-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NBIzf6AEKt3Z/XZOEAoSTOqm50q3Mj/SbLB4ZTrH0STVxI17EnF9J5lPhoFQc3eS 6C+pRuhXfC0aia+z3sgctA== 0000790498-98-000006.txt : 19980401 0000790498-98-000006.hdr.sgml : 19980401 ACCESSION NUMBER: 0000790498-98-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA TRANSMISSION NETWORK CORP CENTRAL INDEX KEY: 0000790498 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 470669375 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15405 FILM NUMBER: 98581298 BUSINESS ADDRESS: STREET 1: 9110 W DODGE RD STE 200 CITY: OMAHA STATE: NE ZIP: 68114 BUSINESS PHONE: 4023902328 MAIL ADDRESS: STREET 1: 9110 WEST DODGE ROAD STREET 2: SUITE 200 CITY: OMAHA STATE: NE ZIP: 68114 FORMER COMPANY: FORMER CONFORMED NAME: DATALINE INC DATE OF NAME CHANGE: 19871214 10-K 1 1997 FORM 10-K 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, 1997. 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, 1998 was approximately $316,000,000. At March 1, 1998, the registrant had outstanding 11,200,549 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1997 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 22, 1998, are incorporated by reference into Part III. PART I ITEM 1. BUSINESS. (a) General Development of Business: Data Transmission Network Corporation (the "Company", "DTN") was incorporated on September 17, 1987 to change the name and state of incorporation of its predecessor company, Dataline, Inc. from Nebraska to Delaware pursuant to an Agreement and Plan of Merger dated October 8, 1987. The Company was originally incorporated in Nebraska on April 9, 1984, as Scoular Information Services, Inc., a subsidiary of a regional grain company, later changing its name to Dataline, Inc. On December 19, 1985 and January 31, 1986, in related transactions, certain employees of the Company purchased all of the outstanding stock of the company from the regional grain company. In January, 1987, the Company completed an initial public offering of common stock selling 698,085 shares at $5.40 per share (pre-stock split). (b) Financial Information About Industry Segments: Not Applicable (c) Narrative Description of Business: Data Transmission Network Corporation (DTN) began operations in April 1984 and continues to provide comprehensive, time-sensitive information and communication services for a variety of industries. DTN services grew to 158,800 subscribers throughout the U.S. and Canada in 1997. The subscriber growth is attributed to the high retention rate of existing services and the addition of several new services in the agricultural, weather and financial service industries. A review of these services and the year's highlights for each industry 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 of a cost-effective electronic satellite delivery system, plus a total commitment to customer service and information quality has enabled the Company to become a major player in the communications industry. The Company continues to invest time and money developing and enhancing its information distribution technology. These investments allow the Company to take advantage of many engineering and software advancements in an exciting and growing industry. INFORMATION DISTRIBUTION TECHNOLOGY The Company is committed to researching and developing distribution technologies that cost effectively delivers the timely information that the Company's subscribers demand. DTN supports several information distribution technologies allowing the distribution (transmission) and receiving (capture, manipulation and display) of information. These technologies include small dish Ku-band satellite (Ku), FM radio side-band channels (FM), FAX, Cable TV (by using the vertical blanking interval, or VBI), e-mail and the Internet. 1 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 FM signal. FAX, VBI, e-mail and the Internet were added to further expand our distribution network. The Company provides all of the equipment necessary for subscribers to receive their service based on FM, Ku and VBI. The exception is DTN's new service, DTN Real^Time, where information is delivered via a new generation of proprietary hardware into a personal computer (PC), owned by the subscriber. This equipment includes a receiver, specifically built for the Company, 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 the subscriber equipment. Prior to 1992, the Company utilized a "page-based" receiver and monochrome system. The monochrome system translates the Company's data stream into text and is capable, depending on capacity, of receiving and displaying from 126 to 246 pages of information. The monochrome receiver is also capable of downloading information to a printer or computer. In 1992, the Company introduced the Advanced Communications Engine (ACE) receiver, a color graphics receiver system, expanding the unit's ability to provide information and communication services. The ACE receiver contains multiple processors for capturing, manipulating and displaying high resolution color pictures, graphics and text. A separate processor enables the unit to play audio clips for weather forecasts, voice advertisements or audio alarms set for when a futures contract reaches a pre-set price. In addition, this processor may send and retrieve information by using an internal modem connected to a phone line. The ACE receiver is also capable of downloading information to a printer or computer. This receiver is equipped with an internal hard drive allowing processed information to be stored, archived (versus frequent rebroadcasting) and displayed. The receiver's built-in control panel, keyboard or mouse allows subscribers to conveniently access this information. One unique aspect of the Company's information distribution technology is the computer software developed by the Company specifically for use with DTN receivers. This software manages information from a wide array of input sources, runs routines, sets priorities and then initiates transmissions to the satellite. The software can individually address each receiver unit placed with a subscriber, permitting the Company to transmit specific information to a specific subscriber or group of subscribers. The Company leases FM radio side-band channels, satellite channels and VBI space to deliver information to the Company's receivers used by its subscribers. All information is up-linked from Omaha to satellite (except Internet, FAX and other telephone delivery technology) and down-linked from the satellite to the subscriber based on the distribution technology. FM monochrome subscribers receive their services from an FM antenna that delivers the information via side-band signals transmitted from radio stations. On December 31, 1997, 12,500 subscribers were receiving the Company's services via FM distribution technology. The Ku subscribers utilize a 30" satellite dish, a direct down-link, to receive their information. On December 31, 1997, 143,300 subscribers were receiving the Company's services via Ku distribution technology. Early in 1994, the Company began using a new cable TV distribution technology involving vertical blanking intervals (VBI). The Company contracted with a major cable TV superstation to transmit information along with the station's TV signal. This technology eliminates the need for an FM antenna or satellite dish and is available to businesses or residences that are wired for cable TV and receive the superstation's service. On December 31, 1997, 2,000 subscribers were receiving the Company's services by VBI distribution technology. The Company has approximately 18,000 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. Currently, there are over 900 e-mail sources delivering over 1,500 pages of information to subscribers daily. 2 Currently, DTN offers services via the Internet in the agriculture, produce, weather and finance service lines and plans to continue researching this information distribution technology. On December 31, 1997, 1,000 subscribers were receiving the Company's services by Internet distribution technology. SERVICES OFFERED The Company's revenue is derived primarily from five categories: (1) monthly, quarterly or annual subscriptions, (2) optional services, (3) communication services, (4) advertising and (5) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was:
1997 1996 1995 ---- ---- ---- Subscriptions 80 % 76 % 74 % Optional services 5 % 6 % 6 % Communication services 8 % 9 % 11 % Advertising 3 % 3 % 3 % Service Initiation Fees 4 % 6 % 6 %
Subscription revenue is generated from monthly, quarterly or annual subscription fees for one of the Company's services. The Company offers a discount to subscribers who pre-pay their subscriptions annually. A more detailed review of each service is found later in this report. Optional services are offered to subscribers on an "a la carte" basis, similar to premium channels on cable TV. Information for these services is primarily provided by a third party with DTN receiving a share of the subscription revenue paid by the subscriber. Optional services revenue continues to grow in total dollars at a rate commensurate with the overall growth of the Company due, in part, to new technological innovations using the Internet, FAX and e-mail. 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. Communication 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 rapid 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 subscribers converting to another service (ie: from a monochrome FM to a Ku color service). The Agricultural Industry The DTN Agricultural Services are DTN Ag Services, DTNstant, DTN PROduce and DTNiron. Within DTN Ag Services are DTN AgDaily, DTN ProSeries, DTN FarmDayta and DTN FarmDayta On Line.
1997 1996 1995 ----------- ----------- ----------- Revenues $87,600,000 $69,700,000 $45,000,000 Subscribers at year end 120,500 116,200 77,400
3 New subscriptions are primarily sold by the Company's national sales force of employee district sales representatives, in-house sales staff, and independent, commission-only sales representatives. The Company obtains leads for the sales force through telemarketing, direct mail, print media advertising and customer referrals. The main competition to these services is the combination of printed advisory services, radio, television, telephone, other satellite information services, online services and the changing of old information gathering habits. There are over 200 optional services available to agricultural subscribers. These 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 their specific needs by choosing from a broad mix of these "a la carte" services. DTN is continually developing new optional services to meet customer demands by listening closely to the marketplace and the customer. The Company markets these services through a combination of individual free trials, system-wide trials, on-screen advertising, direct mail, invoice stuffers, equipment stuffers and telemarketing. Optional Service subscriptions increased in 1997 fueled by these marketing campaigns and the increase in total DTN subscription sales. Optional service subscription prices range from $6 to $1,200 per quarter with the average subscription price of $60/quarter. 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. Currently, there are over 900 InfoMail customers receiving information tailored to their specific needs. DTN InfoMail provides services 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. In 1997, the agricultural services sold over $3.7 million dollars in advertising to major players in the ag industry, ag chemical and seed companies, equipment and finance businesses. The color system capabilities, such as inter-activity and animation, continue to entice new advertisers. Advertising research in 1997 confirmed that DTN is an important player in the agricultural media field. DTN Ag Services Approximately 80% of the 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 nation's total cropland and market more than 50% of the nation's cattle and hogs. DTN ag management believes the trend toward consolidation into larger farms as well as the government's move toward fewer agricultural price supports and an open market system, expands the need for agricultural information services. This expansion need provides for steady growth within DTN Ag Services. AgDaily Service Review 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 subscribers desire. The service also includes information segments for specific crop and livestock enterprises as well as general, business, sports and entertainment news. The DTN AgDaily color service also offers crop liability insurance and livestock profitability calculators by using the inter-activity feature allowing a subscriber to search a comprehensive database. 4 Pro Series Service Review DTN offers services with advanced features for the agricultural industry. The Pro Series' enhanced functionality includes a high interest window to view future or options quotes on any page, key word search that automatically searches the news story database for articles affecting the user's operation, a customized segment with up to five of the user's favorite pages, and a personal library serving as a customized archive segment. The DTN Pro Series includes six services: Weather Pro, News Pro, Chart Pro, Intraday Pro, Stock Pro and DTN Premier. Weather Pro is the "meteorological connection" to an array of current weather, forecast and satellite radar information. This service allows subscribers to choose from over 70 weather maps including detailed regional, state and zone forecasts. The Weather Pro service gives subscribers 32 programmable pages for creating their own unique weather information. News Pro is the "broadcast connection" to timely business, sports, entertainment, financial, and general news of the day. The service also provides an audio summary of the day's agricultural news. News Pro subscribers receive AP Online, a service of the Associated Press. Chart Pro is the "graphic connection" bringing a variety of information to the screen in an organized format allowing subscribers to analyze trends, patterns and cycles. This service includes 40 pages for programmable charts allowing the subscriber to create an extensive "chart book". Intraday Pro is the "trading connection" to the first low-cost system available with the ability to chart market sessions minute-by-minute during the trading day. This service allows subscribers to choose time intervals for charting to keep them abreast of the markets. Stock Pro is the "market connection" providing access to prices for over 50,000 issues of stocks, bonds and funds. This service includes stock quotes using either the quick quote feature or the programmable quotes pages. Additional features include a personal library for storing news and information and the 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 adds Stock Pro to the package targeting the farmer, rancher or agribusiness needing all the market information available in one convenient location. DTN FarmDayta Service Review DTN FarmDayta was the principle asset acquired from the acquisition of Broadcast Partners in May 1996. Its content is very similar to DTN AgDaily. In fact, since its inception in 1990, DTN FarmDayta was the primary competition for DTN AgDaily. FarmDayta gives the Company a fully integrated agricultural service line with price entry points across a wide spectrum, expanding the marketing horizons for all DTN agricultural services. The Company maintains the DTN FarmDayta facilities, with nearly 100 employees, in Des Moines, Iowa. DTN FarmDayta is an agricultural market information, quote and weather service delivering delayed commodity futures and options quotes; local cash grain and livestock prices; selected regional and world weather updates; and a variety of daily analysis, commentary and news that affect grain and livestock prices. DTN FarmDayta Elite is an advanced version of DTN FarmDayta. Features include additional options quotes, charting, weather maps and a hard drive to store data in the receiver which is critical to maintaining storage of information during a power outage. DTN FarmDayta Elite Plus is an advanced service that includes the DTN FarmDayta Elite features and is similar in content to the DTN Pro Series. This service includes more advanced news (Reuters Headline News), quotes, weather (including motion and zoom capabilities) and programmable charts. 5 DTN FarmDayta On Line Service Review The Company introduced its first agricultural Internet service, DTN FarmDayta On Line, in 1996. DTN FarmDayta On Line is similar in content to DTN FarmDayta Elite Plus and is designed for the producer preferring to use his or her personal computer to receive information or is not able to utilize the traditional satellite-based system supplied by DTN. The market for subscription-based Internet services is relatively new yet FarmDayta On Line closed the year with over 1,000 subscribers. Information includes animated weather maps, satellite and summary maps, short and long range forecast maps, news commentary and analysis as well as unlimited access to futures and option quotes from all the major exchanges. Also available is commodities for energy, financial, currency, metals and other exchanges as well as instant access to daily, weekly and monthly commodity charts. Customization capabilities allow for organization of the most often used information for business decisions. DTNstant Service Review 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, Futures World News and Bridge. The service also provides market-leading cash information, in-depth charting capabilities plus all the information available on the DTN AgDaily color service. In addition, the service provides information for the energy, metals, softs (i.e., orange juice, coffee, cocoa), transportation and lumber industries. DTNstant uses compatible software allowing 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 numerous national and regional 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 character of this industry, the Company provides on-site service and installation by professional service technicians. DTNiron Service Review DTNiron provides a cost-effective communication resource for the farm implement industry. DTNiron is an equipment locator and inventory management service providing a communication tool for farm implement dealers throughout the U.S and Canada. DTNiron provides detailed listings of farm implements and equipment for sale or needed by dealers. A listing remains on the system for a minimum of 30 days, renewable at the dealer's request. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily service. DTNiron also includes listings of construction equipment, trucks, trailers and other equipment found in the agricultural industry. The service provides listings for implement and equipment parts, especially hard to find parts. In addition, the service sorts listings by regions and provides hourly updates keeping information timely for DTN subscribers. DTNiron includes the Combine and Tractor Demand Monitor which provides the first widely distributed annual sales outlook for the tractor and combine manufacturers. This monthly economic study released to all DTNiron subscribers helps track the money-making trends in the industry. The Combine and Tractor Demand Monitor is released to the trade and agricultural press one or two days after release to DTNiron subscribers. 6 DTN PROduce Service Review DTN PROduce is an authority in providing the produce industry with the most timely information available. There are four major components to the DTN PROduce service. First is weather, the most critical information for the produce industry. Second is immediate pricing updates, formatted by commodity, growing area and terminal market. Third is transportation information with freight rates and daily truck availability for the major growing areas. Finally, the service provides a comprehensive news package including AP Online. Other key-industry news sources are "The Packer" and "The Produce News" in addition to credit information provided by the "Produce Reporter Company" and the "Red Book Credit Service". DTN PROduce maintains a price discovery network, DTNdexSM, that is the industry standard. Competition in this industry continues to focus on older technology, such as FAX machines. The entire produce food chain of growers, shippers, packers, brokers, retailers and institutions benefit from information provided by this service. A custom service for the produce grower is also available containing all the features of DTN PROduce except for transportation information and AP Online news. DTN PROduce expanded its service to the Internet in 1996 to accommodate seasonal and international customers unable to utilize the satellite dish technology. DTN Cotton Network Service Review In July of 1997, DTN acquired the customer base and other assets of "The Network", a communications company based in Lubbock, Texas. DTN Cotton Network is an electronic cotton marketing system designed to operate on a user's personal computer using software developed specifically for cotton accounting and marketing. Users dial into a DTN data center via modem to upload bale ownership information and to list cotton for broadcast to prospective buyers. Information is broadcast via DTN Ku band satellite and passed through a serial port into personal computers located at both buyer and seller locations. The Weather Industry DTN Weather Center Service Review DTN Weather Center is a comprehensive weather information system designed to meet the weather information needs of many industries. Markets specifically targeted by DTN Weather Center are golf courses, turf management, emergency management, state transportation departments, public works departments, construction and aviation.
1997 1996 1995 ----------- ----------- ----------- Revenues $10,700,000 $ 5,600,000 $ 1,000,000 Subscribers at year end 13,100 7,900 2,600
DTN Weather Center introduced new products in 1997 designed especially for the marine, forestry and travel industry. DTN Weather Center provides more than 100 weather maps, 20 regional radar maps, including NEXRAD radar and infrared satellite photos and six satellite maps. The service provides short-range (immediate to 48-hour) forecasts, long-range (3-90 day) outlooks, and 10-day city forecasts for more than 550 cities in the U.S. and Canada. The service includes programmable capabilities to customize maps, and an archival section for saving maps. Optional services, such as AP Online News, newswires, industry association news and others are also available on all Weather Center services. DTN Weather Center is a critical ingredient in operational planning and staff decisions for industries where timely, accurate and accessible weather information are vital. 7 DTN Turf Manager Service Review DTN Weather Center Turf Manager is available to individuals and businesses involved in turf-related operations such as golf courses, lawn maintenance, landscaping and sod farms. This service provides the news, weather and chemical information needed for effective turf management. Chemical and Pesticide Press Turf Index is a unique feature providing an information database of more than 275 turf pesticides. Material Safety Data Sheets (MSDS) were recently added providing an even more valuable information service for subscribers. Thor Guard, the only lightning prediction system available, warns of lightning strikes before they happen and is now available as an optional service. Evapotranspiration Tables provide regional evaporation rates to plan for watering and chemical applications. ESPN Sports Ticker provides current golf related stories and results and AP Online provides more than 300 current news stories from four chapters, General, Business, Sports and Entertainment. The National Golf Course Directory includes a database of locations, phone numbers, course pros and course superintendents for all member courses. These features, along with the comprehensive weather information, provides a complete turf industry package. DTN Aviation Center Service Review DTN Aviation Center is a comprehensive aviation weather package specially designed for pilots, airports and Fixed Base Operators (FBO's). DTN Aviation Center supplies airports, pilots and FBO's with the 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 and TAF 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 Contractor Dayta Service Review DTN Contractor Dayta is designed for the construction industry and includes construction-related news and information providing a competitive advantage for subscribers. This service provides valuable weather information necessary for important day-to-day construction business decisions. Industry specific information includes general information, association and industry information, construction news, bids and resources and the contractor's exchange. Additionally, subscribers receive sports scores, sports highlights and financial indicators. The service provides a practical tool contributing to labor and material cost savings and effective management of scheduling and staffing for the construction industry. DTN Forestry Center Service Review DTN Forestry Center combined efforts with the U.S. Forest Service to provide 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, forest service district managers quickly access fire weather text bulletins along with a comprehensive set of weather maps. 8 Bulletins provided for the forest service market 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 & 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 Service Review DTN Marine Center is a provider of 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, service and recreation. The service includes Lake and Marine Text Bulletins, Buoy Reports, Lake and Marine Maps and Tide Tables as well as general weather information and sea conditions. Optional Services are also available as service add-ons providing additional means for a more complete information and weather package. DTN Travel Center Service Review DTN Travel Center is an interactive hotel quest 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 the traveler whether he or she is on business or vacationing. The Financial Services Industry DTN Financial Services offers four services, DTN Real^Time, DTN SPECTRUM, DTN Wall Street, and DTN FirstRate. There are a variety of Optional Services available to Financial Service subscribers providing stock selection and timing advice, earnings estimates, fundamental stock market data, U.S. Treasury quotes and other financial market-related services.
1997 1996 1995 ----------- ----------- ----------- Revenues $10,300,000 $ 8,600,000 $ 6,100,000 Subscribers at year end 12,900 11,300 9,600
DTN Financial Services revenue grew 20% during 1997, adding to its bullish 26% compounded revenue growth for the past 5 years. The main objective for Financial Services is providing comprehensive, in-depth financial information at an affordable cost to its subscribers. This objective is critical due to the highly competitive nature of the business. Contents of all DTN Financial Services are broader in scope and cost less than competitive services. The "a la carte" optional services offered to subscribers give them an even greater variety of information. This combination allows the services to maintain its competitive advantage in the market. DTN Real^Time Service Review 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 nearly 12,000 characters per second, roughly four times faster than a computer modem operating at 28.8 kbs, the speed investors rely on to receive Internet-based quote services. DTN Real^Time is two to more than four times faster than other dedicated, competitive, real-time quote services. 9 DTN Real^Time is the first DTN service delivered directly via proprietary hardware to a personal computer. Previously, DTN services displayed information on the DTN proprietary systems or stand-alone units. If desired, text and data are "passed thru" these units to a PC using various software packages. Subscribers are offered, at no additional cost, the option of using DTN Chameleon, an exclusive software package compatible with Windows 95(R) to display market data, news and other financial information delivered by DTN Real^Time. DTN Chameleon software 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 Service Review DTN SPECTRUM is an enhanced version of DTN Wall Street utilizing the ACE 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. DTN SPECTRUM is very well received by new subscribers as well as existing DTN Wall Street subscribers choosing to "switch-up" to the advanced SPECTRUM features. An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. DTN SPECTRUM R-T provides real-time futures and commodity quotes along with exchange delayed stock quotes, news and other information. DTN Wall Street Service Review DTN Wall Street provides exchange-delayed quotes on stocks, bonds, mutual and money market funds, futures, interest rates, currencies and real-time index quotes. This service also provides in-depth economic, financial and business news and other time-sensitive 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. The primary competition for DTN Wall Street is satellite, TV cable (VBI), Internet and dial-up quote services. DTN FirstRate Service Review DTN FirstRate is a service for the mortgage industry providing wholesale mortgage rates in an easy-to-use standard format and intra day interest rate information 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, such as keyword search, quick quote, alarms and zoom capabilities for weather. DTN FirstRate is marketed by DTN Financial Services' institutional sales group (a select group within the National Sales Force). The Energy Industry Energy related services include DTNergy for the refined fuels, natural gas industries and electric industries.
1997 1996 1995 ----------- ----------- ----------- Revenues $14,300,000 $12,200,000 $10,000,000 Subscribers at year end 8,400 7,700 7,100
10 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 also select from a variety of optional services providing even more 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 $40.00 for the monochrome Ku-band satellite service. Refiners pay fees based on the number and length of communications sent to wholesalers. 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. The Auto Industry 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 (AuctionNet), 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). 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". DTNauto is marketed by DTNauto sales specialists (a select group within the National Sales Force). DTN Joint Venture Services DTN joined forces with several companies to market their services using DTN technology. These services are TracElectric, DAT Transportation Terminal and DTN Missing Children Information Center (MCIC). Trac Electric Service Review TracElectric is an equipment locator service for the electrical equipment industry. This service provides over 100 pages of new, remanufactured, surplus and used electrical equipment listings. The service connects buyers and sellers throughout the U.S. and Canada. DAT Service Review The DAT (Dial-A-Truck) Transportation Terminal service, located in Beaverton, Oregon, is an information communication system for the trucking industry. The service provides load and truck matching performed on a database of 50,000 listings updated daily. 11 DAT allows subscribers to input 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 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 U.S. and Canada. DTN Missing Children Information Center Service Review 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 locate missing children and the criminals involved, photos and information regarding these children are posted as a public service on all DTN color systems. EMPLOYEE DATA At December 31, 1997 the company had approximately 900 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. 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 48 of the Company's 1997 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, 1997. 12 EXECUTIVE OFFICERS OF THE REGISTRANT Information on the current executive officers of the company is as follows:
Year Joined Name Title Age the Company - ------------------- ------------------------- --- ----------- Roger R. Brodersen Chairman of the Board and 52 1984 Chief Executive Officer Greg T. Sloma President and Chief 46 1993 Operating Officer Robert S. Herman Senior Vice President 45 1984 Research and Technology Roger W. Wallace Senior Vice President and 41 1984 Co-President, Ag Division James J. Marquiss Senior Vice President and 53 1986 Co-President, Ag Division Charles R. Wood Senior Vice President and 57 1989 President, Financial Services Keith A. Cook Vice President, Auto Services 59 1986 William R. Davison Vice President and 43 1989 President, Ag Division Scott A. Fleck Vice President and 30 1991 Director of Engineering H. Wade German Vice President, 56 1992 Business Research Brian L. Larson Vice President, Chief Financial 37 1993 Officer, Secretary and Treasurer Gordon R. Lundy Vice President and 59 1990 President, Energy Services James G. Payne Vice President, Services Support 42 1990 and Special Projects
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. 13 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 51 and 53 of the Company's 1997 Annual Report to Stockholders and is incorporated herein by reference. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. The company's most restrictive loan covenant restricts cash dividend payments to 27% of net income after taxes in the previous four quarters. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for the Company is on page 28 of the Company's 1997 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 and results of operations is on pages 29 through 35 of the Company's 1997 Annual Report to Stockholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements of the Company, together with the Independent Auditors' Report, are on pages 37 through 48 of the Company's 1997 Annual Report to Stockholders and are incorporated herein by reference. Supplementary quarterly financial information is on page 33 of the Com- pany's 1997 Annual Report to Stockholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS OF THE REGISTRANT. Information concerning the present directors of the Company and all persons nominated to become directors at the Annual Meeting of Stockholders of the Company to be held April 22, 1998, 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. 14 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, 1997, 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. Herman filed one late report covering one transaction. In addition, Mr. Brodersen filed a Form 5 reporting three transactions which he inadvertently failed to report or incorrectly reported in 1991, 1994 and 1996. In making these statements, the Company has relied solely upon a review of Forms 3 and 4 fur- nished 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 7 through 11 of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held April 22, 1998, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information concerning the ownership of equity securities of the Company by certain beneficial owners and management is contained in the sections captioned "Ownership By Certain Beneficial Owners" and "Election of Directors" on pages 2 through 6 of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held April 22, 1998, 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 12 of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held April 23, 1998 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) 1. Financial Statements: The Registrant's financial statements, together with the Independent Auditors' Report, are incorporated herein by reference to the 1997 Annual Report to Stockholders, pages 27 through 48. 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, 1997, 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, 1997. 15 (A) 2. Financial Statement Schedule: Page Auditors' Report on Financial Statement Schedule 23 Schedule Number Description of Schedule --------- ---------------------------------- II Valuation and Qualifying Accounts 24 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 August 29, 1997 related to the Shareholder Rights Plan between Registrant and First National Bank of Omaha, as Rights Agent. No reports on Form 8-K were filed by the Registrant during the fourth quarter of the year ended December 31, 1997. (C) Exhibits: (3) (a) Certificate of Incorporation of Registrant. (b) By-Laws of Registrant. (These documents are filed as exhibits to the Registrant's Registration Statement on Form S-1 as filed December 4, 1987.) (4) (a) Specimen certificate representing shares of Common Stock, $.001 par value, of Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed November 4, 1988.) (b) Certificate of Incorporation of Registrant. (This document is filed as an exhibit to the Registrant's Regis- tration Statement on Form S-1 as filed December 4, 1987.) (10) (a) Lease Agreement between the Registrant and Embassy Plaza Limited Partnership. (This document is filed as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) (b) Registrant's Stock Option Plan of 1989. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) (c) Registrant's Non-employee Directors Stock Option Plan. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) (d) Form of indemnification agreement between the Registrant and the Officers and Directors of the Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed May 22, 1989.) 16 (e) First Amendment to Registrant's Employee Stock Option Plan of 1989 (amends Exhibit 10(b)). (f) First Amendment to Registrant's Non-employee Directors Stock Option Plan (amends Exhibit 10 (c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 27, 1990.) (g) Second Amendment to Registrant's Employee Stock Option Plan of 1989 (amends Exhibit 10 (b)). (h) Second Amendment to Registrant's Non-employee Directors Stock Option Plan (amends Exhibit 10 (c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 24, 1991.) (i) Loan Agreement dated October 9, 1992 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln and First National Bank of Wahoo. (j) First Amendment to Loan Agreement dated October 9, 1992 among the Registrant, First National Bank of Omaha, FirsTier Bank of Lincoln and First National Bank of Wahoo. (k) Independent Sales Representative Agreement dated March 28, 1990 between the Registrant and Phil Huston. (l) First Amendment dated March 1, 1991 to Indepen- dent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Huston. (m) Amendment to Independent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Huston. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 24, 1993). (n) Third Amendment to Registrant's Stock Option Plan of 1989 (amends Exhibit 10(b)). (o) Third Amendment to Registrant's Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (p) Fourth Amendment to Employee Stock Option Plan of 1989 (amends Exhibit 10(b)). (q) Fourth Amendment to Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 1994). (r) Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. 17 (s) Restated Security Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 14, 1994). (t) Restated and amended Non-Employee Directors Stock Option Plan. (This document is included as an exhibit to the Registrant's Proxy Statement for the annual meeting of stockholders to be held April 26, 1995). (u) First Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (v) Second Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (w) Third Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (x) Fourth Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (y) Lease agreement dated August 30, 1994 between Registrant and The Prudential Insurance Company of America. (z) First Amendment to lease agreement dated August 30, 1994 among the Registrant and The Prudential Insurance Company of America. (aa) Senior Subordinated Note dated June 30, 1994 between the Registrant and Equitable Capital Private Income & Equity Partnership II, L.P. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 28, 1995). (ab) Fifth Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant and six regional banks. (ac) Sixth Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant and six regional banks. (ad) Lease agreement dated May 2, 1995 between the Registrant and The Prudential Insurance Company of America. (ae) First Amendment to lease agreement dated May 2, 1995 between the Registrant and The Prudential Insurance Company of America. 18 (af) Restated Loan Agreement dated June 29, 1995 among the Registrant and seven regional banks. (ag) Purchase and service agreement dated July 13, 1995 between the Registrant and Knight-Ridder Financial. (ah) Adjustment to Independent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Huston. (ai) Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (aj) First Amendment to Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 22, 1997). (ak) Independent Sales Representative Agreement dated September 1, 1997, between Registrant, Huston, Inc., and Phil Huston. (al) Second Amendment to the lease agreement dated May 2, 1995, between the Registrant and The Prudential Insurance Company of America. (am) Third Amendment to the lease agreement dated May 2, 1995, between the Registrant and The Prudential Insurance Company of America. (an) Fourth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (ao) Revolving Credit Agreement dated June 28, 1997, between the Registrant and a group of banks. (ap) First Amendment to the Revolving Credit Agreement dated June 28, 1997, between the Registrant and a group of banks. (aq) Second Amendment to the Revolving Credit Agreement dated June 28, 1997, between the Registrant and a group of banks. (ar) Term Credit Agreement dated May 3, 1997, between the Registrant and a group of banks. (as) First Amendment to the Term Credit Agreement dated May 3, 1997, between the Registrant and a group of banks. (at) Second Amendment to the Term Credit Agreement dated May 3, 1997, between the Registrant and a group of banks. (au) Third Amendment to the Term Credit Agreement dated May 3, 1997, between the Registrant and a group of banks. 19 (av) Restated Security Agreement dated May 3, 1997, between the Registrant and a group of banks. (aw) First Amendment to the Restated Security Agreement dated May 3, 1997, between the Registrant and a group of banks. (ax) Second Amendment to the Restated Security Agreement dated May 3, 1997, between the Registrant and a group of banks. (ay) Third Amendment to the Restated Security Agreement dated May 3, 1997, between the Registrant and a group of banks. (az) Second Amendment to the Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994, between the Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 27, 1997). (ba) Fifth Amendment to Employee Stock Option Plan of 1989 (amends Exhibit 10(b). (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). (bb) Purchase and Sale of Assets Agreement dated January 2, 1997, between the Registrant, and Northern Data Communications and Market Quoters, Inc. (bc) Purchase and Service Agreement dated October 24, 1997, between the Registrant and the Arkansas Farm Bureau. (bd) Purchase and Restrictive Covenant Agreement dated March 14, 1997, between the Registrant and Market Communications Group, LLC. (be) Asset Purchase Agreement dated July 1, 1997, be- tween the Registrant and Cotton Communications Network, Inc. (bf) 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. (bg) 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. (bh) 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. (bi) 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. (bj) 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. (bk) 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. (bl) 1997 Revolving Credit Agreement dated February 26, 1997, between the Registrant and a group of banks. (bm) First Amendment to the 1997 Revolving Credit Agree- ment dated February 26, 1997, between the Registrant and a group of banks. (bn) Second Amendment to the 1997 Revolving Credit Agreement dated February 26, 1997, between the Registrant and a group of banks. 20 (bo) 1997 Term Credit Agreement dated February 26, 1997 between the Registrant and a group of banks. (bp) 1997 Security Agreement dated February 26, 1997 be- tween the Registrant and a group of banks. (bq) Sixth Amendment to Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (br) Seventh Amendment to Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (12) Not applicable. (13) Registrant's 1997 Annual Report to Stockholders. (This document is hereby incorporated by reference.) (16) None. (18) None. (21) None. (22) None. (23) Consent of Deloitte & Touche LLP. (24) None. (27) Financial Data Schedule. (28) None. (99) Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held April 22, 1998. (This document is hereby incorporated by reference.) 21 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 30, 1998. 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.
