correct entries shall be made of all
its business transactions, all in accordance with generally accepted
accounting principles consistently applied.
(c) The Borrower and each Subsidiary shall do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate form of existence as is necessary for the continuation of its
business in substantially the same form, except where such failure to do so
with respect to any Subsidiary would not have a material adverse effect on
the ability of the Borrower to perform its obligations under the Operative
Documents.
(d) The Borrower and each Subsidiary shall pay all taxes,
assessments and governmental charges or levies imposed upon it or its
property; provided, however, that the Borrower or any Subsidiary shall not
be required to pay any of the foregoing taxes which are being diligently
contested in good faith by appropriate legal proceedings and with respect
to which adequate reserves have been established.
(e) The Borrower shall maintain or cause to be maintained
liability insurance and casualty insurance, in a form and amount
satisfactory to FNB-O as agent for the Lenders, upon the Collateral
(excluding equipment or inventory provided to Subscribers in the ordinary
course of business) and other tangible assets owned by it and its
Subsidiaries. The Borrower shall name FNB-O as agent for the Lenders as the
loss payee on all such casualty insurance, and as an additional insured on
all such liability insurance and shall provide the Lenders with evidence of
such insurance upon request.
4.10 Inspection of Properties and Books. The Borrower shall recognize and
honor the right of the Lenders, upon request to an officer of the Borrower, to
visit and inspect any of the properties of, to examine the books, accounts, and
other records of, and to take extracts therefrom and to discuss the affairs,
finances, loans and accounts of, and to be advised as to the same by the
officers of, the Borrower at all such times, in such detail and through such
agents and representatives as the Lenders may reasonably desire.
4.11 Guaranties. Neither the Borrower nor any Subsidiary shall guaranty or
become responsible for the indebtedness of any other person or entity; provided,
however, that a Subsidiary may guaranty the obligation of the Borrower; provided
further, that the Borrower may guaranty the obligations of a Subsidiary so long
as no Event of Default (or no event or occurrence which with the passage of time
or notice, or both, would become an Event of Default) has occurred or will occur
hereunder, taking into account such guaranty and indebtedness.
4.12 Collateral. Neither the Borrower nor any Subsidiary shall incur or
permit to exist any mortgage, pledge, lien, security interest or other
encumbrance on the Collateral, except as permitted in the Security Agreement.
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Subject to Section 4.4(b), the foregoing shall not be construed to prohibit the
Borrower or any Subsidiary from acquiring leased equipment in the ordinary
course of business. Without limiting the generality of the foregoing, the
Borrower covenants and agrees that it shall on request enforce for the benefit
of the Lenders, but at the sole expense of the Borrower, any and all rights and
remedies (including, without limitation, rights to indemnity), that it may have
with respect to the existence of any liens, security interests or other
encumbrances that may exist on the property of the Borrower acquired from
Broadcast Partners under the Purchase Agreement.
4.13 Name; Location. The Borrower shall give the Lenders ninety (90) days
notice prior to changing its name, identity or corporate structure, moving its
principal place of business, chief executive office or place where it keeps its
records concerning the Collateral.
4.14 Notice of Change in Ownership or Management. During the term of this
Agreement, the Borrower shall give the Lenders notice of the occurrence of any
of the following described events, which notice shall be given as soon as the
Borrower obtains notice or knowledge thereof:
(a) any change, directly or indirectly, in the existing
controlling interest in the Borrower; or
(b) any material adverse change in its management personnel. A
material adverse change in the Borrower's management personnel shall be
deemed to have occurred if any one (1) of the following has occurred with
respect to two of the four (4) individuals who are both officers and
members of the Board of Directors of the Borrower: (i) the resignation,
retirement, or voluntary or involuntary termination of employment and/or
status of such persons as officers and directors of the Borrower; (ii) any
announcement, notice of intent, resolution or similar advance notice with
respect to the matters referenced in the foregoing clause; or (iii) the
death, disability or legal incompetence of such persons.
4.15 Interest Coverage. The ratio of Operating Cash Flow to interest
expense (as determined in accordance with generally accepted accounting
principles but excluding amortization of deferred offering costs and any fees
related to the Trigger Event in Section 2.5 of this Agreement) at the end of
each quarter during the term of this Agreement, as shown on the Quarterly
Compliance Report, shall not be less than 2.25 to 1.0.
4.16 Subordinated Debt. Neither the Borrower nor any Subsidiary shall incur
any subordinated debt or issue any preferred stock or warrants for preferred
stock except upon the prior written consent of the Lenders. Neither the Borrower
nor any Subsidiary shall make any voluntary or optional prepayment on any
subordinated debt without the prior written consent of the Lenders. Similarly,
the Borrower shall not amend its articles of incorporation or any other
documents or agreements relating to the issuance of subordinated debt, preferred
stock or warrants for preferred stock without the prior written consent of the
Lenders.
4.17 Subsidiaries. The Borrower shall give prompt written notice to the
Lenders of the Borrower's intent to acquire, or the Borrower's acquisition of,
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any Subsidiary. Prior to the creation or acquisition of such Subsidiary, the
Borrower (i) shall cause a first security interest in the assets of such
Subsidiary to be perfected in favor of FNBO, as agent for the Lenders, and (ii)
shall cause the Subsidiary to enter into a security agreement, to execute and
file such financing statements and to provide opinions all in form satisfactory
to the Lenders as to compliance with this section.
4.18 Amendments to Purchase Agreement. The Borrower shall not amend the
Purchase Agreement without the prior written consent of the Lenders.
4.19 Capital Expenditures. The Borrower shall not incur in any fiscal year,
commencing with the fiscal year beginning January 1, 1998, capital expenditures,
determined in accordance with generally accepted accounting principles, of more
than $2,000,000; provided, however, that capital expenditures for (a) equipment
to be used by Subscribers of the Borrower, and (b) telecommunication equipment,
computer equipment, software, and software consulting shall not be counted for
purposes of this annual limitation.
4.20 Acquisitions. The Borrower shall not acquire any stock or any equity
interest in, or warrants therefor or securities convertible into the same, or a
substantial portion of the assets of, another entity without the prior written
consent of the Revolving Lenders; provided, however, that the Borrower shall be
permitted to make on a cumulative basis from and after July 1, 1998, such
acquisitions (excluding the acquisition of A-T Financial Information, Inc.
directly or through Asset Growth Corporation) in an amount not to exceed Twenty
Million Dollars ($20,000,000) in the aggregate without the consent of the
Revolving Lenders if:
(a) such acquisitions are in or from entities which:
(i) are in the business of electronically communicating
time-sensitive information to their customers;
(ii) have their principal place of business in the United
States or Canada; and
(iii) except for Weather Services Corporation, have a
positive operating cash flow, calculated in the same method as is
used to calculate the Borrower's Operating Cash Flow for purposes
of this Agreement; and
(b) the Borrower or any Subsidiary is not, and immediately after
making such acquisition, will not be in default under any covenant or
provisions of this Agreement (including, without limitation, the covenants
and provisions pertaining to minimum net worth and limitations on
indebtedness); and
(c) except for the acquisition of A-T Financial Information, Inc.
directly or through Asset Growth Corporation, no one acquisition exceeds
Ten Million Dollars ($10,000,000).
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V. CONDITIONS PRECEDENT
6.1 Events of Default. Any and all obligations of the Lenders hereunder are
subject to satisfaction of the following conditions precedent:
(a) FNB-O, as agent, shall have received an opinion of counsel to
the Borrower covering such matters as the Lenders may request (including,
without limitation, corporate existence and good standing, corporate
authority, due authorization, execution and delivery of the Operative
Documents, the legal, valid, binding and enforceable nature of the
Operative Documents, and the perfection and priority of the security
interest in the Collateral granted to the Lenders), such opinion to be
satisfactory in form and substance to counsel to FNB-O;
(b) FNB-O, as agent, shall have received such certificates and
documents as the Lenders may reasonably request from the Borrower,
including articles of incorporation and bylaws, certificates regarding good
standing, incumbency, copies of other corporate documents, and appropriate
authorizing resolutions; and
(c) the Operative Documents shall have been duly authorized and
executed and shall be in full force and effect, and such UCC financing
statements shall have been executed and filed in such offices as may be
appropriate to perfect the security interest of FNB-O, as agent for the
Lenders, in the Collateral.
VI. DEFAULTS AND REMEDIES
6.1 Events of Default. Any of the following shall be deemed an event of
default under this Agreement (an "Event of Default"):
(a) Any payment of principal required by any of the Operative
Documents shall not be paid when due.
(b) Any payment of interest or other fees due hereunder or under
any of the Operative Documents shall not be paid within fifteen (15)
calendar days after the date on which such payment was invoiced or due.
(c) Any representation or warranty of the Borrower under any of
the Operative Documents, or any financial reports or statements or
certificates submitted pursuant to this Agreement, shall prove to have been
false in any material respect when made.
(d) A failure of the Borrower or any Subsidiary to comply with any
requirement or restriction applicable to such entity and contained in
Sections 4.1, 4.2, 4.3, 4.4, 4.7, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.19,
or 4.20 of this Agreement.
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(e) A failure of the Borrower or any Subsidiary to comply with any
requirement or restriction contained in any provision of the Operative
Documents not otherwise specified in this Article VI, which failure remains
unremedied for ten (10) days following receipt of notice from FNB-O on
behalf of the Lenders.
(f) The occurrence of a default or a breach of any of the
obligations of the Borrower or any Subsidiary (other than obligations of
such Subsidiary to the Borrower) under any note, loan agreement, preferred
stock, subordinated debt instrument or agreement, or any other agreement
evidencing an obligation to repay borrowed money.
(g) The entry of a final judgment against the Borrower or any
Subsidiary for the payment of money, which is not covered by insurance, and
the expiration of thirty (30) days from the date of such entry during which
the judgment is not discharged in full or stayed.
(h) The occurrence of any one or more of the following:
(1) The Borrower or any Subsidiary shall file a voluntary
petition in bankruptcy or an order for relief shall be entered in
a bankruptcy case as to such entity or shall file any petition or
answer seeking or acquiescing in any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief for itself under any present or future federal, state or
other statute, law or regulation relating to bankruptcy,
insolvency or other relief for debtors; or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver or
liquidator of such entity or of all or any part of its property,
or of any or all of the royalties, revenues, rents, issues or
profits thereof, or shall make any general assignment for the
benefit of creditors, or shall admit in writing its inability to
pay its debts or shall generally not pay its debts as they become
due; or
(2) A court of competent jurisdiction shall enter an order,
judgment or decree approving a petition filed against the Borrower
or any Subsidiary seeking any reorganization, dissolution or
similar relief under any present or future federal, state or other
statute, law or regulation relating to bankruptcy, insolvency or
other relief for debtors, and such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of thirty (30) days
(whether or not consecutive) from the first date of entry thereof;
or any trustee, receiver or liquidator of the Borrower or any
Subsidiary or of all or any part of its property, or of any or all
of the royalties, revenues, rents, issues or profits thereof,
shall be appointed without the consent or acquiescence of such
entity and such appointments shall remain unvacated and unstayed
for an aggregate of thirty (30) days (whether or not consecutive);
or
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(3) A writ of execution or attachment or any similar
process shall be issued or levied against all or any part of or
interest in the Collateral, or any judgment involving monetary
damages shall be entered against the Borrower or any Subsidiary
which shall become a lien on the Collateral or any portion thereof
or interest therein and such execution, attachment or similar
process or judgment is not released, bonded, satisfied, vacated or
stayed within thirty (30) days after its entry or levy.
(i) Any event of default shall occur under any Operative Document.
(j) A change shall occur after November 8, 1993, directly or
indirectly, in the ownership or control of the Borrower; provided, however,
that changes in the ownership or control of, or new issuances of, voting
common stock which do not exceed, cumulatively, 50% of the total issued and
outstanding shares of the Borrower as of September 30, 1993 shall not be
deemed an Event of Default under this Section 6.1(j); provided further,
that acquisitions of additional shares by members of the existing executive
management group of the Borrower shall not be counted as changes in the
ownership or control of the Borrower under this Section 6.1(j). For
purposes of computing the total issued and outstanding shares as of
September 30, 1993, warrants and options for such shares shall be included.
(k) An Event of Default shall occur under any Existing Term Note
or the Related Bank Debt and the expiration of any applicable cure period
thereunder.
(l) The Borrower shall be obligated to prepay all or any portion
of its subordinated debt as a result of a Change of Control.
(m) The Borrower or any Subsidiary is not at any time after
September 30, 1999, in compliance with Year 2000 requirements and such
failure creates a material adverse effect on the ability of the Borrower to
carry out its business.
6.2 Remedies. If an Event of Default occurs and is continuing, upon the
election of the Lenders holding two-thirds of the then outstanding aggregate
Total Indebtedness of the Borrower to the Lenders (including under the Revolving
Credit Notes, the Existing Term Notes, the Related Bank Debt, the Acquisition
Notes, and any similar indebtedness), the entire unpaid principal amount under
the Notes, together with interest accrued thereon, shall become immediately due
and payable without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, and the Lenders may exercise their rights
under the other Operative Documents, the Notes, the Term Agreement, and the
Related Bank Debt (and the operative documents with respect thereto), including,
without limitation, under the Security Agreement. For purposes of this Article
VI, the term Lenders includes NationsBank, formerly Boatmen's. In addition, the
Lenders shall have such other remedies as are available at law and in equity.
Remedies under this Agreement, the Operative Documents, the Notes, the Term
Agreement, the Related Bank Debt (and the operative documents with respect
thereto) are cumulative. Any waiver must be in writing by the Lenders and no
waiver shall constitute a waiver as to any other occurrence which constitutes an
Event of Default or as to any party not specifically included in such written
waiver.
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<PAGE>
VII. INTER-CREDITOR AGREEMENTS
7.1 FNB-L as Servicer. FNB-O will act as sole servicer of the loans
evidenced by the Notes (other than in connection with interest rate protection
contracts). For purposes of this Article VII, the term Lenders includes
NationsBank, formerly Boatmen's and the term Event of Default means any Event of
Default hereunder, under one or more of the Notes, or under the Term Agreement
or the Related Bank Debt. FNB-O will enforce, administer and otherwise deal with
the loans made by the Lenders in accordance with safe and prudent banking
standards employed by FNB-O in the case of the loan made by FNB-O. Without
limiting the generality of the foregoing, FNB-O will, on its own behalf and on
behalf of the Lenders: (i) maintain originals of the Operative Documents
(excluding the Notes) and the operative documents in connection with the Term
Agreement and the Related Bank Debt; (ii) receive requests for Advances from the
Borrower, promptly transmit the same to the Revolving Lenders and make such
Advances on behalf of the Revolving Lenders (provided that FNB-O is assured of
reimbursement therefor by the other Revolving Lenders for their pro rata
shares); (iii) receive payments and prepayments from the Borrower and apply such
payments as provided in Section 7.2; (iv) receive notices from the Borrower and
send copies thereof to the Lenders if FNB-O has reasonable cause to believe that
such Lenders have not received such notice from another source; and (v) advise
the Lenders of the occurrence of any Event of Default which FNB-O obtains actual
knowledge of. The Lenders agree not to attempt to take any action against the
Borrower under the Operative Documents, the Notes, the Term Agreement or the
Related Bank Debt or with respect to the indebtedness evidenced thereby without
FNB-O's consent unless holders of two-thirds of the then outstanding aggregate
Total Indebtedness of the Borrower to the Lenders (including under the Notes and
any similar indebtedness) shall have requested FNB-O to take specific action
against the Borrower and FNB-O shall have failed to do so within a reasonable
period after receipt of such request. All actions, consents, waivers and
approvals by the Lenders shall be deemed taken or given and amendments hereto
deemed agreed to if the holders of more than two-thirds of the outstanding
aggregate Total Indebtedness of the Borrower to the Lenders shall have indicated
their consent thereto. Notwithstanding the foregoing, unanimous approval of the
applicable Lenders under the respective Notes shall be required for: (i) any
reduction or compromise of the principal loan amount of such Notes, the amount
or rate of interest accrued or accruing thereon or the fees due hereunder; and
(ii) extension of the date of any scheduled payment; and unanimous consent of
all the Lenders shall be required for (iii) permitting the sale of or releasing
the security interest of the Lenders in Collateral which comprises more than ten
percent (10%) of net book value of fixed assets of the Borrower; and (iv) any
amendment of Sections 7.1 or 7.2 hereof. A Revolving Lender's commitment
hereunder may not be increased without the consent of such Revolving Lender, it
being understood, however, that increases in the total revolving credit facility
hereunder may be made with the consent of the holders of more than two-thirds of
the outstanding aggregate total outstanding obligation of the Borrower to the
Revolving Lenders, so long as such increase does not result in the increase of
any non-consenting Revolving Lender's commitment hereunder.
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<PAGE>
7.2 Application of Payments. Until the earlier of the occurrence of an
Event of Default or any Lender's giving of notice to the others that it deems
itself insecure, payments or prepayments made by the Borrower may be applied to
the indebtedness designated by the Borrower or otherwise applied as follows:
(a) first, to pay interest to date on the Revolving Credit Notes
and fees due to the Lenders;
(b) second, to make payments due but unpaid under any of the other
Notes; and
(c) third, pro rata to the Lenders, such pro rata share to be
determined as set forth below in subsection (bb) of this Section 7.2.
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<PAGE>
After the occurrence of an Event of Default or any Lender's giving of notice
that it deems itself insecure, payments or prepayments on the Notes received by
FNB-O or any of the Lenders and funds realized upon the disposition of any of
the Collateral shall be applied as follows:
(aa) first, to reimburse FNB-O for any costs, expenses, and
disbursements (including attorneys' fees) which may be incurred or made by
FNB-0: (i) in connection with its servicing obligations; (ii) in the
process of collecting such payments or funds; or (iii) as advances made by
FNB-O to protect the Collateral (provided, however, that FNB-O shall have
no obligation to make such protective advances); and
(bb) second, pari passu among the Lenders, based on their
respective pro rata shares of the funds to be applied. Each Lender's pro
rata share shall be equal to a fraction, (x) the numerator of which shall
be the total principal loan amount then outstanding which is owing to each
such Lender under its Notes, and (y) the denominator of which shall be the
total principal loan amount then outstanding which is owing to the Lenders
under all Notes. As to any Note which represents an obligation of the
Borrower to one or more Lenders under an interest rate protection contract,
"principal loan amount then outstanding" shall mean, as of the date of
determination by FNB-O of the Lenders' respective pro rata shares, the
amount, if any, of the unpaid Interest Rate Protection Contract Amounts.
Except as specifically provided in this Section 7.2, FNB-O shall have no
obligation to repay or prepay any amount due from the Borrower to any of the
other Lenders nor shall FNB-O have any obligation to purchase all or a part of
any Note hereunder or any Advance made by any Lenders, nor shall the Lenders
have any recourse whatsoever against FNB-O with respect to any failure of the
Borrower to repay the indebtedness referenced herein.
7.3 Liability of FNB-O. FNB-O shall not be liable to the Lenders for any
error of judgment or for any action taken or omitted to be taken by it
hereunder, except for gross negligence or willful misconduct. Without limiting
the generality of the foregoing, FNB-O, except as expressly set forth herein,
(a) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (b) makes no representation or warranty with respect to,
and shall not be responsible for, the accuracy, completeness, execution,
legality, validity, legal effect or enforceability of this 1998 Revolving Credit
Agreement, the Notes, or the other Operative Documents or the operative
documents under the Term Agreement or the Related Bank Debt, or the value or
sufficiency of any Collateral given by the Borrower or the priority of the
Lenders' security interest therein or the financial condition of the Borrower;
and (c) shall not be responsible for the performance or observance of any of the
terms, covenants or conditions of the Operative Documents, the Existing Term
Notes, or the operative documents under any Related Bank Debt on the part of the
Borrower and shall not have any duty to inspect the property (including, without
limitation, the books and records) of the Borrower.
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<PAGE>
7.4 Transfers. No Lender shall subdivide, transfer or grant a participation
in its respective Notes or in any Advance hereunder without the prior written
consent of FNB-O which consent shall not be unreasonably withheld. For purposes
of this Section 7.4, "Notes" shall not include interest rate protection
contracts.
7.5 Reliance. The Lenders acknowledge that they have been advised that none
of the Notes nor any interest therein or related thereto has been (i) registered
under the Securities Act of 1933, as amended, nor (ii) insured by the Federal
Deposit Insurance Corporation. The Lenders acknowledge that they have received
from the Borrower all financial information and other data relevant to their
decision to extend credit to the Borrower and that they have independently
approved the credit quality of the Borrower.
7.6 Relationship of Lenders. The Lenders intend for the relationships
created by this Agreement to be construed as concurrent direct loans from each
Lender respectively to the Borrower. Nothing herein shall be construed as a loan
from any Lender to FNB-O or as creating a partnership or joint venture
relationship among them.
7.7 New Lenders. In the event that new Lenders are added to this Agreement,
the Term Agreement or the Related Bank Debt, such Lenders shall be required to
agree to the inter-creditor provisions of this Article VII.
VIII. MISCELLANEOUS
8.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may not
be effectively amended, changed, modified or altered, except in writing executed
by all parties.
8.2 Governing Law. The Operative Documents shall be governed by and
construed pursuant to the laws of the State of Nebraska.
8.3 Notices. Until changed by written notice from one party hereto to the
other, all communications under the Operative Documents shall be in writing and
shall be hand delivered or mailed by registered mail to the parties as follows:
If to the Borrower:
DATA TRANSMISSION NETWORK CORPORATION
Suite 200
9110 West Dodge Road
Omaha, Nebraska 68114
Attention: Chief Financial Officer
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<PAGE>
If to the Lenders:
FIRST NATIONAL BANK OF OMAHA
One First National Center
Omaha, Nebraska 68102
Attention: Mr. James P. Bonham
Notices shall be deemed given when mailed, except that any notice by the
Borrower under Sections 2.4 and 2.5 shall not be deemed given until received by
FNB-O.
8.4 Headings. The captions and headings herein are for convenience only and
in no way define, limit or describe the scope or intent of any provisions or
sections of this Agreement.
8.5 Counterparts. This Agreement may be executed in several counterparts
and such counterparts together shall constitute one and the same instrument.
8.6 Survival; Successors and Assigns. The covenants, agreements,
representations and warranties made herein, and in the certificates delivered
pursuant hereto, shall survive the execution and delivery to the Lenders of this
Agreement and shall continue in full force and effect so long as any Note or any
obligation to the Lenders under any of the Operative Documents is outstanding
and unpaid. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party, and all covenants, promises and agreements by or on behalf of the
Borrower which are contained in this Agreement shall bind the successors and
assigns of the Borrower and shall inure to the benefit of the successors and
assigns of the Lenders.
8.7 Severability. If any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
8.8 Assignment. The Borrower may not assign its rights or obligations
hereunder and any assignment in contravention of the terms hereof shall be void.
8.9 Amendments. Any amendment, modification or supplement to this Agreement
must be in writing and must be signed by the requisite parties hereto.
8.10 Consent to Form of Security Agreement, Term Agreement. The parties
hereto expressly approve the form of the Term Agreement and the Security
Agreement, both amended and restated as of the date hereof.
IN WITNESS WHEREOF, the Borrower, Boatmen's and the Revolving Lenders have
caused this 1998 Revolving Credit Agreement to be executed by their duly
authorized corporate officers as of the day and year first above written.
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<PAGE>
DATA TRANSMISSION NETWORK
CORPORATION
By /s/ Brian L. Larson
Title:VP, CFO and Secretary
36
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<PAGE>
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
37
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<PAGE>
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
By /s/ Patrick A. Keleher
Title:Vice President
By /s/ Brian Haughney
Title: Assistant Treasurer
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
38
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<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By /s/ Elizabeth Rezac
Title:Second Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Nathan L. Bloch
Title: First Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
40
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<PAGE>
NORWEST BANK NEBRASKA, N.A.
By /s/ Kevin D. Munro
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
41
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<PAGE>
LASALLE NATIONAL BANK, a national
banking association
By /s/ Tom Harmon
Title: Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
42
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<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By /s/ Joseph L. Sooter, Jr.
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
43
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<PAGE>
U.S. BANK, NATIONAL
ASSOCIATION
By /s/Beth Morgan
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
44
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<PAGE>
NATIONSBANK, N.A. (Successor to The Boatmen's National
Bank of St. Louis)
By/s/ Roger Bettlach
Title:Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
45
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<PAGE>
BANK OF MONTREAL, a Canadian bank
By /s/ Allegra Griffiths
Title:Director
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
NATIONAL BANK OF CANADA, a Canadian bank
By /s/ Kevin L. Cullen
Title:Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
SCHEDULE I
TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK AND
NATIONAL BANK OF CANADA
<TABLE>
<CAPTION>
Subsidiary State of Incorporation Shares % of Ownership
<S> <C> <C> <C>
National Datamax, Inc. California 873,300 100%
Kavouras, Inc. Minnesota 155 5/12 100%
DTN Acquisition, Inc. Nebraska 100 100%
DTN Market Commuications Nebraska 100 100%
Group, Inc.
DTN Merger Co. Massachusetts 100 100%
Paragon Software, Inc.* Illinois 1,000 100%
*Owned by DTN Acquisition, Inc.
</TABLE>
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<PAGE>
EXHIBIT A
TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK,
NATIONSBANK, N.A.
AND
NATIONAL BANK OF CANADA
FORM OF NOTES
49
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<PAGE>
SECURED BUSINESS PROMISSORY NOTE
Omaha, Nebraska $
, 19 June 30, 2000
- ---------------------- ---- -------------
(Note Date) (Maturity Date)
REVOLVING NOTE TERMS
On or before June 30, 2000, DATA TRANSMISSION NETWORK CORPORATION ("Maker")
promises to pay to the order of [REVOLVING LENDER] ("Lender") the principal sum
hereof, which shall be the lesser of Dollars, or so much thereof as may have
been advanced by Lender, either directly under this Note or as an advance
pursuant to the 1998 Revolving Credit Agreement dated as of December 7, 1998, as
amended from time to time (the "Agreement") among Maker and Lender, First
National Bank of Omaha, First National Bank, Wahoo, Nebraska, The First National
Bank of Chicago, Norwest Bank Nebraska, N.A., LaSalle National Bank, Dresdner
Bank AG, New York and Grand Cayman Branches, Mercantile Bank of St. Louis, N.A.,
Bank of Montreal, U.S. Bank, National Association, and National Bank of Canada
(collectively, the "Lenders"). All capitalized terms not defined herein shall
have their respective meanings as set forth in the Agreement.
Interest shall accrue on the principal sum hereof from and including the
Note Date above to the earlier of the Maturity Date or the date of Conversion
(as such term is defined hereafter) at a variable rate, which shall fluctuate on
a monthly basis, equal to the rate announced from time to time by FNB-O as its
"National Base Rate" minus a margin as determined below. The margin shall be
adjusted quarterly after receipt of Maker's Quarterly Compliance Certificate (as
defined in the Agreement). Adjustments shall be retroactive to the beginning of
the current quarter.
(a) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 42, the
margin for the current quarter (meaning the quarter in which the
certificate is required to be delivered) shall be .25%.
(b) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 36 but equal
to or less than 42, the margin for the current quarter shall be .50%.
(c) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 30 but equal
to or less than 36, the margin for the current quarter shall be .75%.
50
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<PAGE>
(d) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 24 but equal
to or less than 30, the margin for the current quarter shall be 1.00%.
(e) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 18 but equal
to or less than 24, the margin for the current quarter shall be 1.25%.
(f) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was equal to or less than 18,
the margin for the current quarter shall be 1.375%.
The Base Rate minus the applicable margin as determined above is hereinafter
referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be
effective on the first day of each month, based on the Base Rate in effect as of
such day. Interest shall be due upon the rendering of each monthly invoice
therefor by FNB-O.
TERM NOTE TERMS
Upon the earlier of: (i) June 30, 2000; or (ii) Maker's giving notice of
its election to convert the revolving credit loan evidenced by this Note, or any
portion thereof, to a term loan, the revolving loan referenced above (or
applicable portion thereof) shall be deemed converted to a term loan (the
"Conversion"). Any such term loan shall be evidenced by notes (the "Converted
Notes") separate from the initial Revolving Credit Notes. Upon the issuance of
Converted Notes, the Revolving Credit Facility shall be reduced by the principal
amount of such Converted Notes (and shall be increased to the extent permitted
in Section 2.1(b) of the Agreement) and no further Advances shall be made by the
Revolving Lenders on the converted amount. The then outstanding principal
hereunder shall become due and payable in forty-eight equal installments of
principal, with the first such installment due on the last day of the month
following Conversion, or, if such day is not a Business Day, on the next
succeeding Business Day, subsequent installments due on the last day of each
consecutive month thereafter. In any event, the total amount of all unpaid
principal and accrued interest hereunder shall be due and payable no later than
June 30, 2004.
After Conversion, interest shall accrue on the principal outstanding from
time to time at a variable rate, which shall fluctuate on a monthly basis, which
is equal to the Revolving Credit Rate plus .25%. For purposes of computing such
variable rate, changes in the Base Rate shall be effective on the first day of
each month based on the Base Rate in effect on such day. Notwithstanding
anything in the foregoing to the contrary, after Conversion, Maker may elect to
have a fixed interest rate apply to the outstanding Principal Loan Amount
converted and outstanding after the date of giving notice of such fixed rate
election (the "Fixed Rate Notice"). Such fixed rate shall be equal to the
greater of:
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<PAGE>
(a) the Revolving Credit Rate in effect on the date of the
notice2, plus .375%, or
(b) the average of the yields on constant maturity Treasury Bonds
with maturities of three years and five years, as quoted in the immediately
preceding monthly Federal Reserve Statistical Release (the "Release") plus
the following incremental percentage determined based upon the Leverage
Ratio3 as of the last day of the preceding month: (x) if the Leverage Ratio
is greater than 36, the incremental percentage shall be 2.25%; (y) if the
Leverage Ratio is greater than 24 but not in excess of 36, the incremental
percentage shall be 2.00%; and (z) if the Leverage Ratio is 24 or less, the
incremental percentage should be 1.75%;
Any election of a fixed rate by Maker shall be final and irrevocable. Interest
shall be due each month concurrently with the Maker's principal payment.
Notwithstanding anything to the contrary elsewhere herein, after an Event of
Default has occurred interest shall accrue on the entire outstanding balance of
principal and interest at a fluctuating rate equal to the Default Rate. Interest
shall be calculated on the basis of the actual number of days outstanding and a
360-day year. Interest shall continue to accrue on the full unpaid balance
hereunder notwithstanding any permitted or unpermitted failure of Maker to make
a scheduled payment or the fact that a scheduled payment day falls on a day
other than a Business Day. If Maker's most recent Quarterly Compliance
Certificate shows that, as of the end of the prior quarter, the Leverage Ratio
was in excess of thirty-six (36) at the end of such quarter, the current quarter
shall be deemed a "Restricted Quarter." If, any time during a Restricted Quarter
(including, without limitation, during any period in such quarter prior to
delivery of the Quarterly Compliance Certificate), the interest rate accruing on
any Existing Term Note (as defined in the Agreement) or Converted Note is less
than 7.50% per annum, a "Trigger Event" shall be deemed to have occurred. Upon
the occurrence of a Trigger Event, Maker shall be obligated to pay the following
fees: (i) .375% of the outstanding principal balance as of the date preceding
the Trigger Event of each Existing Term Note or Converted Note which accrues
interest at less than seven and one-half percent (7.50%) per annum which amount
shall be payable promptly upon invoicing by FNB-O; (ii) the same amount as
computed in clause (i), payable on the six-month anniversary of the Trigger
Event; and (iii) the same amount as computed in clause (i), payable on the
twelve-month anniversary of the Trigger Event.
52
- 585 -
<PAGE>
Maker may at any time prepay in whole or in part the Principal Loan Amount
outstanding under this Revolving Credit Note or a Converted Note if the Maker
has given the Revolving Lenders at least two (2) business days prior written
notice of its intention to make such prepayment. Any such prepayment may be made
without penalty except for a Converted Note as to which interest is accrued at a
fixed rate in accordance with clause (a) or (b) above, in which event a
prepayment penalty shall be due to the Lender, at Lender's option, either: (1)
the Make-Whole Premium due in respect of such prepayment; or (2) the applicable
prepayment fee as set forth below. The applicable prepayment fee for any
Converted Note shall be: (i) if the notice electing fixed interest was given
within twelve (12) months of Conversion, the fee shall be 1.50% of the amount of
such prepayment; (ii) if the notice electing fixed interest was given after
twelve (12) months of Conversion, but within twenty-four (24) months of
Conversion, the fee shall be .75% of the amount of such prepayment; and (iii) if
the notice electing fixed interest was given after twenty- four (24) months of
Conversion, but within thirty-six (36) months of Conversion, the fee shall be
.30% of the amount of such prepayment.
GENERAL TERMS
Payment of this Note and the performance of Maker's obligations under the
Agreement ("Obligations") are secured by a security interest granted to First
National Bank of Omaha, as agent for the Lenders and others ("Agent"), under the
Security Agreement in:
All of Maker's accounts, accounts receivable, chattel paper, documents,
instruments, goods, inventory, equipment, general intangibles, contract
rights, all rights of Maker in deposits and advance payments made to Maker
by its customers and Subscribers, accounts due from advertisers and all
ownership, proprietary, copyright, trade secret and other intellectual
property rights in and to computer software (and specifically including,
without limitation, all such rights in DTN transmission computer software
used in the provision of the Basic DTN Subscription Service and Farm Dayta
Service to Maker's Subscribers) and all documentation, source code,
information and works of authorship pertaining thereto, all now owned or
hereafter acquired and all proceeds and products thereof; and
such additional collateral as is more specifically described in the Security
Agreement.
Maker's liability under its Obligations shall not be affected by any of the
following:
Acceptance or retention by Lender or Agent of other property or
interests as security for the Obligations, or for the liability of any
person other than a Maker with respect to the Obligations;
The release of all or any of the Collateral or other security for
any of the Obligations to any Maker;
53
- 586 -
<PAGE>
Any release, extension, renewal, modification or compromise of any
of the Obligations or the liability of any obligor thereon; or
Failure by Lender or Agent to resort to other security or any
person liable for any of the Obligations before resorting to the
Collateral.
Neither Lender nor Agent is required to take any action whatsoever in
respect of the Collateral. Impairment or destruction of the Collateral shall not
release Maker of its liability hereunder.
Maker represents, warrants and covenants as follows:
Maker is authorized to grant to Agent a security interest in the
Collateral;
This Note, the Agreement and the Security Agreement have been duly
authorized, executed and delivered by the Maker and constitute legal, valid
and binding obligations of Maker;
This Note evidences a loan for business or agricultural purposes;
and
Maker agrees to pay all costs of collection in connection with
this Note, the Agreement and the Security Agreement, including reasonable
attorneys' fees and legal expenses.
Upon the failure of Maker to make any payment of principal or interest when
due hereunder or the occurrence of any Event of Default, all of the Obligations
shall, at the option of Agent and without notice or demand, mature and become
immediately due and payable; and Agent shall have all rights and remedies for
default provided by the Uniform Commercial Code, any other applicable law and/or
the Obligations.
All costs and expenses incurred by Lender or Agent in enforcing its rights
under this Note or any mortgage, endorsement, surety agreement, guaranty
relating thereto are the obligation of Maker and are immediately due and
payable. Interest shall accrue on such costs and expenses from the date of
incurrence at the rate specified herein for delinquent Note payments. Each
Maker, endorser, surety and guarantor hereby waives presentment, protest,
demand, notice of dishonor, and the defense of any statute of limitations.
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder or Agent may, without notice, renew or extend the time for
payment, accept partial payments, release or impair any Collateral or other
security for the payment of this Note or agree to sue any party liable on it.
Neither Lender nor Agent shall be deemed to have waived any of its rights
upon or under this Note, or under any mortgage, endorsement, surety agreement or
guaranty, unless such waivers be in writing and signed by Lender or Agent, as
54
- 587 -
<PAGE>
the case may be. No delay or omission on the part of Lender or Agent in
exercising any right shall operate as a waiver of such right or any other right.
A waiver on any one occasion shall not be construed as a bar to or waiver of any
right on any future occasion. All rights and remedies of Lender or Agent on
liabilities or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly or
concurrently.
Maker, if more than one, shall be jointly and severally liable hereunder
and all provisions hereof regarding the liabilities or security of Maker shall
apply to any liability or any security of any or all of them. This Note shall be
binding upon the heirs, executors, administrators, assigns or successors of
Maker; shall constitute a continuing agreement, applying to all future as well
as existing transactions, whether or not of the character contemplated at the
date of this Note, and if all transactions between Lender and Maker shall be at
any time closed, shall be equally applicable to any new transactions thereafter,
provided that Lender's interest in the Collateral shall be limited to the extent
provided in the Security Agreement; shall benefit Lender, its successors and
assigns; and shall so continue in force notwithstanding any change in any
partnership party hereto, whether such change occurs through death, retirement
or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of First National Bank of Omaha in Omaha, Nebraska or at such other
address as may be designated by Bank in writing.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the content otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
This Note is given in substitution of that certain Secured Business
Promissory Note dated _____________, ____ the original principal amount of
$____________. This Note shall not affect, and there remains outstanding from
the Maker to the Lender the Related Bank Debt and the Existing Term Notes (as
such terms are defined in the Agreement), and, as to each, all extensions,
renewals, and substitutions of or for the foregoing.
Executed as of this _____ day of _____________, _____.
55
- 588 -
<PAGE>
DATA TRANSMISSION NETWORK
CORPORATION
By:
Title:
56
- 589 -
<PAGE>
PROMISSORY NOTE SCHEDULE
Loan Advances and Payments of Principal
DATA TRANSMISSION NETWORK CORPORATION
REVOLVING NOTE ADVANCES AND PAYMENTS:
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
57
- 590 -
<PAGE>
TERM NOTE:
Date of Conversion:
Amount Due at Date of Conversion:
Fixed Rate Notice Date: Fixed Rate: %
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
58
- 591 -
<PAGE>
EXHIBIT B
TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK,
AND
NATIONAL BANK OF CANADA
DRAWING CERTIFICATE
59
- 592 -
<PAGE>
DRAWING CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
To induce the First National Bank of Omaha, First National Bank, Wahoo,
Nebraska, The First National Bank of Chicago, Norwest Bank Nebraska, N.A.,
LaSalle National Bank, Dresdner Bank AG, New York and Grand Cayman Branches,
Mercantile Bank of St. Louis, N.A., U.S. Bank, National Association, Bank of
Montreal, and National Bank of Canada (the "Revolving Lenders") to make an
advance under the 1998 Revolving Credit Agreement (the "Agreement") dated as of
December 7, 1998, between the undersigned (the "Borrower"), and the Revolving
Lenders (the "Banks"), the Borrower hereby certifies to the Banks that its
Operating Cash Flow (as defined in the Agreement) as represented below is true
and correct and that there is no default under the aforementioned Agreement, or
on any other liability of the Borrower to the Banks.
All information as of: Date
a) Maximum Revolving Credit Facility $
b) Principal on Converted Notes $___________
c) Acquisition Notes, Existing Term Notes,
and Related Bank Debt Outstanding $
d) Principal on Revolving Credit Notes $
e) Unreimbursed amounts drawn under Lender Letters
of Credit $
f) Amount available to be drawn under outstanding
Lender Letters of Credit
g) ADVANCE REQUEST ( not to exceed line a - line b
- line d - line e - line f) $
h) Total Proposed Bank Debt
(line b + line c + line d + line e + line f + line g) $
I) Most recent month's operating cash flow $
j) Prior month's operating cash flow $
k) Operating Cash Flow
(average of line I and line j) $
l) Total Indebtedness $
m) Leverage Ratio (line l divided by line m), not to exceed
36 $
Name of Borrower: Data Transmission Network Corporation
Signature:
Title:
60
- 593 -
<PAGE>
EXHIBIT C
TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK
AND
NATIONAL BANK OF CANADA
FORMS OF APPLICATION AND CONTINUING LETTER OF CREDIT AGREEMENT
61
- 594 -
<PAGE>
EXHIBIT D
TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK
AND
NATIONAL BANK OF CANADA
OFFICER'S CERTIFICATE
62
- 595 -
<PAGE>
COMPLIANCE CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
First National Bank of Omaha Date
Attn: James Bonham
16th & Dodge Streets
Omaha, Nebraska 68102
I certify that Data Transmission Network Corporation is in compliance with the
requirements set forth in the 1998 Revolving Credit Agreement (the "Agreement")
dated as of December 7, 1998, between First National Bank of Omaha, First
National Bank, Wahoo, Nebraska, The First National Bank of Chicago, Norwest Bank
Nebraska, N.A., LaSalle National Bank, Dresdner Bank AG, New York and Grand
Cayman Branches, Mercantile Bank of St. Louis, N.A., U.S. Bank, National
Association, and National Bank of Canada, and Data Transmission Network
Corporation.
The following calculations are as of _________ (statement date) as required by
Section 4.1(d) of said Agreement:
Evaluations:
Total Indebtedness (TI):
Operating Cash Flow: most recent month previous month
ending _______ ending ______
Net Income (loss)
Interest Expense
Depreciation
Amortization
Deferred Income
Taxes
Non-Ordinary
Non-Cash
Charges (Credits)
Total a) b)
Operating Cash Flow = OCF = (a+b)/2 =
Leverage Ratio (TI/OCF):
63
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<PAGE>
Section 2.3
Pricing: If the Leverage Ratio is greater than 42 then the margin is
.25%. If the Leverage Ratio is greater than 36 but equal to or less
than 42 then the margin is .50%. If the Leverage Ratio is greater
than 30 but equal to or less than 36 then the margin is .75%. If the
Leverage Ratio is greater than 24 but equal to or less than 30 then
the margin is 1.00%. If the Leverage Ratio is greater than 18 but
equal to or less than 24 then the margin is 1.25%. If the Leverage
Ratio is equal to or less than 18 then the margin is 1.375%.
Position: The Revolving Credit Rate is the Base Rate minus _________
Section 2.5
Trigger
Fee: If Total Indebtedness is more than 36 times Operating Cash
Flow, then a one time fee, paid in three installments of 3/8% of the
then outstanding principal balances, on any of the Existing Term
Notes, Acquisition Notes or Converted Notes which have an interest
rate less than 7.5% per annum is due.
Position: A Trigger Event has/has not occurred.
Section 4.3
Net Worth: A minimum Net Worth (exclusive of subordinated debt) of
$23,500,000 plus fifty percent (50%) of the net income (but not
losses) of the Borrower for each fiscal year, commencing with the
fiscal year beginning January 1, 1997; provided, however, solely for
purposes of determining compliance with the provisions of this
Section 5.3, "Net Worth" shall not include any subordinated debt.
Minimum Net Worth (exclusive of subordinated debt)= $23,500,000.
Net Income Year ending Addition (50%)
$____________ 12/31/97 $___________
Total Minimum Net
Worth $
Position:
Total Net Worth (exclusive of subordinated debt) = $_____________
64
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<PAGE>
Section 4.4
Indebtedness: At no time will the Leverage Ratio exceed 48.
Position: Leverage Ratio =
Total At no time will Adjusted Total Indebtedness
Indebtedness exceed 60 x OCF
plus
subordinated
debt plus
guaranty
contingencies
(Adjusted
Total
Indebtedness or
ATI):
Position: Adjusted Total Indebtedness = $
(60 x OCF) - (ATI) = $
Section 4.7
Distributions: Neither the Borrower nor any Subsidiary shall
declare any dividends (other than dividends payable in stock of
the Borrower or dividends or distributions from any
consolidated Subsidiary) or make any cash distribution in
respect of any shares of its capital stock or warrants of its
capital stock, without the prior written consent of the
Lenders; provided that the Borrower need not obtain the
Lenders' consent with respect to dividends in any one (1) year
which are in the aggregate less than 25% of the Borrower's Net
Operating Profit After Taxes in the previous four (4) quarters,
as reported to the Lenders pursuant to Section 4.1.
Position: Net Operating Profit
After Taxes for
last four (4) quarters = ______________
x .25
Available for dividends
or distributions in the most
recent quarter plus the
prior three (3) quarters = ______________
Dividends and distributions
(excluding dividends payable
solely in stock of the Borrower and distributions
65
- 598 -
<PAGE>
from consolidated Subsidiaries) declared or paid
in the most recent quarter plus the prior three
(3) quarters =
---------------
The Borrower [is/is not] in compliance with
Section 4.7.
Section 4.15
Interest The ratio of OCF to Interest Expense ("IE")
Coverage: at the end of each quarter will not be less than 2.25 to
1.0 (225%).
Position: OCF = $
IE = $
OCF/IE = %
Section 4.19
Capital Expenditures:
The Borrower shall not make capital expenditures (other than
permitted earning assets specified in Section 4.19) in any
fiscal year, commencing with the fiscal year beginning January
1, 1998, in excess of $1,000,000.
Position: Capital Expenditures (other than permitted earning
assets specified in Section 4.19) this fiscal year =
$_____________
The Borrower [is/is not] in compliance with Section 4.19.
Section 4.20
Acquisitions:
The Borrower shall not make acquisitions which in the aggregate
exceed $20,000,000 and in any one instance exceed $10,000,000
except certain permitted unlimited acquisitions.
Position: Acquisitions (other than permitted unlimited acquisitions) in
the aggregate since the date of the Agreement = _________.
Date Amount Acquired Company
Permitted Unlimited Acquisition:
Date Amount Acquired Principal Line
Company Place of Of
Business Business
The Borrower [is/is not] in compliance with Section 4.20.
66
- 599 -
<PAGE>
Additional Representations:
There have/have not been any sale(s) of assets which would require prepayment of
the Notes under Section 4.2.
There has/has not been:
(i) a Change of Control or a material adverse change in management
personnel as defined in Section 4.14 of the Agreement; or
(ii) a default under Section 6.1(j) or 6.1(l) regarding a change in
ownership or control of the Company.
Name of Borrower: Data Transmission Network Corporation
Signature:
Title:
67
- 600 -
<PAGE>
SCHEDULE A
TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
LASALLE NATIONAL BANK
AND
NATIONAL BANK OF CANADA
PERMITTED ENCUMBRANCES
Secured Party Financing Statements
Nebraska Secretary of State
<TABLE>
<CAPTION>
<S> <C> <C> <C>
First National Bank of Omaha 12/28/87 #401690
10/13/92 #564918 Amendment
11/13/92 #568176 Continued
First National Bank of Omaha, as agent 5/8/96 #691938 Amendment
FirsTier, Lincoln 6/24/87 #384782
First National Bank of Omaha 2/03/88 #405477 Amendment
First National Bank, Wahoo 5/28/92 #553205 Continued
NBD, Detroit 10/13/92 #564919 Amendment
2/05/93 #576038 Amendment
11/10/93 #603168 Amendment
First National Bank of Omaha, as agent 5/8/96 #691936 Amendment
FirsTier, Lincoln 2/10/88 #406144
First National Bank of Omaha 10/13/92 #564917 Amendment
First National Bank, Wahoo 1/07/93 #572981 Continued
NBD, Detroit 2/05/93 #576039 Amendment
11/10/93 #603169 Amendment
First National Bank of Omaha, as agent 5/8/96 #691937 Amendment
68
- 601 -
<PAGE>
First Bank of Minneapolis 11/25/91 #534665
(Norstan) 8/24/92 #561090 Assignment
Douglas County Clerk, Nebraska
FirsTier, Lincoln 2/11/88 #000534
First National Bank of Omaha 10/15/92 #000534 Amendment
First National Bank, Wahoo 1/08/93 #0000054 Continued
NBD, Detroit 2/05/93 #000253 Amendment
11/17/93 #54 Amendment
First National Bank of Omaha, as agent 5/ /96 Amendment
Iowa Secretary of State
FirsTier, Lincoln 2/10/88 H842023
First National Bank of Omaha 10/15/92 K395184 Amendment
First National Bank, Wahoo 1/08/93 K424887 Continued
NBD, Detroit 2/08/93 K434908 Amendment
11/15/93 K503145 Amendment
First National Bank of Omaha, as agent 5/6/96 K734148 Amendment
Kansas Secretary of State
FirsTier, Lincoln 2/10/88 #1286572
First National Bank of Omaha 10/15/92 #1842986 Amendment
First National Bank, Wahoo 1/08/93 #1868482 Continued
NBD, Detroit 2/11/93 #1879069 Amendment
11/12/93 #1964342 Amendment
First National Bank of Omaha, as agent 7/18/96 #2265201 Amendment
Illinois Secretary of State
FirsTier, Lincoln 3/18/88 #2402370
First National Bank of Omaha 10/21/92 #3043202 Amendment
First National Bank, Wahoo 2/11/93 #3084199 Amendment
NBD, Detroit 2/25/93 #3089132 Continued
12/09/93 #3197498 Amendment
First National Bank of Omaha, as agent 7/9/96 #3562627 Amendment
Michigan Secretary of State
FirsTier, Lincoln 2/12/88 #C034473
First National Bank of Omaha 10/16/92 #C646856 Amendment
69
- 602 -
<PAGE>
First National Bank, Wahoo 1/08/93 #C672590 Continued
NBD, Detroit 3/01/93 #C689434 Amendment
11/15/93 #C778208 Amendment
First National Bank of Omaha, as agent 7/8/96 #D128002 Amendment
Wisconsin Secretary of State
FirsTier, Lincoln 2/18/88 #968701
First National Bank of Omaha 10/21/92 #1309942 Amendment
First National Bank, Wahoo 01/15/93 #1326550 Continued
NBD, Detroit 2/08/93 #1331412 Amendment
11/23/93 #1393268 Amendment
First National Bank of Omaha, as agent 7/23/96 #1602740 Amendment
Indiana Secretary of State
FirsTier, Lincoln 2/11/88 #1454192
First National Bank of Omaha 10/21/92 #1808780 Amendment
First National Bank, Wahoo 1/11/93 #1822115 Continued
NBD, Detroit 2/08/93 #1827451 Amendment
11/12/93 #1878806 Amendment
First National Bank of Omaha, as agent 7/9/96 #2065412 Amendment
Minnesota Secretary of State
FirsTier, Lincoln 2/17/88 1#121648#00
First National Bank of Omaha 10/16/92 #1537269 Amendment
First National Bank, Wahoo 01/19/93 #1557397 Continued
NBD, Detroit 2/08/93 #1562125 Amendment
11/23/93 #1632156 Amendment
First National Bank of Omaha, as agent 9/5/96 #1875684 Amendment
South Dakota Secretary of State
FirsTier, Lincoln 2/10/88 880410802864
First National Bank of Omaha 10/16/92 #22901003596 Amend.
First National Bank, Wahoo 1/08/93 #30081001734 Cont.
NBD, Detroit 2/09/93 #30391203308 Amend.
11/22/93 #33261003899 Amend.
First National Bank of Omaha, as agent 7/8/96 #961900902562 Amend.
70
- 603 -
<PAGE>
Missouri Secretary of State
FirsTier, Lincoln 2/11/88 #1555991
First National Bank of Omaha 10/16/92 #2184193 Amendment
First National Bank, Wahoo 1/08/93 #2212473 Continued
NBD, Detroit 2/08/93 #2224113 Amendment
11/15/93 #2331876 Amendment
First National Bank of Omaha, as agent 7/8/96 #2684601 Amendment
Ohio Secretary of State
FirsTier, Lincoln 2/12/88 #Y00095612
First National Bank of Omaha 10/19/92 #01097336 Amendment
First National Bank, Wahoo 1/11/93 #01119343901 Cont.
NBD, Detroit 2/09/93 #02099338901 Amend.
11/12/93 #1129331801 Amendment
First National Bank of Omaha, as agent 7/9/96 #07099607117 Amendment
Kentucky Secretary of State
First National Bank of Omaha 11/12/93 134318
First National Bank of Omaha, as agent 7/23/96 Amendment
Pennsylvania Department of State
First National Bank of Omaha 11/12/93 22571277
First National Bank of Omaha, as agent 7/8/96 25631529 Amendment
Oklahoma Secretary of State
First National Bank of Omaha 11/12/93 059782
First National Bank of Omaha, as agent 7/8/96 035257 Amendment
Mississippi Secretary of State
First National Bank of Omaha 11/12/93 0756092--
First National Bank of Omaha, as agent 7/8/96 01015782 Amendment
Colorado Secretary of State
First National Bank of Omaha 11/12/93 932082461
First National Bank of Omaha, as agent 7/8/96 962051575 Amendment
California Secretary of State
First National Bank of Omaha 11/12/93 93229491
First National Bank of Omaha, as agent 7/5/96 96191C0067 Amendment
Washington Secretary of State
First National Bank of Omaha 11/15/93 933190075
First National Bank of Omaha, as agent 7/5/96 96-187-9060 Amendment
Montana Secretary of State
First National Bank of Omaha 11/15/93 419540
First National Bank of Omaha, as agent 7/8/96 419540 Amendment
Arizona Secretary of State
First National Bank of Omaha 11/15/93 765359
First National Bank of Omaha, as agent 7/8/96 765359 Amendment
North Carolina Secretary of State
First National Bank of Omaha 11/15/93 050742
First National Bank of Omaha, as agent 7/8/96 1357308 Amendment
North Dakota Secretary of State
First National Bank of Omaha 11/16/93 93-380331
First National Bank of Omaha, as agent 7/8/96 96-608985 Amendment
Florida Secretary of State
First National Bank of Omaha 11/17/93 930000236992
First National Bank of Omaha, as agent 7/10/96 960000142090 Amendment
Texas Secretary of State
First National Bank of Omaha 11/29/93 227591--
First National Bank of Omaha, as agent 7/8/96 96683548 Amendment
Alabama Secretary of State
First National Bank of Omaha, as agent 6/27/95 B-95-26462FS
7/19/96 95-26462 Amendment
71
- 604 -
<PAGE>
Arkansas Secretary of State
First National Bank of Omaha, as agent 6/29/95 968722
7/10/96 968722 Amendment
New York Secretary of State
First National Bank of Omaha, as agent 6/26/95 130246
7/8/96 532973 Amendment
</TABLE>
- --------
1Determined based on the Leverage Ratio calculated on the Total Indebtedness and
Operating Cash Flow as of the last day of the preceding month, adjusted to show
any increases in the Leverage Ratio as a result of additional Total Indebtedness
incurred (reduced by any principal payments on such Total Indebtedness) during
the quarter in which the rate is being fixed as described above.
2 Determined based on the Leverage Ratio calculated on the Total Indebtedness
and Operating Cash Flow as of the last day of the preceding month, adjusted to
show any increases in the Leverage Ratio as a result of additional Total
Indebtedness incurred (reduced by any principal payments on such Total
Indebtedness) during the quarter in which the rate is being fixed as described
above.
72
- 605 -
FIRST AMENDMENT TO 1998 REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT to 1998 REVOLVING CREDIT AGREEMENT (the "First
Amendment") is intended to amend the terms of the 1998 Revolving Credit
Agreement (the "Agreement") dated as of December 7, 1998, among DATA
TRANSMISSION NETWORK CORPORATION; FIRST NATIONAL BANK OF OMAHA; FIRST NATIONAL
BANK, WAHOO, NEBRASKA; THE FIRST NATIONAL BANK OF CHICAGO; NORWEST BANK
NEBRASKA, N.A.; DRESDNER BANK, AG, NEW YORK AND GRAND CAYMAN BRANCHES;
MERCANTILE BANK OF ST. LOUIS, N.A.; U.S. BANK, NATIONAL ASSOCIATION; BANK OF
MONTREAL; LASALLE NATIONAL BANK; NATIONAL BANK OF CANADA; FIRST NATIONAL BANK OF
OMAHA, as Agent; and DRESDNER BANK, AG, NEW YORK AND GRAND CAYMAN BRANCHES, as
Documentation Agent. All terms and conditions of the Agreement shall remain in
full force and effect except as expressly amended herein. All capitalized terms
herein shall have the meanings prescribed in the Agreement. The Agreement shall
be amended as follows:
1. Section 2.1 of the Agreement is hereby amended to read as
follows:
2.1 Revolving Credit. Until the earlier of June 30, 2001, or the
date on which the loan hereunder is converted to a term loan in
accordance with Section 2.4, the Revolving Lenders severally
agree to advance funds for general corporate purposes not to
exceed $122,900,000 (the "Base Revolving Credit Facility") to the
Borrower on a revolving credit basis (amounts outstanding under
the Acquisition Notes, Existing Term Notes and Related Bank Debt
shall not be counted against such Base Revolving Credit Facility
limit). Such Advances shall be made on a pro rata basis by the
Revolving Lenders, based on the following maximum advance limits
and applicable percentages for each Revolving Lender: (i) as to
FNB-O, $19,000,000 (15.46%); (ii) as to FNB-W, $490,000 (.40%);
(iii) as to First of Chicago, $7,010,000 (5.7%); (iv) as to
Norwest, $9,810,000 (7.98%); (v) as to LaSalle, $10,860,000
(8.84%); (vi) as to Dresdner, $23,164,000 (18.85%); (vii) as to
Mercantile, $17,000,000 (13.83%), (viii) as to U.S. Bank,
$12,856,000 (10.46%); (ix) as to Montreal, $9,910,000 (8.06%);
and (x) as to NBC, $12,800,000 (10.42%). The Borrower shall not
be entitled to any Advance hereunder if, after the making of such
Advance, the Leverage Ratio would exceed thirty-six (36),
determined at the time of the Advance. Nor shall the Borrower be
entitled to any further Advances hereunder after the occurrence
of a material adverse change in its management personnel, as
described in Section 4.14(b), or after the occurrence of any
Event of Default with respect to the Borrower. Advances shall be
made, on the terms and conditions of this Agreement, upon the
Borrower's request. Requests shall be made by 12:00 noon Omaha
time on the Business Day prior to the requested date of the
1
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<PAGE>
Advance. Requests shall be made by presentation to FNB-O of a
drawing certificate in the form of Exhibit B. The Borrower's
obligation to make payments of principal and interest on the
foregoing revolving credit indebtedness shall be further
evidenced by the Revolving Credit Notes.
2. The agent fee referenced in the last sentence of Section 2.2 of
the Agreement is hereby increased from $40,000.00 to $50,000.00.
3. Section 3.13 of the Agreement is hereby amended to read as
follows:
3.13 Financial Condition. The financial condition of the Borrower
and its Subsidiaries is truly and accurately set forth in the
most recent financial statements which have been provided from
time to time to the Lenders and no material adverse change in the
financial condition of the Borrower and its Subsidiaries, taken
as a whole, has occurred since the date of such financial
statements.
4. All references in the Agreement to June 30, 2000, shall be
amended to June 30, 2001; and the reference in Section 2.4 to the
maturity date of the Converted Notes shall be amended from June
30, 2004 to June 30, 2005.
5. In connection with this First Amendment, each of the Lenders
whose pro rata portion of the Base Revolving Credit Facility is
being increased will receive at the closing specified in
Paragraph 6 below the closing fee shown in Exhibit B to this
First Amendment.
6. On the closing date for this First Amendment, which shall be a
date mutually acceptable to the Borrower and the Agent, the
Revolving Lenders shall either lend, or be repaid, the principal
amounts shown on Exhibit C hereof, so that the principal amounts
outstanding on the Base Revolving Credit Facility will match the
percentages shown for each Revolving Lender in Section 2.1 of the
Agreement as amended by this First Amendment. Effective as of
such closing date, the Borrower shall issue new Notes in the form
specified in Exhibit A hereto to the Revolving Lenders in the
respective principal amounts shown in Paragraph 1 of this First
Amendment. Upon the delivery of the new Notes, the existing
Revolving Credit Lenders will cancel and will return to the
Borrower the existing Revolving Credit Notes.
7. This First Amendment shall not affect and there remain
outstanding from the Borrower to the Banks, the Existing Term
Notes and the Related Bank Debt.
8. This First Amendment may be executed in several counterparts and
such counterparts together shall constitute one and the same
instrument.
Except as expressly agreed herein, all terms of the Agreement shall
remain in full force and effect.
2
- 607 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT
TO 1998 REVOLVING CREDIT AGREEMENT dated as of January 29, 1999.
DATA TRANSMISSION NETWORK
CORPORATION
By /s/ Brian Larson
Title:CFO
FIRST NATIONAL BANK OF OMAHA
By James P. Bonham
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
3
- 608 -
<PAGE>
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ Patrick A. Keleher
Title:Vice President
By /s/ Brian Haughney
Title:Assistant Treasurer
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4
- 609 -
<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By /s/ Elizabeth Rezac
Title:Second Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
5
- 610 -
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Nathan L. Bloch
Title:First Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
6
- 611 -
<PAGE>
NORWEST BANK NEBRASKA, N.A.
By /s/James
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
- 612 -
<PAGE>
LASALLE NATIONAL BANK, a national
banking association
By/s/ Tom Harmon
Title:Assistant Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
- 613 -
<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By /s/Joseph L. Sooter, Jr.
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
- 614 -
<PAGE>
U.S. BANK, NATIONAL
ASSOCIATION
By/s/ Beth Morgan
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
10
- 615 -
<PAGE>
NATIONAL BANK OF CANADA, a Canadian bank
By /s/
Title:Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
11
- 616 -
<PAGE>
BANK OF MONTREAL, a Canadian bank
By/s/ Karen Klapper
Title:Director
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
12
- 617 -
<PAGE>
EXHIBIT A
TO FIRST AMENDMENT TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK, NATIONAL BANK OF CANADA,
FIRST NATIONAL BANK OF OMAHA, as Agent
AND
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as Documentation Agent
FORM OF NOTES
13
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<PAGE>
SECURED BUSINESS PROMISSORY NOTE
Omaha, Nebraska $
, 19 June 30, 2001
- --------------- ---- -------------
(Note Date) (Maturity Date)
REVOLVING NOTE TERMS
On or before June 30, 2001, DATA TRANSMISSION NETWORK CORPORATION
("Maker") promises to pay to the order of [REVOLVING LENDER] ("Lender") the
principal sum hereof, which shall be the lesser of_____________________________
Dollars, or so much thereof as may have been advanced by Lender, either directly
under this Note or as an advance pursuant to the 1998 Revolving Credit Agreement
dated as of December 7, 1998, as amended from time to time (the "Agreement")
among Maker and Lender, First National Bank of Omaha, First National Bank,
Wahoo, Nebraska, The First National Bank of Chicago, Norwest Bank Nebraska,
N.A., LaSalle National Bank, Dresdner Bank AG, New York and Grand Cayman
Branches, Mercantile Bank of St. Louis, N.A., Bank of Montreal, U.S. Bank,
National Association, and National Bank of Canada (collectively, the "Lenders"),
First National Bank of Omaha, as Agent, and Dresdner Bank, AG, New York and
Grand Cayman Branches, as Documentation Agent. All capitalized terms not defined
herein shall have their respective meanings as set forth in the Agreement.
Interest shall accrue on the principal sum hereof from and including
the Note Date above to the earlier of the Maturity Date or the date of
Conversion (as such term is defined hereafter) at a variable rate, which shall
fluctuate on a monthly basis, equal to the rate announced from time to time by
FNB-O as its "National Base Rate" minus a margin as determined below. The margin
shall be adjusted quarterly after receipt of Maker's Quarterly Compliance
Certificate (as defined in the Agreement). Adjustments shall be retroactive to
the beginning of the current quarter.
(a) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 42, the
margin for the current quarter (meaning the quarter in which the
certificate is required to be delivered) shall be .25%.
(b) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 36 but
equal to or less than 42, the margin for the current quarter shall be
.50%.
14
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<PAGE>
(c) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 30 but
equal to or less than 36, the margin for the current quarter shall be
.75%.
(d) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 24 but
equal to or less than 30, the margin for the current quarter shall be
1.00%.
(e) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was greater than 18 but
equal to or less than 24, the margin for the current quarter shall be
1.25%.
(f) If the Quarterly Compliance Certificate shows that, as of the
end of the prior quarter, the Leverage Ratio was equal to or less than
18, the margin for the current quarter shall be 1.375%.
The Base Rate minus the applicable margin as determined above is hereinafter
referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be
effective on the first day of each month, based on the Base Rate in effect as of
such day. Interest shall be due upon the rendering of each monthly invoice
therefor by FNB-O.
TERM NOTE TERMS
Upon the earlier of: (i) June 30, 2001; or (ii) Maker's giving notice
of its election to convert the revolving credit loan evidenced by this Note, or
any portion thereof, to a term loan, the revolving loan referenced above (or
applicable portion thereof) shall be deemed converted to a term loan (the
"Conversion"). Any such term loan shall be evidenced by notes (the "Converted
Notes") separate from the initial Revolving Credit Notes. Upon the issuance of
Converted Notes, the Revolving Credit Facility shall be reduced by the principal
amount of such Converted Notes (and shall be increased to the extent permitted
in Section 2.1(b) of the Agreement) and no further Advances shall be made by the
Revolving Lenders on the converted amount. The then outstanding principal
hereunder shall become due and payable in forty-eight equal installments of
principal, with the first such installment due on the last day of the month
following Conversion, or, if such day is not a Business Day, on the next
succeeding Business Day, subsequent installments due on the last day of each
consecutive month thereafter. In any event, the total amount of all unpaid
principal and accrued interest hereunder shall be due and payable no later than
June 30, 2005.
After Conversion, interest shall accrue on the principal outstanding
from time to time at a variable rate, which shall fluctuate on a monthly basis,
which is equal to the Revolving Credit Rate plus .25%. For purposes of computing
such variable rate, changes in the Base Rate shall be effective on the first day
of each month based on the Base Rate in effect on such day. Notwithstanding
anything in the foregoing to the contrary, after Conversion, Maker may elect to
15
- 620 -
<PAGE>
have a fixed interest rate apply to the outstanding Principal Loan Amount
converted and outstanding after the date of giving notice of such fixed rate
election (the "Fixed Rate Notice"). Such fixed rate shall be equal to the
greater of:
(a) the Revolving Credit Rate in effect on the date of the
notice1, plus .375%, or
(b) the average of the yields on constant maturity Treasury Bonds
with maturities of three years and five years, as quoted in the
immediately preceding monthly Federal Reserve Statistical Release (the
"Release") plus the following incremental percentage determined based
upon the Leverage Ratio2 as of the last day of the preceding month: (x)
if the Leverage Ratio is greater than 36, the incremental percentage
shall be 2.25%; (y) if the Leverage Ratio is greater than 24 but not in
excess of 36, the incremental percentage shall be 2.00%; and (z) if the
Leverage Ratio is 24 or less, the incremental percentage should be
1.75%;
Any election of a fixed rate by Maker shall be final and irrevocable. Interest
shall be due each month concurrently with the Maker's principal payment.
Notwithstanding anything to the contrary elsewhere herein, after an Event of
Default has occurred interest shall accrue on the entire outstanding balance of
principal and interest at a fluctuating rate equal to the Default Rate. Interest
shall be calculated on the basis of the actual number of days outstanding and a
360-day year. Interest shall continue to accrue on the full unpaid balance
hereunder notwithstanding any permitted or unpermitted failure of Maker to make
a scheduled payment or the fact that a scheduled payment day falls on a day
other than a Business Day. If Maker's most recent Quarterly Compliance
Certificate shows that, as of the end of the prior quarter, the Leverage Ratio
was in excess of thirty-six (36) at the end of such quarter, the current quarter
shall be deemed a "Restricted Quarter." If, any time during a Restricted Quarter
(including, without limitation, during any period in such quarter prior to
delivery of the Quarterly Compliance Certificate), the interest rate accruing on
any Existing Term Note (as defined in the Agreement) or Converted Note is less
than 7.50% per annum, a "Trigger Event" shall be deemed to have occurred. Upon
the occurrence of a Trigger Event, Maker shall be obligated to pay the following
fees: (i) .375% of the outstanding principal balance as of the date preceding
the Trigger Event of each Existing Term Note or Converted Note which accrues
interest at less than seven and one-half percent (7.50%) per annum which amount
16
- 621 -
<PAGE>
shall be payable promptly upon invoicing by FNB-O; (ii) the same amount as
computed in clause (i), payable on the six-month anniversary of the Trigger
Event; and (iii) the same amount as computed in clause (i), payable on the
twelve-month anniversary of the Trigger Event.
Maker may at any time prepay in whole or in part the Principal Loan
Amount outstanding under this Revolving Credit Note or a Converted Note if the
Maker has given the Revolving Lenders at least two (2) business days prior
written notice of its intention to make such prepayment. Any such prepayment may
be made without penalty except for a Converted Note as to which interest is
accrued at a fixed rate in accordance with clause (a) or (b) above, in which
event a prepayment penalty shall be due to the Lender, at Lender's option,
either: (1) the Make-Whole Premium due in respect of such prepayment; or (2) the
applicable prepayment fee as set forth below. The applicable prepayment fee for
any Converted Note shall be: (i) if the notice electing fixed interest was given
within twelve (12) months of Conversion, the fee shall be 1.50% of the amount of
such prepayment; (ii) if the notice electing fixed interest was given after
twelve (12) months of Conversion, but within twenty-four (24) months of
Conversion, the fee shall be .75% of the amount of such prepayment; and (iii) if
the notice electing fixed interest was given after twenty- four (24) months of
Conversion, but within thirty-six (36) months of Conversion, the fee shall be
.30% of the amount of such prepayment.
GENERAL TERMS
Payment of this Note and the performance of Maker's obligations under
the Agreement ("Obligations") are secured by a security interest granted to
First National Bank of Omaha, as agent for the Lenders and others ("Agent"),
under the Security Agreement in:
All of Maker's accounts, accounts receivable, chattel paper, documents,
instruments, goods, inventory, equipment, general intangibles, contract
rights, all rights of Maker in deposits and advance payments made to
Maker by its customers and Subscribers, accounts due from advertisers
and all ownership, proprietary, copyright, trade secret and other
intellectual property rights in and to computer software (and
specifically including, without limitation, all such rights in DTN
transmission computer software used in the provision of the Basic DTN
Subscription Service and Farm Dayta Service to Maker's Subscribers) and
all documentation, source code, information and works of authorship
pertaining thereto, all now owned or hereafter acquired and all
proceeds and products thereof; and
such additional collateral as is more specifically described in the Security
Agreement.
Maker's liability under its Obligations shall not be affected by any of
the following:
17
- 622 -
<PAGE>
Acceptance or retention by Lender or Agent of other property or
interests as security for the Obligations, or for the liability of any
person other than a Maker with respect to the Obligations;
The release of all or any of the Collateral or other security for
any of the Obligations to any Maker;
Any release, extension, renewal, modification or compromise of any
of the Obligations or the liability of any obligor thereon; or
Failure by Lender or Agent to resort to other security or any
person liable for any of the Obligations before resorting to the
Collateral.
Neither Lender nor Agent is required to take any action whatsoever in
respect of the Collateral. Impairment or destruction of the Collateral shall not
release Maker of its liability hereunder.
Maker represents, warrants and covenants as follows:
Maker is authorized to grant to Agent a security interest in the
Collateral;
This Note, the Agreement and the Security Agreement have been duly
authorized, executed and delivered by the Maker and constitute legal,
valid and binding obligations of Maker;
This Note evidences a loan for business or agricultural purposes;
and
Maker agrees to pay all costs of collection in connection with
this Note, the Agreement and the Security Agreement, including
reasonable attorneys' fees and legal expenses.
Upon the failure of Maker to make any payment of principal or interest
when due hereunder or the occurrence of any Event of Default, all of the
Obligations shall, at the option of Agent and without notice or demand, mature
and become immediately due and payable; and Agent shall have all rights and
remedies for default provided by the Uniform Commercial Code, any other
applicable law and/or the Obligations.
All costs and expenses incurred by Lender or Agent in enforcing its
rights under this Note or any mortgage, endorsement, surety agreement, guaranty
relating thereto are the obligation of Maker and are immediately due and
payable. Interest shall accrue on such costs and expenses from the date of
incurrence at the rate specified herein for delinquent Note payments. Each
Maker, endorser, surety and guarantor hereby waives presentment, protest,
demand, notice of dishonor, and the defense of any statute of limitations.
18
- 623 -
<PAGE>
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder or Agent may, without notice, renew or extend the time for
payment, accept partial payments, release or impair any Collateral or other
security for the payment of this Note or agree to sue any party liable on it.
Neither Lender nor Agent shall be deemed to have waived any of its
rights upon or under this Note, or under any mortgage, endorsement, surety
agreement or guaranty, unless such waivers be in writing and signed by Lender or
Agent, as the case may be. No delay or omission on the part of Lender or Agent
in exercising any right shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right on any future occasion. All rights and remedies of Lender or Agent
on liabilities or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly or
concurrently.
Maker, if more than one, shall be jointly and severally liable
hereunder and all provisions hereof regarding the liabilities or security of
Maker shall apply to any liability or any security of any or all of them. This
Note shall be binding upon the heirs, executors, administrators, assigns or
successors of Maker; shall constitute a continuing agreement, applying to all
future as well as existing transactions, whether or not of the character
contemplated at the date of this Note, and if all transactions between Lender
and Maker shall be at any time closed, shall be equally applicable to any new
transactions thereafter, provided that Lender's interest in the Collateral shall
be limited to the extent provided in the Security Agreement; shall benefit
Lender, its successors and assigns; and shall so continue in force
notwithstanding any change in any partnership party hereto, whether such change
occurs through death, retirement or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of First National Bank of Omaha in Omaha, Nebraska or at such other
address as may be designated by Bank in writing.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the content otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
This Note is given in substitution of that certain Secured Business
Promissory Note dated _____________, ____ the original principal amount of
$____________. This Note shall not affect, and there remains outstanding from
the Maker to certain of the Lenders the Related Bank Debt and the Existing Term
Notes (as such terms are defined in the Agreement), and, as to each, all
extensions, renewals, and substitutions of or for the foregoing.
19
- 624 -
<PAGE>
Executed as of this _____ day of _____________, _____.
DATA TRANSMISSION NETWORK
CORPORATION
By:
Title:
20
- 625 -
<PAGE>
PROMISSORY NOTE SCHEDULE
Loan Advances and Payments of Principal
DATA TRANSMISSION NETWORK CORPORATION
REVOLVING NOTE ADVANCES AND PAYMENTS:
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
- ---- ---------- --------------- ------------- --------- --------
21
- 626 -
<PAGE>
TERM NOTE:
Date of Conversion:
Amount Due at Date of Conversion:
Fixed Rate Notice Date: Fixed Rate: %
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
- ---- ---------- -------------- ------------- --------- --------
22
- 627 -
<PAGE>
EXHIBIT C
TO FIRST AMENDMENT TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK, NATIONAL BANK OF CANADA,
FIRST NATIONAL BANK OF OMAHA, as Agent
AND
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as Documentation Agent
CLOSING ALLOCATIONS
23
- 628 -
<PAGE>
EXHIBIT C
TO
FIRST AMENDMENT TO 1998 REVOLVING CREDIT AGREEMENT
<TABLE>
<CAPTION>
Lender Current Current Revised Revised Adjustment
% Outstanding % Outstanding
<S> <C> <C> <C> <C> <C>
FNB-O 19.80 $10,989,000 15.46% $ 8,580,300 $(2,408,700)
FNB-W .40 222,000 .40% 222,000 No Change
First of
Chicago 2.49 1,381,950 5.70% 3,163,500 1,781,550
Norwest 8.04 4,462,200 7.98% 4,428,900 ( 33,300)
LaSalle 10.30 5,716,500 8.84% 4,906,200 ( 810,300)
Dresdner 10.54 5,849,700 18.85% 10,461,750 4,612,050
Mercantile 13.92 7,725,600 13.83% 7,675,650 ( 49,950)
Montreal 8.13 4,512,150 8.06% 4,473,300 ( 38,850)
U.S. Bank 10.54 5,849,700 10.46% 5,805,300 ( 44,400)
NBC 15.84 8,791,200 10.42% 5,783,100 (3,008,100)
TOTALS 100.00% $55,500,000 100.00% $55,500,000 $ -0-
</TABLE>
24
- 629 -
<PAGE>
EXHIBIT B
TO 1998 REVOLVING CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL,
LASALLE NATIONAL BANK,
NATIONAL BANK OF CANADA,
FIRST NATIONAL BANK OF OMAHA, as Agent
AND
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as Documentation Agent
CLOSING FEES
25
- 630 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
TO
FIRST AMENDMENT TO 1998 REVOLVING CREDIT AGREEMENT
BANKS RECEIVING .25% OF INCREASE:
Bank Amount of Increase Closing Fee
<S> <C> <C>
FNB-O $ 3,000,000 $ 7,500.00
LaSalle $ 2,540,000 $ 6,350.00
BANKS RECEIVING .375% OF INCREASE:
Bank Amount of Increase Closing Fee
FNB-W $ 165,000 $ 618.75
First of Chicago $ 4,995,000 $18,731.25
Norwest $ 3,310,000 $12,412.50
Dresdner $14,649,000 $54,933.75
Mercantile $ 5,755,000 $21,581.25
U.S. Bank $ 4,341,000 $16,278.75
Montreal $ 3,345,000 $12,543.75
BANKS RECEIVING .00% OF INCREASE
Bank Amount of Increase Closing Fee
NBC $ -0- $ -0-
26
- 631 -
<FN>
- --------
1 Determined based on the Leverage Ratio calculated on the Total
Indebtedness and Operating Cash Flow as of the last day of the
preceding month, adjusted to show any increases in the Leverage Ratio
as a result of additional Total Indebtedness incurred (reduced by any
principal payments on such Total Indebtedness) during the quarter in
which the rate is being fixed as described above.
</FN>
</TABLE>
1998 TERM CREDIT AGREEMENT
This 1998 Term Credit Agreement (the "Agreement"), entered into as of
the 7th day of December, 1998, amends and restates the 1997 Term Credit
Agreement entered into as of the 26th day of February, 1997, among DATA
TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal
place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the
"Borrower"), FIRST NATIONAL BANK OF OMAHA, a national banking association having
its principal place of business at One First National Center, Omaha, Nebraska
68102 ("FNB-O"), FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking
association having its principal place of business at Wahoo, Nebraska 68066
("FNB-W"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking association
having its principal place of business at One First National Plaza, Chicago,
Illinois 60670-0173 ("First of Chicago"), NORWEST BANK NEBRASKA, N.A., a
national banking association having its principal place of business at 20th and
Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES, being represented by its office at 75 Wall Street,
New York, New York 10005 ("Dresdner"), MERCANTILE BANK OF ST. LOUIS, N.A., a
national banking association having its principal place of business at One
Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101
("Mercantile"), U.S. BANK, NATIONAL ASSOCIATION, a national banking association
having its principal place of business at 13th and M Streets, Lincoln, Nebraska
68508 ("U.S. Bank"), BANK OF MONTREAL, a Canadian Bank being represented by its
office at 430 Park Avenue, New York, New York 10022 ("Montreal"), and LASALLE
NATIONAL BANK, a national banking association being represented by its office at
One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102
("LaSalle"); as amended by the First Amendment to 1997 Term Credit Agreement
dated as of February 1, 1998, and the Second Amendment to 1997 Term Credit
Agreement dated as of May 15, 1998.
WITNESSETH:
WHEREAS, the parties have entered into that certain 1997 Term Credit
Agreement, dated as of February 26, 1997, as amended by the First Amendment to
1997 Term Credit Agreement dated as of February 1, 1998, and the Second
Amendment to 1997 Term Credit Agreement dated as of May 15, 1998 (as so amended
and restated, the "1997 Term Credit Agreement"), pursuant to which the Borrower
obtained a term credit facility for the purpose of acquiring substantially all
of the assets of Broadcast Partners; and
WHEREAS, the parties desire to further amend and restate the 1997 Term
Credit Agreement; and
1
- 632 -
<PAGE>
WHEREAS, the parties do not intend for this 1998 Term Credit Agreement
to be deemed to extinguish any existing indebtedness of the Borrower or to
release, terminate or affect the priority of any security therefor;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
I. DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
Agreement: The 1998 Term Credit Agreement dated as of December 7,
1998, between the Borrower and the Lenders, amends and restates
the 1997 Term Credit Agreement dated as of February 26, 1997,
as amended by the First Amendment to 1997 Term Credit
Agreement, dated as of February 1, 1998, and the Second
Amendment to 1997 Term Credit Agreement, dated as of May 15,
1998, between the Borrower and the Lenders, and as further
amended or restated from time to time. Reference in the Notes
to the Agreement shall mean the Agreement as defined herein.
Banks: FNB-O, FNB-W, U.S. Bank, Mercantile, First of Chicago,
Norwest, Dresdner, LaSalle, and Montreal, and such additional
banks as may be added hereto from time to time by mutual
written agreement of the parties.
Boatmen's: The Boatmen's National Bank of St. Louis, a national
banking association having its principal place of business at
One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri
63166-0236 (predecessor to NationsBank, N.A.), and its
successors and assigns.
Borrower: Data Transmission Network Corporation, a Delaware
corporation having its principal place of business at Suite
200, 9110 West Dodge Road, Omaha, Nebraska 68114.
Broadcast
Partners: Broadcast Partners, a general partnership having its
current principal place of business at 11275 Aurora Avenue, Des
Moines, Iowa 50322. For purposes of future notices or
communications under this Agreement Broadcast Partners address
shall be: Broadcast Partners, care of Thomas M. Hanigan,
Pioneer Hi-Bred International, Inc., 7200 N.W. 62nd Ave., P.O.
Box 184, Johnston, Iowa 50131-0184.
2
- 633 -
<PAGE>
Business
Day: Any day other than a Saturday, Sunday or a legal holiday on
which banks in the State of Nebraska are not open for business.
Change of
Control: (a) At any time when any of the equity securities of the
Borrower shall be registered under Section 12 of the Securities
Exchange Act of 1934 as amended from time to time (the
"Exchange Act"), (i) any person, entity or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) (other than
any person which is a management employee, or any such "group"
which consists entirely of management employees, of the
Borrower) being or becoming the beneficial owner, directly or
indirectly, of more than 50% of the voting stock of the
Borrower, or (ii) a majority of the members of the Borrower's
board of directors (the "Board") consisting of persons other
than Continuing Directors (as hereinafter defined); and (b) at
any other time, less than 50% of the voting stock of the
Borrower being owned beneficially, directly or indirectly, by
employees of the Borrower or its subsidiaries. As used herein,
the term "Continuing Director" means any member of the Board on
June 29, 1995 and any other member of the Board who shall be
recommended or elected to succeed a Continuing Director by a
majority of Continuing Directors who are the members of the
Board.
Collateral: All personal property of the Borrower described in the
Security Agreement, whether now owned or hereafter acquired,
including, without limitation:
(a) all of the Borrower's accounts, accounts receivable,
subscriber contract rights, chattel paper, documents,
instruments, goods, inventory, equipment, general intangibles;
and
(b) all proceeds and products of the foregoing.
Dresdner Dresdner Bank AG, New York and Grand Cayman Branches, being
represented by its office at 75 Wall Street, New York, New York
10005, and its successors and assigns.
Existing
Term Notes: That certain promissory note from the Borrower to FNB-O,
FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of
February 27, 1995; and those certain promissory notes from the
Borrower to FNB-O, FNB-W, NBD, Norwest, Sumitomo, Mercantile,
First Bank, Montreal, and LaSalle dated as of March 31, 1997,
and March 16, 1998.
3
- 634 -
<PAGE>
FNB-O: First National Bank of Omaha, a national banking association
having its principal place of business at One First National
Center, Omaha, Nebraska 68102, and its successors and assigns.
FNB-W: First National Bank, Wahoo, Nebraska, a national banking
association having its principal place of business at Wahoo,
Nebraska 68066, and its successors and assigns.
FirsTier: FirsTier Bank, National Association, Lincoln, Nebraska, a
national banking association having its principal place of
business at 13th and M Streets, Lincoln, Nebraska 68508, the
predecessor to U.S. Bank.
FirstBank: First Bank, National Association, a national banking
association having its principal place of business at 13th and
M Streets, Lincoln, Nebraska 68508, and its successors and
assigns (it being acknowledged that First Bank is the successor
in interest to FirsTier.)
Firstof Chicago: The First National Bank of Chicago, a national
banking association having its principal place of business at
One First National Plaza, Chicago, Illinois 60670-0173, and its
successors and assigns.
Interest Rate
Protection Contract
Amounts: "Interest Rate Protection Contract Amounts" shall mean
amounts due from the Borrower under interest rate protection
contracts between the Borrower and Lender as to (i) the
interest differential amounts due in respect of periodic
netting payments under any such contract, and (ii) any amount
due as a result of marking to market the Borrower's obligations
under any such contract upon the occurrence of an event of
default under, or other early termination of, such contract; in
either case without inclusion of fees and other expenses
related to such contract. Such Interest Rate Protection
Contract Amounts shall be reported in writing to FNB-O and the
Borrower by the applicable Lender at such times as shall be
appropriate to carry out the intent of this Agreement.
LaSalle: LaSalle National Bank, a national banking association
having its principal place of business at 135 South LaSalle
Street, Chicago, Illinois 60603.
Lenders: The Banks.
4
- 635 -
<PAGE>
Leverage Ratio: The number which is obtained at the time of
determination by dividing Total Indebtedness at the applicable
time by Operating Cash Flow at the applicable time.
Make-Whole
Premium: An amount which shall be sufficient as determined by the
relevant Bank in good faith and on a reasonable basis and
certified to the Borrower in writing, to compensate the Bank
for any loss (including any lost yield), cost or expense
incurred by the Bank (i) in liquidating or redeploying deposits
or other funds acquired by the Bank to fund or maintain the
loan prepaid and (ii) in unwinding, amending, cancelling or
otherwise modifying or terminating any match funding, swap or
other arrangement entered into by the Bank in connection with
acquiring or maintaining the funding for the loan prepaid.
Mercantile: Mercantile Bank of St. Louis, N.A., a national banking
association having its principal place of business at One
Mercantile Center, 7th and Washington Streets, St. Louis,
Missouri 63101.
Montreal: Bank of Montreal, a Canadian bank being represented by its
office at 430 Park Avenue, New York, New York, 10022.
NBC: National Bank of Canada, a Canadian bank being represented by
its office at 1200 17th Street, Suite 2760, Denver, Colorado
80202.
NBD: NBD Bank, a bank organized under the laws of the State of
Michigan and having its principal place of business at 611
Woodward Avenue, Detroit, Michigan 48226.
NationsBank: NationsBank, N.A., a national banking association
having an office at 800 Market Street, 12th Floor, St. Louis,
Missouri 63101-2506 (successor to The Boatmen's National Bank
of St. Louis), and its successors and assigns.
Net Operating
Profit After
Taxes: For any period, the net earnings (or loss) after taxes of
Borrower and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period and determined in
conformity with generally accepted accounting principals;
provided that there shall be excluded (i) the income (or loss)
of any entity accrued prior to the date it becomes a Subsidiary
of Borrower or is merged into or consolidated with Borrower and
(ii) any extraordinary gains or losses for such period
determined in accordance with generally accepted accounting
principles.
5
- 636 -
<PAGE>
Net Worth: The Borrower's consolidated net worth as determined in
accordance with generally accepted accounting principles plus
subordinated debt. For purposes of this definition,
"subordinated debt" means indebtedness of the Borrower which is
subordinate, in a manner satisfactory to the Lenders, to the
indebtedness due to the Lenders, and the repayment of which is
forbidden during the existence of any Event of Default
hereunder; provided however, that any such indebtedness shall
not be deemed subordinated debt to the extent of the amount of
principal payments that are due thereon within one (1) year
from the date of determination.
New York
Prime: The floating interest rate published as the "Prime Rate" (the
base rate on corporate loans posted by at least 75% of the
nation's 30 largest banks) in the Wall Street Journal on the
first day of each month, or if no rate is published on the
first day of any month, on the first day thereafter when such
rate is published. For purposes of this Agreement, New York
Prime shall fluctuate on a monthly basis. Changes to New York
Prime shall be effective on the first day of each month based
on the "Prime Rate" in effect on such day.
Norwest: Norwest Bank Nebraska, N.A., a national banking association
having its principal place of business at 20th and Farnam
Streets, Omaha, Nebraska 68102, and its successors and assigns.
Notes: Those certain promissory notes from the Borrower to the
Lenders dated as of May 3, 1996, July 17, 1996, and July 31,
1996, including, without limitation, the Notes to the Banks as
referenced in Section 2.1 hereof, and such additional term
notes as the parties may hereafter agree to add hereto as
Notes.
Operating
Cash Flow: The Borrower's consolidated average monthly earnings or
loss before interest, depreciation, amortization and taxes,
less current tax expense and plus or minus any non-ordinary
non-cash charges or credits to earnings, which average shall be
based on the Borrower's actual financial results in the two (2)
full calendar months preceding the date of determination. For
purposes of calculating Operating Cash Flow for this Agreement,
the Borrower shall not permit deferred commission expenses to
be capitalized for any period in excess of twelve (12) months.
6
- 637 -
<PAGE>
Operative
Documents: This 1998 Loan Agreement, the Notes, the Security
Agreement, the financing statements regarding the Collateral
and the documents and certificates, other than the Purchase
Agreement, delivered pursuant to Article VI.
Purchase
Agreement: The Asset Purchase and Sale Agreement dated as of May 3,
1996, between the Borrower and Broadcast Partners.
Quarterly
Compliance
Certificate: The certificate delivered to the Lenders by the
Borrower pursuant to Section 5.1(d).
Related
Bank Debt: The aggregate unpaid balance of all indebtedness, now or
hereafter existing (including future advances) under the
Existing Term Notes; the amounts outstanding under the
revolving credit notes issued under the Revolving Credit
Agreement, and under any term notes issued to convert such
revolving credit notes or any portion thereof to a term
obligation; the amounts outstanding under the Lender's Letter
of Credit and under the Norwest Letter of Credit, as defined in
the Revolving Credit Agreement; all extensions, renewals, and
substitutions of or for the foregoing; and all obligations, if
any, as to the accrued and unpaid Interest Rate Protection
Contract Amounts.
Release: The Federal Reserve Statistical Release.
Restricted
Quarter: This term shall have the meaning set forth in Section 2.2
hereof.
Revolving Credit
Agreement: The 1998 Revolving Credit Agreement dated as of December
7, 1998, between the Borrower and the Lenders which amends and
restates the 1997 Revolving Credit Agreement as previously
amended.
Revolving
Credit Rate: The floating interest rate announced from time
to time by FNB-O as its "National Base Rate." The
National Base Rate is set by FNB-O, solely in its
discretion, to reflect generally the rates charged by
national money center banks as their reference rates.
(Previously, the rate was announced by FNB-O as its
"New York Base Rate.") Rates charged by FNB-O may be
at, above or below the National Base Rate, as
determined by FNB-O as to each respective customer.
7
- 638 -
<PAGE>
Security
Agreement: The 1998 Security Agreement dated as of the date hereof,
which amends and restates the 1997 Security Agreement, as
previously amended.
Subsidiaries: Any corporation, business association, partnership,
joint venture, limited liability company or other business
entity in which the Borrower, or one or more of its
Subsidiaries, or the Borrower and one or more of its
Subsidiaries has either (i) more than 50% of the equity
ownership thereof, or (ii) the power to elect a majority of the
directors or to control the identification of the managing or
general partners or similar governing persons thereof.
Sumitomo:The Sumitomo Bank, Limited, a Japanese bank being
represented by its office at 200 North Broadway, Suite 1625,
St. Louis, Missouri 63102 and acting through its Chicago branch
and its successors and assigns.
Total
Indebtedness: All loans and other obligations of the Borrower and
its Subsidiaries, without duplication, for borrowed money
(including, without limitation, the indebtedness due to the
Lenders and the holders of the Related Bank Debt) regardless of
the maturity thereof but such term shall not include
subordinated debt of the Borrower, as such term is defined in
the definition of Net Worth, up to $15,000,000 if such
subordinated debt was existing on May 3, 1996. For purposes of
this definition of "Total Indebtedness," indebtedness under an
interest rate protection Agreement shall mean the amount, if
any, at the time of determination, of the unpaid Interest Rate
Protection Contract Amounts; provided, however, that solely for
purposes of voting under this Agreement by the Lenders, "Total
Indebtedness" will not include such Interest Rate Protection
Contract Amounts.
Trigger
Event: This term shall have the meaning set forth in Section 2.2
hereof.
U.S. Bank: U.S. Bank, National Association, formerly known as First
Bank, a national banking association having its principal place
of business at 13th and M Streets, Lincoln, Nebraska 68508, and
its successors and assigns.
All accounting terms not otherwise defined herein shall have the meaning
ordinarily applied under generally accepted accounting principles.
8
- 639 -
<PAGE>
II. TERM FACILITY
2.1. Term Credit. The Banks agree to advance $48,490,000 to the
Borrower for the purchase of substantially all of the assets of Broadcast
Partners. Such advances shall be made, in one or more closings, on a pro rata
basis by the Banks, based on the following maximum advance limits for each Bank:
(1) as to FNB-O, $10,780,000; (ii) as to FNB-W, $245,000; (iii) as to First of
Chicago, $6,223,000; (iv) as to Norwest, $4,047,000; (v) as to LaSalle,
$10,388,000; (vi) as to Mercantile, $5,333,900; (vii) as to Dresdner,
$5,170,000; (viii) as to U.S. Bank, $1,933,000; and (ix) as to Montreal,
$4,370,100.
It is understood and agreed by the parties that the foregoing advances
by FNB-O, FNB-W, and NBD were made at the initial closing under the 1996 Term
Credit Agreement on May 3, 1996. The foregoing advance by Norwest represents an
advance of $1,822,000 which was made at the initial closing under the Agreement
on May 3, 1996, and an additional advance of $2,225,000, which was made at the
closing under the First Amendment on July 17, 1996. The foregoing advances by
Mercantile, Sumitomo and U.S. Bank (then "FirsTier") were made at the closing
under the First Amendment on July 17, 1996. The advance made by Montreal was
made at the closing of the Second Amendment on July 31, 1996; the proceeds of
such advance were used to prepay the existing Note held by Broadcast Partners in
the remaining principal amount of $4,070,100, and to provide an additional
$300,000 to the Borrower. The advance made by LaSalle was made on December 27,
1996, at the closing of the Third Amendment. The outstanding interest of
Sumitomo was assigned to Dresdner as of September 4, 1998. The outstanding
interest of NBD was assigned to First of Chicago as of October 1, 1998. This
Agreement shall not be deemed to extinguish any existing indebtedness of the
Borrower under the 1997 Term Credit Agreement or the Notes issued thereunder or
to release, terminate or affect the priority of any security therefor.
2.2 Notes. The Notes shall bear interest on the principal loan amount
thereof outstanding through June 30, 1999, at the rate of 8.25% per annum;
thereafter the interest rate for the balance of the term shall be set on June
30, 1999, at two percent (2.00%) above the yield on constant maturity Treasury
Bonds with maturities of three years, as quoted for the Business Day immediately
preceding June 30, 1999 in the applicable Release. Notwithstanding the
foregoing, the Notes issued to the following Lenders shall bear interest as
follows: (i) as to U.S. Bank, at the rate of 8.36% per annum through June 30,
1999 (whereupon the interest rate reset described above shall be applicable);
and (ii) as to Mercantile, First of Chicago, Dresdner, Norwest, FNB-W and
Montreal, at a variable rate per annum equal to New York Prime minus one-half of
one percent (0.5%). After an Event of Default has occurred, interest shall
accrue: (i) with respect to the fixed rate Notes, on the entire outstanding
balance of principal and interest at a fluctuating rate equal to the Revolving
Credit Rate plus four percent (4.00%); and (ii) as to the floating rate Notes,
on the principal loan amount thereof at a rate per annum equal to three and
one-half percent (3.5%) above New York Prime. Interest shall be calculated on
actual days elapsed and a year of 360 days. If the Borrower's most recent
Quarterly Compliance Certificate shows that, as of the end of the prior quarter,
the Leverage Ratio was at such date more than thirty-six (36), the current
9
- 640 -
<PAGE>
quarter shall be deemed a "Restricted Quarter." If, any time during a Restricted
Quarter (including, without limitation, during any period in such quarter prior
to delivery of the Quarterly Compliance Certificate), the interest rate accruing
on any Note is less than seven and one-half percent (7.50%), a "Trigger Event"
shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the
Borrower shall be obligated to pay the Lenders the following fees: (i)
three-eighths of one percent (.375%) of the outstanding principal balance of
such Note as of the date preceding the Trigger Event, which amount shall be
payable promptly upon invoicing by FNB-O; (ii) the same amount as computed in
clause (i), payable on the six-month anniversary of the Trigger Event; and (iii)
the same amount as computed in clause (i), payable on the twelve-month
anniversary of the Trigger Event.
2.3. Payments. Interest on the unpaid balance of the Notes shall be due
on the last day of each month beginning May 31, 1996. The principal amount of
each respective Note shall become due and payable in seventy-two equal monthly
installments, with the first such installment due on January 31, 1997, and
subsequent installments due on the last day of each consecutive month
thereafter. The total amount of all unpaid principal and accrued interest
hereunder shall be due and payable no later than December 31, 2002. In the event
that a payment day is not a Business Day, the payment shall be due on the next
succeeding Business Day. Interest shall continue to accrue on the full unpaid
balance hereunder notwithstanding any permitted or unpermitted failure of the
Borrower to make a scheduled payment or the fact that a scheduled payment day
falls on a day other than a Business Day.
2.4. Fees. At the initial closing, the Borrower paid to FNB-O an
initial fee equal to $14,729, which was allocated by FNB-O pro rata among the
Banks based on their respective commitments at such time. Furthermore, the
Borrower paid to FNB-O at closing an agenting fee equal to $25,500. At the
closing of the First Amendment on July 17, 1996, the Borrower paid a fee of
$7,330.95 to FNB-O for distribution to the following Banks: (i) $1,112.50 to
Norwest; (ii) $2,666.95 to Mercantile; (iii) $2,585.00 to Sumitomo; and (iv)
$966.50 to U.S. (then First Bank, National Association). At the closing of the
Second Amendment on July 31, 1996, the Borrower paid a fee of $2,185.05 to FNB-O
for distribution to Montreal.
2.5 Payment. The Borrower's obligation to make payments of principal
and interest hereunder shall be further evidenced by the Notes, the form of
which is attached hereto as Exhibit A. All obligations of the Borrower under the
Notes and the other Operative Documents shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of FNB-O in Omaha, Nebraska or at such other address as may be designated
by FNB-O in writing.
2.6 Prepayment. Prepayments of the Notes may be made in full or in part
at any time upon 10 days prior written notice to the Lenders; provided, however,
that unanimous consent of the Lenders shall be required for any prepayment which
is not applied pro rata to the Lenders in accordance with Section 8.2.
Prepayment penalties will be required as indicated below:
10
- 641 -
<PAGE>
(a) The Borrower may prepay in full without penalty the
principal loan amounts outstanding under all Notes
which bear interest at a fixed rate in accordance
with Section 2.2 hereof, if such prepayment occurs on
June 30, 1999 and the Borrower has given the Banks at
least 30 days prior written notice of its intention
to make such prepayment.
(b) If a prepayment of a Note which bears interest at a
fixed rate in accordance with Section 2.2 hereof
occurs other than in accordance with (a) above, the
Borrower shall pay to the respective Bank payee
thereof, at such payee's option, either: (1) the
Make-Whole Premium due in respect of such prepayment;
or (2) a prepayment fee equal to one and one-half
percent (1.50%) of the amount of such prepayment.
(c) The Borrower shall not be obligated to pay a
Make-Whole Premium or prepayment fee to any Bank
payee of a Note which bears interest at a floating
rate indexed to New York Prime.
2.6A Permitted Prepayments to Broadcast Partners. Broadcast Partners'
Notes were prepaid in full at the closing of the Second Amendment on July 31,
1996.
2.7 Security. All obligations of the Borrower hereunder and under the
Operative Documents, including, without limitation, the Borrower's obligations
to make payments of principal and interest shall be secured by a first security
interest in the Collateral, as more specifically described in the Security
Agreement.
2.8 Revolving Credit Agreement. Nothing herein shall be deemed to alter
or amend the Borrower's obligations under the Revolving Credit Agreement, the
Related Bank Debt or any collateral security therefor, all of which shall
continue in full force and effect in accordance with the terms thereof.
III. [INTENTIONALLY OMITTED]
IV. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that as of May 3, 1996, and the
date hereof the following are and shall be true and correct:
4.1 Corporate Existence. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and each
Subsidiary is a corporation duly organized, validly existing and in good
standing in its state of incorporation as shown on Schedule I, and it and each
of its Subsidiaries is duly qualified and in good standing in all states where
it is doing business except where the failure to be so qualified would not have
a material adverse effect on it and it has full power and authority to own and
operate its properties and to carry on its business. As of the date of this
Agreement, the Borrower has no Subsidiaries other than those shown on Schedule
I.
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4.2 Corporate Authority. It has full corporate power, authority and
legal right to execute, deliver and perform the Operative Documents to which it
is a party, and all other instruments and agreements contemplated hereby and
thereby, and to perform its obligations hereunder and thereunder; and such
actions have been duly authorized by all necessary corporate action, and are not
in conflict with any applicable law or regulation, or any order, judgment or
decree of any court or other governmental agency or instrumentality or its
articles of incorporation or bylaws, or with any provisions of any indenture,
contract or agreement to which it or any of its Subsidiaries is a party or by
which it or any of its Subsidiaries or any of its or their property may be
bound.
4.3 Validity of Agreements. The Borrower's Operative Documents have
been duly authorized, executed and delivered and constitute its legal, valid and
binding agreements, enforceable against the Borrower in accordance with their
respective terms (except to the extent that enforcement thereof may be limited
by any applicable bankruptcy, reorganization, moratorium or similar laws now or
hereafter in effect, or by principles of equity).
4.4 Litigation. Neither the Borrower nor any Subsidiary is a party to
any pending lawsuit or proceeding before or by any court or governmental body or
agency, which is likely to have a materially adverse effect on the Borrower's
ability to perform its obligations under its Operative Documents; nor is the
Borrower aware of any threatened lawsuit or proceeding, to which it or any
Subsidiary may become a party or of any investigation of any Court or
governmental body or agency into its affairs, which if instituted would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents.
4.5 Governmental Approvals. The execution, delivery and performance by
the Borrower of the Operative Documents or the Purchase Agreement do not require
the consent or approval of, the giving of notice to, the registration with, or
the taking of any other action in respect of, any federal, state or other
governmental authority or agency other than as contemplated herein and therein.
4.6 Defaults Under Other Documents. Neither the Borrower nor any
Subsidiary is in default or in violation (nor has any event occurred which, with
notice or lapse of time or both, would constitute a default or violation) under
any document or any Agreement or instrument to which it may be a party or under
which it or any of its properties may be bound and the result of which would
have a material adverse effect upon the Borrower's ability to perform its
obligations under its Operative Documents.
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4.7 Judgments. There are no outstanding or unpaid judgments (which are
not adequately bonded) of the Borrower or any Subsidiary which would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents.
4.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is in
violation of any laws, regulations or judicial or governmental decrees in any
respect which could have any material adverse effect upon the validity or
enforceability of any of the terms of the Borrower's Operative Documents or
which could have a material adverse effect upon the Borrower's ability to
perform its obligations under its Operative Documents.
4.9 Taxes. All tax returns of the Borrower and its Subsidiaries for
material taxes required to be filed have been filed or extensions permitted by
law have been obtained; all taxes of the Borrower and its Subsidiaries of a
material nature and which are due and payable as reflected on such returns have
been paid, other than taxes which are due but for which only a nominal late
payment penalty is payable and for which the taxing authority is not yet
entitled to enforce its remedies for payment thereof and other than taxes being
contested in good faith and with respect to which adequate reserves have been
established; and no material amounts of taxes of the Borrower and its
Subsidiaries not reflected on such returns are payable.
4.10 Collateral. The Borrower has good and marketable title to the
Collateral and the Collateral is free from all liens, encumbrances or security
interests, except as disclosed on Schedule A attached hereto. The Borrower's
principal place of business, chief executive office, and the principal place
where it keeps its records concerning the Collateral is Suite 200, 9110 West
Dodge Road, Omaha, Nebraska 68114. The Borrower also keeps certain of its
records regarding the Collateral at 11275 Aurora Avenue, Des Moines, Iowa 50322.
4.11 Pension Benefits. Neither the Borrower nor any Subsidiary
maintains a "Plan" as defined in Section 3 of the Employees Retirement Income
Security Act of 1974 ("ERISA"), or each such entity is in compliance with the
minimum funding requirements with respect to any such "Plan" maintained by it
and it has not incurred any material liability to the Pension Benefit Guaranty
Corporation ("PBGC") or otherwise under ERISA in connection with any such Plan.
4.12 Margin Regulations. No part of the proceeds of any advance
hereunder shall be used to purchase or carry any "margin stock" (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States) or any "margin security" (within the meaning of Regulation
G of said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of the
proceeds of any advance hereunder shall be used for any purpose that violates,
or which is inconsistent with, the provisions of Regulation G, T, U or X of said
Board of Governors.
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4.13 Financial Condition. The financial condition of the Borrower and
its Subsidiaries is truly and accurately set forth in the most recent financial
statement which has been provided to the Lenders and no material adverse change
has occurred which would make such financial statement inaccurate or misleading.
V. COVENANTS
The Borrower hereby covenants that:
5.1 Financial Reports.
(a) Within forty-five (45) days after the end of each month, the
Borrower, at its sole expense, shall furnish the Lenders a
consolidated balance sheet,
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statement of earnings of the Borrower and its consolidated
Subsidiaries, and a statement of cash flows of the Borrower and
its consolidated subsidiaries and such financial statements on a
consolidating basis as to the Borrower, all such financial
statements to be prepared in accordance with generally accepted
accounting principles consistently applied and certified as
completed and correct, subject to normal changes resulting from
year-end audit adjustments, by the chief financial officer of the
Borrower.
(b) Within ninety (90) days after the close of the Borrower's
fiscal year, the Borrower, at its sole expense, shall furnish the
Lenders: (i) a consolidated balance sheet, a statement of earnings
of the Borrower and its consolidated Subsidiaries and a statement
of cash flows of the Borrower and its consolidated subsidiaries,
certified by Deloitte & Touche, or other independent certified
public accountants acceptable to the Lenders, that such financial
reports fairly present the financial condition of the Borrower and
its consolidated Subsidiaries and have been prepared in accordance
with generally accepted accounting principles consistently
applied; and (ii) a certificate from such accountants certifying
that in making the requisite audit for certification of the
Borrower's financial statements, the auditors either (1) have
obtained no knowledge, and are not otherwise aware of, any
condition or event which constitutes an Event of Default or which
with the passage of time or the giving of notice would constitute
an Event of Default under Sections 5.3, 5.4, 5.7, 5.9(b), 5.9(d),
5.11, 5.19 or 5.20; or (2) have discovered such condition or
event, as specifically set forth in such certificate, which
constitutes an Event of Default or which with the passage of time
or the giving of notice would constitute an Event of Default under
such sections. The auditors shall not be liable to the Lenders by
reason of the auditors' failure to obtain knowledge of such event
or condition in the ordinary course of their audit unless such
failure is the result of negligence or willful misconduct in the
performance of the audit.
(c) Within thirty (30) days after submission to the Securities and
Exchange Commission, the Borrower shall provide to the Lenders
copies of its Forms 10K and 10Q, as submitted to the Securities
and Exchange Commission during the term of this Agreement.
(d) Within twenty (20) days after the end of each quarter, the
Borrower, at its expense, shall furnish the Lenders a certificate
of the chief financial officer of the Borrower in the form of
Exhibit C, setting forth such information (including detailed
calculations) sufficient to verify the conclusions of such officer
after due inquiry and review, that:
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(i) The Borrower and each Subsidiary, either (y) is in
compliance with the requirements set forth in this Agreement
or (z) is NOT in compliance with the foregoing for reasons
specifically set forth therein; and
(ii) The chief financial officer of the Borrower has
reviewed or caused to be reviewed all of the terms of the
Operative Documents of the Borrower and that such review
either (1) has NOT disclosed the existence of any condition
or event which constitutes an event of default or any
condition or event which with the passage of time or the
giving of notice would constitute an event of default under
the Operative Documents or (2) has disclosed the existence
of a condition or event which constitutes an event of
default, or a condition or event which with the passage of
time or the giving of notice would constitute an event of
default, under the aforesaid instrument or instruments and
the specific condition or event is specifically set forth.
(e) The Borrower shall provide the Lenders with such other
financial reports and statements as the Lenders may reasonably
request.
5.2 Corporate Structure and Assets. The Borrower shall not merge or
consolidate with any other corporation or entity unless the Borrower shall be
the surviving entity, nor sell any assets except items that are obsolete or no
longer necessary for operation of the business, other than in the ordinary
course of business without the prior written consent of the Lenders. The Lenders
shall be entitled to receive as a prepayment on the Notes the proceeds of any
sale of assets of the Borrower which are prohibited by the preceding sentence.
Notwithstanding the foregoing prepayment requirements, any such prohibited sale
shall remain a violation of this Agreement. In addition, the Borrower shall not
engage in any business materially different from that in which it is presently
engaged without the prior written consent of the Lenders, which consent shall
not be unreasonably withheld. The foregoing restrictions on mergers and
consolidations shall not apply if: (i) in the case of a merger, the Borrower is
the surviving entity and expressly reaffirms its obligations hereunder; (ii) in
the case of a consolidation, the resulting corporation expressly assumes the
obligations of the Borrower hereunder; (iii) the surviving or resulting
corporation is organized under the laws of the United States or a jurisdiction
thereof; (iv) after giving effect to such merger or consolidation, the surviving
or resulting corporation will be engaged in substantially the same lines of
business as are now engaged in by the Borrower; and (v) immediately after giving
effect to such merger or consolidation, no Event of Default will exist
hereunder.
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5.3 Net Worth. The Borrower shall maintain a minimum Net Worth during
the term of this Agreement of at least $23,500,000 plus fifty percent (50%) of
the net income (but not losses) of the Borrower for each fiscal year, commencing
with the fiscal year beginning January 1, 1997; provided, however, solely for
purposes of determining compliance with the provisions of this Section 5.3, "Net
Worth" shall not include any subordinated debt.
5.4 Indebtedness.
(a) The Borrower shall not at any time permit the Leverage Ratio
to exceed forty-eight (48).
(b) On the day the Borrower or a Subsidiary becomes liable with
respect to any debt and immediately after giving effect thereto
and to the concurrent retirement of any other debt, the sum of
Total Indebtedness, plus the amount of any outstanding
subordinated debt of the Borrower and its Subsidiaries, plus the
contingent obligations of the Borrower and its Subsidiaries under
any guaranty of the debt of any other person or entity (other than
unsecured debt of a Subsidiary incurred in the ordinary course of
business for other than borrowed money or to finance the purchase
price of any property or business) shall not exceed an amount
equal to sixty (60) times Operating Cash Flow at such date.
5.5 Use of Proceeds. The Borrower shall not use the proceeds of the
advances hereunder to purchase or carry any "margin stock" (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System of the
United States) or any "margin security" (within the meaning of Regulation G of
said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of such
proceeds shall be used for any purpose that violates, or which is inconsistent
with, the provisions of Regulation G, T, U or X of said Board of Governors. This
section shall not preclude the Borrower from repurchasing any of its own issued
and outstanding common stock; provided, however, that such repurchase does not
result in the occurrence of any other Event of Default hereunder.
5.6 Notice of Default. The Borrower shall give to the Lenders prompt
written notification of the existence or occurrence of:
(a) any fact or event which results, or which with notice or the
passage of time, or both, would result in an Event of Default
hereunder;
(b) any proceedings instituted by or against the Borrower in any
federal, state or local court or before any governmental body or
agency, or before any arbitration board, or any such proceedings
threatened against the Borrower by any governmental agency, which
is likely to have a material adverse effect upon the Borrower's
ability to perform its obligations under its Operative Documents;
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(c) any default or event of default involving the payment of money
under any Agreement or instrument which is material to the
Borrower or any Subsidiary to which such entity is a party or by
which it or any of its property may be bound, and which default or
event of default would have a material adverse effect upon the
Borrower's ability to perform its obligations under its Operative
Documents; and (d) the Borrower shall give immediate notice of the
commencement of any proceeding under the Federal Bankruptcy Code
by or against the Borrower or any Subsidiary.
5.7 Distributions.
(a) Neither Borrower nor any Subsidiary shall declare any
dividends or make any cash distribution in respect of any shares
of its capital stock or warrants of its capital stock, without the
prior written consent of the Lenders; provided, however, that the
Borrower may declare stock dividends; provided, further, that the
Borrower need not obtain the Lenders' consent with respect to (i)
dividends in any one (1) year which are, in aggregate, less than
25% of the Borrower's Net Operating Profit After Taxes in the
previous four (4) quarters, as reported to the Lenders pursuant to
Section 5.1; or (ii) dividends or distributions from any
consolidated Subsidiary.
(b) Neither the Borrower nor any Subsidiary other than a
Subsidiary which is wholly-owned by the Borrower shall purchase,
redeem, or otherwise retire any shares of its capital stock or
warrants of its capital stock if, immediately after the making of
such purchase or redemption, the Borrower or any Subsidiary will
be in default of any other covenant or provision of this Agreement
(including, without limitation, the covenants and provisions
pertaining to minimum net worth and limitations on indebtedness).
5.8 Compliance with Law and Regulations. The Borrower and each
Subsidiary shall comply in all material respects with all applicable federal and
state laws and regulations.
5.9 Maintenance of Property; Accounting; Corporate Form; Taxes;
Insurance.
(a) The Borrower and each Subsidiary shall maintain its property
in good condition in all material respects, ordinary wear and tear
excepted, and make all renewals, replacements, additions,
betterments and improvements thereto necessary for the efficient
operation of its business.
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(b) The Borrower and each Subsidiary shall keep true books of
record and accounts in which full and correct entries shall be
made of all its business transactions, all in accordance with
generally accepted accounting principles consistently applied.
(c) The Borrower and each Subsidiary shall do or cause to be done
all things necessary to preserve and keep in full force and effect
its corporate form of existence as is necessary for the
continuation of its business in substantially the same form,
except where such failure to do so with respect to any Subsidiary
would not have a material adverse effect on the ability of the
Borrower to perform its obligations under the Operative Documents.
(d) The Borrower and each Subsidiary shall pay all taxes,
assessments and governmental charges or levies imposed upon it or
its property; provided, however, that the Borrower or any
Subsidiary shall not be required to pay any of the foregoing taxes
which are being diligently contested in good faith by appropriate
legal proceedings and with respect to which adequate reserves have
been established.
(e) The Borrower shall maintain or cause to be maintained
liability insurance and casualty insurance, in a form and amount
satisfactory to FNB-O as agent for the Lenders, upon the
Collateral (excluding equipment or inventory provided to
Subscribers in the ordinary course of business) and other tangible
assets owned by it and its Subsidiaries. The Borrower shall name
FNB-O as agent for the Lenders and the holders of the Related Bank
Debt as the loss payee on all such casualty insurance, and as an
additional insured on all such liability insurance and shall
provide the Lenders with evidence of such insurance upon request.
5.10 Inspection of Properties and Books. The Borrower shall recognize
and honor the right of the Lenders, upon request to an officer of the Borrower,
to visit and inspect any of the properties of, to examine the books, accounts,
and other records of, and to take extracts therefrom and to discuss the affairs,
finances, loans and accounts of, and to be advised as to the same by the
officers of, the Borrower at all such times, in such detail and through such
agents and representatives as the Lenders may reasonably desire.
5.11 Guaranties. Neither the Borrower nor any Subsidiary shall guaranty
or become responsible for the indebtedness of any other person or entity;
provided, however, that a Subsidiary may guaranty the obligation of the
Borrower; provided further, that the Borrower may guaranty the obligations of a
Subsidiary so long as no Event of Default (or not event or occurrence which with
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the passage of time or notice, or both, would become an Event of Default) has
occurred or will occur hereunder, taking into account such guaranty and
indebtedness.
5.12 Collateral. Neither the Borrower nor any Subsidiary shall incur or
permit to exist any mortgage, pledge, lien, security interest or other
encumbrance on the Collateral, except as permitted in the Security Agreement.
Subject to Section 5.4(b), the foregoing shall not be construed to prohibit the
Borrower or any Subsidiary from acquiring leased equipment in the ordinary
course of business. Without limiting the generality of the foregoing, the
Borrower covenants and agrees that it shall on request enforce for the benefit
of the Lenders and the holders of the Related Bank Debt, but at the sole expense
of the Borrower, any and all rights and remedies (including, without limitation,
rights to indemnity), that it may have with respect to the existence of any
liens, security interests or other encumbrances that may exist on the property
of the Borrower acquired from Broadcast Partners under the Purchase Agreement.
Notwithstanding anything else to the contrary herein or in the Operative
Documents, Broadcast Partners shall have no right to share in the proceeds of
any such recovery which constitutes the proceeds of any indemnity claim by the
Borrower under the Purchase Agreement.
5.13 Name; Location. The Borrower shall give the Lenders ninety (90)
days notice prior to changing its name, identity or corporate structure, moving
its principal place of business, chief executive office or place where it keeps
its records concerning the Collateral.
5.14 Notice of Change in Ownership or Management. During the term of
this Agreement, the Borrower shall give the Lenders notice of the occurrence of
any of the following described events, which notice shall be given as soon as
the Borrower obtains notice or knowledge thereof:
(a) any change, directly or indirectly, in the existing
controlling interest in the Borrower; or
(b) any material adverse change in its management personnel. A
material adverse change in the Borrower's management personnel
shall be deemed to have occurred if any one (1) of the following
has occurred with respect to two of the four (4) individuals who
are both officers and members of the Board of Directors of the
Borrower: (i) the resignation, retirement, or voluntary or
involuntary termination of employment and/or status of such
persons as officers and directors of the Borrower; (ii) any
announcement, notice of intent, resolution or similar advance
notice with respect to the matters referenced in the foregoing
clause; or (iii) the death, disability or legal incompetence of
such persons.
5.15. Interest Coverage. The ratio of Operating Cash Flow to interest
expense (as determined in accordance with generally accepted accounting
principles but excluding amortization of deferred offering costs and any fees
related to the Trigger Event in Section 2.2 of this Agreement) at the end of
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each quarter during the term of this Agreement, as shown on the Quarterly
Compliance Report, shall not be less than 2.25 to 1.0.
5.16 Subordinated Debt. Neither the Borrower nor any Subsidiary shall
incur any subordinated debt or issue any preferred stock or warrants for
preferred stock except upon the prior written consent of the Lenders. Neither
the Borrower nor any Subsidiary shall make any voluntary or optional prepayment
on any subordinated debt without the prior written consent of the Lenders.
Similarly, the Borrower shall not amend its articles of incorporation or any
other documents or agreements relating to the issuance of subordinated debt,
preferred stock or warrants for preferred stock without the prior written
consent of the Lenders.
5.17 Subsidiaries. The Borrower shall give prompt written notice to the
Lenders of the Borrower's intent to acquire, or the Borrower's acquisition of,
any Subsidiary. Prior to the creation or acquisition of such Subsidiary, the
Borrower (i) shall cause a first security interest in the assets of such
Subsidiary to be perfected in favor of FNB-O, as agent for the Lenders and the
holders of the Related Bank Debt, and (ii) shall cause the Subsidiary to enter
into a security Agreement, to execute and file such financing statements and to
provide opinions all in form satisfactory to the Lenders and the holders of the
Related Bank Debt, as to compliance with this section.
5.18 Amendments to Purchase Agreement. The Borrower shall not amend the
Purchase Agreement without the prior written consent of the Lenders.
5.19 Capital Expenditures. The Borrower shall not incur in any fiscal
year, commencing with the fiscal year beginning January 1, 1997, capital
expenditures, determined in accordance with generally accepted accounting
principles, of more than $2,000,000; provided, however, that capital
expenditures for (a) equipment to be used by subscribers of the Borrower, and
(b) telecommunications equipment, computer equipment, software and software
consulting shall not be counted for purposes of this annual limitation.
5.20 Acquisitions. The Borrower shall not acquire any stock or any
equity interest in, or warrants therefor or securities convertible into the
same, or a substantial portion of the assets of, another entity without the
prior written consent of the Lenders; provided, however, that the Borrower shall
be permitted to make on a cumulative basis from and after July 1, 1998 such
acquisitions (excluding the acquisition of A-T Financial Information, Inc.
directly or through Asset Growth Corporation) in an amount not to exceed Twenty
Million Dollars ($20,000,000) in the aggregate without the consent of the
Lenders if:
(a) such acquisitions are in or from entities which:
(i) are in the business of electronically communicating
time-sensitive information to their customers; and
(ii) have their principal place of business in the United
States or Canada; and
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(iii) except for Weather Services Corporation, have a
positive operating cash flow, calculated in the same method
as is used to calculate the Borrower's Operating Cash Flow
for purposes of this Agreement; and
(b) the Borrower or any Subsidiary is not, and immediately after
the making of such acquisition, will not be in default under any
other covenant or provision of this Agreement (including, without
limitation, the covenants and provisions pertaining to minimum net
worth and limitations on indebtedness); and
(c) except for the acquisition of A-T Financial Information, Inc.
directly or through Asset Growth Corporation, no one acquisition
shall exceed Ten Million Dollars ($10,000,000).
VI. CONDITIONS PRECEDENT
6.1 Closing Conditions. Any and all obligations of the Lenders
hereunder are subject to satisfaction of the following conditions precedent:
(a) FNB-O, as agent, shall have received an opinion of counsel to
the Borrower covering such matters as the Lenders may request
(including, without limitation, corporate existence and good
standing, corporate authority, due authorization, execution and
delivery of the Operative Documents, the legal, valid, binding and
enforceable nature of the Operative Documents, and the perfection
and priority of the security interest in the Collateral granted to
the Lenders.
(b) FNB-O, as agent, shall have received such certificates and
documents as the Lenders may reasonably request from the Borrower,
including articles of incorporation and bylaws, certificates
regarding good standing, incumbency, copies of other corporate
documents, and appropriate authorizing resolutions; and
(c) the Operative Documents shall have been duly authorized and
executed and shall be in full force and effect, and such UCC
financing statements shall have been executed and filed in such
offices as may be appropriate to perfect the security interest of
FNB-O, as agent for the Lenders, in the Collateral.
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VII. DEFAULTS AND REMEDIES
7.1 Events of Default. Any of the following shall be deemed an event of
default under this Agreement (an "Event of Default"):
(a) Any payment of principal required by any of the Operative
Documents shall not be paid when due.
(b) Any payment of interest or other fees due hereunder or under
any of the Operative Documents shall not be paid within fifteen
(15) calendar days after the date on which such payment was
invoiced or due.
(c) Any representation or warranty of the Borrower under any of
the Operative Documents, or any financial reports or statements or
certificates submitted pursuant to this Agreement, shall prove to
have been false in any material respect when made.
(d) A failure of the Borrower or any Subsidiary to comply with any
requirement or restriction applicable to such entity and contained
in Sections 5.1, 5.2, 5.3, 5.4, 5.7, 5.11, 5.12, 5.13, 5.14, 5.15,
5.16, 5.19 or 5.20 of this Agreement.
(e) A failure of the Borrower or any Subsidiary to comply with any
requirement or restriction contained in any provision of the
Operative Documents not otherwise specified in this Article VI,
which failure remains unremedied for ten (10) days following
receipt of notice from FNB-O on behalf of the Lenders.
(f) The occurrence of a default or a breach of any of the
obligations of the Borrower or any Subsidiary (other than
obligations of such Subsidiary to the Borrower) under any note,
loan agreement, preferred stock, subordinated debt instrument or
agreement, or any other agreement evidencing an obligation to
repay borrowed money.
(g) The entry of a final judgment against the Borrower or any
Subsidiary for the payment of money, which is not covered by
insurance, and the expiration of thirty (30) days from the date of
such entry during which the judgment is not discharged in full or
stayed.
(h) The occurrence of any one or more of the following:
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(1) The Borrower or any Subsidiary shall file a voluntary
petition in bankruptcy or an order for relief shall be
entered in a bankruptcy case as to such entity or shall file
any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under
any present or future federal, state or other statute, law
or regulation relating to bankruptcy, insolvency or other
relief for debtors; or shall seek or consent to or acquiesce
in the appointment of any trustee, receiver or liquidator of
such entity or of all or any part of its property, or of any
or all of the royalties, revenues, rents, issues or profits
thereof, or shall make any general assignment for the
benefit of creditors, or shall admit in writing its
inability to pay its debts or shall generally not pay its
debts as they become due; or
(2) A court of competent jurisdiction shall enter an order,
judgment or decree approving a petition filed against the
Borrower or any Subsidiary seeking any reorganization,
dissolution or similar relief under any present or future
federal, state or other statute, law or regulation relating
to bankruptcy, insolvency or other relief for debtors, and
such order, judgment or decree shall remain unvacated and
unstayed for an aggregate of thirty (30) days (whether or
not consecutive) from the first date of entry thereof; or
any trustee, receiver or liquidator of the Borrower or any
Subsidiary or of all or any part of its property, or of any
or all of the royalties, revenues, rents, issues or profits
thereof, shall be appointed without the consent or
acquiescence of such entity and such appointments shall
remain unvacated and unstayed for an aggregate of thirty
(30) days (whether or not consecutive); or
(3) A writ of execution or attachment or any similar process
shall be issued or levied against all or any part of or
interest in the Collateral, or any judgment involving
monetary damages shall be entered against the Borrower or
any Subsidiary which shall become a lien on the Collateral
or any portion thereof or interest therein and such
execution, attachment or similar process or judgment is not
released, bonded, satisfied, vacated or stayed within thirty
(30) days after its entry or levy.