By: /s/ Roger R. Brodersen March 30, 1998 ------------------------------ Roger R. Brodersen, Chairman of the Board, Chief Executive Officer and Director By: /s/ Greg T. Sloma March 30, 1998 ------------------------------ Greg T. Sloma, President and Chief Operating Officer and Director By: /s/ Roger W. Wallace March 30, 1998 ------------------------------ Roger W. Wallace, Senior Vice President, Co-President-Ag Division and Director By: /s/ Robert S. Herman March 30, 1998 ------------------------------ Robert S. Herman, Senior Vice President and Director By: /s/ Brian L. Larson March 30, 1998 ------------------------------ Brian L. Larson, Vice President, Chief Financial Officer, Secretary and Treasurer By: /s/ David K. Karnes March 30, 1998 ------------------------------ David K. Karnes, Director By: /s/ J. Michael Parks March 30, 1998 ------------------------------ J. Michael Parks, Director By: /s/ Jay E. Ricks March 30, 1998 ------------------------------ Jay E. Ricks, Director
22 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Data Transmission Network Corporation Omaha, Nebraska We have audited the financial statements of Data Transmission Network Corporation as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997 and have issued our report thereon dated February 6, 1998, such financial statements and report are included in the 1997 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 6, 1998 23 Schedule II DATA TRANSMISSION NETWORK CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
Balance at Charged to Balance at Beginning Charged to Other End Description of Period Expenses Accounts Deductions of Period - ----------------------------- --------- ---------- ---------- ---------- ---------- Allowance for doubtful accounts: 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 Year ended December 31, 1995: $220,000 $358,000 - $278,000 $300,000
24 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 6, 1998, appearing in and incorporated by refer- ence in this Annual Report on Form 10-K of Data Transmission Network Corporation for the year ended December 31, 1997. DELOITTE & TOUCHE LLP Omaha, Nebraska March 27, 1998 25 EX-10 2 AGREEMENT-PURCHASE & SALE OF ASSETS FOR NDC & MQI AGREEMENT FOR PURCHASE AND SALE OF CORPORATION ASSETS This is an agreement dated this day of , 199 for the purchase and sale of the assets hereafter listed of Northern Data Communications, Inc. (hereafter "NDC"), and Market Quoters, Inc. (hereafter "MQI") by Data Transmission Network, Inc. (hereafter "DTN"). PURPOSE The purpose of this agreement is to set forth in written form the terms and conditions pursuant to which DTN shall purchase the assets of NDC and MQI. RECITALS 1. The parties hereto wish to accomplish the sale and the purchase of certain assets while, at the same time, minimizing any interruption or inconvenience to the present customers of NDC and MQI and to accomplish such transaction in a manner which is nearly transparent to all such existing customers. 2. To this end, NDC and MQI will be servicing customer accounts for a minimum period of three months or longer, following closing at the option of DTN, and DTN will be reimbursing NDC and MQI for employee costs and other operational costs incurred by NDC and MQI during this transitional period of conversion. Continued customer servicing after sale, during this transitionary period is aimed at minimizing inconvenience or interruption to any customer. THEREFORE; AND IN CONSIDERATION OF THE MUTUAL COVENANTS AND CONDITIONS HEREAFTER SET FORTH, THE PARTIES AGREE AS FOLLOWS: 1. DTN shall purchase the assets of NDC and MQI which are set forth in the next paragraph for a total purchase price of $750,000.00 of which 56%, or $420,000.00, shall be paid to MQI, and of which 44%, or $330,000.00, shall be paid to NDC. The purchase price shall be paid as hereafter set forth at closing. 2. The assets to be purchased include, but are not limited to, all customer lists, service records, customer service contracts, equipment lists, software, and magnetic data (hard disks) pertaining to the customers of NDC and MQI, and all equipment utilized by said NDC and MQI in servicing said customer locations. a. Any customer equipment which is purchased hereunder that is compatible with the DTN system shall be considered assets purchased under this agreement while any such customer equipment which is non-compatible with the DTN system shall remain the property of the sellers, NDC and MQI. It is the purpose of this paragraph to make certain that each customer is left whole throughout this transaction. 1 - 1 - b. Also purchased hereunder is any existing equipment that any customer would require to continue to receive market data via third party software. c. Also included in the assets purchased hereunder are one service van, together with tools, necessary to provide service and switch-out. Here, it is understood that MQI will transfer title of a 1993 Plymouth service van and said tools. 3. After closing, NDC and MQI shall continue to service customers in the normal manner during a conversion period, the completion of which shall be final once all customers have been switched to the necessary DTN hardware and are receiving data via DTN. This conversion period is expected to last three months, and during this period, DTN agrees that DTN shall reimburse NDC and MQI for employee costs and operational costs incurred during the transition by NDC and MQI employees. Attached hereto, marked Exhibit "A", and by this reference made a part hereof, is a list setting forth the names of said transitional employees and costs anticipated to be incurred. 4. DTN agrees that DTN shall employ Leonard Kotta and John Salewske for a period of two years commencing with closing at an annual salary of $48,000.00 each if said Leonard Kotta and John Salewske so choose such employment. 5. DTN agrees that DTN shall interview all MQI and NDC employees for the purpose of determining whether employment offers will be extended after closing. DTN is not responsible for any severance package for MQI or NDC employees. 6. DTN shall complete due diligence by December 31 with respect to all items outlined in a certain November 29, 1996 letter to Paul Hedberg. This agreement shall become binding upon the satisfactory completion of due diligence, such satisfaction shall be in the sole discretion of DTN. DTN shall be satisfied if the information reviewed is materially accurate when compared to information received from NDC and MQI prior to December 17, 1996. 7. Closing shall be on January 2, 1997, and the purchase price shall be accomplished by a transfer of funds by wire. Wire instructions are set forth on Exhibit "B" hereto attached and by this reference made a part hereof. 8. As of the date of closing, January 2, 1997, all receivables less unearned credit shall be the property of DTN. DTN shall pay to NDC and MQI, in addition to the purchase price, the total of said receivables less any unearned credit. Said receivables, together with said unearned credit, are set forth on Exhibit "C" hereto attached and by this reference made a part hereof. 9. NDC and MQI shall defend, indemnify and hold DTN harmless and free from any actions, claims, proceedings or liabilities arising from the conduct of NDC or MQI prior to the date of closing (January 2, 1997). 10. This agreement shall enure to and be binding upon the successors and assigns of the respective parties hereto. 2 - 2 - 11. This agreement represents the entire agreement of the parties. Any prior agreements between the parties hereto, whether oral or written, are superseded hereby, and there are no oral or written collateral representations, agreements, or understandings. 12. For a period of two years Leonard Kotta and John Salewske, and for a period of three years Paul Hedberg and Larry Risedt, following date of closing shall not directly or indirectly engage in a trader business in the United States which business would provide a service similar to the service currently provided by NDC and MQI. Indirectly shall mean any type of entity (Partnership, corporation, joint venture, trust, etc.) which is owned 20% or more by one of the parties or their immediate ancestors and descendants. 13. This agreement may be executed in multiple counterparts, each of which shall be deemed to be an original for all purposes. MARKET QUOTERS, INC., a Minnesota Corp. By: ------------------------------------------- Title: ---------------------------------------- NORTHERN DATA COMMUNICATIONS, INC. By: ------------------------------------------- Title: ---------------------------------------- DATA TRANSMISSION NETWORK CORPORATION, a Delaware Corporation By: ------------------------------------------- Title: ---------------------------------------- 3 - 3 - EX-10 3 PURCHASE & SERVICE AGREEMENT FOR ARK. FARM BUREAU PURCHASE AND SERVICE AGREEMENT This Purchase and Service Agreement ("this Agreement") is made and entered into this day of , 1997, between Data Transmission Network Corporation, a Delaware corporation ("DTN"), whose address is 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114, and Arkansas Farm Bureau Federation ("AFB"), whose address is , Arkansas. RECITALS: --------- A. DTN is the owner and operator of an electronic information system using color satellite data terminals (the "System") which continuously transmits information to DTN's subscribers ("DTN Subscribers"). DTN provides various information services to DTN Subscribers over the System. One of such services is known as the FarmDayta II service (the "FarmDayta II Service"). B. AFB is a provider of services to the agriculture industry in the State of Arkansas. AFB currently transmits information to subscribers ("AFB Subscribers") of its ACRES program on equipment owned by AFB, which equipment includes a monitor, databox, Ku satellite receiver, LNB, cable, and satellite dish. Such satellite dish, LNB, and cable may be used by DTN in providing information to the DTN Subscribers on the System, while the monitor, databox and Ku satellite receiver must be replaced with DTN's equipment. C. AFB desires for DTN to make the FarmDayta II Service and its other information services available to the AFB Subscribers and other members of AFB and AFB is willing to promote DTN's information services as provided in this Agreement. DTN desires to provide its information services to the AFB Subscribers who contract to receive such services. D. AFB also desires for DTN to purchase certain of AFB's equipment used by it in transmitting information to AFB 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 AFB, and AFB agrees to sell to DTN the equipment and accessories now owned by AFB and currently being used by the Converted Subscribers (defined below) to receive AFB's information service which shall include for each Converted Subscriber a monitor, databox, Ku satellite receiver, LNB, cable, and satellite dish (hereinafter collectively referred to as a "Unit"). AFB represents that there are approximately 750 AFB Subscribers who possess one Unit each. 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 "Converted Subscribers" shall mean those AFB Subscribers who convert to and become DTN Subscribers during the Conversion Period (defined below) upon the terms set forth in this Agreement, including the minimum requirement of a 1-year subscription term. For purposes of this Agreement, the term "Conversion Period" shall mean the 120-day period following the date of 1 - 4 - this Agreement. In addition, DTN agrees to purchase those sets of color satellite data terminals which AFB elects to sell (each set must consist of a monitor, databox and Ku satellite receiver and is referred to herein as a "Color Unit") and which are either currently being used by AFB Subscribers who do not become Converted Subscribers or held in inventory by AFB. Color Units shall not include any Converted Subscriber Units. For purposes of this Agreement, all Converted Subscriber Units and Color 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 AFB pursuant to this Agreement, DTN agrees to pay AFB, and AFB agrees to accept from DTN as payment in full, the following payments: (a) Six Hundred Dollars ($600) for each Converted Subscriber. DTN shall have no obligation to pay $600 to AFB for AFB Subscribers who convert to and become DTN Subscribers after the Conversion Period. This fee shall be paid on or before the 15th day of the month following the month in which such Converted Subscriber begins to receive the DTN information service or the month in which that portion of the Converted Subscriber Unit which is to be returned to DTN is received by DTN in acceptable condition, whichever is later. (b) Fifty Dollars ($50) for each Color Unit which AFB elects to sell to DTN. This fee shall be paid on or before the 15th day of the month following the month in which the Color Unit is received by DTN in acceptable condition. (c) During the term of this Agreement, DTN shall pay AFB a monthly fee determined by multiplying Six Dollars ($6.00) by the number of paid Converted Subscribers receiving a DTN information service during such month. The per Converted Subscriber fee shall be paid in arrears on or before the 15th day of each month based on the number of paid Converted Subscribers receiving the service in the prior month. AFB shall be responsible for any sales or related taxes which may result as a result of the payments made to AFB under this Agreement. 3. AFB Services. During the Conversion Period, AFB shall solicit (via telephone call, written correspondence or face to face meeting) each AFB Subscriber to enter into DTN's standard form of subscription agreement for the FarmDayta II Service or another color service of DTN on the System for at least a one (1) year subscription term. AFB agrees at its expense to send during the Conversion Period to each AFB Subscriber a letter recommending DTN's information services to such AFB Subscriber, which letter is to be accompanied by promotional materials furnished by DTN. Such letter shall be in a form 2 - 5 - satisfactory to both DTN and AFB. AFB shall be responsible for obtaining the subscription agreement signed by the Converted Subscriber and returning it to DTN for acceptance by DTN. An AFB Subscriber will not be considered a Converted Subscriber until the subscription agreement is accepted by DTN in Omaha, Nebraska. DTN will then deliver to each Converted Subscriber the DTN equipment (likely to be the monitor, databox and satellite receiver) which will be needed to allow such Converted Subscriber to receive the applicable DTN service. AFB shall cause to be picked up from each Converted Subscriber that portion of the Converted Subscriber Unit which has been replaced by the DTN equipment (exclusive of monochrome monitors believed to be undesirable) and, at AFB's expense, delivered to DTN. Where possible, such pick up and delivery shall be accomplished through the use of UPS call tags. AFB shall be responsible for installing or assisting the Converted Subscribers in installing the DTN equipment and providing the necessary assistance and support to assure AFB Subscribers a smooth conversion to the System. DTN will be responsible for training Converted Subscribers on how to use the DTN equipment. In addition, AFB shall at its expense deliver the Color Units to DTN no later than sixty (60) days after the expiration of the Conversion Period. 4. DTN Services. DTN agrees to provide the FarmDayta II Service to each Converted Subscriber at the same subscription rate at which such subscriber currently receives the AFB service, during the initial 12-month period in which such subscriber is a Converted Subscriber. DTN agrees to provide its DTN AgDaily service to each Converted Subscriber at the subscription rate of Forty-Five Dollars ($45.00) per month during the initial 12-month period in which such subscriber is a Converted Subscriber. With respect to any DTN information service offered on the color platform (other than the FarmDayta II Service and the DTN AgDaily service), DTN will offer a Converted Subscriber a Five Dollar ($5.00) discount from DTN's standard monthly subscription rate for such service during the initial 12-month period in which such subscriber is a Converted Subscriber. A Converted Subscriber also will receive no initiation or start up fee with its initial DTN subscription. DTN will impose no more than a Two Dollar ($2.00) increase in the standard monthly subscription rate during the second 12-month subscription period for those Converted Subscribers who have not changed the DTN information service initially received by them. During the term of this Agreement, DTN will furnish to AFB that number of complimentary DTN units which equals the number of complimentary units currently furnished to AFB in the ACRES program or a maximum of twenty (20), whichever is less. Such units shall consist of no more than three units receiving the FarmDayta II Service, no more than three units receiving DTN's AgDaily Pro service, no more than two units receiving real time commodity quotations, and the remaining units shall receive DTN's basic AgDaily service. AFB and DTN will execute DTN's standard Subscription Agreements applicable to the various services, which will be provided free of charge, except AFB will be responsible for all real time exchange fees. DTN also shall provide to AFB during the term of this Agreement, free of charge, a 5-page DTN Group E-Mail segment (to be used by the Vocational Agriculture Department) and an 11-page DTN Group E-Mail segment (to be used by the Cooperative Extension Service) on the System for delivery to those DTN Subscribers in Arkansas designated by AFB. Such segments will be updated no more than once per calendar week. AFB and DTN will execute DTN's standard Electronic Mail Service Agreement applicable to such services. 5. Term. The term of this Agreement shall be for a period of ten (10) years from the date of this Agreement, unless this Agreement is terminated 3 - 6 - earlier as otherwise provided in this Agreement. This Agreement also shall terminate upon the occurrence of the first to occur of either of the following events: (i) The mutual written agreement of both DTN and AFB; or (ii) The adjudication of either party as a bankrupt, the execution by either party of an assignment for the benefit of its creditors, or the appointment of a receiver for either party or substantially all of either party's property. 6. Promotion. During the term of this Agreement, AFB agrees to encourage all AFB members to use DTN's services and to otherwise promote to all AFB members the DTN services being provided on the System. AFB agrees to cooperate with DTN to market DTN's services to all AFB members; provided, however, AFB shall not be required to incur out-of-pocket costs for such marketing, except as specifically provided in this Agreement. 7. Cotton/Rice Information. During the term of this Agreement (so long as such information or similar information is available to AFB), AFB will furnish to DTN for transmission on the System the cotton and rice information package currently provided by AFB to AFB Subscribers under the name of Gene Martin (the "Cotton/Rice Information"). AFB may rename the Cotton/Rice Information at its discretion if Mr. Gene Martin is no longer involved in furnishing such information. During the term of this Agreement, DTN will transmit the Cotton/Rice Information free of charge to all Converted Subscribers who remain DTN Subscribers. During those periods in which DTN elects to offer the Cotton/Rice Information to DTN Subscribers located in Arkansas (other than the Converted Subscribers), DTN will offer such information free of charge. 8. Sales Agency. After the Conversion Period, AFB shall be eligible to act as a sales agent of DTN to solicit and obtain subscriptions to DTN's information services. AFB shall receive $200 for obtaining a basic subscription agreement with a new DTN Subscriber and $350 for obtaining a real time subscription agreement with a new DTN Subscriber. AFB and DTN will execute DTN's standard Sales Agency Agreement upon the foregoing terms. AFB will be a sales agent of DTN only for the purposes and to the extent expressly set forth in such Sales Agency Agreement and its relationship with DTN shall be solely that of an independent contractor. AFB also shall be entitled to receive a referral fee of $50.00 for any referral which results in a new DTN Subscriber. Any solicitation at an AFB meeting which results in a new DTN Subscriber or generates a referral which leads to a new DTN Subscriber shall entitle AFB to the applicable fees as set forth in this paragraph regardless of whether such solicitation is made by a DTN sales representative or a staff member of AFB. 9. Bill of Sale. Concurrently with the execution of this Agreement, AFB agrees to sell, transfer, assign and convey to DTN the Purchase Equipment by duly executed warranty bill of sale and assignment, free and clear of all liens, encumbrances, security interests, leasehold interests, actions, claims, and 4 - 7 - equities of any kind whatsoever. AFB 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 DTN to any of the items of personal property acquired by DTN from AFB pursuant to this Agreement. DTN shall be entitled to possession of the Purchased Equipment upon the execution of this Agreement; provided, however, that AFB agrees to maintain full replacement value insurance on the Purchased Equipment until it is transported to DTN. 10. Bulk Sales Transfer. If applicable, DTN waives compliance by AFB with the Bulk Sales provisions of the Arkansas Uniform Commercial Code or any equivalent statute, and AFB agrees to indemnify DTN and to hold DTN harmless from any loss or expense arising by reason of such non-compliance. 11.Representations of AFB. AFB warrants, represents and covenants to and with DTN that AFB is the sole and lawful owner and has good and merchantable title to all of the items of personal property 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. AFB further warrants, represents and covenants 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 AFB Subscriber sites and, otherwise, DTN accepts the Purchased Equipment in its present condition. The representations, warranties, and covenants contained in this Agreement shall survive the date of this Agreement and shall be binding upon the parties hereto and their successors and assigns. 12. Indemnification. Each party hereto agrees to indemnify and hold harmless the other party, its officers, directors, employees, and agents from and against any and all claims, demands, liability, loss, cost, damage, penalty or expense, including attorneys' 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 representation made by the indemnifying party in this Agreement. 13. Covenant Not to Compete. After the Conversion Period and during each month of the term of this Agreement in which AFB receives at least $2,000 in fees pursuant to Paragraph 2(c) of this Agreement, AFB and its affiliates shall not, directly or indirectly, whether as an agent, consultant, independent contractor, owner, partner or otherwise: 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 member of AFB, for the purpose of obtaining the business of such customer or member, in competition with DTN; or b) Offer, transmit, facilitate or promote the distribution or transmission to AFB members of information services in compe- tition with DTN. The phrase "in competition with DTN" shall mean any business that distributes or transmits via any electronic information system the same or similar type of 5 - 8 - information as currently offered by AFB on its ACRES program or the Cotton/Rice Information; provided, however, AFB shall retain the right to continue providing (i) the Cotton/Rice Information to ACRES pursuant to its existing contract and (ii) in the context and via the medium currently provided, its information services other than its ACRES program. Accordingly, AFB shall terminate operation of its ACRES program by the end of the Conversion Period. AFB shall be responsible for all of its obligations to AFB Subscribers and DTN does not assume any of such obligations. The covenants contained in this Section 13 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. 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, such time period, activity and/or area of restriction shall be deemed to be the maximum time period, activity and/or area which such court deems reasonable and enforceable. AFB acknowledges that the restrictions contained in this Section 13 are reasonable and necessary to protect the goodwill of that portion of the business of AFB being acquired by DTN pursuant to this Agreement. 14. 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. 15. 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. 16. Notices. Any and all written notices, communications or payments shall be made to the respective parties at their addresses indicated in the first paragraph of this Agreement or at such other address as the party may indicate in a written notice to the other party of this Agreement. 17. 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. 18. Choice of Law. This Agreement shall be subject to and interpreted in accordance with the substantive laws of the State of Nebraska. 19. 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 6 - 9 - privileges of AFB 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. 20. Default. This Agreement may be terminated by either party upon twenty (20) days prior written notice if the other party has materially breached the provisions of this Agreement and has not cured such breach within such notice period. Upon the occurrence of any event of default, the non-defaulting party may exercise any right or remedy which may be available to it under applicable law. 21. 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, acknowledgements, 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: -------------------------------- Title: ----------------------------- ARKANSAS FARM BUREAU FEDERATION By: -------------------------------- Title: ----------------------------- 7 - 10 - EX-10 4 PURCHASE & RESTRICTIVE COVENANT AGREEMENT WITH MCG PURCHASE AND RESTRICTIVE COVENANT AGREEMENT This Purchase and Restrictive Covenant Agreement (this "Agreement") is entered into as of March 12, 1997, by and between Data Transmission Network Corporation, a Delaware corporation ("DTN"), and Market Communications Group, L.L.C., a Delaware limited liability company ("MCG"). RECITALS: DTN owns and operates a satellite information transmission system that provides its subscribers with access via electronic transmission to various types of information services. MCG owns and operates a satellite information transmission system that provides its subscribers with access via electronic transmission to various types of information services. MCG and DTN desire in this Agreement to provide for the purchase by DTN of the assets and business as a going concern of MCG. NOW THEREFORE, in consideration of the premises and mutual agreements and covenants contained herein, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the meanings ascribed to them elsewhere in this Agreement and as follows: 1.1 "Affiliate" means a Person who directly or indirectly, through one or more intermediaries or otherwise, controls, is controlled by or is under common control with another Person. 1.2 "Assumed Liabilities" shall mean, collectively: (a) all trade accounts payable of MCG in existence as of the Effective Date and incurred in the ordinary course of the Business, whenever created ("Trade Payables"); (b) all obligations and liabilities under the Leases which accrue or are to be performed following the Effective Date; and (c) all obligations and liabilities under the Contracts which accrue or are to be performed following the Effective Date. The Trade Payables are listed in SCHEDULE 1.2 attached hereto. All of the Assumed Liabilities are listed in SCHEDULES 1.2, 1.4 AND 1.7. 1.3 "Business" shall mean MCG's business of providing the MCG Services to Subscribers. 1.4 "Contracts" shall mean, collectively: (a) all agreements between MCG and Subscribers in effect as of the Effective Date; and (b) the 1 - 11 - license agreements and other contracts to which MCG is a party in connection with the Business and listed in SCHEDULE 1.4 attached hereto. 1.5 "Effective Date" shall mean March 12, 1997. It is intend- ed that this Agreement will be simultaneously executed and closed as of the Effective Date. 1.6 "Farmland" shall mean Farmland Industries, Inc., a Kansas corporation. 1.7 "Leases" shall mean all real estate and equipment leases to which MCG is a party in connection with the Business and listed in SCHEDULE 1.7 attached hereto. 1.8 "MCG Services" shall mean, collectively: (a) MCG's MarketPulse and MarketPRO electronic information services; and (b) all other electronic data and/or information services provided by MCG as of the Effective Date. 1.9 "Person" shall mean an individual, partnership, corporation, limited liability company, trust or other entity. 1.10 "Purchased Assets" means all assets owned by MCG and used in connection with the Business as of the Effective Date, including: (a) the Business and the MCG Services as a going concern and all goodwill in connection therewith; (b) all rights under the Contracts and the Leases; (c) all accounts receivable of the Business in existence as of the Effective Date, whenever created; (d) subject to the provisions of Section 5.1.5, all computer hardware and peripherals, office equipment, communication systems and equipment, host/uplink and transmission system and equipment, back-up generators and other equipment owned by MCG, used in the Business and listed in SCHEDULE 1.10 (collectively, the "MCG Equipment") but excluding equipment subject to equipment Leases; (e) all computer software developed or owned by MCG, including source codes, object codes, datafeed protocols and interface programs, (f) prepaid expenses; (g) telephone numbers, furniture, fixtures, leasehold improvements and supplies; (h) all trade marks, service marks, trade names, logos and other intangible assets and intellectual property of MCG; and (i) all cash of the Business on hand as of the Effective Date, but not including the Purchase Price to be received by MCG. 1.11 "Reuters" shall mean Reuters America Inc., a Delaware corporation. 1.12 "Subscribers" small mean customers of MCG for one or more of the MCG Services, including Subscribers who receive one or more of the MCG Services; (a) directly from MCG for redistribution to their subscribers; (b) via redistributors of the MCG Services; (c) directly from MCG for internal redissemination physically controlled by the Subscriber independent of MCG, or (d) directly from MCG for internal use with no redissemination. 2 - 12 - 1.13 "Terminal" shall mean any devise installed at a Subscriber location that is capable of providing one individual with access to one or more of the MCG Services at that location independent of access to the MCG Services by any other individual at the same location, but excluding: (a) any Terminal operating by a Subscriber whose account with MCG is more than 90 days past due as of the Effective Date; (b) any device installed by MCG exclusively for promotion, marketing, sales or customer support purposes, and (c) any device installed at a Subscriber location on a free trial basis for not more than one period of not to exceed 60 days. 1.14 "Territory" means the United States of America and Canada. 2. Purchase and Sale of Purchased Assets. 2.1 Upon the terms and conditions contained herein, MCG here- by sells, transfers and assigns to DTN, and DTN hereby purchases and acquires from MCG, the Purchased Assets. 2.2 The Purchased Assets are purchased by DTN and sold and delivered by MCG "as is, where is," with all faults. MCG warrants that it has good and marketable title to the Purchased Assets free and clear of all liens, charges, claims, encumbrances and equities other than the Assumed Liabilities. Otherwise, MCG makes no representation or warranty, express or implied, oral or in writing, with regard to the condition, quality, adequacy or fitness of the Purchased Assets, including but not limited to any implied warranties of merchantability, fitness for a particular purpose or noninfringement, and all such warranties are expressly disclaimed. 3. Liabilities. 3.1 DTN hereby assumes and agrees to pay and discharge when due all Assumed Liabilities and shall hold MCG, its members, Affiliates, successors and assigns harmless therefrom. 3.2 DTN is not assuming and shall have no responsibility for any debts, obligations or liabilities of MCG not included within the Assumed Liabilities or not otherwise expressly assumed by DTN in accordance with this Agreement. 3.3 MCG shall have no liability to DTN from and after the Effective Date under that Amended and Restated Datafeed Dissemination and Equipment Lease Agreement between DTN and MCG ("Datafeed and Equipment Lease Agreement"). 4. Purchase Price. 4.1 The purchase price (the "Purchase Price") for the Purchased Assets shall be an amount equal to $1,500 times the number of Terminals in existence on the day prior to the Effective Date. The parties anticipate there will be approximately 2,400 Terminals in existence as of the 3 - 13 - Effective Date and attached to an Assignment and Assumption Agreement to be executed by MCG and DTN. 4.2 The Purchase Price shall be paid by DTN to MCG by wire transfer in immediately available funds on the Effective Date 4.3 The Purchase Price shall be allocated as follows: Fixed Assets [ $ ] ------------- Goodwill/Subscriber Contracts [ $ ] ------------- Restrictive Covenant [ $ ] ------------- DTN and MCG shall each prepare IRS Form 8594 in accordance with the allocation set forth above in time to file such Form with the Internal Revenue Service in accordance with applicable IRS procedures and Treasury regulations. 5. Deliveries. 5.1 In addition to any other documents specifically required to be delivered pursuant to this Agreement, MCG shall, in form and substance satisfactory to DTN and its counsel, deliver to DTN on the Effective Date: 5.1.1 A bill of sale, assignments and other instruments of transfer as required to effectively vest in DTN all of MCG's right, title and interest in the Purchased Assets, free and clear of all liens, charges, claims, encumbrances and equities other than the Assumed Liabilities. 5.1.2 Such consents to the assignment of the Contracts as required under the terms on the Contracts and which MCG is able to obtain prior to the Effective Date. 5.1.3 A copy of the resolution of MCG's Management Committee authorizing the execution and delivery of this Agreement and the consummation of the transaction contemplated hereby. 5.1.4. Executed originals or accurate copies of the Contracts and Leases, all amendments thereto, and all extensions and renewals thereof. 5.1.5. Copies of all business records of MCG. DTN acknowledges that the software on which MCG's accounting system is contained is licensed by MCG from a third party and is necessary for the purpose of winding down MCG's operations and preparing tax returns. Accordingly, MCG's accounting system (including hardware and software) shall be made available to MCG and/or its members for such purposes, at no charge, for a period of twelve months after the Effective Date. DTN shall maintain the integrity of MCG's accounting data, software and operating system 4 - 14 - and shall not remove any MCG accounting information from the server or software during such period. In the alternative, DTN shall provide after the Effective Date such records and information as MCG or its members require for such purposes. 5.2 In addition to any other documents specifically required to be delivered pursuant to this Agreement, DTN shall, in form and substance satisfactory to MCG and its counsel, deliver to MCG on the Effective Date such assumptions and undertakings as MCG reasonably deems necessary to evidence DTN's obligation to assume and discharge the Assumed Liabilities. 5.3 DTN shall not be required to close this Agreement unless prior to our simultaneous with closing DTN and Reuters enter into the Datafeed Dissemination Agreement between DTN and Reuters. 6. Documentation Subsequent to Effective Date. 6.1 From time to time after the Effective Date, without additional consideration, MCG shall execute and deliver such further instruments and take such other actions as DTN reasonably requests to more effectively transfer to and vest in DTN, and to put DTN in possession of, the Purchased Assets. 6.2 From time to time after the Effective Date, without additional consideration, DTN shall execute and deliver such further instruments and take such other actions as MCG reasonably requests to more effectively evidence DTN's obligation to assume and discharge the Assumed Liabilities. 7. Absence of Brokers. Each party represents that it has not retained or incurred liability to any Person for a broker's, finder's or agent's fee in connection with the transactions contemplated by this Agreement; and each party agrees to indemnify and hold the other harmless from the claim of any such broker, finder or agent retained by such party. 8. Restrictive Covenants. 8.1 For a period of three years commencing on the Effective Date, MCG agrees that it shall not directly or indirectly or through an Affiliate provide, anywhere in the Territory, and real-time electronic information service package which is substantially similar to MCG's MarketPulse or MarketPRO Ag Service as provided on the Effective Date. DTN shall not be required to close this Agreement unless prior to or simultaneous with closing, Farmland enters into a noncompete agreement with DTN containing identical covenants. 8.2 If any court having jurisdiction shall hold any of the restrictive covenants in this Section 8 to be unenforceable or unreasonable in scope, territory or duration and if such court shall determine the scope, territory or duration which such court deems reasonable, then the scope, 5 - 15 - territory or duration of the covenants in this Section 8 shall be automatically reduced to that determined to be reasonable by such court. Notwithstanding the foregoing, if any provision of this Section 8 shall be unenforceable, then such provision shall be severed from this Section 8, but every other provision shall continue in full force and effect. The covenants in this Section 8 are an integral part of the transactions contemplated by this Agreement and DTN would not have entered into this Agreement in the absence of such covenants. DTN and MCG agree that no allocation of the Purchase Price shall in any way reflect the damages which would accrue to DTN in the event of any breach of such restrictive covenants. 8.3 MCG acknowledges that the covenants in this Section 8 are reasonable and necessary in order that DTN receive the benefits intended from the transactions contemplated by this Agreement and that any breach of such covenants will result in irreparable injury to DTN for which DTN has no adequate remedy at law. In the even MCG breaches any of the covenants in this Section 8, DTN shall be authorized to seek from any court of competent jurisdiction a temporary restraining order and/or preliminary and permanent injunctive relief. Such remedies shall be cumulative and not exclusive of any other rights or remedies to which DTN may be entitled as a result of such breach. 9. MCG Employees. DTN shall have no obligation to hire any em- ployees of MCG. MCG shall be responsible for all obligations to its employees, including but not limited to salaries, bonuses, vacation pay, retirement bene- fits, sick pay, insurance premiums, severance pay and other fringe benefits. 10. Indemnification. 10.1 With the exception of the Assumed Liabilities, MCG shall defend, indemnify and hold DTN, its Affiliates, successors and assigns harmless from any loss, claim, liability, damage, cost or expense (including but not limited to reasonable attorneys' fees) ("Damages") arising from: (a) the conduct of the Business or the provision of the MCG Services or the use of the Purchased Assets prior to the Effective Date; (b) any breach of this Agreement by MCG; (c) any material inaccuracy in any of the representations or warranties made by MCG in this Agreement; or (d) any material inaccuracy or misrepresentation in any certificate or other document delivered by MCG in accordance with this Agreement. 10.2 DTN waives compliance with the Bulk Sales provisions of the Uniforms Commercial Code in connection with this transaction. MCG shall indemnify DTN, its Affiliates, successors and assigns against any Damages arising by reason of non-compliance by MCG with the Bulk Sales provisions of the Uniform Commercial Code or any equivalent statute in connection with the sale of the Purchased Assets. 10.3 DTN shall be responsible for and shall pay the Assumed Liabilities. DTN may make adjustments in such Assumed Liabilities as DTN deems appropriate, provided DTN shall indemnify MCG, its members, Affiliates, 6 - 16 - successors and assigns from any liability which may accrue as a result of any such adjustment. 10.4 DTN shall defend, indemnify and hold MCG, its members, Affiliates, successors and assigns harmless from any Damages arising from: (a) the conduct of the Business or the provision of the MCG Services or the use of the Purchased Assets following the Effective Date, whether integrated with DTN's other operations or operated on a stand-line basis; (b) the Assumed Liabilities; (c) any breach of this Agreement by DTN, (d) any material inaccuracy in any of the representations or warranties made by DTN in this Agreement; or (e) any material inaccuracy or misrepresentation in any certificate or other document delivered by DTN in accordance with this Agreement. 10.5 If any party ("Indemnified Party") entitled to indemnification from the other party ("Indemnifying Party") under this Agreement receives notice of any claim or the commencement of any action or proceeding with respect to which the Indemnifying Party is obligated to indemnify pursuant to this Agreement, the Indemnified Party shall promptly give the Indemnifying Party written notice thereof. Such notice shall describe the claim in reasonable detail and shall indicate the amount (estimated if necessary) of the loss that has been or may be sustained by the Indemnified Party in connection therewith. The Indemnifying Party may elect to compromise or defend, at its own expense and by its own counsel, any such matter involving the asserted liability of the Indemnified Party. If the Indemnifying Party elects to compromise or defend such asserted liability, it shall within 30 days (or sooner, if the nature of the asserted liability so requires) notify the Indemnified Party of its intent to do so, and the Indemnified Party shall cooperate, at the Indemnifying Party's expense, in the compromise of or defense against such asserted liability. If the Indemnifying Party elects not to compromise or defend against the asserted liability, if the Indemnified Party reasonably determines that the Indemnifying Party's counsel has a conflict of interest with the Indemnified Party or the Indemnifying Party or its counsel is not adequately defending the Indemnified Party's interests, or if the Indemnifying Party fails to notify the Indemnified Party of its election as provided herein, the Indemnified Party may, if acting in accordance with its good faith business judgment, pay, compromise or defend such asserted liability at the Indemnifying Party's expense, and such settlement shall be binding on the Indemnifying Party for purposes of this Section 10. Notwithstanding the foregoing, neither the Indemnifying Party nor Indemnified Party may settle or compromise any claim over the reasonable good faith objection of the other. The Indemnified Party may object to any settlement which obligates the Indemnified Party to pay any funds or perform or desist from performing any actions or which does not provide the Indemnified Party with a full release from liability. In any event, the Indemnified Party and Indemnifying Party may each participate, at its own expense, in the defense of such asserted liability. If the Indemnifying Party elects to defend any claim, the Indemnified Party shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense. 7 - 17 - 10.6 Notwithstanding the foregoing provisions of this Section 10: (a) neither party shall have any liability to the other party under this Section 10 for any indirect, incidental or consequential damages or expenses; and (b) the aggregate liability of each party to the other under this Section 10 shall be limited to an amount not to exceed the Purchase Price. 11. Taxes and Prorations. 11.1 All sales and other similar taxes (not including state or federal income taxes) payable in connection with this transaction and the transfer of the Purchased Assets shall be paid by DTN, and DTN shall indemnify and hold MCG, its members, Affiliates, successors and assigns harmless from any and all such taxes. 11.2 All property taxes, annual license fees and similar annual assessments due in connection with the ownership or operation of the Purchased Assets shall be prorated between DTN and MCG as of the Effective Date. MCG will provide DTN with an estimate of such taxes, fees and assessments and shall make available to DTN copies of all tax assessments, notices and related documents in its possession. 12. Nonassignable Rights. Despite anything contained herein to the contrary, this Agreement shall not constitute an agreement to assign any Contract if such assignment without the consent of the other party thereto would constitute a breach thereof or in any material way affect the rights of MCG thereunder unless such consent is obtained. If any such consent is not obtained as of the Effective Date, of if any attempted assignment without such consent would be ineffective or would materially affect MCG's rights thereunder so that DTN would not in fact receive all such rights, the parties agree to cooperate in any reasonable arrangement designed to ensure that DTN shall have the benefits, rights, obligations and duties under such Contract as soon as practicable following the Effective Date. 13. Confidentiality. The terms and conditions of this Agreement are and shall remain and be kept confidential by the parties hereto, their employees, agents and legal counsel. Except as required by law, regulations or auditing requirements, the terms of this Agreement shall not be disclosed to any third Person by MCG without the prior written consent of DTN nor by DTN without the prior written consent of MCG and its members. No press release regarding this transaction shall be issued by MCG without the prior written consent of DTN nor by DTN without the prior written consent of MCG, which consent by MCG shall not be unreasonably withheld. 14. Lost Equipment Charges. DTN acknowledges that all or sub- stantially all Equipment (as defined in the Datafeed and Equipment Lease Agreement) has been accounted for as of the Effective Date. MCG shall have no responsibility for, and DTN shall not assess or attempt to collect against MCG, any Lost Equipment Charges under the Datafeed and Equipment Lease Agreement. 8 - 18 - 15. Survival of Representations and Warranties. The repre- sentations and warranties of DTN and MCG contained in this Agreement shall survive the Effective Date for a period of twelve months. 16. No Assignment. Neither party may assign this Agreement or delegate any duties hereunder without the written consent of the other party. Any attempted assignment without such consent shall be null and void. 17. Expenses of Transaction. Except as specifically provided in this Agreement, each party shall bear its own expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby. 18. Entire Agreement. Together with the Schedules hereto, this constitutes the entire agreement between the parties with respect to the subject matter hereof. 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 herein. This Agreement may not be modified or amended except by written instrument executed by both parties hereto. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be an original and both of which, taken together, shall constitute a single instrument. 20. Notices. Any notice required or permitted under this Agree- ment shall be in writing and may be delivered personally or sent by a nationally recognized overnight courier, United States registered or certified mail, postage prepaid, or facsimile transmission, addressed as set forth below: If to MCG: Market Communications Group, L.L.C. 8610 NW 107th Terrace Kansas City, MO 64153 FAX (816) 880-1210 Attn: President With copies to: Stimson, Mag & Fizzell, P.C. Suite 2800 1201 Walnut Street Kansas City, MO 64106 FAX (816) 691-3495 Attn: Marc Salle, Esq. and 9 - 19 - Farmland Industries, Inc. 3315 N. Farmland Trafficway Department 62 Kansas City, MO 64116 FAX (816) 459-5902 Attn: Vice President and General Counsel and Reuters America Inc. 1700 Broadway New York, NY 10019 FAX (212) 307-9378 Attn: Vice President and General Counsel If to DTN: Data Transmission Network Corp. 9110 West Dodge Road, Suite 200 Omaha, NE 68114 FAX (402) 390-7188 Attn: President With a copy to: Abrahams, Kaslow & Cassman 8712 West Dodge Road, Suite 300 Omaha, NE 68114 FAX (402) 392-0816 Attn: R. Craig Fry, Esq. or to any other address or facsimile number as either party shall give the other in writing. 21. Binding Effect. The terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 22. Section Headings. Section headings in this Agreement are for the purpose of reference only and shall not limit or otherwise affect the meaning of any of the provisions of this Agreement. 23. Incorporation of Schedules. Each of the Schedules referred to herein and attached hereto are incorporated herein and shall be deemed to be a part of this Agreement. 24. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Nebraska, without reference to conflicts of laws rules. 10 - 20 - 25. Survival. Those provisions of this Agreement which by their nature are intended to survive the Effective Date shall so survive for such period of time as necessary to achieve full performance thereof. 26. Conduct and Transactions of MCG Prior to Closing. It is in- tended that this Agreement will be simultaneously executed and closed. However, from the date of this Agreement until closing, except to the extent expressly permitted by this Agreement or resulting from or incident to the transaction contemplated hereby, or as otherwise consented to by an instrument in writing signed by DTN: 26.1 MCG will use commercially reasonable efforts to keep the Business and MCG's organization intact and will not take or permit to be taken or do or suffer to be done anything other than in the ordinary course of the Business as presently conducted or necessary or incidental to the performance of this Agreement, and MCG will use its commercially reasonable efforts to keep available the services of its officers, employees and agents and to maintain the goodwill and reputation associated with the MCG Services. 26.2 MCG will not make any changes in its Certificate of Formation or Limited Liability Company Agreement which would preclude, hinder, interfere with or otherwise impair the ability of MCG to perform its obligations pursuant to this Agreement and to consummate the transaction contemplated hereby. 26.3 MCG will use commercially reasonable efforts to maintain the Purchased Assets, tangible or intangible, in good operating condition and repair and take all steps necessary to keep its operations functioning properly. 26.4 MCG will not sell, lease or dispose of, or make any contract for the sale, lease or disposition of, any of the Purchased Assets other than in the ordinary and usual course of the Business consistent with the representations and warranties of MCG contained herein and not in breach of any of the provisions of this Section 26. 26.5 MCG shall not encumber or permit to be encumbered any of the Purchased Assets. 26.6 MCG shall not do, or cause to be done, any act or suffer, or cause to be suffered, any omission which would result in a breach of any of the representation, warranties or covenants of MCG contained herein if the same were made a new immediately after such act or omission. 11 -21 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalves by their respective duly authorized officers, all as of the day and year first above written. MARKET COMMUNICATIONS GROUP, L.L.C., a Delaware limited liability company By: ----------------------------------------- Richard H. Weaver President and CEO DATA TRANSMISSION NETWORK CORPORATION a Delaware corporation By: ----------------------------------------- Greg T. Sloma President Chief Operating Officer 12 - 22 - SCHEDULE 1.2 Trade Payables 13 - 23 - SCHEDULE 1.4 Contract Other Than Subscriber Agreements 14 - 24 - SCHEDULE 1.7 Leases 15 - 25 - SCHEDULE 1.10 MCG Equipment 16 - 26 - NONCOMPETE AGREEMENT This Agreement is entered into as of March 12, 1997 by Farmland Industries Inc., a Kansas corporation ("Farmland"), and Data Transmission Network Corporation, a Delaware corporation ("DTN"). RECITALS DTN has agreed to purchase the assets and business of Market Communications Group, L.L.C., a Delaware limited liability company ("MCG") pursuant to that Purchase and Restrictive Covenant Agreement of even date herewith ("Purchase Agreement"). Farmland is a member of MCG and is willing to give the undertakings contained herein as an inducement for DTN to enter into the Purchase Agreement. In consideration of the foregoing and the mutual promises and covenants contained herein, the parties agree as follows: 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. 2. Restrictive Covenant. For a period of three years commencing on the Effective Date, Farmland agrees that it shall not directly or indirectly or through an Affiliate provide, anywhere in the Territory, any real-time electronic information service package which is substantially similar to MCG's MarketPulse or MarketPRO Ag Service as provided on the Effective Date (the "Restrictive Covenant"). DTN acknowledges and agrees that the businesses and activities conducted by Farmland as of the date of this Agreement are not in violation of the provisions of the Restrictive Covenant. 3. Enforcement. Farmland acknowledges the Restrictive Covenant is reasonable and necessary in order that DTN receive the benefits intended from the transaction contemplated by the Purchase Agreement and that any breach of the Restrictive Covenant will result in irreparable injury to DTN for which DTN has no adequate remedy at law. Accordingly, if Farmland breaches the Restrictive Covenant, DTN shall be authorized to seek from any court of competent jurisdiction a temporary restraining order and/or preliminary and permanent injunctive relief for the duration of the Restrictive Covenant. 4. Severability. If a final judicial determination is made that any provision of the Restrictive Covenant constitutes an unreasonable or otherwise unenforceable restriction against Farmland, Farmland and DTN agree that such provision shall be void only to the extent such provision is so determined to be unreasonable or otherwise unenforceable, and shall be modified to the extent required to render the same reasonable and enforceable under the circumstances. 