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(i) Any event of default shall occur under any Operative Document.
(j) A change shall occur after November 8, 1993, directly or
indirectly, in the ownership or control of the Borrower; provided,
however, that changes in the ownership or control of, or new
issuances of, voting common stock which do not exceed,
cumulatively, 50% of the total issued and outstanding shares of
the Borrower as of September 30, 1993 shall not be deemed an Event
of Default under this Section 7.1(j); provided further, that
acquisitions of additional shares by members of the existing
executive management group of the Borrower shall not be counted as
changes in the ownership or control of the Borrower under this
Section 7.1(j). For purposes of computing the total issued and
outstanding shares as of September 30, 1993, warrants and options
for such shares shall be included.
(k) An Event of Default shall occur under any Related Bank Debt or
the Related Loan Agreement and the expiration of any applicable
cure period thereunder.
(l) The Borrower shall be obligated to prepay all or any portion
of its subordinated debt as a result of a Change of Control.
(m) The Borrower or any Subsidiary is not at any time after
September 30, 1999, in compliance with Year 2000 requirements and
such failure creates a material adverse effect on the ability of
the Borrower to carry out its business.
7.2 Remedies. If an Event of Default occurs and is continuing, upon the
election of the Lenders holding two-thirds of the then outstanding aggregate
Total Indebtedness of the Borrower to the Lenders (including under the Notes,
the Related Bank Debt and any similar indebtedness but excluding amounts due
under the Purchase Agreement), the entire unpaid principal amount under the
Notes and all Related Bank Debt, together with interest accrued thereon, shall
become immediately due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and the Lenders
may exercise their rights under the other Operative Documents and the Revolving
Credit Agreement (and the operative documents with respect thereto), including,
without limitation, under the Security Agreement. For purposes of this Article
VII, the term Lenders includes NationsBank, formerly Boatmen's, and NBC. In
addition, the Lenders shall have such other remedies as are available at law and
in equity. Remedies under this Agreement, the Operative Documents, the Revolving
Credit Agreement (and the operative documents with respect thereto) are
cumulative. Any waiver must be in writing by the Lenders and no waiver shall
constitute a waiver as to any other occurrence which constitutes an Event of
Default or as to any party not specifically included in such written waiver.
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ARTICLE VIII. INTER-CREDITOR AGREEMENTS
8.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans
evidenced by the Notes issued hereunder and the Related Bank Debt (other than
interest rate protection agreements). For purposes of this Article VIII, the
term Lenders includes First Bank, Boatmen's and the term Event of Default means
any Event of Default hereunder or under any Related Bank Debt. FNB-O will
enforce, administer and otherwise deal with the loans made by the Lenders in
accordance with safe and prudent banking standards employed by FNB-O in the case
of the loan made by FNB-O. Without limiting the generality of the foregoing,
FNB-O will, on its own behalf and on behalf of the Lenders: (i) maintain
originals of the Operative Documents and the operative documents in connection
with the Revolving Credit Agreement; (ii) receive requests for advances from the
Borrower under the Revolving Credit Agreement and make such advances on behalf
of the revolving lenders in such agreements (provided that FNB-O is assured of
reimbursement therefor by the other revolving lenders for their pro rata
shares); (iii) receive payments and prepayments from the Borrower and apply such
payments as provided in Section 8.2; (iv) receive notices from the Borrower and
send copies thereof to the Lenders if FNB-O has reasonable cause to believe that
such Lenders have not received such notice from another source; and (v) advise
the Lenders of the occurrence of any Event of Default which FNB-O obtains actual
knowledge of. The Lenders agree not to attempt to take any action against the
Borrower under the Operative Documents, Related Bank Debt or with respect to the
indebtedness evidenced thereby without FNB-O's consent unless holders of
two-thirds of the then outstanding aggregate Total Indebtedness of the Borrower
to the Lenders (including under the Notes, the Related Bank Debt and any similar
indebtedness but excluding amounts due under the Purchase Agreement) shall have
requested FNB-O to take specific action against the Borrower and FNB-O shall
have failed to do so within a reasonable period after receipt of such request.
All actions, consents, waivers and approvals by the Lenders shall be deemed
taken or given and amendments hereto deemed agreed to if the holders of more
than two-thirds of the outstanding aggregate Total Indebtedness of the Borrower
to the Lenders shall have indicated their consent thereto. Notwithstanding the
foregoing, unanimous approval of the applicable Lenders under the Notes or the
Related Bank Debt shall be required for: (i) any reduction or compromise of the
principal loan amount of the Notes or the Related Bank Debt, the amount or rate
of interest accrued or accruing thereon or the fees due hereunder; and (ii)
extension of the date of any scheduled payment; and unanimous consent of all the
Lenders shall be required for (iii) permitting the sale of or releasing the
security interest of the Lenders in Collateral which comprises more than ten
percent (10%) net book value of fixed assets of the Borrower; and (iv) any
amendment of Sections 8.1 or 8.2 hereof. A Lender's commitment hereunder may not
be increased without the consent of such Lender, it being understood, however,
that increases in the total facility hereunder may be made with the consent of
the holders of more than two-thirds of the aggregate total outstanding
obligations of the Borrower to the Lenders under the Agreement, so long as such
increase does not result in the increase of any non-consenting Lender's
commitment hereunder.
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<PAGE>
8.2 Application of Payments. Until the earlier of the occurrence of an
Event of Default or any Lender's giving of notice to the others that it deems
itself insecure, payments or prepayments made by the Borrower may be applied to
the indebtedness designated by the Borrower or otherwise applied as follows:
(a) first, to pay interest to date on the revolving credit due
under the Revolving Credit Agreement and fees due to the Lenders
and holders of the Related Bank Debt;
(b) second, to make payments due but unpaid under any of the Notes
and Related Bank Debt; and
(c) third, pro rata to the Lenders, such pro rata share to be
determined as set forth below in subsection (bb) of this Section
8.2.
After the occurrence of an Event of Default or any Lender's giving of notice
that it deems itself insecure, payments or prepayments on the Notes and Related
Bank Debt received by FNB-O or any of the Lenders and funds realized upon the
disposition of any of the Collateral shall be applied as follows:
(aa) first, to reimburse FNB-O for any costs, expenses, and
disbursements (including attorneys' fees) which may be incurred or
made by FNB-0: (i) in connection with its servicing obligations;
(ii) in the process of collecting such payments or funds; or (iii)
as advances made by FNB-O to protect the Collateral (provided,
however, that FNB-O shall have no obligation to make such
protective advances); and
(bb) second, pari passu among the Lenders, based on their
respective pro rata shares of the funds to be applied. Each
Lender's pro rata share shall be equal to a fraction, (x) the
numerator of which shall be the total principal loan amount then
outstanding which is owing to each such Lender under its Related
Bank Debt, and (y) the denominator of which shall be the total
principal loan amount then outstanding which is owning to the
Lenders under all Related Bank Debt. As to any obligation of the
Borrower to one or more Lenders under an interest rate protection
contract, "principal loan amount then outstanding" shall mean, as
of the date of determination by FNB-O of the Lenders' respective
pro rata shares, the amount, if any, of the unpaid Interest Rate
Protection Contract Amounts.
Except as specifically provided in this Section 8.2, FNB-O shall have no
obligation to repay or prepay any amount due from the Borrower to any of the
other Lenders nor shall FNB-O have any obligation to purchase all or a part of
any Note hereunder or any Note evidencing any Related Bank Debt or any advance
made by any Lenders, nor shall the Lenders have any recourse whatsoever against
FNB-O with respect to any failure of the Borrower to repay the indebtedness
referenced herein.
8.3 Liability of FNB-O. FNB-O shall not be liable to the Lenders for
any error of judgment or for any action taken or omitted to be taken by it
hereunder, except for gross negligence or willful misconduct. Without limiting
the generality of the foregoing, FNB-O, except as expressly set forth herein,
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<PAGE>
(a) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (b) makes no representation or warranty with respect to,
and shall not be responsible for, the accuracy, completeness, execution,
legality, validity, legal effect or enforceability of this 1998 Term Credit
Agreement, the Notes, the Revolving Credit Agreement or the Related Bank Debt or
the other Operative Documents or the operative documents under any Related Bank
Debt or the value or sufficiency of any Collateral given by the Borrower or the
priority of the Lenders' security interest therein or the financial condition of
the Borrower; and (c) shall not be responsible for the performance or observance
of any of the terms, covenants or conditions of the Operative Documents or the
operative documents under any Related Bank Debt on the part of the Borrower and
shall not have any duty to inspect the property (including, without limitation,
the books and records) of the Borrower.
8.4 Transfers. No Lender shall subdivide, transfer or grant a
participation in its respective Notes or notes evidencing any Related Bank Debt,
or in any advance hereunder or under any Related Bank Debt, without the prior
written consent of FNB-O which consent shall not be unreasonably withheld. For
purposes of this Section 8.4, "Related Bank Debt" shall not include interest
rate protection agreements.
8.5 Reliance. The Lenders acknowledge that they have been advised that
none of the Notes, the notes evidencing any Related Bank Debt nor any interest
therein or related thereto has been (i) registered under the Securities Act of
1933, as amended, nor (ii) insured by the Federal Deposit Insurance Corporation.
The Lenders acknowledge that they have received from the Borrower all financial
information and other data relevant to their decision to extend credit to the
Borrower and that they have independently approved the credit quality of the
Borrower.
8.6 Relationship of Lenders. The Lenders intend for the relationships
created by this Agreement to be construed as concurrent direct loans from each
Lender respectively to the Borrower. Nothing herein shall be construed as a loan
from any Lender to FNB-O or as creating a partnership or joint venture
relationship among them.
8.7 New Lenders. In the event that new Lenders are added to this
Agreement or to the Revolving Credit Agreement, such Lenders shall be required
to agree to the inter-creditor provisions of this Article VIII.
8.8 Broadcast Partners. As of the closing of the Second Amendment on
July 31, 1996, Broadcast Partners was removed from this Agreement as a party.
ARTICLE IX. MISCELLANEOUS
9.1 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties hereto with respect to the subject matter hereof and may not
be effectively amended, changed, modified or altered, except in writing executed
by all parties. Notwithstanding the foregoing, it is understood that the
purchase and sale transaction between the Borrower and Broadcast Partners is
governed by the Purchase Agreement.
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<PAGE>
9.2 Governing Law. The Operative Documents shall be governed by and
construed pursuant to the laws of the State of Nebraska.
9.3 Notices. Until changed by written notice from one party hereto to
the other, all communications under the Operative Documents shall be in writing
and shall be hand delivered or mailed by registered mail to the parties as
follows:
If to the Borrower:
DATA TRANSMISSION NETWORK CORPORATION
Suite 200
9110 West Dodge Road
Omaha, Nebraska 68114
Attention: Chief Financial Officer
If to the Lenders:
FIRST NATIONAL BANK OF OMAHA
One First National Center
Omaha, Nebraska 68102
Attention: Mr. James P. Bonham
Notices shall be deemed given when mailed, except that any notice by the
Borrower under Section 2.6 shall not be deemed given until received by FNB-O.
9.4 Headings. The captions and headings herein are for convenience only
and in no way define, limit or describe the scope or intent of any provisions or
sections of this Agreement.
9.5 Counterparts. This Agreement may be executed in several
counterparts and such counterparts together shall constitute one and the same
instrument.
9.6 Survival; Successors and Assigns. The covenants, agreements,
representations and warranties made herein, and in the certificates delivered
pursuant hereto, shall survive the execution and delivery to the Lenders of this
Agreement and shall continue in full force and effect so long as any Note or any
obligation to the Lenders under any of the Operative Documents is outstanding
and unpaid. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party, and all covenants, promises and agreements by or on behalf of the
Borrower which are contained in this Agreement shall bind the successors and
assigns of the Borrower and shall inure to the benefit of the successors and
assigns of the Lenders.
9.7 Severability. If any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
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<PAGE>
9.8 Assignment. The Borrower may not assign its rights or obligations
hereunder and any assignment in contravention of the terms hereof shall be void.
9.9 Amendments. Any amendment, modification or supplement to this
Agreement must be in writing and must be signed by the parties hereto.
IN WITNESS WHEREOF, the Borrower and the Lenders have caused this 1998
Term Credit Agreement to be executed by their duly authorized corporate officers
as of the day and year first above written.
DATA TRANSMISSION NETWORK
CORPORATION
By /s/ Brian L. Larson
Title: VP, CFO and Secretary
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<PAGE>
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
Title: Vice President
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
By /s/ Patrick A. Keleher
-------------------------
Title: Vice President
By /s/ Brian Haughney
--------------------------
Assistant Treasurer
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By /s/ Elizabeth Rezac
Title: Second Vice President
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
THE FIRST NATIONAL BANK
OF CHICAGO
By /s/ Nathan L. Bloch
Title:First Vice President
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
NORWEST BANK NEBRASKA, N.A.
By /s/ Kevin D. Munro
Title: Vice President
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
MERCANTILE BANK OF ST. LOUIS, N.A.
By /s/ Joseph L. Sooter, Jr.
Title:Vice President
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
U. S. BANK, NATIONAL ASSOCIATION
By /s/ Beth Morgan
Title:Vice President
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
BANK OF MONTREAL
By /s/ Allegra Griffiths
Title:Director
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
LASALLE NATIONAL BANK
By /s/ Tom Harmon
Title:Assistant Vice President
NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
SCHEDULE I
TO 1998 TERM CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
AND
LASALLE NATIONAL BANK
Subsidiary State of Incorporation Shares % of Ownership
National Datamax, Inc. California 873,300 100%
Kavouras, Inc. Minnesota 155 5/12 100%
DTN Acquisition, Inc. Nebraska 100 100%
DTN Market Commu- Nebraska 100 100%
nications Group, Inc.
DTN Merger Co. Massachusetts 100 100%
Paragon Software, Inc.* Illinois 1,000 100%
*Owned by DTN Acquisition, Inc.
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<PAGE>
EXHIBIT A
TO 1998 TERM CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
and
LASALLE NATIONAL BANK
FORM OF NOTES
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<PAGE>
SECURED BUSINESS PROMISSORY NOTE
Omaha, Nebraska $
December 31, 2002
(Note Date) (Maturity Date)
DATA TRANSMISSION NETWORK CORPORATION ("Maker") promises to pay to the
order of _______________ ("Lender") at the offices of First National Bank of
Omaha in Omaha, Nebraska, the principal sum of _____________. Interest on the
unpaid principal balance shall be due on the last day of each month, beginning
May 31, 1996. The principal sum shall become due and payable in seventy-two
equal monthly installments, with the first such installment due on January 31,
1997, or if such day is not a Business Day, on the next succeeding Business Day,
and subsequent installments due on the last day of each consecutive month
thereafter, or, if such day is not a Business Day, on the next succeeding
Business Day. In any event, the total amount of all unpaid principal and accrued
interest hereunder shall be due and payable no later than December 31, 2002. All
capitalized terms not defined herein shall have the meanings set forth in that
certain 1998 Term Credit Agreement dated as of December 7, 1998 among Maker,
Lender and others, as amended from time to time (the "Agreement".)
Interest shall accrue on the principal outstanding through June 30,
1999, from time to time at the rate of % per annum; thereafter the interest rate
for the balance of the term shall be set on June 30, 1999, at two percent
(2.00%) above the yield on constant maturity Treasury Bonds with maturities of
three years, as quoted for the immediately preceding Business Day in the
applicable Release. Notwithstanding the foregoing, after an Event of Default has
occurred interest shall accrue on the entire outstanding balance of principal
and interest at a fluctuating rate equal to the Revolving Credit Rate, plus
4.00%. Interest shall be calculated on the basis of the actual number of days
outstanding and a 360-day year. Interest shall continue to accrue on the full
unpaid balance hereunder notwithstanding any permitted or unpermitted failure of
the Borrower to make a scheduled payment or the fact that a scheduled payment
day falls on a day other than a Business Day. If, any time during a Restricted
Quarter (including, without limitation, during any period in such quarter prior
to delivery of the Quarterly Compliance Certificate), the interest rate accruing
on this Note is less than seven and one-half percent (7.50%), a "Trigger Event"
shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the
Maker shall be obligated to pay the following fees: (i) three-eighths of one
percent (.375%) of the outstanding principal balance of the Note as of the date
preceding the Trigger Event, which amount shall be payable promptly upon
invoicing; (ii) the same amount as computed in clause (i), payable on the
six-month anniversary of the Trigger Event; and (iii) the same amount as
computed in clause (i), payable on the twelve-month anniversary of the Trigger
Event.
Maker may prepay in full without penalty the unpaid balance hereunder,
provided that the Borrower contemporaneously prepays in full all other Notes (as
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<PAGE>
such term is defined in the Agreement), but only if such prepayment occurs on
June 30, 1999 and the Borrower has given Lender at least 30 days prior written
notice of its intention to make such prepayment. In the event of any other
prepayment (regardless of whether such prepayment occurs before or after June
30, 1999), the Borrower shall pay to Lender, at Lender's option, either: (1) the
Make-Whole Premium (as such term is defined in the Agreement) due in respect of
such prepayment; or (2) a prepayment fee equal to one and one-half percent
(1.50%) of the amount of such prepayment.
Payment of this Note and the performance of Maker's obligations under
the Agreement ("Obligations") are secured by a security interest granted to
First National Bank of Omaha, as agent for the Lenders and others ("Agent"),
under the Security Agreement in:
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general
intangibles, contract rights, all rights of Debtor in deposits and
advance payments made to Debtor by its customers and subscribers,
accounts due from advertisers and all ownership, proprietary,
copyright, trade secret and other intellectual property rights in and
to computer software (and specifically including, without limitation,
all such rights in DTN transmission computer software used in the
provision of the Basic DTN Subscription Service and Farm Dayta Service
to Debtor's subscribers) and all documentation, source code,
information and works of authorship pertaining thereto, all now owned
or hereafter acquired and all proceeds and products thereof; and
such additional collateral as is more specifically described in the Security
Agreement.
Maker's liability under its Obligations shall not be affected by any of
the following:
Acceptance or retention by Lender or Agent of other property
or interests as security for the Obligations, or for the liability of
any person other than a Maker with respect to the Obligations;
The release of all or any of the Collateral or other security
for any of the Obligations to any Maker;
Any release, extension, renewal, modification or compromise of
any of the Obligations or the liability of any obligor thereon; or
Failure by Lender or Agent to resort to other security or any
person liable for any of the Obligations before resorting to the
Collateral.
Neither Lender nor Agent is required to take any action whatsoever in
respect of the Collateral. Impairment or destruction of the Collateral shall not
release Maker of its liability hereunder.
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<PAGE>
Maker represents, warrants and covenants as follows:
Maker is authorized to grant to Agent a security interest in
the Collateral;
This Note, the Agreement and the Security Agreement have been
duly authorized, executed and delivered by the Maker and constitute
legal, valid and binding obligations of Maker;
This Note evidences a loan to acquire substantially all of the
assets of Broadcast Partners, a general partnership, with its principal
place of business at 11274 Aurora Avenue, Des Moines, Iowa 50322; and
Maker agrees to pay all costs of collection in connection with
this Note, the Agreement and the Security Agreement, including
reasonable attorneys' fees and legal expenses.
Upon the failure of Maker to make any payment of principal or interest
when due hereunder or the occurrence of any Event of Default, all of the
Obligations shall, at the option of Agent and without notice or demand, mature
and become immediately due and payable; and Agent shall have all rights and
remedies for default provided by the Uniform Commercial Code, any other
applicable law and/or the Obligations.
All costs and expenses incurred by Lender or Agent in enforcing its
rights under this Note or any mortgage, endorsement, surety Agreement, guaranty
relating thereto are the obligation of Maker and are immediately due and
payable. Interest shall accrue on such costs and expenses from the date of
incurrence at the rate specified herein for delinquent Note payments. Each
Maker, endorser, surety and guarantor hereby waives presentment, protest,
demand, notice of dishonor, and the defense of any statute of limitations.
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder or Agent may, without notice, renew or extend the time for
payment, accept partial payments, release or impair any Collateral or other
security for the payment of this Note or agree to sue any party liable on it.
Neither Lender nor Agent shall be deemed to have waived any of its
rights upon or under this Note, or under any mortgage, endorsement, surety
agreement or guaranty, unless such waivers be in writing and signed by Lender or
Agent, as the case may be. No delay or omission on the part of Lender or Agent
in exercising any right shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right on any future occasion. All rights and remedies of Lender or Agent
on liabilities or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly or
concurrently.
Maker, if more than one, shall be jointly and severally liable
hereunder and all provisions hereof regarding the liabilities or security of
Maker shall apply to any liability or any security of any or all of them. This
Note shall be binding upon the heirs, executors, administrators, assigns or
successors of Maker; shall constitute a continuing Agreement, applying to all
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<PAGE>
future as well as existing transactions, whether or not of the character
contemplated at the date of this Note, and if all transactions between Lender
and Maker shall be at any time closed, shall be equally applicable to any new
transactions thereafter, provided that Lender's interest in the Collateral shall
be limited to the extent provided in the Security Agreement; shall benefit
Lender, its successors and assigns; and shall so continue in force
notwithstanding any change in any partnership party hereto, whether such change
occurs through death, retirement or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of First National Bank of Omaha in Omaha, Nebraska or at such other
address as may be designated by Bank in writing.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the content otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
Executed as of this [Note Date].
DATA TRANSMISSION NETWORK
CORPORATION
By:
Title:
45
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<PAGE>
PROMISSORY NOTE SCHEDULE
Loan Advances and Payments of Principal
DATA TRANSMISSION NETWORK CORPORATION
REVOLVING NOTE ADVANCES AND PAYMENTS:
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
- ---- ---------- --------------- ------------- --------- --------
46
- 677 -
<PAGE>
TERM NOTE:
Date of Conversion:
Amount Due at Date of Conversion:
Fixed Rate Notice Date: Fixed Rate: %
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
- ---- ---------- -------------- ------------- --------- --------
47
- 678 -
<PAGE>
EXHIBIT B
TO 1998 TERM CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
and
LASALLE NATIONAL BANK
OFFICER'S CERTIFICATE
48
- 679 -
<PAGE>
COMPLIANCE CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
First National Bank of Omaha Date
Attn: James Bonham
16th & Dodge Streets
Omaha, Nebraska 68102
I certify that Data Transmission Network Corporation is in compliance with the
requirements set forth in the 1998 Term Credit Agreement (the "Agreement") dated
as of December 7, 1998, between First National Bank of Omaha, First National
Bank, Wahoo, Nebraska, The First National Bank of Chicago, Norwest Bank
Nebraska, N.A., LaSalle National Bank, Dresdner Bank AG, New York and Grand
Cayman Branches, Mercantile Bank of St. Louis, N.A., U.S. Bank, National
Association, and Data Transmission Network Corporation.
The following calculations are as of ___________ (statement date) as required by
Section 5.1(d) of said Agreement:
Evaluations:
Total Indebtedness (TI):
Operating Cash Flow: most recent month previous month
ending ending
Net Income (loss)
Interest Expense
Depreciation
Amortization
Deferred Income
Taxes
Non-Ordinary
Non-Cash
Charges (Credits)
Total a) b)
Operating Cash Flow = OCF = (a+b)/2 =
Leverage Ratio (TI/OCF):
Section 2.2
49
- 680 -
<PAGE>
Trigger Fee: If the Leverage Ratio is more than 36, then a one
time fee is due, paid in three installments of 3/8% of the
then outstanding principal balances, on any of the Notes
which have an interest rate less than 7.5% per annum.
Position: A Trigger Event has/has not occurred.
Section 5.3
Net Worth: A minimum Net Worth (exclusive of subordinated
debt) of $23,500,000 plus fifty percent (50%) of the net
income (but not losses) of the Borrower for each fiscal
year, commencing with the fiscal year beginning January 1,
1997; provided, however, solely for purposes of
determining compliance with the provisions of this Section
5.3, "Net Worth" shall not include any subordinated debt.
Minimum Net Worth (exclusive of subordinated debt)= $
23,500,000.
Net Income Year ending Addition (50%)
$____________ 12/31/97 $___________
Total Minimum Net
Worth $
Position:
Total Net Worth (exclusive of subordinated debt) = $_____________
The Borrower [is/is not] in compliance with Section 5.3.
Section 5.4
Indebtedness: At no time will the Leverage Ratio exceed 48
Position: Leverage Ratio =
Total
Indebtedness
plus
subordinated
debt plus
guaranty
50
- 681 -
<PAGE>
contingencies
(Adjusted
Total
Indebtedness or
ATI)1: At no time will Adjusted Total Indebtedness
exceed 60 x OCF
Position: Adjusted Total Indebtedness = $
(60 x OCF) - (ATI) = $
The Borrower [is/is not] in compliance with Section 5.4.
Section 5.7
Distributions: Neither the Borrower nor any Subsidiary
shall declare any dividends (other than dividends
payable in stock of the Borrower or dividends or
distributions from any consolidated Subsidiary) or
make any cash distribution in respect of any
shares of its capital stock or warrants of its
capital stock, without the prior written consent
of the Lenders; provided that the Borrower need
not obtain the Lenders' consent with respect to
dividends in any one (1) year which are in the
aggregate less than 25% of the Borrower's Net
Operating Profit After Taxes in the previous four
(4) quarters, as reported to the Lenders pursuant
to Section 5.1.
Position: Net Operating Profit
After Taxes for
last four (4) quarters = ______________
x .25
Available for dividends
or distributions in the most
recent quarter plus the
prior three (3) quarters = ______________
Dividends and distributions
(excluding dividends payable
solely in stock of the Borrower
and distributions
from consolidated Subsidiaries)
51
- 682 -
<PAGE>
declared or paid in the most
recent quarter plus the prior three
(3) quarters =
---------------
The Borrower [is/is not] in compliance with Section 5.7.
Section 5.15
Interest The ratio of OCF to Interest Expense ("IE")
Coverage: at the end of each quarter will not be less than
2.25 to 1.0 (225%).
Position: OCF = $
IE = $
OCF/IE = %
The Borrower [is/is not] in compliance with section 5.1.5.
Section 5.19
Capital Expenditures: The Borrower shall not make capital expenditures
(other than permitted earning assets specified in
Section 5.19) in any fiscal year, commencing with
the fiscal year beginning January 1, 1998, in excess
of $2,000,000.
Position: Capital Expenditures (other than permitted earning
assets specified in Section 5.19) this fiscal year =
$_____________
The Borrower [is/is not] in compliance with Section 5.19.
Section 5.20
Acquisitions The Borrower shall not make acquisitions which in
the aggregate exceed $20,000,000 and in any one
instance exceed $10,000,000 except certain permitted
unlimited acquisitions.
Position: Acquisitions (other than permitted unlimited
acquisitions) in the aggregate since the date of the
Agreement = _________.
Date Amount Acquired Company
52
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<PAGE>
Permitted Unlimited Acquisition:
Date Amount Acquired Principal Line
Company Place of Of
Business Business
The Borrower [is/is not] in compliance with Section 5.20.
Additional Representations:
There have/have not been any sale(s) of assets which would require
prepayment of the Notes under Section 5.2.
There has/has not been:
(i) a Change of Control or a material adverse change in management
personnel as defined in Section 5.14 of the Agreement; or
(ii) a default under Section 7.1(j) or 7.1(l) regarding a change in
ownership or control of the Company.
Name of Borrower: Data Transmission Network Corporation
Signature:
Title:
53
- 684 -
<PAGE>
SCHEDULE A
TO 1998 TERM CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
and
LASALLE NATIONAL BANK
PERMITTED ENCUMBRANCES
Secured Party Financing Statements
Nebraska Secretary of State
<TABLE>
<CAPTION>
<S> <C> <C> <C>
First National Bank of Omaha 12/28/87 #401690
10/13/92 #564918 Amendment
11/13/92 #568176 Continued
First National Bank of Omaha, as agent 5/8/96 #691938 Amendment
FirsTier, Lincoln 6/24/87 #384782
First National Bank of Omaha 2/03/88 #405477 Amendment
First National Bank, Wahoo 5/28/92 #553205 Continued
NBD, Detroit 10/13/92 #564919 Amendment
2/05/93 #576038 Amendment
11/10/93 #603168 Amendment
First National Bank of Omaha, as agent 5/8/96 #691936 Amendment
FirsTier, Lincoln 2/10/88 #406144
First National Bank of Omaha 10/13/92 #564917 Amendment
First National Bank, Wahoo 1/07/93 #572981 Continued
54
- 685 -
<PAGE>
NBD, Detroit 2/05/93 #576039 Amendment
11/10/93 #603169 Amendment
First National Bank of Omaha, as agent 5/8/96 #691937 Amendment
First Bank of Minneapolis 11/25/91 #534665
(Norstan) 8/24/92 #561090 Assignment
Douglas County Clerk, Nebraska
FirsTier, Lincoln 2/11/88 #000534
First National Bank of Omaha 10/15/92 #000534 Amendment
First National Bank, Wahoo 1/08/93 #0000054 Continued
NBD, Detroit 2/05/93 #000253 Amendment
11/17/93 #54 Amendment
First National Bank of Omaha, as agent 5/ /96 Amendment
Iowa Secretary of State
FirsTier, Lincoln 2/10/88 H842023
First National Bank of Omaha 10/15/92 K395184 Amendment
First National Bank, Wahoo 1/08/93 K424887 Continued
NBD, Detroit 2/08/93 K434908 Amendment
11/15/93 K503145 Amendment
First National Bank of Omaha, as agent 5/6/96 K734148 Amendment
Kansas Secretary of State
FirsTier, Lincoln 2/10/88 #1286572
First National Bank of Omaha 10/15/92 #1842986 Amendment
First National Bank, Wahoo 1/08/93 #1868482 Continued
NBD, Detroit 2/11/93 #1879069 Amendment
11/12/93 #1964342 Amendment
First National Bank of Omaha, as agent 7/18/96 #2265201 Amendment
Illinois Secretary of State
FirsTier, Lincoln 3/18/88 #2402370
First National Bank of Omaha 10/21/92 #3043202 Amendment
First National Bank, Wahoo 2/11/93 #3084199 Amendment
NBD, Detroit 2/25/93 #3089132 Continued
12/09/93 #3197498 Amendment
First National Bank of Omaha, as agent 7/9/96 #3562627 Amendment
55
- 686 -
<PAGE>
Michigan Secretary of State
FirsTier, Lincoln 2/12/88 #C034473
First National Bank of Omaha 10/16/92 #C646856 Amendment
First National Bank, Wahoo 1/08/93 #C672590 Continued
NBD, Detroit 3/01/93 #C689434 Amendment
11/15/93 #C778208 Amendment
First National Bank of Omaha, as agent 7/8/96 #D128002 Amendment
Wisconsin Secretary of State
FirsTier, Lincoln 2/18/88 #968701
First National Bank of Omaha 10/21/92 #1309942 Amendment
First National Bank, Wahoo 01/15/93 #1326550 Continued
NBD, Detroit 2/08/93 #1331412 Amendment
11/23/93 #1393268 Amendment
First National Bank of Omaha, as agent 7/23/96 #1602740 Amendment
Indiana Secretary of State
FirsTier, Lincoln 2/11/88 #1454192
First National Bank of Omaha 10/21/92 #1808780 Amendment
First National Bank, Wahoo 1/11/93 #1822115 Continued
NBD, Detroit 2/08/93 #1827451 Amendment
11/12/93 #1878806 Amendment
First National Bank of Omaha, as agent 7/9/96 #2065412 Amendment
Minnesota Secretary of State
FirsTier, Lincoln 2/17/88 1#121648#00
First National Bank of Omaha 10/16/92 #1537269 Amendment
First National Bank, Wahoo 01/19/93 #1557397 Continued
NBD, Detroit 2/08/93 #1562125 Amendment
11/23/93 #1632156 Amendment
First National Bank of Omaha, as agent 9/5/96 #1875684 Amendment
South Dakota Secretary of State
FirsTier, Lincoln 2/10/88 880410802864
First National Bank of Omaha 10/16/92 #22901003596 Amend.
First National Bank, Wahoo 1/08/93 #30081001734 Cont.
56
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<PAGE>
NBD, Detroit 2/09/93 #30391203308 Amend.
11/22/93 #33261003899 Amend.
First National Bank of Omaha, as agent 7/8/96 #961900902562 Amend.
Missouri Secretary of State
FirsTier, Lincoln 2/11/88 #1555991
First National Bank of Omaha 10/16/92 #2184193 Amendment
First National Bank, Wahoo 1/08/93 #2212473 Continued
NBD, Detroit 2/08/93 #2224113 Amendment
11/15/93 #2331876 Amendment
First National Bank of Omaha, as agent 7/8/96 #2684601 Amendment
Ohio Secretary of State
FirsTier, Lincoln 2/12/88 #Y00095612
First National Bank of Omaha 10/19/92 #01097336 Amendment
First National Bank, Wahoo 1/11/93 #01119343901 Cont.
NBD, Detroit 2/09/93 #02099338901 Amend.
11/12/93 #1129331801 Amendment
First National Bank of Omaha, as agent 7/9/96 #07099607117 Amendment
Kentucky Secretary of State
First National Bank of Omaha 11/12/93 134318
First National Bank of Omaha, as agent 7/23/96 Amendment
Pennsylvania Department of State
First National Bank of Omaha 11/12/93 22571277
First National Bank of Omaha, as agent 7/8/96 25631529 Amendment
Oklahoma Secretary of State
First National Bank of Omaha 11/12/93 059782
First National Bank of Omaha, as agent 7/8/96 035257 Amendment
Mississippi Secretary of State
First National Bank of Omaha 11/12/93 0756092--
First National Bank of Omaha, as agent 7/8/96 01015782 Amendment
57
- 688 -
<PAGE>
Colorado Secretary of State
First National Bank of Omaha 11/12/93 932082461
First National Bank of Omaha, as agent 7/8/96 962051575 Amendment
California Secretary of State
First National Bank of Omaha 11/12/93 93229491
First National Bank of Omaha, as agent 7/5/96 96191C0067 Amendment
Washington Secretary of State
First National Bank of Omaha 11/15/93 933190075
First National Bank of Omaha, as agent 7/5/96 96-187-9060 Amendment
Montana Secretary of State
First National Bank of Omaha 11/15/93 419540
First National Bank of Omaha, as agent 7/8/96 419540 Amendment
Arizona Secretary of State
First National Bank of Omaha 11/15/93 765359
First National Bank of Omaha, as agent 7/8/96 765359 Amendment
North Carolina Secretary of State
First National Bank of Omaha 11/15/93 050742
First National Bank of Omaha, as agent 7/8/96 1357308 Amendment
North Dakota Secretary of State
First National Bank of Omaha 11/16/93 93-380331
First National Bank of Omaha, as agent 7/8/96 96-608985 Amendment
Florida Secretary of State
First National Bank of Omaha 11/17/93 930000236992
First National Bank of Omaha, as agent 7/10/96 960000142090 Amendment
58
- 689 -
<PAGE>
Texas Secretary of State
First National Bank of Omaha 11/29/93 227591--
First National Bank of Omaha, as agent 7/8/96 96683548 Amendment
Alabama Secretary of State
First National Bank of Omaha, as agent 6/27/95 B-95-26462FS
7/19/96 95-26462 Amendment
Arkansas Secretary of State
First National Bank of Omaha, as agent 6/29/95 968722
7/10/96 968722 Amendment
New York Secretary of State
First National Bank of Omaha, as agent 6/26/95 130246
7/8/96 532973 Amendment
</TABLE>
59
- 690 -
<PAGE>
TABLE OF CONTENT
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. TERM FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Term Credit. . . . . . . . . . . . . . . . . . . . 8
2.2 Acquisition Term Notes . . . . . . . . . . . . . . 9
2.3 Payments. . . . . . . . . . . . . . . . . . . . . 10
2.4 Fees. . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Payment . . . . . . . . . . . . . . . . . . . . . 10
2.6 Prepayment . . . . . . . . . . . . . . . . . . . 10
2.6A Permitted Prepayments to Broadcast Partners. . . . 11
2.7 Security . . . . . . . . . . . . . . . . . . . . 11
2.8 Revolving Credit Agreement. . . . . . . . . . . . 11
III. [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . 11
IV. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . 11
4.1 Corporate Existence. . . . . . . . . . . . . . . . . 11
4.2 Corporate Authority. . . . . . . . . . . . . . . . . 11
4.3 Validity of Agreements . . . . . . . . . . . . . . . 12
4.4 Litigation . . . . . . . . . . . . . . . . . . . . . 12
4.5 Governmental Approvals . . . . . . . . . . . . . . . 12
4.6 Defaults Under Other Documents . . . . . . . . . . . 12
4.7 Judgments . . . . . . . . . . . . . . . . . . . . . 12
4.8 Compliance with Laws . . . . . . . . . . . . . . . 12
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10 Collateral . . . . . . . . . . . . . . . . . . . . . 13
4.11 Pension Benefits . . . . . . . . . . . . . . . . . . . 13
4.12 Margin Regulations . . . . . . . . . . . . . . . . . 13
4.13 Financial Condition. . . . . . . . . . . . . . . . . 13
V. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Financial Reports . . . . . . . . . . . . . . . . . . 13
5.2 Corporate Structure and Assets . . . . . . . . . . . 15
5.3 Net Worth . . . . . . . . . . . . . . . . . . . . . 15
5.4 Indebtedness. . . . . . . . . . . . . . . . . . . . . 16
5.5 Use of Proceeds . . . . . . . . . . . . . . . . . 16
5.6 Notice of Default . . . . . . . . . . . . . . . . 16
5.7 Distributions . . . . . . . . . . . . . . . . . . . 17
5.8 Compliance with Law and Regulations. . . . . . . . . 17
5.9 Maintenance of Property; Accounting;
Corporate Form; Taxes; Insurance . . . . . . . . 17
5.10 Inspection of Properties and Books . . . . . . . . 18
60
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<PAGE>
5.11 Guaranties . . . . . . . . . . . . . . . . . . . . . 18
5.12 Collateral. . . . . . . . . . . . . . . . . . . . . . 18
5.13 Name; Location . . . . . . . . . . . . . . . . . . . 19
5.14 Notice of Change in Ownership or Management . . . . . 19
5.15 Interest Coverage. . . . . . . . . . . . . . . . . . . 19
5.16 Subordinated Debt. . . . . . . . . . . . . . . . . . . 19
5.17 Subsidiaries . . . . . . . . . . . . . . . . . . . . 19
5.18 Amendments to Purchase Agreement. . . . . . . . . . . 20
5.19 Capital Expenditures. . . . . . . . . . . . . . . . . 20
5.20 Acquisitions . . . . . . . . . . . . . . . . . . . . 20
VI. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . 21
6.1 Closing Conditions . . . . . . . . . . . . . . . . . 21
VII. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . 21
7.1 Events of Default . . . . . . . . . . . . . . . . . . 21
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . 23
VIII. INTER-CREDITOR AGREEMENTS . . . . . . . . . . . . . . . . 24
8.1 FNB-O as Servicer. . . . . . . . . . . . . . . . . . 24
8.2 Application of Payments . . . . . . . . . . . . . . 25
8.3 Liability of FNB-O . . . . . . . . . . . . . . . . . 26
8.4 Transfers . . . . . . . . . . . . . . . . . . . . . . 26
8.5 Reliance. . . . . . . . . . . . . . . . . . . . . . . 26
8.6 Relationship of Lenders . . . . . . . . . . . . . . . 26
8.7 New Lenders . . . . . . . . . . . . . . . . . . . . . 26
8.8 Broadcast Partners . . . . . . . . . . . . . . . . . 26
IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Entire Agreement . . . . . . . . . . . . . . . . . . 27
9.2 Governing Law . . . . . . . . . . . . . . . . . . . . 27
9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . 27
9.4 Headings . . . . . . . . . . . . . . . . . . . . . . 27
9.5 Counterparts . . . . . . . . . . . . . . . . . . . . . 27
9.6 Survival; Successors and Assigns . . . . . . . . . . 27
9.7 Severability . . . . . . . . . . . . . . . . . . . . 28
9.8 Assignment . . . . . . . . . . . . . . . . . . . . . 28
9.9 Amendments . . . . . . . . . . . . . . . . . . . . . 28
Schedule I: Borrower's Subsidiaries
Exhibit A: Form of Notes
Exhibit B: Officer's Certificate
Schedule A: Permitted Encumbrances
61
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<PAGE>
1998 TERM CREDIT AGREEMENT
among
DATA TRANSMISSION NETWORK CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
THE FIRST NATIONAL BANK OF CHICAGO,
NORWEST BANK NEBRASKA, N.A.,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
MERCANTILE BANK OF ST. LOUIS, N.A.,
U.S. BANK, NATIONAL ASSOCIATION,
BANK OF MONTREAL
and
LASALLE NATIONAL BANK
1This section need not be completed unless Borrower has subordinated debt or
guaranty contingencies.
62
- 693 -
1998 SECURITY AGREEMENT
THIS 1998 SECURITY AGREEMENT (this "Security Agreement") is entered
into as of December 7, 1998, between DATA TRANSMISSION NETWORK CORPORATION, a
Delaware corporation having its principal place of business at Suite 200, 9110
West Dodge Road, Omaha, Nebraska 68114 (the "Debtor"), FIRST NATIONAL BANK OF
OMAHA, a national banking association having its principal place of business at
One First National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for
itself and FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association
having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), THE
FIRST NATIONAL BANK OF CHICAGO, a national banking association having its
principal place of business at One First National Plaza, Chicago, Illinois
60670-0173 (First of Chicago), NORWEST BANK NEBRASKA, N.A., a national banking
association having its principal place of business at 20th and Farnam Streets,
Omaha, Nebraska 68102 ("Norwest"), U.S. BANK, NATIONAL ASSOCIATION, a national
banking association having its principal place of business at 13th and M
Streets, Lincoln, Nebraska 68508 ("U.S. Bank"), DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, being represented by its office at 75 Wall Street, New
York, New York 10005 Dresdner, MERCANTILE BANK OF ST. LOUIS, N.A., a national
banking association having its principal place of business at One Mercantile,
7th and Washington Streets, St. Louis, Missouri 63101 Mercantile, BANK OF
MONTREAL, a Canadian bank being represented by its office at 430 Park Avenue,
New York, New York 10022 Montreal, LASALLE NATIONAL BANK, a national banking
association being represented by its office at One Metropolitan Square, 211
North Broadway, St. Louis, Missouri 63102 LaSalle, and NATIONAL BANK OF CANADA,
a Canadian bank being represented by its office at 1200 17th Street, Suite 2760,
Denver, Colorado 80202.
WITNESSETH:
WHEREAS, Debtor and Secured Party are parties to a 1997 Security
Agreement dated as of February 26, 1997 as amended by a First Amendment to 1997
Security Agreement dated as of May 15, 1998, as so amended and restated, the
1997 Security Agreement;
WHEREAS, Debtor and Secured Party wish to further amend and restate the
1997 Security Agreement;
WHEREAS, Debtor and Secured Party wish to have this 1998 Security
Agreement be the controlling agreement with respect to the matters set forth
herein, which shall supersede the 1997 Security Agreement; and
WHEREAS, the Debtor and Secured Party do not intend for this 1998
Security Agreement to be deemed to extinguish any existing indebtedness of the
Debtor or to release, terminate or affect the priority of any security therefor;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1
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<PAGE>
1. Grant of Security Interest. Debtor hereby grants to Secured Party
and reaffirms its prior grant of a security interest in the Collateral. All
capitalized terms not defined in this Security Agreement shall have their
respective meanings as set forth in the 1998 Revolving Credit Agreement, as
described in Section 3(i) below.
2. Collateral. The Collateral to which this Security Agreement refers
is described on Exhibit A.
3. Obligations Secured. The security interest granted herein is given
to secure all present and future obligations of Debtor: (i) under the 1998
Revolving Credit Agreement dated as of December 7, 1998, as amended from time to
time between the Debtor and First National Bank of Omaha, FNB-W, Norwest, First
of Chicago, U.S. Bank, Dresdner, Mercantile, Montreal, LaSalle, and NBC; (ii)
under the 1997 Revolving Credit Agreement dated as of February 26, 1997, as
amended from time to time between the Debtor and First National Bank of Omaha,
and the other Lenders named therein; (iii) under the 1997 Term Credit Agreement,
dated as of February 26, 1997, between the Debtor and First National Bank of
Omaha, and the other Lenders named therein, which agreement further amends and
restates the 1996 Term Credit Agreement dated as of May 3, 1996 among such
parties; (iv) under the 1996 Revolving Credit Agreement dated as of June 28,
1996 as amended from time to time between the Borrower, First National Bank of
Omaha, and the other Lenders named therein; (v) under the 1995 Restated Loan
Agreement dated as of June 29, 1995, as amended from time to time between the
Borrower and First National Bank of Omaha, and the other Lenders named therein;
(vi) under the 1993 Restated Loan Agreement dated as of November 8, 1993, as
amended from time to time, between Debtor and First National Bank of Omaha, and
other Lenders named therein; (vii) under any interest rate protection agreement
entered into by Debtor with one or more Lenders; (viii) under any and all Notes
previously, now or hereafter made by Debtor to the Lenders pursuant to any of
the foregoing Loan Agreements and interest rate protection agreements (all of
which are referred to herein as the "Loan Agreements") or any predecessor loan
agreements, including, without limitation, the Existing Term Notes and any notes
given in extension, renewal or substitution of the Notes; (ix) to reimburse the
Secured Party for all sums, if any, advanced to protect the Collateral; and (x)
to reimburse Secured Party for all costs and expenses incurred in collection of
the foregoing, including, without limitation, costs of repossession and sale and
reasonable attorneys' fees. This Security Agreement shall not be deemed to
extinguish existing indebtedness of the Debtor under any of the agreements
referenced in this Section 3 or any of the notes issued thereunder or to
release, terminate or affect the priority of any security therefor.
4. Representations and Warranties. Debtor represents and warrants:
(a) Debt. Debtor is justly indebted to the Lenders for the
obligations secured and has no set off or counterclaim with respect
thereto;
(b) Possession and Ownership. The Collateral is or will be in
Debtor's possession (except for equipment or inventory provided to
Debtor's customers in the ordinary course of business) and Debtor has
or will acquire absolute title thereto and will defend the Collateral
against the claims and demands of all persons other than Secured Party.
Debtor has full right and power to grant the security interest herein
to Secured Party.
2
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<PAGE>
(c) Liens and Encumbrances. No financing statement covering the
Collateral or other filing evidencing any lien or encumbrance on the
Collateral is on file in any public office and there is no lien,
security interest or encumbrance on the Collateral except for the
security interest held by Secured Party pursuant to this Security
Agreement and for those security interests described on Schedule A and
other filings in favor of Secured Party.
(d) Truth of Representations. All information, statements,
representations, and warranties made by Debtor herein and in any
financial or credit statement, application for credit, or any other
writing executed prior to or substantially contemporaneously herewith
are true, accurate and complete in all material respects.
(e) Location. Debtor has its chief executive office, principal
place of business and place where it keeps it records concerning the
Collateral at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114.
The Borrower also keeps certain of its records regarding the Collateral
at 11275 Aurora Avenue, Des Moines, Iowa 50322.
(f) Authority. Debtor has full authority to enter into this
Security Agreement and in so doing is not violating any law,
regulation, or agreement with third parties. This Security Agreement
has been duly and validly authorized by all necessary corporate action.
5. Covenants. Debtor covenants and agrees:
(a) Liens and Encumbrances. Except as otherwise expressly allowed
by the Loan Agreements, Debtor shall keep the Collateral free and clear
of liens, encumbrances, security interests, and other claims of third
parties and will, at Debtor's expense, defend the Collateral against
the claims and demands of all third parties. Debtor shall promptly pay
and discharge any indebtedness owing to any third party who, by reason
of said indebtedness, could obtain or become entitled to a lien or
encumbrance on the Collateral, other than such indebtedness being
contested in good faith and with respect to which adequate reserves
have been established.
(b) Proceeds; Sale. Debtor shall not sell or otherwise dispose of
any Collateral without first obtaining the written consent of Secured
Party; provided, however, that Debtor may provide equipment or
inventory to customers and others in the ordinary course of business so
long as: (i) such equipment or inventory is not sold to customers; and
(ii) the value of equipment or inventory disposed of to others (e.g.,
for salvage purposes) does not exceed, in aggregate, $500,000. Debtor
shall at all times keep the Collateral and the proceeds from any
authorized or unauthorized disposition thereof identifiable and
separate from the other property of Debtor or any third party;
provided, however, that Debtor may commingle and use for general
corporate purposes up to $500,000 in aggregate net book value of the
proceeds of sale or other disposition of obsolete or out-of-date
equipment or inventory disposed of in accordance with clause (ii) above
in this Section 5(b).
3
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<PAGE>
(c) Protection of Value. Debtor shall use the utmost care and
diligence to protect and preserve the Collateral, and shall not commit
nor suffer any waste to occur with respect to the Collateral. In
pursuance of the foregoing, Debtor shall maintain the Collateral in
good condition and repair and shall take such steps as are necessary or
as are requested by Secured Party to prevent any impairment of the
value of the Collateral.
(d) Taxes. Debtor shall promptly pay and discharge any and all
taxes, levies and other impositions made upon the Collateral which may
give rise to liens upon the Collateral if unpaid or which are imposed
upon the creation, perfection, or continuance of the security interest
provided for herein, other than taxes being contested in good faith and
with respect to which adequate reserves have been established.
(e) Insurance. All risk of loss of, damage to, or destruction of
the Collateral shall at all times be on Debtor. Debtor shall procure
and maintain, at its own expense, insurance covering the Collateral
against all risks under policies and with companies acceptable to
Secured Party, for the duration of this Security Agreement (except for
equipment provided to Debtor's customers in the ordinary course of
business). Such policies shall be written for and shall name Debtor and
Secured Party as their interests may appear, shall contain a standard
loss payable clause in favor of Secured Party. Proof of insurance shall
be provided to Secured Party upon request. For purposes of security,
Debtor hereby assigns to Secured Party any and all monies (including,
without limitation, proceeds of insurance and refunds of unearned
premiums) due or to become due under any such policy. Debtor hereby
directs the issuer of any such policy to pay any such monies directly
to Secured Party. Secured Party may act as attorney for Debtor in
obtaining, settling and adjusting such insurance and in endorsing any
checks or drafts paid thereunder.
(f) Secured Party as Payee. Debtor shall take such steps as are
necessary or as are requested by Secured Party to have Secured Party
named as a payee on any check, draft or other document or instrument
which Debtor may obtain or anticipate obtaining with respect to the
Collateral. Without limiting the generality of the foregoing, Secured
Party shall be named as a payee on all instruments from insurers of the
Collateral. Notwithstanding anything in the foregoing or in Subsection
(e) above to the contrary, Secured Party agrees that: (i) insurance
proceeds may be paid to Debtor so long as no event of default exists
hereunder and such proceeds are, in aggregate, less than $500,000; and
(ii) Secured Party's rights hereunder are subject to the interests of
the parties identified on Schedule A.
(g) Records. Debtor shall keep accurate and complete records
pertaining to the Collateral and pertaining to Debtor's business and
financial condition, and shall allow Secured Party to inspect the same
from time to time upon reasonable request and shall submit such
periodic reports relating to the same to Secured Party from time to
time as Secured Party may reasonably request. Debtor shall provide that
the Secured Party's interest is noted on all chattel paper and that
there is only one single original of any chattel paper held by Debtor
and created after the date hereof.
(h) Notice to Secured Party. Debtor shall promptly notify Secured
Party of any loss or damage to the Collateral, any impairment of the
value thereof, any claim made thereto by any third party, or any
adverse change in Debtor's financial condition which may affect its
prospect to pay or perform its obligations to Secured Party.
4
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<PAGE>
(i) Location. Except for equipment or inventory provided to
Debtor's customers in the ordinary course of business, Debtor will not
move the Collateral, its chief executive office, principal place of
business or places where it keeps its records concerning the Collateral
from the locations specified above without first obtaining the written
consent of Secured Party and shall not permit any Collateral to be
located in any state in which a financing statement covering the
Collateral is required to be, but has not in fact been, filed in order
to perfect the security interest granted herein. Debtor shall not
change its name without giving Secured Party at least ninety (90) days'
prior notice thereof.
(j) Other Documents. Debtor shall execute such further documents
as may be requested by Secured Party to obtain and perfect a security
interest in the Collateral, including without limitation, Uniform
Commercial Code Financing Statements and amendments thereto. A carbon,
photographic or other reproduction of this Security Agreement or of any
financing statement signed by Debtor shall have the same force and
effect as the original for all purposes of a financing statement.
6. Default. Debtor shall be in default hereunder if any of the
following occurs:
(a) Event of Default. An Event of Default occurs under any of the
Notes or the Loan Agreements.
(b) Failure to Pay. Debtor fails to pay when due or within the
applicable cure period any of the obligations secured hereby.
(c) Misrepresentation. Any of the representations or warranties
made by Debtor herein or in any of the documents referred to herein or
executed prior hereto or substantially contemporaneously herewith are
or become false or misleading in any material respect.
(d) Breach of Covenants. Debtor fails to perform any of its
covenants, agreements or obligations hereunder or under any document
referred to herein or executed prior hereto or substantially
contemporaneously herewith.
(e) Other Indebtedness. Any event occurs which results in
acceleration of the maturity of the indebtedness of Debtor under any
material agreement with any third party.
(f) Loss of Security. Collateral with an aggregate value in excess
of $100,000 is lost, damaged or destroyed.
(g) Business Failure. The death, dissolution, termination of
existence, business failure, appointment of a receiver of any part of
the property of, assignment for the benefit of creditors by, or
commencement of any proceeding in bankruptcy or insolvency by or
against Debtor or any principals of Debtor or any guarantor or surety
for Debtor.
5
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<PAGE>
7. Rights and Remedies of Secured Party. Secured Party shall have all
of the rights and remedies provided at law and in equity and in the Uniform
Commercial Code and in addition thereto and without limitation thereon shall
have the following rights which may be exercised singularly or concurrently:
(a) Inspection. Secured Party may at any time, with or without
notice, enter upon Debtor's premises or any other place where the
Collateral is located to inspect and examine the same and, if Debtor is
in default, to take possession thereof.
(b) Performance by Secured Party. If Debtor fails to perform any
of its obligations hereunder, Secured Party may, at its sole
discretion, pay or perform such obligations for Debtor's account and
may add any cost or expense thereof to the obligations secured hereby.
(c) Acceleration. Upon default, Secured Party may, without demand
or notice to Debtor, accelerate all of the obligations secured hereby
and proceed to enforce payment of the same with or without first
resorting against the Collateral.
(d) Proceed Against Collateral. Subject to applicable cure
periods, if any, upon default, Secured Party may: require Debtor to
make the Collateral available to Secured Party at a place to be
designated by Secured Party; take possession of the Collateral,
proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof which Debtor hereby expressly waives)
and sell, retain or otherwise dispose of the Collateral in full or
partial satisfaction of the obligations secured hereby.
(e) Power of Attorney. Debtor hereby irrevocably appoints (which
appointment is coupled with an interest) Secured Party as Debtor's true
and lawful attorney, with full power of substitution, without notice to
Debtor and at such time or times as Secured Party in its sole
discretion may determine to: (i) create, prepare, complete, execute,
deliver and file such documents, instruments, financing statements, and
other agreements and writings as may be deemed appropriate by Secured
Party to facilitate the intent of this Security Agreement; (ii) notify
account debtors and others with obligations to Debtor to make payment
of their obligations to Secured Party; (iii) demand, enforce and
receive payment of any accounts or obligations owing to Debtor, by
legal proceedings or otherwise; (iv) settle, adjust, compromise,
release, renew or extend any account or obligation owing to Debtor; (v)
notify postal authorities to change the address for delivery of mail to
Debtor to such address as Secured Party may designate; (vi) receive,
open and dispose of all mail addressed to Debtor; (vii) endorse
Debtor's name on any check, note, draft, instrument or other form of
payment that may come into Secured Party's possession; and (viii) send
requests to Debtor's customers and account debtors for verification of
amounts due to Debtor. Secured Party covenants not to exercise the
foregoing rights prior to the occurrence of an event of default
hereunder.
(f) Deficiency. Upon default, and after any disposition of the
Collateral, Secured Party may sue Debtor for any deficiency remaining.
6
- 699 -
<PAGE>
8. Obligations of Secured Party. Secured Party has no obligations to
Debtor hereunder except those expressly required herein. Except as expressly
provided in the Loan Agreements, Secured Party has not agreed to make any
further advance or loan of any kind to Debtor. Secured Party's duty of care with
respect to the Collateral in its possession shall be deemed fulfilled if Secured
Party exercises reasonable care in physically safekeeping the Collateral or, in
the case of Collateral in the possession of a bailee or third party, exercises
reasonable care in the selection of the bailee or third party. Secured Party
need not otherwise preserve, protect, insure or care for the Collateral. Secured
Party need not preserve rights the Debtor may have against prior parties,
realize on the Collateral in any particular manner or order, or apply proceeds
of the Collateral in any particular order of application.
9. Miscellaneous.
(a) No Waiver. No delay or failure on the part of Secured Party in
the exercise of any right or remedy hereunder shall operate as a waiver
thereof and no single or partial exercise by Secured Party of any right
or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy.
(b) Amendment and Termination. This Security Agreement may be
amended or terminated and the security interest granted herein can be
released only by an explicit written agreement signed by Debtor and
Secured Party.
(c) Choice of Law. This Security Agreement and the rights and
obligations of the parties hereto shall be governed by and construed in
accordance with the laws of the State of Nebraska.
(d) Binding Agreement. This Security Agreement shall be binding
upon the parties hereto and their heirs, successors, personal
representatives and permitted assigns.
(e) Assignment. This Security Agreement may be assigned by Secured
Party only.
(f) Captions. Captions and headings herein are for convenience
only and in no way define, limit or describe the scope or intent of any
provision or section of the Security Agreement.
(g) Severability. If any provision of this Security Agreement
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining
provisions of this Security Agreement.
(h) Notices. All notices to be given shall be deemed sufficiently
given if delivered or mailed by registered or certified mail postage
prepaid if to Debtor at Suite 200, 9110 West Dodge Road, Omaha,
Nebraska 68114; if to Secured Party at One First National Center,
Omaha, Nebraska 68102; or such other address as the parties may
designate in writing from time to time. Debtor shall promptly notify
Secured Party of any changes in Debtor's address.
7
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<PAGE>
(i) Priorities. The security interest of a Lender in any property
of the Debtor (i) arising under and in connection with the Agreement,
this Security Agreement or any of the Related Loan Agreements and (ii)
granted to secure any obligation of the Debtor to such Lender,
including, without limitation, all Collateral, shall rank equally in
priority with the security interests of each of the other Lenders, if
any, in such property of the Borrower, irrespective of the time or
order of attachment or perfection of such security interest, or the
time or order of filing, or the failure to file, and regardless of the
date any obligation of the Debtor to a Lender was incurred. Any amounts
or payments obtained upon disposition of any property securing an
obligation of the Debtor to a Lender shall be applied as provided in
Article VII of the 1998 Revolving Credit Agreement as in effect on the
date hereof. Unanimous approval of the Lenders shall be required for
amendments to this Section 9(i).
IN WITNESS WHEREOF, the undersigned have executed this 1998
Security Agreement as of the 7th day of December, 1998.
DATA TRANSMISSION NETWORK CORPORATION
By /s/ Brian L. Larson
Title VP, CFO and Secretary
8
- 701 -
<PAGE>
FIRST NATIONAL BANK OF OMAHA,
as agent for itself, U.S. Bank,
National Association, First
National Bank, Wahoo,
Nebraska, The First National Bank of Chicago,
Norwest Bank Nebraska, N.A.,
Dresdner Bank AG, New York Branch, Mercantile
Bank of St. Louis, N.A., Bank of Montreal,
LaSalle National Bank, and
National Bank of Canada
By /s/ James P. Bonham
Title Vice President
9
- 702 -
<PAGE>
EXHIBIT A
TO 1998 SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
DATA TRANSMISSION NETWORK CORPORATION ("Debtor")
COLLATERAL
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general intangibles,
contract rights, all rights of Debtor in deposits and advance payments made to
Debtor by its customers and subscribers, accounts due from advertisers and all
ownership, proprietary, copyright, trade secret and other intellectual property
rights in and to computer software (and specifically including, without
limitation, all such rights in DTN transmission computer software used in the
provision of the Basic DTN Subscription Service and/or Farm Dayta Service to
Debtor's subscribers) and all documentation, source code, information and works
of authorship pertaining thereto, all now owned or hereafter acquired by Debtor
and all proceeds and products thereof (including, without limitation, all such
assets acquired by Debtor from Broadcast Partners); and
Further including, without limiting the generality of the foregoing,
the following all now owned or hereafter acquired by the Debtor:
(a) all accounts, accounts receivable, chattel paper, documents,
instruments, goods, inventory, equipment, general intangibles and
contract rights that constitute, are due under or by reason of, or are
described in, subscription agreements or arrangements between Debtor
and its subscribers, and similar agreements or arrangements purchased
by Debtor from Broadcast Partners and including, without limitation,
all:
(i) equipment and inventory of Debtor, whether in its possession
or in the possession of its customers and subscribers (but subject to
such customers' and subscribers' rights therein), which equipment and
inventory may include, but not be limited to, computer monitor screens,
D-127, D-128, D-120, D-110 and 6001 or comparable receivers, outdoor
antennas, and satellite interfaces (collectively, the "Equipment");
(ii) parts, accessories, attachments, additions, substitutions,
rents, profits, proceeds, products, and customer deposits and advance
payments related to or arising from the Equipment;
(iii) chattel paper, instruments, general intangibles, accounts,
accounts receivable and contract rights in, arising from or
corresponding to the Equipment, which may include but not be limited
to, all rights of Debtor under Subscription Agreements between Debtor
and its customers and subscribers (collectively, the "Subscriptions");
and
10
- 703 -
<PAGE>
(iv) accounts, accounts receivable, rents, profits, modifications,
renewals, extensions, substitutions, proceeds, and products related to
or arising from the Subscriptions; and
(b) all rights, remedies, privileges, claims and other contract
rights and general intangibles of Debtor arising under or related to
the Asset Purchase and Sale Agreement (including, without limitation,
rights to indemnity) between Debtor and Broadcast Partners or the
transactions contemplated thereby.
(c) all proceeds and products of the foregoing.
11
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<PAGE>
SCHEDULE A
TO 1998 SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
DATA TRANSMISSION NETWORK CORPORATION ("Debtor")
PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
Secured Party Financing Statements
Nebraska Secretary of State
<S> <C> <C> <C>
First National Bank of Omaha 12/28/87 #401690
10/13/92 #564918 Amendment
11/13/92 #568176 Continued
First National Bank of Omaha, as agent 5/8/96 #691938 Amendment
FirsTier, Lincoln 6/24/87 #384782
First National Bank of Omaha 2/03/88 #405477 Amendment
First National Bank, Wahoo 5/28/92 #553205 Continued
NBD, Detroit 10/13/92 #564919 Amendment
2/05/93 #576038 Amendment
11/10/93 #603168 Amendment
First National Bank of Omaha, as agent 5/8/96 #691936 Amendment
FirsTier, Lincoln 2/10/88 #406144
First National Bank of Omaha 10/13/92 #564917 Amendment
First National Bank, Wahoo 1/07/93 #572981 Continued
NBD, Detroit 2/05/93 #576039 Amendment
11/10/93 #603169 Amendment
First National Bank of Omaha, as agent 5/8/96 #691937 Amendment
First Bank of Minneapolis 11/25/91 #534665
(Norstan) 8/24/92 #561090 Assignment
Douglas County Clerk, Nebraska
FirsTier, Lincoln 2/11/88 #000534
First National Bank of Omaha 10/15/92 #000534 Amendment
First National Bank, Wahoo 1/08/93 #0000054 Continued
NBD, Detroit 2/05/93 #000253 Amendment
11/17/93 #54 Amendment
12
- 705 -
<PAGE>
First National Bank of Omaha, as agent 5/ /96 Amendment
Iowa Secretary of State
FirsTier, Lincoln 2/10/88 H842023
First National Bank of Omaha 10/15/92 K395184 Amendment
First National Bank, Wahoo 1/08/93 K424887 Continued
NBD, Detroit 2/08/93 K434908 Amendment
11/15/93 K503145 Amendment
First National Bank of Omaha, as agent 5/6/96 K734148 Amendment
Kansas Secretary of State
FirsTier, Lincoln 2/10/88 #1286572
First National Bank of Omaha 10/15/92 #1842986 Amendment
First National Bank, Wahoo 1/08/93 #1868482 Continued
NBD, Detroit 2/11/93 #1879069 Amendment
11/12/93 #1964342 Amendment
First National Bank of Omaha, as agent 7/18/96 #2265201 Amendment
Illinois Secretary of State
FirsTier, Lincoln 3/18/88 #2402370
First National Bank of Omaha 10/21/92 #3043202 Amendment
First National Bank, Wahoo 2/11/93 #3084199 Amendment
NBD, Detroit 2/25/93 #3089132 Continued
12/09/93 #3197498 Amendment
First National Bank of Omaha, as agent 7/9/96 #3562627 Amendment
Michigan Secretary of State
FirsTier, Lincoln 2/12/88 #C034473
First National Bank of Omaha 10/16/92 #C646856 Amendment
First National Bank, Wahoo 1/08/93 #C672590 Continued
NBD, Detroit 3/01/93 #C689434 Amendment
11/15/93 #C778208 Amendment
First National Bank of Omaha, as agent 7/8/96 #D128002 Amendment
13
- 706 -
<PAGE>
Wisconsin Secretary of State
FirsTier, Lincoln 2/18/88 #968701
First National Bank of Omaha 10/21/92 #1309942 Amendment
First National Bank, Wahoo 01/15/93 #1326550 Continued
NBD, Detroit 2/08/93 #1331412 Amendment
11/23/93 #1393268 Amendment
First National Bank of Omaha, as agent 7/23/96 #1602740 Amendment
Indiana Secretary of State
FirsTier, Lincoln 2/11/88 #1454192
First National Bank of Omaha 10/21/92 #1808780 Amendment
First National Bank, Wahoo 1/11/93 #1822115 Continued
NBD, Detroit 2/08/93 #1827451 Amendment
11/12/93 #1878806 Amendment
First National Bank of Omaha, as agent 7/9/96 #2065412 Amendment
Minnesota Secretary of State
FirsTier, Lincoln 2/17/88 1#121648#00
First National Bank of Omaha 10/16/92 #1537269 Amendment
First National Bank, Wahoo 01/19/93 #1557397 Continued
NBD, Detroit 2/08/93 #1562125 Amendment
11/23/93 #1632156 Amendment
First National Bank of Omaha, as agent 9/5/96 #1875684 Amendment
South Dakota Secretary of State
FirsTier, Lincoln 2/10/88 880410802864
First National Bank of Omaha 10/16/92 #22901003596 Amend.
First National Bank, Wahoo 1/08/93 #30081001734 Cont.
NBD, Detroit 2/09/93 #30391203308 Amend.
11/22/93 #33261003899 Amend.
First National Bank of Omaha, as agent 7/8/96 #961900902562 Amend.
Missouri Secretary of State
FirsTier, Lincoln 2/11/88 #1555991
First National Bank of Omaha 10/16/92 #2184193 Amendment
First National Bank, Wahoo 1/08/93 #2212473 Continued
NBD, Detroit 2/08/93 #2224113 Amendment
11/15/93 #2331876 Amendment
First National Bank of Omaha, as agent 7/8/96 #2684601 Amendment
14
- 707 -
<PAGE>
Ohio Secretary of State
FirsTier, Lincoln 2/12/88 #Y00095612
First National Bank of Omaha 10/19/92 #01097336 Amendment
First National Bank, Wahoo 1/11/93 #01119343901 Cont.
NBD, Detroit 2/09/93 #02099338901 Amend.
11/12/93 #1129331801 Amendment
First National Bank of Omaha, as agent 7/9/96 #07099607117 Amendment
Kentucky Secretary of State
First National Bank of Omaha 11/12/93 134318
First National Bank of Omaha, as agent 7/23/96 Amendment
Pennsylvania Department of State
First National Bank of Omaha 11/12/93 22571277
First National Bank of Omaha, as agent 7/8/96 25631529 Amendment
Oklahoma Secretary of State
First National Bank of Omaha 11/12/93 059782
First National Bank of Omaha, as agent 7/8/96 035257 Amendment
Mississippi Secretary of State
First National Bank of Omaha 11/12/93 0756092--
First National Bank of Omaha, as agent 7/8/96 01015782 Amendment
Colorado Secretary of State
First National Bank of Omaha 11/12/93 932082461
First National Bank of Omaha, as agent 7/8/96 962051575 Amendment
California Secretary of State
First National Bank of Omaha 11/12/93 93229491
First National Bank of Omaha, as agent 7/5/96 96191C0067 Amendment
15
- 708 -
<PAGE>
Washington Secretary of State
First National Bank of Omaha 11/15/93 933190075
First National Bank of Omaha, as agent 7/5/96 96-187-9060 Amendment
Montana Secretary of State
First National Bank of Omaha 11/15/93 419540
First National Bank of Omaha, as agent 7/8/96 419540 Amendment
Arizona Secretary of State
First National Bank of Omaha 11/15/93 765359
First National Bank of Omaha, as agent 7/8/96 765359 Amendment
North Carolina Secretary of State
First National Bank of Omaha 11/15/93 050742
First National Bank of Omaha, as agent 7/8/96 1357308 Amendment
North Dakota Secretary of State
First National Bank of Omaha 11/16/93 93-380331
First National Bank of Omaha, as agent 7/8/96 96-608985 Amendment
Florida Secretary of State
First National Bank of Omaha 1/17/93 930000236992
First National Bank of Omaha, as agent 7/10/96 960000142090 Amendment
Texas Secretary of State
First National Bank of Omaha 11/29/93 227591--
First National Bank of Omaha, as agent 7/8/96 96683548 Amendment
16
- 709 -
<PAGE>
Alabama Secretary of State
First National Bank of Omaha, as agent 6/27/95 B-95-26462FS
7/19/96 95-26462 Amendment
Arkansas Secretary of State
First National Bank of Omaha, as agent 6/29/95 968722
7/10/96 968722 Amendment
New York Secretary of State
First National Bank of Omaha, as agent 6/26/95 130246
7/8/96 532973 Amendment
</TABLE>
17
- 710 -
SUBSIDIARY SECURITY AGREEMENT
THIS SUBSIDIARY SECURITY AGREEMENT (this "Security Agreement") is
entered into as of June 1, 1998, between National Datamax, Inc. a California
corporation having its principal place of business at 16955 Via Del Campo, Suite
215, San Diego, CA 92127 (the "Debtor"), and FIRST NATIONAL BANK OF OMAHA, a
national banking association having its principal place of business at One First
National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for itself
("FNB-O") and FIRST NATIONAL BANK, WAHOO, NEBRASKA ("FNB-W"), a national banking
association having its principal place of business at Wahoo, Nebraska 68066, NBD
BANK ("NBD"), a bank organized under the laws of the State of Michigan having
its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226,
NORWEST BANK NEBRASKA, N.A. ("Norwest"), a national banking association having
its principal place of business at 20th and Farnam Streets, Omaha, Nebraska
68102, US BANK, NATIONAL ASSOCIATION ("US Bank"), a national banking association
having its principal place of business at 13th and M Streets, Lincoln, Nebraska
68508, the SUMITOMO BANK, LIMITED ("Sumitomo"), a Japanese bank being
represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri
63102 and acting through its Chicago branch, MERCANTILE BANK OF ST. LOUIS,
N.A.("Mercantile"), a national banking association having its principal place of
business at One Mercantile, 7th and Washington Streets, St. Louis, Missouri
63101, BANK OF MONTREAL ("Montreal"), a Canadian bank being represented by its
office at 430 Park Avenue, New York, New York 10022, LASALLE NATIONAL BANK
("LaSalle"), a national banking association being represented by its office at
One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102, and
NATIONSBANK, N.A. ("Nationsbank"), a national banking association having an
office at 800 Market Street, 12th Floor, St. Louis, Missouri 63101-2506.
WITNESSETH:
WHEREAS, Debtor is a wholly-owned subsidiary of Data Transmission
Network Corporation ("DTN"); and
WHEREAS, DTN and Secured Party are parties to a 1997 Revolving Credit
Agreement (the "Revolving Credit Agreement") and a 1997 Term Credit Agreement
(the "Term Credit Agreement"), each dated as of February 26, 1997, as amended
from time to time (together, the "Credit Agreements"); and
WHEREAS, pursuant to the Revolving Credit Agreement, Secured Party and
the Revolving Lenders defined in such Revolving Credit Agreement from time to
time may make advances to DTN which may be used for the benefit of DTN and
Debtor; and
WHEREAS, pursuant to the Credit Agreements, DTN is required to have any
subsidiary execute a security agreement and file Uniform Commercial Code
financing statements as shall be necessary to grant and perfect a security
interest in favor of the lenders under such Credit Agreements;
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NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1. Grant of Security Interest. Debtor hereby grants to Secured
Party a security interest in the personal property of Debtor as described on
Exhibit A to this Security Agreement (the "Collateral").
2. Obligations Secured. The security interest granted herein is
given to secure all present and future obligations of DTN: (i) under the
Revolving Credit Agreement; (iii) under the 1996 Revolving Credit Agreement
dated as of June 28, 1996 as amended from time to time between DTN, FNB-O,
FNB-W, Norwest, NBD, First Bank, Sumitomo, Mercantile, Montreal, LaSalle and The
Boatmen's National Bank of St. Louis ("Boatmen's"); (iv) under the 1995 Restated
Loan Agreement dated as of June 29, 1995, as amended from time to time between
DTN and FNB-O, FNB-W, US Bank, NBD , Norwest, and Boatmen's; (v) under the 1993
Restated Loan Agreement dated as of November 8, 1993, as amended from time to
time, between DTN and FNB-O, US Bank, FNB-W, NBD, Norwest and Boatmen's; (vi)
under the Loan Agreement dated as of October 9, 1992, as amended from time to
time, between DTN and FNB-O, US Bank, and FNB-W, or under any interest rate
protection agreement entered into by DTN with one or more Lenders; (vii) under
any and all Notes previously, now or hereafter made by DTN to the Lenders
pursuant to any of the foregoing Loan Agreements and interest rate protection
agreements (all of which are referred to herein as the "Loan Agreements") or any
predecessor loan agreements, including, without limitation, the Existing Term
Notes and any notes given in extension, renewal or substitution of the Notes;
(viii) to reimburse the Secured Party for all sums, if any, advanced to protect
the Collateral; and (ix) to reimburse Secured Party for all costs and expenses
incurred in collection of the foregoing, including, without limitation, costs of
repossession and sale and reasonable attorneys' fees. This Security Agreement
shall not be deemed to extinguish existing indebtedness of DTN under any of the
agreements referenced in this Section 3 or any of the notes issued thereunder or
to release, terminate or affect the priority of any security therefor.
4. Representations and Warranties. Debtor represents and
warrants:
(a) Possession and Ownership. Except as shown on Exhibit
4(a) attached to this Security Agreement, the Collateral is or will be in
Debtor's possession (except for equipment or inventory provided to Debtor's
customers in the ordinary course of business) and Debtor has or will acquire
absolute title thereto and will defend the Collateral against the claims and
demands of all persons other than Secured Party, the rights of customers to use
the Collateral in the ordinary course of Debtor's business, and existing
security interests and leaseholds shown on such Exhibit 4(a).
(b) Liens and Encumbrances. No financing statement covering
the Collateral or other filing evidencing any lien or encumbrance on the
Collateral is on file in any public office and there is no lien, security
interest or encumbrance on the Collateral except for the security interest held
by Secured Party pursuant to this Security Agreement and for those security
interests and leaseholds described in (a) above and Exhibit 4(a).
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<PAGE>
(c) Truth of Representations. All information, statements,
representations, and warranties made by Debtor herein and in any financial or
credit statement, application for credit, or any other writing executed prior to
or substantially contemporaneously herewith are true, accurate and complete in
all material respects.
(d) Location. Debtor has its chief executive office and
principal place of business at 16955 Via Del Campo, Suite 215, San Diego, CA
92127 and Debtor keeps its records concerning the Collateral at such address and
at the offices of DTN located at Suite 200, 9110 West Dodge Road, Omaha,
Nebraska 68114.
(e) Authority. Debtor has full authority to enter into this
Security Agreement and in so doing is not violating any law, regulation, or
agreement with third parties. This Security Agreement has been duly and validly
authorized by all necessary corporate action.
5. Covenants. Debtor covenants and agrees:
(a) Liens and Encumbrances. Except as otherwise expressly
allowed herein or as permitted to DTN under the Loan Agreements, Debtor shall
keep the Collateral free and clear of liens, encumbrances, security interests,
and other claims of third parties and will, at Debtor's expense, defend the
Collateral against the claims and demands of all third parties. Debtor shall
promptly pay and discharge any indebtedness owing to any third party who, by
reason of said indebtedness, could obtain or become entitled to a lien or
encumbrance on the Collateral, other than such indebtedness being contested in
good faith and with respect to which adequate reserves have been established.
(b) Proceeds; Sale. Debtor shall not sell or otherwise
dispose of any Collateral without first obtaining the written consent of Secured
Party; provided, however, that Debtor may (i) sell or provide equipment or
inventory to customers in the ordinary course of Debtor's business, and (ii)
dispose of obsolete or out-of-date equipment to others so long as the value of
equipment or inventory disposed of to others (e.g., for salvage purposes) does
not exceed, in aggregate,$500,000. Debtor shall at all times keep the Collateral
and the proceeds from any authorized or unauthorized disposition thereof
identifiable and separate from the other property of Debtor or any third party;
provided, however, that Debtor may commingle and use for general corporate
purposes (y) the proceeds of sales of inventory to customers sold in accordance
with clause (i) above in this Section 5(b) and (z) up to $500,000 in aggregate
net book value of the proceeds of sale or other disposition of obsolete or
out-of-date equipment disposed of in accordance with clause (ii) above in this
Section 5(b).
(c) Protection of Value. Debtor shall use the utmost care
and diligence to protect and preserve the Collateral, and shall not commit nor
suffer any waste to occur with respect to the Collateral. In pursuance of the
foregoing, Debtor shall maintain the Collateral in good condition and repair and
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<PAGE>
shall take such steps as are necessary or as are requested by Secured Party to
prevent any impairment of the value of the Collateral.
(d) Taxes. Debtor shall pay and discharge prior to the
delinquency thereof any and all taxes, levies and other impositions made upon
the Collateral which may give rise to liens upon the Collateral if unpaid or
which are imposed upon the creation, perfection, or continuance of the security
interest provided for herein, other than taxes being contested in good faith and
with respect to which adequate reserves have been established.
(e) Insurance. All risk of loss of, damage to, or
destruction of the Collateral shall at all times be on Debtor. Debtor shall
procure and maintain, at its own expense, insurance covering the Collateral
against all risks under policies and with companies acceptable to Secured Party,
for the duration of this Security Agreement (except for equipment provided to
Debtor's Customers in the ordinary course of business). Such policies shall be
written for and shall name Debtor and Secured Party as their interests may
appear, shall contain a standard loss payable clause in favor of Secured Party.
Proof of insurance shall be provided to Secured Party upon request. For purposes
of security, Debtor hereby assigns to Secured Party any and all monies
(including, without limitation, proceeds of insurance and refunds of unearned
premiums) due or to become due under any such policy. Debtor hereby directs the
issuer of any such policy to pay any such monies directly to Secured Party.
Secured Party may act as attorney for Debtor in obtaining, settling and
adjusting such insurance and in endorsing any checks or drafts paid thereunder.
(f) Secured Party as Payee. Debtor shall take such steps as
are necessary or as are requested by Secured Party to have Secured Party named
as a payee on any check, draft or other document or instrument which Debtor may
obtain or anticipate obtaining with respect to the Collateral other than the
sale of inventory to customers in the ordinary course of Debtor's business and
the sale of obsolete or out-of-date equipment in accordance with Section 5(b)
hereof. Without limiting the generality of the foregoing, Secured Party shall be
named as a payee on all instruments from insurers of the Collateral.
Notwithstanding anything in the foregoing or in Subsection (e) above to the
contrary, Secured Party agrees that: (i) insurance proceeds may be paid to
Debtor so long as no event of default exists hereunder and such proceeds are, in
aggregate, less than $500,000; and (ii) Secured Party's rights hereunder are
subject to the interests of the parties identified on Exhibit 4 (a) and the
rights of Debtor's customers set forth in Section 4(a) above.
(g) Records. Debtor shall keep accurate and complete records
pertaining to the Collateral and pertaining to Debtor's business and financial
condition, and shall allow Secured Party to inspect the same from time to time
upon reasonable request and shall submit such periodic reports relating to the
same to Secured Party from time to time as Secured Party may reasonably request.
Debtor shall provide that the Secured Party's interest is noted on all chattel
paper and that there is only one single original of any chattel paper held by
Debtor and created after the date hereof.
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<PAGE>
(h) Notice to Secured Party. Debtor shall promptly notify
Secured Party of any loss or damage to the Collateral, any impairment of the
value thereof, or any claim made thereto by any third party.
(i) Location. Except for equipment or inventory provided to
Debtor's customers in the ordinary course of business, Debtor will not move the
Collateral, its chief executive office, principal place of business or places
where it keeps its records concerning the Collateral from the locations
specified above without first obtaining the written consent of Secured Party and
shall not permit any Collateral to be located in any state in which a financing
statement covering the Collateral is required to be, but has not in fact been,
filed in order to perfect the security interest granted herein. Debtor shall not
change its name without giving Secured Party at least ninety (90) days' prior
notice thereof.
(j) Other Documents. Debtor shall execute such further
documents as may be requested by Secured Party to obtain and perfect a security
interest in the Collateral, including without limitation, Uniform Commercial
Code Financing Statements and amendments thereto. A carbon, photographic or
other reproduction of this Security Agreement or of any financing statement
signed by Debtor shall have the same force and effect as the original for all
purposes of a financing statement.
6. Default. Debtor shall be in default hereunder if any of the
following occurs:
(a) Event of Default. An Event of Default occurs under any
of the Notes or the Loan Agreements.
(b) Misrepresentation. Any of the representations or
warranties made by Debtor herein or in any of the documents referred to herein
or executed prior hereto or substantially contemporaneously herewith are or
become false or misleading in any material respect.
(c) Breach of Covenants. Debtor fails to perform any of its
covenants, agreements or obligations hereunder or under any document referred to
herein or executed prior hereto or substantially contemporaneously herewith and
such failure is not cured within ten (10) business days after knowledge of such
default; provided, however, that there shall be no cure period for the failure
of Debtor to comply with the provisions of Section 5 (b) hereof.
(d) Other Indebtedness. Any event occurs which results in
acceleration of the maturity of the indebtedness of Debtor under any material
agreement with any third party.
(f) Loss of Security. Collateral with an aggregate value in
excess of $500,000 is lost, damaged or destroyed and such Collateral is not
covered by insurance.
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<PAGE>
(g) Business Failure. The death, dissolution, termination of
existence (other than a merger of Debtor into DTN), appointment of a receiver of
any part of the property of, assignment for the benefit of creditors by, or
commencement of any proceeding in bankruptcy or insolvency by or against Debtor
or any principals of Debtor or any guarantor or surety for Debtor.
7. Rights and Remedies of Secured Party. Secured Party shall have
all of the rights and remedies provided at law and in equity and in the Uniform
Commercial Code and in addition thereto and without limitation thereon shall
have the following rights which may be exercised singularly or concurrently:
(a) Inspection. Secured Party may at any time, with or
without notice, enter upon Debtor's premises or any other place where the
Collateral is located to inspect and examine the same and, if Debtor is in
default, to take possession thereof.
(b) Performance by Secured Party. If Debtor fails to perform
any of its obligations hereunder, Secured Party may, at its sole discretion, pay
or perform such obligations for Debtor's account and may add any cost or expense
thereof to the obligations secured hereby.
(c) Acceleration. Upon default, Secured Party may, without
demand or notice to Debtor, accelerate all of the obligations secured hereby and
proceed to enforce payment of the same with or without first resorting against
the Collateral.
(d) Proceed Against Collateral. Subject to applicable cure
periods, if any, upon default Secured Party may: require Debtor to make the
Collateral available to Secured Party at a place to be designated by Secured
Party; take possession of the Collateral, proceeding without judicial process or
by judicial process (without a prior hearing or notice thereof which Debtor
hereby expressly waives) and sell, retain or otherwise dispose of the Collateral
in full or partial satisfaction of the obligations secured hereby.
(e) Power of Attorney. Debtor hereby irrevocably appoints
(which appointment is coupled with an interest) Secured Party as Debtor's true
and lawful attorney, with full power of substitution, without notice to Debtor
and at such time or times as Secured Party in its sole discretion may determine
to: (i) create, prepare, complete, execute, deliver and file such documents,
instruments, financing statements, and other agreements and writings as may be
deemed appropriate by Secured Party to facilitate the intent of this Security
Agreement; (ii) notify account debtors and others with obligations to Debtor to
make payment of their obligations to Secured Party; (iii) demand, enforce and
receive payment of any accounts or obligations owing to Debtor, by legal
proceedings or otherwise; (iv) settle, adjust, compromise, release, renew or
extend any account or obligation owing to Debtor; (v) notify postal authorities
to change the address for delivery of mail to Debtor to such address as Secured
Party may designate; (vi) receive, open and dispose of all mail addressed to
Debtor; (vii) endorse Debtor's name on any check, note, draft, instrument or
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<PAGE>
other form of payment that may come into Secured Party's possession; and (viii)
send requests to Debtor's customers and account debtors for verification of
amounts due to Debtor. Secured Party covenants not to exercise the foregoing
rights prior to the occurrence of an event of default hereunder.
8. Obligations of Secured Party. Secured Party has no obligations
to Debtor hereunder except those expressly required herein. Except as expressly
provided in the Loan Agreements, Secured Party has not agreed to make any
further advance or loan of any kind to Debtor or DTN. Secured Party's duty of
care with respect to the Collateral in its possession shall be deemed fulfilled
if Secured Party exercises reasonable care in physically safekeeping the
Collateral or, in the case of Collateral in the possession of a bailee or third
party, exercises reasonable care in the selection of the bailee or third party.
Secured Party need not otherwise preserve, protect, insure or care for the
Collateral. Secured Party need not preserve rights the Debtor may have against
prior parties, realize on the Collateral in any particular manner or order, or
apply proceeds of the Collateral in any particular order of application.
9. Miscellaneous.
(a) No Waiver. No delay or failure on the part of Secured
Party in the exercise of any right or remedy hereunder shall operate as a waiver
thereof and no single or partial exercise by Secured Party of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy.
(b) Amendment and Termination. This Security Agreement may
be amended or terminated and the security interest granted herein can be
released only by an explicit written agreement signed by Debtor and Secured
Party.
(c) Choice of Law. This Security Agreement and the rights
and obligations of the parties hereto shall be governed by and construed in
accordance with the laws of the State of Nebraska.
(d) Binding Agreement. This Security Agreement shall be
binding upon the parties hereto and their heirs, successors, personal
representatives and permitted assigns.
(e) Assignment. This Security Agreement may be assigned by
Secured Party only.
(f) Captions. Captions and headings herein are for
convenience only and in no way define, limit or describe the scope or intent of
any provision or section of the Security Agreement.
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<PAGE>
(g) Severability. If any provision of this Security
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
(h) Notices. All notices to be given shall be deemed
sufficiently given if delivered or mailed by registered or certified mail
postage prepaid if to Debtor in care of Data Transmission Network, Suite 200,
9110 West Dodge Road, Omaha, Nebraska 68114; if to Secured Party at One First
National Center, Omaha, Nebraska 68102; or such other address as the parties may
designate in writing from time to time. Debtor shall promptly notify Secured
Party of any changes in Debtor's address.
(i) Priorities. The security interest of a Lender in any
property of the Debtor (i) arising under and in connection with the Credit
Agreements, this Security Agreement or any of the Related Loan Agreements and
(ii) granted to secure any obligation of DTN to such Lender, including, without
limitation, all Collateral, shall rank equally in priority with the security
interests of each of the other Lenders, if any, in such property of the
Borrower, irrespective of the time or order of attachment or perfection of such
security interest, or the time or order of filing, or the failure to file, and
regardless of the date any obligation of DTN to a Lender was incurred. Any
amounts or payments obtained upon disposition of any property securing an
obligation of DTN to a Lender shall be applied as provided in Article VII of the
1997 Revolving Credit Agreement as in effect on February 26, 1997. Unanimous
approval of the Lenders shall be required for amendments to this Section 9(i).
IN WITNESS WHEREOF, the undersigned have executed this Security
Agreement as of this 1st day of June, 1998.
NATIONAL DATAMAX, INC.
By /s/ Brian L. Larson
Title Vice President, CFO and Secretary
FIRST NATIONAL BANK OF OMAHA,
as agent for itself, US Bank,
National Association, First
National Bank, Wahoo,
Nebraska, NBD Bank,
Norwest Bank Nebraska, N.A.,
Nationsbank, N.A., The Sumitomo Bank, Limited, Mercantile
8
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<PAGE>
Bank of St. Louis, N.A., Bank of Montreal, and
LaSalle National Bank
By /s/ James P. Bonham
Title Vice President
9
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<PAGE>
EXHIBIT A
TO SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
NATIONAL DATAMAX, INC. ("Debtor")
COLLATERAL
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general intangibles,
contract rights, all rights of Debtor in deposits and advance payments made to
Debtor by its customers and/or subscribers, accounts due from advertisers and
all ownership, proprietary, copyright, trade secret and other intellectual
property rights in and to computer software (and specifically including, without
limitation, all such rights in Debtor's computer software used in the provision
of the services to Debtor's customers and/or subscribers) and all documentation,
source code, information and works of authorship pertaining thereto, all now
owned or hereafter acquired by Debtor and all proceeds and products thereof; and
all proceeds and products of the foregoing.
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<PAGE>
ATTACHMENT A TO UCC-1
COLLATERAL
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general intangibles,
contract rights, all rights of Debtor in deposits and advance payments made to
Debtor by its customers and/or subscribers, accounts due from advertisers and
all ownership, proprietary, copyright, trade secret and other intellectual
property rights in and to computer software (and specifically including, without
limitation, all such rights in Debtor's computer software used in the provision
of the services to Debtor's customers and/or subscribers) and all documentation,
source code, information and works of authorship pertaining thereto, all now
owned or hereafter acquired by Debtor and all proceeds and products thereof; and
all proceeds and products of the foregoing.
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<PAGE>
EXHIBIT 4 (a)
TO SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
NATIONAL DATAMAX, INC. ("Debtor")
PERMITTED ENCUMBRANCES
Secured Party Comments
NONE
EQUIPMENT NOT LOCATED AT DEBTOR'S OR DTN'S ADDRESS
Equipment Location
NONE
12
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SUBSIDIARY SECURITY AGREEMENT
THIS SUBSIDIARY SECURITY AGREEMENT (this "Security Agreement") is
entered into as of July 1, 1998, between Kavouras, Inc. , a Minnesota
corporation having its principal place of business at 11400 Rupp Drive,
Burnsville, Minnesota 55337-1279 (the "Debtor"), and FIRST NATIONAL BANK OF
OMAHA, a national banking association having its principal place of business at
One First National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for
itself ("FNB-O") and FIRST NATIONAL BANK, WAHOO, NEBRASKA ("FNB-W"), a national
banking association having its principal place of business at Wahoo, Nebraska
68066, NBD BANK ("NBD"), a bank organized under the laws of the State of
Michigan having its principal place of business at 611 Woodward Avenue, Detroit,
Michigan 48226, NORWEST BANK NEBRASKA, N.A. ("Norwest"), a national banking
association having its principal place of business at 20th and Farnam Streets,
Omaha, Nebraska 68102, US BANK, NATIONAL ASSOCIATION ("US Bank"), a national
banking association having its principal place of business at 13th and M
Streets, Lincoln, Nebraska 68508, the SUMITOMO BANK, LIMITED ("Sumitomo"), a
Japanese bank being represented by its office at 200 North Broadway, Suite 1625,
St. Louis, Missouri 63102 and acting through its Chicago branch, MERCANTILE BANK
OF ST. LOUIS, N.A.("Mercantile"), a national banking association having its
principal place of business at One Mercantile, 7th and Washington Streets, St.
Louis, Missouri 63101, BANK OF MONTREAL ("Montreal"), a Canadian bank being
represented by its office at 430 Park Avenue, New York, New York 10022, LASALLE
NATIONAL BANK ("LaSalle"), a national banking association being represented by
its office at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri
63102, and NATIONSBANK, N.A. ("Nationsbank"), a national banking association
having an office at 800 Market Street, 12th Floor, St. Louis, Missouri
63101-2506.
WITNESSETH:
WHEREAS, Debtor is a wholly-owned subsidiary of Data Transmission
Network Corporation ("DTN"); and
WHEREAS, DTN and Secured Party are parties to a 1997 Revolving Credit
Agreement (the "Revolving Credit Agreement") and a 1997 Term Credit Agreement
(the "Term Credit Agreement"), each dated as of February 26, 1997, as amended
from time to time (together, the "Credit Agreements"); and
WHEREAS, pursuant to the Revolving Credit Agreement, Secured Party and
the Revolving Lenders defined in such Revolving Credit Agreement from time to
time may make advances to DTN which may be used for the benefit of DTN and
Debtor; and
WHEREAS, pursuant to the Credit Agreements, DTN is required to have any
subsidiary execute a security agreement and file Uniform Commercial Code
1
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<PAGE>
financing statements as shall be necessary to grant and perfect a security
interest in favor of the lenders under such Credit Agreements;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1. Grant of Security Interest. Debtor hereby grants to Secured
Party a security interest in the personal property of Debtor as described on
Exhibit A to this Security Agreement (the "Collateral").
2. Obligations Secured. The security interest granted herein is
given to secure all present and future obligations of DTN: (i) under the
Revolving Credit Agreement; (iii) under the 1996 Revolving Credit Agreement
dated as of June 28, 1996 as amended from time to time between DTN, FNB-O,
FNB-W, Norwest, NBD, First Bank, Sumitomo, Mercantile, Montreal, LaSalle and The
Boatmen's National Bank of St. Louis ("Boatmen's"); (iv) under the 1995 Restated
Loan Agreement dated as of June 29, 1995, as amended from time to time between
DTN and FNB-O, FNB-W, US Bank, NBD , Norwest, and Boatmen's; (v) under the 1993
Restated Loan Agreement dated as of November 8, 1993, as amended from time to
time, between DTN and FNB-O, US Bank, FNB-W, NBD, Norwest and Boatmen's; (vi)
under the Loan Agreement dated as of October 9, 1992, as amended from time to
time, between DTN and FNB-O, US Bank, and FNB-W, or under any interest rate
protection agreement entered into by DTN with one or more Lenders; (vii) under
any and all Notes previously, now or hereafter made by DTN to the Lenders
pursuant to any of the foregoing Loan Agreements and interest rate protection
agreements (all of which are referred to herein as the "Loan Agreements") or any
predecessor loan agreements, including, without limitation, the Existing Term
Notes and any notes given in extension, renewal or substitution of the Notes;
(viii) to reimburse the Secured Party for all sums, if any, advanced to protect
the Collateral; and (ix) to reimburse Secured Party for all costs and expenses
incurred in collection of the foregoing, including, without limitation, costs of
repossession and sale and reasonable attorneys' fees. This Security Agreement
shall not be deemed to extinguish existing indebtedness of DTN under any of the
agreements referenced in this Section 3 or any of the notes issued thereunder or
to release, terminate or affect the priority of any security therefor.
4. Representations and Warranties. Debtor represents and
warrants:
(a) Possession and Ownership. Except as shown on Exhibit 4
(a) attached to this Security Agreement, the Collateral is or will be in
Debtor's possession (except for equipment or inventory provided to Debtor's
customers in the ordinary course of business) and Debtor has or will acquire
absolute title thereto and will defend the Collateral against the claims and
demands of all persons other than Secured Party, the rights of customers to use
the Collateral in the ordinary course of Debtor's business, and existing
security interests and leaseholds shown on such Exhibit 4 (a).
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<PAGE>
(b) Liens and Encumbrances. No financing statement covering
the Collateral or other filing evidencing any lien or encumbrance on the
Collateral is on file in any public office and there is no lien, security
interest or encumbrance on the Collateral except for the security interest held
by Secured Party pursuant to this Security Agreement and for those security
interests and leaseholds described in (a) above and Exhibit 4(a).
(c) Truth of Representations. All information, statements,
representations, and warranties made by Debtor herein and in any financial or
credit statement, application for credit, or any other writing executed prior to
or substantially contemporaneously herewith are true, accurate and complete in
all material respects.
(d) Location. Debtor has its chief executive office and
principal place of business at 11400 Rupp Drive, Burnsville, Minnesota and
Debtor keeps its records concerning the Collateral at such address and at the
offices of DTN located at Suite 200, 9110 West Dodge Road, Omaha, Nebraska
68114.
(e) Authority. Debtor has full authority to enter into this
Security Agreement and in so doing is not violating any law, regulation, or
agreement with third parties. This Security Agreement has been duly and validly
authorized by all necessary corporate action.
5. Covenants. Debtor covenants and agrees:
(a) Liens and Encumbrances. Except as otherwise expressly
allowed herein or as permitted to DTN under the Loan Agreements, Debtor shall
keep the Collateral free and clear of liens, encumbrances, security interests,
and other claims of third parties and will, at Debtor's expense, defend the
Collateral against the claims and demands of all third parties. Debtor shall
promptly pay and discharge any indebtedness owing to any third party who, by
reason of said indebtedness, could obtain or become entitled to a lien or
encumbrance on the Collateral, other than such indebtedness being contested in
good faith and with respect to which adequate reserves have been established.
(b) Proceeds; Sale. Debtor shall not sell or otherwise
dispose of any Collateral without first obtaining the written consent of Secured
Party; provided, however, that Debtor may (i) sell or provide equipment or
inventory to customers in the ordinary course of Debtor's business, and (ii)
dispose of obsolete or out-of-date equipment to others so long as the value of
equipment or inventory disposed of to others (e.g., for salvage purposes) does
not exceed, in aggregate,$500,000. Debtor shall at all times keep the Collateral
and the proceeds from any authorized or unauthorized disposition thereof
identifiable and separate from the other property of Debtor or any third party;
provided, however, that Debtor may commingle and use for general corporate
purposes (y) the proceeds of sales of inventory to customers sold in accordance
with clause (i) above in this Section 5(b) and (z) up to $500,000 in aggregate
net book value of the proceeds of sale or other disposition of obsolete or
out-of-date equipment disposed of in accordance with clause (ii) above in this
Section 5(b).
3
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<PAGE>
(c) Protection of Value. Debtor shall use the utmost care
and diligence to protect and preserve the Collateral, and shall not commit nor
suffer any waste to occur with respect to the Collateral. In pursuance of the
foregoing, Debtor shall maintain the Collateral in good condition and repair and
shall take such steps as are necessary or as are requested by Secured Party to
prevent any impairment of the value of the Collateral.
(d) Taxes. Debtor shall pay and discharge prior to any
delinquency thereof any and all taxes, levies and other impositions made upon
the Collateral which may give rise to liens upon the Collateral if unpaid or
which are imposed upon the creation, perfection, or continuance of the security
interest provided for herein, other than taxes being contested in good faith and
with respect to which adequate reserves have been established.
(e) Insurance. All risk of loss of, damage to, or
destruction of the Collateral shall at all times be on Debtor. Debtor shall
procure and maintain, at its own expense, insurance covering the Collateral
against all risks under policies and with companies acceptable to Secured Party,
for the duration of this Security Agreement (except for equipment provided to
Debtor's Customers in the ordinary course of business). Such policies shall be
written for and shall name Debtor and Secured Party as their interests may
appear, shall contain a standard loss payable clause in favor of Secured Party.
Proof of insurance shall be provided to Secured Party upon request. For purposes
of security, Debtor hereby assigns to Secured Party any and all monies
(including, without limitation, proceeds of insurance and refunds of unearned
premiums) due or to become due under any such policy. Debtor hereby directs the
issuer of any such policy to pay any such monies directly to Secured Party.
Secured Party may act as attorney for Debtor in obtaining, settling and
adjusting such insurance and in endorsing any checks or drafts paid thereunder.
(f) Secured Party as Payee. Debtor shall take such steps as
are necessary or as are requested by Secured Party to have Secured Party named
as a payee on any check, draft or other document or instrument which Debtor may
obtain or anticipate obtaining with respect to the Collateral other than the
sale of inventory to customers in the ordinary course of Debtor's business and
the sale of obsolete or out-of-date equipment in accordance with Section 5(b)
hereof. Without limiting the generality of the foregoing, Secured Party shall be
named as a payee on all instruments from insurers of the Collateral.
Notwithstanding anything in the foregoing or in Subsection (e) above to the
contrary, Secured Party agrees that: (i) insurance proceeds may be paid to
Debtor so long as no event of default exists hereunder and such proceeds are, in
aggregate, less than $500,000; and (ii) Secured Party's rights hereunder are
subject to the interests of the parties identified on Exhibit 4 (a) and the
rights of Debtor's customers as set forth in Section 4(a) above.
(g) Records. Debtor shall keep accurate and complete records
pertaining to the Collateral and pertaining to Debtor's business and financial
condition, and shall allow Secured Party to inspect the same from time to time
upon reasonable request and shall submit such periodic reports relating to the
same to Secured Party from time to time as Secured Party may reasonably request.
Debtor shall provide that the Secured Party's interest is noted on all chattel
4
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<PAGE>
paper and that there is only one single original of any chattel paper held by
Debtor and created after the date hereof.
(h) Notice to Secured Party. Debtor shall promptly notify
Secured Party of any loss or damage to the Collateral, any impairment of the
value thereof, or any claim made thereto by any third party.
(i) Location. Except for equipment or inventory provided to
Debtor's customers in the ordinary course of business, Debtor will not move the
Collateral, its chief executive office, principal place of business or places
where it keeps its records concerning the Collateral from the locations
specified above without first obtaining the written consent of Secured Party and
shall not permit any Collateral to be located in any state in which a financing
statement covering the Collateral is required to be, but has not in fact been,
filed in order to perfect the security interest granted herein. Debtor shall not
change its name without giving Secured Party at least ninety (90) days' prior
notice thereof.
(j) Other Documents. Debtor shall execute such further
documents as may be requested by Secured Party to obtain and perfect a security
interest in the Collateral, including without limitation, Uniform Commercial
Code Financing Statements and amendments thereto. A carbon, photographic or
other reproduction of this Security Agreement or of any financing statement
signed by Debtor shall have the same force and effect as the original for all
purposes of a financing statement.
6. Default. Debtor shall be in default hereunder if any of the
following occurs:
(a) Event of Default. An Event of Default occurs under any
of the Notes or the Loan Agreements.
(b) Misrepresentation. Any of the representations or
warranties made by Debtor herein or in any of the documents referred to herein
or executed prior hereto or substantially contemporaneously herewith are or
become false or misleading in any material respect.
(c) Breach of Covenants. Debtor fails to perform any of its
covenants, agreements or obligations hereunder or under any document referred to
herein or executed prior hereto or substantially contemporaneously herewith and
such failure is not cured within ten (10) business days after knowledge of such
default; provided, however, that there shall be no cure period for the failure
of Debtor to comply with the provisions of Section 5 (b) hereof.
(d) Other Indebtedness. Any event occurs which results in
acceleration of the maturity of the indebtedness of Debtor under any material
agreement with any third party.
5
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<PAGE>
(f) Loss of Security. Collateral with an aggregate value in
excess of $500,000 is lost, damaged or destroyed and such Collateral is not
covered by insurance.
(g) Business Failure. The death, dissolution, termination of
existence (other than a merger of Debtor into DTN), appointment of a receiver of
any part of the property of, assignment for the benefit of creditors by, or
commencement of any proceeding in bankruptcy or insolvency by or against Debtor
or any principals of Debtor or any guarantor or surety for Debtor.
7. Rights and Remedies of Secured Party. Secured Party shall have
all of the rights and remedies provided at law and in equity and in the Uniform
Commercial Code and in addition thereto and without limitation thereon shall
have the following rights which may be exercised singularly or concurrently:
(a) Inspection. Secured Party may at any time, with or
without notice, enter upon Debtor's premises or any other place where the
Collateral is located to inspect and examine the same and, if Debtor is in
default, to take possession thereof.
(b) Performance by Secured Party. If Debtor fails to perform
any of its obligations hereunder, Secured Party may, at its sole discretion, pay
or perform such obligations for Debtor's account and may add any cost or expense
thereof to the obligations secured hereby.
(c) Acceleration. Upon default, Secured Party may, without
demand or notice to Debtor, accelerate all of the obligations secured hereby and
proceed to enforce payment of the same with or without first resorting against
the Collateral.
(d) Proceed Against Collateral. Subject to applicable cure
periods, if any, upon default Secured Party may: require Debtor to make the
Collateral available to Secured Party at a place to be designated by Secured
Party; take possession of the Collateral, proceeding without judicial process or
by judicial process (without a prior hearing or notice thereof which Debtor
hereby expressly waives) and sell, retain or otherwise dispose of the Collateral
in full or partial satisfaction of the obligations secured hereby.
(e) Power of Attorney. Debtor hereby irrevocably appoints
(which appointment is coupled with an interest) Secured Party as Debtor's true
and lawful attorney, with full power of substitution, without notice to Debtor
and at such time or times as Secured Party in its sole discretion may determine
to: (i) create, prepare, complete, execute, deliver and file such documents,
instruments, financing statements, and other agreements and writings as may be
deemed appropriate by Secured Party to facilitate the intent of this Security
Agreement; (ii) notify account debtors and others with obligations to Debtor to
make payment of their obligations to Secured Party; (iii) demand, enforce and
receive payment of any accounts or obligations owing to Debtor, by legal
proceedings or otherwise; (iv) settle, adjust, compromise, release, renew or
6
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<PAGE>
extend any account or obligation owing to Debtor; (v) notify postal authorities
to change the address for delivery of mail to Debtor to such address as Secured
Party may designate; (vi) receive, open and dispose of all mail addressed to
Debtor; (vii) endorse Debtor's name on any check, note, draft, instrument or
other form of payment that may come into Secured Party's possession; and (viii)
send requests to Debtor's customers and account debtors for verification of
amounts due to Debtor. Secured Party covenants not to exercise the foregoing
rights prior to the occurrence of an event of default hereunder.
8. Obligations of Secured Party. Secured Party has no obligations
to Debtor hereunder except those expressly required herein. Except as expressly
provided in the Loan Agreements, Secured Party has not agreed to make any
further advance or loan of any kind to Debtor or DTN. Secured Party's duty of
care with respect to the Collateral in its possession shall be deemed fulfilled
if Secured Party exercises reasonable care in physically safekeeping the
Collateral or, in the case of Collateral in the possession of a bailee or third
party, exercises reasonable care in the selection of the bailee or third party.
Secured Party need not otherwise preserve, protect, insure or care for the
Collateral. Secured Party need not preserve rights the Debtor may have against
prior parties, realize on the Collateral in any particular manner or order, or
apply proceeds of the Collateral in any particular order of application.
9. Miscellaneous.
(a) No Waiver. No delay or failure on the part of Secured
Party in the exercise of any right or remedy hereunder shall operate as a waiver
thereof and no single or partial exercise by Secured Party of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy.
(b) Amendment and Termination. This Security Agreement may
be amended or terminated and the security interest granted herein can be
released only by an explicit written agreement signed by Debtor and Secured
Party.
(c) Choice of Law. This Security Agreement and the rights
and obligations of the parties hereto shall be governed by and construed in
accordance with the laws of the State of Nebraska.
(d) Binding Agreement. This Security Agreement shall be
binding upon the parties hereto and their heirs, successors, personal
representatives and permitted assigns.
(e) Assignment. This Security Agreement may be assigned by
Secured Party only.
7
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<PAGE>
(f) Captions. Captions and headings herein are for
convenience only and in no way define, limit or describe the scope or intent of
any provision or section of the Security Agreement.
(g) Severability. If any provision of this Security
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
(h) Notices. All notices to be given shall be deemed
sufficiently given if delivered or mailed by registered or certified mail
postage prepaid if to Debtor in care of Data Transmission Network, Suite 200,
9110 West Dodge Road, Omaha, Nebraska 68114; if to Secured Party at One First
National Center, Omaha, Nebraska 68102; or such other address as the parties may
designate in writing from time to time. Debtor shall promptly notify Secured
Party of any changes in Debtor's address.
(i) Priorities. The security interest of a Lender in any
property of the Debtor (i) arising under and in connection with the Credit
Agreements, this Security Agreement or any of the Related Loan Agreements and
(ii) granted to secure any obligation of DTN to such Lender, including, without
limitation, all Collateral, shall rank equally in priority with the security
interests of each of the other Lenders, if any, in such property of the
Borrower, irrespective of the time or order of attachment or perfection of such
security interest, or the time or order of filing, or the failure to file, and
regardless of the date any obligation of DTN to a Lender was incurred. Any
amounts or payments obtained upon disposition of any property securing an
obligation of DTN to a Lender shall be applied as provided in Article VII of the
1997 Revolving Credit Agreement as in effect on February 26, 1997. Unanimous
approval of the Lenders shall be required for amendments to this Section 9(i).
IN WITNESS WHEREOF, the undersigned have executed this Security
Agreement as of this 1st day of July, 1998.
KAVOURAS, INC.
By /s/ Brian L. Larson
--------------------------
Title Vice President, CFO and Secretary
FIRST NATIONAL BANK OF OMAHA,
as agent for itself, US Bank,
National Association, First
National Bank, Wahoo,
8
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<PAGE>
Nebraska, NBD Bank,
Norwest Bank Nebraska, N.A.,
Nationsbank, N.A., The Sumitomo Bank, Limited,
Mercantile Bank of St. Louis, N.A., Bank of Montreal,
and LaSalle National Bank
By /s/ James P. Bonham
Title Vice President
9
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<PAGE>
EXHIBIT A
TO SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
KAVOURAS, INC. ("Debtor")
COLLATERAL
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general intangibles,
contract rights, all rights of Debtor in deposits and advance payments made to
Debtor by its customers and/or subscribers, accounts due from advertisers and
all ownership, proprietary, copyright, trade secret and other intellectual
property rights in and to computer software (and specifically including, without
limitation, all such rights in Debtor's computer software used in the provision
of the services to Debtor's customers and all documentation, source code,
information and works of authorship pertaining thereto, all now owned or
hereafter acquired by Debtor and all proceeds and products thereof; and all
proceeds and products of the foregoing.
10
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<PAGE>
ATTACHMENT A TO UCC-1
COLLATERAL
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general intangibles,
contract rights, all rights of Debtor in deposits and advance payments made to
Debtor by its customers and/or subscribers, accounts due from advertisers and
all ownership, proprietary, copyright, trade secret and other intellectual
property rights in and to computer software (and specifically including, without
limitation, all such rights in Debtor's computer software used in the provision
of the services to Debtor's customers) and all documentation, source code,
information and works of authorship pertaining thereto, all now owned or
hereafter acquired by Debtor and all proceeds and products thereof; and all
proceeds and products of the foregoing.
11
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<PAGE>
EXHIBIT 4 (a)
TO SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
KAVOURAS, INC. ("Debtor")
PERMITTED ENCUMBRANCES
Secured Party Comments
Small Business Administration To be released not later than
July 30, 1998
Norwest Bank To be released not later than
September 30, 1998
Federal Aviation Administration Rights as lessees under leasehold of
certain Vista work stations
EQUIPMENT NOT LOCATED AT DEBTOR'S or DTN'S ADDRESS
Equipment Location
Tooling Microwave Specialties
520 Carmel Street
San Marcos, CA 92069
Vista Work Stations Federal Aviation Administration
Cheekdowaga, NY
12
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The Corporate Profile
Data Transmission Network Corporation (DTN(R)), an electronic information
and communications services company headquartered in Omaha, Nebraska, is a
leader in the delivery of time-sensitive information (NEWS...NOT HISTORY(R)).
DTN is committed to providing comprehensive, timely and affordably priced
information to our customers. DTN's services are tailored to meet subscribers'
needs and are valuable tools in managing business and personal affairs.
The Company began operations in 1984, went public in January 1987, and
continues to evolve into a full-service information provider and communications
network. DTN distributes information via small dish Ku-band satellite, the
Internet, FM radio side-band channels, TV cable (VBI-vertical blanking interval
via satellite delivery to cable stations), FAX and e-mail. Subscribers receiving
information via satellite utilize a DTN receiver capturing information around
the clock and converting it to text, graphics and audio.
Prior to 1992, DTN supported only a monochrome receiver system capable of
receiving and displaying information. In 1992, the Company introduced the
Advanced Communications EngineSM (ACE) receiver that expanded the information
and communication services provided by the Company. DTN receivers contain
multiple processors for capturing, manipulating and displaying high-resolution
color video pictures, graphics and text. In addition, these processors provide
the ability to play audio clips and to utilize a phone modem. The ACE receiver
is equipped with an internal hard drive allowing processed information to be
stored, archived and then displayed by using the built-in control panel, a
keyboard or a mouse. In 1995, DTN began to offer services on the Internet. This
distribution technology has become a significant part of the Company's strategy
for the future.
DTN's services reach subscribers in the U.S. and Canada. The Company
receives the majority of its revenues from the agricultural, weather, financial
and energy industries. These industries and the services offered are profiled on
pages 16-19 of this report.
DTN's strategy is to focus on growing the business organically, through
acquisitions and by pursuing opportunities to provide services to niche markets
within other industries.
Led by customer suggestions and demands, Data Transmission Network
Corporation has engineered growth and evolution from what we were--the first
low-cost, electronically delivered agricultural commodities information service,
to what we are today--a multi-faceted information provider, utilizing a full
range of technological communication systems to deliver the most valuable of
commodities, timely information.
Our Mission is to provide
the best information and analysis available,
as
quickly as possible, at an affordable cost to our customers.
Among many things
critical to successfully meeting
these commitments, the three most important are
customer service, customer service, and customer service.
As fellow shareholders of the Company,
DTN employees' number one goal is
the long-term enhancement of the value of the Company.
1
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<PAGE>
Contents
<TABLE>
<CAPTION>
<S> <C>
Selected Consolidated Financial Highlights 2
Five Years in Review 3
Letter to Shareholders 4
Information Technology Update 8
Business Review 10
Information Distribution Technology 10
Services and Equipment Offered 15
Industries and Services at a Glance 16
The Agricultural Industry 20
The Weather Industry 26
The Financial Services Industry 32
The Energy Industry 36
The Transportation Industry 38
Selected Historical Consolidated Financial Data 40
Management's Discussion and Analysis 41
Management's Responsibility for Financial Statements and Independent Auditor's Report 49
Consolidated Financial Statements 50
Notes to Consolidated Financial Statements 54
Quarterly Data and Trading Information 63
Board of Directors and Corporate Officers 64
2
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<PAGE>
Selected Consolidated Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
Percent
1998 1997 Change
For the Year
<S> <C> <C> <C>
Revenues $148,986,346 $126,374,352 18 %
Operating cash flow(1) 53,013,798 54,698,708 (3)%
Cash provided by operating activities(2) 42,415,869 47,543,395 (11)%
Income (loss) before income taxes and extraordinary item(3) (4,068,563) 3,407,081 -
Net income (loss)(4) (3,742,759) 2,236,081 -
Diluted income (loss) per share(4) $ (.33) $ .19 -
At Year End
Total assets $197,185,082 $162,430,898 21 %
Long-term debt and subordinated notes 100,619,998 72,891,370 38 %
Shareholders' equity 32,149,886 32,196,173 -
Book value per share $ 2.79 $ 2.89 (3)%
Key Indicators
Total subscribers at year-end 159,300 158,800 -
Subscriber retention rate 80.6 % 88.1 % (9)%
Net development costs(5) $ 6,533,965 $ 5,199,605 26 %
Operating cash flow from core services(6) $ 59,434,670 $ 59,701,141 -
As a Percent of Revenue
Operating cash flow(1) 35.6 % 43.3 %
Cash provided by operating activities(2) 28.5 % 37.6 %
Operating cash flow from core services(6) 40.8 % 48.5 %
Depreciation and amortization 32.8 % 33.5 %
Interest expense 5.7 % 7.2 %
Net income (loss) before income taxes and
extraordinary item (2.7)% 2.7 %
<FN>
1 Operating income before depreciation and amortization expense (EBITDA).
Excluding the $5.8 million non-recurring satellite costs, operating cash flow
would have been $58.8 million in 1998 compared to $54.7 million in 1997, an
increase of 8%. As a percent of revenue, operating cash flow would have been
39.5% and 43.3% for 1998 and 1997, respectively.
2 Excluding the $5.8 million non-recurring satellite costs, cash provided by
operating activities would have been $48.2 million in 1998 compared to $47.5
million in 1997. As a percent of revenue, cash provided by operating
activities would have been 32.4% and 37.6% for 1998 and 1997, respectively.
3 Income (loss) before income taxes, extraordinary item and $5.8 million
non-recurring satellite costs would have been income of $1.7 million in 1998
compared to $3.4 million in 1997.
4 Net income before the $5.8 million non-recurring satellite costs ($3.7
million net of tax) and $1.7 million debt extinguishment charges ($1.1
million net of tax) would have been $1.0 million of $.09 per share in 1998
compared to $2.2 million or $.19 per share in 1997.
5 Net Development Costs are defined as the sum of 1) market research
activities, 2) hardware and software engineering, research and development
and 3) the negative operating cash flow (prior to corporate allocations plus
interest) of new services.
6 Core services are services no longer in the initial development process.
Operating cash flow from core services as a percent of revenue is calculated
on core services revenue. Excluding the $5.8 million non-recurring satellite
costs, operating cash flow from core services would have been $65.2 million
in 1998 compared $59.7 million in 1997. As a percent of revenue, operating
cash flow from core services would have been 44.7% and 48.5% for 1998 and
1997, respectively.
</FN>
</TABLE>
3
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<PAGE>
<TABLE>
<CAPTION>
FIVE YEARS IN REVIEW
- --------------------------------------------------------------------------------
GRAPHS IN TABULAR FORM:
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Revenues
($ millions) 46.1 62.3 98.4 126.4 149.0
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Operating Cash Flow
($ millions) 15.8 23.2 40.4 54.7 53.0
58.8*
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Operating Cash Flow
(percent of revenue) 34% 37% 41% 43.3% 36%
40%*
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Net Development Costs
($ millions) 4.3 3.7 5.3 5.2 6.5
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Subscribers At Year End
(thousands) 82.0 95.9 145.9 158.8 159.3
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Subscriber Retention Rate
(percent) 89.8 91.0 89.3 88.1 80.6
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Annual Revenue
Per Subscriber
($ based on average
subscribers) 591 700 775 830 937
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Annual Operating Cash
Flow Per Subscriber
($ based on average
subscribers) 202 260 318 359 333
370*
*Pro-forma results before $5.8 million non-recurring satellite costs.
</TABLE>
4
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<PAGE>
Letter to Shareholders
Those of you that have been reading my letter to shareholders for the last
several years have become accustomed to me leading off with various financial
highlights, i.e. subscriber numbers, revenue, cash flow, cash flow as a percent
of revenue, etc. Some of these financial highlights are not too stellar for
1998. So, in keeping with my propensity to brag, I am rearranging this writing
vs. previous years and will first discuss some powerful strategic
accomplishments concluded in 1998.
The combination of organic growth and strategic acquisitions has enabled
us to grow the Company's revenues, operating cash flow (EBITDA) (excluding
non-recurring satellite costs) and per share value at compounded rates of 33%,
35% and 26%, respectively, for the past five years. I am proud of, and will take
some credit for, our revenue and cash flow growth. However, I prefer to minimize
reference to influence on price per share changes, as these are subjected to
vagaries of the market place and a myriad of influences beyond my control.
Keeping with our strategy to acquire businesses that fit into our business
model, the following is a summary of our accomplishments for 1998:
Market Information of Colorado, Inc. (MIC) - In February, DTN acquired 100
subscribers receiving real-time commodities and futures information from
MIC for $135,000 cash.
CDS Group, Inc. - In March, DTN acquired CDS Group, Inc. for $250,000
cash. CDS is engaged in the business of marketing software for tracking
bales of cotton for businesses in the cotton industry. This acquisition
compliments our July, 1997 acquisition of The Network, Inc., an electronic
cotton trading network.
SmartServ Online, Inc. In April, DTN acquired the exclusive rights to
market the Internet-based financial services information products of
SmartServ Online and their Internet information distribution technology
for a total of $1,905,000 cash commitment for the first twelve months.
These services include: DTN.IQ, a real-time, tick-by-tick stock quote and
news service, and TradeNet and BrokerNet, real-time trading and account
information products for the brokerage industry. This agreement
transferred the 850 subscribers using SmartServ Online to DTN. All new
subscribers to these services will be DTN customers, and DTN will pay
SmartServ Online, Inc. an ongoing royalty based on revenues.
Through this alliance, DTN received the following:
1) a proven Internet real-time quote and news service providing
convenience and advanced features for the user;
2) the ability to facilitate electronic trading via the Internet, good for
many applications, but more specifically applicable to broker-dealers that
do not possess this technology;
3) access to a talented development team to support and enhance the new
products; and
4) an additional 850 subscribers.
National Datamax, Inc. - In June, DTN completed the acquisition of 100% of
the capital stock outstanding of National Datamax, a software development
and information services firm specializing in integrated systems for the
financial services industry. DTN paid $3.0 million in cash, plus an
earn-out based on revenue growth from the quarter ending December 31,
1997, through the quarter ending September 30, 1999, which is estimated to
be approximately $2.0 million, based on growth projections. Through this
acquisition, DTN acquired the following:
1) advanced software programs for investment professionals with useful
"back office" and client applications;
2) a developed and stable private network (WAN) and Internet site for
delivering information to professional and institutional customers;
3) established vendor relationships providing historical and fundamental
data for mutual funds, variable annuities and equities; and
4) 2,000 customers (investment professionals in the higher level
institutional market).
Kavouras, Inc. - In July, DTN closed the acquisition of 100% of the
capital stock outstanding of Kavouras for a total purchase price of
approximately $22.7 million. Kavouras is engaged in the development,
design, manufacture, marketing and service of meteorological equipment and
provides weather-related services to government, aviation, commercial
broadcast and other industries. Among the products provided by Kavouras
are the Triton Doppler Radar, the most advanced and powerful Doppler radar
5
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<PAGE>
in the world, and the Triton RT, a multiprocessor-based high performance
on-air graphics and animation weather workstation. The Triton RT features
real-time processing of exclusive 4-D Flythrough/Lookdown animation
sequences using a complete array of weather graphic images.
Through this acquisition, DTN accomplished the following:
1) control of a major source of content that will enable DTN to strengthen
its role as a leading provider of timely weather information;
2) the ability to expand its weather services into the middle market;
3) entry into high-end weather markets (commercial broadcasting);
4)vertical integration from the weather source (radar) to the final data
display;
5) exposure to international markets; and
6) an experienced management and R&D team.
Weather Services Corporation - In December, DTN closed the acquisition of
100% of the capital stock outstanding of Weather Services Corporation
(WSC) for $3.8 million cash and a warrant to purchase 20,000 shares of DTN
common stock at $34.00. WSC is one of the largest sources for
meteorological consulting and worldwide commercial weather information.
The strategic acquisition of WSC provides name awareness for DTN Kavouras
Weather Services, a division of DTN, through valuable contracts with high
profile customers including America Online, Inc. (NYSE:AOL), the world's
largest online service, USA Today and numerous utilities, broadcasters,
agribusinesses and municipalities.
Current annualized revenue from the above acquisitions is approximately
$25 million. These acquisitions are strategically significant to DTN and should
make a significant contribution to our growth.
Our strategy also includes the growth of our core businesses; and,
therefore, we made a decision related to our sales force, which we think will
have a positive impact on sales going forward. We de-centralized our sales force
in the third quarter of 1998. Our district sales representatives and sales
management were assigned to a specific division and specialize in the sale of
those services targeted at that industry. We believe this is an evolutionary
process and that the day-to-day management of the sales personnel by product
management will have a positive impact on the sales of our core services.
In addition to our plans for organic growth and strategic acquisitions, we
are focusing on our Internet technology and services (www.dtn.com). The company
had 4,700 Internet subscribers at the end of fiscal 1998.
The agricultural division, DTN's largest industry niche, has grown its
Internet subscribers (www.agdayta.com) from approximately 1,100 at the end of
1997 to 2,700 at the end of 1998.
DTN's Internet real-time financial service, DTN.IQ (www.dtniq.com),
released in June 1998, had 1,800 subscribers at the end of fiscal 1998. In
January 1999, DTN announced plans to merge SmartServ Online, Inc. (SSOL) into
DTN. SSOL is the company that licensed its Internet technology to DTN to provide
the DTN.IQ service. This transaction will expand DTN's presence in the Internet
and wireless communications arena with services for equity and bond trading
transactions on the Internet.
DTN Financial Services will continue to focus on developing strategic
online brokerage alliances to provide quotes, news, charts and other services to
the brokers' customers such as the agreement announced in October of 1998 with
Atlantic Financial (www.atlanticfinancial.com) and Wang Investment Associates
(www.Wangvest.com), in January of 1999. The company will aggressively target
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broker-dealers and their representatives with the National Datamax services
acquired in 1998.
In December of 1998, DTN and GlobalView Software, Inc. (GVSI) announced
the release of a new Internet service for the energy industry
(www.energyview.com). The service provides Internet users with real-time and
historical energy market information including quotes, news and weather.