17 - 27 - 5. Miscellaneous. This constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified or amended except by written instrument executed by Farmland and DTN. This Agreement shall be binding on the parties and their respective Affiliates, associates and employees. This Agreement shall be governed by the laws of the State of Nebraska, without reference to conflicts of laws rules. This Agreement may be executed in counterparts, each of which shall be an original and both of which, taken together, shall constitute a single instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. FARMLAND INDUSTRIES, INC. By: --------------------------------- "Farmland" DATA TRANSMISSION NETWORK CORPORATION By: --------------------------------- "DTN" 18 - 28 - BILL OF SALE ------------ Effective March 12, 1997, Market Communications Group, L.L.C., a Delaware limited liability company ("Seller"), for good and valuable consideration paid to Seller by Data Transmission Network Corporation, a Delaware corporation ("Buyer"), receipt of which is hereby acknowledged, and subject to the terms and conditions of that Purchase and Restrictive Covenant Agreement of even date herewith (the "Purchase Agreement"), does hereby irrevocably sell, assign, transfer and deliver to Buyer, its successors and assigns, the entire right, title and interest of Seller in the Purchase Assets, as defined in Section 1.10 of the Purchase Agreement, including, without limitation, the tangible assets listed on Exhibit A attached hereto, wherever such Purchased Assets may be located and whether or not reflected on the balance sheet of Seller. All capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Purchase Agreement. Seller warrants, covenants and agrees that it: (i) is hereby conveying good and indefeasible title to the Purchase Assets, free and clear of all liens, charges, claims, encumbrances and equities whatsoever; (ii) has complete and unrestricted power to enter into this Bill of Sales and to sell, assign and transfer its right, title and interest in and to the Purchase Assets and such sale, assignment and transfer do not and will not require the consent or approval of any third person or governmental entity, except as provided in the Purchase Agreement or as otherwise disclosed in writing to Buyer; (iii) will forever fully warrant and defend Seller's title to the Purchased Assets against any and all claims and demands of any kind and description (other than claims or demands created by sanctions or omissions of Buyer); and (iv) will take all steps necessary to put Buyer, its successors or assigns, in actual possession and control of the Purchased Assets. Seller agrees that it shall execute and deliver or cause to be executed and delivered from time to time such instruments, documents, agreements, consents and assurances and shall take such other actions as Buyer reasonably may require to more effectively convey, transfer and vest in Buyer all right, title and interest in and to the Purchased Assets, to put Buyer in possession of the Purchased Assets, and to carry out the intent and purposes of this instrument. This instrument shall be binding upon Seller and inure to the benefit of and be enforceable by Buyer, and their respective successors and assigns. 19 - 29 - IN WITNESS WHEREOF, Seller has caused this instrument to be executed as of March 12, 1997. MARKET COMMUNICATIONS GROUP, L.L.C. By: --------------------------------------- Richard H. Weaver President and CEO "Seller" ACCEPTED: DATA TRANSMISSION NETWORK CORPORATION By: --------------------------------------- Greg T. Sloma President and Chief Operating Officer "Buyer" 20 - 30 - EXHIBIT A Tangible Assets --------------- - 31 - ASSIGNMENT AND ASSUMPTION OF SUBSCRIBER AGREEMENTS -------------------------------------------------- This Assignment is entered into as of March 12, 1997, by Market Communications Group, L.L.C., a Delaware limited liability company ("Assignor"), and Data Transmission Network Corporation, a Delaware corporation ("Assignee"). RECITALS -------- A. Assignor and Assignee are parties to that Purchase and Re- strictive Covenant Agreement (the "Purchase Agreement") pursuant to which Assignee has agreed to acquire the assets and business as a going concern of Assignor. B. Assignor is a party to the subscriber agreements (the "Sub- criber Agreements") listed on Exhibit A attached hereto. C. As part of the transaction contemplated by the Purchase Agreement, Assignor desires to assign to Assignee all of Assignor's rights and obligations under the Subscriber Agreements. AGREEMENT --------- In consideration of the foregoing and the mutual promises and covenants contained herein, Assignor and Assigned agree as follows: 1. Assignor assigns to Assignee all of Assignor's right, title and interest in and obligations under the Subscriber agreements. 2. Assignee accepts such assignment and assumes and agrees to perform when due all of Assignor's obligations under the Subscriber Agreements which accrue following the date hereof. 3. This Assignment may be executed in counterparts, each of which shall be an original and both of which, taken together, shall constitute a single instrument. 21 - 32 - IN WITNESS WHEREOF, Assignor and Assignee have cause this Assignment to be executed as of the date set forth above. MARKET COMMUNICATIONS GROUP, L.L.C. By: --------------------------------------- Richard H. Weaver President and CEO "Assignor" `` DATA TRANSMISSION NETWORK CORPORATION By: --------------------------------------- Greg T. Sloma President and Chief Operating Officer "Assignee" 22 - 33 - EXHIBIT A List of Subscribers 23 - 34 - ASSIGNMENT AND ASSUMPTION OF CONTRACTS -------------------------------------- This Assignment is entered into as of March 12, 1997, by Market Communications Group, L.L.C., a Delaware limited liability company ("Assignor"), and Data Transmission Network Corporation, a Delaware corporation ("Assignee"). RECITALS -------- A. Assignor and Assignee are parties to that Purchase and Restrictive Covenant Agreement (the "Purchase Agreement") pursuant to which Assignee has agreed to acquire the assets and business as a going concern of Assignor. B. Assignor is a party to the agreements (the "Contracts") listed on Exhibit A attached hereto. C. As part of the transaction contemplated by the Purchase Agreement, Assignor desires to assign to Assignee all of Assignor's rights and obligations under the Contracts. AGREEMENT --------- In consideration of the foregoing and the mutual promises and covenants contained herein, Assignor and Assignee agree as follows: 1. Assignor assigns to Assignee all of Assignor's right, title and interest in and obligations under the Contracts. 2. Assignee accepts such assignment and assumes and agrees to pay and perform when due all of Assignor's obligations under the Contracts which accrue following the date hereof. 3. This Assignment may be executed in counterparts, each of which shall be an original and both of which, taken together, shall constitute a single instrument. 24 - 35 - IN WITNESS WHEREOF, Assignor and Assignee have cause this Assignment to be executed as of the date set forth above. MARKET COMMUNICATIONS GROUP, L.L.C. By: --------------------------------------- Richard H. Weaver President and CEO "Assignor" DATA TRANSMISSION NETWORK CORPORATION By: --------------------------------------- Greg T. Sloma President and Chief Operating Officer "Assignee" 25 - 36 - EXHIBIT A List of Contracts 26 - 37 - CONSENT ------- The undersigned hereby consents to the assignment by Market Communications Group, L.L.C., a Delaware limited liability company ("MCG"), to Data Transmission Network Corporation, a Delaware corporation ("DTN") of the contract identified below (the "Contract"). The undersigned acknowledges the Contract is in full force and effect and constitutes the legal, valid and binding obligation of the undersigned, and that MCG is not in default thereunder. Dated as of March 12, 1997. ------------------------------------------ Company Name By ----------------------------------------- Signature Contract: --------------------------------------------- --------------------------------------------- 27 - 38 - ASSIGNMENT AND ASSUMPTION OF OFFICE LEASE ----------------------------------------- This Assignment is entered into as of March 12, 1997, by Market Communications Group, L.L.C., a Delaware limited liability company ("Assignor"), and Data Transmission Network Corporation, a Delaware corporation ("Assignee"). RECITALS -------- A. Assignor and Assignee are parties to that Purchase and Re- strictive Covenant Agreement (the "Purchase Agreement") pursuant to which Assignee has agreed to acquire the assets and business as a going concern of Assignor. B. Assignor maintains office space at 8610 N.W. 107th Terrace, Kansas City, Missouri 64153 (the "Leased Premises"). The Leased Premises are subject to a lease (the "Office Lease") between Farmland Industries, Inc. as landlord ("Landlord") and Assignor as tenant. C. As part of the transaction contemplated by the Purchase Agreement, Assignor desires to assign to Assignee all of Assignor's rights and obligations under the Contracts. AGREEMENT --------- In consideration of the foregoing and the mutual promises and covenants contained herein, Assignor and Assignee agree as follows: 1. Assignor assigns to Assignee all of Assignor's right, title and interest in and obligations under the Office Lease. 2. Assignee accepts such assignment and assumes and agrees to pay and perform when due all of Assignor's obligations under the Office Lease which accrue following the date hereof. 3. This Assignment may be executed in counterparts, each of which shall be an original and both of which, taken together, shall constitute a single instrument. 28 - 39 - IN WITNESS WHEREOF, Assignor and Assignee have cause this Assignment to be executed as of the date set forth above. MARKET COMMUNICATIONS GROUP, L.L.C. By: --------------------------------------- Richard H. Weaver President and CEO "Assignor" DATA TRANSMISSION NETWORK CORPORATION By: --------------------------------------- Greg T. Sloma President and Chief Operating Officer "Assignee" 29 - 40 - CONSENT ------- The undersigned Landlord consents to the assignment by Market Communications Group, L.L.C., a Delaware limited liability company ("MCG"), to Data Transmission Network Corporation, a Delaware corporation ("DTN") of that Office Lease for the premises located at 8610 N.W. 107th Terrace, Kansas City, Missouri 64153 and releases MCG from all duties and obligations under the Office Lease which accrue following the date hereof. The undersigned acknowledges that the Office Lease is in full force and effect and constitutes the legal, valid and binding obligation of the undersigned, and that MCG is not in default thereunder. Dated as of March 12, 1997. Farmland Industries, Inc. By ---------------------------------------- 30 - 41 - ASSIGNMENT AND ASSUMPTION OF EQUIPMENT LEASES --------------------------------------------- This Assignment is entered into as of March 12, 1997, by Market Communications Group, L.L.C., a Delaware limited liability company ("Assignor"), and Data Transmission Network Corporation, a Delaware corporation ("Assignee"). RECITALS -------- A. Assignor and Assignee are parties to that Purchase and Re- strictive Covenant Agreement (the "Purchase Agreement") pursuant to which Assignee has agreed to acquire the assets and business as a going concern of Assignor. B. Assignor is a party to the equipment leases (the "Equipment Leases") identified on Exhibit A attached hereto. C. As part of the transaction contemplated by the Purchase Agreement, Assignor desires to assign to Assignee all of Assignor's rights and obligations under the Equipment Leases. AGREEMENT --------- In consideration of the foregoing and the mutual promises and covenants contained herein, Assignor and Assignee agree as follows: 1. Assignor assigns to Assignee all of Assignor's right, title and interest in and obligations under the Equipment Leases. 2. Assignee accepts such assignment and assumes and agrees to pay and perform when due all of Assignor's obligations under the Equipment Leases which accrue following the date hereof. 3. This Assignment may be executed in counterparts, each of which shall be an original and both of which, taken together, shall constitute a single instrument. 31 - 42 - IN WITNESS WHEREOF, Assignor and Assignee have cause this Assignment to be executed as of the date set forth above. MARKET COMMUNICATIONS GROUP, L.L.C. By: --------------------------------------- Richard H. Weaver President and CEO "Assignor" DATA TRANSMISSION NETWORK CORPORATION By: --------------------------------------- Greg T. Sloma President and Chief Operating Officer "Assignee" 32 - 43 - EXHIBIT A --------- Equipment Leases 33 - 44 - CONSENT ------- The undersigned equipment lessor hereby consents to the assignment by Market Communications Group, L.L.C., a Delaware limited liability company ("MCG"), to Data Transmission Network Corporation, a Delaware corporation ("DTN") of that Equipment Lease identified below (the "Equipment Lease"). The undersigned acknowledges that the Equipment Lease is in full force and effect and constitutes the legal, valid and binding obligation of the undersigned, and that MCG is not in default thereunder. Dated as of March 12, 1997. ------------------------------------------ Company By ---------------------------------------- Signature Equipment Lease: ----------------------------------- ----------------------------------- 34 - 45 - STATEMENT OF UNANIMOUS CONSENT OF THE MANAGEMENT COMMITTEE OF MARKET COMMUNICATIONS GROUP, L.L.C. ------------------------------------ The undersigned, being all the members of the Management Committee of Market Communications Group, L.L.C., a Delaware limited liability company (the "Company"), in lieu of holding a special meeting of the Management Committee, hereby consent to the adoption of and hereby adopt the following resolutions, effective as of this date, such resolutions to have the same force and effect as if adopted at a special meeting of the Management Committee duly called and held: BE IT RESOLVED, that the Management Committee believes it to be in the best interests of the Company that the assets and business as a going concern of the Company be sold to Data Transmission Network Corporation ("DTN") pursuant to that Purchase and Restrictive Covenant Agreement (the "Purchase Agreement") between the Company and DTN. FURTHER RESOLVED, that the Purchase Agreement and the terms thereof and the transactions contemplated thereby are ratified and improved in all respects, and the Company is authorized to enter into and perform its obligations under the Purchase Agreement. FURTHER RESOLVED, that the President of the Company is authorized and directed to execute and deliver the Purchase Agreement in the name and on behalf of the Company, with such changes, additions or deletions as approved by the Management Committee, such approval being conclusively evidenced by the President's signature thereto. FURTHER RESOLVED, that the President of the Company is authorized and directed to execute and deliver such further agreements, certificates and documents and to take such other actions, in the name and on behalf of the company, as he deems necessary or appropriate to carry out the Company's obligations under the Purchase Agreement, to consummate the transactions contemplated thereby and to carry out the purpose and intent of the foregoing resolutions. FURTHER RESOLVED, that the President of the Company is authorized and directed to engage and consult with such accountants, legal counsel and other advisers as he deems appropriate in connection with the actions to be taken under the foregoing resolutions. FURTHER RESOLVED, that any and all actions heretofore or hereafter taken by the President of the company in furtherance of the transactions contemplated by the foregoing resolutions are ratified and approved in all respects. Dated : March 12, 1997. For Reuters America Inc. For Farmland Industries, Inc. - ---------------------------- ------------------------------ Sara Dunn H. D. Cleberg - ---------------------------- ------------------------------ Jeffrey Maron John Berardi - ---------------------------- ------------------------------ Howard Naphtali Kent Nunn 35 - 46 - EX-10 5 ASSET PURCHASE AGREEMENT OF COTTON COMMUNICATIONS ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT ("Agreement") is made July , 1997, among THE COTTON COMMUNICATION NETWORK, INC., a Texas corporation, also known as The Network ("Seller"), DANIEL DAVIS, majority shareholder of Seller ("Shareholder"), and DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation ("Purchaser"). R E C I T A L S: A. Purchaser owns and operates a satellite information transmission system (the "DTN System") that provides its subscribers with access via electronic transmission to various types of information services. Purchaser offers certain information services which provide futures and options quotations from the major commodity exchanges, including the cotton exchange. Purchaser also offers other information services serving the agriculture industry as well as other industries. B. Seller operates a cotton trading network service (the "Service") pursuant to which Seller delivers information to end users via the DTN System (as optional services on certain of Purchaser's information services), provides such end users with computer programs to process the information on their personal computers, and allows such end users to communicate trades via a phone-line based transmission system. Seller has approximately fifty customers who subscribe to the Service. Seller also develops, markets, distributes, licenses, maintains, and supports other systems and applications computer programs. Seller's various lines of business are collectively referred to in this Agreement as the "Business". C. Seller and Purchaser desire to enter into this Agreement providing for the sale to Purchaser of certain of the assets used in the operation of the Business and assumption by Purchaser of certain liabilities relating to the Business on the terms and conditions and subject to the exceptions set forth in this Agreement. In consideration of the recitals and provisions herein, the parties agree as follows: 1. Assets To Be Purchased. Seller agrees to sell and Purchaser agrees to purchase the Business and all of the Assets. The term "Assets" means, except for the Excluded Assets (as defined at the end of this Section 1), if any, all of the assets of Seller of every nature and kind, whether tangible or intangible, and wherever situated, belonging to or used in the Business, including without limitation all of the following: 1 - 47 - (a) The Business and goodwill as a going concern of Seller arising out of the Business including the right to use the name "The Network". (b) The assets (other than cash and equivalents, investments, notes and accounts receivable, prepaid expenses, and tax refunds) listed on the balance sheet of Seller as of May 31, 1997 included in Schedule 9.4, including without limitation the furniture, fixtures, equipment, supplies, leasehold improvements, computer hardware and other fixed assets listed on Schedule 1(b) attached hereto, subject to any changes in the assets which may occur in the ordinary course of the Business between May 31, 1997 and the Closing Date. (c) All rights of Seller under contracts, leases and agreements relating to the Business, whether written or oral, including without limitation those listed on Schedule 1(c), but excluding those (if any) which are Excluded Assets. (d) All trade names, trademarks, service marks, patents, patent rights, copyrights, and all applications for or registrations thereof, together with the right to sue for past infringement thereof, all inventions or discoveries whether patentable or unpatentable, and all other proprietary rights belonging to or used in the Business, including without limitation those listed on Schedule 1(d). (e) All computer software programs and associated documentation, whether owned or licensed, used by Seller in the operation of the Business, including without limitation those listed on Schedule 1(e). (f) All licenses, permits, approvals, qualifications, certificates or the like issued or to be issued or held by Seller with respect to the Business, including without limitation those listed on Schedule 1(f). (g) All of Seller's assignable insurance policies relating to the Business or the Assets being acquired by Purchaser pursuant to this Agreement, including all rights of Seller under such insurance policies as are listed on Schedule 1(g). (h) All warranties held by Seller with respect to the Assets to the extent that such warranties are assignable. (i) All of Seller's know-how, trade secrets and other technology or procedures relating to the conduct of the Business. 2 - 48 - (j) All of Seller's customer lists, vendor lists, and books and records of every nature and kind of or used in the Business. (k) All telephone and facsimile numbers, including "800" numbers, and post office boxes, of or used in the Business, as described on Schedule 1(k). The term "Excluded Assets" as used herein means those current assets of Seller excluded in Section 1(b) and those contracts, leases and agreements, if any, which relate to the Business and (i) have not been listed as Assumed Liabilities on Schedule 3.1 and (ii) after Purchaser becomes aware of such non-listed assets Purchaser declines to accept them. 2. Purchase Price and Payment. The purchase price payable by Purchaser for the Assets, subject to the provisions of Section 5, shall be One Million Dollars ($1,000,000) (the "Purchase Price"), payable without interest as follows: (a) Forty Thousand Dollars ($40,000) shall be paid to Seller at Closing. (b) Four monthly payments of Forty Thousand Dollars ($40,000) each shall be paid to Seller commencing one month after the Closing Date and continuing on the same day of each month for the next three consecutive months thereafter. (c) Four payments of Two Hundred Thousand Dollars ($200,000) each shall be paid to Seller commencing on the second anniversary date of the Closing Date and continuing on each of the next three consecutive anniversary dates thereafter. 3. Assumption of Liabilities. 3.1 Assumed Liabilities. At the Closing Purchaser shall assume, agree to perform, and discharge when due only those obligations of Seller arising out of the contracts, leases and agreements listed on Schedule 3.1 with respect to the period from and after the Closing Date. 3.2 Excluded Liabilities. Seller and Purchaser agree that Purchaser does not agree to assume and shall have no responsibility for any of the debts, obligations or liabilities of Seller other than the Assumed Liabilities (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 3 - 49 - 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 Date 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 those referred to in Section 3.1) whether incurred prior to, at or subsequent to the Closing Date. (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 Date. (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 Purchaser. 4. Allocation of Purchase Price. The Purchase Price shall be al- located among the Assets and the Seller/Shareholder Non-Competition Agreement in the manner described on Schedule 4. Seller and Purchaser each agree that they will not take a position on any income tax return, before any governmental agency charged with the collection of any income tax, or in any judicial proceeding which is in any way inconsistent with the provisions of this Section 4. 5. Option of Purchaser to Unwind Agreement. At anytime after the Closing, Purchaser may notify (the "Notice") Seller in writing of Purchaser's election to terminate this Agreement and unwind the acquisition contemplated by this Agreement, in which case the obligations of the parties under all provisions of this Agreement (other than this Section) and under the Seller/ Shareholder Non-Competition Agreement and the Shareholder Consulting Agreement shall cease. If the Notice is given, then the obligations of Purchaser to pay the remainder of the Purchase Price to Seller shall cease; provided that Seller shall retain that portion of the Purchase Price paid to Seller prior to the Notice. Seller may, at its option, reacquire from Purchaser any of the Assets then held by Purchaser plus those improvements or enhancements made by Purchaser 4 - 50 - to the computer software listed on Schedule 1(e) which are used by Purchaser solely in connection with the cotton trading network. For purposes of illustration and not by way of limitation, such improvements and enhancements shall not include any computer software possessed by Purchaser prior to the Closing or any computer software used by Purchaser in providing any of its information services other than its cotton trading network service, even if it also is used in providing such cotton trading network service. The consideration to be given by Seller to Purchaser shall be the assumption by Seller of those obligations of Purchaser arising out of the contracts, leases and agreements listed on Schedule 3.1 and those additional contracts entered into by Purchaser with customers to receive the cotton trading network service with respect to the period from and after the date of such reacquisition. In addition, Seller may, at its option, acquire from Purchaser any additional computer hardware which is acquired by Purchaser after the date of this Agreement and used by Purchaser solely in providing the cotton trading network service, for a cash purchase price equivalent to Purchaser's net book value of the hardware (as determined by Purchaser in the preparation of its financial statements) as of the last day of the calendar quarter immediately preceding the date of the Notice. The reacquisition and purchase by Seller as contemplated by this Section shall occur at the option of Seller within thirty (30) days after the date of the Notice and Seller shall be responsible for the sales taxes, if any, arising from such transaction. If such reacquisition or purchase occurs, such property is to be reacquired by and sold to Seller "AS IS" and Seller assumes the responsibility and risks of all defects and conditions relating to such property. Purchaser makes no representation and assumes no liability for the condition or completeness of such property (including but not limited to the computer software and any improvements or enhancements thereto) and Seller assumes all risk in connection with the use thereof, and releases Purchaser from any liability in connection with the use thereof by Seller or by any other person. If the Notice is given, then Purchaser agrees that for a period of three (3) years after the date of the Notice it will not offer on the DTN System a cotton trading network service in direct competition with the Service; provided, however, such restriction shall not preclude Purchaser from continuing to offer during such three-year period those information services offered by Purchaser on the date of this Agreement. 6. Information and Access. Seller shall allow Purchaser and its representatives full access to all of Seller's books and records, files, contracts, documents, facilities, attorneys and accountants pertaining to the Business and Assets for purposes of Purchaser's due diligence review. Seller shall furnish to Purchaser such financial and operating data and other information concerning the Business and Assets as Purchaser may reasonably request. 5 - 51 - 7. Related Transactions. 7.1 Seller/Shareholder Non-Competition Agreements. At the Closing, Seller and Shareholder shall execute and deliver a five (5) year Confidentiality and Non-Competition Agreement in the form of Exhibit A ("Seller/Shareholder Non-Competition Agreement"). 7.2 Shareholder Consulting Agreement. At the Closing, Shareholder and Purchaser shall execute and deliver a Consulting Agreement in the form of Exhibit B ("Shareholder Consulting Agreement"). 7.3 Employees of the Business. (a) Prior to the Closing Date Seller shall send a letter of termination (in form and timing approved by Purchaser) effective as of the Closing Date to all employees of the Business who will no longer be employed by Seller following the Closing. Seller shall be solely responsible for and shall pay at Closing or as soon thereafter as required by law, all salaries, bonuses, commissions, vacation pay, severance pay, sick leave, profit-sharing plan contributions, health and accident insurance, pension benefits, and all other employee benefits of any kind accruing in favor of the employees of the Business, and any payroll taxes owing thereon, through the termination of their employment with Seller. If requested by Purchaser, Seller will take such actions as may be necessary to transfer to Purchaser Seller's unemployment compensation insurance experience accounts relating solely to the Business as of the Closing Date. (b) Purchaser may, but is not obligated to, offer to employ as Purchaser's own employees any of the persons actively participating in the Business on the Closing Date. All employees accepting employment under the employment terms and conditions offered by Purchaser, if any, shall be eligible, as other similarly situated new employees of Purchaser would be, for those employee benefit plans which Purchaser has in effect for its similarly situated existing employees as of the Closing Date. 7.4 Continued Relationships With Clients. Seller and Shareholder shall cooperate with Purchaser on communications with clients of the Business prior to the Closing. Seller understands that Purchaser will expect satisfactory assurances as to the continued level of business to be anticipated from clients of the Business from and after the Closing. 6 - 52 - 8. Closing. 8.1 Date and Place. The closing under this Agreement (the "Closing") shall take place on or before ______________, 1997, at ________________________________________ or at such other place and time as may be mutually agreed upon by the parties. The actual date of Closing is referred to in this Agreement as the "Closing Date". 8.2 Deliveries by Seller and Shareholder. Seller and Shareholder shall deliver to Purchaser at the Closing the following items and documents, executed as appropriate by Seller and Shareholder: (a) possession of all of the Assets; (b) such bills of sale and other instruments of transfer, in form satisfactory to Purchaser, as are required or appropriate to convey to Purchaser good and marketable title to the Assets, free and clear of all liens, encumbrances, claims and restrictions of any nature; (c) the Shareholder Consulting Agreement; (d) the Seller/Shareholder Non-Competition Agreement; (e) all third party consents necessary for Seller and Shareholder to consummate the transactions contemplated by this Agreement; (f) such other documents as Purchaser may reasonably request in order to show that Seller and Shareholder have fulfilled all of their other obligations required under this Agreement for the Closing to occur; and (g) a certified copy of the resolutions of the shareholders and Board of Directors of the Seller authorizing the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated by this Agreement. 8.3 Deliveries by Purchaser. Purchaser shall deliver to Seller and Shareholder at the Closing the following documents, executed as appropriate by Purchaser: (a) the portion of the Purchase Price specified in Section 2(a); (b) the Shareholder Consulting Agreement; (c) all third party consents necessary for Purchaser to consummate the transactions contemplated by this Agreement; (d) such other documents as Seller and Shareholder may reasonably request in order to show that Purchaser has fulfilled all of its other obligations required under this Agreement for the Closing to occur; and (e) a certified copy of the resolutions of the Board of Directors of the Purchaser approving the execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement. 9. Representations and Warranties of Seller and Shareholder. Seller and Shareholder hereby jointly and severally represent, warrant and covenant to and with Purchaser, as of the date of this Agreement and also as of the Closing Date, as follows: 9.1 Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. Seller has all requisite corporate power and authority to own its assets and to carry on the Business as now conducted. Seller is duly licensed or qualified to do business as a foreign corporation and is in good standing in all 7 - 53 - jurisdictions in which it is required to be so licensed or qualified in order to conduct the Business as presently conducted. 9.2 Authorization. Seller has the requisite corporate power and authority to execute, deliver and perform this Agreement in accordance with its terms. The execution, delivery and performance of this Agreement by Seller have been duly authorized by all necessary corporate action and do not contravene or constitute a default under any provision of the Articles of Incorporation or Bylaws of Seller. This Agreement has been, and the other agreements, documents and instruments required to be delivered by Seller in accordance with the provisions hereof, will be duly executed and delivered on or before Closing by Seller through its duly authorized officers. This Agreement constitutes, and the other agreements, documents and instruments required to be delivered by Seller or Shareholder (or both) in accordance with the provisions of this Agreement when executed and delivered by Seller or Shareholder (or both) will constitute, the legal, valid and binding obligation of Seller or Shareholder (or both), enforceable against Seller or Shareholder (or both) in accordance with its and their terms. 9.3 No Violation. The execution and delivery of this Agreement does not, and the performance of the transactions contemplated hereby by Seller and Shareholder will not, (i) create, permit or result at any time in the creation or imposition of any lien, encumbrance, claim or charge of any nature whatsoever with respect to the Assets; (ii) violate or conflict at any time with any provision of Seller's Articles of Incorporation or Bylaws or of any agreement to which Seller or Shareholder is a party or by which Seller, Shareholder or any of the Assets is bound; and (iii) violate any law, regulation, rule, or order of any court or governmental authority affecting Seller, Shareholder, the Business or the Assets. 9.4 Financial Statements. Attached as Schedule 9.4 are true and correct copies of (a) Seller's unaudited detailed income statements for the Business for the fiscal years ending December 31, 1993, 1994, 1995, and 1996 and for the five month period ended May 31, 1997, respectively, and (b) the unaudited balance sheets of Seller as of December 31, 1993, 1994, 1995 and 1996 and as of May 31, 1997 (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principals consistently applied except for the omission of footnotes [and any other exceptions] and fairly present the financial condition, assets and liabilities, and results of operations of the Business as of such dates and for such periods. All liabilities or obligations (whether absolute, accrued, contingent or otherwise) of the Business as of the date of this Agreement are fully reflected or reserved against in such balance sheet, except for the additional liabilities or obligations of the Business accruing in the ordinary course of the Business since the date of such balance sheet consistent with the representations, warranties and covenants herein. 8 - 54 - 9.5 Title to Assets. Seller has good and marketable title to and the right to convey the Assets to Purchaser. There are not presently any, and at Closing there will be no, liens, encumbrances, claims or restrictions of any kind against any of the Assets. No person or entity other than Seller has or claims any right, title or interest in and to any of the Assets or the Business. None of the Assets are leased or being purchased on installment or conditional sale contract, except as described on Schedule 9.5. 9.6 Necessary Consents. Except as disclosed on Schedule 9.6, there are no consents of third parties or approvals of any governmental authority required to be obtained by Seller or Shareholder in order to consummate the transactions contemplated by this Agreement. 9.7 Litigation. Except as disclosed on Schedule 9.7, there are no legal, administrative, governmental, arbitration or other actions, proceedings or investigations pending or, to the knowledge of Seller and Shareholder, threatened against Seller or Shareholder which would affect in any respect the Assets or the Business or the ability of Seller and Shareholder to consummate the transactions contemplated by this Agreement. 9.8 Taxes. Seller has duly and timely paid all taxes required to be paid, and has duly and timely filed all returns/reports required to be filed, with respect to the Business under applicable federal, state, local and other laws and regulations. Seller will duly and timely pay all taxes owing, and file all returns/reports required, with respect to the Business for any period ending on or before the Closing Date. There are no unpaid federal, state or local income, sales, payroll, property or other taxes of any kind which could constitute a claim, charge or lien against the Assets or the Business. 9.9 Employees and Sales Representatives; Employee Benefits. Seller has furnished to Purchaser a true and correct list of the names, ages and titles of all employees of Seller who work in the Business (whether full or part time), together with the annual rate of compensation (including bonuses) being paid to each such employee and the benefits (including without limitation accrued vacation pay, sick pay, and severance pay) payable to each such employee upon or with respect to their termination of employment with Seller effective as of the Closing Date. Seller has also furnished to Purchaser a true and correct list of the names, ages and titles of all non-employee sales representatives or agents of Seller who work for the Business, together with the applicable commissions or consulting fee rates with respect to each such person and the respective commissions or consulting fees earned by each such person for the last fiscal year of the Seller. Schedule 9.9 contains a complete list of each benefit plan or arrangement, whether formal or informal and whether binding or 9 - 55 - not, maintained or contributed to by Seller for the benefit of any of the employees or non-employee sales representatives or agents of the Business. 9.10 Contracts With Clients and Suppliers. Seller has listed on Schedule 9.10 all of Seller's contracts (oral or written) with clients and suppliers of the Business; Seller has no other contracts (oral or written) with clients and suppliers of the Business. Seller has delivered to Purchaser 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. Seller has not received any notices from any clients 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 Purchaser or on Schedule 9.10, 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 clients of the Business plan to cancel or reduce the volume under any client contracts. 9.11 Other Contracts. Schedule 9.11 contains a complete list of all of Seller's contracts (oral and written) relating to the Business, if any, other than the contracts with clients and suppliers listed on Schedule 9.10. Seller has delivered to Purchaser 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 Purchaser or on Schedule 9.11, 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. 9.12 Fixed Assets. Attached as Schedule 9.12 is a true and correct list of all furniture, equipment, leasehold improvements and other fixed assets of or used in the Business. All of such Assets are in good working condition with no known material defects and shall be maintained in such condition pending Closing. 9.13 Bulk Sales. Seller has taken any and all actions required under the bulk sales laws of the State of Texas with respect to the transactions contemplated by this Agreement and will satisfy on or before the Closing (or make arrangements satisfactory to Purchaser in its sole discretion to satisfy) all creditor claims, excluding Assumed Liabilities. 9.14 Insurance. Seller shall maintain in effect through the Closing Date all policies of fire, casualty, public liability, workmen's compensation and errors and omissions insurance presently in effect with respect to the Business and the Assets. 10 - 56 - 9.15 Necessary Assets. Except for any Excluded Assets, the Assets include all property and rights reasonably required to operate the Business in the manner the Business is presently operated by Seller. All of the Assets are located at the Business in Lubbock, Texas. 9.16 Patents, Copyrights, Trademarks and Trade Names. Schedule 9.16 contains an accurate and complete description of all domestic and foreign patents, copyrights, trademarks, service marks, trademark and service mark registrations, logos, corporate names, trade names, assumed or fictitious names, copyrights and copyright registrations, and all applications for any of the above, (collectively, "Intellectual Property"), presently owned or held by Seller, or under which Seller owns or holds any license, and which are used in the operation of the Business. Except with respect to the patents referred to in Section 14.1(d), to the best knowledge of Seller and Shareholder, neither the Service nor any Intellectual Property used in the operation of the Business infringes on any patents, trademarks, service marks, copyrights, or any other rights, of any person or entity. Seller is the sole owner of, has the sole and exclusive right to use (without payment of any license fee, royalty or similar charge), and has the full right and power to sell, has taken all reasonable measures to maintain and protect, the Intellectual Property, and has granted no licenses or other rights to utilize the Intellectual Property (except as provided in the contracts listed on Schedule 9.10); and no claims have been asserted by any person to the use of any such Intellectual Property or questioning the validity or effectiveness of any such license, and, to the best knowledge of Seller and Shareholder, there is no valid basis for any such claims. 9.17 Compliance With Applicable Laws. In respect to its ownership of the Assets and operation of the Business, Seller has not in the past been in violation of and is not presently in violation in any material respect of any applicable law, rule, regulation, order, ordinance, or judgment of any governmental authority (collectively, "laws"). Seller has not received notification of any claimed present or past failure of Seller to comply in any material respect with any of such laws. 9.18 No Subsidiaries. Seller does not own any shares of any corporation or any ownership or other investment interest, either of record, beneficially or equitably, in any association, partnership, joint venture or other legal entity. 10. Representations and Warranties by Purchaser. Purchaser represents, warrants and covenants to and with Seller as follows: 10.1 Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser has all requisite corporate power and authority to own its assets and to carry on its business as now conducted. 11 - 57 - 10.2 Authorization. Purchaser has the requisite corporate power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Purchaser have been duly authorized by all necessary corporate action. This Agreement has been, and the other agreements, documents and instruments required to be delivered by Purchaser in accordance with this Agreement will be, duly executed and delivered by Purchaser through its duly authorized officers, and this Agreement constitutes, and the other agreements, documents and instruments when executed and delivered will constitute, the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its and their terms. 10.3 No Violation. The execution and delivery of this Agreement does not, and the performance of the transactions contemplated hereby by Purchaser will not, (i) violate or conflict at any time with any provision of Purchaser's Articles of Incorporation or Bylaws or of any agreement to which Purchaser is a party or by which Purchaser is bound; and (ii) violate any law, regulation, rule, or order of any court or governmental authority affecting Purchaser. 10.4 Necessary Consents. There are no consents of third parties or approvals of any governmental authority required to be obtained by Purchaser in order to consummate the transactions contemplated by this Agreement. 10.5 Litigation. There are no legal, administrative, governmental, arbitration or other actions, proceedings or investigations pending or, to the knowledge of Purchaser, threatened against Purchaser which would affect in any respect the ability of Purchaser to consummate the transactions contemplated by this Agreement. 11. Conditions to Closing. 11.1 Conditions to Purchaser's Obligations. Purchaser's obligations under this Agreement are expressly conditioned upon each of the following: (a) All of Seller's representations and warranties set forth in Section 9 shall be true and correct as of the Closing Date. (b) Seller and Shareholder shall have taken all actions required of them under this Agreement and delivered to Purchaser all of the closing items set forth in Section 8.2 of this Agreement. (c) There shall have been no damage, destruction or loss to or of the Assets, whether or not insured, other than ordinary wear and tear and use in the ordinary course of business, between the date of this Agreement and the Closing. 12 - 58 - (d) Purchaser shall be satisfied in all respects, in its sole judgment, with its business, legal, accounting, tax and financial review of the Assets and Business; (e) Purchaser shall obtain, upon terms and conditions satisfactory to Purchaser in its sole judgment, an agreement with EWR Inc. providing for Purchaser's access to, use of and interactivity with (including but not limited to the right and ability of Purchaser to download) the information and applications of EWR's electronic warehouse receipt system. (f) Purchaser shall have obtained, or satisfied itself that it will obtain upon satisfactory terms and costs, such permits, licenses or other rights (in addition to those included in the Assets and however denominated) which may be necessary, in Purchaser's sole and absolute judgement, to enable Purchaser to develop and operate a cotton trading network in the manner contemplated by Purchaser (which is to exceed the scope of the Service offered by Seller) and without infringing on any patents, trademarks, service marks, copyrights, or proprietary rights of others. Seller acknowledges that the Assets and Business may be of no use to Purchaser unless certain conditions precedent to developing such cotton trading network exist. (g) This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of Purchaser. 11.2 Conditions to Seller's and Shareholder's Obligations. Seller's and Shareholder's obligations under this Agreement are expressly conditioned upon each of the following: (a) All of the representations and warranties of Purchaser set forth in Section 10 are true and correct as of the Closing Date; and (b) Purchaser shall have taken all actions required of it under this Agreement and delivered to Seller and Shareholder all of the closing items set forth in Section 8.3 of this Agreement. 12. Conduct of Business. Until the Closing, Seller (a) will carry on the Business in the ordinary course; (b) will not buy, sell or dispose of any Assets except in the ordinary course of the Business; (c) will use its best efforts to preserve its existing relations with its clients, employees, 13 - 59 - suppliers and others; (d) will not increase the compensation and benefits of any of its employees without Purchaser's approval; (e) will not enter into, or terminate, any material contracts without Purchaser's consent; and (f) will take no actions, or fail to take any actions, which would cause its representations and warranties in this Agreement to become untrue as of the Closing Date. 13. Broker. Each party warrants to the other that it has not used a broker or finding agent in connection with this transaction and will hold the other party harmless from any claim made by any person or entity claiming to have been employed by such party as a broker or finding agent in connection with the transactions contemplated by this Agreement. 14. Indemnification. 14.1 Indemnification Obligation of Seller and Shareholder. Seller and Shareholder, jointly and severally, shall indemnify Purchaser and hold Purchaser harmless from and against any and all liability, loss, litigation, expense or claim (including reasonable attorney fees) arising out of, resulting from, relating to, in the nature of or caused by: (a) Any breach of any representation, warranty, covenant or agreement made by Seller and/or Shareholder in this Agreement or in any agreement, statement, certificate, instrument or other document furnished or delivered or to be furnished or delivered to Purchaser pursuant hereto or in connection with the transactions contemplated by this Agreement; (b) The ownership or operation of the Assets or the Business prior to the Closing Date (except to the extent included in the Assumed Liabilities); (c) The Excluded Liabilities; and (d) Any infringement or claim of infringement (notice of which is given to Seller within five years after the Closing) of either United States Patents Nos. 5063507 or 5285383 registered to Plains Cotton Cooperative Association by any portion of the Service or the Assets as used in the cotton trading network developed by Purchaser, but excluding any infringement to the extent caused by the modification or enhancement of the Service or the Assets by Purchaser (as an example of such exclusion, if the infringement is caused by Purchaser combining the Service with the providing of electronic warehouse receipt processing); provided, however, 14 - 60 - the cumulative liability of Seller and Shareholder pursuant to the indemnification obligations under this subsection (d) alone shall not exceed the amount of the Purchase Price or, in the case the Notice is given pursuant to Section 5 hereof, the portion of the Purchase Price paid or payable under this Agreement. 14.2 Indemnification Obligation of Purchaser. Purchaser shall indemnify Seller and Shareholder and hold Seller and Shareholder harmless from and against any and all liability, loss, litigation, expense or claim (including reasonable attorney fees) arising out of, resulting from, relating to, in the nature of or caused by: (a) Any breach of any representation, warranty, covenant or agreement made by Purchaser in this Agreement or in any statement, certificate, instrument or other document or item furnished or delivered or to be furnished or delivered to Seller and Shareholder pursuant hereto or in connection with the transactions contemplated by this Agreement; (b) The ownership or operation of the Assets or the Business on or after the Closing Date (except to the extent included in the Excluded Liabilities); and (c) The Assumed Liabilities. 15. Survival of Representations, Warranties, Covenants and Indemnities. All representations, warranties, covenants and indemnities in this Agreement shall survive the Closing, regardless of any investigations made prior to Closing. 16. Governing Law. This Agreement shall be governed by the laws of the State of Nebraska without regard to its conflicts of laws principles. 17. Modification. This Agreement may be modified only by a writ- ing signed by all parties. 18. 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. 19. Notices. Notices to any party shall be deemed given when deposited in the U.S. Mail, postage prepaid and addressed to the parties as follows, and otherwise when received: (The following addresses are for after the Closing) 15 - 61 - If to Seller or Shareholder: The Cotton Communication Network, Inc. P.O. Box 5963 Lubbock, Texas 79408 Attention: Daniel Davis, President If to Purchaser: Data Transmission Network Corporation 9110 West Dodge Road, Suite 200 Omaha, Nebraska 68114 Attention: Greg T. Sloma, President Any party may change its address for notice by giving notice to the other parties as provided above. 20. Assignment and Binding Effect. This Agreement may not be as- signed prior to the Closing by any party hereto without the prior written consent of the other parties; provided, however, that Data Transmission Network Corporation shall have the right to assign its rights and obligations under this Agreement at any time prior to the Closing to a corporation which is a direct or indirect wholly-owned subsidiary of Data Transmission Network Corporation. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 21. Expenses. Each party shall pay its own expenses with respect to the negotiation and preparation of documents and the consummation of the transactions provided for in this Agreement. 22. Risk of Loss. Until the Closing, Seller shall bear the risk of loss to the Assets or Business. 23. Exclusivity. Seller and Shareholder agree not to entertain any discussions regarding the sale of the Business or Assets with any third party while this Agreement remains in effect. 24. Post-Closing Effectuation. Following the Closing, each party agrees to deliver to any other party to this Agreement such instruments and documents, and to take such other actions, as may be reasonably requested by such other party to this Agreement to more fully effectuate any of the transactions contemplated by this Agreement. 25. Right of Set-off. Purchaser shall have the right to offset against any obligations which Purchaser has to Seller any amount or amounts which Seller hereafter owes Purchaser pursuant to the indemnification provisions of this Agreement. 16 - 62 - 26. Responsibility for Sales Taxes. Seller shall pay any and all state and local sales taxes arising out of the sale of the Assets to Purchaser. 27. Announcements. Neither Seller nor Purchaser shall make any public announcements about the transactions contemplated by this Agreement without the other's prior written consent; provided, however, that Purchaser shall, after reasonable advance notice to Seller, be entitled to make such public announcements about the transactions contemplated by this Agreement as may be required by reason of its status as a public company. 28. Severability. If any term or provision of this Agreement is judicially determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect the remainder of the Agreement which shall be enforced so as to give effect as nearly as possible to the parties' original intent. 29. Entire Agreement. This Agreement, including the Schedules and Exhibits and the other agreements referenced herein to be executed pursuant to this Agreement, contains the full understanding of the parties concerning its subject matter. This Agreement may not be amended except in writing signed by all parties and none of the provisions of this Agreement may be waived except in writing signed by the party or parties against whom enforcement of such waiver is sought. 30. Counterparts. This Agreement may be signed in one or more counterparts each of which will be an original but which together constitute one and the same instrument. 31. Confidentiality. Seller and Shareholder agree that following the Closing and for a period of three (3) years thereafter, all Confidential Information (as defined herein) shall be maintained in strict confidence by them and shall not be disclosed to any third party without Purchaser's prior written consent, except to the extent that information about the operating results of the Business is required to be furnished by Seller or Shareholder in filings and other reports to tax and other governmental authorities. For purposes of this Section 32, "Confidential Information" means, in addition to the information within that term in the Seller/Shareholder Non-Competition Agreement, the terms of this Agreement and of all other agreements executed and delivered pursuant hereto. [Signature page follows] 17 - 63 - SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT AMONG THE NETWORK, INC., DANIEL DAVIS, AND DATA TRANSMISSION NETWORK CORPORATION IN WITNESS WHEREOF, the parties have executed this Agreement. SELLER: THE COTTON COMMUNICATION NETWORK, INC. By: --------------------------------------- Daniel Davis, President --------------------------------------- Daniel Davis, Shareholder PURCHASER: DATA TRANSMISSION NETWORK CORPORATION By: ------------------------------------ Title: --------------------------------- 18 - 64 - EX-10 6 5TH AMENDMENT TO LEASE FIFTH AMENDMENT TO LEASE THIS FIFTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of June, 1997, by and between LAFP-SF, Inc., successor in interest to The Prudential Insurance Company Of America ("Landlord"), having an office c/o Lowe Enterprises Colorado, Inc., 1475 Lawrence Street, Suite 210, Denver, Colorado 80202, and Data Transmission Network Corporation ("Tenant"), having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS A. The Prudential Insurance Company of America and Data Transmission Network Corporation entered into that certain Lease dated as of May 2, 1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340, #360, and #362 containing 75,931 rentable square feet (RSF) in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska ("the Premises"). B. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated November 30, 1995, a Third Amendment To Lease dated January 5, 1996, and a Fourth Amendment to Lease between LAFP-SF, Inc. and Tenant dated December 23, 1996. The combined terms of the Lease and subsequent Amendments shall herein be referred to as the "Lease". Under the Lease the Premises consists of a total of 88,136 RSF. C. Landlord and Tenant acknowledge that the surface parking for the Building is overburdened, in part as a result of Tenant's use thereof. D. Landlord intends to construct additional parking facilities to ser- vice Tenant and other tenants in the Building subject to the terms and conditions contained below. E. All capitalized terms not defined herein shall have the meanings as- cribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Parking. Landlord shall construct approximately ninety-six (96) additional parking spaces to be located on the north side of the Building in the area outlined in blue on Exhibit A attached hereto and incorporated herein by this reference ("Additional Parking"). The Additional Parking shall be for the non-exclusive use of the Tenant in common with the other tenants in the Building. 2. Base Rent. Tenant shall pay to Landlord, as additional Base Rent, $39,999.96 per year for the remainder of the Term, payable in monthly installments of $3,333.33 in accordance with the provisions of Section 2 of the Lease. Tenant's obligation to pay such additional Base Rent shall commence the first day of the month following substantial completion of the Additional Parking pursuant to a notice thereof from Landlord. 3. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. 1 - 65 - 4. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 5. The parties hereto hereby reaffirm and ratify all covenants, represen- tations and warranties in the Lease as amended by this Amendment. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network Corporation, LAFP-SF, Inc. a Delaware corporation By: Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent ---------------------------------- Its: By: --------------------------------- ------------------------------ Its: ----------------------------- 2 - 66 - EX-10 7 6TH AMENDMENT TO LEASE SIXTH AMENDMENT TO LEASE THIS SIXTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of June, 1997, by and between LAFP-SF, Inc., successor in interest to The Prudential Insurance Company Of America ("Landlord"), having an office c/o Lowe Enterprises Colorado, Inc., 1475 Lawrence Street, Suite 210, Denver, Colorado 80202, and Data Transmission Network Corporation ("Tenant"), having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS A. The Prudential Insurance Company of America and Data Transmission Network Corporation entered into that certain Lease dated as of May 2, 1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340, #360, and #362 containing 75,931 rentable square feet (RSF) in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska ("the Premises"). B. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated November 30, 1995, a Third Amendment To Lease dated January 5, 1996, and a Fourth Amendment To Lease between LAFP-SF, Inc. and Tenant dated December 23, 1996, and a Fifth Amendment To Lease dated June , 1997. The combined terms of the Lease and subsequent Amendments shall herein be referred to as the "Lease". Under the Lease the Premises consists of a total of 88,136 RSF. C. Landlord and Tenant acknowledge that the surface parking for the Building is overburdened, in part as a result of Tenant's use thereof. D. Landlord intends to construct additional parking facilities to ser- vice Tenant and other tenants in the Building subject to the terms and conditions contained below. E. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Premises. Effective August 1, 1997, the Premises shall be expanded to include Suite 100, measuring 4,544 RSF as shown on the floor plan attached hereto, marked Exhibit "A" (the "Expansion Space") and by this reference made a part hereof. Notwithstanding the above, both Tenant and Landlord understand that the law offices of Young & White currently leases Suite 100 with such lease expiring approximately July 31, 1997. Should Young & White holdover and not vacate Suite 100 by July 31, 1997, Landlord will make reasonable efforts to pursue its legal remedies to have Young & White removed from the space. If the Expansion Space is delivered to Tenant after July 31, 1997, Landlord and Tenant shall execute a Commencement Date Certificate in the form attached hereto as Exhibit "C", confirming Landlord's delivery of the Expansion Space and commencement of the Lease with respect to the Expansion Space. 2. Term. The term of the Lease with respect to the Expansion Space identified in Paragraph 1 above shall commence August 1, 1997, and terminate upon termination of the Lease. 3. Base Rent. Tenant shall pay as Base Rent for the Expansion Space during the Term the sum of Six Hundred and Five Thousand, Four Hundred Eighty-Eight Dollars and Sixteen Cents ($605,488.16) payable monthly as follows: 1 - 67 - August 1, 1997 - May 31, 2001 $6,248.00 / Month June 1, 2001 - May 31, 2005 $6,626.67 / Month 4. Adjustment Rent. Effective upon commencement of the Term for the Expansion Space, Tenant shall pay Adjustment Rent with respect to the Expansion Space in accordance with the terms and conditions contained in Paragraph 2 of the Lease, except that the Base Expense Year and Base Tax Year with respect to the Expansion Space herein shall be the calendar year 1997. 5. Tenant Improvements. Landlord shall provide a tenant improvement allowance of up to $45,440.00 to be applied toward the cost of Tenant's required building improvements. All improvements shall be performed in accordance with the Tenant Improvement Work Schedule attached hereto, marked as Exhibit "B", and by this reference made a part hereof. 6. Tenant's Proportionate Share. Tenant's Proportionate Share with respect to the Expansion Space shall be 3.45% (4,544 RSF / 131,740 RSF). In addition, as a part of this Amendment, Tenant's Proportionate Share schedule for Tenant's remaining Premises contained in paragraph 6 of the Fourth Amendment To Lease, dated December 23, 1996, shall be replaced with the following schedule: January 1, 1997 - December 31, 1997 59.20% (77,990 RSF / 131,740 RSF) January 1, 1998 - May 31, 2005 66.90% (88,136 RSF / 131,740 RSF) 7. Parking. In order to avoid future problems with overburdened parking facilities at Embassy Plaza, Tenant acknowledges the building surface parking lot currently provides a parking ratio of approximately four (4) parking stalls per 1,000 rentable square feet of lease space and that this ratio may change from time to time. Effective January 1, 1998, Tenant agrees to cause its employees, independent contractors, and other invitees to conform to the current parking ratio, as it changes from time to time, and further agrees to only park up to the number of cars permitted using the following calculation: Tenant's total rentable square feet / 1,000 times the current parking ratio. In addition, Tenant agrees not to allow its employees, independent contractors, and other invitees to park cars in the adjacent Financial Plaza parking lots. Landlord shall maintain the right to use any means it determines, in its reasonable discretion, to enforce Tenant's parking space limitations as described herein and/or in the Rules and Regulations including towing, and Tenant agrees to cooperate with Landlord in such efforts. Notwithstanding the above, should Tenant be in default of the Lease as a result of the parking provisions contained herein, Tenant shall have up to sixty (60) days to either cure such default or reach written agreement with the Landlord as to a solution and schedule for curing such default. Tenant will be allowed, as a method of curing such default, to acquire from other tenants of the building, if available, parking spaces from that tenant's parking stall allocation not being required by such tenant. Such agreement between Tenant and other building tenant's shall be documented by both parties and approved by Landlord, with such approval not to be unreasonably withheld. Such documentation shall include employee counts for such tenant and an agreement for policing such action. Such agreement shall end upon termination of such tenant's rights for space within the Embassy Plaza building. 8. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. 9. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 2 - 68 - 10. The parties hereto hereby reaffirm and ratify all covenants, represen- tations and warranties in the Lease as amended by this Amendment. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network Corporation, LAFP-SF, Inc. a Delaware corporation By: Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent ---------------------------------- Its: By: --------------------------------- ----------------------------- Its: ---------------------------- 3 - 69 - EXHIBIT "B" to be made a part of a Sixth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1997 (Page 1 of 2) TENANT IMPROVEMENTS WORK SCHEDULE --------------------------------- ARTICLE I Landlord's Construction Obligations ----------------------------------- Landlord shall have no construction obligations under this Amendment. Tenant accepts the Additional Premises in an "as is" condition, with all faults and with the understanding that it shall be responsible for any and all improvements required for its occupancy and use in accordance with Article II of this Exhibit "B". ARTICLE II Construction of Tenant Improvements ----------------------------------- Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Additional Space in accordance with the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant finish allowance of up to Forty Eight Thousand, Six Hundred Dollars and Nineteen Cents ($45,440.00) to be applied toward the cost of any such tenant-provided improvements as follows: 1. The tenant finish allowance shall be paid in periodic installments, not more frequently than once per month, equal to the total of the contractor's or consultant's invoice amounts for improvements made to the Additional Space, excluding any furnishings or business equipment (such as computers, satellite/microwave dish, office equipment, etc.), as submitted by Tenant and verified to Landlord's reasonable satisfaction; provided, however, that such payments will be made only if Tenant is not then in Default under the terms of this Lease and invoices are accompanied by lien waivers in the amount equal to that of the invoices. The tenant finish allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" as follows: August 1, 1997 - July 31, 1998 Up To $45,440.00 2. Upon the earlier of the end date identified in the allocation schedule specified in Paragraph 1 above, or the satisfaction of all obligations associated with the tenant improvements covered under this Article II and receipt of the associated lien waivers for the work, the Tenant shall forfeit any unused portion of the allowance. Any requests for payment received by the Landlord after the above specified end dates, will be returned to the Tenant and will be the obligation and sole responsibility of the Tenant. 3. In addition to the provisions set forth in Paragraph 9 of the Lease, Tenant's contractor shall (and its contract shall so provide): (a) conduct its work in such a manner so as not to unreasonably interfere with other tenants in the Building, Building operations, or any other construction occurring on or in the Building or the Premises; (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); 4 - 70 - EXHIBIT "B" to be made a part of a Sixth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1997. (Page 2 of 2) (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall prompt- ly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's materialmen's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. 5 - 71 - EX-10 8 7TH AMENDMENT TO LEASE SEVENTH AMENDMENT TO LEASE THIS SEVENTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of , 1997, by and between LAFP-SF, Inc., successor in interest to The Prudential Insurance Company Of America ("Landlord"), having an office c/o Lowe Enterprises Colorado, Inc., 1475 Lawrence Street, Suite 210, Denver, Colorado 80202, and Data Transmission Network Corporation ("Tenant"), having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS A. The Prudential Insurance Company of America and Data Transmission Network Corporation entered into that certain Lease dated as of May 2, 1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340, #360, #362, and #100 containing 75,931 rentable square feet (RSF) in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska ("the Premises"). B. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated January 5, 1996, a Third Amendment To Lease dated January 5, 1996, and a Fourth Amendment To Lease between LAFP-SF, Inc. and Tenant dated December 23, 1996, a Fifth Amendment To Lease dated July 7, 1997, and a Sixth Amendment To Lease dated July 7, 1997. The combined terms of the Lease and subsequent Amendments shall herein be referred to as the "Lease". Under the Lease the Premises consists of a total of 92,680 RSF. C. Landlord and Tenant acknowledge that the surface parking for the Building is overburdened, in part as a result of Tenant's use thereof. D. Landlord intends to construct additional parking facilities to ser- vice Tenant and other tenants in the Building subject to the terms and conditions contained below. E. All capitalized terms not defined herein shall have the meanings as- cribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Premises. Effective September 16, 1997, the Premises shall be expand- ed to include Suite 130, measuring 1,180 RSF as shown on the floor plans attached hereto, marked Exhibit "A" (the "Expansion Premises") and by this reference made a part hereof. Notwithstanding the above, both Tenant and Landlord understand that E.L.H., Inc. / d.b.a. Todays Temporary currently leases Suite 130, with such lease expiring approximately September 15, 1997. Should E.L.H., Inc. / d.b.a. Todays Temporary holdover and not vacate Suite 130 by September 15, 1997, Landlord will make reasonable efforts to pursue its legal remedies to have E.L.H., Inc. / d.b.a. Todays Temporary removed from the space. If the Expansion Premises is delivered to Tenant after September 16, 1997, Landlord and Tenant shall execute a Commencement Date Certificate in the form attached hereto as Exhibit "C", confirming Landlord's delivery of the Expansion Premises and commencement of the Lease with respect to the Expansion Premises. 2. Term. The term of the Lease with respect to the Expansion Premises identified in Paragraph 1 above shall commence September 16, 1997, and terminate upon termination of the Lease. 1 - 72 - 3. Base Rent. Tenant shall pay as Base Rent for the Expansion Pre- mises during the Term the sum of One Hundred Fifty-Four Thousand, Nine Hundred and One Dollars, and Nine Cents ($154,901.09) payable monthly as follows: September 16, 1997 - May 31, 2001 $1,622.50 / Month June 1, 2001 - May 31, 2005 $1,720.83 / Month 4. Adjustment Rent. Effective upon commencement of the Term with respect to the Expansion Premises, Tenant shall pay Adjustment Rent with respect to the Expansion Premises in accordance with the terms and conditions contained in Paragraph 2 of the Lease, except that the Base Expense Year and Base Tax Year with respect to the Expansion Premises herein shall be the calendar year 1997. 5. Tenant Improvements. Landlord shall provide a tenant improvement allowance of up to $11,800.00 to be applied toward the cost of Tenant's required building improvements. All improvements shall be performed in accordance with the Tenant Improvement Work Schedule attached hereto, marked as Exhibit "B", and by this reference made a part hereof. 6. Tenant's Proportionate Share. The schedule for Tenant's Propor- tionate Share with space having a Base Expense Year and Base Tax Year of 1997, shall be revised to reflect the incorporation of the Expansion Premises as follows: August 1, 1997 - September 15, 1997 3.45% (4,544 RSF / 131,740 RSF) September 16, 1997 - May 31, 2005 4.34% (5,724 RSF / 131,740 RSF) 7. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. 8. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 9. The parties hereto hereby reaffirm and ratify all covenants, represen- tations and warranties in the Lease as amended by this Amendment. 2 - 73 - IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network Corporation, LAFP-SF, Inc. a Delaware corporation By: Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent ----------------------------------- Its: By: ---------------------------------- ----------------------------- Its: ---------------------------- 3 - 74 - EXHIBIT "B" to be made a part of a Seventh Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1997 (Page 1 of 2) TENANT IMPROVEMENTS WORK SCHEDULE --------------------------------- ARTICLE I Landlord's Construction Obligations ----------------------------------- Landlord shall have no construction obligations under this Amendment. Tenant accepts the Expansion Premises in an "as is" condition, with all faults and with the understanding that it shall be responsible for any and all improvements required for its occupancy and use in accordance with Article II of this Exhibit "B". ARTICLE II Construction of Tenant Improvements ----------------------------------- Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Expansion Premises in accordance with the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant finish allowance of up to Eleven Thousand, Eight Hundred Dollars and No Cents ($11,800.00) to be applied toward the cost of any such tenant-provided improvements as follows: 1. The tenant finish allowance shall be paid in periodic installments, not more frequently than once per month, equal to the total of the contractor's or consultant's invoice amounts for improvements made to the Expansion Premises, excluding any furnishings or business equipment (such as computers, satellite/microwave dish, office equipment, etc.), as submitted by Tenant and verified to Landlord's reasonable satisfaction; provided, however, that such payments will be made only if Tenant is not then in Default under the terms of this Lease and invoices are accompanied by lien waivers in the amount equal to that of the invoices. The tenant finish allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" as follows: September 16, 1997 - September 15, 1998 Up To $11,800.00 2. Upon the earlier of the end date identified in the allocation schedule specified in Paragraph 1 above, or the satisfaction of all obligations associated with the tenant improvements covered under this Article II and receipt of the associated lien waivers for the work, the Tenant shall forfeit any unused portion of the allowance. Any requests for payment received by the Landlord after the above specified end date, will be returned to the Tenant and will be the obligation and sole responsibility of the Tenant. 3. In addition to the provisions set forth in Paragraph 9 of the Lease, Tenant's contractor shall (and its contract shall so provide): (a) conduct its work in such a manner so as not to unreasonably interfere with other tenants in the Building, Building operations, or any other construction occurring on or in the Building or the Premises; (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); 4 - 75 - EXHIBIT "B" to be made a part of a Seventh Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1997. (Page 2 of 2) (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall promptly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's materialmen's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. 5 - 76 - EXHIBIT "C" TO A SEVENTH AMENDMENT TO LEASE BETWEEN LAFP-SF, INC., (LANDLORD) AND DATA TRANSMISSION NETWORK CORPORATION, (TENANT) DATED JANUARY 5, 1998 COMMENCEMENT DATE AGREEMENT This Commencement Date Agreement is entered into by Landlord and Tenant pursuant to Paragraph 1 of this Amendment. 1. DEFINITIONS. In this Agreement the following terms have the meanings given to them: (a) Landlord: LAFP-SF, Inc. (b) Tenant: Data Transmission Network Corporation (c) Lease: Lease between Landlord and Tenant, dated May 2, 1995, and subsequently amended via a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated January 5, 1996, a Third Amendment To Lease dated January 5, 1996, a Fourth Amendment To Lease dated December 23, 1996, a Fifth Amendment To Lease dated July 7, 1997, and a Sixth Amendment To Lease dated July 7, 1997, a Seventh Amendment To Lease dated September 19, 1997, and an Eighth Amendment To Lease dated September 19, 1997. 2. CONFIRMATION OF THE COMMENCEMENT DATE WITH REGARD TO THE OCCUPANCY, BY TENANT, OF SUITE. Landlord and Tenant confirm that the Commencement Date of the Lease with regard to the Expansion Premises is January 5, 1998. Landlord and Tenant have executed this Commencement Date Agreement as of the date set forth above. Tenant: Landlord: DATA TRANSMISSION NETWORK LAFP-SF, INC. CORPORATION, a Delaware corporation By: Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent --------------------------------- Its: By: -------------------------------- ----------------------------- Its: ---------------------------- 6 - 77 - EX-10 9 8TH AMENDMENT TO LEASE EIGHTH AMENDMENT TO LEASE THIS EIGHTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of , 1997, by and between LAFP-SF, Inc., successor in interest to The Prudential Insurance Company Of America ("Landlord"), having an office c/o Lowe Enterprises Colorado, Inc., 1475 Lawrence Street, Suite 210, Denver, Colorado 80202, and Data Transmission Network Corporation ("Tenant"), having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS A. The Prudential Insurance Company of America and Data Transmission Network Corporation entered into that certain Lease dated as of May 2, 1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340, #360, #362, and #100 containing 75,931 rentable square feet (RSF) in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska ("the Premises"). B. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated January 5, 1996, a Third Amendment To Lease dated January 5, 1996, and a Fourth Amendment To Lease between LAFP-SF, Inc. and Tenant dated December 23, 1996, a Fifth Amendment To Lease dated July 7, 1997, a Sixth Amendment To Lease dated July 7, 1997, and a Seventh Amendment To Lease dated September , 1997. The combined terms of the Lease and subsequent Amendments shall herein be referred to as the "Lease". Under the Lease the Premises consists of a total of 93,860 RSF. C. Landlord and Tenant acknowledge that the surface parking for the Building is overburdened, in part as a result of Tenant's use thereof. D. Landlord intends to construct additional parking facilities to ser- vice Tenant and other tenants in the Building subject to the terms and conditions contained below. E. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Premises. Effective September 16, 1997, the Premises shall be expanded to include Suite 315 (3,430 RSF) and the adjacent corridor space (142 RSF), measuring 3,572 RSF as shown on the floor plans attached hereto, marked Exhibit "A" (the "Additional Expansion Premises") and by this reference made a part hereof for a total Premises of 97,432 RSF. Notwithstanding the above, both Tenant and Landlord understand that GAB Robins, Inc., currently leases Suite 315, with such lease expiring approximately September 15, 1997. Should GAB Robins, Inc., holdover and not vacate Suite 315 by September 15, 1997, Landlord will make reasonable efforts to pursue its legal remedies to have GAB Robins, Inc., removed from the space. If the Additional Expansion Premises is delivered to Tenant after September 16, 1997, Landlord and Tenant shall execute a Commencement Date Certificate in the form attached hereto as Exhibit "C", confirming Landlord's delivery of the Additional Expansion Premises and commencement of the Lease with respect to the Additional Expansion Premises. 2. Term. The term of the Lease with respect to the Additional Expansion Premises identified in Paragraph 1 above shall commence September 16, 1997, and terminate upon termination of the Lease. 1 - 78 - 3. Base Rent. Tenant shall pay as Base Rent for the Additional Expansion Premises during the Term the sum of Four Hundred Sixty-Eight Thousand, Six Hundred and One Dollars, and Ninety-One Cents ($468,601.91) payable monthly as follows: September 16, 1997 - May 31, 2001 $4,911.50 / Month June 1, 2001 - May 31, 2005 $5,209.17 / Month 4. Adjustment Rent. Effective upon commencement of the Term with respect to the Additional Expansion Premises, Tenant shall pay Adjustment Rent with respect to the Additional Expansion Premises in accordance with the terms and conditions contained in Paragraph 2 of the Lease, except that the Base Expense Year and Base Tax Year with respect to the Additional Expansion Premises herein shall be the calendar year 1997. 5. Tenant Improvements. Landlord shall provide a tenant improvement allowance of up to $35,720.00 to be applied toward the cost of Tenant's required building improvements. All improvements shall be performed in accordance with the Tenant Improvement Work Schedule attached hereto, marked as Exhibit "B", and by this reference made a part hereof. 6. Tenant's Proportionate Share. The schedule for Tenant's Proportionate Share shall be revised to reflect the incorporation of the Additional Expansion Premises as follows: Floor Space with a 1994 Base Expense Year and Base Tax Year: January 1, 1997-September 15, 1997 59.20% (77,992 RSF / 131,740 RSF) September 16, 1997-December 31, 1997 59.14% (77,992 RSF / 131,882 RSF) January 1, 1998-May 31, 2005 66.83% (88,136 RSF / 131,882 RSF) Floor Space with a 1997 Base Expense Year and Base Tax Year: August 1, 1997 - September 15, 1997 3.45% (4,544 RSF / 131,740 RSF) September 16, 1997 - May 31, 2005 7.05% (9,296 RSF / 131,882 RSF) 7. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. 8. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 9. The parties hereto hereby reaffirm and ratify all covenants, represen- tations and warranties in the Lease as amended by this Amendment. 2 - 79 - IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network Corporation, LAFP-SF, Inc. a Delaware corporation By: Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent ----------------------------------- Its: By: ---------------------------------- ----------------------------- Its: ---------------------------- 3 - 80 - EXHIBIT "B" to be made a part of an Eighth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated 1997 (Page 1 of 2). - --------------------------- TENANT IMPROVEMENTS WORK SCHEDULE --------------------------------- ARTICLE I Landlord's Construction Obligations ----------------------------------- Landlord shall have no construction obligations under this Amendment. Tenant accepts the Additional Expansion Premises in an "as is" condition, with all faults and with the understanding that it shall be responsible for any and all improvements required for its occupancy and use in accordance with Article II of this Exhibit "B". ARTICLE II Construction of Tenant Improvements ----------------------------------- Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Additional Expansion Premises in accordance with the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant finish allowance of up to Thirty-Five Thousand, Seven Hundred and Twenty Dollars and No Cents ($35,720.00) to be applied toward the cost of any such tenant-provided improvements as follows: 1. The tenant finish allowance shall be paid in periodic installments, not more frequently than once per month, equal to the total of the contractor's or consultant's invoice amounts for improvements made to the Additional Expansion Premises, excluding any furnishings or business equipment (such as computers, satellite/microwave dish, office equipment, etc.), as submitted by Tenant and verified to Landlord's reasonable satisfaction; provided, however, that such payments will be made only if Tenant is not then in Default under the terms of this Lease and invoices are accompanied by lien waivers in the amount equal to that of the invoices. The tenant finish allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" as follows: September 16, 1997 - September 15, 1998 Up To $35,720.00 2. Upon the earlier of the end date identified in the allocation schedule specified in Paragraph 1 above, or the satisfaction of all obligations associated with the tenant improvements covered under this Article II and receipt of the associated lien waivers for the work, the Tenant shall forfeit any unused portion of the allowance. Any requests for payment received by the Landlord after the above specified end date, will be returned to the Tenant and will be the obligation and sole responsibility of the Tenant. 3. In addition to the provisions set forth in Paragraph 9 of the Lease, Tenant's contractor shall (and its contract shall so provide): (a) conduct its work in such a manner so as not to unreasonably interfere with other tenants in the Building, Building operations, or any other construction occurring on or in the Building or the Premises; (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); 4 - 81 - EXHIBIT "B" to be made a part of an Eighth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated 1997. (Page 2 of 2). - -------------- (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall promptly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's material men's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. 5 - 82 - EXHIBIT "C" TO AN EIGHTH AMENDMENT TO LEASE BETWEEN LAFP-SF, INC., (LANDLORD) AND DATA TRANSMISSION NETWORK CORPORATION, (TENANT) DATED , 1997 ----------- COMMENCEMENT DATE AGREEMENT --------------------------- This Commencement Date Agreement is entered into by Landlord and Tenant pursuant to Paragraph 1 of this Amendment. 1. DEFINITIONS. In this Agreement the following terms have the meanings given to them: (a) Landlord: LAFP-SF, Inc. (b) Tenant: Data Transmission Network Corporation (c) Lease: Lease between Landlord and Tenant, dated May 2, 1995, and subsequently amended via a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated January 5, 1996, a Third Amendment To Lease dated January 5, 1996, a Fourth Amendment To Lease dated December 23, 1996, a Fifth Amendment To Lease dated July 7, 1997, a Sixth Amendment To Lease dated July 7, 1997, and an Seventh Amendment To Lease dated 1997. -------------- 2. CONFIRMATION OF THE COMMENCEMENT DATE WITH REGARD TO THE OCCUPANCY, BY TENANT, OF SUITE. Landlord and Tenant confirm that the Commencement Date of the Lease with regard to the Additional Expansion Premises is , 1997. ---------------- Landlord and Tenant have executed this Commencement Date Agreement as of the date set forth above. Tenant: Landlord: DATA TRANSMISSION NETWORK LAFP-SF, INC. CORPORATION, a Delaware corporation Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent -------------------------------- Its: By: ------------------------------- ------------------------------------ Its: ----------------------------------- 6 - 83 - EX-10 10 NINTH AMENDMENT TO LEASE EXHIBIT "B" to be made a part of a Ninth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1997 (Page 1 of 2) TENANT IMPROVEMENTS WORK SCHEDULE ARTICLE I Landlord's Construction Obligations Landlord shall have no construction obligations under this Amendment. Tenant accepts the Option Space in an "as is" condition, with all faults and with the understanding that it shall be responsible for any and all improvements required for its occupancy and use in accordance with Article II of this Exhibit "B". ARTICLE II Construction of Tenant Improvements Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Option Space in accordance with the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant finish allowance of up to One Hundred Twenty-One Thousand, Seven Hundred and Twenty-Eight Dollars and No Cents ($121,728.00) to be applied toward the cost of any such tenant-provided improvements as follows: 1. The tenant finish allowance shall be paid in periodic installments, not more frequently than once per month, equal to the total of the contractor's or consultant's invoice amounts for improvements made to the Option Space, excluding any furnishings or business equipment (such as computers, satellite/microwave dish, office equipment, etc.), as submitted by Tenant and verified to Landlord's reasonable satisfaction; provided, however, that such payments will be made only if Tenant is not then in Default under the terms of this Lease and invoices are accompanied by lien waivers in the amount equal to that of the invoices. The tenant finish allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" as follows: January 1, 1998 - December 31, 1998 Up To $121,728.00 2. Upon the earlier of the end date identified in the allocation schedule specified in Paragraph 1 above, or the satisfaction of all obligations associated with the tenant improvements covered under this Article II and receipt of the associated lien waivers for the work, the Tenant shall forfeit any unused portion of the allowance. Any requests for payment received by the Landlord after the above specified end date, will be returned to the Tenant and will be the obligation and sole responsibility of the Tenant. 3. In addition to the provisions set forth in Paragraph 9 of the Lease, Tenant's contractor shall (and its contract shall so provide): (a) conduct its work in such a manner so as not to unreasonably interfere with other tenants in the Building, Building operations, or any other construction occurring on or in the Building or the Premises; (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); 1 - 84 - EXHIBIT "B" to be made a part of a Ninth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1997. (Page 2 of 2) (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall promptly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's materialmen's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. 2 - 85 - EX-10 11 TENTH AMENDMENT TO LEASE TENTH AMENDMENT TO LEASE THIS TENTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of December, 1997, by and between LAFP-SF, Inc., successor in interest to The Prudential Insurance Company Of America ("Landlord"), having an office c/o Lowe Enterprises Colorado, Inc., 1475 Lawrence Street, Suite 210, Denver, Colorado 80202, and Data Transmission Network Corporation ("Tenant"), having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS A. The Prudential Insurance Company of America and Data Transmission Network Corporation entered into that certain Lease dated as of May 2, 1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340, #360, #362, and #100 containing 75,931 rentable square feet (RSF) in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska ("the Premises"). B. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated January 5, 1996, a Third Amendment To Lease dated January 5, 1996, and a Fourth Amendment To Lease between LAFP-SF, Inc. and Tenant dated December 23, 1996, a Fifth Amendment To Lease dated July 7, 1997, a Sixth Amendment To Lease dated July 7, 1997, a Seventh Amendment To Lease dated September 19, 1997, an Eighth Amendment To Lease dated September 19, 1997, and a Ninth Amendment To Lease dated September 19, 1997. The combined terms of the Lease and subsequent Amendments shall herein be referred to as the "Lease". Under the Lease the Premises consists of a total of 107,576 RSF. C. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Parking. Landlord and Tenant recognize that the construction of the additional parking spaces required under paragraph 1 of the Fifth Amendment To Lease, as referenced above, is substantially underway and has been delayed from time to time due to weather conditions beyond the control of the Landlord. In consideration of Landlord's reasonable efforts to complete said parking as weather permits (estimated to be prior to May 1, 1998) and other provisions of this Amendment, Tenant agrees, effective December 1, 1997, to commence payment of the additional Base Rent called for in paragraph 2 of said Fifth Amendment To Lease. 2. Tenant Improvements. As a part of this Amendment, paragraph 1 of Article II, of Exhibit B to the Fourth Amendment To Lease, as referenced above, shall be modified to provide Tenant an extension of the time frame for submittal of invoices relative to Tenant's use of the tenant finish allowance provided under this Fourth Amendment To Lease. Such extension shall be for a period of up to four (4) months through April 30, 1998. 3. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. 1 - 86 - 4. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 5. The parties hereto hereby reaffirm and ratify all covenants, represen- tations and warranties in the Lease as amended by this Amendment. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network Corporation, LAFP-SF, Inc. a Delaware corporation By: Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent ----------------------------------- Its: By: --------------------------------- Its: ---------------------------- 2 - 87 - EX-10 12 1997 REVOLVING CREDIT AGREEMENT 1997 REVOLVING CREDIT AGREEMENT among DATA TRANSMISSION NETWORK CORPORATION, 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., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL and LASALLE NATIONAL BANK 1 - 88 - TABLE OF CONTENTS
I. DEFINITIONS..................................................... 2 II. REVOLVING FACILITY............................................. 9 2.1 Revolving Credit........................................... 9 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 Loan Agreement..................................... 15 III. REPRESENTATIONS AND WARRANTIES................................ 15 3.1 Corporate Existence........................................ 15 3.2 Corporate Authority........................................ 15 3.3 Validity of Agreements..................................... 15 3.4 Litigation................................................. 15 3.5 Governmental Approvals..................................... 16 3.6 Defaults Under Other Documents............................ 16 3.7 Judgments.................................................. 16 3.8 Compliance with Laws....................................... 16 3.9 Taxes...................................................... 16 3.10 Collateral................................................. 16 3.11 Pension Benefits........................................... 16 3.12 Margin Regulations......................................... 17 3.13 Financial Condition........................................ 17 4.1 Financial Reports.......................................... 17 4.2 Corporate Structure and Assets............................. 19 4.3 Net Worth.................................................. 19 4.4 Indebtedness............................................... 19 4.5 Use of Proceeds............................................ 19 4.6 Notice of Default.......................................... 20 4.7 Distributions.............................................. 20 4.8 Compliance with Law and Regulations........................ 21 4.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance................................... 21 4.10 Inspection of Properties and Books......................... 21 4.11 Guaranties................................................. 22 4.12 Collateral................................................. 22 4.13 Name; Location............................................. 22 4.14 Notice of Change in Ownership or Management................ 22 2 - 89 - 4.15 Interest Coverage.......................................... 23 4.16 Subordinated Debt.......................................... 23 4.17 Subsidiaries............................................... 23 4.18 Amendments to Purchase Agreement........................... 23 4.19 Capital Expenditures....................................... 23 4.20 Acquisitions............................................... 23 V. CONDITIONS PRECEDENT............................................. 24 5.1 Closing Conditions......................................... 24 VI. DEFAULTS AND REMEDIES........................................... 24 6.1 Events of Default.......................................... 24 6.2 Remedies................................................... 26 VII. INTER-CREDITOR AGREEMENTS..................................... 27 7.1 FNB-O as Servicer.......................................... 27 7.2 Application of Payments.................................... 28 7.3 Liability of FNB-O......................................... 29 7.4 Transfers.................................................. 29 7.5 Reliance................................................... 29 7.6 Relationship of Lenders.................................... 29 7.7 New Lenders................................................ 29 VIII. MISCELLANEOUS................................................ 30 8.1 Entire Agreement........................................... 30 8.2 Governing Law.............................................. 30 8.3 Notices.................................................... 30 8.4 Headings................................................... 30 8.5 Counterparts............................................... 30 8.6 Survival; Successors and Assigns........................... 31 8.7 Severability............................................... 31 8.8 Assignment................................................. 31 8.9 Amendments................................................. 31 8.10 Consent to Form of Security Agreement, Term Agreement...... 31 EXHIBIT A........................................................... 43 EXHIBIT B........................................................... 9 EXHIBIT C........................................................... 11
3 - 90 - 1997 REVOLVING CREDIT AGREEMENT This 1997 REVOLVING CREDIT AGREEMENT (the "Agreement") is 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"), NBD BANK, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101 ("Mercantile"), FIRST BANK, NATIONAL ASSOCIATION (successor in interest to FirsTier Bank, National Association), a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank"), THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236 ("Boatmen's"), BANK OF MONTREAL, a Canadian bank represented by its office at 430 Park Avenue, New York, New York 10022 ("Montreal"), and LASALLE NATIONAL BANK, a national banking association being represented by its offices at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102 ("LaSalle"). WITNESSETH: WHEREAS, the Borrower and certain of the Lenders (as such term is hereinafter defined) are parties to a 1996 Term Credit Agreement dated as of May 3, 1996, which has been amended, (the "1996 Term Credit Agreement"), the proceeds of which were used to acquire substantially all of the assets of Broadcast Partners, a general partnership having its principal place of business in Des Moines, Iowa; WHEREAS, the Borrower and certain of the Lenders are parties to a 1996 Revolving Credit Agreement dated as of June 28, 1996, which has been amended (the "1996 Revolving Credit Agreement"), which 1996 Revolving Credit Agreement provided a revolving credit facility for general corporate purposes; 4 - 91 - WHEREAS, the Borrower desires to increase the amount and extend the maturity of the revolving credit facility which was the subject of the 1996 Revolving Credit Agreement; and WHEREAS, the parties do not intend for this 1997 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 1997 Revolving Credit Agreement shall supersede and replace the terms of the above-referenced 1996 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, 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 1997 Revolving Credit Agreement dated as of February 26, 1997, 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. Boatmen's: The Boatmen's National Bank of St. Louis, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63166-0236, and its successors and assigns. Borrower: Data Transmission Network Corporation, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114. 5 - 92 - 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. 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. 6 - 93 - 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. Existing Term Notes: Those certain promissory notes from the Borrower to FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994, and February 27, 1995, and all extensions, renewals, and substitutions of or for the foregoing. First Bank: First Bank, National Association, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508, and its successors and assigns (it being acknowledged that First Bank is the successor in interest to FirsTier). FNB-O: First National Bank of Omaha, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102, and its successors and assigns. FNB-W: First National Bank, Wahoo, Nebraska, a national banking association having its principal place of business at Wahoo, Nebraska 68066, and its successors and assigns. Fixed Rate Notice: This term shall have the meaning set forth in Section 2.5. 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. 7 - 94 - LaSalle: LaSalle National Bank, a national banking association having its principal place of business at 135 South LaSalle Street, Chicago, Illinois 60603. Lenders: FNB-O, FNB-W, NBD, Norwest, LaSalle, Sumitomo, Mercantile, First Bank and Montreal, in their capacity as Revolving Lenders under this Agreement, the Term Lenders, lenders of the Related Bank Debt, Boatmen's (as to Articles VI and VII and as to Section 8.6 only), and such additional lenders as may be added hereto or thereto from time to time. 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. NBD: NBD Bank, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226, and its successors and assigns. Net 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. 8 - 95 - Net Worth: The Borrower's consolidated net worth as determined in accordance with generally accepted accounting principles plus subordinated debt. For purposes of this definition, "subordinated debt" means indebtedness of the Borrower which is subordinate, in a manner satisfactory to the Lenders, to the indebtedness due to the Lenders, and the repayment of which is forbidden during the existence of any Event of Default hereunder; provided however, that any such indebtedness shall not be deemed subordinated debt to the extent of the amount of principal payments that are due thereon within one (1) year from the date of determination. Norwest: Norwest Bank Nebraska, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102, and its successors and assigns. Notes: (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 prin- cipal amount of all unpaid Advances outstanding at any time (not including the unpaid balance under the 9 - 96 - 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 (i) the Related Loan Agreement, including, without limitation, the amounts outstanding under those certain promissory notes from the Borrower to FNB-O, FirsTier and FNB-W dated as of October 13, 1992 and December 7, 1992, and all extensions, renewals, and substitutions of or for the foregoing; and (ii) certain interest rate protection contracts entered into from time to time by the Borrower with one or more of the Lenders. Related Loan Agreement: The Loan Agreement dated as of October 9, 1992, between the Borrower and FNB-O, FirsTier and FNB-W and any loan agreements issued in extension, renewal, replacement, or restatement of the foregoing. Release: The Federal Reserve Statistical Release. Restricted Quarter: 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. Revolving Credit Rate: The Base Rate minus the applicable margin as determined pursuant to Section 2.3. 10 - 97 - Revolving Lenders: FNB-O, FNB-W, NBD, Norwest, LaSalle, Sumitomo, Mercantile, First Bank and Montreal, and such additional Revolving Lenders as may be added as Revolving Lenders under Section 2.1 hereto from time to time by mutual written agreement of the parties. Security Agreement: The 1997 Security Agreement dated as of the date hereof, between the Borrower and FNB-O, as agent for the Lenders, (which amends and restates the 1996 Restated Security Agreement dated as of May 3, 1996, as amended by the First Amendment to 1996 Restated Security Agreement dated as of June 28, 1996; the Second Amendment to 1996 Restated Security Agreement dated as of July 31, 1996; and the Third Amendment to 1996 Restated Security Agreement dated as of December 27, 1996), 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 1997 Term Credit Agreement dated as of the date hereof, among the Borrower and certain Lenders specified therein, (which amends and restates the 1996 Term Credit Agreement dated as of May 3, 1996, as amended by the First Amendment to 1996 Term Credit Agreement dated as of July 17, 1996; the Second Amendment to 1996 Term Credit Agreement dated as of July 31, 1996; and the Third Amendment to 1996 Term Credit Agreement dated as of December 27, 1996), and as further amended or restated from time to time. 11 - 98 - Term Lenders: "Lenders" to the Borrower as such term is defined in the Term Agreement. Total Indebtedness: All loans and other obligations of the Borrower and its Subsidiaries, without duplication, for borrowed money (including, without limitation, the indebtedness due to the Lenders) regardless of the maturity thereof but such term shall not include subordinated debt of the Borrower, as such term is defined in the definition of Net Worth up to $15,000,000 if such subordinated debt 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 2.5 hereof. 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. (a) Until the earlier of June 30, 1998, 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 $59,500,000 (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, $12,316,500 (20.7%); (ii) as to FNB-W, $297,500 (.50%); (iii) as to NBD, $7,080,500 (11.9%); (iv) as to Norwest, $2,856,000 (4.8%); (v) as to LaSalle, $11,840,500 (19.9%); (vi) as to Sumitomo, $5,950,000 (10%); (vii) as to Mercantile, $6,128,500 (10.3%), (viii) as to First Bank, $6,128,500 (10.3%); and (ix) as to Montreal, $6,902,000 (11.6%). (b) The Base Revolving Credit Facility shall be increased, up to a maximum of $71,000,000, upon satisfaction of the following conditions. For each six-month period shown below, the Base Revolving Credit Facility shall be increased in the amount shown, up to the maximum indicated for such 12 - 99 - period, based on the conversion in accordance with Section 2.4 below of outstanding balances on the Revolving Credit Notes:
Maximum Principal Conversion Amount Maximum Increase In Period Increasing Facility Size Revolving Credit Facility -------------------- ------------------------ ------------------------- January-June, 1997 $38,000,000 $11,500,000 July-December, 1997 $38,000,000 minus the principal amount, if any, converted during the prior period $ 7,667,000 January-June, 1998 $38,000,000 minus the principal amount, if any, converted during the prior periods $ 3,833,000
provided, however, that the total amount of converted principal which shall result in an increase to the Base Revolving Credit Facility over the term hereof shall not exceed $38,000,000; and provided, further, that regardless of conversions, in no event shall the Base Revolving Credit Facility, plus the principal amount outstanding under Converted Notes issued after the date hereof, exceed $71,000,000; and provided further, that no such increase in the Base Revolving Credit Facility amount shall occur after the occurrence of an Event of Default. In the event that the principal amount converted during any six-month period shown above is less than the maximum principal conversion amount shown above for such period, the amount of the increase shall be determined by multiplying the maximum possible increase in the revolving credit facility permitted for such period by a fraction, the numerator of which is the amount of actual converted principal (up to the maximum permitted) and the denominator of which is the difference between $38,000,000 and the principal amount converted during any of the prior six-month periods shown on the above chart. The "Maximum Revolving Credit Facility" shall mean, as of the date of this Agreement, $71,000,000, and, if the maximum increase in the Base Revolving Credit Facility is not effected prior to July 1, 1997, shall be adjusted on July 1, 1997, and, if applicable, on January 1, 1998 to reflect such lesser maximum amount which is possible to be effected during the succeeding six-month period pursuant to the above chart. (c) Any increase in the Base Revolving Credit Facility shall be pro rated among the Revolving Lenders in the percentages shown in (a) above; provided that in no event shall the respective revolving credit facility attributable to each such Revolving Lender exceed the amounts shown below: (i) as to FNB-O, $14,697,000; (ii) as to FNB-W, $355,000; (iii) as to 13 - 100 - NBD, $8,449,000; (iv) as to Norwest, $3,408,000; (v) as to LaSalle, $14,129,000; (vi) as to Sumitomo, $7,100,000; (vii) as to Mercantile, $7,313,000; (viii) as to First Bank, $7,313,000; and (ix) as to Montreal, $8,236,000. The Borrower shall not be entitled to any Advance hereunder if, after the making of such Advance, the Total Indebtedness would exceed thirty-six (36) times the Borrower's Operating Cash Flow, determined at the time of the Advance. Nor shall the Borrower be entitled to any further Advances hereunder after the occurrence of a material adverse change in its management personnel, as described in Section 4.14(b), or after the occurrence of any Event of Default with respect to the Borrower. Advances shall be made, on the terms and conditions of this Agreement, upon the Borrower's request. Requests shall be made by 12:00 noon Omaha time on the Business Day prior to the requested date of the Advance. Requests shall be made by presentation to FNB-O of a drawing certificate in the form of Exhibit B. The Borrower's obligation to make payments of principal and interest on the foregoing revolving credit indebtedness shall be further evidenced by the Revolving Credit Notes. 2.2 Revolving Credit Fees. The Borrower shall pay to the Revolving Lenders a commitment fee 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: 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, 1998, 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, commencing with the Quarterly Compliance Certificate in the form of Exhibit C hereto for the quarter ended 12/31/96. Adjustments shall be retroactive to the beginning of the current quarter. 14 - 101 -
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, 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, 1998; 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, 2002. 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 15 - 102 - 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 notice, plus one-half of one percent (.50%), 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% 1 Determined on the last day of the preceding quarter.