DTN continues to develop new technologies for the distribution of its
information and communication services. The company has developed satellite
technology to provide our information products using DIRECTV's eighteen-inch
dish. DIRECTV, including its recent acquisition of PrimeStar, has approximately
7 million subscribers. We have just begun to market our first information
service via this delivery. Most of our information services will be offered on
this platform by May of 1999. To help facilitate implementation of our
strategies, DTN secured a $122.9 million revolving credit line from our bank
group which was closed in January of 1999. The company is also working with
cable TV providers to offer other information services.
That's about it for the bragging, now comes the grueling reality of the
numbers. Bear in mind as you read our 1998 operating results that we had three
major adverse and unusual circumstances to deal with in 1998. During 1998 the
agricultural community saw some very tough times. The satellite delivering our
services went out of control creating the need for us to assist our customers
with the realignment of tens of thousands of satellite dishes; and, by
shareholder direction, the company was pursuing the sale or merger of the
Company.
The following is a brief summary of our operating results for fiscal 1998
compared to fiscal 1997 followed by a discussion of the impact of the above
mentioned adverse and unusual circumstances effecting 1998.
o Total subscribers were 159,300 at the end of 1998 compared to 158,800
for 1997.
o Total revenues for 1998 grew 18% to $148,986,346 compared to
$126,374,352 for 1997.
o Operating cash flow (EBITDA) for 1998 decreased 3% to $53,013,798
compared to $54,698,708 for 1997.
o The net loss for 1998 was $3,742,759 or $.33 per diluted share compared
to net income of $2,236,081 or $.19 per diluted share for 1997.
o Operating cash flow (EBITDA) for 1998 as a percentage of revenue was
35.6% compared to 43.3% for 1997.
o Subscription revenue for all subscribers on a per subscriber per month
basis for 1998 was $62.63 compared to $55.10 for 1997.
o Subscription revenue for all new subscription sales on a per subscriber
per month basis for 1998 was $77 compared to $68 for 1997.
o Operating revenue, consisting of subscriptions, additional services,
communications and advertising for 1998 increased 11% to $73.80 per
subscriber per month compared to $66.29 for 1997.
A couple of material non-recurring events occurred in 1998 that affected
our results. First, we retired our $15,000,000 11.25% Senior Subordinated Notes
Due 2004. This retirement included a one-time charge, net of tax, of $1,076,880
in the first quarter of 1998. The one-time charge consisted of a pre-payment fee
of $1,125,000 plus unamortized debt issuance and discount costs, less a tax
benefit of $606,000. The present value of this decision based on our analysis
was a benefit of $940,000.
Second, DTN released information to investors and our customers that
PanAmSat lost control of the Galaxy IV satellite on May 19, 1998. The Company
switched DTN FarmDayta subscribers to the Galaxy 3R satellite and all other DTN
subscribers to the Telestar 5 satellite. The Company's costs related to the
failure of Galaxy IV include telecommunications, labor, satellite costs and
customer communications. These unusual non-recurring costs, on a pre-tax basis,
were estimated to be $5.8 million ($3.7 million after tax) and were recorded in
May, impacting the second quarter 1998 results. In addition to the above
identified non-recurring costs, our entire sales force spent the better part of
eight weeks (mid May to early July) assisting customers with the realignment of
their satellite dish. Needless to say, this event had a significant one-time
affect on our 1998 operating results.
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For comparative purposes, if we exclude these two non-recurring items from
operating cash flow (EBITDA) and net income we get the following results:
o Operating cash flow for 1998 would have increased 8% to $58,813,798
compared to $54,698,708 for 1997.
o Net Income for 1998 would have been $1,046,121 or $.09 per diluted share
compared to $2,236,081 or $.19 per diluted share for 1997.
Due to our acquisition and development activities, a further analysis of
our results is necessary. DTN's July 1st acquisition of Kavouras, Inc., in
Minneapolis, added a new market niche for the Company, the manufacture and sale
of various meteorological equipment and radar systems. The Kavouras acquisition
added $4.8 million of meteorological equipment and radar sales for the second
half of 1998. Total Kavouras revenues for fiscal 1998 were $9.2 million on a
consolidated basis.
Kavouras equipment sales have lower EBITDA margins than subscription
sales, and will tend to lower the Company's total operating cash flow margin. A
further analysis shows that excluding Kavouras operating results and the
non-recurring satellite costs, operating cash flow margin for 1998 was 41.5%
compared with 43.3% for 1997.
During the second half of 1998, the Company expanded activities related to
the development of new services. Net Development Costs are defined as:
1) market research activities;
2) the expenses of hardware and software engineering, research and
development; and
3) the negative operating cash flow (prior to corporate allocations plus
interest) of new services, for the fiscal year of 1998 increased to $6.5
million compared to $5.2 million for the fiscal year of 1997. The Kavouras
operations contributed $1.3 million to net development costs for fiscal
1998.
Operating cash flow margin from core services (core services are services
no longer in the initial development process) for the fiscal year of 1998 was
40.8%. This margin, excluding Kavouras operating results and the non-recurring
satellite costs, for the fiscal year 1998 was 47.2% compared to 48.5% for the
same period of 1997.
The decrease in operating income is primarily related to the $5.8
non-recurring satellite costs and lower operating income from acquired
operations due to lower operating cash flow margins and increased amortization
expense related to these acquisitions. Amortization expense related to
acquisitions for the second half of 1998 was $5.3 million compared to $3.1
million for the second half of 1997. Amortization expense related to
acquisitions was $8.4 million in 1998 compared to $5.9 million for 1997.
The above concludes my summary (with a lot of help from Brian Larson, our
able CFO) of our 1998 operating results. In signing off, I would like for you to
reflect on my boastful part of this communique while reading the following quote
from Samuel Rayburn, "Readiness for opportunity makes for success. Opportunity
often comes by accident; readiness never does."
As always, many thanks to our customers, shareholders, financiers and
suppliers for their support. And a special thanks to all of our employees and
their families for an extraordinary effort in 1998.
Very sincerely yours,
Roger Brodersen
Chairman and CEO
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Information Technology Update
Our Philosophy
Since the inception of DTN, our philosophy has always been to utilize any
technology that allows delivery of services in an affordable, reliable, easy to
use method. Coupled with this philosophy is our strategy (and I now quote Robert
Herman, my predecessor) to adopt "leading edge technology but avoid the bleeding
edge." Millions of dollars are spent trying to develop "bleeding edge"
technology while "leading edge" normally offers an advantage that is within
sight. This being said, you may have guessed that the Internet will be one of my
next topics for discussion. Prior to this, I would like to share a quick
overview of the technologies that we currently employ.
Where we are
While a more detailed description of our distribution technology is
contained in the next section, the following is a quick summary of our current
technology and a hint of where we are headed in the future.
Pre-1998
Prior to 1998, DTN developed and implemented the following distribution
technologies for its services. As you can see from the list, DTN has progressed
from 100% DTN proprietary hardware to new solutions including 100% client owned
hardware. This is a result of the increasing capabilities of PC's.
o FM Side Band into a Monochrome System
o C-Band Satellite
o Ku-Band Satellite into a Monochrome System
o Ku-Band Satellite into a Color Ace Receiver System
o VBI (Cable TV) into a Monochrome or Color System o Ku-Band Satellite
into a D8000 Receiver System connected to the customer's PC
o Fax
o E-mail/"Mailbox"
o Internet (browser based and "thin client" based)
1998
In 1998 we continued to use all the distribution technologies discussed
above while expanding and improving many of them. We also began delivering some
of our information content on leased lines into major metropolitan areas. Leased
lines provide delivery of information where a satellite dish is not practical or
where the customer prefers a redundant path to a stand-alone service or one that
serves the customer's PC network. In addition, our Energy division began
transmitting data over the Atlantic Ocean to London, England, our first
non-North American City to receive a direct data feed.
The acquisition of Kavouras, Inc. in July 1998 was an exciting addition to
our ever-increasing array of content. Most Kavouras weather customers are served
by C-Band technology. C-Band is recognized as a large dish apparatus
(approximately 8 feet in diameter). At the end of 1998, DTN Kavouras began
delivering some of their data via Ku-Band technology, which provides a much
smaller dish and a more user-friendly installation. This allows for a
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substantially lower price entry point into the market for high-end weather
services provided by Kavouras.
Where we're going
In addition to improving and expanding our current technologies, 1999 will
mark the year for two large additional steps in distribution technology. First,
we will officially roll out several of our products on DIRECTV's direct
broadcast satellite 18" dish technology. The 18" dish will be connected to a
special card installed inside the subscribers' PC. DTN will provide a new
software package, DTN for Windows, allowing customers to access data. Along with
DTN for Windows, the same 18" dish can feed set top boxes for viewing DIRECTV's
television products. As many of you know, DIRECTV is the largest provider of
direct broadcast services and with their recent acquisition of PrimeStar, they
will clearly dominate the direct broadcast satellite field with approximately
seven million current subscribers. The combination of DIRECTV's television
products and DTN's data services will render a reliable, high speed,
user-friendly, PC-driven product.
The second major technological step for DTN in 1999 is the Internet. The
company is placing significant emphasis on the improvement and development of
current and future Internet services. Read on for more discussion regarding DTN
and the Internet.
The Internet or Bust?
1998 was a banner year for the Internet. Not only did Internet stocks gain
huge momentum, it is clear that the Internet is being adopted for many
applications. As it relates to DTN, two of our divisions provide information
that is highly sought after by folks gravitating to the Internet, financial data
and weather. The introduction of DTN.IQ (which is our Internet-based financial
services product) has been well received by the market and is the fastest
selling product ever released by our Financial Services division. DTN.IQ
represents the beginning of an ongoing process for developing content and
functionality on the Internet for delivering all sorts of financial-related data
to the varying segments of an ever-growing industry.
Even more sought after than financial services information, recent
independent surveys have shown that weather is one of the top draws to the
Internet. Historically, our weather services have been subscription-based. In
1999, we will concentrate on finding the appropriate business model for
weather-based information on the Internet. Our acquisition of Weather Services
Corporation (WSC) in December of 1998 was just the beginning of this process.
With the acquisition of WSC, we "acquired" a business relationship with some
significant Internet and non-DTN traditional businesses, specifically, AOL,
Lycos, USA Today, Metro Networks, Inc., and others.
Our plan is to continue the development and allocation of resources for
creating exciting weather products for the Internet.
While we are not ready to sell bumper stickers which read "INTERNET OR
BUST", we will focus our energy on finding appropriate business models to offer
our vast array of comprehensive, time-sensitive data on the Internet.
Sincerely,
Scott Fleck
Vice President
Director of Engineering
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Business Review
Data Transmission Network Corporation (DTN) began operations in April 1984
and continues to provide comprehensive, time-sensitive information and
communication services for a variety of industries via all relevant distribution
technologies. DTN had over 159,000 subscribers throughout the U.S. and Canada at
the end of 1998 with the majority receiving agricultural, weather, financial and
energy related services. A review of these industries and services with the
year's highlights are discussed in this report.
The Company's subscription services are targeted at niche business markets
and designed to be timely, simple to use, and convenient. The Company's
distribution technology provides an efficient means of sending data and
information from point to multi-point. The development and enhancement of
cost-effective distribution methods such as electronic satellite delivery and
the Internet, plus a total commitment to customer service and information
quality has enabled the Company to become a major player in the communications
industry.
The Company continues to take advantage of many engineering and software
advancements available for developing and improving distribution in an exciting
and growing industry.
Information Distribution Technology
The Company is committed to researching and developing distribution
technologies to cost-effectively deliver the timely information that the
Company's subscribers demand. DTN supports several information distribution
technologies allowing the distribution, reception and display of information.
These technologies include small dish Ku-band satellite (Ku), the Internet, FM
radio side-band channels (FM), Fax, the vertical blanking interval within a
television signal sent via Cable TV (VBI), e-mail, leased lines and DIRECTV.
The first technology used by the Company was FM radio side-band. The Ku
technology was added in 1989, providing the ability to reach customers outside
the geographic territory of the signal of the FM stations. Fax, VBI, e-mail,
Internet, leased lines and DIRECTV have since been added to further expand the
distribution network.
The Company provides the equipment necessary for subscribers to receive
certain services using FM, Ku or VBI technologies. This equipment includes a DTN
receiver, a video monitor, FM antenna or a small 30" Ku-band satellite dish. A
keyboard, mouse and printer may be provided depending on the service. DTN is
responsible for the normal maintenance and repair of subscriber equipment.
Prior to 1992, the Company utilized a "page-based" receiver and monochrome
display system. The monochrome system translates the Company's data stream into
text and is capable of receiving and displaying up to 246 different pages of
information. The monochrome receiver can also download information to a printer
or computer.
In 1992, the Company introduced the Advanced Communications Engine (ACE)
receiver, a color graphics receiver system, expanding the Company's ability to
provide information and communication services. The ACE receiver contains
multiple processors. One is dedicated to data communications and storage. The
second processor is for manipulating data, interacting with the user and
displaying high-resolution color pictures, graphics and text. A third processor
enables the unit to play audio clips for weather forecasts, voice advertisements
or audio alarms set for when a futures contract or stock price reaches a pre-set
price. In addition, this processor can send and retrieve information by using an
internal modem connected to a phone line. Additional processors may be present,
as necessary, based on the method of information distribution technology used,
such as satellite, VBI, etc.
The ACE receiver can also download information to a printer or computer.
This receiver is equipped with an internal hard drive allowing processed
information to be stored, archived and displayed. The receiver's built-in
control panel, keyboard or mouse allows subscribers to conveniently view this
information.
One of the unique aspects of the Company's information distribution
technology is the computer software developed by the Company for use with the
broadcast system that feeds data to the ACE receivers. This software manages
information from a wide array of input sources, runs routines, sets priorities
and then initiates transmission to the satellite. The software provides the
capability to individually address each receiver unit placed with a subscriber.
This permits the Company to transmit specific information to a specific
subscriber or group of subscribers.
The Company leases FM radio side-band channels, satellite channels and VBI
space to deliver the information to receivers used by the Company's subscribers.
All information is up-linked from Omaha to satellite (except Internet, Fax and
other telephone delivery technology) and downlinked from the satellite to
subscribers based on their distribution technology.
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FM monochrome subscribers receive their information using FM antennas that
receive the information via side-band signals transmitted from radio stations.
The Ku subscribers utilize a 30" satellite dish, a direct downlink, to receive
their information.
Early in 1994, the Company began using a new cable TV distribution
technology involving vertical blanking intervals (VBI). The Company has
contracted with a major cable TV superstation to transmit information along with
the station's TV signal. This technology eliminates the need for FM antennas or
satellite dishes and is available to businesses or residences that are wired for
cable TV and receive the superstation's service.
The Company has introduced several Internet products since 1995. DTN
currently offers services via the Internet for the agricultural, weather,
financial and energy industries and plans to expand the services offered using
this information distribution technology. A major milestone for DTN's Internet
services was the leasing of Internet technology from SmartServ Online, Inc. for
the real-time streaming quote service offered by the Company's Financial
Services Division (www.dtniq.com)(see page 33).
In 1998, the Company began delivering services to customers via direct
leased line circuits. This gives customers in major metropolitan areas the
ability to receive the Company's information where options, such as satellite
dishes, are impractical. In many instances, this technology provides a redundant
delivery method to insure maximum availability of the Company's information.
At the end of 1998, DTN Marine Center, a specialty weather service, began
delivering its information via DIRECTV's satellite system. Information is
received directly into the subscriber's computer from an 18-inch DIRECTV dish.
This initial product rollout is expected to be the first of many using the
newest information distribution technology. The new product launch also marks
the introduction of DTN for Windows, a software product for the PC using a
satellite dish which is capable of operating without an ACE receiver or other
external hardware devices.
The following is a summary of subscribers by information distribution
technology at December 31, 1998.
<TABLE>
<CAPTION>
Information Distribution Technologies Subscribers
<S> <C>
Ku-Band Satellite 144,800
Internet 4,700
FM Radio Side-band 8,400
VBI 1,300
Lease Lines/DIRECTV 100
TOTAL 159,300
</TABLE>
The Company has approximately 15,000 customers receiving information using
Fax technology. The e-mail business is primarily a subscriber (an e-mail source)
communicating specific messages to a group of subscribers. There are over 1,200
e-mail sources delivering over 3,500 pages of information to subscribers daily.
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Services and Equipment Offered
The Company's revenue is derived primarily from six categories: (1)
monthly, quarterly or annual subscriptions, (2) equipment sales (3) additional
(optional) services, (4) communication services, (5) advertising and (6) service
initiation fees. The percentage of total revenue for each category over the last
three fiscal years was:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Subscriptions 80 % 80 % 76 %
Equipment Sales 3 % - -
Optional Services 5 % 5 % 6 %
Communication Services 7 % 8 % 9 %
Advertising 3 % 3 % 3 %
Service initiation fees 2 % 4 % 6 %
</TABLE>
Subscription revenue is generated from monthly, quarterly or annual
subscription fees for one of the Company's services. The Company offers a
discount to subscribers who pre-pay their subscriptions annually. A more
detailed review of each service is found later in this report.
A new business unit of the Company, DTN Kavouras Weather Services,
generates equipment sales of weather systems, workstations and weather radar
systems. DTN Kavouras Weather Services' weather systems and workstations allow
customers to receive weather information provided by the Company for monthly
subscriptions. This business unit also builds small and large doppler radar
systems.
Optional services are offered to subscribers on an "a la carte" basis,
similar to premium channels on cable TV. A third party primarily provides
information for these services with DTN receiving a share of the subscription
revenue paid by the subscriber. Optional services revenue continues to grow in
total dollars at a rate commensurate with the overall growth of the Company due,
in part, to new technological innovations using the Internet.
The Company sells communication services allowing companies to
cost-effectively communicate a large amount of timely information to their
customers or field offices. This category includes revenue generated from FAX
and e-mail services. Communications revenue continued to grow in total dollars
and management believes this area offers opportunities for future growth.
The Company sells advertising interspersed among the pages of news and
information, similar to a newspaper or magazine. The advantage of an electronic
advertisement over typical print media is the ability to change or replace the
advertising message quickly and as frequently as market conditions dictate.
Advertising revenue maintained the same percentage of total revenue due to
subscriber and subscription revenue growth as well as the addition of new
services with available advertising space.
Service initiation fees are one-time charges for new subscriptions
depending on the service and the information distribution technology. DTN also
charges an initiation fee for those subscribers who convert to another service
(i.e. from a monochrome FM to a Ku color service).
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<TABLE>
<CAPTION>
INDUSTRY SERVED AT A GLANCE
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRY/SERVICE TRANSMISSION/RECEIVER PRICE
- -------------------------------------------------------------------------------- -------------------------------------- -----
<S> <C> <C>
Industry/Service
The Agricultural Industry www.dtn.com/ag/
DTN AgDaily(R)/ DTN FarmDayta(R) provides agricultural market information, FM-Side Band/Page Based Monochrome $31
delayed commodity futures and options quotes, local cash grain and livestock Ku-Band Satellite/Page Based Monochrome $37
prices, regional and world weather updates and a variety of daily analysis, Ku-Band Satellite/ACE Color System $46-$54
commentary and news affecting grain and livestock prices.
DTN AgDayta (www.agdayta.com) provides an Internet solution combining the best Internet/Subscribers' PC $25
of DTN AgDaily and DTN FarmDayta for up-to-date agricultural weather, markets,
news and commentary, quotes, local cash grain and livestock prices.
DTN Pro SeriesSM/ DTN FarmDayta Elite Plus(R) provides services with advanced Ku-Band Satellite/Ace Color System $60-$84
information sources for ag producers, agribusinesses and commodity traders
requiring extensive information to be customized for their specific needs.
DTNstant(R) provides real-time futures and options quotes, comprehensive Ku-Band Satellite/Ace Color System $180 (2)
analytics and headline commodity news from Bridge and Future World News. This
service also includes all the information found on DTN AgDaily.
DTNironSM provides an equipment locator and inventory management service for the Ku-Band Satellite/Ace Color System $102
farm implement dealer. It is designed to allow dealers to work together in
locating, buying and selling used farm equipment with other dealers/subscribers.
DTN PROduce(R) provides comprehensive weather, DTN's price discovery network Ku-Band Satellite/Ace Color System $65-$94
(DTNdexSM), transportation information and news for the growers, shippers, Internet/Subscribers' PC $63
packers, brokers, retailers and institutions linked to the produce industry.
DTN Cotton Network provides an electronic marketing system for the cotton Ku-Band Satellite/
industry. The service allows gins, brokers, buyers, and warehouses to share data Ace Color System $.50/bale listing
allowing fast and accurate marketing and accounting of cotton offered and sold.
The Weather Industry www.dtnweather.com
DTN Weather Services
DTN Weather Center(R)/DTN Online
(www.dtn.com/dtnonline/security/loginscreen.cfm) provides a comprehensive Ku-Band Satellite/ACE Color System $76
weather information system to meet the weather information needs of many Internet/Subscribers' PC $25
industries. Subscribers to DTN Weather Center rely on accurate and easily
accessible weather information as a critical ingredient in operating, operations
planning, and staffing decisions.
DTN Aviation CenterSM provides comprehensive aviation weather specifically for Ku-Band Satellite/ACE Color System $118-$152
pilots, airports and Fixed Base Operators (FBO's). This service supplies Internet/Subscribers' PC $45
airports, pilots and FBO's with comprehensive flight planning and operations.
DTN Broadcast Weather provides comprehensive local, regional and national Ku-Band Satellite/ACE Color System $101
weather forecasts plus national and international news for the broadcast
industry. The Weather Industry-continued
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INDUSTRY/SERVICE TRANSMISSION/RECEIVER PRICE
- -------------------------------------------------------------------------------- -------------------------------------- -----
<S> <C> <C>
The Weather Industry-continued
DTN Contractor DaytaSM provides construction businesses with industry and Ku-Band Satellite to ACE Color System $86-$99
association news, construction and bid specifications along with all the weather Internet/Subscribers' PC $35
information affecting the construction company.
DTN Forestry CenterSM provides specialty weather services targeted at the Ku-Band Satellite to ACE Color System $91
District Forest Management offices in the continental United States and Canada.
DTN Marine CenterSM provides specialty weather information for the marine Ku-Band Satellite to ACE Color System $91-$106
industries, including coastal sea condition forecasts, marine buoy data for wind DIRECTV $91-$106
and weather, temperature conditions and sea surface temperature maps.
DTN Transportation Weather provides time-sensitive and often critical, local, Ku-Band Satellite to ACE Color System $86-$98
regional and national weather forecasts for transportation professionals.
Subscribers have a choice of receiving immediate notification through a pager or
via DTNonline, DTN Weather Center's Internet service.
DTN Travel CenterSM provides weather, news, markets and sports information to Ku-Band Satellite to ACE Color System $88
motel and hotel customers. This service is targeted at motels and hotels with
50+ rooms and includes road condition forecasts and special notices for
travelers.
DTN Turf ManagerSM provides weather information to individuals and businesses Ku-Band Satellite to ACE Color System $82
involved in turf-related operations such as outdoor sports facilities, golf
courses, lawn maintenance, landscaping and sod farms. The service provides news,
weather and specialty information designed for turf management.
DTN Weather Safety Center provides valuable weather information, warnings and Ku-Band Satellite to ACE Color System $86-$98
alerts to emergency management professionals and anyone who is responsible for
protecting lives and property from the hazards of severe weather. This service
couples with the DTN Weather Alert Paging System to provide immediate
notification of severe weather to alpha pagers.
DTN Kavouras Weather Services--Meteorological Equipment TritonTM Doppler Radar Customizable - (3)
Series is a complete line of advanced, fully coherent Klystron or TWT-based
Doppler weather radars, representing the most powerful, the most accurate, the
most versatile and the most cost-effective Doppler radar performance in the
world. Users include broadcast television, aviation, universities, government
and military.
TritonTM RT is a real-time 3-D and 2-D weather and news graphics animation Customizable - (3)
system focused on, but not limited to, the broadcast television market. This
product uses weather data to create an informative and exciting weather show.
MetWorkTM FileServer is a robust and dynamic network solution for real-time Customizable - (3)
dissemination of meteorological information based on the versatile and efficient
NT format, supporting standard Internet communications protocol and various
network configurations.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INDUSTRY/SERVICE TRANSMISSION/RECEIVER PRICE
- -------------------------------------------------------------------------------- -------------------------------------- -----
The Weather Industry-continued www.dtnweather.com
DTN Kavouras Weather Services--Meteorological Services
<S> <C> <C>
Storm ProTM is a workstation that integrates real-time Doppler weather radar Customizable - (3)
with a geographic information data system to create an accurate display with
broadcast-quality appearance. The display can be individualized for a unique and
defining look important in the television market.
StormSentryTM is around-the-clock storm tracking software that identifies Customizable - (3)
dangerous weather cells, analyzes their characteristics, their locations, their
speeds, their directions, their estimated times of arrival...all automatically.
StormWatch(R) is customizable software that monitors either a weather wire or a Customizable - (3)
DTN Kavouras MetWork Fileserver to generate color-coded maps and/or a crawl
message for important watch, warning or advisory weather situations. StormWatch
also allows a television station to edit and prioritize information for their
viewing areas.
SchoolWatchTM is customizable software for the Triton RT that helps television Customizable - (3)
stations easily update, prioritize and display late-start and school closing
information. This software can also be configured to update information on a
station's Web site.
Data and Customizable Forecasting Services provides a broad range of standard Customizable - (3)
data for a wide variety of markets. In addition, DTN Kavouras staff provides
24-hour, 365 days a year coverage for tailor-made forecasts to meet customers'
special needs.
The Financial Services Industry www.dtn.com/finserv/
DTN.IQ (www.dtniq.com) provides cutting-edge Internet technology for Internet to Subscribers' PC $89(2)
tick-by-tick quotes, full-text news, intraday and historical charts, price
watches and alerts and more with a cost-effective and efficient delivery method
for individual and professional investors.
DTN Real-Time(R) provides real-time quotes on over 225,000 stocks, stock Ku-Band Satellite or cable
options, commodities, and indexes, plus news, economic data, and financial to Subscribers' PC $98-$118(2)
markets information. This service delivers the information via a new generation
of DTN proprietary hardware into a subscriber's PC where it is captured and
displayed through the use of DTN customer software or third-party software.
DTN SPECTRUM(R) provides delayed quotes, business news, economic data and Ku-Band Satellite to ACE Color System $68
financial market information. This service is an enhanced version of DTN Wall
Street that includes custom programming.
DTN SPECTRUM(R)RT provides the same information as DTN SPECTRUM with futures Ku-Band Satellite to ACE Color System $118(2)
provided in real-time. Cable TV-VBI to ACE Color System $118(2)
DTN Wall Street(R) provides delayed financial quotes plus in-depth economic and Ku-Band Satellite to Page Based Monochrome $44
business news, financial information. The Financial Services Industry-continued Cable TV-VBI to Page Based Monochrome $44
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INDUSTRY/SERVICE TRANSMISSION/RECEIVER PRICE
- -------------------------------------------------------------------------------- -------------------------------------- -----
<S> <C> <C>
DTN FirstRate(R) provides wholesale mortgage rates and U.S. Ku-Band Satellite to Page Based Monochrome $98
Agency/Mortgaged-Backed Securities prices in an easy-to-use standard format. Cable TV-VBI to Page Based Monochrome $98
Ku-Band Satellite to ACE Color System $129
Cable TV-VBI to ACE Color System $129
DTN FirstRate+(R) provides the same information as DTN FirstRate with U.S. Cable TV-VBI to ACE Color System $179(4)
Treasury futures, all other futures and futures options provided in real-time.
National Datamax provides software and data services to financial planners and
independent brokers for a comprehensive financial picture pinpointing the best
investment options for their customers.
The Energy Industry www.dtnergy.com
DTNergy(R) - Refined Fuels provides terminal prices, alerts, electronic fund Ku-Band Satellite to Page Based Monochrome $40
transfer notifications and other communication services from Petroleum Refiners Ku-Band Satellite to ACE Color System $80
to their customers (also DTN Subscribers).
DTNergy(R) - Natural Gas and Electricity provides instant or delayed NYMEX Ku-Band Satellite to ACE Color System $40-$180
energy options and futures quotes, weather, news and industry information.
Prophet X (www.fimi.com) provides access to DTNenergy's real-time market data Internet to Subscribers' PC $218
using Financial Information Management Inc.'s (FIMI) client-service software on
the Internet.
EnergyView (www.energyview.com) provides real-time data for the international Internet to Subscribers
energy markets on the Internet. This service was the result of a joint venture
with DTN and GlobalView Software.
Other Services & Joint Ventures www.dtn.com/auto/
DTNautoSM provides a communication and information service for the automobile Ku-Band Satellite/ACE Color System $84-$169
industry including wholesale and retail values on new and used vehicles, a used
car inventory locating service and direct communication services for
manufacturers and automobile auctions.
DAT Services provides an information communication system for the trucking Ku-Band Satellite/ACE Color Sytem $90(4)
industry that provides load and truck matching on a database of 80,000 listings
updated daily.
TracElectric provides an equipment locator service for the electric equipment Ku-Band Satellite/Page Based Monochrome $100(5)
industry with over 100 pages of new, remanufactured, surplus and used electrical
equipment listings.
DTN Missing Children Information CenterSM provides instant transmission of data Ku-Band Satellite/ACE Color System -(6)(7)
regarding children in danger to local, regional, national and Canadian outlets.
<FN>
1 Prices are based on a monthly subscription price. DTN offers discounts for
annual prepayments. Prices are subject to change.
2 Plus Exchange Fees.
3 Customized configurations to meet a wide variety of customer needs are
offered at competitive prices.
4 DTN receives this fee from DAT Services.
5 DTN shares revenues with TracElectric.
6 Currently provided on all ACE Color Systems.
7 Sponsorships of kiosk programs are offered at $7,500 for two years per kiosk.
</FN>
</TABLE>
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<PAGE>
THE AGRICULTURAL INDUSTRY
- -------------------------------------------------------------------------------
GRAPH IN TABULAR FORM:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DTN Agricultural Services Revenue
($ millions) 33.7 44 69.7 87.6 88.3
</TABLE>
DTN Agricultural Services
The DTN Agricultural Division consists of five major services: DTN
AgServices, DTNstant, DTN PROduce, DTNiron, and DTN Cotton Network.
New subscriptions are primarily sold by the Agricultural Division's own
dedicated sales force. These individual sales professionals began working under
the direct control of the Ag Division in August 1998. The ag sales force is made
up of district sales representatives, in-house sales staff, and independent,
commission-only sales representatives. By dissolving the former national sales
group into a smaller, more focused staff, the division is able to provide more
knowledgeable and service oriented sales professionals for current and
prospective customers. DTN AgServices, DTNstant and DTNiron each have their own
individual group of sales professionals, selling their basic products. For these
three services, the prospective customer base is essentially the same, and these
sales professionals are encouraged to sell any of the products associated with
Ag when the opportunity presents itself. DTN PROduce deals with a different
prospect than the normal livestock and grain farmer, and therefore DTN PROduce
sales professionals sell primarily to produce oriented prospects. The Ag
Division provides its sales force with leads that are obtained through
telemarketing, direct mail, print media advertising, customer referrals, and
Internet advertising.
The main competition to these services is the combination of printed
advisory services, radio, television, telephone, other satellite information
services, Internet services, and the changing of old information-gathering
habits.
There are over 200 premium (optional) services available to agricultural
subscribers to enhance the primary product subscriptions. These premium services
consist of advisory, informational and educational products as well as newswire,
association and additional free services. DTN subscribers can customize their
DTN unit to meet specific needs by choosing from a broad mix of these "a la
carte" services. DTN is continually developing new premium services to meet
customer demands by listening closely to the marketplace and to the customer.
Premium services are marketed through a combination of individual free trials,
system-wide trials, on-screen advertising, direct mail, invoice stuffers,
equipment stuffers, and telemarketing. Premium Services' prices range from $6 to
$1,200 per quarter. The average subscription price is $60 per quarter. Effective
marketing campaigns helped to increase premium service sales in 1998.
Communication services (DTN InfoMail) plays an important role in providing
a cost effective means to reach a large number of targeted customers daily. At
the touch of a button, subscribers have instant access to messages 24 hours a
day. DTN InfoMail customers receive information tailored to their specific
needs. The service provides information for elevators, seed sales reps,
agronomists, chemical sales reps and technical advisors, commodity brokers,
processing plants, feedlots and anyone with a need to communicate to DTN
subscribers. Over 75 new InfoMail providers began messaging in 1998.
Advertising on DTN Ag Services plays a major role in the division's
revenue. The Advanced Communication Engine (ACE) satellite receiver, with its
animation and inter-active ability, provides an excellent avenue for advertising
sales. With the development of the ag Internet service, (www.agdayta.com),
advertising will have a new avenue in which to grow. In 1998, the Ag Division
sold over $3.2 million in advertising space to numerous ag industries, ag
chemical and seed companies, and equipment and finance businesses.
DTN Ag Services Review
Approximately 80% of DTN Ag Services' subscribers are farmers or livestock
producers with the balance consisting primarily of grain elevators,
agribusinesses and financial institutions. Subscribers to DTN Ag Services farm
nearly one third of the nations total cropland and market more that 50% of the
nation's cattle and hogs.
FarmDayta was the primary competition for DTN AgDaily until May 1996 when
DTN acquired Broadcast Partners. The addition of FarmDayta gives DTN AgServices
a fully integrated agricultural product line with price entry points across a
wide spectrum, expanding the marketing horizons for all DTN agricultural
services. DTN maintains the DTN FarmDayta facilities in Des Moines, Iowa.
DTN AgDaily
DTN AgDaily is an agricultural market information, quote and weather
service. Subscribers receive delayed commodity futures and options quotes, local
cash grain and livestock prices, selected regional and world weather updates,
and a variety of daily analysis, commentary and news that affect grain and
livestock prices. DTN AgDaily color graphics allows for an advanced weather
segment with national and regional radar maps (updated every 15 minutes),
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infrared satellite cloud cover maps, precipitation, temperature, jet stream,
surface wind and snow cover maps, and much more. The subscriber can custom
design high resolution charts and/or select from a library that holds over 1,000
charts. The system is capable of custom programming the futures quotes pages to
display only the quotes desired. The service also includes information segments
for specific crop and livestock enterprises as well as general, business, sport
and entertainment news. AgDaily offers crop liability insurance and livestock
profitability calculators through use of the inter-activity feature, which
allows subscribers to search a comprehensive database.
DTN Pro Series
The DTN Pro/Premier services feature a more advanced AgDaily product. The
Pro Series enhanced functionality includes a high interest window to view future
or options quotes on any page as well as keyword search that automatically
searches the news story database for articles affecting the user's operation. It
also allows subscribers to customize a segment with up to five of the user's
favorite pages, and a personal library serving as a customized archive segment.
There are seven DTN Pro products, all of which include the complete AgDaily
service plus additional specific information: Weather Pro, News Pro, Chart Pro,
Intraday Pro, Stock Pro, Premier and Premier Plus.
o DTN Weather Pro provides 32 programmable pages for creating unique weather
information. It allows subscribers to choose from over 70 weather maps
including detailed regional, state and zone forecasts, and lets them zoom
in on a particular spot on the map. These maps can also be put into motion.
o DTN News Pro provides the AP Online service (a service of the Associated
Press), an audio summary of the day's agricultural news as well as the
general news of the day.
o DTN Chart Pro includes 40 pages for programmable charts which allow
subscribers to create an extensive "chart book" for analyzing trends,
patterns, and cycles.
o DTN Intraday Pro offers the ability to chart market sessions
minute-by-minute during the trading day. This allows subscribers to choose
time intervals for charting to keep them abreast of the markets.
o DTN Stock Pro provides access to prices for over 50,000 issues of stocks,
bonds and funds. The service includes stock quotes using either the quick
quote feature or the programmable quotes pages. Additional features include
a personal library for storing news and information and high interest
windows allowing subscribers to constantly monitor up to six futures,
options, stock or bond quotes.
o DTN Premier combines Weather Pro, News Pro, Chart Pro and Intraday Pro into
a comprehensive ag marketing and information package.
o DTN Premier Plus includes all Pro products (Weather Pro, News Pro, Chart
Pro, Intraday Pro, and Stock Pro) into one complete package for farmers,
ranchers or agribusinesses needing all the market information available in
one convenient location.
DTN FarmDayta
DTN FarmDayta II is an agricultural market information, quote and weather
service delivering delayed commodity futures and options quotes, local cash
grain and livestock prices, selected regional and world weather updates, and a
variety of daily analysis, commentary and news that affects grain and livestock
prices.
o DTNFarmDayta Elite HD includes all the DTN FarmDayta II features, plus
options quotes, charting, weather maps and a receiver with a hard drive,
which is critical to maintaining storage of information during a power
outage.
o DTN FarmDayta Elite Plus includes all of the information provided on the
DTN FarmDayta Elite HD, plus more advanced news (Reuters Headline News),
quotes, weather (including motion and zoom capabilities) and programmable
charts. The Elite Plus product is similar in content to the DTN Pro
services. DTN FarmDayta Elite Plus is considered the "top of the line"
product in the FarmDayta line.
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DTN AgDayta
DTN AgDayta (www.agdayta.com) is the company's agricultural Internet
service. AgDayta combines DTN FarmDayta Elite Plus and DTN Premier Plus to
produce the most content rich product offered by DTN Ag Services. DTN AgDayta is
designed for the producer preferring to use his/her own personal computer to
receive information, or for the individual that is not able to utilize the
traditional satellite-based system supplied by DTN. The information on AgDayta
includes animated weather maps, satellite and summary maps, short and long range
forecast maps, news commentary and analysis, plus unlimited access to futures
and option quotes from all the major exchanges. Also available on AgDayta are
commodities for energy, finance, currency, metals and other exchanges as well as
instant access to daily, weekly and monthly commodity charts. The customization
capabilities allow for the organization of information that is most often used
for business decisions.
DTN AgBasic
DTN AgBasic was introduced in 1998 and is the most economical agricultural
color satellite system offered by DTN. The service came about through requests
from prospective customers for a more condensed version of the AgDaily/FarmDayta
products. AgBasic was developed as a "start up" color service for the first time
DTN customer. The service includes select quotes for 20 futures and two options,
the national radar map, local weather, state news, USDA Flash, USDA Pre-Report,
state grains and livestock bids, FarmDayta grains, livestock and other
commentaries.
1998 DTN Ag Services Highlights
The past year brought many changes and growth opportunities to DTN Ag
Services. A major change was the realignment of the national sales force into
smaller, more focused groups. Ag Services introduced two new products, DTN
AgDayta, the improved ag Internet service and AgBasic, a product designed for
the price conscious producer.
DTN AgDayta replaces FarmDayta OnLine as the company's Internet option to
the satellite delivery system. AgDayta's improvements include a new look and
feel and combines the best of DTN Premier Plus and FarmDayta Elite Plus. AgDayta
offers more choices in allowing the user to customize his site with weather
packages and ag commentary. To date, AgDayta has 2,500 subscribers, a 150%
increase over last year's total.
The AgBasic product has brought in new sales as well as an effective means
of retaining current customers with financial difficulties. Offering a condensed
version of AgDaily and FarmDayta II packages, AgBasic allows us to reach a new,
more price conscious producer who can then be easily upgraded to a more
comprehensive system.
In 1998, Ag Services also announced the addition of Futures World News
(FWN) to its premium services package. FWN is an extensive commodity news wire
allowing a subscriber to follow up-to-the-minute news stories affecting the
commodity market. This product was formerly available only on DTNstant.
In addition, DTN teamed up with Stewart Peterson to provide Stewart
Peterson's Marketing Tudor, free of charge, to all new customers. This program
guides the farmer through the intricacies of trading and following the markets.
While helping customers become more actively involved in marketing, we are also
able to increase the value of DTN.
In early summer 1998, in response to rapidly falling commodity prices, DTN
began posting the Loan Deficiency Payment (LDP). LDP is a "safety net" put in
place by the federal government to protect farmers should commodity prices fall
below pre-set levels. The LDP is the amount a farmer could get for his product,
from the government, on any given day, which covers the difference between the
price given on his crop, used as collateral for obtaining a 9 month operating
loan, and the price at which he could currently sell. Each commodity has a
different LDP, which changes every day and varies, from county to county. Access
to this critical information has been the difference, for some farmers, between
success and selling the farm.
In an economy of falling prices and farm consolidations, DTN Ag Services
recognizes that to remain competitive, we need to continue to look for ways to
expand into new markets, and we must be increasingly aggressive in generating
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<PAGE>
more revenue from current customers. In this vein, we have moved headlong into a
program of upgrading current customers from our basic entry-level service to the
more sophisticated higher-end services. This endeavor has proven tremendously
successful.
The future of DTN Ag Services looks even more exciting and rewarding. With
more new niche market products, more premium service options, and our upgrade
program, the potential for continued growth is strong for DTN Ag Services.
Coming in 1999 is another service option for customers, DTN Ag for Windows. The
same information-packed product our customers already enjoy will be available
through DIRECTV. With DIRECTV technology, our customers will receive the
information they want, the way they want to receive it. We are excited about the
potential of this new addition and look forward to a successful 1999.
DTNstant
DTNstant is a leader in providing satellite delivery of real-time futures
and options quotes from the major commodity exchanges and headline commodity
news from multiple sources such as the Associated Press, Reuters, Futures World
News and Bridge. The service also provides market-leading cash grain and
livestock information, in-depth charting capabilities plus all the information
available on the DTN AgDaily color service.
In addition, the service provides information for the energy, metals, softs
(ie: orange juice, coffee, cocoa), transportation and lumber industries.
DTNstant uses compatible software to allow the "pass thru" of data and graphics
into a computer's local area network (LAN). With this capability, a DTN ACE
receiver can feed information to multiple users/traders on the LAN. This "pass
thru" software opens new markets by utilizing information distribution within a
customer's LAN, enhancing analytical capabilities.
Other valuable features are user-programmable formulas for data analysis,
high interest windows to include news stories, and increased keyboard
functionality.
DTNstant operates in a very competitive market with many providers of
instant commodity quotes. The primary subscribers are commercial grain companies
and elevators, feedlots, commodity brokers and commodity speculators. No other
service in the industry offers a more comprehensive news and information
service. Due to the nature of this industry, the Company provides on-site
service and installation by professional service technicians.
In February 1997, DTN acquired 500 subscribers (mainly grain elevators and
brokers) from Market Quoters and Northern Data Services. These subscribers are
located in Minnesota, the Dakotas and Iowa. In March of 1997 DTNstant acquired
2,400 subscribers from Market Communications Group LLC (MCG).
The MCG acquisition made it possible to redistribute Reuters news, a
renowned leader, to the DTNstant subscribers. The service now provides
unparalleled information and strategic news for commodity traders including
access to additional international information, news packages for softs (coffee,
sugar, cocoa and orange juice), metals and energy.
1998 DTNstant Highlights
DTNstant experienced a dynamic 1998 with most of the subscriber growth
occurring via LAN (Local Area Network) subscribers. The individual subscribers
(nodes) access DTN data through a 3rd party software provider. They receive all
of DTNstant's data combined with the technical capabilities that the software
and the computer's desktop allow.
Due to the location of many new DTNstant subscribers, the product has also
been made available via leased landline or the Internet. Both of these
information delivery methods are popular with the growing metropolitan customer
base.
DTNiron
DTNiron is a cost-effective communication resource for the farm implement,
construction, truck and trailer dealers which provides an equipment locator and
advertising service for dealers at the wholesale and retail levels.
A detailed implement listing remains on the DTNiron system for a minimum of
30 days, renewable at the dealer's request. Subscribers receive industry news,
financial information, economic indicators and information from the DTN AgDaily
service.
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<PAGE>
In 1997, DTNiron added retail equipment listings to its newly developed web
site on the Internet (www.dtniron.com). This allows subscribers to gain
additional exposure for their listings at no additional charge. Internet users
can easily locate equipment for sale by using a drill-down database search
engine directing them to DTNiron's complete web listing. Dealers can also
receive e-mail from potential buyers or, if they are not e-mail enabled, DTN
will call or fax the message to the dealer.
1998 DTNiron Highlights
Agrisurfer (www.agrisurf.com), an Internet Search Engine for agricultural
websites repeatedly reported DTNiron's Website (www.dtniron.com) as one of the
top ten agricultural websites in 1998. Daily traffic at DTNiron's website has
more than tripled in the past year.
DTN Cotton Network
DTN Cotton Network is an electronic communications system for the cotton
industry designed to operate on a user's personal computer using software
developed specifically for cotton accounting and marketing. Based in Lubbock,
Texas, with an office in Memphis, Tennessee, the Network serves its customer
base in the mid-South and Southeast.
Users dial into a DTN data center via modem to upload bale ownership
information and to list cotton for broadcast to prospective buyers. The
information is broadcast via DTN Ku-band satellite and passed through a serial
port into the personal computers located at both buyer and seller locations.
1998 DTN Cotton Network Highlights
In March of 1998, DTN purchased the assets of Cotton Data Systems (CDS) in
Memphis, Tennessee, adding cotton gin and warehouse accounting software to its
current marketing network product. This acquisition added 250 gins and
warehouses to its customer list. In addition to gin and warehouse cotton bale
accounting systems, the DTN Cotton Network sells marketing software developed
for the needs of cotton merchants. The software is sold and supported from the
Memphis operations.
DTN also purchased the cotton gin customers of Challenger Systems in
Tennessee, adding more than 20 cotton gins to the gin bale accounting customer
base in west Tennessee.
DTN PROduce
DTN PROduce is an authority in providing the produce industry with the
timeliest information available through use of satellite technology and the
Internet (www.dtn.com/ag/produce). Weather, market conditions, transportation
information, and news are the four main components with the greatest impact on a
subscriber's daily operation. DTN PROduce has become the industry's accepted
source for receiving this information.
Price Link was introduced in 1997 allowing subscribers to send and receive
real-time pricing information for a fraction of the time and money of
conventional faxing methods. The service allows suppliers to advertise their
products or announce available inventories to buyers. Prices can be quickly
changed, added or downloaded from the DTN service to a personal computer.
DTN
PROduce continues to network itself with the major players in the produce
industry by providing the necessary tools to save time, make money and
communicate pricing and other information at a fraction of the time and cost of
other existing systems.
1998 DTN PROduce Highlights
DTN PROduce introduced several improvements to the Price Link service,
which included updating the methods for sending and receiving pricing
information. The service also continues to expand and upgrade its information on
the Internet (www.dtn.com/ag/produce) with 50% of its customer base now
accessing produce information using this form of information distribution
technology.
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<PAGE>
THE WEATHER INDUSTRY
- -------------------------------------------------------------------------------
GRAPH IN TABULAR FORM:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DTN Weather Services Revenue 0.0 1.0 5.6 10.7 25.8
($ millions)
</TABLE>
DTN Weather Services
DTN Weather Services consists of three major components, DTN Weather Center
Services, Kavouras, Inc. and Weather Services Corporation (WSC). Kavouras, Inc.
was acquired by DTN on July 1, 1998 and is now doing business as DTN Kavouras
Weather Services. DTN acquired WSC on December 11, 1998. The addition of these
two companies truly makes DTN a leader in the weather industry providing
critical weather information and meteorological equipment to small businesses,
military, federal government, broadcast television, major utilities, Internet
portals and everyone in between.
DTN Weather Services' future plans are to concentrate on the untapped
middle markets where customers number in the tens of thousands. The Internet
also provides many additional opportunities for growth such as advertising
supported sites, monthly subscription sites, "pay-per-view" sites, etc.
DTN Weather Services employs a dedicated weather sales force made up of
nearly 100 sales professionals for its sales and marketing efforts. This sales
force is unique to DTN in the weather industry and is a major reason for the
success of the division.
Weather information is always in high demand for many small and large
businesses as well as individuals planning their vacation and outdoor
activities. DTN Weather Services has a handful of competition from several large
private weather companies. Television and the Internet also provide some
competition on a smaller scale, but lack the timeliness and local information
the DTN service provides. DTN Weather Services constantly looks for more and
better ways to provide this critical information to its customers in the
quickest, most dependable and cost effective way.
DTN Weather Center
DTN Weather Center is a comprehensive weather information system designed
to meet the weather information needs of many industries. Markets specifically
targeted by DTN Weather Center are golf courses, turf management, emergency
management, state transportation departments, public works departments,
construction, broadcast and aviation. DTN Weather Center introduced new products
in 1998 designed especially for the broadcast, transportation and safety
industries.
DTN Weather Center provides more than 100 full-color maps and other
in-depth weather information, from local forecasts and regional radar maps to
national infrared satellite images. The service provides short-range (immediate
to 48-hour) forecasts, long-range (30-90 day) outlooks and 10-day city forecasts
for more than 550 major cities across the United States. A personal programmable
segment allows users to customize maps and the archive feature easily stores
maps for future reference.
DTN Weather Center provides the important weather information and planning
tools to make businesses safer, more profitable and easier to manage.
DTN Aviation Center
DTN Aviation Center is a comprehensive aviation weather package specially
designed for pilots, airports and Fixed Based Operators (FBO's), supplying them
with the extensive flight-plan information found on many premier "online"
systems.
This package includes U.S. and regional depiction maps, 24-hour low-level
significant weather prognosis, U.S. region winds and temperatures aloft and also
METAR (the aviation acronym for airport observations) and TAF (Terminal Aerodome
Forecast) information. Subscribers use DTN Aviation Center during flight
services to visualize current weather conditions while creating their flight
plans. This service also aids in determining alternate route destinations.
Subscribers choose from the Level I service, designed for the
local/regional flyers up to 18,000 feet, or the Level II service, designed for
pilots and airports flying nationally up to 45,000 feet. The Level II service
also provides European flight information.
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DTN Broadcast Weather
DTN Broadcast Weather is a weather and news information service designed
for the broadcast industry. Along with the comprehensive local, regional and
national weather forecasts and information, subscribers receive National Oceanic
and Atmospheric Administration Warnings & Alerts (NOAA).
Learfield World & National News Summary provides hourly summaries of
international and national news. The segment contains 20 pages, formatted for
about two to three minutes of "rip and read". Announcers can organize the
material, print it out or read it right off the DTN screen.
DTN Contractor Weather
DTN Contractor Weather is designed for the construction industry and
includes construction-related news and information, which gives subscribers a
competitive advantage. This service provides valuable weather information
necessary for important day-to-day business decisions.
Job site weather management options include the DTN Weather Alert Paging
System, which provides immediate notification of severe weather directly to the
user's alpha pager, and DTNonline (Weather Center's Internet service). NOAA
Weather Wire and Severe Weather Maps are included in DTN Contractor Weather
Level II, along with the subscriber's choice of the Weather Alert Paging System
or DTNonline.
The service is a practical tool in improving employee safety, saving labor
and material costs, and providing effective scheduling and staffing management
for the construction industry.
DTN Forestry Center
DTN Forestry Center provides critical forest fire information to
subscribers. Previously, district forest service offices relied on a modem
network assembled in the late 1960's for crucial information on forest fire
locations and fire weather forecasts. With DTN Forestry Center, forecast service
district managers quickly access fire weather text bulletins along with a
comprehensive set of weather maps.
Bulletins provided for the forest service markets are Forest Weather
Forecasts, Red Flag Warnings, Fire Danger Indexes, Fire Weather Observations and
Fire Weather Notices. A special chapter of fire weather maps provides additional
information such as Haines Fire Index, Current and Forecast Relative Humidity,
Current and Forecast Wind Speed and Direction, upper air analysis from 5,000 to
10,000 feet, and moisture index information from both the Crop Moisture Index
and Palmer Drought Index.
DTN Marine Center
DTN Marine Center provides satellite-delivered weather information for all
areas of the marine industry. The service provides information necessary for
cost-effective, efficient decision making regarding towing, shipping, salvage
and recreation. It includes Lake and Marine Text Bulletins, Buoy Reports, Lake
and Marine Maps and Tide Tables, as well as general weather information and sea
conditions.
New to the product in 1998 was the addition of DTN OnBoard, a service
allowing the user to receive DTN Marine Center through a DIRECTV dish on their
PC while at anchor or underway. Sea Surface Temperatures are also available as
an optional service.
DTN Transportation Weather
DTN Transportation Weather is designed for anyone responsible for road
maintenance or whose business depends on road conditions. Comprehensive local,
regional and national weather forecasts and information are available to
transportation professionals, allowing them to make informed decisions regarding
the weather.
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Subscribers have the choice of the DTN Weather Alert Paging System or
DTNonline (DTN Weather Center's Internet service). The Weather Alert Paging
system provides immediate notification of severe weather directly to the user's
alpha pager. DTNonline enables the subscriber to make management decisions based
on weather at home or away from the office with a PC.
NOAA Weather Wire and Severe Weather Maps, Travel Cast Maps and Road
Conditions, and EarthSAT Winter Weather Information are important features of
this product.
DTN Travel Center
DTN Travel Center is an interactive hotel guest service designed for the
hospitality and travel industries. The service targets hotels and motels with
50+ rooms and includes NEXRAD Real-Time Radar Maps, travel forecasts and road
conditions, detailed city and national forecasts, national and world news,
sports and sports scores. In addition, the service provides business and
financial news and market quotes and indexes.
DTN Travel Center provides a comprehensive weather and news information
package for both the business and vacation traveler.
DTN Turf Manager
DTN Turf Manager is available to businesses and individuals involved in
turf-related operations such as golf courses, lawn maintenance, landscaping and
sod farms. The service provides the weather and chemical information needed for
effective turf management, making the safest, most cost-effective use of
chemicals, labor and other resources.
Material Safety Data Sheets (MSDS) are available with Turf Manager, along
with the C&P Press Turf Product Index, an information database of more than 275
turf pesticides. Plant Protection Chemical Product Labels were added to the
service in 1998. This important segment provides full information on chemicals
used in turf care and management.
ThorGuard, the only lightning prediction system available, warns of
lightning strikes before they happen and is available as an optional service.
Evapotranspiration Tables provide regional evapotranspiration rates to plan for
watering and chemical application.
Golf information, such as ESPN Sports Ticker, the National Golf Course
Directory, GCSAA News and USGA News, is provided with DTN Turf Manager.
DTN Weather Safety Center
DTN Weather Safety Center provides weather information for anyone who is
responsible for protecting lives and property from the hazards of severe
weather. NOAA Weather Wire, the most comprehensive warning and alert system
available today, is available with the service, along with radar and satellite
images, local, regional and national outlooks.
DTN Weather Safety Center is invaluable for emergency management
professionals. Coupled with the DTN Weather Alert Paging System, subscribers
receive immediate notification of severe weather directly to their alpha pagers.
Weather watches, warnings and storm movement, along with local weather updates
twice daily for an 8-county area of the user's choice, are included in the
service.
1998 DTN Weather Services Highlights
DTN Weather Center increased its subscriber base in 1998 by more than 5,000
subscribers, bringing the total subscriber count to over 18,000. Government
agencies (emergency management and state transportation departments), aviation,
golf and turf management, and construction-related businesses continue to be the
leading industries for DTN Weather Center.
DTN Weather Safety Center and DTN Transportation Weather were introduced in
1998 and immediately became top selling services for Weather Center. DTN
Broadcast Weather was also introduced and is rapidly gaining a presence in the
broadcast industry.
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<PAGE>
DTN Weather Center is continuing to make its presence known as the industry
leader in providing timely, accurate weather information to a variety of
industries and is gaining a strong foothold in the emergency management and
Department of Transportation (DOT) segments. In 1998, the Minnesota DOT awarded
DTN Aviation Center contracts for more than 100 units for use in Fixed Based
Operations (FBO's) across the state. The State of Georgia, working in
conjunction with a grant from the Federal Emergency Management Association
(FEMA) purchased DTN Weather Center units for nearly 80 counties in Georgia.
1998 also saw the development of alternative delivery methods for DTN
Weather Center services. DIRECTV offers subscribers the opportunity to receive
DTN Weather Center information through their PC's. For larger companies
requiring multiple employee access, an Intranet system is also available.
DTN Kavouras Weather Services is the result of the acquisition of Kavouras,
Inc. in July 1998. DTN Kavouras Weather Services is a total weather solutions
resource, providing a full spectrum of advanced meteorological information
products and services for weather-dependent applications in industries and
governments worldwide. The Minneapolis-based subsidiary of DTN produces the
world's most powerful Doppler radars, real-time PC weather workstations,
comprehensive meteorological training, and a massive international weather
database. DTN Kavouras and its 140 employees offer an expertise level unmatched
in the industry.
WSC was acquired by DTN in December of 1998 and is one of the largest
sources for meteorological consulting and worldwide commercial weather
information. The strategic acquisition of WSC provides name awareness for DTN
Weather Services through valuable contracts with high profile customers
including America Online Inc. (NYSE:AOL), the world's largest online service,
USA Today and numerous utilities, broadcasters, agribusinesses and
municipalities. Weather Services Corporation is based in Lexington,
Massachusetts.
DTN believes the acquisition of WSC is an excellent complement to the
Kavouras acquisition as the two businesses serve different segments of the
weather industry yet share many of the same customers making weather a
one-stop-shop experience.
DTN Kavouras Weather Service
Meteorological Equipment
Triton Doppler Radar Series
Triton Doppler Radar Series is a complete line of advanced, fully coherent
Klystron or TWT-based Doppler weather radars, representing the most powerful,
the most accurate, the most versatile and the most cost-effective Doppler radar
performance in the world. Users include broadcast television, aviation,
universities, government and military.
Triton RT
Triton RT is a real-time 3-D and 2-D weather and news graphics animation
system focused on, but not limited to, the broadcast television market. This
product uses weather data to create an informative and exciting weather show.
MetWork FileServer
MetWork FileServer is a robust and dynamic network solution for real-time
dissemination of meteorological information based on the versatile and efficient
NT format, supporting standard Internet communications protocol and various
network configurations.
Meteorological Services
Storm Pro
Storm Pro is a workstation that integrates real-time Doppler weather radar
with a geographic information data system to create an accurate display with
broadcast-quality appearance. The display can be individualized for a unique and
defining look important in the television market.
StormSentry
StormSentry is around-the-clock storm tracking software that identifies
dangerous weather cells, analyzes their characteristics, their locations, their
speeds, their directions, their estimated times of arrival...all automatically.
StormWatch
StormWatch is customizable software that monitors either a weather wire or
a DTN Kavouras MetWork Fileserver to generate color-coded maps and/or a crawl
message for important watch, warning or advisory weather situations.
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<PAGE>
StormWatch also allows a television station to edit and prioritize
information for their viewing areas.
SchoolWatch
SchoolWatch is customizable software for the Triton RT that helps
television stations easily update, prioritize and display late-start and school
closing information. This software can also be configured to update information
on a station's web site.
Data and Customizable Forecasting Services provides a broad range of
standard data for a wide variety of markets. In addition, DTN Kavouras staff
provides 24-hour, 365 days a year coverage for tailor-made forecasts to meet
customers' special needs.
DTN Kavouras Weather Services Highlights
In July, DTN acquired Kavouras, Inc., and in late 1998, reached a
definitive agreement with Weather Services Corporation. A new force in the
meteorological services industry was created - DTN Kavouras Weather Services.
Each team offered a unique specialty, and together formed a full-service weather
company with the experience, products and solutions to serve a diverse client
base - from small-town farmers to big-city broadcasters - even governments at
home and across the globe.
The year brought the introduction of a new 3-D, free-form, fully functional
weather graphics system, the Triton RT. Its real-time performance and stunning,
multi-plane, animated weather and news graphics have caught the eye of
broadcasters around the world. The system is currently employed at television
stations in the United States, Canada, South America and Asia. With the focus
and energy of DTN Kavouras employees, 1999 will bring much advancement to this
young, innovative system.
It was also an exciting year for the company's Triton Doppler Radar (TDR).
The radar, which offers a revolutionary design and precise performance, is
sailing the seas as part of Boeing SeaLaunch, a multinational
satellite-launching group. While the TDR is "made to order" to meet a clients
needs for range and sensitivity, a "sea-worthy" model was a first. Modifications
were made to account for the rolling waves, as well as the ship's speed and
direction. The SeaLaunch TDR joins standard and special transportable models in
the United States, Europe, the Middle East and Asia (including a system
currently being installed at the Haikou Airport on Hainan Island).
There were also advancements to existing products. Advancements include new
software and hardware features for established systems, new data products and
custom forecasting services as well as an outstanding level of customer service
during a year of satellite communications difficulties.
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<PAGE>
THE FINANCIAL SERVICES INDUSTRY
- -------------------------------------------------------------------------------
GRAPH IN TABULAR FORM:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DTN Financial Services Revenue 5.1 6.1 8.6 10.3 13.4
($ millions)
</TABLE>
DTN Financial Services
DTN Financial Services offers five primary information services, DTN.IQ
(www.dtniq.com), DTN RealuTime, DTN SPECTRUM, DTN Wall Street and DTN FirstRate
as well as a suite of business applications for the financial professional
through National Datamax, Inc., a wholly owned subsidiary.
These services offer a complete line of fully integrated information for
financial professionals and individual investors. As a full-service provider,
DTN Financial Services brings together a broad selection of financial
information to accurately cover the markets, real-time or delayed quotes,
real-time business newswires, and an array of back-office applications including
client management systems and trading capabilities. DTN Financial Services' main
objective is to provide comprehensive, in-depth financial information at an
affordable cost to its subscribers. This objective is critical due to the highly
competitive nature of the industry.
DTN Financial Services integrates information from a variety of sources
such as Bridge, Liberty Brokerage and Market News Service, ZionsBank, UPI, New
York Times, PR Newswire, Business Wire, Futures World News, Dow Jones, AP Online
and others. In addition, a la carte, optional services offer subscribers an even
greater variety of financial data including stock selection and timing advice,
earnings estimates, fundamental stock market data, U.S. Treasury quotes and
other financial market-related services. This combination allows each service to
maintain its competitive advantage in the market.
Subscribers include individual investors, independent brokers, financial
advisors and financial institutions. With competition coming from sources such
as commodity news services, diversified media companies and smaller niche
providers, DTN Financial Services continues to differentiate itself in the
market by offering services that are broader in scope, yet remain strategically
priced.
DTN Financial Services revenue grew 29% in 1998, continuing its bullish 27%
compounded revenue growth for the past five years.
DTN.IQ
In May 1998, DTN Financial Services acquired a technology license from
SmartServ Online (SSOL) along with their existing Internet customers. This
license granted DTN exclusive rights to market a real-time Internet-delivered
quote and news service previously developed by SmartServ Online. Renamed DTN.IQ
(www.dtniq.com), it was released in June 1998, with new pricing and
functionality.
DTN.IQ has begun to fulfill its initial promise of satisfying the needs of
investors and traders who prefer to use the Internet as a market data delivery
channel. By year-end, DTN.IQ had begun to generate positive cash flow and had
become the fastest-growing service released by DTN Financial Services.
In addition to providing streaming real-time quotes and news, DTN.IQ offers
functionality not found in other DTN services. Primary among these is the
ability to retrieve a chart on any security at any time with up to two years of
daily history or five days of tick history. In addition, DTN.IQ takes full
advantage of 32-bit architecture, complete windowing capability, and the
flexibility of Internet delivery.
DTN Real*Time
DTN REAL*TIME delivers real-time stock and stock option quotes as well as
real-time futures quotes, fixed income government securities quotes, market
statistics and indicators, news, commentary and other time-sensitive financial
market information. The service is delivered at a rate of 18,800 characters per
second, roughly three times faster than a computer modem operating at 56 kbs.
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<PAGE>
DTN REAL*TIME is two to four times faster than other dedicated,
competitive, real-time quote services.
As an adjunct service with DTN REAL*TIME, NASDAQ Level II quotes were made
available in the fourth quarter of 1998, an important step in DTN's effort to
gain market share among institutional customers. Level II quotes offer
institutional money managers and active day-traders more detailed information on
the bid and asked prices offered by NASDAQ market makers.
DTN REAL*TIME was the first DTN service delivered directly to a PC without
displaying information on a proprietary system or stand-alone unit. This allows
users maximum flexibility in displaying and manipulating the data.
As part of the service, subscribers are offered free use of DTN's Chameleon
software to display market data, news and other financial information. Chameleon
also provides market condition alarms, news alerts and archiving, charting, and
portfolio monitoring. There are several other popular third-party software
programs available for formatting, manipulating, analyzing and displaying market
data and news on a single PC or networked PC's.
DTN SPECTRUM
DTN SPECTRUM is an enhanced version of DTN Wall Street utilizing the ACE
receiver technology. The service provides advanced quote selection and custom
programming along with alarms, news search and charting capabilities appealing
to a broad market of individual investors and investment professions.
An extension of DTN SPECTRUM is the DTN SPECTRUM RT service. DTN SPECTRUM
RT provides real-time futures and commodity quotes along with exchange-delayed
stock quotes, news and other information.
DTN Wall Street
DTN Wall Street provides exchange-delayed quotes on stocks, bonds, mutual
and money market funds, futures, interest rates, currencies and real-time index
quotes. This service also provides in-depth economic, financial and business
news and other time-sensitive financial market information such as
company-specific news and earnings. The service allows subscribers to custom
program the system to track their selection of financial quotes.
The majority of subscribers to DTN Wall Street are individual investors,
independent brokers, financial advisors and financial institutions.
DTN FirstRate
DTN FirstRate is a service for the mortgage industry providing wholesale
mortgage rates in an easy-to-use standard format and intraday interest rate
information indicating the direction of mortgage loan rates. This service also
provides subscribers with snapshots of real-time rates from Fannie Mae and
Freddie Mac plus other news, commentary and analysis for mortgage lenders.
DTN FirstRate+ is an enhanced color version of DTN FirstRate. This service
provides additional features which are well received by subscribers. Features
include keyword search, quick quote, alarms and zoom capabilities for weather.
National Datamax
In June 1998, DTN Financial Services acquired National Datamax, Inc. (NDM),
a provider of software and data services to financial planners and independent
broker-dealers. Within the financial services industry, NDM enjoys strong name
recognition and was one of the first firms to offer its unique business
solutions.
NDM solves two distinct problems faced by brokers. By consolidating client
account information from a variety of sources, NDM assists the broker in
presenting a comprehensive financial picture to his/her clients, no matter how
many securities or fund families are involved.
Brokers also need analysis tools to help them pinpoint the best investment
options for their clients. NDM offers fundamental data combined with
sophisticated scanning routines that help select appropriate mutual funds,
variable annuities and stocks based on client-defined risk/reward parameters.
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<PAGE>
NDM represents a key element in DTN's strategy to become an important
player in the institutional marketplace as well as add value to basic
information delivery.
1998 DTN Financial Services Highlights
DTN Financial Services enjoyed continued success in its efforts to market
and sell real-time market data to both individual investors and institutions.
The increased presence of advertising-supported web sites providing free,
delayed market data has sharply reduced the opportunity to sell new DTN Wall
Street and DTN SPECTRUM subscriptions. That same development, however, has
allowed DTN Financial Services to focus on promoting its more sophisticated
real-time services, where margins are higher.
As the availability of reliable Internet access has increased, so have the
opportunities for Internet-delivered market data services. DTN Financial
Services added Internet delivery to its suite of service options with the
release of DTN.IQ in June 1998. As the service was enhanced throughout the year,
DTN.IQ began to play an ever-more-important role as a superior service priced
significantly lower than its competition.
Aside from its general popularity among investors, Internet delivery offers
several advantages. Internet delivery:
1) eliminates the need for customers to set up a small satellite dish,
sometimes difficult in urban areas.
2) eliminates DTN's hardware cost associated with the dish and receiver.
3) offers marketing opportunities with other online financial service
providers, like discount brokerage firms.
In keeping with the strategy of increasing market share among institutional
customers, the acquisition of National Datamax, Inc. (NDM) brought new products,
a large existing customer base and a strong team of professionals into the
Financial Services division. Among small to medium-sized independent brokers,
few companies enjoy a stronger reputation than NDM.
DTN Financial Services continued its significant investment in sales to
institutional clients by creating its own outside sales force and assuming
managerial responsibility for that group. With the increase in the breadth and
complexity of DTN's financial products, there is hardly a financial professional
who is not a strong prospect for at least one of these services. However, this
same breadth and depth requires a dedicated sales professional who is
knowledgeable in all facets of the industry. This group of professionals was in
place by the end of the fourth quarter of 1998.
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<PAGE>
THE ENERGY INDUSTRY
- -------------------------------------------------------------------------------
GRAPH IN TABULAR FORM:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DTN Energy Services Revenue
($ millions) 7.2 10.0 12.2 14.3 16.1
</TABLE>
DTN Energy Services
Energy related services include DTNergy for the refined fuels, natural gas
industries and electric industries.
DTNergy Service Review
DTNergy provides pricing information and communication services for the
refined fuels industry. This service consists of several pages of delayed energy
futures and options quotes plus selected news and financial information.
DTNergy is designed to connect refiners (producers of refined fuels) to
wholesalers (distributors of refined fuels). The refiner sends refined fuel
prices to wholesalers authorized to receive this information. The refiner is
also capable of sending terminal alerts, electronic funds transfer
notifications, invoices, and other communications to the wholesaler. The DTNergy
system carries more than two million messages a month for this industry.
Subscribers can also select from a variety of optional services providing
additional prices or news related to the petroleum industry.
The strength of the DTNergy Refined Fuel service is the ability to deliver,
within seconds, accurate refiner terminal prices and other vital communications
to the wholesalers. This service is more reliable, timely and less expensive
than the competition, which utilize telephone delivered printer-only systems and
FAX services.
DTNergy generates revenue from two primary sources, the wholesaler and the
refiner. Wholesalers currently pay a monthly subscription fee of $40 for the
monochrome Ku-band satellite service. Refiners pay fees based on the number and
length of communications sent to wholesalers.
Refiners use DTNergy communications to link to their wholesalers with the
implementation in 1997 of EDI (Electronic Data Interchange) fuel invoices.
EDI/VAN (Value Added Network) services help automate customers' business
processes by converting refiner text invoices into an industry standard format.
Once these invoices are in a standard format, the invoice data is transferred
into a customer's accounting system from the ACE unit.
DTNergy also provides an information service for the natural gas and
electric industries. Subscribers receive instant or delayed NYMEX energy futures
and options quotes, a comprehensive weather package and industry specific news
and market information. This service targets energy producers and generators,
transporters, marketers, utilities and larger energy consumers.
1998 DTNergy Highlights
Two Internet-based services were introduced in 1998. Prophet X
(www.fimi.com) was introduced in June 1998. This service allows the ability to
access DTNergy's real-time market data using Financial Information Management
Inc.'s (FIMI) client-service software, Prophet X.
In November 1998 a joint venture between DTN and GlobalView Software Inc.
prompted the formation of GlobalData, which is aimed at serving the
international energy markets. This partnership allows DTNergy to provide
real-time data for the international markets with GlobalView Software Inc.
providing the graphical user interface for the service. EnergyView
(www.energyview.com) is the Internet product creation of GlobalData, which was
introduced in December 1998.
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<PAGE>
THE AUTO INDUSTRY
- -------------------------------------------------------------------------------
GRAPH IN TABULAR FORM:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DTN Auto Services Revenue
($ millions) 0.0 .7 1.4 1.9 2.0
</TABLE>
Other Industries and Services
DTNauto Service Review
DTNauto is a communication and information service for the automobile
industry. This service offers automobile dealers precision information for
valuing trade-ins and locating used car inventory. DTNauto provides a host of
convenient features for the industry such as the ability for automobile auction
companies and manufacturers to communicate directly with the dealers.
DTNauto provides information on more than 125 pre-auction automobile
listings, results of past auctions, new and used car industry news, weather and
other news. The service allows subscribers to perform searches of upcoming and
past auction listings for specific automobile information.
DTNauto offers a variety of optional services providing information on
credit reporting (CREDCO), vehicle histories (CARFAX), warranty information (The
Warranty Guide) and residual value of leased vehicles (Lease Guide). The CARFAX
and CREDCO optional services extensively utilize the internal modem to send and
receive information. These services create a comprehensive information service
placing the "subscriber in the driver's seat".
1998 DTNauto Highlights
In 1998, DTNauto incorporated Chrome Data Corporation's PC Carbook(R) new
car data and SMART ValuesTM used car pricing as part of its standard service. PC
Carbook provides the automotive industry with specifications, prices, options,
trim packages, discounts and rebates for all new domestic and import vehicles.
SMART Values consists of used car pricing data which is revised and updated
monthly. DTN has developed an application which draws directly from the
information published by Chrome Data that enables DTNauto subscribers to produce
a used car window sticker at a cost several times below the current industry
standard.
Improvements to our vehicle wholesale pricing information gave dealers and
fleet industry analysts increased flexibility and manipulation of the NADA/NAAA
AuctionNet(R) wholesale vehicle-pricing data.
DTN JOINT VENTURE SERVICES
- -------------------------------------------------------------------------------
GRAPH IN TABULAR FORM:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DTN Joint Venture Services Revenue
($ millions) 0.1 0.3 0.9 1.7 2.6
</TABLE>
DTN Joint Venture Services
DTN joined forces with several companies to market their services using DTN
technology. These services are DAT Transportation Terminal, TracElectric and DTN
Missing Children Information Center (MCIC).
DAT
The DAT (Dial-A-Truck) Transportation Terminal service, located in
Beaverton, OR, is an information communication system for the trucking industry.
The service provides load and truck matching performed on a database of 80,000
listings updated daily.
DAT allows subscribers to input their listings into the DTN receiver and
send this information to a database using the internal modem. The service
provides subscribers with the ability to perform extensive searches to locate
loads and trucks and to set alarms alerting users of a match.
The service also provides regional radar weather maps of major highways and
interstate systems, transportation news, diesel fuel prices and other financial
information related to the trucking industry.
DAT targets all freight brokers and carriers throughout the United States,
Canada and Mexico.
Trac Electric
TracElectric is an equipment locator service for the electrical equipment
industry. This service provides over 100 pages of new, remanufactured, surplus
and used electrical equipment listings. The service connects buyers and sellers
throughout the United States and Canada.
Missing Children Information Center
DTN Missing Children Information Center (MCIC) provides instant
transmission of data regarding children in danger to local, regional, national
and Canadian outlets. In an effort to assist parents, police and the National
Center for Missing and Exploited Children (NCMEC) in locating missing children
and the criminals involved, photos and information regarding these children are
posted as a public service on all DTN color systems.
As a result of the close working relationship with NCMEC a national kiosk
program has been developed. Plans are underway to identify sponsors for the
kiosk units to be placed in high-pedestrian traffic areas such as shopping
malls, airports, grocery stores, theaters, government buildings, etc.
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<PAGE>
Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
PIE GRAPHS IN TABULAR FORM:
1998 1997 1996
---- ---- ----
Revenues
<S> <C> <C> <C>
DTN Ag Services 59% 69% 71%
DTN Weather 17% 8% 6%
DTN Financial Services 9% 8% 9%
DTN Energy Services 11% 11% 12%
Other Services 4% 4% 2%
Subscribers At Year End
DTN Ag Services 71% 76% 80%
DTN Weather Services 11% 8% 5%
DTN Financial Services 10% 8% 8%
DTN Energy Services 5% 5% 5%
Other Services 3% 3% 2%
</TABLE>
<TABLE>
<CAPTION>
In thousands, except per share data 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
Operating Data (For the Year):
<S> <C> <C> <C> <C> <C>
Total revenues $148,986 $126,374 $ 98,384 $ 62,288 $ 46,110
Operating income $ 4,163(1) $ 12,383 $ 6,921 $ 4,343 $ 695
Net income (loss) $ (3,743)(2) $ 2,236 $ (958) $ (283) $( 1,603)
Basic income (loss) per share $ (.33) $ .20 $ (.09) $ (.03) $ (.16)
Diluted income (loss) per share $ (.33) $ .19 $ (.09) $ (.03) $ (.16)
Basic shares outstanding 11,359 11,101 10,658 9,909 9,760
Diluted shares outstanding 11,359 12,083 10,658 9,909 9,760
Dividends paid(3) - - - - -
Dividends paid per share(3) - - - - -
Balance Sheet Data (At Period End):
Working capital (deficit) $(17,447) $(21,520) $(14,748) $(10,472) $(10,237)
Total assets $197,185 $162,431 $177,730 $ 92,672 $ 71,459
Long-term debt and
subordinated notes $100,620 $ 72,891 $ 97,748 $ 47,021 $ 33,983
Shareholders' equity $ 32,150 $ 32,196 $ 28,290 $ 12,877 $ 12,707
<FN>
1 Includes $5.8 million non-recurring satellite costs related to the loss of
control of Galaxy IV satellite by PanAmSat, the Company's primary satellite
provider.
2 Includes $5.8 million ($3.7 million after tax) non-recurring satellite costs
related to the loss of control of the Galaxy IV Satellite by PanAmSat, the
Company's primary satellite provider. Also includes a $1.7 million ($1.1
million after tax) debt extinguishment charge for the early retirement of the
Company's $15,000,000 11.25% Senior Subordinated Notes Due 2004.
3 DTN has not paid any dividends in the last five years and currently intends
to retain earnings for use in its business.
</FN>
</TABLE>
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<PAGE>
Management's Discussion and Analysis
FINANCIAL CONDITION
General Overview
The equipment used by subscribers is a large capital investment for the
Company. The cost of subscriber equipment, net of depreciation, accounts for 46%
of the Company's total assets. The Company financed the majority of the
investment in subscriber equipment with long-term debt. In 1997 and 1998, the
cash provided by operating activities exceeded the cost of new subscriber
equipment and was used for acquisitions or to service long-term debt.
The Company made significant investments during 1996, 1997 and 1998 to
acquire subscribers and businesses that fit the Company's business model. The
net intangible assets (primarily goodwill) from acquisitions are 33% of the
Company's total assets. The acquisitions of subscribers and businesses are
expected to enhance the long-term operating performance and financial condition
of the Company. The investment in acquisitions has required the Company to
increase long-term debt.
The Company's overall financing strategy has been simple, use long-term
debt financing versus equity, whenever possible, to prevent the dilution of
shareholder value. The Company's management plans to continually review this
strategy to support the growth of the Company.
Cash Flows From Operating Activities
Net cash provided by operating activities for 1998 was $42.4 million
compared to $47.5 million for 1997. The decrease of $5.1 million was primarily
due to the $1.7 million decrease in operating cash flow (operating income before
depreciation and amortization expense), generally referred to as EBITDA, and
$3.2 million from the change in assets and liabilities. The decrease was offset
by the $.6 million reduction in interest expense primarily due to lower rates on
debt outstanding.
Excluding the $5.8 million non-recurring satellite costs (see discussion
in Results of Operations below) that decreased operating cash flow for 1998, net
cash provided by operating activities would have been $48.2 million compared to
$47.5 million for 1997.
Cash Flows From Investing Activities
Net cash used in investing activities for 1998 was $66.8 million compared
to $30.2 million for 1997. The increase of $36.6 million is due to the $31.9
million increase in acquisitions, the $5.4 increase for purchases of information
distribution software and equipment and a decrease of $.8 million for purchases
of subscriber equipment.
The Company's growth strategy includes acquisitions that fit the business
model and/or competitive strategies. The Company closed on several acquisitions
during 1998 (See Footnote 2 to the Consolidated Financial
Statements-Acquisitions). The Company paid $37.6 million cash for these
acquisitions compared to $5.7 million cash during 1997. The acquisitions in 1998
were primarily financed using the revolving credit line of the Company.
The majority of the investment in equipment used by subscribers is
generally a direct result of the growth in the Company's subscriber base. The
Company's marketing efforts to obtain new subscribers includes investing in
subscriber equipment for trial and complimentary subscriptions. In addition,
approximately 3,500 monochrome system (FM and Ku) and DTN FarmDayta subscribers
upgraded service requiring the color Ku-band system with 84% of these
conversions involving DTN AgDaily subscribers. The remaining 16% involved DTN
Financial Services and DTNergy subscribers. The conversion of approximately
1,000 subscribers from DTN AgDaily on the color Ku-band system to other more
advanced Ku-band services such as DTN Pro Series, DTNstant, DTNiron, DTN PROduce
and DTN Weather Center resulted in upgraded equipment.
DTN increased the inventory of color receivers and components to build
color receivers during 1998. At December 31, 1998 the Company had approximately
$19 million of this inventory compared to $7 million in 1997. The build up of
inventory in 1998 occurred due to advance commitments on equipment purchases and
the unexpected increase in cancellations due to the Galaxy IV satellite outage
discussed below. The Company adjusted purchasing and production schedules in the
second half of 1998 to reduce the inventory related to sales and cancellation
activity. The reduced production of color systems should significantly reduce
capital expenditures on subscriber equipment for 1999.
The Company had approximately 21,900 monochrome subscribers at December
31, 1998. The Company has made limited purchases of monochrome equipment since
1991 and monochrome depreciation related to monochrome equipment will be
approximately $.7 million in 1999 and $.1 million in 2000. The Company utilizes
monochrome receiver equipment coming in from conversions for new DTN AgDaily,
DTN Wall Street and DTNergy subscribers. The demand is limited for monochrome
services, however, the Company continues to research new markets for monochrome
system services. At this time, the Company's management believes the prospects
are more favorable for color services.
As it relates to the Company's investing activities, the Company had $17.4
million and $21.5 million of negative working capital at December 31, 1998 and
1997, respectively. The increase in working capital is primarily due to the $2.8
million increase in accounts receivable, the $1.4 million increase in prepaid
expenses and the $3.6 million of inventory primarily related to the Kavouras
acquisition. The increase in accounts receivable was primarily due to
acquisitions, to an increase in revenue per subscriber per month, and a larger
mix of customers invoicing on an annual basis compared to quarterly, as was
previously the standard. The increase in prepaid expenses was also primarily due
to acquisitions.
The increase in accounts receivable, prepaid expenses and inventory offset
the $3.6 million increase in accrued expenses and the $1.2 million decrease in
accounts payable. The increase in accrued expenses was primarily due to
34
- 768 -
<PAGE>
acquisitions and the decrease in accounts payable was primarily due to reduced
capital spending on subscriber equipment.
Cash Flow From Financing Activities
In 1998, net cash provided by financing activities of $23.5 million was
primarily the result of an increase in total debt outstanding of $27.5 million.
The increase in debt outstanding was primarily due to an increase of $51.0 in
the revolving credit line to fund acquisitions and capital expenditures. The
Company made $24.8 million of principal payments on term notes and $5.2 million
of payments on debt acquired through acquisitions. The Company also financed the
prepayment of $15.0 million 11.25% Senior Subordinated Notes due 2004 and the
$1.1 million prepayment cost with $16.0 million of term notes and revolver.
In 1997, net cash used by financing activities of $17.2 million was
primarily the result of a decrease in total debt outstanding of $18.2 million.
The decrease in debt outstanding was primarily due to $22.2 million of principal
payments during 1997. The Company was able to pay down debt due to the increase
in cash provided by operating activities and using subscriber equipment
inventory for new subscribers during the first half of 1997.
Factors That May Affect Future Results
Acquisitions - The Company's strategy includes continued growth through
acquisitions of complimentary services, technologies or businesses, which may
result in the diversion of management's attention from the day-to-day operations
of the Company's business. Other risks include, but are not limited to, possible
difficulties in the integration of operations, products and personnel,
difficulty in applying internal controls to acquired businesses and particular
problems, liabilities or contingencies related to the businesses being acquired.
If efforts to integrate past or future acquisitions fail, there could be a
material adverse effect on the Company's business, financial condition and
results of operations. The Company plans to pursue opportunities that it
believes fit its business strategy.
Competition - The Company operates in a highly competitive environment,
competing with information and communication services utilizing various types of
electronic media including satellite delivery, TV Cable delivery, the Internet,
electronic bulletin boards, television, radio, cellular, and telephone
communications. In addition to the various electronic publishers, the Company
competes with print media and "old information gathering habits." Many of the
Company's actual and potential competitors have substantially greater resources
than the Company.
Indebtedness - The Company anticipates that internally generated cash flow
and its bank credit lines will be sufficient to fund operating activities,
capital expenditures and service interest and principal payments on long-term
debt.
Inflation - The Company believes that inflationary trends have a limited
effect on the business. However, since a large percentage of the Company's
subscribers and revenues are related to the agricultural industries, the general
state of the agricultural economy may impact the Company's business operations
and financial condition.
Technology - The business of the Company is subject to the continuous
changes in information distribution technology affecting how information is
distributed to the Company's customers. Currently, the primary information
distribution technology the Company utilizes for the delivery of information is
satellite. Other technologies used are the Internet, FM side band channels, VBI
(vertical blanking interval through a cable TV signal), leased land lines,
DIRECTV, E-mail and Fax. The Company is not aware of any other technology that
may replace the current electronic delivery systems and equipment at a
competitive price. New developments in electronic hardware capabilities and in
data distribution technologies could cause the Company's delivery systems and
equipment to become obsolete, economically inefficient or less attractive
compared to available alternatives. The improvement and enhancement (and
subsequent lower cost) of delivery technologies such as the Internet, DIRECTV
and cable are providing the Company with alternatives to its current primary
delivery method, which is satellite.
Year 2000 (Y2K) - The Company is actively engaged in a comprehensive
review of its computer systems to identify and remediate the systems that could
be affected by the Year 2000 Issue. The Company is addressing the following
critical areas related to the Company's state of readiness, cost of addressing
Year 2000 issues, risks of Year 2000 issues, and contingency plans:
State of Readiness - The Company has identified the following major areas
of the Company dependent on computer software and hardware that may be affected
by the Y2K issues.
* Service delivery - The Company transmits information and
communications services to subscribers via satellite, Internet, FM
side band channels, VBI, leased land lines, DIRECTV, E-mail and Fax.
The Company has been engaged in identifying, remediating and testing
any system that could result in an interruption of the delivery of the
Company's services to subscribers.
* Customer Service - The Company provides customer service to
subscribers using telephone systems, using administrative systems to
ship equipment and/or modify the services that subscribers receive.
The Company has been engaged in identifying, remediating and testing
any system that could result in an interruption of customer service
provided to subscribers.
* Cash flow - The Company maintains administrative systems that track
services provided to subscribers, invoice subscribers and apply cash
payments remitted for services received by subscribers. The Company
has been engaged in identifying, remediating and testing any system
that could result in an interruption of cash flow from subscribers.
* Physical environment - The Company maintains facilities for employees,
operating computer data centers and distributing subscriber equipment.
The Company has been engaged in identifying, remediating and testing
the possibility of any environmental control, such as heating and
cooling systems, inhibiting the use of the Company's facilities.
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<PAGE>
The Company has made progress in its efforts to address the Year 2000
issue and ensure systems and data will be functional beyond 1999. The following
phases, which to some extent are being conducted concurrently, are on schedule
to be completed by the listed completion dates.
* Inventory - The Company has conducted an inventory of all custom
developed software and third party vendor supplied software used
internally by the Company. The Company has also conducted an inventory
of all third party data feeds that are transmitted to the Company for
rebroadcast. The Company has also conducted an inventory of all
hardware related to the transmission of data and internal
administrative operations. The Company had completed this phase as of
December 31, 1998.
* Assess Business Impact - The Company has reviewed the business impact
of specific systems if they were to fail due to incorrect date
processing past 2000. The Company has identified these systems related
to internal administrative systems, third party data feeds and
hardware as critical or non-critical to normal business operations.
The Company had completed this phase as of December 31, 1998.
* Remediation and Testing - The Company is remediating software and
hardware systems and conducting detailed Y2K testing to produce
standardized 'evidence' of Y2K compliance. The Company's estimated
completion date is September 30, 1999.
* Manage Subsequent Changes - All system modifications made subsequent
to Y2K testing that are date related will be regression tested and
documented. The Company's estimated completion date is December 31,
1999.
Cost of Addressing Year 2000 Issues - The Company has used existing
internal resources to perform all work on the phases discussed above through
December 31, 1998. The estimated cost of using internal resources through
December 31, 1998 is $.5 million. The Company plans to complete all system
modifications and testing required to resolve Y2K issues using existing internal
resources and does not expect the cost of making the necessary changes to be
significant. The remaining estimated cost of using internal resources to effect
Y2K compliance is less than $.5 million.
Risks of Year 2000 Issues and Contingency Plan - The Company expects its
Year 2000 conversion project to be completed on a timely basis, however, failure
to do so or failure on the part of third parties with whom the Company does
business could materially impact operations and financial results. The Company
believes the worst case scenario would be the failure of the communication
systems providing information and communications to the Company's customers. If
any of the satellites used by the Company were to fail, it is possible that the
Company could shift all of its satellite subscribers to other satellites or its
Internet based products. The Company is working with various third party vendors
to verify Year 2000 compliance, and if necessary, securing alternate sources of
service or products if compliance is not obtained. In the event that one or more
data providers fail, it is possible the Company could integrate information from
another data provider into its data feed.
The Company is currently developing contingency plans for those systems
identified as critical to normal business operations. The contingency plan will
include focusing on early detection, planned reactions and subsequent
remediation of unforeseen issues. The Company's estimated completion of a formal
contingency plan is September 30, 1999. The Company believes there are no
foolproof contingency plans that cover every possible failure.
Based upon currently available information, management believes the
Company will meet its compliance goals and does not anticipate that the cost of
Y2K compliance will have a material impact on the Company's financial condition,
results of operations or liquidity. The achievement of these goals is dependent
upon many factors, some outside of the Company's control. In the event that the
Company's internal systems or internal systems of critical vendors fail to
achieve Y2K compliance, the Company's business and its results of operations
could be adversely impacted.
Market Risk Sensitive Instruments and Positions
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in interest rates
as discussed below.
Interest Rates - The Company's earnings are affected by changes in
interest rates due to the impact those changes have on its variable-rate debt
instruments. The Company has three components that make up its total bank loan
debt: 1) Fixed Term Notes of $49,822,540 or 41% of the total, 2) Variable Term
Notes of $16,926,000 or 14% of the total and 3) Revolving Credit Line of
$55,500,000 or 45% of the total. Assuming a hypothetical 10% change in 1998
interest rates, below is an analysis of what the impact would have been on 1998
interest expense:
<TABLE>
<CAPTION>
1998
<S> <C>
Fixed Term Notes $ -
Variable Term Notes 153,400
Revolving Credit Line (a) 178,500
--------
Total $331,900
</TABLE>
(a)The Company's Revolving Credit Agreement includes the ability to fix the
revolving credit line based on the Revolving Credit Rate in effect at the
beginning of the month (see Note 5). The ability to look back to the interest
rates at the beginning of the month, reduces the market risk of an increase
in First National Bank of Omaha's "National Base Rate".
Market risk for fixed-rate term debt is estimated as the potential change
in fair value from a hypothetical change in interest rates. The Company has
$49,822,540 of fixed term debt as of December 31, 1998 with an estimated fair
value of $50,395,940 or an increase $573,400. The fair value was calculated
using existing terms of the debt and interest rates present valued at the
Company's current available term debt rate (See note 5).
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<PAGE>
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which will be effective for fiscal years beginning after June 15,
1999. The Company will adopt this Statement effective January 1, 2000. At this
time, the Company believes the impact of adopting this Statement should not be
significant to the results of operations or financial position.
RESULTS OF OPERATIONS
GRAPH IN TABULAR FORM:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 46.1 62.3 98.4 126.4 149.0
Operating Cash Flow 15.8 23.2 40.4 54.7 53.0
(in millions of dollars) 58.8*
*Pro-Forma results before $58.8 million non-recurring satellite costs.
</TABLE>
General Overview
The financial dynamics of DTN's business operations are similar to
businesses that sell monthly subscriptions such as electronic publications and
communications and cable TV companies. The financial dynamics are similar
because DTN makes an initial investment of variable marketing costs to obtain
new subscribers (generally a one year subscription agreement) and the Company
makes a capital expenditure to provide the subscriber with the necessary
equipment to receive the Company's satellite based services. Internet
subscribers utilize their own personal computer.
In addition, DTN has a level of fixed costs, such as FM and Ku satellite
leases, certain news and weather, quotes, information providers and
administrative expenses, not directly affected by the number of subscribers
receiving the Company's services.
Non-recurring Satellite Costs (Galaxy IV)
On May 20, 1998, nearly all of the Company's 159,000 subscribers were
unable to receive their data due to loss of control of the Galaxy IV satellite
by PanAmSat. This satellite was used by the Company to transmit service to
nearly all its subscribers. By May 21, 1998, solutions were available for all
subscribers, however, the impacts on DTN operations were significant.
The loss of control of Galaxy IV by PanAmSat had a significant impact on
the Company's operations. The Company switched all satellite customers to
Telestar 5, which is a more powerful satellite and has a larger footprint or a
larger coverage of geographical area. This satellite includes coverage of
Mexico, Hawaii and Alaska. Although this allows future opportunities for DTN,
the cost to DTN was significant. The costs related to the failure of Galaxy IV
include telecommunications, overtime labor, satellite costs and customer
communications and these unusual, non-recurring satellite costs were estimated
to be $5.8 million and recorded in May of 1998. These costs are the Company's
estimate to convert subscribers to the new satellite and handle the large
customer service call volume, duplicate satellite charges and other service
costs related to this change.
Although the Company believes the estimate was reasonable based on all
available information, the impact of customer retention is more difficult to
quantify and actual costs may vary from the estimate. The Company's management
believes the impact from this problem will not significantly impact the
longer-term growth prospects of the Company. The Galaxy IV failure had an impact
on subscription sales related to the months of May, June and July due to the
Company utilizing the sales force to adjust subscriber satellite dishes.
Operating Cash Flow
The Company's operating cash flow (operating income before depreciation
and amortization expense), known in the industry as EBITDA, is a key indicator
monitored by DTN management. Growth in operating cash flow results from a
growing base of subscribers, as well as, increased revenues per subscriber
covering the Company's fixed expenses.
Operating cash flow for 1998 decreased 3.1% to $53.0 million compared to
$54.7 million for 1997. Excluding the non-recurring satellite costs of $5.8
million related to the Galaxy IV satellite outage, operating cash flow for 1998
would have increased 7.5% to $58.8 million compared to $54.7 million for 1997.
Operating cash flow as a percent of revenue (operating cash flow margin)
for 1998 was 35.6% compared to 43.3% for 1997. Excluding the non-recurring
satellite costs of $5.8 million related to the Galaxy IV satellite outage,
operating cash flow margin for 1998 would have been 39.5% compared to 43.3% for
1997.
Kavouras equipment sales have lower operating cash flow margins and will
decrease the Company's total operating cash flow margin. A further analysis
shows that, excluding the Kavouras acquisition operating results and
non-recurring satellite costs, operating cash flow margin for 1998 would have
been 41.5% compared to 43.3% for 1997.
The following graph details the trend in operating cash flow as a
percentage of revenue to illustrate operating leverage.
GRAPH IN TABULAR FORM:
Operating Cash Flow
Percent of Revenue
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Cash Flow 34 37 41 43 36
(percent of revenue) 40*
*Pro-Forma results before $5.8 million non-recurring satellite cots.
</TABLE>
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<PAGE>
Net Development Costs
Operating cash flow is affected by the Company's research and development
activities. DTN accumulates research and development activities as "Net
Development Costs". The Company defines "Net Development Costs" as 1) market
research activities, 2) hardware and software engineering, research and
development, and 3) the negative operating cash flow (prior to corporate
allocations plus interest) of new services. The Company includes new services in
the "Net Development Costs" classification until the service shows positive
operating cash flow prior to corporate allocations plus interest for a full
quarter. The service becomes a core service after reaching this level in the
developmental process.
During 1996, DTN expanded it developmental activities with net development
costs growing from $3.7 million in 1995 to $5.3 million in 1996. The Company's
increased efficiencies on a per subscriber per month basis and the acquisition
of subscribers from Broadcast Partners contributed to an increase in operating
cash flow margin from 37.2% in 1995 to 41.0% in 1996. Operating cash flow
margin, excluding the acquisition of Broadcast Partners, was 37% in 1996. The
expansion of developmental activities was offset by increased efficiencies on a
per subscriber per month basis. Core services operating cash flow margin
improved to 47.4% in 1996 compared to 44.4% in 1995. Core services operating
cash flow margin, excluding Broadcast Partners operating results, was 43.4% in
1996 compared to 44.4% in 1995.
During 1997, the Company's developmental activities were relatively flat
at $5.2 million compared to $5.3 million in 1996. The efficiencies gained in
1996 carried over into 1997 and contributed to operating cash flow margin
growing from 41.0% in 1996 to 43.3% in 1997. Core services operating cash flow
margin improved to 48.5% in 1997 compared to 47.4% in 1996. Core services
operating cash flow margin, excluding Broadcast Partners operating results, was
45.0% in 1997 compared to 43.4% in 1996.
During 1998, the Company's developmental activities increased to $6.5
million compared to $5.2 million for 1997, with the Kavouras operations
contributing $1.3 million. Operating cash flow margin in 1998 declined to 35.6%
compared to 43.3% in 1997. This decline was primarily due to the $5.8 million
non-recurring satellite costs and the Kavouras operations as discussed in the
Operating Cash Flow segment above. Core services operating cash flow margin for
1998 decreased to 40.8% compared to 48.5% for 1997. Excluding Kavouras operating
results and non-recurring satellite costs, core services operating cash flow
margin for 1998 would have been 47.2% compared to 48.5% for 1997.
1998 COMPARED TO 1997
The 1998 operating results were affected by the weak agriculture economy,
the satellite outage and the strategic acquisitions completed by the Company.
The operating results for 1998 include six months of the operations of Kavouras,
Inc. (Kavouras), acquired in July 1998. The Kavouras operations are included in
the Weather Services division of the Company. Operating income declined
primarily due to the $5.8 million non-recurring satellite costs and higher
amortization expense related to acquisitions.
<TABLE>
<CAPTION>
Percent
In Thousands 1998 1997 Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Subscribers 159.3 158.8 -
Revenues $148,986 $126,374 18 %
Operating cash flow 53,014 54,699 (3)%
Operating income 4,163 12,383 (66)%
Net income (loss) (3,743) 2,236 -
</TABLE>
Revenues
Total revenue increased 18% for 1998 compared to 1997. Recurring operating
revenues, consisting of subscriptions, additional services, communications and
advertising, increased to $73.80 per subscriber per month for 1998 compared to
$66.29 for 1997.
Subscriptions - Subscription revenue for 1998 grew 18% to $119.5 million
compared to $101.2 million for 1997. The increase was primarily due to
acquisitions completed in 1998, increases in total subscribers, and the ability
to move subscribers to higher priced services. The increase in total subscribers
in 1998 was primarily due to acquisition activities. The Company added 3,300
subscribers from acquisitions and incurred a loss of 2,800 subscribers,
excluding the acquired subscribers, due to lower retention. The Company believes
the lower retention is due to lower commodity prices in the Agriculture industry
and the Galaxy IV satellite outage. The Kavouras acquisition contributed $4.5
million of subscription revenue on a consolidated basis to the Weather Services
division of the Company. This revenue accounted for 24% of the $18.3 million
increase in the Company's subscription revenues.
The Company continues to add new subscribers at higher subscription rates.
Subscription revenue per subscriber, per month for all new subscription sales in
1998 was $77 compared to $68 for 1997. The increase in subscribers from new
subscription sales and acquisitions resulted in total subscription revenues on a
per subscriber per month basis to increase for 1998 to $62.63 compared to $55.10
for 1997.
At December 31, 1998, 91% of total subscribers were receiving service via
Ku-band satellite transmission compared to 90% in 1997. The price of Ku-band
satellite delivered services ranged from $37 for monochrome DTN AgDaily to $180
for the color DTNstant service during 1998. The price of Ku-band satellite
delivered services ranged from $37 for monochrome DTN AgDaily to $170 for color
DTNstant service during 1997. The price of the monochrome FM delivered DTN
AgDaily (the only FM service) was $31 in 1998 and $29 in 1997.
The subscribers converting to higher priced services includes those that
switched from the monochrome FM or Ku-band satellite DTN AgDaily priced at $54
38
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<PAGE>
in 1998 and $52 in 1997. Subscribers continued to convert from color Ku-band
satellite DTN AgDaily service to color Ku-band satellite DTN Pro Series ranging
in price from $67 in 1998 and $63 in 1997 for one Pro Series service, to $81 in
1998 and $79 in 1997 for all four Pro Series services (DTN Premier). The DTN
Premier and Stock Pro, DTN Premier Plus, was priced at $84 a month in 1998 and
$82 a month in 1997.
Equipment Sales - The Company's July 1, 1998 acquisition of Kavouras,
Inc., in Minneapolis, added a new market niche for the Company, the manufacture
and sale of various meteorological equipment and radar systems. The Kavouras
acquisition added $4.8 million of meteorological equipment and radar sales for
1998. This accounted for the majority of the Company's equipment sales for 1998.
Additional Services - The Company increased the number of information
services through "a la carte" optional services (230 in 1998 versus 200 in
1997). The growth in services, subscribers and marketing efforts resulted in a
5% increase in additional service revenues. The revenue increased on a per
subscriber per month basis to $3.70 in 1998 compared to $3.65 in 1997.
Communication Services - The growth in communications revenue was
primarily in the Energy Services division. The DTNergy service transmits refiner
prices and communications to wholesaler/subscribers. The number of refiner
communications increased and produced a revenue growth of 7% in 1998 over 1997.
The revenue increased on a company wide per subscriber per month basis to $5.65,
up from $5.47 in 1997.
Advertising - Advertising revenue fell 9% to $3.5 million for 1998,
compared to $3.8 million for 1997. Advertising had a record year in 1997 fueled
by strong advertising related to new product introductions by companies in the
agriculture industry. The Agricultural Services division accounts for the
majority of advertising revenues, therefore, the recent downturn in the
agriculture economy has negatively impacted the 1998 advertising revenues of the
Company. Advertising revenue on a per subscriber per month basis for 1998 was
$1.81 compared to $2.07 for 1997.
Service Initiation Fees - Service initiation fees, the Company's up-front
one-time charges to new subscribers ranged from $95 to $530 in 1998 and $150 to
$495 in 1997 depending on the service and information distribution technology.
Initiation fees for subscribers that convert to another service or change
delivery technology (such as FM to Ku) ranged from $50 to $100 depending on the
service in 1998 and 1997. Service initiation fees revenue for 1998 fell 29% to
$3.3 million compared to $4.6 million for 1997. This decline is due to slower
sales in the Agricultural Services division, the direct result of the weak
agricultural economy, and the inability of the Company's sales force to focus on
new sales while assisting subscribers for three months related to the satellite
outage.
Expenses
Total operating expenses for 1998 increased 27% to $144.8 million compared
to $114.0 million for 1997. Excluding the $5.8 million of non-recurring
satellite costs related to Galaxy IV, total expenses for 1998 increased 22%
compared to 1997. The increase in total operating expenses, excluding
non-recurring satellite costs, was primarily due to the Company's growth in
subscribers, initiatives to expand distribution programs, the $11.2 million of
operating expenses from the Kavouras operations (including $4.1 million of costs
of equipment sales) and the amortization expense from other acquisitions. Total
operating expenses (excluding sales commissions, cost of equipment sales and
non-recurring satellite costs) increased on a per subscriber per month basis to
$64.85 for 1998 compared to $56.69 for 1997.
Selling, General & Administrative - Selling, general and administrative
expenses on a per subscriber per month basis for 1998 increased to $39.25
compared to $33.65 for 1997. These costs increased in 1998 as a result of
expenses associated with acquisitions and the initiatives to expand distribution
programs. Selling, general and administrative expenses in 1998 grew 21% compared
to 1997 and as a percentage of revenue increased to 50% compared to 49% in 1997.
Selling, general and administrative expenses, excluding selling, general and
administrative related to the Kavouras operations, grew 13% in 1998 compared to
1997.
Cost of Equipment Sales - Cost of equipment sales for 1998, was $4.2
million. These expenses were primarily the direct result of the Kavouras
acquisition which brought a new market niche for the Company, the manufacture
and sale of various meteorological equipment and radar systems.
Sales Commissions - Sales commissions are generated from new subscriptions
sales force and cash flows related to the DTNergy service. Sales commissions
increased 12% during 1998 compared to 1997. This increase is due to incentive
programs to the national sales force and sales management related to initiatives
to expand distribution programs. Sales commissions, excluding sales commissions
related to the Kavouras operations, grew 7% in 1998 compared to 1997.
Depreciation and Amortization - Depreciation and amortization expense for
1998 increased 15% to $48.9 million compared to $42.3 million for 1997. These
increases are primarily due to the increase in subscriber equipment for the
added subscribers, increase in subscriber equipment inventory and amortization
related to the intangible assets (primarily goodwill) from acquisitions. As a
percentage of total revenues, depreciation and amortization expense for 1998 and
1997 remained level at 33%. Depreciation and amortization expense for 1998,
excluding depreciation and amortization related to the Kavouras operations, grew
11% in 1998 compared to 1997.
Operating Income
Operating income (EBIT) for 1998 decreased 66% to $4.2 million compared to
$12.4 million for 1997. Excluding the $5.8 million non-recurring satellite costs
related to Galaxy IV, operating income for 1998 was $10.0 million compared to
$12.4 million for 1997. These decreases in operating income for 1998 are
primarily related to lower operating income from acquired operations due to
39
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<PAGE>
lower operating cash flow margins and increased amortization expense.
Amortization expense related to acquisitions was $8.4 million for 1998 compared
to $5.9 million for 1997.
Interest Expense
Interest expense for 1998 decreased 7% to $8.4 million compared to $9.1
million for 1997. In the first quarter of 1998 the Company refinanced its 11.25%
Senior Subordinated Notes down to 7.5% Senior Term notes which had a direct
impact on interest expense in 1998 compared to 1997. As a percentage of total
revenue, interest expense for 1998 decreased to 6% compared to 7% for 1997.
Other Income, Net
During 1998, the Company received a federal income tax refund from amended
returns for prior years and as a result, recorded one time interest income of
$181,000 from those refunds.
Income Tax Provision (Benefit)
The Company's federal and state effective tax rate was 34% for both 1998
and 1997.
Income (Loss) Before Extraordinary Item
The loss before extraordinary item for 1998 was $2.7 million or $.24 per
share on a diluted basis compared to income of $2.2 million or $.19 per share
for 1997. Excluding the nonrecurring satellite costs, the income before
extraordinary item for 1998 would have been $1.0 million or $.09 per share on a
diluted basis.
Extraordinary Item, Net of Tax
During the first quarter of 1998, the Company refinanced the $15,000,000
11.25% Senior Subordinated Notes due 2004 with 7.5% Senior Term Notes. The
Company incurred a one-time charge to earnings of $1.1 million, net of tax, or
$.09 per share on a diluted basis. This one-time charge was for the pre-payment
penalties and write-offs for debt issuance and discount costs not fully
amortized related to the subordinated notes.
Net Income (Loss)
The net loss for 1998 was $3.7 million or $.33 per share on a diluted
basis compared to net income of $2.2 million or $.19 per share for 1997.
Excluding the non-recurring satellite costs and the extraordinary item discussed
above, the net income for 1998 would have been $1.0 million or $.09 per share on
a diluted basis.
1997 COMPARED TO 1996
The growth in subscribers, revenues and operating cash flow during 1997
highlighted another very good year for the Company. The operating results for
1997 include twelve months of the Broadcast Partners operations compared to
approximately eight months in 1996. The Broadcast Partners operations are
included in the Agricultural Services division of the Company. Operating income
improvement combined with lower interest expense as a percentage of revenue
resulted in positive earnings for the year.
<TABLE>
<CAPTION>
Percent
In Thousands 1997 1996 Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Subscribers 158.8 145.9 9%
Revenues $126,374 $98,384 28%
Operating cash flow 54,699 40,377 35%
Operating income 12,383 6,921 79%
Net income (loss) 2,236 (958) -
</TABLE>
Revenues
Total revenue increased 28% in 1997 compared to 1996 and all operating
revenue categories made good contributions to this increase. Recurring operating
revenues consisting of subscriptions, additional services, communications and
advertising increased to $66.29 per subscriber per month in 1997 compared to
$60.92 in 1996.
Subscriptions:
A 9% growth in total subscribers, the mix of higher priced services,
inflationary price increases and acquisitions led to 35% growth in subscription
revenue. Subscription revenue related to the Broadcast Partners operations
accounted for 35% of the $27,990,639 total revenue growth in 1997 compared to
1996. At December 31, 1997, 90% of total subscribers were receiving service via
Ku-band satellite transmission compared to 88% in 1996. All acquired subscribers
were receiving service via Ku-band satellite transmission. Subscription revenue
on a per subscriber per month basis increased to $55.10, compared to $49.24 in
1996.
The price of Ku-band satellite delivered services ranged from $37 for
monochrome DTN AgDaily to $170 for the color DTNstant service during 1997. The
price of Ku-band satellite delivered services ranged from $35 for monochrome DTN
AgDaily to $160 for color DTNstant service during 1996. The price of the
monochrome FM delivered DTN AgDaily (the only FM service)was $29 in 1997 and $27
in 1996.
The subscribers converting to higher priced services includes those that
switched from the monochrome FM or Ku-band satellite DTN AgDaily priced at $52
in 1997 and $50 in 1996 ($46 prior to June 1, 1996). Subscribers continued to
convert from the color Ku-band satellite DTN AgDaily service to the color
Ku-band satellite DTN Pro Series which ranged in price from $63 ($59 prior to
June 1, 1996), for one Pro Series service, to $79 ($74 prior to June 1, 1996),
for all four Pro Series services (DTN Premier), in both 1997 and 1996. The DTN
Premier and Stock Pro, DTN Premier Plus, was priced at $82 a month in 1997 and
$82 a month in 1996 ($78 prior to June 1, 1996).
Additional Services:
The Company increased the number of information services through "a la
carte" optional services (200 in 1997 versus 180 in 1996). The growth in
services combined with growth of total subscribers and the acquisition of
Broadcast Partners resulted in a 16% increase in additional service revenues.
Additional services revenue related to the Broadcast Partners operations
accounted for 38% of the $901,955 growth in 1997 compared to 1996. The revenue
decreased on a per subscriber per month basis to $3.65 in 1997 compared to $3.80
in 1996.
40
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<PAGE>
Communications Services:
The growth in communications revenue was primarily in the DTNergy service.
The DTNergy service transmits refiner prices and communications to
wholesaler/subscribers. The number of refiner communications increased and
produced a revenue growth of 14% over 1996. The revenue decreased on a company
wide per subscriber per month basis to $5.47, down from $5.78 in 1996. This
decrease is due to spreading communications revenue over a larger base of
subscribers, with the largest increase coming from the acquisition of Broadcast
Partners in 1996.
Advertising:
Advertising revenue grew 19% to $3,809,748 in 1997 compared to $3,198,321
in 1996. This growth was due to an increase in the acceptance of the color
system as an electronic medium, the acquisition of Broadcast Partners and less
discounting due to the increased subscriber base associated with the
acquisition. Advertising revenue related to the Broadcast Partners operations
accounted for 81% of the $611,427 growth in 1997 compared to 1996. Advertising
revenue remained flat on a company wide per subscriber per month basis at $2.07
in 1997, compared to $2.10 in 1996.
Service Initiation Fees:
Service initiation fees, the Company's up-front one-time charges to new
subscribers ranged from $150 to $495 in 1997 and 1996 depending on the service
and information distribution technology. Initiation fees for subscribers that
convert to another service or change delivery technology (such as FM to Ku)
ranged from $50 to $100 depending on the service in 1996 and 1997. The total
fees collected decreased 17% in 1997 to $4,625,487 compared to $5,560,049 in
1996. The increased sales volume in 1997 compared to 1996 was offset by the
recognition of deferred revenues during 1996 for initiation fees received in the
prior year. Service initiation fees are recognized in income since these fees
are less than the marketing and setup costs related to a new subscriber.
Expenses
Total operating expenses increased 25% in 1997 over 1996. This increase
was due to a 26% increase in selling, general and administrative costs, a 9%
increase in sales commissions and a 26% increase in depreciation and
amortization. These expenses (excluding the sales commission costs) increased on
a per subscriber per month basis to $56.69 in 1997 compared to $54.07 in 1996.
Selling, General and Administrative:
Selling, general and administrative expenses on a per subscriber per month
basis increased to $33.65, up from $32.12 in 1996. These costs were up modestly
due to efficiency gains from spreading costs over a larger base of subscribers
obtained from increased sales from expanding the sales force and acquisitions.
Selling, general and administrative expenses as a percentage of revenue
decreased from 50% in 1996 to 49% in 1997. Selling, general and administrative
expenses growth, excluding the selling, general and administrative expenses
related to Broadcast Partners, was 20% in 1997 compared to 1996.
Sales Commissions:
Sales commissions are generated from new subscriptions sales and cash
flows related to the DTNergy service. Sales commissions increased 9% during 1997
compared to 1996. This increase is due to higher subscriptions sales, incentive
programs to the national sales force and sales management related to an
expanding sales force and higher cash flows in DTNergy. Sales commissions
growth, excluding sales commissions related to Broadcast Partners, was 10% in
1997 compared to 1996.
Depreciation and Amortization Expense:
Depreciation and amortization expense increased primarily due to the
purchase of $21,137,267 of new equipment used by subscribers and the acquisition
of Broadcast Partners. On May 3, 1996, the Company acquired and capitalized
approximately $38.2 million of equipment and $34.8 million of intangible
assets(goodwill) related to the acquisition. The Company began using a six year
life for depreciating subscriber equipment in July of 1992 compared to an eight
year life prior to the change. The Company is depreciating the equipment
acquired in the acquisition of Broadcast Partners using the straight-line method
over five years and is amortizing the intangible assets (goodwill) using the
straight-line method over three to eight years beginning in May of 1996.
Operating Income
Operating income increased 79% to $12,383,403, up from $6,920,791 in 1996
as a result of the growth in revenues and expenses discussed above. Operating
cash flow grew 35% to $54,698,708, up from $40,377,428 in 1996.
Interest Expense
Interest expense increased 8% in 1997 compared to 1996. This increase is
related to the increase in total long-term debt outstanding to finance equipment
used by subscribers and acquisitions. The Company borrowed $48,490,000 in 1996
to acquire Broadcast Partners. The Company decreased the revolving credit line
borrowing from $38,500,000 at December 31, 1996 to $4,500,000 at December 31,
1997. This decrease was primarily the result of the Company converting
$38,000,000 of revolving debt to term debt at the end of the first quarter of
1997.
Income Tax Provision (Benefit)
The Company's federal and state effective tax rate was 34% and 32% for
1997 and 1996, respectively.
Net Income (Loss)
The net income for 1997 was $2.2 million or $.19 per share on a diluted
basis compared to a net loss of $1.0 million or $.09 per share for 1996.
41
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Management's Responsibility for Financial Statements
- -------------------------------------------------------------------------------
To Our Stockholders:
The management of Data Transmission Network Corporation is responsible for
the preparation, integrity and objectivity of the accompanying financial
statements and related notes. To meet these responsibilities, we maintain a
system of internal controls to provide reasonable assurance that assets are
safeguarded and transactions are properly authorized and recorded.
The financial statements have been prepared in conformity with generally
accepted accounting principles and include amounts based upon our estimates and
judgments, as required. The financial statements have been audited by Deloitte &
Touche LLP who have expressed their opinion, presented below, with respect to
the fairness of the statements. Their audit included a review of the system of
internal control and tests of transactions to the extent they considered
necessary to render their opinion.
The Audit Committee of the Board of Directors is composed solely of
outside directors. The Audit Committee meets periodically with our independent
auditors and management to review accounting, auditing, internal control and
financial reporting matters.
/s/ Roger R. Brodersen /s/Brian L. Larson
Chairman of the Board Vice President
Chief Executive Officer Chief Financial Officer and Secretary
Independent Auditor's Report
- -------------------------------------------------------------------------------
Board of Directors and Stockholders
Data Transmission Network Corporation
We have audited the accompanying consolidated balance sheets of Data
Transmission Network Corporation and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Data Transmission Network
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Omaha, Nebraska
February 12, 1999
42
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<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
As of December 31, 1998 and 1997
1998 1997
- --------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C>
Cash $ - $ 837,170
Accounts receivable, net of allowance for
doubtful accounts of $1,300,000 and $810,000 10,475,426 7,629,296
Inventory 3,575,580 -
Prepaid expenses 2,219,778 825,577
Deferred commission expense 2,695,475 3,302,972
--------------------------------------
Total Current Assets 18,966,259 12,595,015
Property and Equipment
Equipment Used By Subscribers 244,613,085 224,620,148
Equipment, Building and Leasehold Improvements 38,788,491 23,155,237
--------------------------------------
Total Property and Equipment 283,401,576 247,775,385
Less: Accumulated Depreciation 174,164,486 135,265,090
--------------------------------------
Net Property and Equipment 109,237,090 112,510,295
Intangible Assets From Acquisitions, 82,266,913 44,493,486
Less: Accumulated Amortization 18,121,533 9,728,684
--------------------------------------
Net Intangible Assets 64,145,380 34,764,802
Other Assets 4,836,353 2,560,786
--------------------------------------
$197,185,082 $162,430,898
- --------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 5,820,579 $ 6,985,053
Accrued expenses 8,963,856 5,319,506
Current portion of long-term debt 21,628,542 21,810,833
--------------------------------------
Total Current Liabilities 36,412,977 34,115,392
Long-Term Debt 100,619,998 58,248,540
Subordinated Long-Term Notes, net of unamortized
discount of $357,170 - 14,642,830
Equipment Deposits 653,753 484,017
Unearned Revenue 27,348,468 22,743,946
Shareholders' Equity
Common stock, par value $.001, authorized
20,000,000 shares, issued 11,516,392 and 11,148,052 11,516 11,148
Paid-in capital 35,022,787 31,326,683
Retained earnings (deficit) (2,884,417) 858,342
--------------------------------------
Total Shareholders' Equity 32,149,886 32,196,173
--------------------------------------
$197,185,082 $162,430,898
The accompanying notes are an integral part of these financial statements.
</TABLE>
43
- 777 -
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C>
Subscriptions $119,543,225 $101,194,290 $75,019,826
Equipment sales 4,871,481 - -
Additional services 7,059,007 6,694,754 5,792,799
Communication services 10,787,952 10,050,073 8,812,718
Advertising 3,455,194 3,809,748 3,198,321
Service initiation fees 3,269,487 4,625,487 5,560,049
148,986,346 126,374,352 98,383,713
Expenses
Selling, general and administrative 74,919,319 61,790,861 48,944,027
Cost of equipment sales 4,192,737 - -
Sales commissions 11,060,492 9,884,783 9,062,258
Depreciation and amortization 48,850,622 42,315,305 33,456,637
Non-recurring satellite costs 5,800,000 - -
144,823,170 113,990,949 91,462,922
Operating Income 4,163,176 12,383,403 6,920,791
Interest expense 8,449,668 9,098,231 8,432,270
Other income, net 217,929 121,909 107,173
Income (Loss) Before Income Taxes and Extraordinary Item (4,068,563) 3,407,081 (1,404,306)
Income tax provision (benefit) (1,402,684) 1,171,000 (446,000)
Income (Loss) Before Extraordinary Item (2,665,879) 2,236,081 (958,306)
Extraordinary Item, Net of tax 1,076,880 - -
Net Income (Loss) $(3,742,759) $ 2,236,081 $ (958,306)
- ---------------------------------------------------------------------------------------------------------------
Basic Income (Loss) Per Share
Income (loss) before Extraordinary Item $ (0.24) $ 0.20 $ (0.09)
Extraordinary Item, net of tax (0.09) - -
- ---------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (0.33) $ 0.20 $ (0.09)
- ---------------------------------------------------------------------------------------------------------------
Diluted Income (Loss) Per Share
Income (loss) before Extraordinary Item $ (0.24) $ 0.19 $ (0.09)
Extraordinary Item, net of tax (0.09) - -
- ---------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (0.33) $ 0.19 $ (0.09)
- ---------------------------------------------------------------------------------------------------------------
Basic Shares Outstanding 11,358,934 11,100,684 10,657,893
Diluted Shares Outstanding 11,358,934 12,082,556 10,657,893
</TABLE>
44
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<PAGE>
Consolidated Statement of ShareHolders' Equity
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Retained Total
Common Common Paid-in Earnings Treasury Shareholders'
Shares Stock Capital (Deficit) Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,375,409 $ 3,375 $ 14,422,689 $ (497,687) $ (1,051,412) $12,876,965
Treasury stock issued on exercise
of employee stock options - - 51,391 709,239 760,630
Tax benefit related to exercise
of employee stock options - 634,000 - - 634,000
Issuance of common stock on
acquisitions 316,000 316 14,976,684 - - 14,977,000
Three-for-one stock split 7,382,816 7,383 (7,383) - - -
Net loss - - (958,306) - (958,306)
------------------------------------------------------------------------------------------
Balance, December 31, 1996 11,074,224 $ 11,074 $ 30,025,990 $ (1,404,602) (342,173) $28,290,289
Treasury stock issued on exercise
of employee stock options - - 26,863 342,173 369,036
Issuance of common stock on
exercise of employee stock options 73,828 74 625,693 - - 625,767
Tax benefit related to exercise
of employee stock options - 675,000 - - 675,000
Net income - - 2,236,081 - 2,236,081
------------------------------------------------------------------------------------------
Balance, December 31, 1997 11,148,052 $ 11,148 $ 31,326,683 $ 858,342 $ - $32,196,173
Issuance of common stock on
exercise of employee stock options 368,340 368 2,677,308 - - 2,677,676
Tax benefit related to exercise
of employee stock options - 688,796 - - 688,796
Issuance of warrants on
an acquisition - 330,000 - - 330,000
Net loss - - (3,742,759) - (3,742,759)
------------------------------------------------------------------------------------------
Balance, December 31, 1998 11,516,392 $ 11,516 $ 35,022,787 $ (2,884,417) - $32,149,886
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
- 779 -
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C> <C>
Net income (loss) $ (3,742,759) $ 2,236,081 $ (958,306)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 48,850,622 42,315,305 33,456,637
Amortization of debt issue costs and discount 38,437 147,880 139,694
Extraordinary loss on early extinguishment of debt 1,682,880 -
Deferred income taxes (1,254,753) 1,056,000 (480,000)
Change in assets and liabilities:
Accounts receivable (1,721,398) (1,278,437) (63,634)
Inventory 1,144,102 - -
Prepaid expenses (851,447) (180,068) (21,839)
Deferred commission expense 614,502 (400,469) (310,792)
Deferred debt issuance costs - - (112,078)
Accounts payable (3,151,545) 518,361 (1,947,116)
Accrued expenses (2,091,048) (1,113,749) (149,687)
Equipment deposits (542,752) (51,175) (26,578)
Unearned revenue 3,441,028 4,293,666 4,251,166
----------------------------------------------------
Net Cash Provided By Operating Activities 42,415,869 47,543,395 33,777,467
Cash Flows From Investing Activities
Capital expenditures:
Equipment used by subscribers (20,341,583) (21,137,267) (37,424,684)
Equipment, building and leasehold improvements (8,803,636) (3,367,535) (3,120,125)
Acquisitions (37,621,363) (5,687,196) (65,745,794)
----------------------------------------------------
Net Cash Used By Investing Activities (66,766,582) (30,191,998) (106,290,603)
Cash Flows From Financing Activities
Proceeds:
Revolving credit line 51,000,000 4,000,000 17,250,000
Term notes 16,000,000 - 48,490,000
Exercise of stock options 2,677,676 994,803 760,630
Issuance of common stock - - 14,977,000
Payments:
Term notes (24,810,833) (22,217,083) (9,036,459)
Debt acquired through acquisitions (5,228,300) - -
Subordinated notes and prepayments costs (16,125,000) - -
------------------------------------------------------
Net Cash Provided (Used) By Financing Activities 23,513,543 (17,222,280) 72,441,171
------------------------------------------------------
Net Increase (Decrease) in Cash (837,170) 129,117 (71,965)
Cash at Beginning of Period 837,170 708,053 780,018
------------------------------------------------------
Cash at End of Period $ - $ 837,170 $ 708,053
The accompanying notes are an integral part of these financial statements.
</TABLE>
46
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<PAGE>
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
- -------------------------------------------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Data
Transmission Network Corporation and its wholly owned subsidiaries (the Company
or DTN). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Revenue Recognition
The Company provides its subscribers with equipment to receive information
and communications service. DTN charges a recurring subscription fee and in most
instances a one-time service initiation fee. The subscriptions are contracted
for an initial period of one year and are generally billed quarterly in advance.
Payments received in advance for subscriptions, additional services and
advertising are deferred and recognized as the services are provided to the
subscribers. Equipment Sales are recognized when the equipment is shipped.
Service initiation fees are recognized in income since these fees are less than
the marketing and setup costs related to a new subscriber. Communication
services are generally billed monthly in arrears based on the number and length
of the messages delivered to subscribers.
Inventory
Inventories are stated at the lower of cost or market with cost determined
on a first in, first out basis.
Deferred Commission Expense
Commissions and bonuses which are paid at the time of the initial
subscription to sales representatives, to company representatives, or to
subscribers for successful customer referrals, are deferred and expensed over
the initial twelve-month subscription period.
Equipment Used By Subscribers
Equipment used by subscribers to receive the Company's electronically
transmitted information and communication services is stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over a useful life of three to eight years for assets placed in service
prior to July 1, 1992, and three to six years for assets placed in service
subsequent to July 1, 1992.