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, Total Indebtedness was at such date more than thirty-six (36) times the Operating Cash Flow 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 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 16 - 103 - 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 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 1997 Revolving Credit Agreement within the definition of Obligations in such notes, it being understood that this 1997 Revolving Credit Agreement, rather than the 1996 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 1997 Revolving Credit Agreement. The Existing Term Notes shall continue to be secured by the security interest provided in the Security Agreement. 17 - 104 - 2.10 Related Loan Agreement. Nothing herein shall be deemed to alter or amend the Borrower's obligations under the Related Loan Agreement, the Related Bank Debt or any collateral security therefor, all of which shall continue in full force and effect in accordance with the terms thereof. III. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that as of the date hereof and as of the date of each and every request for an Advance hereunder, the following are and shall be true and correct: 3.1 Corporate Existence. It and each of its Subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and duly qualified and in good standing in all states where it is doing business except where the failure to be so qualified would not have a material adverse effect on it and it has full power and authority to own and operate its properties and to carry on its business. As of the date of this Agreement, the Borrower has no Subsidiaries. 3.2 Corporate Authority. It has full corporate power, authority and legal right to execute, deliver and perform the Operative Documents to which it is a party, and all other instruments and agreements contemplated hereby and thereby, and to perform its obligations hereunder and thereunder; and such actions have been duly authorized by all necessary corporate action, and are not in conflict with any applicable law or regulation, or any order, judgment or decree of any court or other governmental agency or instrumentality or its articles of incorporation or bylaws, or with any provisions of any indenture, contract or agreement to which it or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of its or their property may be bound. 3.3 Validity of Agreements. The Borrower's Operative Documents have been duly authorized, executed and delivered and constitute its legal, valid and binding agreements, enforceable against the Borrower in accordance with their respective terms (except to the extent 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. 18 - 105 - 3.5 Governmental Approvals. The execution, delivery and perfor- mance by the Borrower of the Operative Documents or the Purchase Agreement do not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any federal, state or other governmental authority or agency other than as contemplated herein and therein. 3.6 Defaults Under Other Documents. Neither the Borrower nor any Subsidiary is in default or in violation (nor has any event occurred which, with notice or lapse of time or both, would constitute a default or violation) under any document or any agreement or instrument to which it may be a party or under which it or any of its properties may be bound and the result of which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.7 Judgments. There are no outstanding or unpaid judgments (which are not adequately bonded) of the Borrower or any Subsidiary which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is in violation of any laws, regulations or judicial or governmental decrees in any respect which could have any material adverse effect upon the validity or enforceability of any of the terms of the Borrower's Operative Documents or which could have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.9 Taxes. All tax returns of the Borrower and its Subsidiaries for material taxes required to be filed have been filed or extensions permitted by law have been obtained; all taxes of the Borrower and its Subsidiaries of a material nature and which are due and payable as reflected on such returns have been paid, other than taxes which are due but for which only a nominal late payment penalty is payable and for which the taxing authority is not yet entitled to enforce its remedies for payment thereof and other than taxes being contested in good faith and with respect to which adequate reserves have been established; and no material amounts of taxes of the Borrower and its Subsidiaries not reflected on such returns are payable. 3.10 Collateral. The Borrower has good and marketable title to the Collateral and the Collateral is free from all liens, encumbrances or security interests, except as disclosed on Schedule A attached hereto. The Borrower's 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" 19 - 106 - maintained by it and it has not incurred any material liability to the Pension Benefit Guaranty Corporation ("PBGC") or otherwise under ERISA in connection with any such Plan. 3.12 Margin Regulations. No part of the proceeds of any Advance hereunder shall be used to purchase or carry any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or any "margin security" (within the meaning of Regulation G of said Board of Governors), or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security. No part of the proceeds of any Advance hereunder shall be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation G, T, U or X of said Board of Governors. 3.13 Financial Condition. The financial condition of the Borrower and its Subsidiaries is truly and accurately set forth in the most recent financial statement which has been provided to the Lenders and no material adverse change has occurred which would make such financial statement inaccurate or misleading. IV. COVENANTS The Borrower hereby covenants that: 4.1 Financial Reports. (a) Within forty-five (45) days after the end of each month, the Borrower, at its sole expense, shall furnish the Lenders a consolidated balance sheet, 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 20 - 107 - constitutes an Event of Default or which with the passage of time or the giving of notice would constitute an Event of Default under such sections. The auditors shall not be liable to the Lenders by reason of the auditors' failure to obtain knowledge of such event or condition in the ordinary course of their audit unless such failure is the result of negligence or willful misconduct in the performance of the audit. (c) Within thirty (30) days after submission to the Securities and Exchange Commission, the Borrower shall provide to the Lenders copies of its Forms 10K and 10Q, as submitted to the Securities and Exchange Commission during the term of this Agreement. (d) Within twenty (20) days after the end of each quarter, the Borrower, at its expense, shall furnish the Lenders a certificate of the chief financial officer of the Borrower in the form of Exhibit C, setting forth such information (including detailed calculations) sufficient to verify the conclusions of such officer after due inquiry and review, that: (i) The Borrower and each Subsidiary, either (y) is in compliance with the requirements set forth in this Agreement or (z) is NOT in compliance with the foregoing for reasons specifically set forth therein; and (ii) The chief financial officer of the Borrower has reviewed or caused to be reviewed all of the terms of the Operative Documents of the Borrower and that such review either (1) has NOT disclosed the existence of any condition or event which constitutes an event of default or any condition or event which with the passage of time or the giving of notice would constitute an event of default under the Operative Documents or (2) has disclosed the existence of a condition or event which constitutes an event of default, or a condition or event which with the passage of time or the giving of notice would constitute an event of default, under the aforesaid instrument or instruments and the specific condition or event is specifically set forth. For the quarter ended December 31, 1996, the Borrower shall provide the Quarterly Compliance Certificate in the form of Exhibit C, plus the compliance certificate in the form which was required by the 1996 Revolving Credit Agreement in effect on December 31, 1996. (e) The Borrower shall provide the Lenders with such other financial reports and statements as the Lenders may reasonably request. 21 - 108 - 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 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 sum of the Total Indebtedness to the Lenders to exceed forty-eight (48) times Operating Cash Flow. (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 22 - 109 - 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; (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). 23 - 110 - 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. (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 24 - 111 - 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. Subject to Section 4.4(b), the foregoing shall not be construed to prohibit the Borrower or any Subsidiary from acquiring leased equipment in the ordinary course of business. Without limiting the generality of the foregoing, the Borrower covenants and agrees that it shall on request enforce for the benefit of the Lenders, but at the sole expense of the Borrower, any and all rights and remedies (including, without limitation, rights to indemnity), that it may have with respect to the existence of any liens, security interests or other encumbrances that may exist on the property of the Borrower acquired from Broadcast Partners under the Purchase Agreement. Notwithstanding anything else to the contrary herein or in the Operative Documents, Broadcast Partners shall have no right to share in the proceeds of any such recovery which constitutes the proceeds of any indemnity claim by the Borrower under the Purchase Agreement. 4.13 Name; Location. The Borrower shall give the Lenders ninety (90) days notice prior to changing its name, identity or corporate structure, moving its principal place of business, chief executive office or place where it keeps its records concerning the Collateral. 4.14 Notice of Change in Ownership or Management. During the term of this Agreement, the Borrower shall give the Lenders notice of the occurrence of any of the following described events, which notice shall be given as soon as the Borrower obtains notice or knowledge thereof: (a) any change, directly or indirectly, in the existing controlling interest in the Borrower; or (b) any material adverse change in its management personnel. A material adverse change in the Borrower's management personnel shall be deemed to have occurred if any one (1) of the following has occurred with respect to two of the four (4) individuals who are both officers and members of the Board of Directors of the Borrower: (i) the resignation, retirement, or voluntary or involuntary termination of employment and/or status of such persons as officers and directors of the Borrower; (ii) any announcement, notice of intent, resolution or similar advance notice with respect to the matters referenced in the foregoing clause; or (iii) the death, disability or legal incompetence of such persons. 25 - 112 - 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. The indebtedness to Broadcast Partners under the Notes shall not be considered subordinated debt. 4.17 Subsidiaries. The Borrower shall give prompt written notice to the Lenders of the Borrower's intent to acquire, or the Borrower's acquisition of, any Subsidiary. Prior to the creation or acquisition of such Subsidiary, the Borrower (i) shall cause a first security interest in the assets of such Subsidiary to be perfected in favor of FNBO, as agent for the Lenders, and (ii) shall cause the Subsidiary to enter into a security agreement, to execute and file such financing statements and to provide opinions all in form satisfactory to the Lenders as to compliance with this section. 4.18 Amendments to Purchase Agreement. The Borrower shall not amend the Purchase Agreement without the prior written consent of the Lenders. 4.19 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 $1,000,000; 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 the date of this Agreement such acquisitions in an amount not to exceed Six Million Dollars ($6,000,000) in the aggregate without the consent of the Revolving Lenders if such acquisitions are in or from entities which: (a) are in the business of electronically communicating time- sensitive information to subscribers; 26 - 113 - (b) have their principal place of business in the United States; and (c) except for Market Communications Group, L.L.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. V. CONDITIONS PRECEDENT 5.1 Closing Conditions. Any and all obligations of the Lenders hereunder are subject to satisfaction of the following conditions precedent: (a) FNB-O, as agent, shall have received an opinion of counsel to the Borrower covering such matters as the Lenders may request (including, without limitation, corporate existence and good standing, corporate authority, due authorization, execution and delivery of the Operative Documents, the legal, valid, binding and enforceable nature of the Operative Documents, the perfection and priority of the security interest in the Collateral granted to the Lenders, and the Borrower's compliance with applicable state and federal laws in connection with the equity offering made in connection with the Purchase Agreement), such opinion to be satisfactory in form and substance to counsel to FNB-O; (b) FNB-O, as agent, shall have received such certificates and documents as the Lenders may reasonably request from the Borrower, including articles of incorporation and bylaws, certificates regarding good standing, incumbency, copies of other corporate documents, and appropriate authorizing resolutions; and (c) the Operative Documents shall have been duly auth- orized 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. 27 - 114 - (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. (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 28 - 115 - any part of its property, or of any or all of the royalties, revenues, rents, issues or profits thereof, shall be appointed without the consent or acquiescence of such entity and such appointments shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive); or (3) A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in the Collateral, or any judgment involving monetary damages shall be entered against the Borrower or any Subsidiary which shall become a lien on the Collateral or any portion thereof or interest therein and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within thirty (30) days after its entry or levy. (i) Any event of default shall occur under any Operative Document. (j) A change shall occur after November 8, 1993, directly or indirectly, in the ownership or control of the Borrower; provided, however, that changes in the ownership or control of, or new issuances of, voting common stock which do not exceed, cumulatively, 50% of the total issued and outstanding shares of the Borrower as of September 30, 1993 shall not be deemed an Event of Default under this Section 6.1(j); provided further, that acquisitions of additional shares by members of the existing executive management group of the Borrower shall not be counted as changes in the ownership or control of the Borrower under this Section 6.1(j). For purposes of computing the total issued and outstanding shares as of September 30, 1993, warrants and options for such shares shall be included. (k) An Event of Default shall occur under any Existing Term Note or the Related Loan Agreement and the expiration of any applicable cure period thereunder. (l) The Borrower shall be obligated to prepay all or any portion of its subordinated debt as a result of a Change of Control. (m) The Borrower pays, or is determined to be obligated to pay, any indemnity to Broadcast Partners under the Purchase Agreement in excess of $1,000,000 in the aggregate. 6.2 Remedies. If an Event of Default occurs and is continuing, up- on 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 29 - 116 - under the other Operative Documents, the Notes, the Term Agreement, and the Related Loan Agreement (and the operative documents with respect thereto), including, without limitation, under the Security Agreement. For purposes of this Article VI, the term Lenders includes Boatmen's. In addition, the Lenders shall have such other remedies as are available at law and in equity. Remedies under this Agreement, the Operative Documents, the Notes, the Term Agreement, the Related Loan Agreements (and the operative documents with respect thereto) are cumulative. Any waiver must be in writing by the Lenders and no waiver shall constitute a waiver as to any other occurrence which constitutes an Event of Default or as to any party not specifically included in such written waiver. VII. INTER-CREDITOR AGREEMENTS 7.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans evidenced by the Notes (other than in connection with interest rate protection contracts). For purposes of this Article VII, the term Lenders includes Boatmen's and the term Event of Default means any Event of Default hereunder, under any Note, or under the Term Agreement or the Related Loan Agreement. FNB-O will enforce, administer and otherwise deal with the loans made by the Lenders in accordance with safe and prudent banking standards employed by FNB-O in the case of the loan made by FNB-O. Without limiting the generality of the foregoing, FNB-O will, on its own behalf and on behalf of the Lenders: (i) maintain originals of the Operative Documents (excluding the Notes) and the operative documents in connection with the Term Agreement and the Related Loan Agreement; (ii) receive requests for Advances from the Borrower, promptly transmit the same to the Revolving Lenders and make such Advances on behalf of the Revolving Lenders (provided that FNB-O is assured of reimbursement therefor by the other Revolving Lenders for their pro rata shares); (iii) receive payments and prepayments from the Borrower and apply such payments as provided in Section 7.2; (iv) receive notices from the Borrower and send copies thereof to the Lenders if FNB-O has reasonable cause to believe that such Lenders have not received such notice from another source; and (v) advise the Lenders of the occurrence of any 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 30 - 117 - security interest of the Lenders in Collateral which comprises more than ten percent (10%) of net book value of fixed assets of the Borrower; and (iv) any amendment of Sections 7.1 or 7.2 hereof. A Revolving Lender's commitment hereunder may not be increased without the consent of such Revolving Lender, it being understood, however, that increases in the total revolving credit facility hereunder may be made with the consent of the holders of more than two-thirds of the outstanding aggregate total outstanding obligation of the Borrower to the Revolving Lenders, so long as such increase does not result in the increase of any non-consenting Revolving Lender's commitment hereunder. 7.2 Application of Payments. Until the earlier of the occurrence of an Event of Default or any Lender's giving of notice to the others that it deems itself insecure, payments or prepayments made by the Borrower may be applied to the indebtedness designated by the Borrower or otherwise applied as follows: (a) first, to pay interest to date on the Revolving Credit Notes and fees due to the Lenders; (b) second, to make payments due but unpaid under any of the other Notes; and (c) third, pro rata to the Lenders, such pro rata share to be determined as set forth below in subsection (bb) of this Section 7.2. After the occurrence of an Event of Default or any Lender's giving of notice that it deems itself insecure, payments or prepayments on the Notes received by FNB-O or any of the Lenders and funds realized upon the disposition of any of the Collateral shall be applied as follows: (aa) first, to reimburse FNB-O for any costs, expenses, and disbursements (including attorneys' fees) which may be incurred or made by FNB-0: (i) in connection with its servicing obligations; (ii) in the process of collecting such payments or funds; or (iii) as advances made by FNB-O to protect the Collateral (provided, however, that FNB-O shall have no obligation to make such protective advances); and (bb) second, pari passu among the Lenders, based on their respective pro rata shares of the funds to be applied. Each Lender's pro rata share shall be equal to a fraction, (x) the numerator of which shall be 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. 31 - 118 - 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 1997 Revolving Credit Agreement, the Notes, or the other Operative Documents or the operative documents under the Term Agreement or the Related Bank Debt, or the value or sufficiency of any Collateral given by the Borrower or the priority of the Lenders' security interest therein or the financial condition of the Borrower; and (c) shall not be responsible for the performance or observance of any of the terms, covenants or conditions of the Operative Documents, the Existing Term Notes, or the operative documents under any Related Bank Debt on the part of the Borrower and shall not have any duty to inspect the property (including, without limitation, the books and records) of the Borrower. 7.4 Transfers. No Lender shall subdivide, transfer or grant a participation in its respective Notes or in any Advance hereunder without the prior written consent of FNB-O which consent shall not be unreasonably withheld. 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 Loan Agreement, such Lenders shall be required to agree to the inter-creditor provisions of this Article VII. 32 - 119 - VIII. MISCELLANEOUS 8.1 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and may not be effectively amended, changed, modified or altered, except in writing executed by all parties. 8.2 Governing Law. The Operative Documents shall be governed by and construed pursuant to the laws of the State of Nebraska. 8.3 Notices. Until changed by written notice from one party hereto to the other, all communications under the Operative Documents shall be in writing and shall be hand delivered or mailed by registered mail to the parties as follows: If to the Borrower: DATA TRANSMISSION NETWORK CORPORATION Suite 200 9110 West Dodge Road Omaha, Nebraska 68114 Attention: Chief Financial Officer If to the Lenders: FIRST NATIONAL BANK OF OMAHA One First National Center Omaha, Nebraska 68102 Attention: Mr. James P. Bonham Notices shall be deemed given when mailed, except that any notice by the Borrower under Sections 2.4 and 2.5 shall not be deemed given until received by FNB-O. 8.4 Headings. The captions and headings herein are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement. 8.5 Counterparts. This Agreement may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. 8.6 Survival; Successors and Assigns. The covenants, agreements, representations and warranties made herein, and in the certificates delivered pursuant hereto, shall survive the execution and delivery to the Lenders of this Agreement and shall continue in full force and effect so long as any Note or 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 33 - 120 - 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 1997 Revolving Credit Agreement to be executed by their duly authorized corporate officers as of the day and year first above written. 34 - 121 - DATA TRANSMISSION NETWORK CORPORATION By -------------------------------------------- Title: 35 - 122 - FIRST NATIONAL BANK OF OMAHA By -------------------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 36 - 123 - 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 37 - 124 - 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 38 - 125 - 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 39 - 126 - 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 40 - 127 - 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 41 - 128 - 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 42 - 129 - FIRST BANK, NATIONAL ASSOCIATION By -------------------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 43 - 130 - THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By -------------------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 44 - 131 - BANK OF MONTREAL, a Canadian 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 45 - 132 - 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., THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AND LASALLE NATIONAL BANK FORM OF NOTES 46 - 133 - SECURED BUSINESS PROMISSORY NOTE Omaha, Nebraska $ ----------------------------- , 19 June 30, 1998 - ---------------------- ---- ------------------ (Note Date) (Maturity Date) REVOLVING NOTE TERMS On or before June 30, 1998, 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, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A., Bank of Montreal, First Bank, National Association, and Boatmen's Bank of St. Louis, N.A. (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 December 31, 1996. 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%. 47 - 134 - (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, 1998; 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, 2002. 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: 48 - 135 - (a) the Revolving Credit Rate in effect on the date of the notice, plus .50%, 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 Ratio 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, Total Indebtedness was in excess of thirty-six (36) times the Operating Cash Flow 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. 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 49 - 136 - 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; 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. 50 - 137 - 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 pur- poses; 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. 51 - 138 - 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 (as such term is defined in the Agreement) and those certain Secured Business Promissory Notes dated as of April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994 and February 27, 1995, and all extensions, renewals, and substitutions of or for the foregoing. Executed as of this day of , . DATA TRANSMISSION NETWORK CORPORATION By: -------------------------------- Title: 52 - 139 - 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 - ---- ---------- --------------- ------------- --------- ---------
53 - 140 - 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 - ---- ---------- --------------- ------------- --------- ---------
54 - 141 - 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., THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AND LASALLE NATIONAL BANK, DRAWING CERTIFICATE 55 - 142 - 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, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A., First 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"), 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) 36 x Operating Cash Flow $ -------- j) Excess (line i - line e) $ -------- Name of Borrower: Data Transmission Network Corporation Signature: ---------------------------------------------- Title: ---------------------------------------------- 56 - 143 - 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., THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AND LASALLE NATIONAL BANK OFFICER'S CERTIFICATE 57 - 144 - 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, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A., First Bank, National Association, The Boatmen's National Bank of St. Louis and Data Transmission Network Corporation. The following calculations are as of (statement date) as required by ----------- Section 4.1(d) of said Agreement: Evaluations: Total Indebtedness (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%. 58 - 145 - 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) = $ -------------- Section 4.4 . Indebtedness: At no time will Total Indebtedness exceed 48x OCF. Position: (48 x OCF) - Total Indebtedness = 59 - 146 - . 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 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. 60 - 147 - 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, 1997, 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 $6,000,000 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: Principal Line Acquired Place of Of Date Amount Company 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. 61 - 148 - There has/has not been: (i) a Change of Control or a material adverse change in management personnel as defined in Section 4.14 of the Agreement; or (ii) a default under Section 6.1(j) or 6.1(l) regarding a change in ownership or control of the Company. (iii) an indemnity claim by Broadcast Partners under Section 6.1(m). Name of Borrower: Data Transmission Network Corporation Signature: ------------------------------------- Title: ------------------------------------- 62 - 149 - SCHEDULE A TO 1997 TERM CREDIT AGREEMENT among DATA TRANSMISSION NETWORK CORPORATION, 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., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL and LASALLE NATIONAL BANK PERMITTED ENCUMBRANCES
Secured Party Financing Statements Nebraska Secretary of State - --------------------------- 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 63 - 150 - 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 64 - 151 - 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. NBD, Detroit 2/09/93 #30391203308 Amend. 11/22/93 #33261003899 Amend. First National Bank of Omaha, as agent 7/8/96 #961900902562 Amend. 65 - 152 - 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 66 - 153 - 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 67 - 154 - 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
68 - 155 - EX-10 13 FIRST AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT FIRST AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT THIS FIRST AMENDMENT to 1997 REVOLVING CREDIT AGREEMENT (the "First Amendment") is intended to amend the terms of the 1997 Revolving 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; LASALLE NATIONAL BANK; and 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, $38,000,000 of the outstanding balance of the Borrower's loan shall be converted to a term loan in accordance with Section 2.4 of the Agreement. Such loan shall bear interest at the rate of 7.865% 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 $59,500,000 to $33,000,000, 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 First 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 First Amendment shall not affect and there remain outstanding from the Borrower to the Banks, the Existing Term 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 REVOLVING CREDIT AGREEMENT dated as of March 31, 1997. 1 - 156 - DATA TRANSMISSION NETWORK CORPORATION By ---------------------------------- Title: - 157 - FIRST NATIONAL BANK OF OMAHA By ----------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 2 - 158 - 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 3 - 159 - 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 4 - 160 - 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 5 - 161 - 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 6 - 162 - 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 7 - 163 - 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 8 - 164 - FIRST BANK, NATIONAL ASSOCIATION By ----------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 9 - 165 - THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By ----------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 10 - 166 - BANK OF MONTREAL, a Canadian 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 11 - 167 -
Exhibit A to FIRST AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT Maximum Amount Converted Available Under Bank Pro Rata % Note Amount Revolving Facility* - ---------- ---------- ----------- ------------------- FNB-O 20.7% $ 7,866,000 $ 6,831,000 FNB-W .5% 190,000 165,000 NBD 11.9% 4,522,000 3,927,000 Norwest 4.8 % 1,824,000 1,584,000 LaSalle 19.9% 7,562,000 6,567,000 Sumitomo 10.0% 3,800,000 3,300,000 Mercantile 10.3% 3,914,000 3,399,000 Montreal 11.6% 4,408,000 3,828,000 First Bank 10.3% 3,914,000 3,399,000 --------- ------------ $38,000,000 $33,000,000 *Includes current amounts outstanding after Conversion
12 - 168 - EX-10 14 2ND AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT SECOND AMENDMENT TO 1997 REVOLVING CREDIT AGREEMENT THIS SECOND AMENDMENT to 1997 REVOLVING CREDIT AGREEMENT (the "Second Amendment") is intended to amend the terms of the 1997 Revolving Credit Agreement (the "Agreement") dated as of February 26, 1997, as amended by the First Amendment to 1997 Revolving Credit Agreement, dated as of March 31, 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; LASALLE NATIONAL BANK; and NATIONSBANK, N.A. (successor in interest 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: 1. The maturity date referenced in Section 2.1 of the Agreement shall be extended to June 30, 1999. Every reference in the Agreement to June 30, 1998 shall be changed to June 30, 1999. The maximum maturity date for Converted Notes of June 30, 2002 referenced in Section 2.4 of the Agreement shall be extended to June 30, 2003. 2. Section 4.20 of the Agreement is 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 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, 1997 such acquisitions in an amount not to exceed Fifteen Million Dollars ($15,000,000) in the aggregate without the consent of the Revolving Lenders if such acquisitions are in or from entities which: (a) are in the business of electron- ically 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 1 - 169 - 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 Second Amendment shall not affect and there remain outstanding from the Borrower to the Banks, the Existing Term Notes and the Related Bank Debt. 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 REVOLVING CREDIT AGREEMENT dated as of June 30, 1997. DATA TRANSMISSION NETWORK CORPORATION By ------------------------------- Title: 2 - 170 - FIRST NATIONAL BANK OF OMAHA By ------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 3 - 171 - 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 - 172 - 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 - 173 - 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 - 174 - 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 - 175 - 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 - 176 - 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 9 - 177 - FIRST BANK, NATIONAL ASSOCIATION By ------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 10 - 178 - NATIONSBANK, N.A., Successor in Interest to The Boatmen's Nat'l Bank of St. Louis By ------------------------------- Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 11 - 179 - 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 12 - 180 - EX-10 15 1997 TERM CREDIT AGREEMENT 1997 TERM CREDIT AGREEMENT among DATA TRANSMISSION NETWORK CORPORATION, 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., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL and LASALLE NATIONAL BANK 1 - 181 - TABLE OF CONTENTS
I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 II. TERM FACILITY. . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.1 Term Credit . . . . . . . . . . . . . . . . . . . . . . 12 2.2 Acquisition Term Notes. . . . . . . . . . . . . . . . . 12 2.3 Payments. . . . . . . . . . . . . . . . . . . . . . . . 13 2.4 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.5 Payment . . . . . . . . . . . . . . . . . . . . . . . . 13 2.6 Prepayment. . . . . . . . . . . . . . . . . . . . . . . 13 2.6A Permitted Prepayments to Broadcast Partners . . . . . . 14 2.7 Security . . . . . . . . . . . . . . . . . . . . . . . 14 2.8 Related Loan Agreements . . . . . . . . . . . . . . . . 14 III. [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . 14 IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 14 4.1 Corporate Existence. . . . . . . . . . . . . . . . . . . . 14 4.2 Corporate Authority. . . . . . . . . . . . . . . . . . . . 14 4.3 Validity of Agreements. . . . . . . . . . . . . . . . . . . 15 4.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 15 4.5 Governmental Approvals. . . . . . . . . . . . . . . . . . . 15 4.6 Defaults Under Other Documents. . . . . . . . . . . . . . . 15 4.7 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . 15 4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.10 Collateral . . . . . . . . . . . . . . . . . . . . . . . . 16 4.11 Pension Benefits. . . . . . . . . . . . . . . . . . . . . . 16 4.12 Margin Regulations . . . . . . . . . . . . . . . . . . . . 16 4.13 Financial Condition . . . . . . . . . . . . . . . . . . . . 16 V. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.1 Financial Reports . . . . . . . . . . . . . . . . . . . . . 17 5.2 Corporate Structure and Assets. . . . . . . . . . . . . . . 18 5.3 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.4 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 19 5.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 19 5.6 Notice of Default . . . . . . . . . . . . . . . . . . . . 19 5.7 Distributions . . . . . . . . . . . . . . . . . . . . . . .20 5.8 Compliance with Law and Regulations. . . . . . . . . . . . .20 5.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance. . . . . . . . . . . .20 2 - 182 - 5.10 Inspection of Properties and Books . . . . . . . . . . . . 21 5.11 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . 21 5.12 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . 21 5.13 Name; Location . . . . . . . . . . . . . . . . . . . . . . 22 5.14 Notice of Change in Ownership or Management . . . . . . . . 22 5.15 Interest Coverage . . . . . . . . . . . . . . . . . . . . . 22 5.16 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . 22 5.17 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 23 5.18 Amendments to Purchase Agreement. . . . . . . . . . . . . . 23 5.19 Capital Expenditures. . . . . . . . . . . . . . . . . . . . 23 5.20 Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . 23 VI. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 23 6.1 Closing Conditions . . . . . . . . . . . . . . . . . . . . 23 VII. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . 24 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 24 7.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 26 VIII. INTER-CREDITOR AGREEMENTS. . . . . . . . . . . . . . . . . . . . 28 8.1 FNB-O as Servicer . . . . . . . . . . . . . . . . . . . . . 28 8.2 Application of Payments . . . . . . . . . . . . . . . . . 28 8.3 Liability of FNB-O. . . . . . . . . . . . . . . . . . . . . 29 8.4 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 30 8.5 Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . 30 8.6 Relationship of Lenders . . . . . . . . . . . . . . . . . . 30 8.7 New Lenders . . . . . . . . . . . . . . . . . . . . . . . . 30 8.8 Broadcast Partners . . . . . . . . . . . . . . . . . . . . 30 IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 30 9.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 31 9.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 31 9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 31 9.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 31 9.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 31 9.6 Survival; Successors and Assigns . . . . . . . . . . . . . 31 9.7 Severability . . . . . . . . . . . . . . . . . . . . . . . 31 9.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 31 9.9 Amendments . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibit A: Form of Notes Exhibit B: Officer's Certificate Schedule A: Permitted Encumbrances - 183 - 3 1997 TERM CREDIT AGREEMENT This 1997 Term Credit Agreement (the "Agreement"), entered into as of the 26th day of February, 1997, amends and restates the 1996 Term Credit Agreement entered into as of the 3rd day of May, 1996, among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the "Borrower"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 ("FNB-O"), FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101 ("Mercantile"), FIRST BANK, NATIONAL ASSOCIATION (successor in interest to FirsTier Bank, National Association), a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank"), 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 1996 Term Credit Agreement dated as of July 17, 1996, the Second Amendment to 1996 Term Credit Agreement dated as of July 31, 1996, and the Third Amendment to 1996 Term Credit Agreement dated as of December 27, 1996. WITNESSETH: WHEREAS, the parties have entered into that certain 1996 Term Credit Agreement, dated as of May 3, 1996, as amended by the First Amendment to 1996 Term Credit Agreement dated as of July 17, 1996, the Second Amendment to 1996 Term Credit Agreement dated as of July 31, 1996 and the Third Amendment to 1996 Term Credit Agreement dated as of December 27, 1996 (as so amended and restated, the "1996 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 1996 Term Credit Agreement; and 4 - 184 - WHEREAS, the parties do not intend for this 1997 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 1996 Term Credit Agreement dated as of May 3, 1996, between the Borrower and the Lenders, as amended by the First Amendment to 1996 Term Credit Agreement, dated as of July 17, 1996; the Second Amendment to 1996 Term Credit Agreement, dated as of July 31, 1996; and the Third Amendment to 1996 Term Credit Agreement, dated as of December 27, 1996, as further amended and restated by this 1997 Term Credit Agreement dated as of February 26, 1997, 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, First Bank, Mercantile, NBD, Norwest, Sumitomo, 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, 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. 5 - 185 - 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. Existing Term Notes: Those certain promissory notes from the Borrower to FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994, and February 27, 1995. FirsTier: FirsTier Bank, National Association, Lincoln, Nebraska, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508, and its successors and assigns (it being acknowledged that First Bank is the successor in interest to FirsTier). First Bank: First Bank, National Association, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 6 - 186 - 68508, and its successors and assigns (it being acknowledged that First Bank is the successor in interest to FirsTier). FNB-O: First National Bank of Omaha, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102, and its successors and assigns. FNB-W: First National Bank, Wahoo, Nebraska, a national banking association having its principal place of business at Wahoo, Nebraska 68066, and its successors and assigns. 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. 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 7 - 187 - 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. NBD: NBD Bank, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226. Net 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. Net Worth: The Borrower's consolidated net worth as deter- mined 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. 8 - 188 - 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. Operative Documents: This 1996 Loan Agreement, the Notes, the Security Agreement, the financing statements regarding the Collateral and the documents and certificates, other than the Purchase Agreement, delivered pursuant to Article VI. Purchase Agreement: The Asset Purchase and Sale Agreement dated as of May 3, 1996, between the Borrower and Broadcast Partners. 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 Related Loan Agreements, including, without limitation, the amounts outstanding under those certain promissory notes from the Borrower to FNB-O, FirsTier and FNB-W dated as of October 13, 1992 and December 7, 1992; the amounts outstanding under the Existing Term Notes; 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; all extensions, renewals, and substitutions of or for the foregoing; 9 - 189 - and all obligations, if any, as to the accrued and unpaid Interest Rate Protection Contract Amounts. Related Loan Agreements: The Loan Agreement dated as of October 9, 1992 between the Borrower and FNB-O, FirsTier and FNB-W, and the Revolving Credit Agreement, and any loan agreements issued in extension, renewal, replacement, or reinstatement of the foregoing, in each case as any such agreement is amended from time to time. 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 1996 Revolving Credit Agreement dated as of June 28, 1996, between the Borrower and the Lenders as amended by the First Amendment to 1996 Revolving Credit Agreement, dated as of July 31, 1996, and by the Second Amendment to 1996 Revolving Credit Agreement, dated as of December 27, 1996; and, as further amended and restated by the 1997 Revolving Credit Agreement, dated as of February 26, 1997, between the Borrower and the Lenders, and as further amended or restated from time to time. 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. Security Agreement: The 1996 Restated Security Agreement restated as of May 3, 1996, between the Borrower and FNB-O, as agent for the Lenders and others, as amended by the First Amendment to 1996 Restated Security Agreement, dated as of June 28, 1996; the Second Amendment to 1996 Restated Security Agreement, dated as of July 31, 1996; and the Third Amendment to 1996 Restated Security Agreement, dated as of December 27, 1996; and as further amended and restated by the 1997 Security Agreement dated as of February 26, 1997, between the Borrower and FNB-O, as agent for the 10 - 190 - Lenders and others and as further amended or restated from time to time. References in the Notes to the 1996 Restated Security Agreement shall mean the Security Agreement as defined herein. 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. 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. All accounting terms not otherwise defined herein shall have the meaning ordinarily applied under generally accepted accounting principles. 11 - 191 - 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 NBD, $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 Sumitomo, $5,170,000; (viii) as to First 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 First Bank 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. This Agreement shall not be deemed to extinguish any existing indebtedness of the Borrower under the 1996 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 First 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, Total Indebtedness was at such date more than thirty-six (36) times the Operating Cash Flow 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 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 12 - 192 - outstanding principal balance of such Note as of the date preceding the Trigger Event, which amount shall be payable promptly upon invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable on the six-month anniversary of the Trigger Event; and (iii) the same amount as computed in clause (i), payable on the twelve-month anniversary of the Trigger Event. 2.3. Payments. Interest on the unpaid balance of the Notes shall be due on the last day of each month beginning May 31, 1996. The principal amount of each respective Note shall become due and payable in seventy-two equal monthly installments, with the first such installment due on January 31, 1997, and subsequent installments due on the last day of each consecutive month thereafter. The total amount of all unpaid principal and accrued interest hereunder shall be due and payable no later than December 31, 2002. In the event that a payment day is not a Business Day, the payment shall be due on the next succeeding Business Day. Interest shall continue to accrue on the full unpaid balance hereunder notwithstanding any permitted or unpermitted failure of the Borrower to make a scheduled payment or the fact that a scheduled payment day falls on a day other than a Business Day. 2.4. Fees. The Borrower will pay to FNB-O an initial fee equal to $14,729, payable at closing. Such fee will be paid to FNB-O and allocated by FNB-O pro rata among the Banks based on their respective commitments as shown in Section 2.1 above. Furthermore, the Borrower will pay to FNB-O at closing an agenting fee equal to $25,500. 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 First Bank. 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 (other than a prepayment to Broadcast Partners in accordance with Section 2.6A below) which is not applied pro rata to the Lenders in accordance with Section 8.2. Prepayment penalties will be required as indicated below: (a) The Borrower may prepay in full without penalty the principal loan amounts outstanding under all Notes which bear interest at a fixed rate in accordance with Section 2.2 hereof, if such prepayment occurs on June 30, 1999 and the Borrower has given the Banks at least 30 days prior written notice of its intention to make such prepayment. 13 - 193 - (b) If a prepayment of a Note which bears interest at a fixed rate in accordance with Section 2.2 hereof occurs other than in accordance with (a) above, the Borrower shall pay to the respective Bank payee thereof, at such payee's option, either: (1) the Make-Whole Premium due in respect of such prepayment; or (2) a prepayment fee equal to one and one-half percent (1.50%) of the amount of such prepayment. (c) The Borrower shall not be obligated to pay a Make-Whole Premium or prepayment fee to Broadcast Partners or to any Bank payee of a Note which bears interest at a floating rate indexed to New York Prime. 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 Related Loan Agreements. Nothing herein shall be deemed to alter or amend the Borrower's obligations under the Related Loan Agreements, the Related Bank Debt or any collateral security therefor, all of which shall continue in full force and effect in accordance with the terms thereof. III. [INTENTIONALLY OMITTED] 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 and each of its Subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and duly qualified and in good standing in all states where it is doing business except where the failure to be so qualified would not have a material adverse effect on it and it has full power and authority to own and operate its properties and to carry on its business. As of May 3, 1996 and the date hereof , the Borrower has no Subsidiaries. 4.2 Corporate Authority. It has full corporate power, authority and legal right to execute, deliver and perform the Operative Documents to which it is a party, and all other instruments and agreements contemplated hereby and 14 - 194 - 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. 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. 15 - 195 - 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. 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. 16 - 196 - 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, 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 17 - 197 - the Lenders a certificate of the chief financial officer of the Borrower in the form of Exhibit C, setting forth such information (including detailed calculations) sufficient to verify the conclusions of such officer after due inquiry and review, that: (i) The Borrower and each Subsidiary, either (y) is in compliance with the requirements set forth in this Agreement or (z) is NOT in compliance with the foregoing for reasons specifically set forth therein; and (ii) The chief financial officer of the Borrower has reviewed or caused to be reviewed all of the terms of the Operative Documents of the Borrower and that such review either (1) has NOT disclosed the existence of any condition or event which constitutes an event of default or any condition or event which with the passage of time or the giving of notice would constitute an event of default under the Operative Documents or (2) has disclosed the existence of a condition or event which constitutes an event of default, or a condition or event which with the passage of time or the giving of notice would constitute an event of default, under the aforesaid instrument or instruments and the specific condition or event is specifically set forth. For the quarter ended December 31, 1996, the Borrower shall provide the Quarterly Compliance Certificate in the form of Exhibit B, plus the Quarterly Compliance Certificate in the form which was required by the 1996 Term Credit Agreement in effect on December 31, 1996. (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. 18 - 198 - 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 sum of the Total Indebtedness to the Lenders and the holders of the Related Bank Debt to exceed forty-eight (48) times Operating Cash Flow. (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; 19 - 199 - (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. (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. 20 - 200 - (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 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. 21 - 201 - 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 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. The indebtedness to Broadcast Partners under the Notes shall not be considered subordinated debt. 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 22 - 202 - 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 $1,000,000; 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 the date of this Agreement such acquisitions in an amount not to exceed Six Million Dollars ($6,000,000) 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; and (c) except for Market Communications Group, L.L.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. VI. CONDITIONS PRECEDENT 6.1 Closing Conditions. Any and all obligations of the Lenders hereunder are subject to satisfaction of the following conditions precedent: (a) FNB-O, as agent, shall have received an opinion of counsel to the Borrower covering such matters as the Lenders may request (including, without limitation, corporate existence and good standing, corporate authority, due authorization, execution and delivery of the Operative Documents, the legal, valid, binding and enforceable nature of the Operative Documents, the perfection and priority of the security interest in the Collateral granted to the Lenders, and the Borrower's compliance with applicable state and federal laws in connection with the equity offering specified in Section 6.1(f) below), such opinion to be satisfactory in form and substance to counsel to FNB-O. To the extent that FNB-O agrees to accept a post closing opinion from the Borrowers' counsel as to security interest issues, the same shall be 23 - 203 - delivered no later than ten days after completion of the necessary UCC searches, which shall be ordered promptly after recording any UCC terminations received by the Borrower upon closing of the Purchase Agreement and in any event, such opinion shall be delivered no later than 30 days after closing; (b) FNB-O, as agent, shall have received such certificates and documents as the Lenders may reasonably request from the Borrower, including articles of incorporation and bylaws, certificates regarding good standing, incumbency, copies of other corporate documents, and appropriate authorizing resolutions; (c) the Operative Documents shall have been duly authorized and executed and shall be in full force and effect, and such UCC financing statements shall have been executed and filed in such offices as may be appropriate to perfect the security interest of FNB-O, as agent for the Lenders, in the Collateral, it being understood, however, that certain UCC amendments and terminations will be filed after closing as directed by FNB-O; (d) FNB-O, as agent, shall have received copies of the Purchase Agreement, satisfactory in form and substance to FNB-O; (e) the closing of the Purchase Agreement shall occur prior to or simultaneously with the closing of this Agreement; and (f) the Borrower shall have completed an offering of its common stock and received proceeds therefrom in the approximate amount of $15,010,000, satisfactory in form and substance to the Banks. VII. DEFAULTS AND REMEDIES 7.1 Events of Default. Any of the following shall be deemed an event of default under this Agreement (an "Event of Default"): (a) Any payment of principal required by any of the Operative Documents shall not be paid when due. (b) Any payment of interest or other fees due hereunder or under any of the Operative Documents shall not be paid within 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. 24 - 204 - (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: (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 25 - 205 - any or all of the royalties, revenues, rents, issues or profits thereof, shall be appointed without the consent or acquiescence of such entity and such appointments shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive); or (3) A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in the Collateral, or any judgment involving monetary damages shall be entered against the Borrower or any Subsidiary which shall become a lien on the Collateral or any portion thereof or interest therein and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within thirty (30) days after its entry or levy. (i) Any event of default shall occur under any Operative Document. (j) A change shall occur after November 8, 1993, directly or indirectly, in the ownership or control of the Borrower; provided, however, that changes in the ownership or control of, or new issuances of, voting common stock which do not exceed, cumulatively, 50% of the total issued and outstanding shares of the Borrower as of September 30, 1993 shall not be deemed an Event of Default under this Section 7.1(j); provided further, that acquisitions of additional shares by members of the existing executive management group of the Borrower shall not be counted as changes in the ownership or control of the Borrower under this Section 7.1(j). For purposes of computing the total issued and outstanding shares as of September 30, 1993, warrants and options for such shares shall be included. (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 pays, or is determined to be obligated to pay, any indemnity to Broadcast Partners under the Purchase Agreement in excess of $1,000,000 in the aggregate. 7.2 Remedies. If an Event of Default occurs and is continuing, upon the election of the Lenders holding two-thirds of the then outstanding aggregate Total Indebtedness of the Borrower to the Lenders (including under the Notes, the Related Bank Debt and any similar indebtedness but excluding amounts due under the Purchase Agreement), the entire unpaid principal amount under the 26 - 206 - Notes and all Related Bank Debt, together with interest accrued thereon, shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Lenders may exercise their rights under the other Operative Documents and the Related Loan Agreements (and the operative documents with respect thereto), including, without limitation, under the Security Agreement. For purposes of this Article VII, the term Lenders includes First Bank, Boatmen's and . In addition, the Lenders shall have such other remedies as are available at law and in equity. Remedies under this Agreement, the Operative Documents, the Related Loan Agreements (and the operative documents with respect thereto) are cumulative. Any waiver must be in writing by the Lenders and no waiver shall constitute a waiver as to any other occurrence which constitutes an Event of Default or as to any party not specifically included in such written waiver. 27 - 207 - 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 Related Loan Agreements; (ii) receive requests for advances from the Borrower under the Related Loan Agreements and make such advances on behalf of the revolving lenders in such agreements (provided that FNB-O is assured of reimbursement therefor by the other revolving lenders for their 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. 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; 28 - 208 - (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, (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 1997 Term Credit Agreement, the Notes, the Related Loan Agreements or the Related Bank Debt or the other Operative Documents or the operative documents under any Related Bank 29 - 209 - 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. Notwithstanding the foregoing, Broadcast Partners shall be permitted to subdivide, transfer or grant a participation in its respective Notes to any of: Pioneer Hi-Bred International, Inc., Farmland Industries, Inc., Illinois Agricultural Service Company, or the majority-owned or controlled subsidiaries or affiliates of any of them. 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 Related Loan Agreements, 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. 9.2 Governing Law. The Operative Documents shall be governed by and construed pursuant to the laws of the State of Nebraska. 30 - 210 - 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. 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 1997 Term Credit Agreement to be executed by their duly authorized corporate officers as of the day and year first above written. 31 - 211 - DATA TRANSMISSION NETWORK CORPORATION By ------------------------------- Title: 32 - 212 - FIRST NATIONAL BANK OF OMAHA By ------------------------------- Title: NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 33 - 213 - THE SUMITOMO BANK, LIMITED 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 34 - 214 - 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 35 - 215 - 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 36 - 216 - 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 37 - 217 - 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 38 - 218 - FIRST BANK, NATIONAL ASSOCIATION By ------------------------------- Title: NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 39 - 219 - BANK OF MONTREAL By ------------------------------- Title: NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 40 - 220 - LASALLE NATIONAL BANK By ------------------------------- Title: NOTICE: A credit Agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: -------- Borrower 41 - 221 - EXHIBIT A TO 1997 TERM CREDIT AGREEMENT among DATA TRANSMISSION NETWORK CORPORATION, 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., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL and LASALLE NATIONAL BANK FORM OF NOTES 42 - 222 - SECURED BUSINESS PROMISSORY NOTE Omaha, Nebraska $ ------------------------------- May 3, 1996 December 31, 2002 (Note Date) (Maturity Date) DATA TRANSMISSION NETWORK CORPORATION ("Maker") promises to pay to the order of (Lender") at the offices of First National Bank of Omaha in Omaha, Nebraska, the principal sum of . Interest on the unpaid principal balance shall be due on the last day of each month, beginning May 31, 1996. The principal sum shall become due and payable in seventy-two equal monthly installments, with the first such installment due on January 31, 1997, or if such day is not a Business Day, on the next succeeding Business Day, and subsequent installments due on the last day of each consecutive month thereafter, or, if such day is not a Business Day, on the next succeeding Business Day. In any event, the total amount of all unpaid principal and accrued interest hereunder shall be due and payable no later than December 31, 2002. All capitalized terms not defined herein shall have the meanings set forth in that certain 1996 Term Credit Agreement dated as of May 3, 1996 among Maker, Lender and others (the "Agreement".) Interest shall accrue on the principal outstanding through June 30, 1999, from time to time at the rate of % per annum; thereafter the interest rate for the balance of the term shall be set on June 30, 1999, at two percent (2.00%) above the yield on constant maturity Treasury Bonds with maturities of three years, as quoted for the immediately preceding Business Day in the applicable Release. Notwithstanding the foregoing, after an Event of Default has occurred interest shall accrue on the entire outstanding balance of principal and interest at a fluctuating rate equal to the Revolving Credit Rate, plus 4.00%. Interest shall be calculated on the basis of the actual number of days outstanding and a 360-day year. Interest shall continue to accrue on the full unpaid balance hereunder notwithstanding any permitted or unpermitted failure of the Borrower to make a scheduled payment or the fact that a scheduled payment day falls on a day other than a Business Day. If, any time during a Restricted Quarter (including, without limitation, during any period in such quarter prior to delivery of the Quarterly Compliance Certificate), the interest rate accruing on this Note is less than seven and one-half percent (7.50%), a "Trigger Event" shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the Maker shall be obligated to pay the following fees: (i) three-eighths of one percent (.375%) of the outstanding principal balance of the Note as of the date preceding the Trigger Event, which amount shall be payable promptly upon invoicing; (ii) the same amount as computed in clause (i), payable on the six-month anniversary of the Trigger Event; and (iii) the same amount as computed in clause (i), payable on the twelve-month anniversary of the Trigger Event. Maker may prepay in full without penalty the unpaid balance hereunder, provided that the Borrower contemporaneously prepays in full all other Notes (as such term is defined in the Agreement), but only if such prepayment occurs on June 30, 1999 and the Borrower has given Lender at least 30 days prior written 43 - 223 - 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. Maker represents, warrants and covenants as follows: 44 - 224 - 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 45 - 225 - 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. Executed as of this 3rd day of May, 1996. DATA TRANSMISSION NETWORK CORPORATION By: -------------------------------- Title: ----------------------------- 46 - 226 -
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 - ---- ---------- --------------- ------------- --------- ---------
47 - 227 - 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 - ---- ---------- -------------- ------------- --------- ---------
48 - 228 - EXHIBIT B TO 1997 TERM CREDIT AGREEMENT among DATA TRANSMISSION NETWORK CORPORATION, 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., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL and LASALLE NATIONAL BANK OFFICER'S CERTIFICATE 49 - 229 - COMPLIANCE CERTIFICATE DATA TRANSMISSION NETWORK CORPORATION First National Bank of Omaha Date ----------------------- Attn: James Bonham 16th & Dodge Streets Omaha, Nebraska 68102 I certify that Data Transmission Network Corporation is in compliance with the requirements set forth in the 1996 Term Credit Agreement restated as of December 27, 1996 among Data Transmission Network Corporation, 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., First Bank, National Association, Bank of Montreal and LaSalle National Bank. 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 ----------------- --------------- Goodwill Amortization ----------------- --------------- Deferred Income Taxes ----------------- --------------- Non-Ordinary Non-Cash Charges (Credits) ----------------- --------------- Total a) ----------------- b) --------------- Operating Cash Flow = OCF = (a+b)/2 = ------------------ Leverage Ratio (TI/OCF): ------------------ 50 - 230 - Section 2.2 . Trigger Fee: If Total Indebtedness is greater than 36 times the Operating Cash Flow, then a one time fee is due, paid in three installments of 3/8% of the then outstanding principal balances, on any of Notes which have an interest rate less than 7.5%. Position: A Trigger Event has/has not occurred. 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 subordinated debt. Position: Minimum Net Worth (exclusive of subordinated debt)= $ . ------------- Net Income Year Ending Addition (50%) ---------- ----------- -------------- $ 12/31/97 $ ------------- ------------- Total Minimum Net Worth: $ ------------- Total Net Worth (exclusive of subordinated debt) $ ------------- Section 5.4 . Indebtedness: At no time will Total Indebtedness exceed 48 x OCF Position: (48 x OCF) - Total Indebtedness = - = --------- ----------- ------------ 51 - 231 - . Total At no time will Adjusted Total Indebtedness Indebtedness exceed 60 x OCF plus subordinated debt plus guaranty contingencies (Adjusted Total Indebtedness or ATI): Position: Adjusted Total Indebtedness = $ -------------- (60 x OCF) - (ATI) = $ ----------------- Section 5.7 . 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 on 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 = -------------- Dividents 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 = --------------- 52 - 232 - 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 = % ----------- Section 5.19 . Capital The Borrower shall not make capital expenditures Expenditures: (other than permitted earning assets specified in Section 5.19) in any fiscal year, commencing with the fiscal year beginning January 1, 1997, in excess of $1,000,000 Position: Capital Expenditures this fiscal year = $ --------. The Borrower [is/not] in compliance with Section 5.19. Section 5.20 . Acquisitions: The Borrower shall not make acquisitions which in the aggregate exceed $6,000,000 except certain permitted unlimited acquisitions. Position: Acquisitions (other than permitted unlimited acquisitions) in the aggregate since the date of this Agreement = $ -----------.
Principal Acquired Place of Line of Date Amount Company 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 53 - 233 - (ii) a default under Section 7.1(j) or 7.1(l) regarding a change in ownership or control of the Company. (iii) an indemnity claim by Broadcast Partners under Section 7.1(m). Name of Borrower: Data Transmission Network Corporation Signature: -------------------------------------- Title: -------------------------------------- 54 - 234 - SCHEDULE A TO 1997 TERM CREDIT AGREEMENT among DATA TRANSMISSION NETWORK CORPORATION, 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., FIRST BANK, NATIONAL ASSOCIATION, BANK OF MONTREAL and LASALLE NATIONAL BANK PERMITTED ENCUMBRANCES
Secured Party Financing Statements Nebraska Secretary of State - --------------------------- 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 55 - 235 - 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 56 - 236 - 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. 57 - 237 - 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 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 58 - 238 - 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 59 - 239 - 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 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
60 - 240 - EX-10 16 1997 SECURITY AGREEMENT 1997 SECURITY AGREEMENT THIS 1997 SECURITY AGREEMENT (this "Security Agreement") is entered into as of February 26, 1997, between DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the "Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for itself and FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL ASSOCIATION, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being acknowledged that First Bank is the successor in interest to FirsTier Bank, National Association, Lincoln, Nebraska ("FirsTier")), the SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile, 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 THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236 ("Boatmen's"). WITNESSETH: WHEREAS, Debtor and Secured Party are parties to a 1996 Restated Security Agreement dated as of May 3, 1996 as amended by a First Amendment to 1996 Restated Security Agreement dated as of June 28, 1996, a Second Amendment to 1996 Restated Security Agreement dated as of July 31, 1996, and a Third Amendment to 1996 Restated Security Agreement dated as of December 27, 1996, (as so amended and restated, the "1996 Restated Security Agreement"); WHEREAS, Debtor and Secured Party wish to further amend and restate the 1996 Restated Security Agreement; WHEREAS, Debtor and Secured Party wish to have this 1997 Security Agreement be the controlling agreement with respect to the matters set forth herein, which shall supersede the 1996 Restated Security Agreement; and WHEREAS, the Debtor and Secured Party do not intend for this 1997 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 - 241 - 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 1997 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 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, FNB-W, Norwest, NBD, First Bank, Sumitomo, Mercantile, Montreal, LaSalle and Boatmen's; (ii) under the 1997 Term Credit Agreement, dated as of February 26, 1997, between the Debtor and First National Bank of Omaha, FNB-W, Norwest, NBD, First Bank, Sumitomo, Mercantile, Montreal, LaSalle and Boatmen's, which agreement further amends and restates the 1996 Term Credit Agreement dated as of May 3, 1996 among such parties; (iii) 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, FNB-W, Norwest, NBD, First Bank, Sumitomo, Mercantile, Montreal, LaSalle and Boatmen's; (iv) under the 1995 Restated Loan Agreement dated as of June 29, 1995, as amended from time to time between the Borrower and First National Bank of Omaha, First National Bank, Wahoo, Nebraska, FirsTier Bank, National Association, NBD Bank, Norwest Bank Nebraska, N.A., and The Boatmen's National Bank of St. Louis; (v) under the 1993 Restated Loan Agreement dated as of November 8, 1993, as amended from time to time, between Debtor and First National Bank of Omaha, FirsTier Bank, National Association, Lincoln, Nebraska, First National Bank, Wahoo, Nebraska, NBD Bank, N.A., Norwest Bank Nebraska, N.A. and The Boatmen's National Bank of St. Louis; (vi) under the Loan Agreement dated as of October 9, 1992, as amended from time to time, between Debtor and First National Bank of Omaha, FirsTier Bank, National Association, Lincoln, Nebraska and First National Bank, Wahoo, Nebraska, or under any interest rate protection agreement entered into by Debtor with one or more Lenders; (vii) 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; (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 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; 2 - 242 - (b) Possession and Ownership. The Collateral is or will be in Debtor's possession (except for equipment or inventory provided to Debtor's Customers in the ordinary course of business) and Debtor has or will acquire absolute title thereto and will defend the Collateral against the claims and demands of all persons other than Secured Party. Debtor has full right and power to grant the security interest herein to Secured Party. (c) Liens and Encumbrances. No financing 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 B 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 other- wise 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, $100,000. 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 $100,000 in aggregate net book value of the proceeds of sale or other disposition of obsolete or 3 - 243 - out-of-date equipment or inventory 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 shall take such steps as are necessary or as are requested by Secured Party to prevent any impairment of the value of the Collateral. (d) Taxes. Debtor shall promptly pay and dis- charge any and all taxes, levies and other impositions made upon the Collateral which may give rise to liens upon the Collateral if unpaid or which are imposed upon the creation, perfection, or continuance of the security interest provided for herein, other than taxes being contested in good faith and with respect to which adequate reserves have been established. (e) Insurance. All risk of loss of, damage to, or destruction of the Collateral shall at all times be on Debtor. Debtor shall procure and maintain, at its own expense, insurance covering the Collateral against all risks under policies and with companies acceptable to Secured Party, for the duration of this Security Agreement (except for equipment provided to Debtor's Customers in the ordinary course of business). Such policies shall be written for and shall name Debtor and Secured Party as their interests may appear, shall contain a standard loss payable clause in favor of Secured Party. Proof of insurance shall be provided to Secured Party upon request. For purposes of security, Debtor hereby assigns to Secured Party any and all monies (including, without limitation, proceeds of insurance and refunds of unearned premiums) due or to become due under any such policy. Debtor hereby directs the issuer of any such policy to pay any such monies directly to Secured Party. Secured Party may act as attorney for Debtor in obtaining, settling and adjusting such insurance and in endorsing any checks or drafts paid thereunder. (f) Secured Party as Payee. Debtor shall take such steps as are necessary or as are requested by Secured Party to have Secured Party named as a payee on any check, draft or other document or instrument which Debtor may obtain or anticipate obtaining with respect to the Collateral. Without limiting the generality of the foregoing, Secured Party shall be named as a payee on all instruments from insurers of the Collateral. Notwithstanding anything in the foregoing or in Subsection (e) above to the contrary, Secured Party agrees that: (i) insurance proceeds may be paid to Debtor so long as no event of default exists hereunder and such proceeds are, in aggregate, less than $100,000; and (ii) Secured Party's rights hereunder are subject to the interests of the parties identified on Schedule B. (g) Records. Debtor shall keep accurate and complete records pertaining to the Collateral and pertaining to Debtor's business and financial condition, and shall allow Secured Party to inspect the same from time to time upon reasonable request and shall submit such periodic reports relating to the same to Secured Party from time to time as Secured 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. 4 - 244 - (h) Notice to Secured Party. Debtor shall promptly notify Secured Party of any loss or damage to the Collateral, any impairment of the value thereof, any claim made thereto by any third party, or any adverse change in Debtor's financial condition which may affect its prospect to pay or perform its obligations to Secured Party. (i) Location. Except for equipment or inventory provided to Debtor's customers in the ordinary course of business, Debtor will not move the Collateral, its chief executive office, principal place of business 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 represen- tations 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 aggre- gate 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 - 245 - 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 irrevo- cably 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. 6 - 246 - (f) Deficiency. Upon default, and after any disposition of the Collateral, Secured Party may sue Debtor for any deficiency remaining. 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 - 247 - (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 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 1997 Security Agreement as of this 26th day of February, 1997. DATA TRANSMISSION NETWORK CORPORATION By -------------------------------------------------- Title ----------------------------------------------- 8 - 248 - FIRST NATIONAL BANK OF OMAHA, as agent for itself, First Bank, National Association, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., The Boatmen's National Bank of St. Louis, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A., Bank of Montreal, and LaSalle National Bank By -------------------------------------------------- Title ----------------------------------------------- 9 - 249 - EXHIBIT A TO 1997 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; 10 - 250 - (iii) chattel paper, instruments, general intangibles, accounts, accounts receivable and contract rights in, arising from or corresponding to the Equipment, which may include but not be limited to, all rights of Debtor under Subscription Agreements between Debtor and its customers and subscribers (collectively, the "Subscriptions"); and (iv) accounts, accounts receivable, rents, profits, modifications, renewals, extensions, substitutions, proceeds, and products related to or arising from the Subscriptions; and (b) all rights, remedies, privileges, claims and other contract rights and general intangibles of Debtor arising under or related to the Asset Purchase and Sale Agreement (including, without limitation, rights to indemnity) between Debtor and Broadcast Partners or the transactions contemplated thereby. (c) all proceeds and products of the foregoing. 11 - 251 - SCHEDULE A TO 1997 SECURITY AGREEMENT BY AND BETWEEN FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party") AND DATA TRANSMISSION NETWORK CORPORATION ("Debtor") EXISTING NOTES (See Attached) 12 - 252 - SCHEDULE B TO 1997 SECURITY AGREEMENT BY AND BETWEEN FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party") AND DATA TRANSMISSION NETWORK CORPORATION ("Debtor") PERMITTED ENCUMBRANCES
Secured Party Financing Statements Nebraska Secretary of State 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 First National Bank of Omaha, as agent 5/ /96 Amendment 13 - 253 - 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 14 - 254 - 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. 15 - 255 - 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 16 - 256 - 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 17 - 257 - 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
18 - 258 - EX-10 17 SIXTH AMENDMENT TO STOCK OPTION PLAN OF 1989 SIXTH AMENDMENT TO DATA TRANSMISSION NETWORK CORPORATION STOCK OPTION PLAN OF 1989 PREAMBLE Data Transmission Network Corporation, a Delaware corporation (the "Company") adopted the Data Transmission Network Corporation Stock Option Plan of 1989 (the "Plan") effective as of February 15, 1989. The Plan was previously amended by a First Amendment effective as of January 15, 1990, a Second Amendment effective as of January 2, 1991, a Third Amendment effective as of May 1, 1991, a Fourth Amendment effective as of January 3, 1994, and a Fifth Amendment effective as of January 4, 1995. Section 1 of Article III of the Plan permits the Board of Directors of the Company or any authorized committee of the Board of Directors to amend the Plan from time to time without shareholder approval being required under certain circumstances. Except as modified by or specifically defined in this Sixth Amendment, capitalized terms used in this Sixth Amendment shall have the meanings given to such terms in the Plan. AMENDMENT The Plan is hereby amended, effective as of February 29, 1996, as follows: 1. That portion of Section 3 of Article II of the Plan preceding Subsection (a) thereof shall be amended in its entirety to read as follows: "Awards and Conditions of Options. An Option for 2,000 Shares shall be awarded to each Non-Employee Director each time such person is elected or re-elected a Director of the Company at a meeting of the shareholders of the Company and upon such person being appointed a Director of the Company to fill a vacancy on the Board of Directors of the Company. The Options to be awarded shall be subject to the following terms and conditions:". 2. Except as specifically amended by this Sixth Amendment, the Plan, as previously amended, shall remain in full force and effect and is hereby ratified and confirmed. - 259 - EX-10 18 SEVENTH AMENDMENT TO STOCK OPTION PLAN OF 1989 SEVENTH AMENDMENT TO DATA TRANSMISSION NETWORK CORPORATION STOCK OPTION PLAN OF 1989 PREAMBLE Data Transmission Network Corporation, a Delaware corporation (the "Company") adopted the Data Transmission Network Corporation Stock Option Plan of 1989 (the "Plan") effective as of February 15, 1989. The Plan was previously amended by a First Amendment effective as of January 15, 1990, a Second Amendment effective as of January 2, 1991, a Third Amendment effective as of May 1, 1991, a Fourth Amendment effective as of January 3, 1994, a Fifth Amendment effective as of January 4, 1995, and a Sixth Amendment effective as of February 29, 1996. Section 1 of Article III of the Plan permits the Board of Directors of the Company or any authorized committee of the Board of Directors to amend the Plan from time to time without shareholder approval being required under certain circumstances. Except as modified by or specifically defined in this Seventh Amendment, capitalized terms used in this Seventh Amendment shall have the meanings given to such terms in the Plan. AMENDMENT The Plan is hereby amended, effective as of March 3, 1997, as follows: 1. That portion of Section 3 of Article II of the Plan preceding Subsection (a) thereof shall be amended in its entirety to read as follows: "Awards and Conditions of Options. An Option for 4,500 Shares shall be awarded to each Non-Employee Director each time such person is elected or re-elected a Director of the Company at a meeting of the shareholders of the Company and upon such person being appointed a Director of the Company to fill a vacancy on the Board of Directors of the Company. The Options to be awarded shall be subject to the following terms and conditions:". 2. Except as specifically amended by this Seventh Amendment, the Plan, as previously amended, shall remain in full force and effect and is hereby ratified and confirmed. - 260 - EX-99.B2 19 1997 Data Transmission Network Corporation (DTN(R)), an electronic information and communication services company headquartered in Omaha, Nebraska, is a leader in the electronic satellite 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 our 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 communication network. DTN distributes information via small dish Ku-band satellite, FM radio side-band channels, TV cable (VBI-vertical blanking interval), FAX, e-mail and the Internet. Most subscribers 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. DTN's services reach 158,800 subscribers in the U.S. and Canada. The Company provides services for the agricultural, automotive, energy, farm implement, financial, mortgage, produce, golf, turf management, aviation, construction, emergency management and other weather-related industries. The services include DTN AgDaily(R) and DTN FarmDayta(R), targeted for agribusinesses; DTN Pro SeriesSM and DTN FarmDayta Elite(R), advanced information services for agribusinesses; DTNstant(R), for customers needing a real-time agricultural ticker service; DTNironSM for the farm implement dealer; DTN PROduce for the produce industry; DTN Weather Center, for the golf, turf management, aviation, marine, forestry, travel and construction industries; DTN Real^Time, DTN Wall Street and DTN SpectrumSM for the financial services industry; DTN FirstRate for the mortgage industry; DTNergy for the petroleum and natural gas industries; DTNautoSM for the auto auctions and auto dealers; DTN Missing Children Information Center and joint ventures for the electrical equipment and trucking 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-service communication technology system delivering the most valuable of all commodities, timely information (NEWS...NOT HISTORY). Our Mission continues as we strive 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 those 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 our company. 1 - 261 -
FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------------- Percent 1997 1996 Change ------------ ------------- ------- For the Year Revenues $126,374,352 $ 98,383,713 28 % Operating cash flow1 54,698,708 40,377,428 35 % Income (loss) before income taxes 3,407,081 (1,404,306) - Net income (loss) 2,236,081 (958,306) - Diluted income (loss) per share $ .19 $ (.09) - At Year End Total assets $162,430,898 $ 77,729,762 (9)% Long-term debt and subordinated notes 72,891,370 97,747,823 (25)% Stockholders' equity 32,196,173 28,290,289 14 % Book value per share $ 2.89 $ 2.57 12 % Key Indicators Total subscribers at year-end 158,800 145,900 9 % Subscriber retention rate 88.1 % 89.3 % (1)% Net development costs2 $ 5,199,605 $ 5,344,261 (3)% Operating cash flow from core services3 $ 59,701,141 $ 45,512,581 31 % As a Percent of Revenue Operating cash flow1 43.3 % 41.0 % Operating cash flow from core services3 48.5 % 47.4 % Depreciation and amortization 33.5 % 34.0 % Interest 7.2 % 8.6 % Net income (loss) before income taxes 2.7 % (1.4)% 1 Operating income before depreciation and amortization expense. 2 Net Development Costs are defined as the sum of 1) market research activities, 2) hardware and software engineering, research and development and 3) the negative operating cash flow (prior to corporate allocations plus interest) of new services. 3 Core services are services no longer in the initial development process. Oper- ating cash flow from core services as a percent of revenue is calculated on core services revenue.
2 - 262 -
FIVE YEARS IN REVIEW - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORM: 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Revenues ($ millions) 36.0 46.1 62.3 98.4 126.4 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Operating Cash Flow ($ millions) 12.9 15.8 23.2 40.4 54.7 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Operating Cash Flow (percent of revenue) 36% 34% 37% 41% 43.3% 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Net Development Costs ($ millions) 2.7 4.3 3.7 5.3 5.2 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Subscribers At Year End (thousands) 74.1 82.0 95.9 145.9 158.8 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Subscriber Retention Rate (percent) 88.8 89.8 91.0 89.3 88.1 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Annual Revenue Per Subscriber ($ based on average subscribers) 507 591 700 775 830 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Annual Operating Cash Flow Per Subscriber ($ based on average subscribers) 123 202 260 318 359
3 - 263 - LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- 1997 was a very good year for DTN. Your company produced record revenues and operating cash flow (operating income before depreciation and amortization), known by analysts as EBITDA. The employees at DTN were kept busy with integration of the Broadcast Partners acquisition, a few additional small acquisitions, focusing on maintaining operating efficiencies, introduction of new services, and the support and growth of existing services. The following 1997 operating results are our leading economic indicators and are what we use to quantify DTN's fiscal well being. o Total subscribers increased 9% to 158,800, up from 145,900 in 1996. o Revenues grew 28% to $126,374,352 compared to $98,383,713 in 1996. o Operating cash flow increased 35% to $54,698,708, up from $40,377,428 in 1996. o Net Income was $2,236,081 or $.19 per share in 1997 compared to a loss of $958,306 or $(.09) per share in 1996. o Operating cash flow as a percentage of revenue increased to 43%, up from 41% in 1996. o Subscription revenue per subscriber per month for all subscribers was $55.10 in 1997 compared to $49.24 in 1996. o Subscription revenue per subscriber per month for all new subscription sales was an all time high of $67.84 for 1997. o Operating revenue per subscriber per month consisting of subscriptions, additional services, communications and advertising increased to $66.29 for 1997, up from $60.92 in 1996. During 1997, the Broadcast Partners acquisition recorded $25,257,700 of revenue compared to $15,446,800 in 1996. In addition, this operation recorded $15,687,800 of operating cash flow compared to $9,838,200 in 1996. This is primarily the result of 1996 including approximately eight months of operating results due to the closing on May 3, 1996, vs. twelve months of operating results for 1997. During 1997, we made an effort to educate our shareholders on why our percentage growth in revenue and cash flow is significantly higher than our percentage growth in subscribers. Substantively our growth in operating revenue per subscriber per month from $60.92 in 1996 to $66.29 in 1997 or 9% is a key ingredient in these percentage growth differences. We expect revenue and operating cash flow growth to continue to outdistance our percentage growth in subscribers. We continue to review potential acquisitions that make sense for DTN and here is a summary of those completed in 1997. o In January, the Company acquired 500 real-time commodities subscribers from Market Quoters and Northern Data for $750,000 cash. o In March, the Company acquired 2,400 real-time commodities subscribers from Market Communications Group LLC, a joint venture of Reuters America, Inc. and Farmland Industries, Inc. for $3.6 million cash. Included, DTN acquired preferred rights to distribute Reuters real-time news and information to the commodities, energy and metals markets. o In July, the Company acquired The Network, Inc., a cotton trading network for $1,000,000 payable over five years. This enables DTN to generate revenues from a transactional service which facilitates in the trading of cotton. o In October, the Company acquired approximately 700 subscribers on the ACRES agriculture system from the Arkansas Farm Bureau. DTN agreed to pay $600 per converted subscriber plus a $6.00 per month royalty to Arkansas for the lesser of the life of the subscriber or ten years. 4 - 264 - In addition to growth from acquisitions, we are focused on growing the business with the introduction of new services. The following is a quick review of the services introduced in 1997. o DTN Travel Center -- A weather, news, markets and sports information service which includes special weather features on road condition forecasts and road closed notices. Our initial target market for this service is for display in the lobbies of the approximately 20,000 U.S. hotels and motels with 50 rooms or more. o DTN Marine -- Primarily a weather service with specialty weather features which include coastal sea condition forecasts, marine buoy data for wind, tide and water temperature and sea surface temperature maps. Our initial target market is marinas and charter boats which total approximately 15,000. o DTN Forestry Center -- Primarily a weather service which we developed with help from the U.S. Forestry Service. Specialty weather features associated with this product include a relative fire risk map, upper air analysis and humidity and wind speed maps. Our initial target market is the approximately 5,000 District Forest Management offices located in the lower 48 U.S. states and Canada. o DTN Real^Time -- DTN Real^Time is our first venture into providing a service which delivers instant securities quotes (vs. 15 minute delayed) on over 175,000 different stocks, options and commodities. DTN Real^Time delivers the information via new generation of DTN proprietary hardware into a customer's PC where it is captured and displayed through use of custom software. Regarding DTN Real^Time, I opened in my 2nd Quarter, 1997 letter to share- holders that "we believe the combination of our product quality, our very competitive pricing strategies and our distribution capabilities will allow us to succeed and maybe even excel in this marketplace." I still believe this to be the case. From May of 1997 thru December of 1997, DTN Real^Time subscription sales have grown steadily from 30 per month to approximately 300 per month. Applying a western cliche for 1998, I would say that if "the good Lords willin' and the creek don't rise", 1998 should be replete with some of our previous successes. 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 a successful 1997. Very sincerely yours, Roger Brodersen Chairman and CEO 5 - 265 - INFORMATION TECHNOLOGY UPDATE - -------------------------------------------------------------------------------- In last quarter's Report to Shareholders, I provided a summary covering DTN's real-world experience with the Internet at the product level. While those examples and quotations could be updated, the general analysis and conclusions regarding the Internet remain fundamentally sound. In this update, I will be providing you with more generalized information and comments pertaining to the broader nature of information technology, the information marketplace, and DTN's position within that marketplace. Many of my comments are in response to questions or concerns communicated from our shareholders. (New shareholders may wish to look at the Technology Updates in DTN's 1996 Annual Report and the first and third quarters' 1997 Report to Shareholders. Copies of these updates may be requested from Linda Grunberg--DTN Public Relations Director at (402)390-2328 or seen at DTN's corporate web site, www.dtn.com, under Company Information.) Updates Revisited While the Internet has become a very useful and versatile tool, it is not the only nor always the best tool for every situation. With its strengths come some limitations and weaknesses. I do not contend that the Internet is broken (except when parts of it occasionally are), nor unusable (except once in awhile), nor anything but a revolution in progress. It is undoubtedly a revolution that is changing the face of information technology and, indeed, the world. This is taking place somewhat more slowly than the hype would lead you to believe, with the change deepening and expanding over generations. Increasingly, the Internet is finding its niches based, not on hype, but on its inherent strengths. So far, these strengths focus on e-mail, entertainment, and research, with digital telephony starting to come to the fore--none of which are particularly competitive with DTN's orientation. NOTE: While my observation is subjective, of late there seems to be significantly more humility and somewhat less hubris in Internet businesses at large. That in itself is an indication of the maturing of this information tech- nology and the companies that are involved in it. Business Models...or, When Technology is not Enough! Over the course of the last year, many new and exciting capabilities have come to the Internet. But, in addition, a dawning sense of reality is intruding into this sometimes-tangled web. Most interesting to me, both personally and professionally, is that so much of this reality is due to limitations in the various business models for providing Internet services as opposed to limitations of any specific technology. Achieving a consistent and predictable level of revenue, let alone profit, proves to be more of a challenge than creating the specific technology needed. The dazzle and drama of new technological advances no longer exist only on a utopian stage--where content is free, bandwidth is free, everything always works, there is no human error, no hardware failures, no need for customer service, and the world beats a path to your door to give you money. (I'm reminded of the fine line between vision and hallucination...) 6 - 266 - Some interesting examples showing that economic reality is setting in include: USA TODAY runs a cover story, "More sites take first steps toward charging users." Some of the more pertinent quotes include: "People are realizing that the experimentation is over--'98 is about making money." --Jim Kinsella, MSNBC's general manager. "But I've spent the last year and a half looking at the economics, and we're nowhere even close. I don't believe that as the Web matures for advertising that there will be enough revenue to support us." --Roger Weed, Publisher of SLATE (Microsoft's news and politics oriented webzine). "The lesson everyone will have to learn is that no one model will work." --Rich Wiggens, WebReference.com (an online technical magazine). INVESTOR'S BUSINESS DAILY (10/10/97) ran a front-page article, "WAS THE INTERNET OVERHYPED?" According to this article: About 60% of U.S. households still don't have a computer and about 85% don't have a modem. "...companies, many of them sucked in by the hype, have invested heavily in the Internet. Last year, they sank nearly $35 billion into the Internet, including infrastructure, World Wide Web sites, and data protection." --Zona Research. "So far, returns on that investment have been low--a lot of glitter, but not much gold." ZDNet, an online Web site that closely tracks technology and the Internet in general, provides several interesting views: "We've entered a period of Internet disappointment and dissatisfaction. For instance, a survey by the Deloitte Consulting group claims North American corporate executives are disillusioned with the Internet. Some 69% of the respondents said Internet costs are a `significant concern,' way up from 16% in 1995. As a result, the number planning to increase Internet spending dropped to 31%, less than half the previous figure of 65%." --Jesse Berst (ZDNet AnchorDesk Editorial Director) 01/19/98. "The Net traffic jam is for real." --Randy Barrett (Inter@ctive Week Online.) 12/24/97. As an entertaining side bar, I heard an industry speaker discuss a survey directed towards new (less than 6 months online) Internet users. Only seven out of ninety said they knew what a "browser" was. Two of the seven said it was themselves. They were right! Though I could add technology-oriented headlines to the above sampling, they would serve only to cloud my point. Instead, the quotes above address day-to-day issues that are far less sexy than is technology. They concern such mundane issues as day-to-day operations, fundamental economics, revenues, and returns--the basics of doing business. The challenge lies in making it all work reliably while making money doing it. Broadcast Data...or, Everything Old is New Again While DTN has embraced the Internet where we think it is applicable and profitable, we remain a company that is focused on exploiting a full spectrum of data broadcasting technology. Pre-Internet, DTN found that broadcast data, using one technology or another, was the only truly cost-effective and efficient means of widespread data distribution. Today, technology advances, like the Internet, have provided more choices for data delivery, but with each choice comes limitations. DTN uses systems that send large volumes of data in a point-to-multipoint, simultaneously-delivered, efficient, reliable, convenient, and inexpensive manner--i.e., broadcast data. By its nature, different permutations of the Internet can exhibit some of broadcast data's attributes, but not all of them together. Until the promised land is indeed reached, where bandwidth (throughput capacity) is unlimited and free and reliable, data broadcast will have a fairly secure niche. 7 - 267 - While broadcast data's advantages are generally overlooked in the Internet stam- pede, they are again being recognized. An article by J. William Gurley, a regular commentator on the Internet, makes this point [(ABOVE THE CROWD on CNET, a high profile web site at www.news.com on Monday, December 22, 1997), later edited down into an article in FORTUNE magazine (01/12/98) (pathfinder.com/fortune/digitalwatch/0112tec2.html)]. With all due respect, he comes somewhat late to this realization and aims his conclusions toward the future, being perhaps unaware that DTN built its business in this arena many years ago. Highlights include: "What would you think if I told you that the Internet would soon have a competitor for broad-based data distribution? Could something as mind-numbingly huge as the Internet see competition in such a short time frame after its own burst of stardom?...The technology that could cause such profound changes goes by the name of `data broadcasting' and although it's been around for years, its time to shine has finally come." "So what is data broadcasting? Just what it sounds like: a system that sends huge amounts of data to a huge number of people simultaneously. This information could be anything that might appeal to multiple users...stock prices, say, or sports scores. But isn't the Internet supposed to do all this? Well, no. The Internet does very well with one-to-one interactive applications like e-mail; it does poorly in situations where it has to broadcast information to many people at once. Applications like audio and video "streaming" place severe strain on the Internet. This strain is compounded in cases where a lot of people want to see that same information at once, in the event of a stock market crash, for example, or any major piece of news." "The Internet was designed to facilitate one-to-one interactive asynchronous (no time guarantee) communications. In the beginning, Internet usage was primarily focused on this one-to-one type of communication with applications such as e-mail or a single user interacting with a Web page. Over time, we began to appreciate data that might appeal to multiple users simultaneously." Unrecognized in this article is one of the primary strengths of broadcast data--because it is truly point-to-multipoint, it is irrelevant how many users are on it (unlike the Internet!). One need only think back to last October's wild market gyrations for a vivid example of what this can mean. DTN's subscribers, unlike Internet users, kept receiving their data without a hitch. That more people suddenly and unexpectedly used DTN's information more intensely and for longer durations had zero impact on DTN's ability to reliably perform under extreme market conditions. The Internet, on the other hand, was effectively choked, either because the Information Provider's site proved insufficient to handle the increased number of users or because the Internet Backbone could not manage the increase in the cumulative load. A system most likely to fail or be otherwise unreliable at the most critical times, failing specifically because these are critical moments, is not what a serious business model is built upon. Also somewhat unrecognized is the nature of information content. Much of the lure of the Internet is the sheer volume of information. Nearly any information you might ever want is in there--somewhere. (This led to the descriptive term, "Data Smog".) This superfluity becomes somewhat less thrilling the first time a search is conducted that comes back with 80,000 sites to visit. As the Internet expands, it becomes ever more complex and confusing until even the "insiders" can't sort it out, let alone those in the broader consumer markets. However, there is a growing awareness of the difference between abundance and relevance. People are impressed by the former, but will pay for the latter. One of DTN's primary advantages lies in the nature of our information content. It is highly focused and kept relevant to the targeted market. It is consistently tailored to be appropriate to the user's needs. Our content is vetted by a trusted source--DTN. Being well organized, content is easily accessed through a simple and consistent interface. This enhances the likelihood of frequent use, and thus value. DTN has used broadcast data for the last fourteen years. To paraphrase the country western song--DTN was PUSH before PUSH was cool. As new variations of broadcast-data-oriented technology become economical and reliable, DTN has the years of experience to best take advantage of them. As many companies have discovered, it's not as easy as it looks. 8 - 268 - The Information Appliance...or, Can't It Just Be There When I Need It? A new holy grail is dreamed of in the information marketplace. It is referred to as the "Information Appliance". This, once found, is dreamed of as the entry vehicle into the non-computer-oriented mass market. This construct is generally agreed to have the following attributes: 1) Targeted purpose: It is meant to do what it does well and with complete reliability; therefore, it is not built to do everything under the sun. Quality counts. 2) Connectionless: It is on and available at all times. It does not require that a special connection be made each day or for each use. 3) Easy to use: It is simple, convenient, and intuitive. Virtually anyone should be able to walk up and use it without training. There is already too much intricacy and complexity in people's lives. 4) Affordable: This is subjective, but generally means that there is not a large front-end load when getting the system or service. 5) Flexible: Can be modified to provide different uses in differing markets for different user needs. 6) Transparency: The user is unaware of the internals of the computing; i.e., by analogy, one need not understand the workings of the engine, transmission, drive train, etc. in order to get in and drive a car. While these are considered "new" concepts to much of the technology marketplace, DTN has a fourteen-year history of successfully implementing them. Focusing on niche markets with real profit potential has arguably kept DTN somewhat out of the limelight. Meanwhile, we've long been drawing far ahead of our competition in many ways. DTN has grown to dominate several niche markets, often against major recognized name-brand competition. That we strive to incorporate the attributes listed above helps to explain why. DTN uses technology that works--including, when appropriate, the Internet. Building Lasting Value...or, Feeding the Rat! Many of us at DTN have been seeing various Web-oriented sites that are technologically impressive. However, they often remind us of a battle of "bells & whistles" representing software and site without a real business. One of the problems with software, even very good software, is that, if you find a successful niche, you will be copied or surpassed. In most instances, within the world of the Internet, the latest technological advance provides little or no long-term advantage or franchise. Legion are the companies that are on this rat race of a developmental treadmill. Generally, without enough reliably-recurring revenue to feed the rat, even venture capital runs out some time. In short, the technology wars continue. With so many market niches to be served, it is unlikely that there will ever be a single winner. Different tools are the right tools for differing needs and different niches. Because of this, while the Internet is a clear winner in many sectors, so are DTN's basic technology choices. Technology, while oftentimes flashy and captivating our interest, does not alone hold the key to long-term success. Instead, the full spectrum of a coherent market-proven business model, well-implemented and flexibly maintained, does. We at DTN strive to overlook no tool or technology that will continue to support our successful business model and enhance the lasting value represented by our company. See us at www.dtn.com and www.dayta.com. Sincerely, Robert S. Herman Senior VP, Research & Product Development 9 - 269 - 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. DTN services grew to 158,800 subscribers throughout the U.S. and Canada in 1997. The subscriber growth is attributed to the high retention rate of existing services and the addition of several new services in the agricultural, weather and financial service industries. A review of these services and the year's highlights for each industry 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 of a cost-effective electronic satellite delivery system, plus a total commitment to customer service and information quality has enabled the Company to become a major player in the communications industry. The Company continues to invest time and money developing and enhancing its information distribution technology. These investments allow the Company to take advantage of many engineering and software advancements in an exciting and growing industry. 10 - 270 - INFORMATION DISTRIBUTION TECHNOLOGY - -------------------------------------------------------------------------------- The Company is committed to researching and developing distribution technologies that cost effectively delivers the timely information that the Company's subscribers demand. DTN supports several information distribution technologies allowing the distribution (transmission) and receiving (capture, manipulation and display) of information. These technologies include small dish Ku-band satellite (Ku), FM radio side-band channels (FM), FAX, Cable TV (by using the vertical blanking interval, or VBI), e-mail and the Internet. The first technology used by the Company was FM radio side-band. The Ku technology was added in 1989, providing the ability to reach customers outside the geographic territory of the FM signal. FAX, VBI, e-mail and the Internet were added to further expand our distribution network. The Company provides all of the equipment necessary for subscribers to receive their service based on FM, Ku and VBI. The exception is DTN's new service, DTN Real^Time, where information is delivered via a new generation of proprietary hardware into a personal computer (PC), owned by the subscriber. This equipment includes a receiver, specifically built for the Company, 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 the subscriber equipment. Prior to 1992, the Company utilized a "page-based" receiver and monochrome system. The monochrome system translates the Company's data stream into text and is capable, depending on capacity, of receiving and displaying from 126 to 246 pages of information. The monochrome receiver is also capable of downloading information to a printer or computer. In 1992, the Company introduced the Advanced Communications Engine (ACE) receiver, a color graphics receiver system, expanding the unit's ability to provide information and communication services. The ACE receiver contains multiple processors for capturing, manipulating and displaying high resolution color pictures, graphics and text. A separate processor enables the unit to play audio clips for weather forecasts, voice advertisements or audio alarms set for when a futures contract reaches a pre-set price. In addition, this processor may send and retrieve information by using an internal modem connected to a phone line. 11 - 271 - The ACE receiver is also capable of downloading information to a printer or computer. This receiver is equipped with an internal hard drive allowing processed information to be stored, archived (versus frequent rebroadcasting) and displayed. The receiver's built-in control panel, keyboard or mouse allows subscribers to conveniently access this information. One unique aspect of the Company's information distribution technology is the computer software developed by the Company specifically for use with DTN receivers. This software manages information from a wide array of input sources, runs routines, sets priorities and then initiates transmissions to the satellite. The software can individually address each receiver unit placed with a subscriber, permitting the Company to transmit specific information to a specific subscriber or group of subscribers. The Company leases FM radio side-band channels, satellite channels and VBI space to deliver information to the Company's receivers used by its subscribers. All information is up-linked from Omaha to satellite (except Internet, FAX and other telephone delivery technology) and down-linked from the satellite to the subscriber based on the distribution technology. FM monochrome subscribers receive their services from an FM antenna that delivers the information via side-band signals transmitted from radio stations. On December 31, 1997, 12,500 subscribers were receiving the Company's services via FM distribution technology. The Ku subscribers utilize a 30" satellite dish, a direct down-link, to receive their information. On December 31, 1997, 143,300 subscribers were receiving the Company's services via Ku distribution technology. Early in 1994, the Company began using a new cable TV distribution technology involving vertical blanking intervals (VBI). The Company contracted with a major cable TV superstation to transmit information along with the station's TV signal. This technology eliminates the need for an FM antenna or satellite dish and is available to businesses or residences that are wired for cable TV and receive the superstation's service. On December 31, 1997, 2,000 subscribers were receiving the Company's services by VBI distribution technology. The Company has approximately 18,000 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. Currently, there are over 900 e-mail sources delivering over 1,500 pages of information to subscribers daily. Currently, DTN offers services via the Internet in the agriculture, produce, weather and finance service lines and plans to continue researching this information distribution technology. On December 31, 1997, 1,000 subscribers were receiving the Company's services by Internet distribution technology. 12 - 272 - SERVICES OFFERED - -------------------------------------------------------------------------------- The Company's revenue is derived primarily from five categories: (1) monthly, quarterly or annual subscriptions, (2) optional services, (3) communication services, (4) advertising and (5) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was:
1997 1996 1995 ---- ---- ---- Subscriptions 80 % 76 % 74 % Optional services 5 % 6 % 6 % Communication services 8 % 9 % 11 % Advertising 3 % 3 % 3 % Service Initiation Fees 4 % 6 % 6 %
Subscription revenue is generated from monthly, quarterly or annual subscription fees for one of the Company's services. The Company offers a discount to subscribers who pre-pay their subscriptions annually. A more detailed review of each service is found later in this report. Optional services are offered to subscribers on an "a la carte" basis, similar to premium channels on cable TV. Information for these services is primarily provided by a third party with DTN receiving a share of the subscription revenue paid by the subscriber. Optional services revenue continues to grow in total dollars at a rate commensurate with the overall growth of the Company due, in part, to new technological innovations using the Internet, FAX and e-mail. 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. Communication 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 rapid 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 subscribers converting to another service (ie: from a monochrome FM to a Ku color service). 13 - 273 -
INDUSTRY SERVED AT A GLANCE - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY/SERVICE TRANSMISSION/RECEIVER PRICE - --------------------------------------------------------------------------------- ----------------------------------- --------- THE AGRICULTURAL INDUSTRY DTN/AgDaily/DTN FarmDayta Providing agricultural market information, delayed commodity futures and options FM-Side Band/Page Based-Monochrome $31 quotes, local cash grain and livestock prices, regional and world weather updates Ku-Band Satellite/Page Based-Mono. $37 and a variety of daily analysis, commentary and news affecting grain and live- Ku-Band Satellite/ACE Color System $46-$54 stock prices. Internet/Subscriber PC $25 Pro-SeriesSM/DTN FarmDayta Elite Plus Providing services with advanced information sources for Ag producers, agri- Ku-Band Satellite/ACE Color System $67-$84 businesses and commodity traders requiring extensive information to be customized for their specific needs. DTNstant Providing real-time futures and options quotes, headline commodity news and Ku-Band Satellite/ACE Color System $180 information. This service also includes all the information found on DTN AgDaily. DTNironSM Providing an equipment locator and inventory management service for the farm Ku-Band Satellite/ACE Color System $104 implement dealer. Designed to allow dealers to work together to locate, buy and sell used farm equipment with other dealers/subscribers. DTN Produce Providing comprehensive weather, pricing, transportation and news information for Ku-Band Satellite/ACE Color System $65-$91 the growers, shippers, packers, brokers, retailers and institutions linked to Internet/Subscriber PC $53 the produce industry. DTN Cotton Network Providing an electronic marketing system for the cotton industry. The service Ku-Band/Satellite/ACE Color to a PC $.50/ allows gins, brokers, buyers, and warehouses to share data allowing fast and bale accurate marketing and accounting of cotton offered and sold. listing THE WEATHER INDUSTRY DTN Weather Center Providing a comprehensive weather information system to meet the weather infor- Ku-Band Satellite/ACE-Color $76 mation needs of many industries. Subscribers to DTN Weather Center rely on Internet/Subscribers' PC $35 accurate and easily accessible weather information as a critical ingredient in operating planning and staffing decisions. DTN Turf ManagerSM Providing weather information to individuals and businesses involved in turf- Ku-Band Satellite/ACE Color System $84 related operations such as golf course, lawn maintenance, landscaping and sod farms. The service provides news, weather and chemical information designed for turf management. DTN Aviation CenterSM Providing comprehensive aviation weather specifically for pilots, airports and Ku-Band Satellite/ACE Color System $103-$152 Fixed Based Operators (FBO's). This service supplies airports, pilots and FBO's with comprehensive flight-plan information found on premier "on-line" systems. DTN Contractor DaytaSM Providing construction businesses with industry news, association and industry Ku-Band Satellite/ACE Color System $82 information, construction news, bids and resources along with all the weather information on DTN Weather Center. DTN Travel CenterSM Providing weather, news, markets and sports information to motel and hotel Ku-Band Satellite/ACE Color System $88 customers. This service is targeted at motels and hotels with 50+ rooms and includes road condition forecasts and special notices for travelers. DTN MarineSM Providing specialty weather features including coastal sea condition forecasts, Ku-Band Satellite/ACE Color System $91 marine buoy data for wind and weather temperature and sea surface temperature maps. DTN ForestrySM Providing specialty weather services targeted at the District Forest Management Ku-Band Satellite/ACE Color System $91 offices in the lower 48 U.S. states and Canada.
14 - 274 -
INDUSTRY/SERVICE TRANSMISSION/RECEIVER PRICE(1) - --------------------------------------------------------------------------------- ------------------------------- ----------- THE FINANCIAL SERVICES INDUSTRY DTN Real^Time Providing instant quotes on over 175,000 different stocks, stock options and Ku-Band Satellite/ACE Color System $98-$138(2) commodities. This service delivers the information via a new generation of DTN Subscribers' PC proprietary hardware into a subscriber's PC when it is captured and displayed through the use of customer software. DTN Spectrum Providing delayed quotes, business news, economic data and financial market Ku-Band Satellite/ACE Color System $68 information. This service is an enhanced version of DTN Wall Street that includes customer programming. DTN Wall Street Providing exchange delayed financial quotes plus in-depth economic and business Ku-Band Satellite/Page-Based Mono. $44 news, financial information to independent brokers, financial advisors and Cable TV-VBI/Page-Based Monochrome $44 instructions. DTN FirstRate Providing wholesale price information in an easy-to-use standard format along Ku-Band Satellite/Page Based-Mono. $98 with intra day interest rate information. Cable TV-VBI/Page Based Monochrome $98 Ku-Band Satellite/ACE Color System $129 Cable TV-VBI/ACE Color $129 THE ENERGY INDUSTRY DTNergy-Refined Fuels Providing terminal prices, alerts, electronic fund transfer notifications and Ku-Band Satellite/Page Based-Mono. $40 other communication services from petroleum refiners to their customers (also Ku-Band Satellite/ACE Color System $79 DTN subscribers). DTNergy-DTN Natural Gas and Electricity Providing instant or delayed NYMEX energy options and futures quotes, weather Ku-Band Satellite/ACE Color System $40-$180 and industry information. THE AUTOMOBILE INDUSTRY DTNautoSM Providing a communication and information vehicle for the automobile industry Ku-Band Satellite/ACE Color System $98-$120 including precise value trade-in information for dealerships, a used car inven- tory locating service and direct communication services for auction companies and manufacturers. THE ELECTRICAL EQUIPMENT INDUSTRY TracElectric Providing an equipment locator service for the electric equipment industry with Ku-Band Satellite/Page Based-Mono. $100(3) over 100 pages of new, remanufactured, surplus and used electrical equipment listings. THE FREIGHT TRANSPORTATION INDUSTRY DAT Services Providing an information communication system for the tracking industry that Ku-Band Satellite/ACE Color System $89(4) provides load and truck matching on a data base of 30,000 listings updated daily. OTHER SERVICES DTN Missing Information Center Providing instant transmission of data regarding children in danger to local, Ku-Band Satellite/ACE Color System $ - (5) regional, national and Canadian outlets. - ------------------------------------------------------------------------------------------------------------------------------------ (1) Monthly subscription price. DTN offers discounts for annual prepayments. (2) Plus exchange fees. (3) DTN shares revenue with TracElectric. (4) DTN receives this fee from DAT Services. (5) Currently provided on all ACE Color systems.