Equipment, Building and Leasehold Improvements
Equipment, building and leasehold improvements are stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the respective classes of assets as
follows:
Equipment 2-7 years
Building 40 years
Leasehold improvements 5-10 years
Intangible Assets
Intangible assets are stated at cost less accumulated amortization. These
costs are amortized using the straight-line method over three to ten years. The
carrying value of fixed and intangible assets is periodically assessed by the
Company by reviewing the recoverability of the assets over the amortization
period based on the projected undiscounted future cash flows of the related
business unit. Cash flow projections are based on trends of historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competition and economic conditions.
Income Taxes
Income taxes are computed in accordance with the provisions of Statement
of Financial Accounting Standard 109, "Accounting for Income Taxes" (SFAS 109).
The objective of the statement is to recognize the amount of taxes payable or
refundable in the current year and to recognize deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in
the financial statements or tax returns.
Earnings (Loss) Per Share
Basic earnings per share data are based on the weighted average
outstanding common shares during the period. Diluted earnings per share data are
based on the weighted average outstanding common shares and the effect of all
dilutive potential common shares, including stock options and warrants.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents. During the years ended December 31, 1998, 1997 and 1996,
the Company made interest payments of $8,367,000, $8,983,000, and $8,555,000,
respectively. Capital expenditures for subscriber equipment included in accounts
payable at year end totalled $342,000, $1,105,000 and $1,394,000 at December 31,
1998, 1997 and 1996, respectively. The Company paid $136,000 of federal income
taxes in 1998 and no federal income taxes during 1997 or 1996. At December 31,
1996, $931,700 of the purchase price for acquired subscribers was due in future
periods and was included in accounts payable.
Research and Development
Expenditures for research and development are charged to expense as they
are incurred and approximated $4,423,000, $3,059,000 and $2,263,000 for the
years ended December 31, 1998, 1997, and 1996.
Stock-Based Compensation
The Company accounts for its stock-based compensation under the provisions
of Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees (APB 25).
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 these estimates.
47
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<PAGE>
Fair Value of Financial Instruments
Because of their maturities and/or interest rates, the Company's financial
instruments generally have a fair value approximating their carrying value.
These instruments include accounts receivable, revolving credit and term
borrowings, subordinated debt, commercial paper, and trade payables. The Company
has $49,822,540 of fixed term debt as of December 31, 1998 with an estimated
fair value of $50,395,940.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which will be effective for fiscal years beginning after June 15,
1999. The Company will adopt this Statement effective January 1, 2000. At this
time, the Company believes the impact of adopting this Statement should not be
significant to the results of operations or financial position.
Non-recurring Satellite Costs (Galaxy IV)
On May 20, 1998, nearly all of the Company's 159,000 subscribers were
unable to receive their data due to loss of control of the Galaxy IV satellite
by PanAmSat. This satellite was used by the Company to transmit service to
nearly all its subscribers.
The costs related to the failure of Galaxy IV include telecommunications,
overtime labor, satellite costs and customer communications and these unusual,
non-recurring satellite costs were estimated to be $5.8 million and recorded in
May of 1998.
2. Acquisitions
- -------------------------------------------------------------------------------
Broadcast Partners
In May of 1996, the Company acquired substantially all the assets of
Broadcast Partners, an electronic information and communication services company
providing similar services as DTN AgDaily in the agricultural industry. The
Company paid $63.5 million cash and assumed certain "non-interest" bearing
liabilities of approximately $9.8 million. The Company received 39,000
agricultural subscribers in this acquisition.
The $63.5 million cash paid for the Broadcast Partners acquisition was
financed with a combination of $15 million of privately placed common stock
equity (948,000 shares) and $48.5 million of six year term notes (see note 5).
The Company acquired and capitalized approximately $38.2 million of equipment.
The Company is depreciating this equipment using the straight-line method over
five years. The Company capitalized approximately $34.8 million as an intangible
asset (primarily goodwill) and is amortizing this cost using the straight-line
method over three to eight years.
Market Quoters, Northern Data and Market Communications Group LLC
During the first quarter of 1997, the Company acquired 2,900 real-time
commodity subscribers through two separate acquisitions. Approximately 500 of
the subscribers were acquired from Market Quoters and Northern Data Services for
$750,000 cash. The remaining 2,400 subscribers were acquired from Market
Communications Group, LLC (MCG), a joint venture between Reuters America, Inc.,
and Farmland Industries, Inc. The Company paid $3.6 million cash for the 2,400
subscribers, certain assets and assumed certain liabilities. In total, the
Company capitalized approximately $4.5 million as an intangible asset (primarily
goodwill) and is amortizing this cost using the straight-line method over three
to eight years. The MCG acquisition included the preferred rights to distribute
relevant Reuters real-time news and information to the commodities, energy and
metals markets.
The Network, Inc.
In July of 1997, the Company acquired the assets of The Network, Inc., an
electronic cotton trading network service. The Company agreed to pay $1,000,000
cash over five years. The Company has the option to terminate the agreement at
any time and cease all payments and return the assets to the owner. The Company
paid $200,000 cash in 1997 and 1998 and will pay $200,000 cash on each of the
next three anniversary dates. The Company is capitalizing the $200,000 payments
when made as an intangible asset (primarily goodwill) and amortizing this cost
using the straight-line method over 12 months. To date the Company has
capitalized a total of $500,000. In effect, if all payments are made, the
Company is amortizing the $1,000,000 purchase price over five years.
Arkansas Farm Bureau ACRES Service
In October of 1997, the Company agreed to acquire the approximately 700
subscribers on the ACRES platform from the Arkansas Farm Bureau (AFB). The
Company agreed to pay approximately $600 for each subscriber that converted to a
DTN service. The Company has converted 628 subscribers to a DTN service. In
addition, the Company will pay the AFB a $6 monthly residual for the lesser of
the life of the subscriber or ten years for those subscribers converting to a
DTN service. The Company capitalized $376,800 as an intangible asset and is
amortizing this cost using the straight-line method over eight years.
Market Information of Colorado, Inc.
In February of 1998, DTN acquired 100 subscribers receiving real-time
commodities and futures information from Market Information of Colorado, Inc.
(MIC) for $135,000 cash. The Company capitalized $133,205 as an intangible asset
and is amortizing this cost using the straight-line method over eight years.
CDS Group, Inc.
In March of 1998, DTN acquired CDS Group, Inc. (CDS) for $250,000 cash and
the assumption of certain liabilities. CDS is engaged in the business of
marketing software for tracking bales of cotton for businesses in the cotton
industry. This acquisition complements the acquisition of The Network, Inc., an
electronic cotton trading network (discussed above). The Company has capitalized
48
- 782 -
<PAGE>
$325,300 as an intangible asset (goodwill) and is amortizing this cost using the
straight-line method over five years.
SmartServ Online, Inc.
In April of 1998, DTN signed an agreement to acquire exclusive rights to
market the Internet based financial services information products of SmartServ
Online, Inc. their internet information distribution technology, and their
subscribers for $850,000 cash plus $1,055,000 for minimum payments for the first
twelve months of the contract. These services include: SmartServ Pro, now
DTN.IQ, a real-time, tick-by-tick stock quote and news service, and TradeNet and
BrokerNet, real-time trading and account information services for the brokerage
industry. This agreement transfers the 850 subscribers currently using SmartServ
Online to DTN. All new subscribers to these services will be DTN customers and
DTN will pay SmartServ Online, Inc. an ongoing royalty based on revenues. The
first year minimum payments in excess of the calculated payments has been
capitalized as part of the purchase price. The Company has capitalized
$1,905,000 as an intangible asset and is amortizing this cost using the
straight-line method over five years.
National Datamax, Inc.
In June of 1998, DTN signed an agreement to acquire 100% of the capital
stock outstanding of National Datamax, a software development and information
services firm specializing in integrated systems for the financial information
services industry. DTN has agreed to pay $3,000,000 cash, assume the assets and
liabilities of National Datamax, Inc., plus pay any earn-out based upon revenue
growth from quarter ending December 31, 1997, through quarter ending September
30, 1999. National Datamax is a wholly owned subsidiary of DTN and operates out
of California. The Company has capitalized $3,242,930 as an intangible asset
(primarily goodwill) and is amortizing this cost using the straight-line method
over three to five years.
Kavouras, Inc.
In July of 1998, DTN signed an agreement to acquire 100% of the capital
stock outstanding in Kavouras, Inc. 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. The Company agreed to assume the
assets and liabilities of Kavouras, Inc. and pay $22,650,000 cash of which
$20,650,000 was paid at closing. The remaining $2,000,000 cash will be paid out
in equal $400,000 payments over the next five anniversary dates of closing.
Kavouras is a wholly owned subsidiary of DTN and operates out of Minnesota under
the name DTN Kavouras Weather Services. The Company has capitalized $18,208,749
as an intangible asset (primarily goodwill) and is amortizing this cost using
the straight-line method over five to ten years.
In a related transaction, in April of 1998, Kavouras signed a License
Agreement with Earthwatch Communication, Inc. for the exclusive rights to use,
market license and sell the Licensed Products of a U.S. Patent which provides a
"Method for Creating a 3D Image of Terrain and Associated Weather." In
conjunction with the acquisition agreement, an Assignment Agreement was signed
on March 30, 1998, between Kavouras and the Company to assign this License to
DTN Market Communications Group, Inc., a wholly owned subsidiary of the Company.
As a result of this assignment, the Company paid $3,000,000 cash for the License
Agreement with Earthwatch Communication, Inc., which is being capitalized as an
intangible asset and amortized using the straight-line method over ten years.
Paragon Software, Inc.
In October of 1998, the Company acquired 100% of the capital stock
outstanding in Paragon Software, Inc. (PSI), subject to a re-purchase by a third
party. PSI provides financial information services to subscribers via the
Internet. The Company agreed to pay $5.7 million to acquire the stock and assume
the assets and liabilities of the company. The Company has capitalized
$6,474,910 as an intangible asset (primarily goodwill) and is amortizing this
cost using the straight-line method over three to five years.
The acquisition of PSI was part of an overall plan to acquire a
controlling interest in two other companies. Without those acquisitions
occurring prior to December 31, 1998, a third party has the right to purchase
PSI from the Company at the Company's initial cost. The acquisitions were not
completed by December 31, 1998 (due to circumstances beyond the Company's
control) and the third party has indicated their intentions to purchase Paragon.
If the third party does not obtain the financing and purchase Paragon by June
30, 1999, Paragon will remain an asset of DTN.
Weather Services Corporation
In December of 1998, the Company acquired 100% of the capital stock
outstanding in Weather Services Corporation (WSC). WSC provides meteorological
consulting and worldwide commercial weather information to internet, newspaper,
utilities, broadcasters, agribusinesses and municipalities. The Company agreed
to pay $3,807,700 cash to acquire the stock and assume certain liabilities plus
a warrant to purchase 20,000 shares of DTN's common stock at $34.00. The Company
has capitalized $3,806,533 as an intangible asset (goodwill) and is amortizing
this cost using the straight-line method over ten years. The fair value of the
warrant is included in shareholder's equity.
Pro Forma Financial Information
All of the acquisitions have been accounted for using the purchase method
of accounting. With the exception of National Datamax, Kavouras, PSI and WSC,
49
- 783 -
<PAGE>
the acquisitions in 1997 and 1998 were primarily acquisitions of subscribers and
not entire businesses. The following unaudited pro forma financial information
reflects the consolidated results of operations of the Company for the fiscal
years ended December 31, 1998 and 1997 as though the Kavouras, National Datamax
and WSC acquisitions, had occurred at the beginning of the period presented. The
remaining 1998 acquisitions were deemed not material in nature to the overall
operating statements of the Company, thus are excluded from the pro forma
information disclosure. The acquisition of PSI is excluded from the proforma
information as a result of the repurchase agreement discussed above. This
proforma information has been prepared for comparative purposes only and does
not necessarily represent actual operating results that may be achieved in the
future or that would have occurred had the acquisition been consummated on
January 1, 1997.
<TABLE>
<CAPTION>
Pro Forma December 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenues $161,544,338 $150,665,102
Income (loss) before
extraordinary item $ (5,684,895) $ (1,293,803)
Income (loss) per share before
extraordinary item
Basic $ (0.50) $ (0.12)
Diluted $ (0.50) $ (0.12)
</TABLE>
3. Inventories
- -------------------------------------------------------------------------------
Inventories are primarily related to the equipment sales as a result of
the acquisition of Kavouras. The major classes of inventory are as follows:
<TABLE>
<CAPTION>
December 31 1998
- -------------------------------------------------------------------------------
<S> <C>
Raw Materials $ 2,684,857
Work-in-Process 728,415
Finished Goods 162,308
$ 3,575,580
</TABLE>
4. Equipment, Building and Leasehold Improvements
- -------------------------------------------------------------------------------
Equipment, building and leasehold improvements are stated at cost. The
respective costs of the classes of assets are as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Equipment $ 33,198,540 $ 21,338,869
Building 2,460,486 -
Land 220,269 -
Leasehold improvements 2,909,196 1,816,368
- -------------------------------------------------------------------------------
Total $ 38,788,491 $ 23,155,237
</TABLE>
5. Long Term Debt And Loan Agreements
- -------------------------------------------------------------------------------
The Company has a revolving credit agreement, as amended, with a group of
banks (the "Revolving Credit Agreement"). The Revolving Credit Agreement, which
expires June 30, 2000 unless extended, provides for a total commitment of up to
$80,800,000 in new borrowings. As of December 31, 1998, $55,500,000 of the total
commitment had been borrowed, with the remaining $25,300,000 available to the
Company subject to certain restrictions as discussed below.
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------------------
Revolving Credit Agreement
<S> <C> <C>
Revolving credit line $ 55,500,000 $ 4,500,000
Term notes 34,421,875 35,151,040
Term Credit Agreement
Term notes $ 32,326,665 $ 40,408,333
- -------------------------------------------------------------------------------
Total Loan Agreements 122,248,540 80,059,373
- -------------------------------------------------------------------------------
Less current portion 21,628,542 21,810,833
- -------------------------------------------------------------------------------
Total Long-Term Debt $ 100,619,998 $ 58,248,540
</TABLE>
Additional borrowings under the Revolving Credit Agreement are available
to the Company, as long as at the time of the advance, no default exists with
any of the Company loan agreements and the ratio of the Company's total
borrowings to operating cash flow ("the Leverage Ratio") does not exceed
thirty-six. As of December 31, 1998 based on current operating cash flow, the
Company would be able to borrow all of the remaining $25,300,000 commitment
available.
In addition to the restrictions mentioned above with respect to advances,
total debt outstanding is limited to forty-eight times monthly operating cash
flow. The Company is required to maintain total stockholders' equity of at least
$23,500,000 plus fifty percent (50%) of net income (but not losses) at fiscal
year end through June 30, 2000. The minimum stockholders' equity required to be
maintained is $24,618,040 as of December 31, 1998. The Company is required to
maintain a ratio of quarterly operating cash flow to interest expense (as
defined) of at least 2.25 to 1. The Company is permitted to pay cash dividends
in any one year, which are, in the aggregate, less than 25% of the Company's net
operating profit after taxes in the previous four quarters.
Interest on the outstanding borrowings (prior to when the borrowings might
be converted to term loans, as discussed below) is at a variable rate, depending
on the ratio of the Company's total borrowings to operating cash flow (the
"Leverage Ratio"). The following table outlines the "Leverage Ratio", the
applicable Margin, Unused Commitment Fees and Fixed Note Margin discussed below.
<TABLE>
<CAPTION>
Unused Fixed
Commitment Note
Leverage Ratio Margin Fee Margin
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
more than 42 .250% .375% 2.25%
more than 36 and less than 42 .500% .250% 2.25%
more than 30 and less than 36 .750% .250% 2.00%
more than 24 and less than 30 1.000% .250% 2.00%
more than 18 and less than 24 1.250% .125% 1.75%
less than 18 1.375% .125% 1.75%
</TABLE>
The Revolving Credit Rate is the First National Bank of Omaha's "National
Base Rate", minus the applicable Margin. The base rate is adjusted monthly, with
50
- 784 -
<PAGE>
the interest rate margin (as defined on page 57) changed quarterly. As of
December 31, 1998, the Revolving Credit Rate is 6.75%.
The Company has the option to convert the outstanding revolving credit
borrowings to term loans at any time, payable in forty-eight fixed principal
installments, plus interest. Interest on the converted term loans is at the
Company's option, a variable interest rate of 1/4% over the Revolving Credit
Rate or at a fixed rate of 3/8% over the Revolving Credit Rate in effect on the
date of the notice (as defined) or the applicable Fixed Note Margin (based on
the "Leverage Ratio") over the average of the 3 and 5 year U. S. treasury
securities, as quoted in the prior month "Federal Reserve Statistical Release",
whichever is greater. Through a refinancing of Senior Subordinated Notes, as of
March 17, 1998, the Company converted $16,000,000 of revolving credit to term
notes accruing interest at the rate of 7.50% (see footnote 6). As of December
31, 1998, $55,500,000 of the total borrowings outstanding had not been converted
to term loans. As of December 31, 1998, $34,421,875 of term loans were
outstanding with monthly installments due up through 2002 having interest rates
ranging from 7.50% to 9.25%.
The Company pays a commitment fee of 1/8 - 3/8% on the unused portion of
the total revolving credit commitment based on the "Leverage Ratio". As of
December 31, 1998 the commitment fee was 1/4% on all unused revolving credit
commitment. In the event the total borrowings exceed 36 times Operating Cash
Flow, any term note accruing interest at less than 7.5% is included in a
"Trigger Event". The Company is obligated to pay the holders of such term notes
a fee of 0.375% of the outstanding balance of the notes upon the occurrence of
the Trigger Event and like amounts on the six month anniversary and the twelve
month anniversary of the Trigger Event. The Company has a Term Credit Agreement
with a group of banks providing for an aggregate principal amount of $48,490,000
to be repaid in 72 fixed principal installments which began January 31, 1997.
As of December 31,1998, the principal balance was $32,326,665 with
$16,926,000 accruing at a variable interest rate of the NY prime rate less
one-half of one percent, or 7.25% and the remaining $15,400,665 accruing at
fixed interest rates ranging from 8.25% to 8.36%.
<TABLE>
<CAPTION>
Minimum Principal Maturities of Long-Term Debt*
- -------------------------------------------------------------------------------
Year Ending December 31,
<S> <C>
1999 $ 21,628,542
2000 21,581,667
2001 14,456,667
2002 9,081,664
- -------------------------------------------------------------------------------
Total $ 66,748,540
<FN>
*Excluding revolving credit line.
</FN>
</TABLE>
The revolving credit lines are classified as long-term debt since the
Company has the ability and the intent to maintain these obligations for longer
than one year.
Substantially all of the Company's assets are pledged as collateral under
the Company's long-term debt and loan agreements.
6. Subordinated Long-Term Notes
- --------------------------------------------------------------------------------
On March 17, 1998, the Company refinanced its Senior Subordinated Notes
with 7.50% term notes with fixed principal payments plus interest. The Company
recorded an extraordinary loss for the pre-payment penalty of $1,125,000 or 7.5%
of the principal balance of $15,000,000 to retire the Subordinated Notes early.
In addition, $557,880 of debt issuance and discount costs related to the senior
subordinated notes were also recorded as an extraordinary loss in the first
quarter of 1998.
7. Income Taxes
- -------------------------------------------------------------------------------
Components of the income tax (benefit) provision are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 156,000 $ 115,000 $ 34,000
Deferred (1,558,684) 1,056,000 (480,000)
- -------------------------------------------------------------------------------
$(1,402,684) $1,171,000 $ (446,000)
</TABLE>
The income tax (benefit) provision differs from the (benefit) provision at
federal statutory rates for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal $(1,383,313) $1,158,000 $(477,000)
State Taxes (81,371) 68,000 (28,000)
Other 62,000 (55,000) 59,000
- -------------------------------------------------------------------------------
$(1,402,684) $1,171,000 $(446,000)
</TABLE>
Included in the extraordinary item, net of tax, is a federal deferred tax
benefit of $606,000. The components of deferred tax liability (asset) are as
follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ (4,910,000) $ (6,573,000)
Net operating loss carryforwards 8,630,000 8,101,000
Intangible assets (828,000) -
AMT Credits 860,000 235,000
Accruals and other 1,019,000 (417,000)
- -------------------------------------------------------------------------------
Net Deferred Asset $ 4,771,000 $ 1,346,000
</TABLE>
The Company had approximately $23,971,000 of unused net operating loss
(NOL) carryforwards at December 31, 1998. The NOL carryforwards will expire in
the years 2002 to 2018. In addition, the Company reflected in Other Assets at
December 31, 1997 approximately $911,000 relating to pending IRS refund claims.
This refund was collected in 1998.
51
- 785 -
<PAGE>
8. Capital Stock
- -------------------------------------------------------------------------------
The Company's articles of incorporation provide for the authorization of
1,000,000 shares of $.50 par value per share preferred stock. The preferred
stock, none of which has been issued, presently has no voting rights or other
features, although the articles of incorporation contain provisions to adopt
various features or privileges at the discretion of the Board of Directors.
In September 1992, the Company's Board of Directors authorized the
repurchase of up to 350,000 shares of the Company's outstanding common stock.
The purchases are to be made from time to time in the open market or in arranged
transactions at such price or prices as company officers may deem advisable. The
Company has purchased 150,000 shares of outstanding common stock since September
1992. The common stock repurchased may be used to provide shares for the
Company's existing stock options and warrants outstanding.
In June 1994, pursuant to the sale of subordinated debt, the Company
issued a warrant to purchase 75,000 shares of the Company's common stock at
$7.39 per share on or before June 30, 2004. At December 31, 1998 the warrant to
purchase 75,000 shares had not been exercised.
As part of the May 1996 acquisition of Broadcast Partners, the Company
sold 948,000 (split adjusted) shares through a private placement transaction.
During the second quarter of 1996, the Company effectuated a three-for-one
common stock split, payable June 28, 1996 to stockholders of record June 14,
1996. The stated par value of each share was not changed from $0.001. A total of
$7,383 was reclassified from the Company's additional paid in capital account to
the Company's common stock account.
In August of 1997, the Company adopted a shareholder rights plan with
respect to its Common Stock, under which the Board declared a dividend
distribution of one preferred shares purchase right to holders of each share of
Common Stock. The rights are not exercisable until ten days after a person or
group announces the acquisition of 11% or more of the Company's voting stock or
announces a tender offer for 11% or more of the Company's outstanding common
stock. Each right entitles the holder to purchase common stock at one half the
stock's market value. The rights are redeemable at the Company's option for $.01
per Right at any time on or prior to public announcement that a person has
acquired 11% or more of the Company's voting stock. The rights are automatically
attached to and trade with each share of Common Stock.
In December of 1998, pursuant to the purchase of Weather Services
Corporation, the Company issued a warrant to purchase 20,000 shares of the
Company's common stock at $34.00 per share on or before December 11, 2005. At
December 31, 1998 the warrant to purchase 20,000 shares had not been exercised.
9. Benefit Plan
- -------------------------------------------------------------------------------
The Company has a defined contribution plan under provisions of Internal
Revenue Code Section 401(k). All employees with at least one year of service may
participate in the plan. The Company matches the employee's contribution up to
4% of the employee's compensation, and may make additional discretionary
contributions. During 1998, 1997 and 1996, the Company contributed $1,029,000,
$848,000 and $671,000, respectively, to the plan as matching contributions.
10. Leases
- -------------------------------------------------------------------------------
The Company leases the right to subsidiary channel authorizations from FM
radio stations and satellite network transmission capacity to broadcast the
Company's information service to its subscribers. These leases are accounted for
as operating leases and are for varying periods of one to ten years and contain
annual renewal options for periods of up to five years.
The Company also has various operating leases for office space, warehouse
facilities and equipment. These leases expire on various dates through 2005 and
generally provide for renewal options at the end of the lease. The Company is
generally obligated to pay the cost of property taxes, insurance, utilities and
maintenance on the leases.
Future minimum lease payments under all non-cancelable operating leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
- -------------------------------------------------------------------------------
<C> <C>
1999 $ 5,546,000
2000 4,597,000
2001 3,677,000
2002 2,517,000
2003 2,177,000
2004 and after 2,575,000
- -------------------------------------------------------------------------------
Total future minimum lease payments $21,089,000
</TABLE>
Total rent expense on all operating leases was $5,920,000, $4,842,000 and
$3,459,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
11. Stock-Based Compensation
- --------------------------------------------------------------------------------
The Company has employee and director stock option plans with aggregate
limits of 2,800,000 shares for the employee plan and 210,000 shares for the
non-employee director plan. The exercise price of the stock options is equal to
the market value of the Company's common stock on the date of grant. The options
are exercisable for a period of up to ten years from the date of grant and
generally vest equally over a period of three years.
52
- 786 -
<PAGE>
At December 31, 1998, shares of the Company's authorized but unissued
common stock were reserved for issuance as follows:
<TABLE>
<CAPTION>
Shares
- --------------------------------------------
<S> <C>
Employee stock option plan 691,226
Non-employee director plan 83,003
- --------------------------------------------
Total 774,229
</TABLE>
The Company accounts for its stock-based compensation plans under the
provisions of APB 25. Accordingly, no compensation cost has been recognized for
its fixed stock option plans.
The effects on 1998, 1997 and 1996 net income (loss) and income (loss) per
share of accounting for stock-based compensation based on the fair value method
at the grant dates consistent with the method of FASB Statement 123, Accounting
for Stock-Based Compensation, are shown in the pro forma information to the
right:
<TABLE>
<CAPTION>
Pro Forma 1998 1997 1996
- -------------------------------------------------------------------------------
Net Income (Loss)
<S> <C> <C> <C>
As Reported $ (3,742,759) $ 2,236,081 $ (958,306)
Proforma $ (5,427,339) $ 920,827 $(2,452,206)
Diluted Income (Loss)
per share
As Reported $ (0.33) $ 0.19 $ (0.09)
Proforma $ (0.48) $ 0.08 $ (0.23)
- -------------------------------------------------------------------------------
Fair Value Per Share $ 15.70 $ 11.56 $ 8.22
</TABLE>
The fair value for options granted under the above mentioned plans was
estimated at the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.5 % 5.5 % 5.4 %
Dividend yield 0.0 % 0.0 % 0.0 %
Expected volatility 53.0 % 51.0 % 56.0 %
Expected life (years) 4.95 5.60 4.75
</TABLE>
The following table summarizes the stock options as of December 31, 1998, 1997,
1996:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,546,432 $ 10.55 1,520,810 $ 9.04 1,276,959 $ 5.79
- ---------------------------------------------------------------------------------------------------------------------------------
Granted 253,458 $ 29.87 207,350 $ 21.60 538,800 $ 15.64
Exercised (368,992) $ 7.25 (119,644) $ 8.33 (134,878) $ 5.64
Cancelled (46,521) $ 22.59 (62,084) $ 14.23 (160,071) $ 7.93
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,384,377 $ 14.57 1,546,432 $ 10.55 1,520,810 $ 9.04
- ---------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 895,230 $ 9.48 968,834 $ 7.25 741,409 $ 5.67
</TABLE>
The following table summarizes the stock options outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------------------
Shares Weighted-Average Weighted-Average Shares Weighted-Average
Outstanding Remaining Life Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 0.00 - $ 5.50 451,853 3.7 years $ 4.67 451,853 $ 4.67
$ 5.75 - $14.42 125,092 5.1 years $ 8.71 125,042 $ 8.71
$15.50 - $15.50 388,645 7.0 years $15.50 246,995 $ 15.50
$15.67 - $41.75 418,787 8.6 years $26.14 71,340 $ 20.52
- ---------------------------------------------------------------------------------------------------------------------------------
$ 0.00 - $41.75 1,384,377 6.3 years $14.57 895,230 $ 9.48
</TABLE>
12. Earnings Per Share
- -------------------------------------------------------------------------------
The following table shows the amounts used in computing earnings per share
and the effect on the weighted average number of shares of dilutive potential
common stock. The dilutive potential common shares outstanding were 878,837 and
855,640 for 1998 and 1996, respectively, and were not included in computing
diluted earnings per share because their effects were antidilutive.
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Per-Share Per-Share Per-Share
Income Shares Amount Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Basic EPS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ (3,742,759) 11,358,934 $ (0.33) $2,236,081 11,100,684 $0.20 $ (958,306) 10,657,893 $(0.09)
Effect of Dilutive
Securities
Stock Options and Warrants - - - - 981,872 - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ (3,742,759) 11,358,934 $ (0.33) $2,236,081 12,082,556 $0.19 $ (958,306) 10,657,893 $(0.09)
</TABLE>
53
- 787 -
<PAGE>
13. Industry Segment Data
- -------------------------------------------------------------------------------
The Company operates in four principal industry segments - Agricultural,
Weather, Financial and Energy. All segments provide comprehensive,
time-sensitive information and communication services for their respective
industries.
The Agricultural segment (DTN Ag Services) provides information and
services, including:agricultural market information, delayed and real time
futures and options quotes and comprehensive news and weather for a variety of
agribusiness industries; equipment locator and inventory management service for
the farm implement dealer; weather, pricing, news and transportation information
for the produce industry; and an electronic marketing system for the cotton
industry.
The Weather segment (DTN Weather Services) provides a comprehensive
weather information system to meet the weather information needs of many
industries including: aviation, broadcast, construction, forestry, marine,
transportation, turf-related operations, emergency management and any other
business relying on weather information to help carry out its operations.
The Financial segment (DTN Financial Services) provides comprehensive
information and services including; real-time quotes, news, charts and alerts
for professional investors delivered via proprietary hardware, PC or over the
internet; delayed quotes, business news and economic data for the individual
investor; wholesale mortgage rates and prices for the mortgage industry; and
software and data services to financial planners and independent brokers.
The Energy segment (DTN Energy Services) provides pricing information and
communications services including, delayed futures and options quotes plus
selected financial information for the refined fuels industry, thus linking the
refiners with their customers and real-time or delayed options and futures
quotes, weather, news and information for the gas and electricity industries.
The Other segment (Other Services) is general corporate activities not
attributable to a specific industry segment and other industry services not
material in nature and eliminations of inter-segment activity.
Management primarily evaluates performance of each segment based on
operating cash flow (operating income before depreciation and amortization),
EBITDA. The Company does not allocate income taxes and infrequent or
extraordinary items to the individual industry segments. Inter-segment revenues
have been recorded at amounts approximating market. The following table
summarizes additional information regarding the Company's individual industry
segments:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
External revenues
<S> <C> <C> <C>
DTN Ag Services $ 88,313,568 $ 87,574,829 $ 69,718,299
DTN Weather Services 25,760,861 10,665,701 5,597,926
DTN Financial Services 13,350,361 10,316,370 8,586,836
DTN Energy Services 16,108,597 14,344,714 12,169,273
Other Services 5,452,959 3,472,738 2,311,379
- -------------------------------------------------------------------------------
Total $148,986,346 $126,374,352 $ 98,383,713
- -------------------------------------------------------------------------------
Inter-segment revenues
DTN Ag Services $ - $ - $ -
DTN Weather Services 1,038,231 - -
DTN Financial Services 24,611 - -
DTN Energy Services - - -
Other Services - - -
- -------------------------------------------------------------------------------
1,062,842 - -
Inter-segment
Elimination (1,062,842) - -
- -------------------------------------------------------------------------------
Total $ - $ - $ -
- -------------------------------------------------------------------------------
Operating Income
DTN Ag Services $ 16,797,670 $ 18,773,860 $ 11,169,290
DTN Weather Services (2,649,423) (2,174,723) (1,685,060)
DTN Financial Services (3,559,403) (2,701,058) (2,471,838)
DTN Energy Services 6,282,467 5,720,451 4,201,884
Other Services (12,708,135) (7,235,127) (4,293,485)
- -------------------------------------------------------------------------------
Total (a) $ 4,163,176 $ 12,383,403 $ 6,920,791
- -------------------------------------------------------------------------------
Depreciation
and Amortization
DTN Ag Services $ 33,176,299 $ 31,989,604 $ 26,013,461
DTN Weather Services 6,839,166 3,575,805 1,588,449
DTN Financial Services 4,226,327 3,196,835 2,730,428
DTN Energy Services 2,003,109 2,124,352 1,918,895
Other Services 2,605,721 1,428,709 1,205,404
- -------------------------------------------------------------------------------
Total $ 48,850,622 $ 42,315,305 $ 33,456,637
- -------------------------------------------------------------------------------
Interest Expense
DTN Ag Services $ 5,813,030 $ 7,554,514 $ 7,073,451
DTN Weather Services 1,812,353 694,197 404,252
DTN Financial Services 454,981 442,381 462,724
DTN Energy Services 158,535 184,024 258,870
Other Services 210,769 223,115 232,973
- -------------------------------------------------------------------------------
Total $ 8,449,668 $ 9,098,231 $ 8,432,270
- -------------------------------------------------------------------------------
Operating
Cash Flow (EBITDA)
DTN Ag Services $ 49,973,969 $ 50,763,464 $ 37,182,751
DTN Weather Services 4,189,743 1,401,082 (96,611)
DTN Financial Services 666,924 495,777 258,590
DTN Energy Services 8,285,576 7,844,803 6,120,779
Other Services (a) (10,102,414) (5,806,418) (3,088,081)
- -------------------------------------------------------------------------------
Total $ 53,013,798 $ 54,698,708 $ 40,377,428
</TABLE>
54
- 788 -
<PAGE>
14. Subsequent Events
- -------------------------------------------------------------------------------
SmartServ Online, Inc. Letter of Intent:
On January 26, 1999, the Company and SmartServ Online, Inc., (SSOL) based
in Stamford, CT, (OTC-BB:SSOL) signed a Letter of Intent whereby the Company
will merge with SmartServ Online, Inc. Shareholders of SmartServ Online, Inc.
will receive stock of the Company. The Letter of Intent has been signed by the
holders of a majority of the stock of SSOL on a fully diluted basis.
Under the terms of the proposed transaction, the holders of outstanding
stock of SSOL would receive shares of the Company Common Stock having an
aggregate market value equal to the lesser of $14,850,000 or the amount
determined by multiplying $3.20 by the number of shares of SSOL Common Stock
held by SSOL Stockholders on an as if converted and fully diluted basis. The
market value of a share of the Company's Common Stock for purposes of the
proposed transaction would be based upon the average of its closing prices on
the Nasdaq Stock Market on each of the 10 trading days ending on the third
trading day prior to the date of the closing of the proposed transaction, but
would not be lower than $28.35 or higher than $34.65.
The Company will file a federal registration statement prior to the
Closing covering all of the Company's Common Shares issued to the SSOL
Stockholders in the proposed transaction. The registration, if effective, will
permit the SSOL Stockholders to sell the Company's Common Shares into the public
market. The transaction is subject to the execution of a definitive agreement, a
fairness opinion and approval of a majority of the outstanding stock of SSOL.
The parties anticipate the proposed transaction to close in June 1999.
1998 Revolving Credit Agreements:
On January 29, 1999, the Company closed on the First Amendment to 1998
Revolving Credit Agreement. This agreement increased the revolving credit
facility to $122,900,000 from the previous limit of $80,800,000. This amendment
extended the term of the revolving credit facility to June 30, 2001 from the
previous term of June 30, 2000. At January 29, 1999, $57,000,000 of the total
commitment had been borrowed, with the remaining $65,900,000 available to the
Company subject to certain restrictions.
55
- 789 -
<PAGE>
<TABLE>
<CAPTION>
Quarterly Data (Unuadited)
Years ended December 31, 1998 and 1997
Quarter First Second Third Fourth Total
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal 1998
<S> <C> <C> <C> <C> <C>
Revenues $ 34,425,147 $ 34,797,482 $ 39,733,540 $ 40,030,177 $ 148,986,346
Operating Income $ 3,701,311 $ (3,030,844) $ 2,124,238 $ 1,368,471 $ 4,163,176
Income (Loss)
Before Extraordinary Item $ 1,087,406 $ (3,076,542)(4) $ 9,987 $ (686,730) $ (2,665,879)
Net Income (Loss) $ 10,526(3) $ (3,076,542)(4) $ 9,987 $ (686,730) $ (3,742,759)
Basic Income (Loss) Per Share2
Income (loss)
before extraordinary item $ 0.10 $ (0.27) $ -(5) $ (0.06) $ (0.24)
Net Income (loss) $ -(5) $ (0.27) $ -(5) $ (0.06) $ (0.33)
Diluted Income (Loss) Per Share(2)
Income (loss)
before extraordinary item $ 0.10 $ (0.27) $ -(5) $ (0.06) $ (0.24)
Net Income (loss) $ -(5) $ (0.27) $ -(5) $ (0.06)$ (0.33)
Operating Cash Flow1 $ 14,784,727 $ 8,581,338 $ 15,028,263 $ 14,619,470 $ 53,013,798
Total Subscribers 160,400 160,100 158,400 159,300 159,300
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal 1997
Revenues $ 29,466,873 $ 31,391,287 $ 32,216,238 $ 33,299,954 $ 126,374,352
Operating Income $ 2,929,234 $ 3,049,577 $ 3,114,077 $ 3,290,515 $ 12,383,403
Net Income $ 361,619 $ 485,561 $ 571,800 $ 817,101 $ 2,236,081
Basic Income Per Share(2) $ 0.03 $ 0.04 $ 0.05 $ 0.07 $ 0.20
Diluted Income Per Share(2) $ 0.03 $ 0.04 $ 0.05 $ 0.07 $ 0.19
Operating Cash Flow1 $ 13,141,205 $ 13,508,667 $ 13,770,835 $ 14,278,001 $ 54,698,708
Total Subscribers 151,800 153,700 155,700 158,800 158,800
<FN>
1 Operating income before depreciation and amortization expense.
2 Net income per share for each of the four quarters may not agree to net
income per share for the year due to rounding.
3 Includes an Extraordinary Item, net of tax of $1,076,880 for the early
extinguishment of $15,000,000 11.25% Senior Subordinated Notes due December,
2004.
4 Includes $5,800,000 on a pre-tax basis and $3,716,000 on an after tax basis
for non-recurring satellite costs related to Galaxy IV outage.
5 Less than one cent per share.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Trading Information
- -----------------------------------------------------------------------------
Market Price 1998 Market Price 1997
----------------- -----------------
Quarter Ended High Low Last High Low Last
<S> <C> <C> <C> <C> <C> <C>
March 31 38 1/2 26 1/4 34 1/2 28 3/4 21 1/4 26 1/4
June 30 46 34 3/4 40 33 1/4 22 3/4 31 3/4
September 30 40 1/2 24 30 32 1/2 27 1/4 29 1/2
December 31 35 22 1/4 28 7/8 32 5/8 25 3/4 28
</TABLE>
The Company's common stock trades on The Nasdaq National Market tier of
the Nasdaq Stock Market under the symbol: DTLN. On December 31, 1998, there were
approximately 500 stockholders of record, not including beneficial holders whose
shares are held in names other than their own.
56
- 790 -
<PAGE>
Board Of Directors
- -------------------------------------------------------------------------------
Data Transmission Network Corporation
Roger R. Brodersen
Chairman of the Board
Chief Executive Officer
Data Transmission Network Corp.
Scott A. Fleck
Vice President
Director of Engineering
Data Transmission Network Corp.
Richard R. Jaros
Director
Level 3 Communications, Inc.
CalEnergy Company, Inc.
RCN Corporation and
Commonwealth Telephone
Peter H. Kamin
President
Peak Management, Inc.
David K. Karnes
President
Chief Executive Officer
The Fairmont Group Inc.
Of Counsel, Kutak Rock law firm
J. Michael Parks
President
Chief Executive Officer
Alliance Data Systems
Jay E. Ricks
Chairman of the Board
Douglas Communications Corp.
Greg T. Sloma
President
Chief Operating Officer
Data Transmission Network Corp.
Roger W. Wallace
Senior Vice President
Data Transmission Network Corp.
Corporate Officers
- -------------------------------------------------------------------------------
Data Transmission Network Corporation
Roger R. Brodersen
Chairman of the Board
Chief Executive Officer
Greg T. Sloma
President
Chief Operating Officer
Brian L. Larson
Vice President
Chief Financial Officer and
Secretary
James J. Marquiss
Senior Vice President
Director of Business Research and Product Development
Roger W. Wallace
Senior Vice President
President, Ag Services Division
Charles R. Wood
Senior Vice President
President, Financial Services Division
William R. Davison
Vice President
President, Ag Services
Scott A. Fleck
Vice President
Director of Engineering
H. Wade German
Vice President
Business Research
Daniel A. Petersen
Corporate Controller and
Treasurer
Joseph A. Urzendowski
Vice President, Operations
57
- 791 -
<PAGE>
INVESTOR INFORMATION
- -------------------------------------------------------------------------------
Corporate Headquarters
Data Transmission Network Corporation
9110 West Dodge Road, Suite 200
Omaha, NE 68114
(402) 390-2328
www.dtn.com
Independent Auditors
Deloitte & Touche LLP
Stock Transfer Agent
First National Bank of Omaha
Attn: Corporate Trust Services
One First National Center
Omaha, Nebraska 68102
Annual Shareholders Meeting
The annual shareholders meeting will be held on:
Wednesday, April 28, 1999 at 10:00 A.M.,
at the Holiday Inn-Northwest, 655 North 108th Avenue, Omaha, Nebraska.
Form 10-K
A copy of the company's form 10-K filed with the securities and exchange
commission is available without charge upon written request to:
Secretary
Data Transmission Network Corporation
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
Dividends
The Company has never paid any dividends and has no present intention of so
doing. Payment of cash dividends in the future, if any, will be determined by
the Board of Directors in light of the Company's earnings, financial condition
and other relevant considerations.
58
- 792 -
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT:
(1) Kavouras, Inc. which is organized and operates out of Minnesota under the
same name.
(2) National Datamax which is organized and operates out of California under
the same name.
(3) Weather Services Corporation which is organized and operates out of
Massachusetts under the same name.
(4) DTN Market Communications Group, Inc. which is organized in Nebraska and
includes the EarthWatch License Agreement.
(5) DTN Acquisition Inc. which is organized in Nebraska and includes Paragon
Software, Inc.
1
- 793 -
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-50406 and No. 33-50412 of Data Transmission Network Corporation on Forms
S-8 of our reports dated February 12, 1999, appearing in and incorporated by
reference in this Annual Report on Form 10-K of Data Transmission Network
Corporation for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 17, 1999
1
- 794 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,775,426
<ALLOWANCES> 1,300,000
<INVENTORY> 0
<CURRENT-ASSETS> 18,966,259
<PP&E> 283,401,576
<DEPRECIATION> 174,164,486
<TOTAL-ASSETS> 197,185,082
<CURRENT-LIABILITIES> 36,412,977
<BONDS> 100,619,998
0
0
<COMMON> 11,516
<OTHER-SE> 32,138,370
<TOTAL-LIABILITY-AND-EQUITY> 197,185,082
<SALES> 148,986,346
<TOTAL-REVENUES> 148,986,346
<CGS> 0
<TOTAL-COSTS> 144,823,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,449,668
<INCOME-PRETAX> (4,068,563)
<INCOME-TAX> (1,402,684)
<INCOME-CONTINUING> (2,665,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,076,880
<CHANGES> 0
<NET-INCOME> (3,742,759)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ x ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e) (2))
DATA TRANSMISSION NETWORK CORPORATION
(Name of Registrant as Specified in its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------
3) Per unit price or other underlying value of transaction computer
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------
2) Form, Schedule or Registration Statement No.:
-------------
3) Filing Party:
----------------------------------------------
4) Date Filed:
------------------------------------------------
2
- 797 -
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
(402) 390-2328
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Data
Transmission Network Corporation, a Delaware corporation (the "Company"), will
be held at the Holiday Inn-Old Mill, 655 North 108th Avenue, Omaha, Nebraska on
Wednesday, April 28, 1999 at 10:00 A.M. Omaha time for the following purposes,
as more fully described in the accompanying Proxy Statement:
1. To elect nine directors to the Board of Directors.
2. To consider and vote upon a proposal to approve the Company's 1999
Stock Incentive Plan.
3. To consider and vote upon a proposal to ratify the appointment of
Deloitte & Touche LLP as independent auditors of the Company for the
1999 fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Any action may be taken on any one of the foregoing proposals at the
meeting on the date specified above, or on any date or dates to which the
meeting may be adjourned. The Board of Directors of the Company has fixed the
close of business on March 1, 1999, as the record date for determination of the
stockholders of the Company entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please complete, date and
sign the enclosed proxy card and mail it promptly in the self-addressed envelope
provided. The giving of such proxy does not affect your right to vote in person
in the event you attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Omaha, Nebraska Brian L. Larson
March 15, 1999 Secretary
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. AN ADDRESSED ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
3
- 798 -
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
Proxy Statement
Index
Page
Proxy Statement..............................................................1
Proxies......................................................................1
Voting Securities............................................................1
Election of Directors........................................................2
Ownership by Certain Beneficial Owners and Management........................5
Executive Compensation.......................................................8
Compensation Committee Report on Executive Compensation......................11
Proposal for 1999 Stock Incentive Plan.......................................13
Approval of Appointment of Auditors..........................................19
Transactions with Management.................................................19
Compensation Committee Interlocks and Insider Participation..................19
Stockholder Proposals for 2000 Annual Meeting................................19
Section 16(a) Beneficial Ownership Reporting Compliance......................20
Other Matters................................................................20
Miscellaneous................................................................20
Exhibit 1 to Proxy Statement - 1999 Stock Incentive Plan.....................22
4
- 799 -
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 28, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Data Transmission Network Corporation, a
Delaware corporation (the "Company"), to be used at the Annual Meeting of
Stockholders (the "Meeting") to be held at the Holiday Inn-Old Mill, 655 North
108th Avenue, Omaha, Nebraska on Wednesday, April 28, 1999, at 10:00 A.M. Omaha
time. Stockholders of record at the close of business on March 1, 1999 are
entitled to notice of and to vote at the Meeting. The Company's principal
executive offices are located at 9110 West Dodge Road, Suite 200, Omaha,
Nebraska 68114.
PROXIES
Proxies are being solicited by the Board of Directors of the Company with
all costs of the solicitation to be paid by the Company. If the accompanying
proxy is executed and returned, the shares represented by the proxy will be
voted as specified therein. A stockholder may revoke any proxy given pursuant to
this solicitation by delivering to the Company prior to the Meeting a written
notice of revocation or by attending the Meeting and voting in person. This
notice of Annual Meeting of Stockholders, proxy statement and accompanying proxy
card are first being mailed to stockholders on or about March 15, 1999.
VOTING SECURITIES
At March 1, 1999, the Company had issued and outstanding 11,625,320 shares
of the Company's $.001 par value common stock. The Company has no other class of
voting securities outstanding. Each stockholder voting in the election of
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are entitled, or may distribute such
votes on the same principle among as many candidates as the stockholder chooses,
provided that votes cannot be cast for more than the total number of directors
to be elected at the Meeting. The nine nominees receiving the most votes at the
Meeting will be elected as directors. Each share has one vote on all other
matters. An affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote at the Meeting is required for approval of all other
matters being submitted to the stockholders for their consideration.
In accordance with Delaware law, a shareholder entitled to vote for the
election of directors can withhold authority to vote for all nominees or for
certain nominees for directors. Abstentions from voting on the proposal to
approve the 1999 Stock Incentive Plan or to ratify the appointment of auditors
are treated as votes against such proposal. Broker non-votes on the proposal to
approve the 1999 Stock Incentive Plan or to ratify the appointment of auditors
are treated as shares as to which voting power has been withheld by the
beneficial holders of those shares and, therefore, as shares not entitled to
vote on the proposal.
5
- 800 -
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Meeting, the stockholders will elect a board of nine directors for a
term extending until the 2000 annual meeting of stockholders of the Company and
until their respective successors have been elected and qualify. The Board of
Directors as nominated for election or re-election as directors: Roger R.
Brodersen, Scott A. Fleck, Richard R. Jaros, Peter H. Kamin, David K. Karnes, J.
Michael Parks, Jay E. Ricks, Greg T. Sloma and Roger W. Wallace. All of the
nominees presently are serving as directors of the Company. Proxies may be voted
for nine directors.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board of
Directors may recommend or the Board of Directors may amend the By-Laws and
reduce the size of the Board. At this time, the Board knows of no reason why any
nominee might be unavailable to serve.
Set forth below is certain information as of March 1, 1999, with respect to
the nominees for election as directors of the Company. The information relating
to their respective business experience was furnished to the Company by such
persons.
<TABLE>
<CAPTION>
Nominee Age Positions and Offices with the Company Director Since
<S> <C> <C> <C>
Roger R. Brodersen 53 Chairman of the Board, 1984
Chief Executive Officer and Director
Scott A. Fleck 31 Vice President and Director 1997
Richard R. Jaros 46 Director 1998
Peter H. Kamin 37 Director 1998
David K. Karnes 50 Director 1989
J. Michael Parks 48 Director 1990
Jay E. Ricks 66 Director 1995
Greg T. Sloma 47 President, Chief Operating Office and 1993
Director
Roger W. Wallace 42 Senior Vice President and Director 1984
</TABLE>
Mr. Brodersen has served as Chairman of the Board and Chief Executive
Officer of the Company since 1984. Mr. Brodersen served as President of the
Company from 1984 to 1995.
Mr. Fleck has served as Vice President of the Company since 1997. He has
served as Director of Engineering of the Company since 1996. Prior to becoming
Director of Engineering, Mr. Fleck held the position of Director of Software and
Hardware Development since joining the Company in 1991.
6
- 801 -
<PAGE>
Mr. Jaros, age 46, served as President of Kiewit Diversified Group, Inc.,
now Level 3 Communications, Inc., from 1996 to 1997. From 1993 to 1997, Mr.
Jaros served as an executive officer and member of the Executive Committee of
Peter Kiewit Sons', Inc., first as Executive Vice President from 1993 to 1995
and then as Executive Vice President, Chief Financial Officer from 1995 to 1997.
He served as Chairman of the Board of CalEnergy Company, Inc. from 1993 to 1994
and served as its President and Chief Operating Officer from 1992 to 1993. Mr.
Jaros presently serves on the Board of Directors of Level 3 Communications,
Inc., CalEnergy Company, Inc., RCN Corporation and Commonwealth Telephone.
Mr. Kamin, age 37, has served as President of Peak Management, Inc., a
General Partner of Peak Investment Limited Partnership, since 1992. Mr. Kamin
served as co-manager of the U.S. private and public equity market activities for
The Morningside Group (an offshore family trust) from 1987 to 1992. He served as
Assistant Portfolio Manager for the Fidelity Magellan Fund and the Fidelity
Over-The-Counter Fund from 1986 to 1987. He was an Equity Analyst at Fidelity
Management and Research from 1983 to 1986. As more fully disclosed in the Proxy
Statement, as of the record date Mr. Kamin and Peak Investment Limited
Partnership are the beneficial owners of 546,200 shares of DTN common stock.
Such shares represent approximately 4.7% of the Company's outstanding shares of
common stock.
Mr. Karnes has served as President and Chief Executive Officer of The
Fairmont Group, Inc., a financial services and consulting firm, since 1989. He
is currently a Director of the Federal Home Loan Bank of Topeka and served as
its Chairman from 1989 to 1996. Mr. Karnes also served as a United States
Senator from 1987 to 1989.
Mr. Parks has served as President and Chief Executive Officer of Alliance
Data Systems, a provider of data processing services, since 1997. He served as
President and Chief Operating Officer of First Data Resources Inc. from 1993 to
1994 and President of the Merchant Services Group of First Data Resources Inc.
from 1991 to 1993. He also served as President and Chief Executive Officer of
Call Interactive, an affiliate of First Data Resources Inc., from 1989 to 1991.
From 1976 to 1989, Mr. Parks served as President or Senior Vice President of
various American Express Information Services Companies or their subsidiaries.
Mr. Ricks has served as Chairman of Douglas Communications Corporation, an
operator of cable television systems, since 1990. He was a partner in the law
firm of Hogan & Hartson in Washington, D.C., from 1970 to 1990. Mr. Ricks is a
director of Amtera Technologies, Inc., a communications software company.
Mr. Sloma has served as President of the Company since January 1996. He has
served as Chief Operating Officer of the Company since January 1994. Mr. Sloma
served as Executive Vice President of the Company from January 1994 to December
1995 and as Chief Financial Officer from April 1993 to December 1993. From 1983
to 1993, Mr. Sloma was a Tax Partner at Deloitte & Touche. Mr. Sloma has served
as a Director of West TeleServices Corporation since 1997.
Mr. Wallace has served as Senior Vice President of the Company since 1989.
He served as Vice President of the Company from 1984 to 1989.
7
- 802 -
<PAGE>
Board Meetings and Committees
The Board of Directors met twelve times (four regular and eight special
meetings) during the fiscal year ended December 31, 1998. During fiscal 1998,
with the exception of Mr. Parks and Mr. Robert Herman (former Director of the
Company) who were not present at one meeting of the Board of Directors, all
directors attended all of the meetings of the Board of Directors, and related
committees on which they served. The Company does not have a Standing Nominating
Committee.
The Audit Committee recommends the selection of the independent auditors,
reviews the scope of the audits performed by them and reviews their audit report
and any recommendations made by them relating to internal financial controls and
procedures. Members of the Audit Committee met twice during fiscal 1998. David
K. Karnes, Peter H. Kamin and Jay E. Ricks are presently the members of the
Audit Committee. Jay E. Ricks is the Chairman of the current Audit Committee.
The Compensation Committee reviews and makes recommendations to the Board
of Directors regarding officers' compensation and the Company's employee benefit
plans; provided, however, the Compensation Committee administers the Company's
Stock Option Plan of 1989 through its Stock Option Plan Subcommittee, consisting
of all members of the Compensation Committee other than Greg T. Sloma. Members
of the Compensation Committee, which met once during fiscal 1998, are Richard R.
Jaros, David K. Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma. David
K. Karnes is the Chairman of the Compensation Committee and Richard R. Jaros is
Chairman of the Stock Option Plan Subcommittee.
At the Annual Meeting of the Board of Directors of the Company, held May
21, 1998, the Board established a committee of its members (the "Special
Committee") to explore alternatives to produce greater value for the Company's
shareholders. Members of the Special Committee, which met three times during the
fiscal year ended December 31, 1998, are Roger R. Brodersen, Jay E. Ricks, Peter
H. Kamin and Richard R. Jaros, with Mr. Kamin acting as Chairman for the
meetings.
Directors Compensation
During fiscal 1998, each member of the Board of Directors who was not an
employee of the Company received $2,500 for each regular Board of Directors
meeting attended, $5,000 for the eight special Board of Directors meetings
attended, $600 for each Audit Committee meeting attended, $1,500 for the
Compensation Committee meeting attended and $1,500 for the three Special
Committee meetings attended. Non-employee members of the Board of Directors also
receive awards under the Company's Non-Employee Directors Stock Option Plan (the
"Non-Employee Directors Plan"). Stock option grants under the Non-Employee
Directors Plan are automatic and occur each time a non-employee director is
elected, re-elected or appointed a director of the Company. In 1998, Richard R.
Jaros, Peter H. Kamin, David K. Karnes, J. Michael Parks and Jay E. Ricks each
received an option to purchase 3,500 shares of the Company's common stock at an
exercise price of $41.75 per share. The Non-Employee Directors Plan had been
amended for fiscal year 1998 to reduce from 4,500 to 3,500 the number of shares
for which options are to be awarded to each non-employee director. The exercise
price of options granted under the Non-Employee Directors Plan is the fair
market value of the common stock on the date of the option grant.
8
- 803 -
<PAGE>
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the beneficial ownership
of the Company's common stock by each person or group who, as of March 1, 1999,
to the knowledge of the Company, beneficially owned more than 5% of the
Company's common stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Beneficial Owner of Ownership Class
<S> <C> <C>
Roger R. Brodersen 1,719,641 (1) 14.8%
16705 Ontario Plaza
Omaha, NE 68130
Wanger Asset Management, L.P., 1,539,800 (2) 13.2%
Wanger Asset Management Ltd.,
and Ralph Wanger
227 West Monroe, Suite 3000
Chicago, IL 60606
Wallace R. Weitz & Company 1,164,100 (3) 10.0%
1125 South 103rd Street
Suite 600
Omaha, NE 68124
Acorn Investment Trust, 1,028,100 (4) 8.8%
Series Designated Acorn Fund
227 West Monroe Street, Suite 3000
Chicago, IL 60606
</TABLE>
- -----------------------------------
(1) This includes 249,167 shares subject to options exercisable within 60
days of March 1, 1999, 39,150 shares held in a trust for the benefit of
Mr. Brodersen's children, 36,999 shares beneficially owned by Mr.
Brodersen's spouse, and 18,455 shares allocated to Mr. Brodersen
through his participation in the Company's 401(k) Savings Plan.
(2) According to a Schedule 13G dated February 23, 1999, Wanger Asset
Management, L.P., Wanger Asset Management Ltd., and Ralph Wanger have
shared voting and shared dispositive power over such shares. Such
shares include 1,028,100 shares also shown in this table as
beneficially owned by Acorn Investment Trust, Series Designated Acorn
Fund. Wanger Asset Management, L.P. serves as investment adviser to
such trust. Wanger Asset Management Ltd. is the general partner of
Wanger Asset Management, L.P. Ralph Wanger is the principal stockholder
of Wanger Asset Management Ltd.
(3) According to a Schedule 13G dated February 10, 1999, Wallace R. Weitz &
Company has sole voting and shared dispostive power over such shares.
(4) According to a Schedule 13G dated February 23, 1999, Acorn Investment
Trust has shared voting and shared dispositive power over such shares.
Such shares also are shown in this table as beneficially owned by
Wanger Asset Management, L.P. which is the investment advisor of Acorn
Fund.
9
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<PAGE>
The following table sets forth information as to the shares of common stock
of the Company beneficially owned as of March 1, 1999, by each director of the
Company, by each nominee for election as a director of the Company, by each of
the executive officers named in the Summary Compensation Table beginning on page
8, and by all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature Percent of
Beneficial Owner of Ownership ( 1) Class ( 2)
<S> <C> <C>
Roger R. Brodersen 1,719,641 ( 3) 14.8%
Scott A. Fleck 6,305 ( 4) *
Richard R. Jaros -- --
Peter H. Kamin 546,200 4.7%
David K. Karnes 64,935 ( 5) *
James J. Marquiss 147,382 ( 6) 1.3%
J. Michael Parks 47,999 ( 7) *
Jay E. Ricks 19,500 ( 8) *
Greg T. Sloma 175,857 ( 9) 1.5%
Roger W. Wallace 282,985 (10) 2.4%
Charles R. Wood 48,353 (11)
All directors and executive officers
as a group (19 persons) 3,214,294 (12) 27.6%
*Less than 1.0%
- --------------------------
</TABLE>
(1) The number of shares in the table include interests of the named
persons, or of members of the directors and executive officers as a
group, in shares held by the trustee of the Company's 401(k) Savings
Plan. The beneficial owners have sole investment power over these
shares but do not have sole voting power.
(2) Shares subject to options exercisable within 60 days of March 1, 1999
("Presently Exercisable Options") are deemed to be outstanding for the
purpose of computing the percentage ownership of persons beneficially
owning such options but have not been deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
(3) Includes 249,167 shares subject to Presently Exercisable Options,
39,150 shares which are held in trust for Mr. Brodersen's children,
36,999 shares beneficially owned by Mr. Brodersen's spouse, and 18,455
shares allocated to Mr. Brodersen through his participation in the
Company's 401(k) Savings Plan.
(4) Includes 4,434 shares subject to Presently Exercisable Options and
1,871 shares allocated to Mr. Fleck through his participation in the
Company's 401(k) Savings Plan.
10
- 805 -
<PAGE>
(5) Includes 35,499 shares subject to Presently Exercisable Options.
(6) Includes 72,999 shares subject to Presently Exercisable Options and
14,383 shares allocated to Mr. Marquiss through his participation in
the Company's 401(k) Savings Plan.
(7) Includes 33,999 shares subject to Presently Exercisable Options.
(8) Includes 16,500 shares subject to Presently Exercisable Options.
(9) Includes 131,677 shares subject Presently Exercisable Options, 4,212
shares beneficially owned by Mr. Sloma's children and 21,728 shares
allocated to Mr. Sloma through his participation in the Company's
401(k) Savings Plan.
(10) Includes 101,182 shares subject to Presently Exercisable Options, 4,500
shares beneficially owned by Mr. Wallace's spouse, and 15,453 shares
allocated to Mr. Wallace through his participation in the Company's
401(k) Savings Plan.
(11) Includes 3,758 shares subject to Presently Exercisable Options and
7,932 shares allocated to Mr. Wood through his participation in the
Company's 401(k) Savings Plan.
(12) Includes 731,037 shares subject to Presently Exercisable Options,
39,150 shares held in trust for the children of executive officers and
directors, 45,711 shares owned beneficially by spouses or children of
executive officers and directors, and 92,727 shares allocated to
executive officers through their participation in the Company's 401(k)
Savings Plan.
11
- 806 -
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer and the four remaining most highly compensated executive
officers of the Company for the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
(a) (b) (c) (d) (e) (f) (g)
Other Securities
Annual Underlying
Name and Principal Compen- Options All Other
Position Year Salary Bonus sation(1) shares) Compensation(2)
<S> <C> <C> <C> <C> <C> <C>
Roger R. Brodersen 1998 $200,000 $122,518 $0 $ 7,500 $6,400
Chairman & 1997 195,744 137,304 0 10,000 6,400
Chief Executive Officer 1996 179,172 112,178 0 240,000(3) 9,500
Greg T. Sloma 1998 180,000 110,115 0 7,500 6,400
President & 1997 172,593 121,312 0 10,000 6,400
Chief Operating Officer 1996 145,996 147,707 0 16,500 9,500
Roger W. Wallace 1998 150,000 103,730 0 4,200 6,400
Senior Vice President 1997 143,628 123,498 0 5,600 6,400
1996 120,858 108,390 0 7,500 9,170
James J. Marquiss 1998 140,000 97,711 0 3,375 6,400
Senior Vice President 1997 135,936 125,401 0 4,500 6,400
1996 120,858 108,390 0 6,000 9,170
Charles R. Wood 1998 136,538 55,210 0 3,375 6,400
Senior Vice President 1997 120,385 59,327 0 3,400 6,400
1996 101,346 41,374 0 4,500 5,709
</TABLE>
(1) Excludes perquisites and other benefits because the aggregate of such
compensation was less than either $50,000 or 10% of the total of annual
salary and bonus reported for the named executive officer.
(2) The amounts included in the All Other Compensation column represent
401(k) matching contributions made by the Company.
(3) This amount includes 225,000 shares underlying a replacement option
issued to Mr. Brodersen during 1996 in exchange for the surrender of
outstanding, unexpired and unexercised options to acquire an aggregate
of 117,999 shares previously awarded to Mr. Brodersen under the
Company's Employee Stock Option Plan. The surrendered options
exercisable for 117,999 shares were considered for tax purposes as
incentive stock options, whereas, the replacement option for 225,000
shares is considered for tax purposes as a non-qualified stock option.