15 - 275 - THE AGRICULTURAL INDUSTRY - -------------------------------------------------------------------------------- GRAPH IN TABULAR FORM:
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- DTN Agricultural Services Revenue ($ millions) 27 33.7 44 69.7 87.5
The DTN Agricultural Services are DTN Ag Services, DTNstant, DTN PROduce and DTNiron. Within DTN Ag Services are DTN AgDaily, DTN ProSeries, DTN FarmDayta and DTN FarmDayta On Line. New subscriptions are primarily sold by the Company's national sales force of employee district sales representatives, in-house sales staff, and independent, commission-only sales representatives. The Company obtains leads for the sales force through telemarketing, direct mail, print media advertising and customer referrals. The main competition to these services is the combination of printed advisory services, radio, television, telephone, other satellite information services, online services and the changing of old information gathering habits. There are over 200 optional services available to agricultural subscribers. These 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 their specific needs by choosing from a broad mix of these "a la carte" services. DTN is continually developing new optional services to meet customer demands by listening closely to the marketplace and the customer. The Company markets these services through a combination of individual free trials, system-wide trials, on-screen advertising, direct mail, invoice stuffers, equipment stuffers and telemarketing. Optional Service subscriptions increased in 1997 fueled by these marketing campaigns and the increase in total DTN subscription sales. Optional service subscription prices range from $6 to $1,200 per quarter with the average subscription price of $60/quarter. 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. Currently, there are over 900 InfoMail customers receiving information tailored to their specific needs. DTN InfoMail provides services 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. 16 - 276 - In 1997, the agricultural services sold over $3.7 million dollars in advertising to major players in the ag industry, ag chemical and seed companies, equipment and finance businesses. The color system capabilities, such as inter-activity and animation, continue to entice new advertisers. Advertising research in 1997 confirmed that DTN is an important player in the agricultural media field. DTN Ag Services Approximately 80% of the 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 nation's total cropland and market more than 50% of the nation's cattle and hogs. DTN ag management believes the trend toward consolidation into larger farms as well as the government's move toward fewer agricultural price supports and an open market system, expands the need for agricultural information services. This expansion need provides for steady growth within DTN Ag Services. AgDaily Service Review 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 subscribers desire. The service also includes information segments for specific crop and livestock enterprises as well as general, business, sports and entertainment news. The DTN AgDaily color service also offers crop liability insurance and livestock profitability calculators by using the inter-activity feature allowing a subscriber to search a comprehensive database. Pro Series Service Review DTN offers services with advanced features for the agricultural industry. The Pro Series' enhanced functionality includes a high interest window to view future or options quotes on any page, key word search that automatically searches the news story database for articles affecting the user's operation, a customized segment with up to five of the user's favorite pages, and a personal library serving as a customized archive segment. The DTN Pro Series includes six services: Weather Pro, News Pro, Chart Pro, Intraday Pro, Stock Pro and DTN Premier. Weather Pro is the "meteorological connection" to an array of current weather, forecast and satellite radar information. This service allows subscribers to choose from over 70 weather maps including detailed regional, state and zone forecasts. The Weather Pro service gives subscribers 32 programmable pages for creating their own unique weather information. News Pro is the "broadcast connection" to timely business, sports, entertainment, financial, and general news of the day. The service also provides an audio summary of the day's agricultural news. News Pro subscribers receive AP Online, a service of the Associated Press. Chart Pro is the "graphic connection" bringing a variety of information to the screen in an organized format allowing subscribers to analyze trends, patterns and cycles. This service includes 40 pages for programmable charts allowing the subscriber to create an extensive "chart book". Intraday Pro is the "trading connection" to the first low-cost system available with the ability to chart market sessions minute-by-minute during the trading day. This service allows subscribers to choose time intervals for charting to keep them abreast of the markets. Stock Pro is the "market connection" providing access to prices for over 50,000 issues of stocks, bonds and funds. This service includes stock quotes using either the quick quote feature or the programmable quotes pages. Additional features include a personal library for storing news and information and the high interest windows allowing subscribers to constantly monitor up to six futures, options, stock or bond quotes. 17 - 277 - DTN Premier combines Weather Pro, News Pro, Chart Pro and Intraday Pro into a comprehensive ag marketing and information package. DTN Premier Plus adds Stock Pro to the package targeting the farmer, rancher or agribusiness needing all the market information available in one convenient location. DTN FarmDayta Service Review DTN FarmDayta was the principle asset acquired from the acquisition of Broadcast Partners in May 1996. Its content is very similar to DTN AgDaily. In fact, since its inception in 1990, DTN FarmDayta was the primary competition for DTN AgDaily. FarmDayta gives the Company a fully integrated agricultural service line with price entry points across a wide spectrum, expanding the marketing horizons for all DTN agricultural services. The Company maintains the DTN FarmDayta facilities, with nearly 100 employees, in Des Moines, Iowa. DTN FarmDayta is an agricultural market information, quote and weather service delivering delayed commodity futures and options quotes; local cash grain and livestock prices; selected regional and world weather updates; and a variety of daily analysis, commentary and news that affect grain and livestock prices. DTN FarmDayta Elite is an advanced version of DTN FarmDayta. Features include additional options quotes, charting, weather maps and a hard drive to store data in the receiver which is critical to maintaining storage of information during a power outage. DTN FarmDayta Elite Plus is an advanced service that includes the DTN FarmDayta Elite features and is similar in content to the DTN Pro Series. This service includes more advanced news (Reuters Headline News), quotes, weather (including motion and zoom capabilities) and programmable charts. DTN FarmDayta On Line Service Review The Company introduced its first agricultural Internet service, DTN FarmDayta On Line, in 1996. DTN FarmDayta On Line is similar in content to DTN FarmDayta Elite Plus and is designed for the producer preferring to use his or her personal computer to receive information or is not able to utilize the traditional satellite-based system supplied by DTN. The market for subscription-based Internet services is relatively new yet FarmDayta On Line closed the year with over 1,000 subscribers. Information includes animated weather maps, satellite and summary maps, short and long range forecast maps, news commentary and analysis as well as unlimited access to futures and option quotes from all the major exchanges. Also available is commodities for energy, financial, currency, metals and other exchanges as well as instant access to daily, weekly and monthly commodity charts. Customization capabilities allow for organization of the most often used information for business decisions. 1997 DTN Ag Services Highlights DTN Ag Services enjoyed another banner year in 1997, generating over 12,000 new sales and maintaining a retention rate of over 90%. Ag Services exceeded corporate expectations in sales, revenues and operating cash flow. 18 - 278 - DTN Pro Series continued to grow, increasing 21% in net subscribers. This growth is an example of Ag Services' ongoing efforts to switch subscribers to enhanced service lines, providing them with more information and DTN with higher revenue per subscriber. Integration of FarmDayta into DTN is complete. The FarmDayta service now represents a significant percentage of Ag Services total sales and service upgrades. DTN FarmDayta On Line continues to grow with over 1,000 subscribers. Continued enhancements to the Internet service is scheduled for 1998. The most significant enhancement planned is the introduction of DTN AgDayta, an Internet service featuring a combination of both AgDaily and FarmDayta providing the most comprehensive ag service available. In 1998 Ag Services will continue to seek opportunities for enhancing existing services by strengthening the content and increasing the variety of information provided. DTNstant Service Review 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, Futures World News and Bridge. The service also provides market-leading cash information, in-depth charting capabilities plus all the information available on the DTN AgDaily color service. In addition, the service provides information for the energy, metals, softs (i.e., orange juice, coffee, cocoa), transportation and lumber industries. DTNstant uses compatible software allowing 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 numerous national and regional 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 character of this industry, the Company provides on-site service and installation by professional service technicians. 1997 DTNstant Highlights DTNstant experienced substantial growth in 1997, in part, due to two synergistic acquisitions. In February, DTN acquired 500 subscribers from Market Quoters and Northern Data Services in Minnesota, the Dakotas and Iowa, mainly grain elevators and brokers. In March, 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 DTNstant subscribers. The service now provides unparalleled information and strategic news for commodity traders including access to additional international information, news packages for softs (i.e., coffee, sugar, cocoa and orange juice), metals and energy. DTNstant subscribers and revenues grew 36% and 49%, respectively, in 1997 compared to 1996. This growth reflects the acquisitions as well as the continued use of third party software for display of news, quotes and maps for increased analytical capabilities and for access to subscribers through Local Area Networks (LAN). 19 - 279 - DTNiron Service Review DTNiron provides a cost-effective communication resource for the farm implement industry. DTNiron is an equipment locator and inventory management service providing a communication tool for farm implement dealers throughout the U.S and Canada. DTNiron provides detailed listings of farm implements and equipment for sale or needed by dealers. A listing remains on the system for a minimum of 30 days, renewable at the dealer's request. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily service. DTNiron also includes listings of construction equipment, trucks, trailers and other equipment found in the agricultural industry. The service provides listings for implement and equipment parts, especially hard to find parts. In addition, the service sorts listings by regions and provides hourly updates keeping information timely for DTN subscribers. DTNiron includes the Combine and Tractor Demand Monitor which provides the first widely distributed annual sales outlook for the tractor and combine manufacturers. This monthly economic study released to all DTNiron subscribers helps track the money-making trends in the industry. The Combine and Tractor Demand Monitor is released to the trade and agricultural press one or two days after release to DTNiron subscribers. 1997 DTNiron Highlights In 1997, DTNiron added their retail equipment listings to its newly developed website on the Internet (www.dtniron.com). This allows subscribers to gain additional exposure for their listings at no additional charge. Internet users 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. Also in 1997, dealer listings were added to DTN Pro Series increasing the dealer's ability to reach an additional 50,000 plus high-income farmers. DTN PROduce Service Review DTN PROduce is an authority in providing the produce industry with the most timely information available. There are four major components to the DTN PROduce service. First is weather, the most critical information for the produce industry. Second is immediate pricing updates, formatted by commodity, growing area and terminal market. Third is transportation information with freight rates and daily truck availability for the major growing areas. Finally, the service provides a comprehensive news package including AP Online. Other key-industry news sources are "The Packer" and "The Produce News" in addition to credit information provided by the "Produce Reporter Company" and the "Red Book Credit Service". DTN PROduce maintains a price discovery network, DTNdexSM, that is the industry standard. Competition in this industry continues to focus on older technology, such as FAX machines. 20 - 280 - The entire produce food chain of growers, shippers, packers, brokers, retailers and institutions benefit from information provided by this service. A custom service for the produce grower is also available containing all the features of DTN PROduce except for transportation information and AP Online news. DTN PROduce expanded its service to the Internet in 1996 to accommodate seasonal and international customers unable to utilize the satellite dish technology. 1997 DTN PROduce Highlights DTN PROduce introduced Price Link in 1997. This service allows suppliers to use the DTN system to FAX, e-mail and send messages in a more timely and cost effective manner. Instead of phoning or faxing price lists, a supplier sends lists through the DTN system. Prices can be changed or added quickly and efficiently using this system. New software, Price Link Plus, allows users to download price lists from the DTN system to their personal computer to manipulate information in spreadsheets or to develop specialized screens for individual needs. DTN PROduce continues to provide the industry with the tools necessary to save time, make money and communicate information, pricing and other information in a fraction of the time of existing systems. DTN Cotton Network Service Review In July of 1997, DTN acquired the customer base and other assets of "The Network", a cotton communications company based in Lubbock, Texas. DTN Cotton Network is an electronic cotton marketing system designed to operate on a user's personal computer using software developed specifically for cotton accounting and marketing. Users dial into a DTN data center via modem to upload bale ownership information and to list cotton for broadcast to prospective buyers. Information is broadcast via DTN Ku band satellite and passed through a serial port into personal computers located at both buyer and seller locations. 1997 DTN Cotton Network Highlights After acquiring "The Network", seven gins were added and DTN more than doubled the number of buyers on the system to 46. At many sites, computer hardware was upgraded and additional software enhancements made, providing more reliable systems. DTN Cotton Network subscribers are primarily located in West Texas and Oklahoma. Expansion into other areas of the cotton belt are expected in the future. The service handled over 569,000 bales during the 1997 crop year compared to the previous crop year of only 452,000 bales. 21 - 281 - THE WEATHER INDUSTRY - -------------------------------------------------------------------------------- GRAPH IN TABULAR FORM:
1994 1995 1996 1997 ---- ---- ---- ---- DTN Weather Services Revenue ($ millions) .0 1.0 5.6 10.7
DTN Weather Center Service Review DTN Weather Center is a comprehensive weather information system designed to meet the weather information needs of many industries. Markets specifically targeted by DTN Weather Center are golf courses, turf management, emergency management, state transportation departments, public works departments, construction and aviation. DTN Weather Center introduced new products in 1997 designed especially for the marine, forestry and travel industry. DTN Weather Center provides more than 100 weather maps, 20 regional radar maps, including NEXRAD radar and infrared satellite photos and six satellite maps. The service provides short-range (immediate to 48-hour) forecasts, long-range (3-90 day) outlooks, and 10-day city forecasts for more than 550 cities in the U.S. and Canada. The service includes programmable capabilities to customize maps, and an archival section for saving maps. Optional services, such as AP Online News, newswires, industry association news and others are also available on all Weather Center services. DTN Weather Center is a critical ingredient in operational planning and staff decisions for industries where timely, accurate and accessible weather information are vital. DTN Turf Manager Service Review DTN Weather Center Turf Manager is available to individuals and businesses involved in turf-related operations such as golf courses, lawn maintenance, landscaping and sod farms. This service provides the news, weather and chemical information needed for effective turf management. Chemical and Pesticide Press Turf Index is a unique feature providing an information database of more than 275 turf pesticides. Material Safety Data Sheets (MSDS) were recently added providing an even more valuable information service for subscribers. Thor Guard, the only lightning prediction system available, warns of lightning strikes before they happen and is now available as an optional service. Evapotranspiration Tables provide regional evaporation rates to plan for watering and chemical applications. ESPN Sports Ticker provides current golf related stories and results and AP Online provides more than 300 current news stories from four chapters, General, Business, Sports and Entertainment. The National Golf Course Directory includes a database of locations, phone numbers, course pros and course superintendents for all member courses. These features, along with the comprehensive weather information, provides a complete turf industry package. DTN Aviation Center Service Review DTN Aviation Center is a comprehensive aviation weather package specially designed for pilots, airports and Fixed Base Operators (FBO's). DTN Aviation Center supplies airports, pilots and FBO's with the 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 and TAF 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. 22 - 282 - 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 Contractor Dayta Service Review DTN Contractor Dayta is designed for the construction industry and includes construction-related news and information providing a competitive advantage for subscribers. This service provides valuable weather information necessary for important day-to-day construction business decisions. Industry specific information includes general information, association and industry information, construction news, bids and resources and the contractor's exchange. Additionally, subscribers receive sports scores, sports highlights and financial indicators. The service provides a practical tool contributing to labor and material cost savings and effective management of scheduling and staffing for the construction industry. DTN Forestry Center Service Review DTN Forestry Center combined efforts with the U.S. Forest Service to provide 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, forest service district managers quickly access fire weather text bulletins along with a comprehensive set of weather maps. Bulletins provided for the forest service market 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 & 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 Service Review DTN Marine Center is a provider of 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, service and recreation. The service includes Lake and Marine Text Bulletins, Buoy Reports, Lake and Marine Maps and Tide Tables as well as general weather information and sea conditions. Optional Services are also available as service add-ons providing additional means for a more complete information and weather package. DTN Travel Center Service Review DTN Travel Center is an interactive hotel quest 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 the traveler whether he or she is on business or vacationing. 1997 DTN Weather Services Highlights DTN Weather Center increased its subscriber base in 1997 by more than 5,000 subscribers bringing the total subscriber count to 13,000. Golf courses, aviation, governmental agencies (emergency management and state transportation departments) and construction-related businesses are the leading industries for DTN Weather Center. In addition, DTN Weather Center continues to expand its sales and marketing force and to add sales directors for new services when needed. Other main highlights include the introduction of DTN Forestry Center, developed in cooperation with the U.S. Forest Service and the Great Lakes Forest Fire Compact. Also, the Illinois DOT awarded DTN Weather Center a bid to more than double the number of Weather Center units in use in the maintenance facilities. Development and promotion of special communications segments to transmit pavement temperatures and site-specific forecasts continued. 23 - 283 - THE FINANCIAL SERVICES INDUSTRY - -------------------------------------------------------------------------------- GRAPH IN TABULAR FORM:
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- DTN Financial Services Revenue ($ millions) 4.1 5.1 6.1 8.6 10.3
DTN Financial Services offers four services, DTN Real^Time, DTN SPECTRUM, DTN Wall Street, and DTN FirstRate. There are a variety of Optional Services available to Financial Service subscribers providing stock selection and timing advice, earnings estimates, fundamental stock market data, U.S. Treasury quotes and other financial market-related services. DTN Financial Services revenue grew 20% during 1997, adding to its bullish 26% compounded revenue growth for the past 5 years. The main objective for Financial Services is providing comprehensive, in-depth financial information at an affordable cost to its subscribers. This objective is critical due to the highly competitive nature of the business. Contents of all DTN Financial Services are broader in scope and cost less than competitive services. The "a la carte" optional services offered to subscribers give them an even greater variety of information. This combination allows the services to maintain its competitive advantage in the market. DTN Real^Time Service Review 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 nearly 12,000 characters per second, roughly four times faster than a computer modem operating at 28.8 kbs, the speed investors rely on to receive Internet-based quote services. DTN Real^Time is two to more than four times faster than other dedicated, competitive, real-time quote services. DTN Real^Time is the first DTN service delivered directly via proprietary hardware to a personal computer. Previously, DTN services displayed information on the DTN proprietary systems or stand-alone units. If desired, text and data are "passed thru" these units to a PC using various software packages. Subscribers are offered, at no additional cost, the option of using DTN Chameleon, an exclusive software package compatible with Windows 95(R) to display market data, news and other financial information delivered by DTN Real^Time. DTN Chameleon software 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 Service Review DTN SPECTRUM is an enhanced version of DTN Wall Street utilizing the ACE 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. DTN SPECTRUM is very well received by new subscribers as well as existing DTN Wall Street subscribers choosing to "switch-up" to the advanced SPECTRUM features. An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. DTN SPECTRUM R-T provides real-time futures and commodity quotes along with exchange delayed stock quotes, news and other information. 24 - 284 - DTN Wall Street Service Review DTN Wall Street provides exchange-delayed quotes on stocks, bonds, mutual and money market funds, futures, interest rates, currencies and real-time index quotes. This service also provides in-depth economic, financial and business news and other time-sensitive 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. The primary competition for DTN Wall Street is satellite, TV cable (VBI), Internet and dial-up quote services. DTN FirstRate Service Review DTN FirstRate is a service for the mortgage industry providing wholesale mortgage rates in an easy-to-use standard format and intra day interest rate information 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, such as keyword search, quick quote, alarms and zoom capabilities for weather. DTN FirstRate is marketed by DTN Financial Services' institutional sales group (a select group within the National Sales Force). 1997 DTN Financial Services Highlights The most noteworthy development for DTN Financial Services was the debut of DTN Real^Time. DTN SPECTRUM sales also continued strong and prospects for increased sales of DTN FirstRate is promising. DTN Financial Services is now well-positioned in its market place and offers a full line of exceptionally low-cost financial information services useful to both individual investors and to higher-end professional and institutional users. Plus subscribers can choose to use a proprietary DTN platform or networked PC applications. The release of DTN Real^Time created greater opportunities within the institutional marketplace. Results are achieved through the National Sales Force and a subset of financial specialists located in key metropolitan markets. Sales to individual investors also expanded driven by direct response marketing, utilizing an inside sales staff. The importance of relationships with third party software developers was heightened as subscribers to DTN Real^Time relied on their PC to display and manipulate quotes and news. Several relationships were strengthened or established for the first time, allowing subscribers to utilize a wider variety of analytical tools than those provided with Chameleon software. An increased emphasis was placed on sales to financial institutions (banks, money managers, brokerage firms, etc.). In 1997 this effort relocated from Salt Lake City to Omaha to take advantage of economies of scale and to improve communication. In order to streamline service offerings and create less confusion for prospective customers, two previous financial services, Broker+ and GovRate+, were folded back into the SPECTRUM brand. The same content is available, but through add-on modules rather than a bundled basis. 25 - 285 - THE ENERGY INDUSTRY - -------------------------------------------------------------------------------- GRAPH IN TABULAR FORM:
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- DTN Energy Services Revenue ($ millions) 4.9 7.2 10.0 12.2 14.3
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 also select from a variety of optional services providing even more 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 $40.00 for the monochrome Ku-band satellite service. Refiners pay fees based on the number and length of communications sent to wholesalers. DTNergy also provides an information service for the natural gas and electric industries. Subscribers receive instant or delayed NYMEX energy futures and options quotes, a comprehensive weather package and industry specific news and market information. This service targets energy producers and generators, transporters, marketers, utilities and larger energy consumers. 1997 DTNergy Highlights 1997 revenues for DTNergy grew 18% over 1996, making 1997 the seventh consecutive year for increased revenue growth. DTN remains the dominant player in the refined fuels market with virtually all major U.S. refiners and their customers receiving DTNergy information. These refiners continue to find new uses for the DTNergy communications link to their wholesalers, such as the implementation of EDI (Electronic Data Interchange) fuel invoices. EDI/VAN services help automate customers' business processes by converting refiner text invoices into an industry standard format. Once these invoices are in a standard format, invoice data is seamlessly transferred into a customer's accounting system from the ACE unit. DTNergy is also developing a number of Internet services slated for introduction in 1998. 26 - 286 - THE AUTO INDUSTRY - -------------------------------------------------------------------------------- GRAPH IN TABULAR FORM:
1994 1995 1996 1997 ---- ---- ---- ---- DTN Auto Services Revenue ($ millions) 0.0 0.7 1.4 1.9
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 (AuctionNet), 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). 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". DTNauto is marketed by DTNauto sales specialists (a select group within the National Sales Force). 1997 DTNauto Highlights In 1997, DTNauto introduced the "Autos Wanted" listing service. "Autos Wanted" consists of a list of new and used car buyers who provide a description of a vehicle or vehicles they are interested in purchasing. These leads are posted on "Autos Wanted" for 5 days. Dealers subscribing to this service review the list daily to match inventory with the sales lead. Potential car buyers learn of this service from print media ads in newspapers and trade publications, the Internet, TV commercials and ads on select DTN services. Feedback from dealers utilizing this feature is very positive. Providing current vehicle wholesale prices and the pre-auction listings of used cars remains the driving force behind the DTNauto service. DTN JOINT VENTURE SERVICES - -------------------------------------------------------------------------------- GRAPH IN TABULAR FORM:
1994 1995 1996 1997 ---- ---- ---- ---- DTN Joint Services Revenue ($ millions) 0.1 0.3 0.9 1.7
DTN joined forces with several companies to market their services using DTN technology. These services are TracElectric, DAT Transportation Terminal and DTN Missing Children Information Center (MCIC). Trac Electric Service Review TracElectric is an equipment locator service for the electrical equipment industry. This service provides over 100 pages of new, remanufactured, surplus and used electrical equipment listings. The service connects buyers and sellers throughout the U.S. and Canada. DAT Service Review The DAT (Dial-A-Truck) Transportation Terminal service, located in Beaverton, Oregon, is an information communication system for the trucking industry. The service provides load and truck matching performed on a database of 50,000 listings updated daily. DAT allows subscribers to input 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 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 U.S. and Canada. DTN Missing Children Information Center Service Review 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 locate missing children and the criminals involved, photos and information regarding these children are posted as a public service on all DTN color systems. 27 - 287 -
PIE GRAPHS IN TABULAR FORM: 1997 1996 1995 ---- ---- ---- Revenues DTN Ag Services 69% 71% 71% DTN Weather Services 8% 6% 2% DTN Financial Services 8% 9% 10% DTN Energy Services 11% 12% 16% Other Services 4% 2% 1% Subscribers At Year End DTN Ag Services 76% 80% 78% DTN Weather Services 8% 5% 3% DTN Financial Services 8% 8% 10% DTN Energy Services 5% 5% 8% Other Services 3% 2% 1%
1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- For the Year: Revenues ........................ $126,374,352 $ 98,383,713 $ 62,287,989 $ 46,109,789 $ 35,992,754 Operating income ................ 12,383,403 6,920,791 4,343,252 694,560 2,408,868 Income (loss) before income taxes 3,407,081 (1,404,306) ( 397,076) (2,422,738) 1,020,831 Net income (loss) ............... 2,236,081 ( 958,306) ( 283,076) (1,602,738) 663,831 Basic income (loss) per share . . Diluted income (loss) per share . .20 (.09) (.03) (.16) .07 Dividends per share ............. .19 (.09) (.03) (.16) .07 - --------------------------------------------------------------------------------------------------------------- At Year End: Total assets .................... $162,430,898 $177,729,762 $ 92,672,050 $ 71,459,356 $ 57,242,313 Long-term debt and subordinated notes ........... 72,891,370 97,747,823 47,020,527 33,982,814 25,375,000 Stockholders equity ............. 32,196,173 28,290,289 12,876,965 12,706,978 12,780,477
28 - 288 - MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- FINANCIAL CONDITION General Overview The equipment used by subscribers is a large capital investment for the Company. The cost, net of depreciation, of this equipment accounts for approximately 64% of the Company's total assets. The Company has financed a majority of the investment in subscriber equipment with long-term debt and plans to continue using long-term debt financing until cash provided by operating activities is sufficient to cover these investments. The Company made significant investments during 1995, 1996 and 1997 to purchase the assets, including subscribers, of several businesses. The Company recorded these transactions as asset purchases and the net intangible assets (goodwill) are approximately 21% of the Company's total assets. The Company's acquisition strategy focuses on businesses that management believes will enhance the operating performance and financial condition of the Company. The Company's overall financing strategy is simple, use long-term debt financing versus equity, whenever possible, to prevent the dilution of shareholder value. Net Cash Provided by Operating Activities Net cash provided by operating activities in 1997 was $47,543,395 compared to $33,777,467 in 1996. This increase of $13,765,928 was primarily the result of the $14,321,280 increase in operating cash flow plus the $168,687 of additional cash generated from the change in assets and liabilities. The increase in operating cash flow and additional cash from the change in assets and liabilities was offset by the $665,961 increase in interest expense related to the Company's investing activities for subscriber equipment and acquisitions. Net Cash Used by Investing Activities Net cash used by investing activities in 1997 was $30,191,998 compared to $106,290,603 in 1996. This decrease is primarily due to a reduction in the purchase of equipment used by subscribers in 1997 and the purchase of Broadcast Partners in May of 1996. The majority of expenditures on equipment used by subscribers are for color receivers, monitors, and satellite dishes including LNB's. The decrease in purchases on equipment used by subscribers is due to lower net subscriber growth and the reduction of inventory levels. The majority of the investment in equipment used by subscribers is 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 3,000 monochrome system (FM and Ku) and DTN FarmDayta subscribers upgraded service requiring the color Ku-band system with 54% of these conversions involving DTN AgDaily subscribers. The remaining 46% involved DTN Financial Services and DTNergy subscribers. The conversion of approximately 1,700 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. During 1997, the acquisition of Market Quoters, Northern Data and Arkansas Farm Bureau subscribers resulted in approximately 1,000 systems being installed to convert these subscribers to DTN systems. DTN decreased it inventory of color receivers and components to build color receivers during 1997. At December 31, 1997 the Company had approximately $7,000,000 of this inventory compared to $10,000,000 in 1996. The build up of inventory in 1996 occurred due to advance commitments on inventory purchases. The Company adjusted production schedules during the fourth quarter of 1996 and reduced the inventory to a level adequate to supply forecasted sales activity. The reduced production of color systems reduced borrowing requirements in the first half of 1997. The Company had approximately 30,000 monochrome customers at December 31, 1997. The Company utilizes monochrome receiver equipment coming in from conversions for new DTN AgDaily, DTN Wall Street and DTNergy subscribers. DTN will continue to research new markets for monochrome system services but at this time the Company's management believes the prospects are more favorable for color services. As it relates to the Company's investing activities, the Company had negative working capital of $21,520,377 at December 31, 1997, compared to $14,748,094 in 1996. The increase in the working capital deficiency was primarily due to the growth in the current portion of long term debt of $6,718,750 from increased term debt needed to finance acquisitions and converting $38,000,000 of revolving debt to term notes in the first quarter of 1997. The working capital deficiency also increased due to a reduction of current assets of $1,158,119 offset by a decrease in accounts payable and accrued expenses of $1,104,586 from December 31,1996 to 1997. The reduction in accounts receivable was due to aligning receivable recognition methods of acquired operations with the Company's. The decrease in accrued 29 - 289 - expenses is due to a reduction of startup costs related to the Broadcast Partners operations. On July 26, 1995, the Company entered into an agreement with Knight Ridder Financial (KRF) to acquire 2,900 Knight Ridder Commodity News Service subscribers. The Company agreed to pay KRF approximately $4,970,000 for these subscribers over two years. The Company agreed to pay $1,500,000 at closing and $1,500,000 on the first anniversary of the closing. The remaining $1,970,000 was based on company estimates of future revenue sharing. This payment was scheduled to be paid quarterly during the first two years of the agreement and was completed during 1997. The Company capitalized $4,970,000 as an intangible asset (goodwill) and is amortizing this cost using the straight-line method over eight years. On May 3, 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 and $48.5 million of six year term debt (see note 3). As part of the acquisition, the Company 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 (goodwill) and is amortizing this cost using the straight-line method over three to eight years. 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 (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. On July 1, 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 paid $200,000 cash in 1997 and will pay $200,000 cash on each of the next four anniversary dates. The Company has the option to terminate the agreement at any time and cease all payments and return the assets to the original owner. The Company is capitalizing the $200,000 payments when made as an intangible asset (goodwill) and amortizing this cost using the straight-line method over 12 months. In effect, if all payments are made, the Company is amortizing the $1,000,000 purchase price over five years. On October 24, 1997 the Company agreed to acquire the 700 subscribers on the ACRES platform from the Arkansas Farm Bureau (AFB). The Company agreed to pay $600 for each subscriber that converts to a DTN service. The Company believes the majority will convert 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 will capitalize the $600 acquisition payment per subscriber as an intangible asset (goodwill) and amortize this cost using the straight-line method over eight years. No payments were made in 1997. Net Cash Provided (Used) by Financing Activities Net cash used by financing activities of $17,222,280 was primarily the result of a decrease in total debt outstanding (current and long-term) of $18,217,083. The decrease in debt outstanding was primarily due to $22,217,083 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. The Company made $9,036,459 of principal payments on bank term debt during 1996. Factors that may Affect Future Results 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. 30 - 290 - 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. Indebtedness -- The Company anticipates that internally generated cash flow and its bank credit lines will be sufficient to fund operating activities, capital expenditures and principal payments on long-term debt. Technology -- Although the business of the Company is subject to the continuous changes in technology, the Company is currently unaware of any new technology which is likely to replace its present electronic delivery systems, equipment and the business applications these systems and equipment are designed to provide at a competitive price. Year 2000 -- The Company is conducting a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 Issue. The company plans to use internal resources to perform the review and make programming changes or replacements as necessary. The Company is pursuing Year 2000 compliance statements from all vendors that provide services or products critical to the operation of the Company's systems. The Company does not expect the cost of making the necessary changes to be significant. 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. RESULTS OF OPERATIONS GRAPH IN TABULAR FORM:
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Operating Cash Flow ($ millions) 12.9 15.8 23.2 40.4 54.7
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 services. 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. DTN's operating cash flow (operating income before depreciation and amortization expense), a key indicator monitored by DTN management, has increased at a compounded rate of 41% from 1992 to 1997. This trend is primarily the result of a growing base of subscribers covering the Company's fixed expenses. The following graph details the trend in operating cash flow as a percentage of revenue to illustrate operating leverage. GRAPH IN TABULAR FORM:
1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Operating Cash Flow (percent of revenue) 36 34 37 41 43.3
The Company has operating leverage due to low variable costs per subscriber. This leverage is present when a growth in subscribers and related revenues has a direct impact on operating cash flow. This leverage, as seen in the 1993 and 1994 periods, can be negatively impacted by the Company increasing the amount committed to research and development activities. DTN accumulates research and development activities as "Net Development Costs". The Company defines "Net 31 - 291 - 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 the 1993 and 1994 periods, the Company was expanding development activities (see chart on page 3) quite rapidly, therefore, negatively impacting operating cash flow on a total and percentage basis. During 1995, the success of subscription sales of the new developmental services decreased net development costs. While the overall developmental expenses increased, the growth rate of developmental related expenses declined in 1995 compared to 1994. The result, operating cash flow as a percentage of revenue increased to 37% in 1995 compared to 34% in 1994. Core services revenue improved to 44.4% in 1995 compared to 43.8% in 1994. During 1996, DTN expanded it developmental activities with net development costs growing from $3.7 million in 1995 to $5.3 million in 1996. The Company's increased efficiencies on a per subscriber per month basis and the acquisition of subscribers from Broadcast Partners contributed to an increase in operating cash flow as a percentage of revenue from 37% in 1995 to 41% in 1996. Operating cash flow as a percentage of revenue, excluding the acquisition of Broadcast Partners, was 37% in 1996. The expansion of developmental activities was offset by increased efficiencies on a per subscriber per month basis. Core services operating cash flow as a percentage of core services revenue improved to 47.4% in 1996 compared to 44.4% in 1995. Core services operating cash flow as a percentage of core services revenue, excluding Broadcast Partners operating results, was 43.4% in 1996 compared to 44.4% in 1995. Finally, 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 as a percentage of revenue growing from 41% in 1996 to 43.3% in 1997. Core services operating cash flow as a percentage of core services revenue improved to 48.5% in 1997 compared to 47.4% in 1996. Core services operating cash flow as a percentage of core services revenue, excluding Broadcast Partners operating results, was 45.0% in 1997 compared to 43.4% in 1996. 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. Operating income improvement combined with lower interest expense as a percentage of revenue resulted in positive earnings for the year.
Percent In Thousands 1997 1996 Change - ------------------------------------------------------------------ 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) -
Total revenue increased 28% in 1997 compared to 1996 and all operating revenue categories made good contributions to this increase. 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. 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 32 - 292 - 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) 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 services revenue. 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. 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 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, 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. 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 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 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 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 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. 33 - 293 - 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. The Company's federal and state effective tax rate was 34% and 32% for 1997 and 1996, respectively. 1996 COMPARED TO 1995 DTN'S management team remained focused on growing subscribers, revenues and operating cash flow during 1996. The acquisition of Broadcast Partners and a focus on improving subscriber efficiencies led to outstanding operating results as compared to the prior year. Operating income improved but higher interest expense linked to the expansion of the business and the acquisition of Broadcast Partners resulted in a loss for the year.
Percent In Thousands 1996 1995 Change - ------------------------------------------------------------------ Subscribers 145.9 95.9 52% Revenues $98,384 $62,288 58% Operating cash flow 40,377 23,154 74% Operating income 6,921 4,343 59% Net Loss (958) (283) (239%)
Total revenue increased 58% in 1996 compared to 1995 and all operating revenue categories made significant contributions to this increase. Operating revenues consisting of subscriptions, additional services, communications and advertising increased to $60.92 per subscriber per month in 1996 compared to $55.70 in 1995. A 52% growth in total subscribers and subscribers upgrading to higher priced services led to a 63% growth in subscription revenue. On May 3, 1996, the Company acquired 39,000 subscribers from Broadcast Partners receiving agricultural information and communications services. The subscriber growth for DTN without the acquisition of Broadcast Partners was 11,000 subscribers, a growth of 11.5%, and subscription revenue related to this subscriber growth was up 34% in 1996 compared with 1995. At December 31, 1996, 88% of total subscribers were receiving service via Ku-band satellite transmission compared to 77% in 1995. All acquired subscribers were receiving service via Ku-band satellite transmission. Subscription revenue on a per subscriber per month basis increased to $49.24, in 1996 compared to $43.60 in 1995. The price of Ku-band satellite delivered services ranged from $35 for monochrome DTN AgDaily to $160 for the color DTNstant service during 1996. The price of Ku-band satellite delivered services ranged from $33 for monochrome DTN AgDaily to $160 for the color DTNstant service during 1995. The price of the monochrome FM delivered DTN AgDaily (the only FM service) was $27 in 1996 and $26 in 1995. The subscribers converting to higher priced services includes those that switched from the monochrome FM or Ku-band satellite DTN AgDaily service to the color Ku-band satellite DTN AgDaily, priced at $50 in 1996 ($46 prior to June 1, 1996) and $46 in 1995. Subscribers continued to convert from the color Ku-band satellite DTN AgDaily service to the color Ku-band satellite DTN Pro Series which ranged in price from $63 ($59 prior to June 1,1996), for one Pro Series service, to $79 ($74 prior to June 1,1996), for all four Pro Series services (DTN Premier), in both 1996 and 1995. The DTN Premier and Stock Pro, DTN Premier Plus, was priced at $82 a month in 1996 ($78 prior to June 1, 1996) and $78 a month in 1995. The Company increased the number of information services through "a la carte" optional services (180 in 1996 versus 100 in 1995). The growth in services combined with the growth of total subscribers and the acquisition of Broadcast Partners resulted in a 48% increase in additional services revenue. The additional services revenue growth, excluding the acquisition of Broadcast Partners, was 30% in 1996. The revenue increased on a per subscriber per month basis to $3.80 in 1996 compared to $3.70 in 1995. The growth in communications revenue was primarily in the DTNergy service. The DTNergy service transmits refiner prices and communications to wholesaler/subscribers. The number of refiner communications continued to rise and produced a revenue growth of 28% over 1995 levels. The revenue decreased on a company wide per subscriber per month basis to $5.78, down from $6.49 in 1995. This decrease is due to spreading communications revenue over a larger base of subscribers, with the largest increase coming from the acquisition of Broadcast Partners. 34 - 294 - Advertising revenue grew 58% to $3,198,321 in 1996 compared to $2,022,440 in 1995. This growth was due to an increase in the acceptance of the color system as an electronic medium, the acquisition of Broadcast Partners and less discounting due to the increased subscriber base associated with the acquisition. Advertising revenue growth, excluding the acquisition of Broadcast Partners, was 30% in 1996. Advertising revenue increased on a company wide per subscriber per month basis to $2.10 in 1996, up from $1.89 in 1995. Service initiation fees, the Company's up-front one-time charges to new subscribers ranged from $150 to $495 in 1996 and from $150 to $295 in 1995 depending on the service and information distribution technology. Initiation fees for subscribers that convert to another service or change delivery technology (such as FM to Ku) ranged from $50 to $100 depending on the service in 1995 and 1996. The total fees collected increased 66% in 1996 to $5,560,049 compared to $3,357,311 in 1995. The increase was due to increased sales activity related to the expansion of the national sales force, reduced discounting in the agricultural related services and an increase in conversions from DTN Wall Street to DTN SPECTRUM. Service initiation fee revenue, excluding the acquisition of Broadcast Partners, was 53% in 1996. Total operating expenses increased 58% in 1996 over 1995. This increase was due to a 45% increase in selling, general and administrative costs, a 71% increase in sales commissions and a 78% increase in depreciation and amortization. These expenses (excluding the sales commission costs) increased on a per subscriber per month basis to $54.07 in 1996 compared to $49.75 in 1995. Selling, general and administrative expenses on a per subscriber per month basis increased to $32.12, up slightly from 31.97 in 1995. These costs were flat due to efficiency gains from spreading costs over a larger base of subscribers obtained from an expanded sales force and from acquisitions. Selling, general, and administrative expenses as a percentage of revenue decreased from 54% in 1995 to 50% in 1996. Selling, general and administrative expenses as a percentage of revenue, excluding the acquisition of Broadcast Partners, decreased to 53%. Sales commissions are generated from new subscription sales and revenues related to the DTNergy service. Sales commissions increased 71% during 1996 compared to 1995. This increase is due to higher subscription sales, incentive programs to the national sales force and sales management related to the rapid expansion and 22% higher revenues in DTNergy. Sales commissions growth, excluding the acquisition of Broadcast Partners, was 60% in 1996. Depreciation and amortization expense primarily increased due to the purchase of $37,424,684 of new equipment used by subscribers and the acquisition of Broadcast Partners. The Company acquired and capitalized approximately $38.2 million of equipment and $34.8 million of intangible assets related to the acquisition. The Company began using a six year life for depreciating subscriber equipment in July of 1992 compared to an eight year life prior to the change. The Company is depreciating the equipment acquired in the acquisition of Broadcast Partners over a five year life and is amortizing the intangible assets from this acquisition over a three to eight year life beginning in May of 1996. Operating income increased 59% to $6,920,791, up from $4,343,252 in 1995 as a result of the growth in revenues and expenses discussed above. Operating cash flow grew 74% to $40,377,428, up from $23,154,402 in 1995. Interest expense increased 76% in 1996 compared to 1995. The increase is related to borrowings to finance new subscriber equipment and the acquisition of Broadcast Partners. The Company increased the revolving credit line borrowings from $21,250,000 at December 31, 1995 to $38,500,000 at December 31, 1996. The Company borrowed $48,490,000 to acquire Broadcast Partners. The Company's federal and state effective tax rate was 32% and 29% for 1996 and 1995, respectively. 35 - 295 - NOTES - -------------------------------------------------------------------------------- 36 - 296 - 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. Roger R. Brodersen Brian L. Larson Chairman of the Board Vice President Chief Executive Officer Chief Financial Officer Secretary and Treasurer INDEPENDENT AUDITOR'S REPORT - -------------------------------------------------------------------------------- Board of Directors and Stockholders Data Transmission Network Corporation We have audited the accompanying balance sheets of Data Transmission Network Corporation as of December 31, 1997 and 1996, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Data Transmission Network Corporation as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Deloitte & Touche LLP, Omaha, Nebraska February 6, 1998 37 - 297 -
BALANCE SHEETS - --------------------------------------------------------------------------------------------- Data Transmission Network Corporation As of December 31, 1997 and 1996 1997 1996 - --------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $ 837,170 $ 708,053 Accounts receivable, net of allowance for doubtful accounts of $810,000 and $520,000 7,629,296 9,653,766 Prepaid expenses 825,577 583,985 Deferred commission expense 3,302,972 2,807,330 ---------------------------- Total Current Assets 12,595,015 13,753,134 Property and Equipment Equipment Used By Subscribers 224,620,148 203,310,661 Equipment and Leasehold Improvements 23,155,237 19,702,330 ---------------------------- 247,775,385 223,012,991 Less: Accumulated Depreciation 135,265,090 98,564,288 ---------------------------- Net Property and Equipment 112,510,295 124,448,703 Intangible Assets From Acquisitions, net of accumulated amortization of $9,728,684 and $3,871,956 34,764,802 36,517,799 Other Asset 2,560,786 3,010,126 ---------------------------- $162,430,898 $177,729,762 - --------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts payable $ 6,985,053 $ 7,485,517 Accrued expenses 5,319,506 5,923,628 Current portion of long-term debt 21,810,833 15,092,083 ---------------------------- Total Current Liabilities 34,115,392 28,501,228 Long-Term Debt 58,248,540 83,184,373 Subordinated Long-Term Notes, net of unamortized discount of $357,170 and $436,550 14,642,830 14,563,450 Equipment Deposits 484,017 515,142 Unearned Revenue 22,743,946 22,675,280 Stockholders Equity: Common stock, par value $.001, authorized 20,000,000 shares, issued 11,148,052 and 11,074,224 11,148 11,074 Paid-in capital 31,326,683 14,302,689 Retained earnings (deficit) 858,342 (1,404,602) Treasury stock, at cost, 0 and 45,919 shares - (342,173) ---------------------------- Total Stockholders Equity 32,196,173 28,290,289 ---------------------------- $162,430,898 $177,729,762 The accompanying notes are an integral part of these financial statements.