The weighted average exercise price per share of the surrendered
options was $6.28, while the exercise price of the replacement option
was the fair market value of the common stock on January 5, 1996 or
$15.50 per share.
12
- 807 -
<PAGE>
The following table shows, as to the Chief Executive Officer and the
four remaining most highly compensated executive officers of the Company,
information about stock option grants in fiscal 1998. The Company does not grant
any stock appreciation rights.
Option Grants In Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
- --------- -------------- --------------- ------------- -------------- --------------
Number of
Securities Percent of
Underlying Total Options
Options Granted to Exercise Grant Date
Granted Employees In Price Expiration Present
Name (shares) (1) Fiscal 1998 (Per share) Date Value (2)
- ------------ -------------- --------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Roger R. Brodersen 7,500 3.2% $27.50 1-01-08 $106,800
Greg T. Sloma 7,500 3.2% 27.50 1-01-08 106,800
Roger W. Wallace 4,200 1.8% 27.50 1-01-08 59,800
James J. Marquiss 3,375 1.4% 27.50 1-01-08 48,100
Charles R. Wood 3,375 1.4% 27.50 1-01-08 48,100
</TABLE>
(1) Except as indicated in the footnotes to this table, the options
referred to in this table were granted by the Stock Option Plan
Subcommittee on January 1, 1998 under the Company's Employee Stock
Option Plan.
(2) As suggested by the Securities & Exchange Commission's rules on
executive compensation, the Company used the Black-Scholes model of
option valuation to determine grant date present value. The Company
does not necessarily agree that the Black-Scholes model can properly
determine the value of an option. The actual value, if any, an
executive may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised, so that there
is no assurance that the value realized will be at or near the value
estimated by the Black-Scholes model.
13
- 808 -
<PAGE>
The following table provides information on option exercises in fiscal 1998
and the value of unexercised options at December 31, 1998 for the Chief
Executive Officer and the four remaining most highly compensated executive
officers.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at Fiscal In-the-Money Options
On Value Year End (shares) At Fiscal Year End (1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
Roger R. Brodersen - 0 163,334 94,166 $2,165,800 $1,130,700
Greg T. Sloma 15,000 382,500 122,834 19,666 2,694,800 120,600
Roger W. Wallace - 0 101,415 10,433 2,316,500 67,200
James J. Marquiss - 0 71,374 8,375 1,625,800 53,900
Charles R. Wood 36,288 1,327,000 0 7,141 0 41,700
</TABLE>
(1) The closing "bid" price of the Company's common stock as quoted by
NASDAQ on December 31, 1998 was $28.88. The values shown are computed
based upon the difference between this price and the exercise price of
the underlying options.
Performance Graph
The following performance graph compares the performance of the Company's
common stock to the Center for Research in Securities Prices (CRSP) Total Return
Index for the NASDAQ Stock Market (U.S. Companies) and to the CRSP Total Return
Industry Index for NASDAQ Telecommunications Stocks. The graph assumes that the
value of the investment in the Company's Common Stock and each index was $100 at
December 31, 1993.
<TABLE>
<CAPTION>
Nasdaq
Nasdaq Total Telecommunications
Year DTN Return Index Industry Index
---- --- ------------ ------------------
<S> <C> <C> <C> <C>
1993 100 100 100
1994 65 98 83
1995 188 138 109
1996 254 170 112
1997 320 209 165
1998 326 293 270
</TABLE>
14
- 809 -
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Compensation Philosophy
The Company strives to apply a consistent philosophy on compensation for
all employees, including senior management. The goals of the compensation
program are to directly link compensation with corporate profitability and the
enhancement of the underlying value of the Company's business. The following
objectives are used by the Company and the Compensation Committee as guidelines
for compensation decisions:
Provide a competitive total compensation package that allows the
Company to attract and retain the best people possible.
The Company pays for performance. Employees are rewarded based upon
corporate performance, business unit performance and individual performance.
Provide variable compensation programs that are linked with the
performance of the Company and that align executive compensation with the
interests of shareholders.
Compensation Program Components
The Compensation Committee annually reviews the Company's compensation
program to ensure that pay levels and incentive opportunities are competitive
and reflect the performance of the Company. The components of the compensation
program for executive officers, which are comparable to those used for all
employees, are outlined below.
Base Salary - Base pay levels are determined by reviewing competitive
positions in the market, including comparisons with companies of similar size,
complexity and growth rates. Increases in base salary were recommended by senior
management for fiscal 1998 for the Chief Executive Officer and the other
executive officers named in the Summary Compensation Table, and the Compensation
Committee acted in accordance with this recommendation.
Variable Incentive Compensation - The large majority of the Company's
employees, including the executive officers, participate in an annual incentive
award plan. The amount of incentive compensation is based upon the Company's
achievement of goals established at the beginning of the fiscal year by the
Compensation Committee. For fiscal 1998, the incentive plans were tied to sales
and income before income taxes, depreciation and amortization expenses. The
incentive was awarded approximately 50% based on sales and 50% based on income
before income taxes and depreciation and amortization expense.
Stock Option Program - The purpose of this program, which is available to
the large majority of employees, is to provide additional incentives to
employees to work to maximize long-term shareholder value. It also uses vesting
periods to encourage key employees to continue in the employ of the Company. The
number of stock options granted to executive officers is based on competitive
practices.
15
- 810 -
<PAGE>
CEO Compensation
The factors and criteria upon which Mr. Brodersen's compensation was based
for fiscal year 1998 are the same as those considered by the Compensation
Committee in establishing the compensation program for all of the executive
officers of the Company as outlined above. The annual base salary of Mr.
Brodersen was established by the Compensation Committee on December 18, 1997 for
the period of April 1, 1998 to March 31, 1999. The Compensation Committee's
decision was based on Mr. Brodersen's personal performance of his duties and on
salary levels to chief executive officers of companies of similar size,
complexity and growth rates.
Mr. Brodersen's 1998 fiscal year incentive cash compensation was based on
the actual financial performance of the Company. His annual cash incentive award
was based on the incentive plan described above.
An option grant for 7,500 shares was awarded to Mr. Brodersen under the
Company's Employee Stock Option Plan based upon his performance and leadership
with the Company.
Compensation Committee of the Board of Directors
David K. Karnes - Chairman
J. Michael Parks
Jay E. Ricks
Greg T. Sloma
Richard R. Jaros
16
- 811 -
<PAGE>
PROPOSAL NO. 2
1999 STOCK INCENTIVE PLAN
Proposed Plan and Purposes
At the Meeting, the stockholders will be asked to approve the Company's
1999 Stock Incentive Plan (the "1999 Plan"), as adopted by the Board on February
25, 1999. If approved by stockholders, the 1999 Plan will replace the Company's
existing employee Stock Option Plan of 1989 (the "1989 Plan") and the Company
will not grant any new awards under the 1989 Plan. Stock options outstanding
under the 1989 Plan will continue to be governed by that plan.
As of March 1, 1999, options for approximately 1,577,000 shares of Common
Stock were outstanding under the 1989 Plan, and approximately 353,000 shares of
Common Stock remained available for future option grants under that plan. The
Board of Directors is not requesting any additional shares not otherwise
available under the 1989 Plan. The 1999 Plan authorizes for option grants or
other awards to eligible full-time employees of the Company or any subsidiary of
the Company (i) the 353,000 shares which remained available for future option
grants under the 1989 Plan, plus (ii) the number of shares subject to stock
options outstanding under the 1989 Plan which expire or terminate unexercised as
to such shares. No grants or other awards have been made under the 1999 Plan,
and it is not possible to state the terms or types of any options or other
awards that may be granted to executive officers of the Company or other persons
under the 1999 Plan at a future time or to identify the persons to whom such
future grants may be made.
The 1999 Plan is intended to foster and promote the long-term financial
success of the Company and its subsidiaries and thereby increase stockholder
value by providing incentives to those full-time employees who are likely to be
responsible for achieving such success. The Company anticipates that the 1999
Plan will assist it in recruiting and retaining key employees in the highly
competitive communications/information industry. The Company also believes that
participation in the 1999 Plan by full-time employees will strengthen their
commitment to the Company and more closely align the interests of such persons
with the interests of the Company's stockholders.
Required Vote
Approval of the 1999 Plan requires the affirmative vote of the holders of a
majority of the shares of Common Stock present or represented by proxy at the
Annual Meeting and entitled to vote at the Annual Meeting.
The Board of Directors Recommends a vote FOR approval of the 1999 Stock
Incentive Plan.
17
- 812 -
<PAGE>
Description of the 1999 Stock Incentive Plan
The following summary of the 1999 Plan does not purport to be complete and
is subject to and qualified in its entirety by the full terms of the 1999 Plan,
which appears as Exhibit 1 to this Proxy Statement.
The 1999 Plan authorizes the grant of (i) incentive stock options under the
Internal Revenue Code of 1986 (as amended from time to time, the "Code"), (ii)
non-qualified stock options, (iii) stock appreciation rights, (iv) performance
unit awards, (v) restricted stock awards, and (vi) stock bonus awards to
full-time employees of the Company or any subsidiary of the Company who are
responsible for or contribute to, or are likely to be responsible for or
contribute to, the growth and success of the Company or such subsidiary. The
Company and its subsidiaries currently have approximately 1,100 full-time
employees who potentially are eligible to receive such a grant.
The shares of Common Stock available for issuance pursuant to the 1999 Plan
may be authorized and unissued shares or treasury shares. If there is a stock
dividend, stock split, or other relevant change in the outstanding shares of
Common Stock, then the Stock Option Plan Subcommittee (the "Committee") of the
Board will make appropriate adjustments in (a) the aggregate number of shares of
Common Stock (i) reserved for issuance under the 1999 Plan, (ii) for which
grants or awards may be made to an individual grantee, and (iii) covered by
outstanding awards or grants, (b) the exercise or other applicable price
relating to outstanding awards or grants, and (c) the appropriate fair market
value and other price determinations relevant to outstanding awards or grants.
Any shares subject to an option or right which expires or terminates unexercised
as to such shares will again be available for the grant of awards or options
under the 1999 Plan. If any shares of Common Stock which have been pledged as
collateral for indebtedness incurred by an optionee in connection with an option
exercise are returned to the Company in satisfaction of such indebtedness, then
such shares will again be available for the grant of awards or options under the
1999 Plan.
No award or grant under the 1999 Plan may be assigned or transferred by the
recipient except by will, the laws of descent and distribution, or, in the case
of awards or grants other than incentive stock options, pursuant to a qualified
domestic relations order or by such other means as the Committee may approve.
Administration
The 1999 Plan is administered by the Committee, which is composed of four
directors of the Company who are not employees of the Company or any of its
subsidiaries. The Committee has authority to interpret the 1999 Plan, to select
the full-time employees to whom awards or options will be granted, to determine
whether and to what extent awards and options will be granted under the 1999
Plan, to determine the types of awards and options to be granted and the amount,
size, terms, and conditions of each award or grant, and to make other relevant
determinations and administrative decisions. In general, all decisions and
determinations made by the Committee pursuant to the 1999 Plan are final and
binding on all persons.
The Committee may delegate to any officer or officers of the Company any of
the Committee's duties, powers, and authorities under the 1999 Plan upon such
conditions and with such limitations as the Committee may determine; provided,
that only the Committee may select for awards or options under the 1999 Plan,
and make grants of awards or options under the 1999 Plan to, full-time employees
of the Company or any subsidiary of the Company who are subject to Section 16 of
the Securities Exchange Act of 1934 at the time of such selection or the making
of such a grant.
Awards and Grants
Stock Options. The Committee may grant incentive stock options under the
Code and non-qualified stock options. The option price per share may not be less
than the fair market value of the Common Stock on the date of the grant. The
18
- 813 -
<PAGE>
Committee will fix the term of each option at the time of its grant, but such
term may not be more than ten years after the date of the grant. The Committee
may determine when an option becomes exercisable and may accelerate previously
established exercise rights. The Committee may permit payment of the option
exercise price in cash or in shares of Common Stock valued at their fair market
value on the exercise date. The Committee also may permit the exercise price to
be paid by the optionee's delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of the applicable sale or loan proceeds required to pay the
exercise price.
If an optionee's employment terminates for any reason other than death or
disability, then the optionee generally may exercise an option to the extent it
was exercisable at the time of the termination for a period of six months after
the termination (but not after the expiration date of the option). However, the
Committee has the power to terminate an optionee's rights under an outstanding
option if the Committee determines that the optionee's employment was terminated
for cause. If an optionee's employment terminates by reason of disability, then
the optionee's options generally will be exercisable for twelve months after the
termination to the extent that the exercise was permitted prior to or upon the
termination (but not after the expiration date of the option). If an optionee
dies while in the employ of the Company or a subsidiary, then the optionee's
options generally will be exercisable by the optionee's personal representative
or other successor for twelve months after the date of death to the extent that
the exercise was permitted prior to or upon the optionee's death (but not after
the expiration date of the option).
Stock Appreciation Rights. The Committee may grant stock appreciation
rights ("SAR's") which entitle the grantee to receive, upon the exercise of an
SAR, an award equal to all or a portion of the excess of (i) the fair market
value of a specified number of shares of Common Stock at the time of the
exercise over (ii) a specified price not less than the fair market value of the
Common Stock at the time the SAR was granted. An SAR may be granted
independently or in connection with a stock option grant. Upon the exercise of
an SAR, the applicable award may be paid in cash or in shares of Common Stock
(or a combination thereof) as the Committee may determine. The Committee will
fix the term of an SAR at the time of its grant, but such term may not be more
than ten years after the date of the grant. The Committee may determine when an
SAR becomes exercisable and may accelerate previously established exercise
rights.
The provisions of the 1999 Plan relating to exercisability of SAR's upon
the termination of a grantee's employment are similar to those discussed above
in connection with stock options.
Performance Unit Awards. The Committee may grant performance unit awards,
which entitle the grantees to receive future payments based upon and subject to
the achievement of preestablished long-term performance targets. In connection
with such awards, the Committee is required to establish (i) performance periods
of not less than two nor more than five years, (ii) the value of each
performance unit, and (iii) maximum and minimum performance targets to be
achieved during the performance period. The Committee may adjust previously
established performance targets or other terms and conditions of a performance
unit award to reflect major unforeseen events, but such adjustments may not
increase the payment due upon attainment of the previously established
performance targets. Performance unit awards, to the extent earned, may be paid
in cash or shares of Common Stock (or a combination thereof) as the Committee
may determine.
If the employment of a grantee of a performance unit award terminates prior
to the end of an applicable performance period other than by reason of
disability or death, then the award generally terminates. However, the 1999 Plan
permits the Committee to make partial payments of performance unit awards if the
Committee determines such action to be equitable. If the employment of a grantee
of a performance unit award terminates as a result of the grantee's disability
or death prior to the end of an applicable performance period, then the
Committee may authorize the payment of all or a portion of the performance unit
award (to the extent earned in the case of disability) to the grantee or the
grantee's legal representative.
19
- 814 -
<PAGE>
Restricted Stock Awards. The Committee may grant restricted stock awards
consisting of shares of Common Stock restricted against transfer, subject to a
substantial risk of forfeiture and to other terms and conditions established by
the Committee. The Committee must determine the restriction period applicable to
a restricted stock award and the amount, form, and time of payment (if any)
required from the grantee of a restricted stock award in consideration of the
issuance of the shares covered by such award. The Committee in its discretion
may provide for the lapse in installments of the restrictions applicable to
restricted stock awards and may waive the restrictions in whole or in part.
If the employment of a grantee of a restricted stock award terminates for
any reason while some or all of the shares covered by such award are still
restricted, the grantee's rights with respect to the restricted shares generally
terminate. However, the Committee has the discretion to provide for complete or
partial exemptions to such employment requirement.
Stock Bonus Awards. The Committee may grant a stock bonus award based upon
the performance of the Company, a subsidiary, or a segment thereof in terms of
preestablished objective financial criteria or performance goals or, in
appropriate cases, such other measures or standards of performance (including
but not limited to performance already accomplished) as the Committee may
determine. The Committee may adjust preestablished financial criteria or
performance goals to take into account unforeseen events or changes in
circumstances, but such adjustments may not increase the amount of a stock bonus
award. The Committee, in its discretion, may impose additional restrictions upon
the shares of Common Stock which are the subject of a stock bonus award.
Miscellaneous Provisions
Unless the 1999 Plan is sooner terminated by the Board, the 1999 Plan will
terminate on the tenth anniversary of the date the Plan is initially approved
and adopted by the stockholders of the Company. Awards or options outstanding at
the time of the termination of the 1999 Plan will remain in effect in accordance
with their terms. The Board may amend the 1999 Plan at any time; however,
stockholder approval must be obtained for any amendment for which such approval
is required by Rule 16b-3 under the Securities Exchange Act of 1934 or Sections
162(m) or 422 of the Code. The Company's obligation to deliver shares of Common
Stock or make cash payments under the 1999 Plan is subject to applicable tax
withholding requirements; in the discretion of the Committee, required tax
withholding amounts may be paid by the grantee in cash or shares of Common Stock
having a fair market value equal to the required tax withholding amount.
Certain Federal Income Tax Consequences
The following brief description of certain federal income tax consequences
is based upon present federal income tax laws and regulations and does not
purport to be a complete description of the federal income tax consequences of
the 1999 Plan.
Incentive Stock Options. The grant of an incentive stock option under the
1999 Plan will not result in taxable income to the grantee or a tax deduction
for the Company. If the grantee holds the shares purchased upon the exercise of
an incentive stock option for at least one year after the purchase of the shares
and until at least two years after the option was granted, then the grantee's
sale of the shares will result in a long-term gain or loss (depending upon the
grantee's holding period), and the Company will not be entitled to any tax
deduction. If the grantee sells or otherwise transfers the shares before such
holding periods have elapsed, then the grantee generally will recognize ordinary
income and the Company would be entitled to a tax deduction in an amount equal
to the lesser of (i) the fair market value of the shares on the exercise date
minus the option price or (ii) the amount realized upon the disposition minus
the option price. Any gain in excess of such ordinary income portion would be
taxable as long-term or short-term capital gain depending upon the grantee's
holding period for the shares. The excess of the fair market value of the shares
received on the option exercise date over the option price is an item of tax
preference, potentially subject to the alternative minimum tax.
20
- 815 -
<PAGE>
Non-Qualified Stock Options. The grant of a non-qualified stock option
under the 1999 Plan will not result in taxable income to the grantee or a tax
deduction for the Company. Upon the exercise of a non-qualified stock option,
the grantee will be taxed at ordinary income rates on the excess of the fair
market value of the shares received over the option exercise price, and the
Company generally will be entitled to a tax deduction in the same amount. The
exercise price of the non-qualified stock option plus the amount included in the
grantee's income as a result of the option exercise will be treated as the
grantee's basis in the shares received, and any gain or loss on the subsequent
sale of the shares will be treated as long-term or short-term capital gain or
loss depending upon the grantee's holding period for the shares. The grantee's
sale of shares acquired upon the exercise of a non-qualified stock option will
have no tax consequences to the Company.
Stock Appreciation Rights and Performance Unit Awards. The grant of an SAR
or a performance unit award under the 1999 Plan will not result in taxable
income to the grantee or a tax deduction for the Company. Upon the exercise of
an SAR or the receipt of cash or shares of Common Stock upon the payment of a
performance unit award, the grantee will recognize ordinary income and the
Company generally will be entitled to a tax deduction in an amount equal to the
fair market value of the shares plus any cash received.
Restricted Stock Awards. The grant of a restricted stock award should not
result in taxable income for the grantee or a tax deduction for the Company if
the shares of Common Stock transferred to the grantee are subject to
restrictions which create a substantial risk of forfeiture of the shares by the
grantee if certain conditions prescribed at the time of the grant are not
subsequently satisfied. However, the grantee may elect within 30 days after the
acquisition of the shares to recognize ordinary income on the date of the
acquisition in an amount equal to the excess (if any) of the fair market of the
shares on the date of the grant, determined without regard to the restrictions
imposed on such shares (other than restrictions which by their terms will never
lapse), over the amount (if any) paid for the shares. If the grantee does not
make the election referred to in the preceding sentence, then, when the
restrictions imposed upon the shares lapse or otherwise terminate, the grantee
of the shares will recognize ordinary income in an amount equal to the excess
(if any) of the fair market value of the shares on the date of such lapse or
other termination over the amount (if any) paid for the shares. If and when the
grantee of a restricted stock award recognizes ordinary income with respect to
the shares covered by such award, the Company generally will be entitled to a
tax deduction in the same amount. The amount paid by the grantee for restricted
shares plus any amount recognized by the grantee as ordinary income under the
rules described above will be treated as the grantee's basis in the shares; when
the grantee sells the shares covered by a restricted share award following the
lapse or other termination of the restrictions, any gain or loss on such sale
will be treated as long-term or short-term capital gain or loss depending upon
the grantee's holding period. Any dividends paid to the grantee of restricted
shares while the shares are still subject to the restrictions would be treated
as compensation for federal income tax purposes.
Stock Bonus Awards. When a stock bonus award is paid to a grantee by the
delivery of shares of Common Stock, the grantee will recognize ordinary income
and the Company generally will be entitled to a tax deduction in an amount equal
to the fair market value of such shares at the time of such delivery. If,
however, such shares are subject to any restrictions, which create a substantial
risk of forfeiture, then the tax rules described above with respect to
restricted stock awards would be applicable.
Market Price
The closing price of the Common Stock on the Nasdaq Stock Market on March
1, 1999, was $22.25 per share.
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PROPOSAL NO. 3
APPROVAL OF APPOINTMENT OF AUDITORS
The Board of Directors has, upon the recommendation of the Audit Committee,
appointed the firm of Deloitte & Touche LLP to audit the Company's financial
statements for the fiscal year ending December 31, 1999, subject to ratification
by the stockholders of the Company. Deloitte & Touche LLP served as the
Company's auditors for the 1998 fiscal year.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the shares of Common Stock present, in person
or by proxy, and voting at the Meeting. If the stockholders should not ratify
the appointment of Deloitte & Touche LLP, the Board of Directors will reconsider
the appointment.
A representative of Deloitte & Touche LLP is expected to be present at the
Meeting, will have an opportunity to make a statement if desired, and will be
available to respond to appropriate stockholder questions.
The Board of Directors recommends a vote FOR the approval of the appointment of
Deloitte & Touche LLP as independent auditors for the Company.
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TRANSACTIONS WITH MANAGEMENT
No reportable transactions occurred during fiscal 1998 between the Company
and its officers and directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Compensation Committee of the
Company's Board of Directors: Richard R. Jaros, David K. Karnes, J. Michael
Parks, Jay E. Ricks and Greg T. Sloma. Mr. Sloma, because he is an officer and
employee of the Company, abstains from all votes dealing with officer
compensation. Also, only Mr. Jaros, Mr. Karnes, Mr. Parks and Mr. Ricks are
members of the Stock Option Plan Subcommittee of the Compensation Committee
which administers the Company's Stock Option Plan of 1989.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders for which consideration is desired at the 2000
annual meeting of stockholders of the Company must be received by the Company no
later than November 15, 1999, for inclusion in the Company's proxy statement and
form of proxy relating to such meeting. Any such proposals shall be subject to
the requirements of the proxy rules adopted under the Securities Exchange Act of
1934, as amended.
If a stockholder wishes to present a proposal for consideration at the 2000
annual meeting of stockholders of the Company without having such matter
included in the proxy statement of the Company for such annual meeting but does
not give the Company notice of such matter by February 1, 2000, then the proxies
solicited by the Board of Directors for such annual meeting may confer
discretionary authority on the persons holding such proxies to vote on such
matter in accordance with their judgment. Stockholder proposals should be sent
to the Secretary of the Company at the principal executive office of the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
The Company believes that during the fiscal year ended December 31, 1998, its
executive officers, directors and holders of more than 10% of the Company's
common stock complied with all Section 16(a) filing requirements, except that
Mr. German and Mr. Sloma each filed one late report covering one transaction
each. In making these statements, the Company has relied solely upon a review of
Forms 3 and 4 furnished to the Company during its most recent fiscal year, Forms
5 furnished to the Company with respect to its most recent fiscal year, and
written representations from reporting persons that no Form 5 was required.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement. The
Company did not receive timely advance notice from any stockholder that such
stockholder intends to bring a matter before the Meeting; for such purpose,
timely advance notice means notice of the particular matter at least 45 days
before this year's date which corresponds to the date on which the Company first
mailed its proxy materials for last year's annual meeting of stockholders.
Therefore, if any matter not discussed in this Proxy Statement is properly
presented at the Meeting, the persons named in the accompanying proxy or their
substitutes will have discretionary authority to vote on such matter in
accordance with their judgment.
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MISCELLANEOUS
The cost of solicitation of proxies will be borne by the Company. The
Company will, upon request, reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of common stock. In addition to
solicitations by mail, directors, officers, and regular employees of the Company
may solicit proxies personally or by telegram, telephone or other means without
additional compensation. The Company has retained First National Bank of Omaha,
the Company's stock transfer agent, to assist in the distribution and
solicitation of proxies at a cost of approximately $5,000, including the
reimbursement of certain expenses.
The Company's Annual Report to Stockholders, including financial
statements, has been mailed to all stockholders of record as of the close of
business on March 1, 1999. Any stockholder who has not received a copy of such
Annual Report may obtain a copy by writing the Company. Such Annual Report is
not to be treated as a part of this proxy solicitation material or as having
been incorporated herein by reference.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Compensation Committee Report on page 11 and the
Performance Graph on page 10 shall not be incorporated by reference into any
such filings.
THE BOARD OF DIRECTORS
Omaha, Nebraska
March 15, 1999
A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE
RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, DATA TRANSMISSION NETWORK
CORPORATION, 9110 WEST DODGE ROAD, SUITE 200, OMAHA, NEBRASKA 68114.
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Exhibit 1
To Proxy Statement
DATA TRANSMISSION NETWORK CORPORATION
1999 Stock Incentive Plan
1. Purpose. The purpose of the Data Transmission Network Corporation
1999 Stock Incentive Plan (the "Plan") is to foster and promote the long-term
financial success of the Company and its Subsidiaries and thereby increase
stockholder value by providing incentives to those full-time employees who are
likely to be responsible for achieving such success.
2. Certain Definitions.
"1989 Plan" means the Company's existing employee Stock Option Plan of
1989.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto. References to a particular section of the Code
shall include any regulations issued under such section.
"Committee" shall have the meaning provided in Section 3 of the Plan.
"Common Stock" means the Common Stock, $.001 par value per share, of
the Company.
"Company" means Data Transmission Network Corporation, a Delaware
corporation.
"Disability" means (i) with respect to the exercise of an Incentive
Stock Option after termination of employment, a disability within the meaning of
Section 22(e)(3) of the Code and (ii) for all other purposes, a mental or
physical condition which, in the opinion of the Committee, renders a grantee
unable or incompetent to carry out the job responsibilities which such grantee
held or the tasks to which such grantee was assigned at the time the disability
was incurred and which is expected to be permanent or for an indefinite duration
exceeding one year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" means, as determined by the Committee, the last
reported sale price on the principal national securities exchange on which the
Common Stock is listed or admitted to trading on the trading day for which the
determination is being made, or, if no such reported sale takes place on such
day, the average of the closing bid and asked prices on such day on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or, if the Common Stock is not admitted to trading on a
national securities exchange, the average of the closing bid and asked prices in
the over-the-counter market on the day for which the determination is being made
as reported through Nasdaq, or, if bid and asked prices for the Common Stock on
such day are not reported through Nasdaq, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
regularly making a market in the Common Stock selected for such purpose by the
Committee, or, if none of the foregoing is applicable, then the fair market
value of the Common Stock as determined in good faith by the Committee in its
sole discretion.
"Incentive Stock Option" means any stock option intended to qualify as
an "incentive stock option" within the meaning of Section 422 of the Code.
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<PAGE>
"Non-Qualified Stock Option" means any stock option that is not
intended to be an Incentive Stock Option, including any stock option that
provides (as of the time such option is granted) that it will not be treated as
an Incentive Stock Option.
"Parent Corporation" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"Performance Unit Award" means an award granted pursuant to Section 8.
"Plan Year" means the twelve-month period beginning on January 1 and
ending on December 31; provided, that the first Plan Year shall be a short Plan
Year beginning on the date the Plan becomes effective and ending on December 31,
1999.
"Restricted Stock Award" means an award of Common Stock granted
pursuant to Section 9.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act, as in effect from
time to time.
"Stock Appreciation Right" means an award granted pursuant to Section
7.
"Stock Bonus Award" means an award of Common Stock granted pursuant to
Section 10.
"Stock Option" means any option to purchase Common Stock granted
pursuant to Section 6.
"Subsidiary" means (i) as it relates to Incentive Stock Options, any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the option, each
of the corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain and (ii) for all other
purposes, a corporation, domestic or foreign, of which not less than 50% of the
voting shares are held by the Company or by a Subsidiary, whether or not such
corporation now exists or hereafter is organized or acquired by the Company or
by a Subsidiary.
3. Administration. The Plan shall be administered by a committee
composed solely of two or more members of the Board (the "Committee") selected
by the Board, each of whom shall qualify as a "Non-Employee Director" within the
meaning of Rule 16b-3 and as an "outside director" within the meaning of Section
162(m) of the Code.
The Committee shall have authority to grant to eligible employees of the
Company or its Subsidiaries, pursuant to the terms of the Plan, (a) Stock
Options, (b) Stock Appreciation Rights, (c) Restricted Stock Awards, (d)
Performance Unit Awards, (e) Stock Bonus Awards, or (f) any combination of the
foregoing.
Subject to the applicable provisions of the Plan, the Committee shall have
authority to interpret the provisions of the Plan and to decide all questions of
fact arising in the application of such provisions; to select the full-time
employees to whom awards or options shall be granted under the Plan; to
determine whether and to what extent awards or options shall be granted under
the Plan; to determine the types of awards and options to be granted under the
Plan and the amount, size, terms and conditions of each such award or option; to
determine the time when awards or options shall be granted under the Plan; to
determine whether, to what extent and under what circumstances the payment of
Common Stock and other amounts payable with respect to an award granted under
the Plan shall be deferred either automatically or at the election of the
grantee; to determine the Fair Market Value of the Common Stock from time to
time; to authorize persons to execute on behalf of the Company any agreement
required to be entered into under the Plan; to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as the
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<PAGE>
Committee from time to time shall deem advisable; and to make all other
determinations necessary or advisable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all decisions and
determinations made by the Committee pursuant to the provisions of the Plan
shall be made in the sole discretion of the Committee and shall be final and
binding on all persons, including but not limited to the Company and its
Subsidiaries, the full-time employees to whom awards and options are granted
under the Plan, the heirs and legal representatives of such employees, and the
personal representatives and beneficiaries of the estates of such employees.
The Committee may delegate to any officer or officers of the Company any of
the Committee's duties, powers, and authorities under the Plan upon such
conditions and with such limitations as the Committee may determine; provided,
that only the Committee may select for awards or options under the Plan, and
make grants of awards or options under the Plan to, full-time employees of the
Company or any Subsidiary who are subject to Section 16 of the Exchange Act at
the time of such selection or the making of such a grant.
4. Common Stock Subject to the Plan. Subject to adjustment pursuant to
Section 19, the maximum number of shares of Common Stock that may be issued
under the Plan is (i) 353,000 shares of Common Stock which remain available for
future option grants under the 1989 Plan, plus (ii) the number of shares subject
to stock options outstanding under the 1989 Plan that are forfeited, terminated,
canceled, acquired by the Company or expire unexercised, which maximum number
shall not exceed 1,930,000. The Company shall reserve and keep available for
issuance under the Plan such maximum number of shares of Common Stock, subject
to adjustment pursuant to Section 19. Such shares may consist in whole or in
part of authorized and unissued shares or treasury shares or any combination
thereof. Except as otherwise provided in the Plan, any shares subject to an
option or right which expires for any reason or terminates unexercised as to
such shares shall again be available for the grant of awards or options under
the Plan. If any shares of Common Stock have been pledged as collateral for
indebtedness incurred by an optionee in connection with the exercise of a Stock
Option and such shares are returned to the Company in satisfaction of such
indebtedness, then such shares shall again be available for the grant of awards
or options under the Plan.
5. Eligibility to Receive Awards and Options. Awards and options may be
granted under the Plan to those full-time employees of the Company or any
Subsidiary who are responsible for or contribute to, or are likely to be
responsible for or contribute to, the growth and success of the Company or any
Subsidiary. The granting of an award or option under the Plan to an employee of
the Company or any Subsidiary shall conclusively evidence the Committee's
determination that such grantee meets one or more of the criteria referred to in
the preceding sentence. Directors of the Company or of any Subsidiary who are
not employees of the Company or any Subsidiary shall not be eligible to
participate in the Plan.
6. Stock Options. A Stock Option may be an Incentive Stock Option or a
Non-Qualified Stock Option. To the extent that any Stock Option does not qualify
as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option. Stock Options may be granted alone or in addition to other awards made
under the Plan. Stock Options shall be evidenced by agreements in such form as
the Committee shall approve from time to time. The agreements shall contain in
substance the following terms and conditions and may contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem appropriate:
(a) Type of Option. Each option agreement shall identify the
Stock Option represented thereby as an Incentive Stock Option or a
Non-Qualified Stock Option, as the case may be.
(b) Option Price. The option exercise price per share shall
not be less than the Fair Market Value of the Common Stock on the date
the Stock Option is granted and in no event shall be less than the par
value of the Common Stock.
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<PAGE>
(c) Term. Each option agreement shall state the period or
periods of time within which the Stock Option may be exercised, in
whole or in part, which shall be such period or periods of time as the
Committee may determine at the time of the Stock Option grant;
provided, that no Stock Option granted under the Plan shall be
exercisable more than ten years after the date of its grant; and
provided further, that one-third of the shares covered by each Stock
Option granted under the Plan shall become exercisable on each of the
first three anniversaries of the date of its grant, unless the option
agreement specifically provides otherwise and except as such
exercisability is accelerated upon the death or Disability of the
optionee as provided in Section 6(e). The Committee shall have
authority to accelerate previously established exercise rights, subject
to the requirements set forth in the Plan, under such circumstances and
upon such terms and conditions as the Committee shall deem appropriate.
(d) Payment for Shares. The Committee may permit all or part
of the payment of the option exercise price to be made (i) in cash, by
check or by wire transfer or (ii) in shares of Common Stock (A) which
already are owned by the optionee and which are surrendered to the
Company in good form for transfer or (B) which are retained by the
Company from the shares of the Common Stock which would otherwise be
issued to the optionee upon the optionee's exercise of the Stock
Option. Such shares shall be valued at their Fair Market Value on the
date of exercise of the Stock Option. In lieu of payment in fractions
of shares, payment of any fractional share amount shall be made in cash
or check payable to the Company. The Committee also may provide that
the exercise price may be paid by delivering a properly executed
exercise notice in a form approved by the Committee together with
irrevocable instructions to a broker to promptly deliver to the Company
the amount of the applicable sale or loan proceeds required to pay the
exercise price. No shares of Common Stock shall be issued to any
optionee upon the exercise of a Stock Option until the Company receives
full payment therefor as described above.
(e) Rights upon Termination of Employment. In the event that
an optionee ceases to be employed by the Company and all of its
Subsidiaries for any reason other than such optionee's death or
Disability, any rights of the optionee under any Stock Option then in
effect immediately shall terminate; provided, that the optionee (or the
optionee's legal representative) shall have the right to exercise the
Stock Option during its term within a period of six (6) months after
such termination of employment to the extent that the Stock Option was
exercisable at the time of such termination or within such other period
and subject to such other terms and conditions as may be specified by
the Committee. Notwithstanding the foregoing provisions of this Section
6(e), the optionee (and the optionee's legal representative) shall not
have any rights under any Stock Option, and the Company shall not be
obligated to sell or deliver shares of Common Stock (or have any other
obligation or liability) under any Stock Option, if the Committee shall
determine that the employment of the optionee with the Company or any
Subsidiary has been terminated for cause. In the event of such
determination, the optionee (and the optionee's legal representative)
shall have no right under any Stock Option to purchase any shares of
Common Stock regardless of whether the optionee (or the optionee's
legal representative) shall have delivered a notice of exercise prior
to the Committee's making of such determination. Any Stock Option may
be terminated entirely by the Committee at the time of or at any time
subsequent to a determination by the Committee under this Section 6(e)
which has the effect of eliminating the Company's obligation to sell or
deliver shares of Common Stock under such Stock Option.
In the event that an optionee ceases to be employed by the
Company and all of its Subsidiaries by reason of such optionee's
Disability, prior to the expiration of a Stock Option and without such
optionee's having fully exercised such Stock Option, such optionee or
such optionee's legal representative shall have the right to exercise
such Stock Option during its term within a period of twelve (12) months
after such termination of employment to the extent that such Stock
Option was exercisable at the time of such termination (as such
exercisability is accelerated pursuant to the next sentence) or within
such other period and subject to such other terms and conditions as may
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<PAGE>
be specified by the Committee. Notwithstanding the provisions of this
Section 6(e), unless otherwise specified in the Stock Option agreement,
in the event that an optionee ceases to be employed by the Company and
all of its Subsidiaries by reason of such optionee's Disability, each
Stock Option granted more than twelve (12) months prior to such event
shall become immediately exercisable in full.
In the event that an optionee ceases to be employed by the
Company and all of its Subsidiaries by reason of such optionee's death,
prior to the expiration of a Stock Option and without such optionee's
having fully exercised such Stock Option, the personal representative
of such optionee's estate or the person who acquired the right to
exercise such Stock Option by bequest or inheritance from such optionee
shall have the right to exercise such Stock Option during its term
within a period of twelve (12) months after the date of such optionee's
death to the extent that such Stock Option was exercisable at the time
of such death (as such exercisability is accelerated pursuant to the
next sentence) or within such other period and subject to such other
terms and conditions as may be specified by the Committee.
Notwithstanding the provisions of this Section 6(e), unless otherwise
specified in the Stock Option agreement, in the event that an optionee
dies, each Stock Option granted more than twelve (12) months prior to
such death shall become immediately exercisable in full.
To the extent that the aggregate Fair Market Value (determined
as of the time the option is granted) of the Common Stock with respect
to which Incentive Stock Options granted under the Plan (and all other
plans of the Company and its Subsidiaries) become exercisable for the
first time by any individual in any calendar year exceeds $100,000,
such Stock Options shall be treated as Non-Qualified Stock Options. No
Incentive Stock Option shall be granted to any employee if, at the time
the option is granted, the employee (in his or her own right or by
reason of the attribution rules applicable under Section 424(d) of the
Code) owns more than 10% of the total combined voting power of all
classes of stock of the Company or any Parent Corporation or Subsidiary
unless at the time such option is granted the option price is at least
110% of the Fair Market Value of the stock subject to such Stock Option
and such Stock Option by its terms is not exercisable after the
expiration of five years from the date of its grant.
7. Stock Appreciation Rights. Stock Appreciation Rights shall enable
the grantees thereof to benefit from increases in the Fair Market Value of
shares of Common Stock and shall be evidenced by agreements in such form as the
Committee shall approve from time to time. The agreements shall contain in
substance the following terms and conditions and may contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem appropriate:
(a) Award. A Stock Appreciation Right shall entitle the
grantee, subject to such terms and conditions as the Committee may
prescribe, to receive upon the exercise thereof an award equal to all
or a portion of the excess of (i) the Fair Market Value of a specified
number of shares of Common Stock at the time of the exercise of such
right over (ii) a specified price which shall not be less than the Fair
Market Value of the Common Stock at the time the right is granted or,
if connected with a previously granted Stock Option, not less than the
Fair Market Value of the Common Stock at the time such Stock Option was
granted. Subject to the limitations set forth in Section 4, such award
may be paid by the Company in cash, shares of Common Stock (valued at
their then Fair Market Value) or any combination thereof, as the
Committee may determine. Stock Appreciation Rights may be, but are not
required to be, granted in connection with a previously or
contemporaneously granted Stock Option. In the event of the exercise of
a Stock Appreciation Right, the number of shares reserved for issuance
under the Plan shall be reduced by the number of shares covered by the
Stock Appreciation Right as to which such exercise occurs.
(b) Term. Each agreement shall state the period or periods of
time within which the Stock Appreciation Right may be exercised, in
whole or in part, subject to such terms and conditions prescribed for
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<PAGE>
such purpose by the Committee; provided, that no Stock Appreciation
Right shall be exercisable more than ten years after the date of its
grant; and provided further, that one-third of each Stock Appreciation
Right granted under the Plan shall become exercisable on each of the
first three anniversaries of the date of its grant, unless the
agreement specifically provides otherwise and except as such
exercisability is accelerated upon the death or Disability of the
grantee as provided in Section 7(c). The Committee shall have authority
to accelerate previously established exercise rights, subject to the
requirements set forth in the Plan, under such circumstances and upon
such terms and conditions as the Committee shall deem appropriate.
(c) Rights upon Termination of Employment. In the event that a
grantee of a Stock Appreciation Right ceases to be employed by the
Company and all of its Subsidiaries for any reason other than such
grantee's death or Disability, any rights of the grantee under any
Stock Appreciation Right then in effect immediately shall terminate;
provided, that the grantee (or the grantee's legal representative)
shall have the right to exercise the Stock Appreciation Right during
its term within a period of six (6) months after such termination of
employment to the extent that the Stock Appreciation Right was
exercisable at the time of such termination or within such other period
and subject to such other terms and conditions as may be specified by
the Committee. Notwithstanding the foregoing provisions of this Section
7(c), the grantee (and the grantee's legal representative) shall not
have any rights under any Stock Appreciation Right, and the Company
shall not be obligated to pay or deliver any cash, Common Stock or any
combination thereof (or have any other obligation or liability) under
any Stock Appreciation Right, if the Committee shall determine that the
employment of the grantee with the Company or any Subsidiary has been
terminated for cause. In the event of such determination, the grantee
(and the grantee's legal representative) shall have no right under any
Stock Appreciation Right regardless of whether the grantee (or the
grantee's legal representative) shall have delivered a notice of
exercise prior to the Committee's making of such determination. Any
Stock Appreciation Right may be terminated entirely by the Committee at
the time of or at any time subsequent to a determination by the
Committee under this Section 7(c) which has the effect of eliminating
the Company's obligations under such Stock Appreciation Right.
In the event that a grantee of a Stock Appreciation Right
ceases to be employed by the Company and all of its Subsidiaries by
reason of such grantee's Disability, prior to the expiration of a Stock
Appreciation Right and without such grantee's having fully exercised
such Stock Appreciation Right, such grantee or such grantee's legal
representative shall have the right to exercise such Stock Appreciation
Right during its term within a period of twelve (12) months after such
termination of employment to the extent that such Stock Appreciation
Right was exercisable at the time of such termination (as such
exercisability is accelerated pursuant to the next sentence) or within
such other period and subject to such other terms and conditions as may
be specified by the Committee. Notwithstanding the provisions of this
Section 7(c), unless otherwise specified in the Stock Appreciation
Right agreement, in the event that a grantee ceases to be employed by
the Company and all of its Subsidiaries by reason of such grantee's
Disability, each Stock Appreciation Right granted more than twelve (12)
months prior to such event shall become immediately exercisable in
full.
In the event that a grantee ceases to be employed by the
Company and all of its Subsidiaries by reason of such grantee's death,
prior to the expiration of a Stock Appreciation Right and without such
grantee's having fully exercised such Stock Appreciation Right, the
personal representative of the grantee's estate or the person who
acquired the right to exercise such Stock Appreciation Right by bequest
or inheritance from such grantee shall have the right to exercise such
Stock Appreciate Right during its term within a period of twelve (12)
months after the date of such grantee's death to the extent that such
Stock Appreciation Right was exercisable at the time of such death (as
such exercisability is accelerated pursuant to the next sentence) or
within such other period and subject to such other terms and conditions
as may be specified by the Committee. Notwithstanding the provisions of
this Section 7(c), unless otherwise specified in the Stock Appreciation
Right agreement, in the event that a grantee dies, each Stock
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Appreciation Right granted more than twelve (12) months prior to such
death shall become immediately exercisable in full.
8. Performance Unit Awards. Performance Unit Awards shall entitle the
grantees thereof to receive future payments based upon and subject to the
achievement of preestablished long-term performance targets and shall be
evidenced by agreements in such form as the Committee shall approve from time to
time. The agreements shall contain in substance the following terms and
conditions and may contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Performance Period. The Committee shall establish with
respect to each Performance Unit Award a performance period of not
fewer than two years nor more than five years.
(b) Unit Value. The Committee shall establish with respect to
each Performance Unit Award a value for each unit which shall not
change thereafter or which may vary thereafter on the basis of criteria
specified by the Committee.
(c) Performance Targets. The Committee shall establish with
respect to each Performance Unit Award maximum and minimum performance
targets to be achieved during the applicable performance period. The
achievement of the maximum targets shall entitle a grantee to payment
with respect to the full value of a Performance Unit Award. The
achievement of less than the maximum targets, but in excess of the
minimum targets, shall entitle a grantee to payment with respect to a
portion of a Performance Unit Award according to the level of
achievement of the applicable targets as specified by the Committee. To
the extent the Committee deems necessary or appropriate to protect
against the loss of deductibility pursuant to Section 162(m) of the
Code, such targets shall be established in conformity with the
requirements of Section 162(m) of the Code.
(d) Performance Measures. Performance targets established by
the Committee shall relate to corporate, division, subsidiary, group or
unit performance in terms of objective financial criteria or
performance goals which satisfy the requirements of Section 162(m) of
the Code or, with respect to grantees not subject to Section 162(m) of
the Code, such other measures or standards of performance as the
Committee may determine. Multiple targets may be used and may have the
same or different weighting, and the targets may relate to absolute
performance or relative performance measured against other companies,
businesses or indexes.
(e) Adjustments. At any time prior to the payment of a
Performance Unit Award, the Committee may adjust previously established
performance targets or other terms and conditions of such Performance
Unit Award, including the Company's or another company's financial
performance for Plan purposes, in order to reduce or eliminate, but not
to increase, the payment with respect to a Performance Unit Award that
otherwise would be due upon the attainment of such previously
established performance targets. Such adjustments shall be made to
reflect major unforeseen events such as changes in laws, regulations or
accounting practices, mergers, acquisitions or divestitures or other
extraordinary, unusual or nonrecurring items or events.
(f) Payment of Performance Unit Awards. Upon the conclusion of
each performance period, the Committee shall determine the extent to
which the applicable performance targets have been attained and any
other terms and conditions have been satisfied for such period and
shall provide such certification thereof as may be necessary to satisfy
the requirements of Section 162(m) of the Code. The Committee shall
determine what, if any, payment is due on a Performance Unit Award and,
subject to the limitations set forth in Section 4, whether such payment
shall be made in cash, shares of Common Stock (valued at their then
Fair Market Value) or a combination thereof. Payment of a Performance
Unit Award shall be made in a lump sum or in installments, as
determined by the Committee, commencing as promptly as practicable
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after the end of the performance period unless such payment is deferred
upon such terms and conditions as may be specified by the Committee.
(g) Termination of Employment. In the event that a grantee of
a Performance Unit Award ceases to be employed by the Company and all
of its Subsidiaries for any reason other than such grantee's death or
Disability, any rights of such grantee under any Performance Unit Award
then in effect whose performance period has not ended shall terminate
immediately; provided, that the Committee may authorize the partial
payment of any such Performance Unit Award if the Committee determines
such action to be equitable.
In the event that a grantee of a Performance Unit Award ceases
to be employed by the Company and all of its Subsidiaries by reason of
such grantee's death or Disability, any rights of such grantee under
any Performance Unit Award then in effect whose performance period has
not ended shall terminate immediately; provided, that the Committee may
authorize the payment to such grantee or such grantee's legal
representative of all or any portion of such Performance Unit Award to
the extent earned under the applicable performance targets, even though
the applicable performance period has not ended, upon such terms and
conditions as may be specified by the Committee.
9. Restricted Stock Awards. Restricted Stock Awards shall consist of
shares of Common Stock restricted against transfer, subject to a substantial
risk of forfeiture and to other terms and conditions intended to further the
purpose of the Plan as the Committee may determine, and shall be evidenced by
agreements in such form as the Committee shall approve from time to time. The
agreements shall contain in substance the following terms and conditions and may
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem appropriate:
(a) Restriction Period. The Common Stock covered by Restricted
Stock Awards shall be subject to the applicable restrictions
established by the Committee over such period as the Committee shall
determine. To the extent the Committee deems necessary or appropriate
to protect against the loss of deductibility pursuant to Section 162(m)
of the Code, Restricted Stock Awards also may be subject to the
attainment of one or more preestablished performance objectives which
relate to corporate, subsidiary, division, group or unit performance in
terms of objective financial criteria or performance goals which
satisfy the requirements of Section 162(m) of the Code; provided, that
any such preestablished financial criteria or performance goals
subsequently may be adjusted by the Committee to reduce or eliminate,
but not to increase, a Restricted Stock Award in order to take into
account unforeseen events or changes in circumstances.
(b) Restriction upon Transfer. Shares of Common Stock covered
by Restricted Stock Awards may not be sold, assigned, transferred,
exchanged, pledged, hypothecated or otherwise encumbered, except as
provided in the Plan or in any Restricted Stock Award agreement entered
into between the Company and a grantee, during the restriction period
applicable to such shares. Notwithstanding the foregoing provisions of
this Section 9(b), and except as otherwise provided in the Plan or the
applicable Restricted Stock Award agreement, a grantee of a Restricted
Stock Award shall have all of the other rights of a holder of Common
Stock including but not limited to the right to receive dividends and
the right to vote such shares.
(c) Payment. The Committee shall determine the amount, form
and time of payment, if any, that shall be required from the grantee of
a Restricted Stock Award in consideration of the issuance and delivery
of the shares of Common Stock covered by such Restricted Stock Award.
(d) Certificates. Each certificate issued in respect of shares
of Common Stock covered by a Restricted Stock Award shall be registered
in the name of the grantee and shall bear the following legend (in
addition to any other legends which may be appropriate):
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<PAGE>
"This certificate and the shares of stock represented
hereby are subject to the terms and conditions
(including forfeiture provisions and restrictions
against transfer) contained in the Data Transmission
Network Corporation 1999 Stock Incentive Plan and a
Restricted Stock Award Agreement entered into between
the registered owner and Data Transmission Network
Corporation. Release from such terms and conditions
may be obtained only in accordance with the
provisions of such Plan and Agreement, a copy of each
of which is on file in the office of the Secretary of
Data Transmission Network Corporation."
The Committee may require the grantee of a Restricted Stock Award to
enter into an escrow agreement providing that the certificates
representing the shares covered by such Restricted Stock Award will
remain in the physical custody of an escrow agent until all
restrictions are removed or expire. The Committee also may require that
the certificates held in such escrow be accompanied by a stock power,
endorsed in blank by the grantee, relating to the Common Stock covered
by such certificates.
(e) Lapse of Restrictions. Except for preestablished
performance objectives established with respect to Restricted Stock
Awards to grantees subject to Section 162(m) of the Code, the Committee
may provide for the lapse of restrictions applicable to Common Stock
subject to Restricted Stock Awards in installments and may waive such
restrictions in whole or in part based upon such factors and such
circumstances as the Committee shall determine. Upon the lapse of such
restrictions, certificates for shares of Common Stock, free of the
restrictive legend set forth in Section 9(c), shall be issued to the
grantee or the grantee's legal representative. The Committee shall have
authority to accelerate the expiration of the applicable restriction
period with respect to all or any portion of the shares of Common Stock
covered by a Restricted Stock Award except, with respect to grantees
subject to Section 162(m) of the Code, to the extent such acceleration
would result in the loss of the deductibility of such Restricted Stock
Award pursuant to Section 162(m) of the Code.
(f) Termination of Employment. In the event that a grantee of
a Restricted Stock Award ceases to be employed by the Company and all
of its Subsidiaries for any reason, any rights of such grantee with
respect to shares of Common Stock that remain subject to restrictions
under such Restricted Stock Award shall terminate immediately, and any
shares of Common Stock covered by a Restricted Stock Award with
unlapsed restrictions shall be subject to reacquisition by the Company
upon the terms set forth in the applicable agreement with such grantee.
The Committee may provide for complete or partial exceptions to such
employment requirement if the Committee determines such action to be
equitable.
10. Stock Bonus Awards. The Committee may grant a Stock Bonus Award to
an eligible grantee under the Plan based upon corporate, division, subsidiary,
group or unit performance in terms of preestablished objective financial
criteria or performance goals or, with respect to participants not subject to
Section 162(m) of the Code, such other measures or standards of performance
(including but not limited to performance already accomplished) as the Committee
may determine; provided, that any such preestablished financial criteria or
performance goals subsequently may be adjusted to reduce or eliminate, but not
to increase, a Stock Bonus Award in order to take into account unforeseen events
or changes in circumstances.
If appropriate in the sole discretion of the Committee, Stock Bonus
Awards shall be evidenced by agreements in such form as the Committee shall
approve from time to time. In addition to any applicable performance goals or
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<PAGE>
standards and subject to the terms of the Plan, shares of Common Stock which are
the subject of a Stock Bonus Award may be (i) subject to additional restrictions
(including but not limited to restrictions on transfer) or (ii) granted directly
to a grantee free of any restrictions, as the Committee shall deem appropriate.
11. General Restrictions. Each award or grant under the Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, (ii) the consent or approval of any governmental regulatory
body, or (iii) an agreement by the grantee of an award or grant with respect to
the disposition of the shares of Common Stock subject or related thereto is
necessary or desirable as a condition of, or in connection with, such award or
grant or the issuance or purchase of shares of Common Stock thereunder, then
such award or grant may not be consummated and any rights thereunder may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, approval or agreement shall have been effected or obtained upon
conditions acceptable to the Committee. Awards or grants under the Plan shall be
subject to such additional terms and conditions, not inconsistent with the Plan,
as the Committee in its sole discretion deems necessary or desirable, including
but not limited to such terms and conditions as are necessary to enable a
grantee to avoid any short-swing profit recapture liability under Section 16 of
the Exchange Act.
12. Single or Multiple Agreements. Multiple forms of awards or grants
or combinations thereof may be evidenced either by a single agreement or by
multiple agreements, as determined by the Committee.
13. Rights of a Stockholder. Unless otherwise provided by the Plan, the
grantee of any award or grant under the Plan shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject or
related to such award or grant unless and until certificates for such shares of
Common Stock are issued to such grantee.
14. No Right to Continue Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any grantee the
right to continue in the employment of the Company or any Subsidiary or affect
any right which the Company or any Subsidiary may have to terminate the
employment of any grantee with or without cause.
15. Withholding. The Company's obligation to (i) deliver shares of
Common Stock or pay cash upon the exercise of any Stock Option or Stock
Appreciation Right, (ii) deliver shares of Common Stock or pay cash in payment
of any Performance Unit Award, (iii) deliver stock certificates upon the vesting
of any Restricted Stock Award, and (iv) deliver shares of Common Stock upon the
grant of any Stock Bonus Award shall be subject to applicable federal, state and
local tax withholding requirements. In the discretion of the Committee, amounts
required to be withheld for taxes may be paid by the grantee in cash or shares
of Common Stock (either through the surrender of previously held shares of
Common Stock or the withholding of shares of Common Stock otherwise issuable
upon the exercise or payment of such Stock Option, Stock Appreciation Right or
Award) having a Fair Market Value equal to the required tax withholding amount
and upon such other terms and conditions as the Committee shall determine;
provided, that any election by a grantee subject to Section 16(b) of the
Exchange Act to pay any tax withholding in shares of Common Stock shall be
subject to and must comply with any applicable rules under Section 16(b) of the
Exchange Act.
16. Indemnification. No member of the Board or the Committee, nor any
officer or employee of the Company or a Subsidiary acting on behalf of the Board
or the Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan; and all
members of the Board or the Committee and each and any officer or employee of
the Company or any Subsidiary acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
17. Non-Assignability. No award or grant under the Plan shall be
assignable or transferable by the recipient thereof except by will, by the laws
of descent and distribution or, in the case of awards or grants other than
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<PAGE>
Incentive Stock Options, pursuant to a qualified domestic relations order or by
such other means (if any) as the Committee may approve from time to time. No
right or benefit under the Plan shall in any manner be subject to the debts,
contracts, liabilities or torts of the person entitled to such right or benefit.
18. Nonuniform Determinations. The Committee's determinations under the
Plan (including but not limited to determinations of the persons to receive
awards or grants, the form, amount and timing of such awards or grants, the
terms and provisions of such awards or grants and the agreements evidencing them
and the establishment of values and performance targets) need not be uniform and
may be made by the Committee selectively among the persons who receive, or are
eligible to receive, awards or grants under the Plan, whether or not such
persons are similarly situated.
19. Adjustments. In the event of any change in the outstanding shares
of Common Stock, by reason of a stock dividend or distribution, stock split,
recapitalization, merger, reorganization, consolidation, split-up, spin-off,
combination of shares, exchange of shares or other change in corporate structure
affecting the Common Stock, the Committee shall make appropriate adjustments in
(a) the aggregate number of shares of Common Stock (i) reserved for issuance
under the Plan, (ii) for which grants or awards may be made to an individual
grantee and (iii) covered by outstanding awards and grants denominated in shares
or units of Common Stock, (b) the exercise or other applicable price related to
outstanding awards or grants and (c) the appropriate Fair Market Value and other
price determinations relevant to outstanding awards or grants and shall make
such other adjustments as may be equitable under the circumstances; provided,
that the number of shares subject to any award or grant always shall be a whole
number.
20. Terms of Payment. Subject to any other applicable provisions of the
Plan and to any applicable laws, whenever payment by a grantee is required with
respect to shares of Common Stock which are the subject of an award or grant
under the Plan, the Committee shall determine the time, form and manner of such
payment, including but not limited to lump-sum payments and installment payments
upon such terms and conditions as the Committee may prescribe. Installment
payment obligations of a grantee may be evidenced by full-recourse,
limited-recourse or non-recourse promissory notes or other instruments, with or
without interest and with or without collateral or other security as the
Committee may determine.
21. Termination and Amendment. The Board may terminate the Plan or
amend the Plan or any portion thereof at any time, including but not limited to
amendments to the Plan necessary to comply with the requirements of Section
16(b) of the Exchange Act, Section 162(m) of the Code, Section 422 of the Code
or any regulations issued under any of such statutory provisions. The
termination or any modification or amendment of the Plan shall not, without the
consent of a grantee, adversely affect such grantee's rights under an award or
grant previously made to such grantee under the Plan. The Committee may amend
the terms of any award or grant previously made under the Plan, prospectively or
retroactively; but, except as otherwise expressly permitted by the Plan and
subject to the provisions of Section 19, no such amendment shall adversely
affect the rights of the grantee of such award or grant without such grantee's
consent. Notwithstanding the foregoing provisions of this Section 21,
stockholder approval of any action referred to in this Section 21 shall be
required whenever necessary to satisfy the applicable requirements of Section
16(b) of the Exchange Act, Section 162(m) of the Code, Section 422 of the Code
or any regulations issued under any of such statutory provisions.
22. Severability. With respect to participants subject to Section 16 of
the Exchange Act, (i) the Plan is intended to comply with all applicable
conditions of Rule 16b-3 or any successor to such rule, (ii) all transactions
involving grantees who are subject to Section 16(b) of the Exchange Act are
subject to such conditions, regardless of whether the conditions are expressly
set forth in the Plan and (iii) any provision of the Plan that is contrary to a
condition of Rule 16b-3 shall not apply to grantees who are subject to Section
16(b) of the Exchange Act. If any of the terms or provisions of the Plan, or
awards or grants made under the Plan, conflict with the requirements of Section
162(m) or Section 422 of the Code with respect to awards or grants subject to or
governed by Section 162(m) or Section 422 of the Code, as the case may be, then
such terms or provisions shall be deemed inoperative to the extent they so
conflict with the requirements of Section 162(m) or Section 422 of the Code, as
35
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<PAGE>
the case may be. With respect to an Incentive Stock Option, if the Plan does not
contain any provision required to be included in the Plan under Section 422 of
the Code (as amended from time to time) or any successor to such section, then
such provision shall be deemed to be incorporated in the Plan with the same
force and effect as if such provision had been expressly set out in the Plan.
23. Effect on Other Plans. Participation in the Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any Subsidiary. Any grants or awards made pursuant to the Plan
shall not be taken into account in determining the benefits provided or to be
provided under any other plan of the Company or any Subsidiary unless otherwise
specifically provided in such other plan.
24. Term of Plan. The Plan shall become effective upon the approval of
the Plan by the stockholders of the Company not later than December 31, 1999,
and shall terminate for purposes of further grants on the first to occur of (i)
the tenth anniversary of the date the Plan is initially approved and adopted by
the stockholders of the Company, or (ii) the effective date of the termination
of the Plan by the Board pursuant to Section 21. No awards or options may be
granted under the Plan after the termination of the Plan, but such termination
shall not affect any awards or options outstanding at the time of such
termination or the authority of the Committee to continue to administer the Plan
apart from the making of further grants.
25. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of Delaware.
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37
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DATA TRANSMISSION NETWORK CORPORATION
9110 West Dodge Road, Suite 200
Omaha, NE 68114
38
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<PAGE>
DATA TRANSMISSION NETWORK CORPORATION PROXY
Annual Meeting of Stockholders To Be Held April 28, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Roger R. Brodersen and Brian L. Larson, or
either of them, as proxies of the undersigned, with full power of substitution
to either of them, and hereby authorizes them to vote all shares of common stock
of Data Transmission Network Corporation held of record by the undersigned on
March 1, 1999 at the Annual Meeting of Stockholders to be held on April 28, 1999
and at any further adjournments thereof (a) as designated below on the following
matters and (b) in their discretion on any other matters that properly may come
before the meeting or any adjournments thereof:
1. ELECTION OF DIRECTORS
FOR all nominees listed below (except as marked)
-----
WITHHOLD AUTHORITY to vote for all nominees listed below
-----
(INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), draw
a line through the nominee's name below.)
Roger R. Brodersen Scott A. Fleck Richard R. Jaros
Peter H. Kamin David K. Karnes J. Michael Parks
Jay E. Ricks Greg T. Sloma Roger W. Wallace
2. ADOPTION OF 1999 STOCK INCENTIVE PLAN FOR AGAINST ABSTAIN
---- ---- ----
3. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP as independent
auditors of the Corporation for fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
---- ---- ----
This proxy will be voted as specified. IF NO SPECIFICATION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE PROPOSALS SET FORTH ABOVE. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders of Data
Transmission Network Corporation to be held on April 28, 1999 and the Proxy
Statement for such meeting.
Dated , 1999
--------------------------- -----------------------------------
-----------------------------------
(Signature of Stockholder)
Note: Please sign exactly as name appears on stock certificate (as Indicated on
reverse side). All joint owners should sign. When signing as personal
representative, executor, administrator, attorney, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporation name
by president or other authorized person. If a partnership, please sign in
partnership name by a partner.
39
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