38 - 298 -
STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------- Data Transmission Network Corporation Years ended December 31, 1997, 1996 and 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------- REVENUES Subscriptions $101,194,290 $ 75,019,826 $ 46,126,332 Additional services 6,694,754 5,792,799 3,917,631 Communication services 10,050,073 8,812,718 6,864,275 Advertising 3,809,748 3,198,321 2,022,440 Service initiation fees 4,625,487 5,560,049 3,357,311 --------------------------------------------- 126,374,352 98,383,713 62,287,989 EXPENSES Selling, general and administrative 61,790,861 48,944,027 33,827,282 Sales commissions 9,884,783 9,062,258 5,306,305 Depreciation and amortization 42,315,305 33,456,637 18,811,150 --------------------------------------------- 113,990,949 91,462,922 57,944,737 --------------------------------------------- OPERATING INCOME 12,383,402 6,920,791 4,343,252 Interest expense 9,098,231 8,432,270 4,798,112 Other income, net 121,909 107,173 57,784 --------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES 3,407,081 (1,404,306) (397,076) Income tax expense (benefit) 1,171,000 (446,000) (114,000) --------------------------------------------- NET INCOME (LOSS) $ 2,236,081 $ (958,306) $ (283,076) - ------------------------------------------------------------------------------------------- BASIC INCOME (LOSS) PER SHARE $ 0.20 $ (0.09) $ (0.03) - ------------------------------------------------------------------------------------------- DILUTED INCOME (LOSS) PER SHARE $ 0.19 $ (0.09) $ (0.03) - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
39 - 299 -
STATEMENTS OF STOCKHOLDERS EQUITY - ------------------------------------------------------------------------------------------------------------------------ Data Transmission Network Corporation Years ended December 31, 1995, 1996 and 1997 RETAINED TOTAL COMMON PAID -IN EARNINGS TREASURY STOCKHOLDERS STOCK CAPITAL (DEFICIT) STOCK EQUITY - ------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 1995 $ 3,375 $ 14,302,689 $ (217,501) $(1,381,585) $12,706,978 Treasury stock issued on exercise of employee stock options - - 2,890 330,173 333,063 Tax benefit related to exercise of employee stock options - 120,000 - - 120,000 Net loss - - (283,076) - (283,076) -------------------------------------------------------------------------- Balance, December 31, 1995 $ 3,375 $ 14,422,689 $ (497,687) $(1,051,412) $12,876,965 Treasury stock issued on exercise of employee stock options - - 51,391 709,239 760,630 Tax benefit related to exercise of employee stock options - 634,000 - - 634,000 Issuance of common stock 316 14,976,684 - - 14,977,000 Three-for-one stock split 7,383 (7,383) - - - Net loss - - (958,306) - (958,306) -------------------------------------------------------------------------- Balance, December 31, 1996 $ 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 Tax benefit related to exercise of employee stock options - 675,000 - - 675,000 Issuance of common stock 74 625,693 - - 625,767 Net income - - 2,236,081 - 2,236,081 -------------------------------------------------------------------------- Balance, December 31, 1997 $ 11,148 $ 31,326,683 $ 858,342 $ - $32,196,173 The accompanying notes are an integral part of these financial statements.
40 - 300 -
STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------- Data Transmission Network Corporation Years ended December 31, 1997, 1996 and 1995 1997 1995 1995 - ------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income (loss) $ 2,236,081 $ (958,306) $ (283,076) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 42,315,305 33,456,637 18,811,150 Amortization of debt issue costs and discount 147,880 139,694 128,760 Deferred income taxes 1,056,000 (480,000) (239,000) Change in assets and liabilities: Accounts receivable (1,278,437) (63,634) (3,178,803) Prepaid expenses (180,068) (21,839) (284,803) Deferred commission expense (400,469) (310,792) (1,446,337) Deferred debt issuance costs - (112,078) - Other assets - - (1,029,433) Accounts payable 518,361 (1,947,116) 604,791 Accrued expenses (1,113,749) (149,687) 739,453 Equipment deposits (51,175) (26,578) (382) Unearned revenue 4,293,666 4,251,166 2,800,990 --------------------------------------------- Net Cash Provided By Operating Activities 47,543,395 33,777,467 16,623,310 Cash Flows From Investing Activities Capital expenditures: Equipment used by subscribers (21,137,267) (37,424,684) (23,746,086) Equipment and leasehold improvements (3,367,535) (3,120,125) (3,914,442) Acquisition of Subscribers (5,687,196) (65,745,794) (1,767,420 --------------------------------------------- Net Cash Used By Investing Activities (30,191,998) (106,290,603) (29,427,948) Cash Flows From Financing Activities Proceeds from term debt agreement - 48,490,000 - Principal payments on long-term debt (22,217,083) (9,036,459) (8,718,750) Proceeds from revolving credit agreement 4,000,000 17,250,000 21,250,000 Proceeds from the exercise of stock options 994,803 760,630 333,063 Proceeds from the issuance of common stock - 14,977,000 - --------------------------------------------- Net Cash Provided (Used) By Financing Activities (17,222,280) 72,441,171 12,864,313 --------------------------------------------- Net Increase (Decrease) in Cash 129,117 (71,965) 59,675 Cash at Beginning of Period 708,053 780,018 720,343 --------------------------------------------- Cash at End of Period $ 837,170 $ 708,053 $ 780,018 The accompanying notes are an integral part of these financial statements.
41 - 301 - NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Data Transmission Network Corporation Years ended December 31, 1997, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Revenue Recognition The Company provides its subscribers with equipment to receive information and communications service. DTN charges a recurring subscription fee and in most instances a one-time service initiation fee. The subscriptions are contracted for an initial period of one year and are generally billed quarterly in advance. Payments received in advance for subscriptions, additional services and advertising are deferred and recognized as the services are provided to the subscribers. Service initiation fees 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. Deferred Commission Expense Commissions and bonuses which are paid at the time of the initial subscription to sales representatives, to company representatives, or to subscribers for successful customer referrals, are deferred and expensed over the initial twelve-month subscription period. Equipment Used By Subscribers Equipment used by subscribers to receive the Company's electronically transmitted information and communication services is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over a useful life of three to eight years for assets placed in service prior to July 1, 1992, and three to six years for assets placed in service subsequent to July 1, 1992. Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from two to seven years, or the related lease, which range from five to ten years. Intangible Assets Intangible assets for acquisitions are stated at cost less accumulated amortization. These costs are amortized using the straight-line method over three to eight years. The carrying value of intangible assets is periodically assessed by the Company by reviewing the recoverability of the assets over the amortization period based on the projected undiscounted future cash flows of the related business unit. Cash flow projections are based on trends of historical performance and 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 The Financial Accounting Standards Board (FASB) issued statement No. 128, "Earnings Per Share", which is effective for 1997 financial statements. FASB No. 128 requires dual presentation of Basic and Diluted earnings per share for all periods for which an income statement is presented. 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. All prior periods earnings per share data have been restated in accordance with FASB No. 128. Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. During the periods ended December 31, 1997, 1996 and 1995, the Company made interest payments of $8,983,000, $8,555,000 and $4,386,000, respectively. Capital expenditures for subscriber equipment included in accounts payable at year end totalled $1,105,000 $1,394,000 and $2,191,000 at December 31, 1997, 1996 and 1995, respectively. The Company paid $1,146,000 of federal income taxes in 1995 relating to recoverable Alternative Minimum Taxes (AMT) for prior periods which is included in other assets. The Company paid no federal income taxes during 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 Research and development costs are charged to earnings as incurred and approximated $3,059,000, $2,263,000 and $1,596,000 for the periods ended December 31, 1997, 1996, and 1995. 42 - 302 - Stock-Based Compensation The Company accounts for its stock-based compensation under the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25). Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Fair Value of Financial Instruments Because of their maturities and/or interest rates, the Company's financial instruments have a fair value approximating their carrying value. These instruments include accounts receivable, revolving credit and term borrowings, subordinated debt, commercial paper, and trade payables. Accounting Pronouncements In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income". This statement establishes for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This statement is effective for 1998 financial statements. Also in June 1997, the FASB issued statement No. 131, "Disclosure about segments of an Enterprise and Related Information", which will be effective in 1998. FASB No. 131 establishes standards for the way public enterprises report information about operating segments. The Company has not yet completed its analysis of this statement to determine if additional disclosure will be required beginning in 1998. 2. ACQUISITIONS - -------------------------------------------------------------------------------- Knight-Ridder On July 26, 1995, the Company entered into an agreement with Knight Ridder Financial (KRF) to acquire 2,900 Knight Ridder Commodity News Service subscribers. The Company agreed to pay KRF approximately $4,970,000 for these subscribers over two years. The Company agreed to pay $1,500,000 at closing and $1,500,000 on the first anniversary of the closing. The remaining $1,970,000 was based on company estimates of future revenue sharing. This payment was scheduled to be paid quarterly during the first two years of the agreement and was completed during 1997. The Company capitalized $4,970,000 as an intangible asset (goodwill) and is amortizing this cost using the straight-line method over eight years. Broadcast Partners On May 3, 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 and $48.5 million of six year term debt (see note 3). 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 (goodwill) and is amortizing this cost using the straight-line method over three to eight years. The following unaudited pro forma information sets forth the results of operations as though the acquisition of Broadcast Partners had occurred at January 1, 1995:
Proforma December 31, 1996 1995 - -------------------------------------------------------------------------------- Revenues $ 106,646,073 $ 84,018,887 Net Loss $ (1,303,509) $ (2,992,648) Loss Per Share $ ( 0.12) $ ( 0.27)
This unaudited pro forma information is based on historical results of operations as if the acquisition took place on January 1, 1995 adjusted for acquisition costs, realized efficiencies and in the opinion of Management, is not necessarily indicative of what the results would have been had the Company operated with the acquisition since the beginning of 1995. 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 43 - 303 - 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 (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. On July 1, 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 paid $200,000 cash in 1997 and will pay $200,000 cash on each of the next four anniversary dates. 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 is capitalizing the $200,000 payments when made as an intangible asset (goodwill) and amortizing this cost using the straight-line method over 12 months. 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 On October 24, 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 $600 for each subscriber that converts to a DTN service. The Company believes the majority will convert 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 will capitalize the $600 acquisition payment per subscriber as an intangible asset (goodwill) and amortize this cost using the straight-line method over eight years. No payments were made in 1997. 3. 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, 1999 unless extended, provides for a total commitment of up to $33,000,000 in new borrowings. As of December 31, 1997, $4,500,000 of the total commitment had been borrowed, with the remaining $28,500,000 available to the Company subject to certain restrictions as discussed below.
December 31, 1997 1996 - -------------------------------------------------------------------------------- Revolving Credit Agreement Revolving credit line $ 4,500,000 $ 38,500,000 Term notes 35,151,040 10,786,456 Term Credit Agreement Term notes 40,408,333 48,490,000 Stock Repurchase Agreement Term notes - 500,000 - -------------------------------------------------------------------------------- Total Loan Agreements 80,059,373 98,276,456 - -------------------------------------------------------------------------------- Less current portion 21,810,833 15,092,083 - -------------------------------------------------------------------------------- Total Long-Term Debt $ 58,248,540 $ 83,184,373
Additional borrowings under the Revolving Credit Agreement are available to the Company, as long as at the time of the advance, no default exists with any of the Company loan agreements or the subordinated notes agreement (see Note 4), and total debt outstanding (including term notes outstanding but excluding long-term subordinated debt) does not exceed thirty-six times monthly operating cash flow (as defined). As of December 31, 1997 based on current operating cash flow, the Company would be able to borrow all of the remaining $28,500,000 commitment available. In addition to the restrictions mentioned above with respect to advances, total debt outstanding (excluding long-term subordinated debt) is limited to forty-eight times monthly operating cash flow. Additionally, total debt outstanding (including subordinated debt) is limited to sixty times monthly operating cash flow. The Company is required to maintain total stockholders' 44 - 304 - equity of at least $23,500,000 plus fifty percent (50%) of net income (but not losses) at fiscal year end through June 30, 1999. The minimum stockholders' equity required to be maintained is $24,618,040 as of December 31, 1997. 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 (excluding long-term subordinated debt) to operating cash flow (the "Leverage Ratio"). The following table outlines the "Leverage Ratio", the applicable Margin, Unused Commitment Fees and Fixed Note Margin to be discussed below.
UNUSED FIXED COMMITMENT NOTE LEVERAGE RATIO MARGIN FEE MARGIN - -------------------------------------------------------------------- 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%
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 the interest rate margin (as defined above) changed quarterly. As of December 31, 1997, the Revolving Credit Rate is 7.25%. 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 1/2% over the Revolving Credit Rate 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. As of December 31, 1997, $4,500,000 of the total borrowings outstanding had not been converted to term loans. As of December 31, 1997, $35,151,040 of term loans were outstanding with monthly installments due up through 2001 having interest rates ranging from 7.865% 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, 1997 the commitment fee was 1/8% on all unused revolving credit commitment. Additionally, if total borrowings (excluding long-term subordinated debt) exceed 36 times the Operating Cash Flow (as defined), the Company will be required to pay a closing fee of 1/2% on all new borrowings made after that point in time. In the event the 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 dated February 26, 1997, with a group of banks providing for an aggregate principal amount of $48,490,000 to be repaid in 72 fixed principal installments beginning January 31, 1997. As of December 31,1997, the principal balance was $40,408,333 with $21,157,500 accruing at a variable interest rate of NY prime rate less one-half of one percent, or 8.00% and the remaining $19,250,833 accruing at fixed interest rates ranging from 8.25% to 8.36%. During 1992, the Company entered into a loan agreement and borrowed $2,000,000 solely for the repurchase of the Company's outstanding common stock (the "Stock Repurchase" Agreement). As of December 31, 1997, the amounts borrowed under the Stock Repurchase Agreement, have been fully repaid.
MINIMUM PRINCIPLE MATURITIES OF LONG-TERM DEBT* - -------------------------------------------------------------------------------- Year ending December 31, 1998 $ 21,810,833 1999 17,628,540 2000 17,581,667 2001 10,456,667 2002 and after 8,081,666 - -------------------------------------------------------------------------------- Total $ 75,559,373 * Excluding revolving credit line.
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. 4. SUBORDINATED LONG-TERM NOTES - -------------------------------------------------------------------------------- On June 30, 1994, the Company sold to one investor $15,000,000 of its 11.25% subordinated long-term notes in a private placement transaction (the "subordinated debt"). The subordinated debt is subordinated in right of payment to all current and future senior debt. Interest on the subordinated debt is scheduled to be paid quarterly, with principle due in five equal annual installments beginning on June 30, 2000. The Company has the option to prepay the subordinated debt on any date after June 30, 1997 at a premium beginning at 45 - 305 - 7.5% of the principal prepaid, and decreasing by 1.5% per year until June 30, 2002 when no premium is required. There are also provisions for mandatory prepayment upon a change in ownership control (as defined), at a premium beginning at 12.0% of the principal prepaid during the period ended June 30, 1995 and decreasing by 1.5% per year until June 30, 2002 when no premium is required. The subordinated debt agreement contains a cross-acceleration clause, whereby the subordinated debt will become immediately due and payable upon a payment default on the revolving and term credit agreements. Other subordinated debt financial covenants and restrictions are generally less restrictive than those of the other loan agreements. The Company also issued a warrant to the investor to purchase 75,000 shares of the Company's $.001 par value common stock at $7.39 per share (as adjusted after the three-for-one stock split) on or before June 30, 2004. In connection with the issuance of the warrant to purchase common stock, the Company recorded a $635,000 credit to additional paid-in capital and a related debt discount, which represented an estimate of the fair value of the warrant issued. 5. INCOME TAXES - --------------------------------------------------------------------------------
Components of the income tax (benefit) provision are as follows: 1997 1996 1995 - -------------------------------------------------------------------------------- Current $ 115,000 $ 34,000 $ 125,000 Deferred 1,056,000 (480,000) (239,000) - -------------------------------------------------------------------------------- $ 1,171,000 $ (446,000) $ (114,000)
The income tax (benefit) provision differs from the (benefit) provision at federal statutory rates for the following reasons:
1997 1996 1995 - -------------------------------------------------------------------------------- Federal $ 1,158,000 $ (477,000) $ (139,000) State taxes 68,000 (28,000) 1,000 Other (55,000) 59,000 24,000 - -------------------------------------------------------------------------------- $ 1,171,000 $ (446,000) $ (114,000)
The components of deferred tax liability (asset) are as follows:
1997 1996 - -------------------------------------------------------------------------------- Depreciation $ 6,573,000 $ 6,411,000 Net operating loss carryforwards (8,101,000) (8,301,000) Other 182,000 282,000 - -------------------------------------------------------------------------------- Net Deferred Asset $ (1,346,000) $ (1,608,000)
The Company had approximately $22,500,000 of unused net operating loss (NOL) carryforwards at December 31, 1997. The NOL carryforwards will expire in the years 2002 to 2012. In addition, the Company is reflecting in the Other Assets approximately $911,000 relating to pending IRS refund claims. 6. CAPITAL STOCK - -------------------------------------------------------------------------------- The Company's articles of incorporation provide for the authorization of 1,000,000 shares of $.50 par value per share preferred stock. The preferred stock, none of which has been issued, presently has no voting rights or other features, although the articles of incorporation contain provisions to adopt various features or privileges at the discretion of the Board of Directors In September 1992, the Company's Board of Directors authorized the repurchase of up to 350,000 shares of the Company's outstanding common stock. The purchases are to be made from time to time in the open market or in arranged transactions at such price or prices as company officers may deem advisable. The Company has purchased 150,000 shares of outstanding common stock since September 1992. The common stock repurchased may be used to provide shares for the Company's existing stock options and warrants outstanding. As part of the May 3, 1996 acquisition of Broadcast Partners, the Company sold 948,000 (split adjusted) shares through a private placement transaction. During the second quarter of 1996, the Company effectuated a three-for-one common stock split, payable June 28, 1996 to stockholders of record June 14, 1996. The stated par value of each share was not changed from $.001. A total of $7,383 was reclassified from the Company's additional paid in capital account to the Company's common stock account. 7. 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 1997, 1996 and 1995, the Company contributed $848,000, $671,000 and $482,000, respectively, to the plan as matching contributions. 46 - 306 - 8. 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. At December 31, 1997, shares of the Company's authorized but unissued common stock were reserved for issuance as follows:
SHARES - ----------------------------------------------- Employee stock option plan 880,663 Non-employee director plan 100,503 - ----------------------------------------------- Total 981,166
The Company accounts for its stock-based compensation plans under the provisions of APB 25. Accordingly, no compensation cost has been recognized for its fixed stock option plans. The effect on 1997, 1996 and 1995 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 below:
1997 1996 1995 - -------------------------------------------------------------------------------- Net Income (Loss) As Reported $ 2,236,081 $ (958,306) $ (283,076) Proforma $ 920,827 $(2,452,206) $ (675,125) Diluted Income (Loss) per share As Reported $ 0.19 $ (0.09) $ (0.03) Proforma $ 0.08 $ (0.23) $ (0.07) - -------------------------------------------------------------------------------- Fair Value $ 11.56 $ 8.22 $ 3.21
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:
1997 1996 1995 - -------------------------------------------------------------------------------- Risk-free interest rate 5.5 % 5.4 % 7.8 % Dividend yield 0.0 % 0.0 % 0.0 % Expected volatility 51.0 % 56.0 % 54.0 % Expected life (years) 5.60 4.75 4.25
The following table summarizes the stock options as of December 31, 1997, 1996, 1995:
1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ----------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 1,520,810 $ 9.04 1,276,959 $ 5.79 988,185 $ 5.57 - ----------------------------------------------------------------------------------------------------------------------- Granted 207,350 $ 21.60 538,800 $ 15.64 401,250 $ 6.23 Exercised (119,644) $ 8.33 (134,878) $ 5.64 (70,224) $ 4.74 Cancelled (62,084) $ 14.23 (160,071) $ 7.93 (42,252) $ 6.32 - ----------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 1,546,432 $ 10.55 1,520,810 $ 9.04 1,276,959 $ 5.79 - ----------------------------------------------------------------------------------------------------------------------- Exercisable at end of year 968,834 $ 7.25 741,409 $ 5.67 629,811 $ 5.08
The following table summarizes the stock options outstanding as of December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------------------------------------------------------ Shares Weighted-Average Weighted-Average Shares Weighted-Average Range of Exercise Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price - ------------------------------------------------------------------------------------------------------------------ $ 0.00 - $ 4.67 432,629 4.0 years $ 4.30 428,129 $ 4.34 $ 4.75 - $ 8.83 451,983 6.1 years $ 6.60 375,335 $ 6.82 $ 9.67 - $ 14.42 2,050 7.7 years $ 11.67 1,950 $ 11.53 $ 15.50 - $ 31.50 659,770 8.3 years $ 17.36 163,420 $ 15.81 - ------------------------------------------------------------------------------------------------------------------ $ 0.00 - $ 31.50 1,546,432 6.5 years $ 10.55 968,834 $ 7.25
47 - 307 - 9. EARNINGS PER SHARE - --------------------------------------------------------------------------------
The following table provides a reconciliation between basic and diluted earnings per share. 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Per-Share Per-Share Per-Share Income Shares Amount Income Shares Amount Income Shares Amount - ------------------------------------------------------------------------------------------------------------------------------------ Basic EPS Net Income (Loss) $ 2,236,081 11,100,684 $ 0.20 $ (958,306) 10,657,893 $ (0.09) $ (283,076) 9,908,592 $(0.03) Effect of Dilutive Securities Stock Options and Warrants - 981,872 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Diluted EPS $ 2,236,081 12,082,556 $ 0.19 $ (958,306) 10,657,893 $ 0.09) $ (283,076) 9,908,592 $(0.03) - ------------------------------------------------------------------------------------------------------------------------------------
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, 1997 are as follows: Year ending December 31, - -------------------------------------------------- 1998 $ 4,898,000 1999 4,090,000 2000 3,846,000 2001 3,062,000 2002 2,156,000 2003 and after 4,100,000 - -------------------------------------------------- Total future minimum lease payments $ 22,152,000 Total rent expense on all operating leases was $4,842,000, $3,459,000 and $2,712,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 48 - 308 - NOTES - -------------------------------------------------------------------------------- 49 - 309 - NOTES - -------------------------------------------------------------------------------- 50 - 310 -
QUARTERLY DATA (UNAUDITED) - --------------------------------------------------------------------------------------------------------------------- Data Transmission Network Corporation OPERATING PRE-TAX NET INCOME (LOSS) TOTAL -------------------------- REVENUES CASH FLOW1 INCOME (LOSS) AMOUNT DILUTED EPS2 SUBSCRIBERS - -------------------------------------------------------------------------------------------------------------------- Fiscal 1997 First $ 29,466,873 $ 13,141,205 $ 566,619 $ 361,619 $ .03 151,800 Second 31,391,287 13,508,667 757,061 485,561 .04 153,700 Third 32,216,238 13,770,835 891,300 571,800 .05 155,700 Fourth 33,299,954 14,278,001 1,192,101 817,101 .07 158,800 - -------------------------------------------------------------------------------------------------------------------- Year $ 126,374,352 $ 54,698,708 $ 3,407,081 $ 2,236,081 $ .19 158,800 - -------------------------------------------------------------------------------------------------------------------- Fiscal 1996 First $ 19,113,017 $ 6,502,483 $ (557,991) $ (356,991) $(.04) 99,600 Second 24,194,864 9,592,827 (701,346) (447,346) (.04) 142,000 Third 27,141,339 11,759,893 (328,503) (260,003) (.02) 144,100 Fourth 27,934,493 12,522,225 183,534 106,034 .01 145,900 - -------------------------------------------------------------------------------------------------------------------- Year $ 98,383,713 $ 40,377,428 $(1,404,306) $ (958,306) $ (.09) 145,900 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.
TRADING INFORMATION - -------------------------------------------------------------------------------- MARKET PRICE 1997 MARKET PRICE 1996 -------------------------- --------------------------- QUARTER ENDED HIGH LOW LAST HIGH LOW LAST March 31 28 3/4 21 1/4 26 1/4 16 5/8 13 5/8 15 3/8 June 30 33 1/4 22 3/4 31 3/4 23 15 5/8 21 3/8 September 30 32 1/2 27 1/4 29 1/2 26 1/2 17 21 December 31 32 5/8 25 3/4 28 23 19 3/4 22 1/4
The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock MarketSM under the symbol: DTLN. On December 31, 1997, there were approximately 500 stockholders of record, not including beneficial holders whose shares are held in names other than their own. 51 - 311 - BOARD OF DIRECTORS - -------------------------------------------------------------------------------- Data Transmission Network Corporation Roger R. Brodersen Chairman of the Board Chief Executive Officer Data Transmission Network Corp. Robert S. Herman Senior Vice President Data Transmission Network Corp. David K. Karnes President Chief Executive Officer The Fairmont Group Inc. Of Counsel, Kutak Rock law firm J. Michael Parks 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 Robert S. Herman Senior Vice President Research and Technology James J. Marquiss Senior Vice President Co-President, Ag Division Roger W. Wallace Senior Vice President Co-President, Ag Division Charles R. Wood Senior Vice President President, Financial Services Keith A. Cook Vice President Auto Services William R. Davison Vice President President, Ag Services Scott Fleck Vice President Director of Engineering H. Wade German Vice President Business Research Brian L. Larson Vice President Chief Financial Officer Secretary and Treasurer Gordon R. Lundy Vice President President, Energy Services James G. Payne Vice President Services Support and Special Projects 52 - 312 - 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 22, 1998 at 10:00 A.M., at the Best Western Regency West, 909 South 107 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. 53 - 313 - EX-27.1 20 ARTICLE 5 FDS FOR 1997 10-K
5 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 837,170 0 8,439,296 810,000 0 12,595,015 247,775,385 135,265,090 162,430,898 34,115,392 72,891,370 0 0 11,148 32,185,025 162,430,898 126,374,352 126,374,352 0 113,990,949 0 0 9,098,231 3,407,081 1,171,000 2,236,081 0 0 0 2,236,081 0.20 0.19
EX-27.2 21 ARTICLE 5 FDS FOR 1997 10-K
5 12-MOS 12-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 DEC-31-1996 780,018 708,053 0 0 6,776,576 10,173,766 300,000 520,000 0 0 9,806,991 13,753,134 144,218,965 223,012,991 67,909,419 98,564,288 92,672,050 177,729,762 20,278,929 28,501,228 47,020,527 97,747,823 0 0 0 0 3,375 11,074 12,873,590 28,279,215 92,672,050 177,729,762 62,287,989 98,383,713 62,287,989 98,383,713 0 0 57,944,737 91,462,922 0 0 0 0 4,798,112 8,432,270 (397,076) (1,404,306) (114,000) (446,000) (283,076) (958,306) 0 0 0 0 0 0 (283,076) (958,306) (0.03) (0.09) (0.03) (0.09)
EX-27.2(CONTINUED) 22 ARTICLE 5 FDS FOR 1997 10-K
5 3-MOS 3-MOS 3-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 APR-01-1996 JUL-01-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 210,182 208,649 728,107 0 0 0 6,377,342 9,983,782 10,249,756 300,000 520,000 520,000 0 0 0 9,537,439 13,842,363 14,168,547 156,489,960 206,881,459 215,947,849 73,667,601 81,160,966 89,700,096 98,953,156 180,991,574 181,243,202 20,427,560 32,175,739 28,720,168 52,519,539 100,927,092 102,451,520 0 0 0 0 0 0 3,375 11,074 11,074 12,756,834 27,538,830 28,031,651 98,953,156 180,991,574 181,243,202 19,113,017 24,194,864 27,141,339 19,113,017 24,194,864 27,141,339 0 0 0 18,356,062 22,786,356 24,992,836 0 0 0 0 0 0 1,345,245 2,130,222 2,498,561 (557,991) (701,346) (328,503) (201,000) (254,000) (68,500) (356,991) (447,346) (260,003) 0 0 0 0 0 0 0 0 0 (356,991) (447,346) (260,003) (0.04) (0.04) (0.02) (0.04) (0.04) (0.02)
EX-27.3 23 ARTICLE 5 FDS FOR 1997 10-K
5 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 APR-01-1997 JUL-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 890,397 222,675 241,069 0 0 0 6,943,759 7,323,414 8,852,783 520,000 520,000 520,000 0 0 0 10,987,705 10,878,736 12,919,335 227,939,358 235,010,843 242,378,197 107,488,846 116,527,998 125,794,785 173,965,335 170,155,107 168,512,639 38,376,382 38,981,226 39,025,542 84,169,127 78,215,430 75,511,733 0 0 0 0 0 0 11,074 11,103 11,137 28,987,769 29,718,063 30,607,775 173,965,335 170,155,107 168,512,639 29,466,873 31,391,287 32,216,238 29,466,873 31,391,287 32,216,238 0 0 0 26,537,639 28,341,710 29,102,161 0 0 0 0 0 0 2,394,864 2,324,826 2,229,420 566,619 757,061 891,300 205,000 271,500 319,500 361,619 485,561 571,800 0 0 0 0 0 0 0 0 0 361,619 485,561 571,800 0.03 0.04 0.05 0.03 0.04 0.05
EX-99 24 PROXY STATEMENT FOR 1998 ANNUAL MEETING 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 - 319 - 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 22, 1998 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 Best Western Regency West, 909 South 107th Avenue, Omaha, Nebraska on Wednesday, April 22, 1998 at 10:00 A.M. Omaha time for the following purposes, as more fully described in the accompanying Proxy Statement: 1. To elect seven directors to the Board of Directors. 2. To consider and vote upon a proposal to ratify the appointment of Deloitte & Touche LLP independent auditors for the Company for the 1998 fiscal year. 3. 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 2, 1998, as the record date for determination of the stockholders of the Company entitled to notice of and to vote at the meeting. All stockholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, please complete, date and sign the enclosed proxy card and mail it promptly in the self-addressed envelope provided. The giving of such proxy does not affect your right to vote in person in the event you attend the meeting. BY ORDER OF THE BOARD OF DIRECTORS /s/ Brian L. Larson -------------------------- Omaha, Nebraska Brian L. Larson March 9, 1998 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 - 320 - 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......................... 4 Executive Compensation........................................................ 7 Compensation Committee Report on Executive Compensation...................... 10 Approval of Appointment of Auditors.......................................... 12 Transactions With Management................................................. 12 Compensation Committee Interlocks and Insider Participation.................. 12 Stockholder Proposals for 1999 Annual Meeting................................ 12 Section 16(a) Beneficial Ownership Reporting Compliance...................... 12 Other Matters................................................................ 13 Miscellaneous................................................................ 13
4 - 321 - PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 22, 1998 - -------------------------------------------------------------------------------- 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 Best Western Regency West, 909 South 107th Avenue, Omaha, Nebraska on Wednesday, April 22, 1998, at 10:00 A.M. Omaha time. Stockholders of record at the close of business on March 2, 1998 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 16, 1998. VOTING SECURITIES At March 2, 1998, the Company had issued and outstanding 11,200,549 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 seven nominees receiving the most votes at the Meeting will be elected as directors. Each share has one vote on all other matters. An affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the Meeting is required for approval of all 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 ratify the appointment of auditors are treated as votes against such proposal. Broker non-votes on the proposal 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. 1 - 322 - PROPOSAL NO. 1 ELECTION OF DIRECTORS At the Meeting, the stockholders will elect a board of seven directors for a term extending until the 1999 annual meeting of stockholders of the Company and until their respective successors have been elected and qualify. The Board of Directors has nominated for election or re-election as directors: Roger R. Brodersen, Scott A. Fleck, David K. Karnes, J. Michael Parks, Jay E. Ricks, Greg T. Sloma and Roger W. Wallace. All of the nominees, except Scott A. Fleck, presently are serving as directors of the Company. Proxies may be voted for seven directors. If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute as the Board of Directors may recommend or the Board of Directors may amend the By-Laws and reduce the size of the Board. At this time, the Board knows of no reason why any nominee might be unavailable to serve. Set forth below is certain information as of March 2, 1998, 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.
Nominee Age Positions and Offices with the Company Director Since - ------------------ --- -------------------------------------- -------------- Roger R. Brodersen 52 Chairman of the Board, Chief 1984 Executive Officer and Director Scott A. Fleck 30 Vice President and Nominee - David K. Karnes 49 Director 1989 J. Michael Parks 47 Director 1990 Jay E. Ricks 65 Director 1995 Greg T. Sloma 46 President, Chief Operating 1993 Officer and Director Roger W. Wallace 41 Senior Vice President and Director 1984
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. 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 2 - 323 - 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. Board Meetings and Committees - ----------------------------- The Board of Directors met four times during the fiscal year ended December 31, 1997. During fiscal 1997, all directors attended all of the meetings of the Board of Directors, and related committees on which they served. The Company does not have a Standing Nominating Committee. The Audit Committee recommends the selection of the independent auditors, reviews the scope of the audits performed by them and reviews their audit report and any recommendations made by them relating to internal financial controls and procedures. Members of the Audit Committee, which met twice during fiscal 1997, are David K. Karnes, J. Michael Parks and Jay E. Ricks. The Compensation Committee reviews and makes recommendations to the Board of Directors regarding officers' compensation and the Company's employee benefit plans; provided, however, the Compensation Committee administers the Company's Stock Option Plan of 1989 through its Stock Option Plan Subcommittee, consisting of all members of the Compensation Committee other than Greg T. Sloma. Members of the Compensation Committee, which met twice during fiscal 1997, are David K. Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma. Directors Compensation - ---------------------- During fiscal 1997, each member of the Board of Directors who was not an employee of the Company received $1,500 for each Board of Directors meeting attended, $600 for each Audit Committee meeting attended, $600 for the first Compensation Committee meeting attended and $1,500 for the second Compensation Committee meeting attended. Non-employee members of the Board of Directors also receive awards under the Company's Non-Employee Directors Stock Option Plan (the "Non-Employee Directors Plan"). Stock option grants under the Non-Employee Directors Plan are automatic and occur each time a non-employee director is elected, re-elected or appointed a director of the Company. In 1997, David K. Karnes, J. Michael Parks and Jay E. Ricks each received an option to purchase 4,500 shares of the Company's common stock at an exercise price of $24.00 per share. The Non-Employee Directors Plan has 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. 3 - 324 - 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 2, 1998, to the knowledge of the Company, beneficially owned more than 5% of the Company's common stock:
Name and Address of Amount and Nature Percent of Beneficial Owner of Ownership Class - ------------------------------- ----------------- ---------- Roger R. Brodersen 1,634,744 (1) 14.6% 16705 Ontario Plaza Omaha, NE 68130 Wanger Asset Management, L.P., 1,533,800 (2) 13.7% Wanger Asset Management Ltd., and Ralph Wanger 227 West Monroe, Suite 3000 Chicago, IL 60606 Furman Selz Incorporated 1,124,300 (3) 10.0% 230 Park Avenue New York, NY 10169 Acorn Investment Trust, 819,000 (4) 7.3% Series Designated Acorn Fund 227 West Monroe Street, Suite 3000 Chicago, IL 60606 Peter H. Kamin and Peak Investment 591,600 (5) 5.3% Limited Partnership as a group One Financial Center, Suite 1600 Boston, MA 02111 - ------------------------------- (1) This includes 163,334 shares subject to options exercisable within 60 days of March 2, 1998, 39,150 shares held in a trust for the benefit of Mr. Brodersen's children, 36,999 shares beneficially owned by Mr. Brodersen's spouse, and 19,391 shares allocated to Mr. Brodersen through his participation in the Company's 401(k) Savings Plan. (2) According to a Schedule 13G dated February 5, 1998, 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 819,000 shares also shown in this table as beneficially owned by Acorn Investment Trust, Series Designated Acorn Fund. Wanger Asset Management, L.P. serves as investment adviser to such trust. Wanger Asset Management Ltd. is the general partner of Wanger Asset Management, L.P. Ralph Wanger is the principal stockholder of Wanger Asset Management Ltd. (3) According to a Schedule 13G dated February 11, 1998, Furman Selz Incorporated has sole voting and sole dispositive power over such shares.
4 - 325 - 4) According to a Schedule 13G dated February 5, 1998, 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. (5) According to a Schedule 13D, amended through December 30, 1994, and a telephone conversation by the Secretary of the Company with Peter H. Kamin on February 10, 1998, Peak Investment Limited Partnership ("Peak") is the beneficial owner of 591,600 of these shares for which it has sole voting and sole dispositive power. Peter H. Kamin is the sole general partner of Peak with sole voting and sole dispositive power over the shares owned by Peak and therefore also may be deemed to be the beneficial owner of such 591,600 shares. The following table sets forth information as to the shares of common stock of the Company beneficially owned as of March 2, 1998, 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 7, and by all directors and executive officers of the Company as a group:
Amount and Nature Percent of Beneficial Owner of Ownership ( 1) Class ( 2) - ------------------------------------ ----------------- ---------- Roger R. Brodersen 1,634,744 ( 3) 14.6% Scott A. Fleck 3,022 ( 4) * Robert S. Herman 327,168 ( 5) 2.9% David K. Karnes 63,435 ( 6) * James J. Marquiss 146,390 ( 7) 1.3% J. Michael Parks 46,499 ( 8) * Jay E. Ricks 18,000 ( 9) * Greg T. Sloma 166,570 (10) 1.5% Roger W. Wallace 283,922 (11) 2.5% All directors and executive officers as a group (16 persons) 2,893,154 (12) 25.8% - ------------------------------------ * Less than 1.0% ( 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. 5 - 326 - 2) Shares subject to options exercisable within 60 days of March 2, 1998 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 163,334 shares subject to options exercisable within 60 days of March 2, 1998, 39,150 shares which are held in trust for Mr. Brodersen's children, 36,999 shares beneficially owned by Mr. Brodersen's spouse, and 19,391 shares allocated to Mr. Brodersen through his participation in the Company's 401(k) Savings Plan. (4) Includes 1,234 shares subject to options exercisable within 60 days of March 2, 1998 and 1,788 shares allocated to Mr. Fleck through his participation in the Company's 401(k) Savings Plan. ( 5) Includes 101,415 shares subject to options exercisable within 60 days of March 2, 1998 and 16,071 shares allocated to Mr. Herman through his participation in the Company's 401(k) Savings Plan. ( 6) Includes 33,999 shares subject to options exercisable within 60 days of March 2, 1998. ( 7) Includes 71,374 shares subject to options exercisable within 60 days of March 2, 1998 and 15,016 shares allocated to Mr. Marquiss through his participation in the Company's 401(k) Savings Plan. ( 8) Includes 32,499 shares subject to options exercisable within 60 days of March 2, 1998. ( 9) Includes 15,000 shares subject to options exercisable within 60 days of March 2, 1998. (10) Includes 135,334 shares subject to options exercisable within 60 days of March 2, 1998, 4,212 shares beneficially owned by Mr. Sloma's children and 22,874 shares allocated to Mr. Sloma through his participation in the Company's 401(k) Savings Plan. (11) Includes 101,415 shares subject to options exercisable within 60 days of March 2, 1998, 4,500 shares beneficially owned by Mr. Wallace's spouse, and 16,157 shares allocated to Mr. Wallace through his participation in the Company's 401(k) Savings Plan. (12) Includes 802,928 shares subject to options exercisable within 60 days of March 2, 1998, 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 110,102 shares allocated to executive officers through their participation in the Company's 401(k) Savings Plan.
6 - 327 - 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, 1997.
Summary Compensation Table - ------------------------------------------------------------------------------------------------------------------------------------ Long Term Annual Compensation Compensation -------------------------------------- ------------ (a) (b) (c) (d) (e) (f) (g) ----- ---- -------- --------- --------- ------------ --------- Other Securities Annual Underlying All Other Name and Principal Compen- Options Compen- Position Year Salary Bonus sation(1) (shares) sation(2) ---------- ---- -------- --------- --------- ------------ --------- Roger R. Brodersen 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 1995 172,000 147,897 0 30,000 9,240 Greg T. Sloma 1997 172,593 121,312 0 10,000 6,400 President & Chief Operating 1996 145,996 147,707 0 16,500 9,500 Officer 1995 140,000 131,466 0 18,000 9,240 Robert S. Herman 1997 143,628 109,112 0 5,600 6,400 Senior Vice President 1996 120,865 97,707 0 7,500 8,743 1995 115,000 131,466 0 15,000 9,240 Roger W. Wallace 1997 143,628 123,498 0 5,600 6,400 Senior Vice President 1996 120,858 108,390 0 7,500 9,170 1995 115,000 126,227 0 15,000 9,240 James J. Marquiss 1997 135,936 125,401 0 4,500 6,400 Senior Vice President 1996 120,858 108,390 0 6,000 9,170 1995 115,000 125,843 0 12,000 9,240 (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.
7 - 328 - 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 1997. The Company does not grant any stock appreciation rights.
Option Grants In Last Fiscal Year - ------------------------------------------------------------------------------------------------------------ Individual Grants - ------------------------------------------------------------------------------------------------------------ (a) (b) (c) (d) (e) (f) - ------------------ ------------ ---------------- -------------- ---------- ---------- Number of Securities Underlying Percent of Total Options Options Granted Grant Date Granted to Employees In Exercise Price Expiration Present Name (shares) (1) Fiscal 1997 (Per share) Date Value (2) - ------------------ ------------ ---------------- -------------- ---------- ---------- Roger R. Brodersen 10,000 5.2% $ 21.38 1-02-07 $114,400 Greg T. Sloma 10,000 5.2% 21.38 1-02-07 114,400 Robert S. Herman 5,600 2.9% 21.38 1-02-07 64,100 Roger W. Wallace 5,600 2.9% 21.38 1-02-07 64,100 James J. Marquiss 4,500 2.3% 21.38 1-02-07 51,500 (1) Except as indicated in the footnotes to this table, the options referred to in this table were granted by the Stock Option Plan Committee on January 2, 1997 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.
8 - 329 - The following table provides information on option exercises in fiscal 1997 and the value of unexercised options at December 31, 1997 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 Value - ----------------------------------------------------------------------------------------------------------------------------------- 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 - ------------------ -------- -------- ----------- ------------- ----------- -------------- Roger R. Brodersen - $ 0 80,000 170,000 $ 960,000 $ 1,981,200 Greg T. Sloma 2,500 54,375 123,000 27,000 2,665,200 298,600 Robert S. Herman - 0 92,048 15,600 2,025,100 204,300 Roger W. Wallace - 0 92,048 15,600 2,025,100 204,300 James J. Marquiss - 0 63,874 12,500 1,406,200 163,500 (1) The closing "bid" price of the Company's common stock as quoted by NASDAQ on December 31, 1997 was $27.50. 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, 1992. GRAPH IN TABULAR FORM:
Nasdaq Nasdaq Total Telecommunications Year DTN Return Index Industry Index - ---- --- ------------ ------------------ 1992 100 100 100 1993 186 115 154 1994 120 112 129 1995 349 159 169 1996 473 195 172 1997 595 240 254
9 - 330 - 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 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 1997 for the Chief Executive Officer and the other executive officers named in the Summary Compensation Table, and the Committee acted in accordance with this recommendation. 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 Committee. For fiscal 1997, 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. 10 - 331 - CEO Compensation - ---------------- The factors and criteria upon which Mr. Brodersen's compensation was based for fiscal year 1997 are the same as those considered by the Committee in establishing the compensation program for all of the executive officers of the Company as outlined above. The annual base salary of Mr. Brodersen was established by the Committee on March 3, 1997 for the period of April 1, 1997 to March 31, 1998. The Committee's decision was based on Mr. Brodersen's personal performance of his duties and on salary levels to chief executive officers of companies of similar size, complexity and growth rates. Mr. Brodersen's 1997 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 10,000 shares was awarded to Mr. Brodersen under the Company's Employee Stock Option Plan based upon his performance and leadership with the Company. The grant placed a significant portion of his total compensation at risk, since the value of the option depends on the appreciation of the Company's common stock over the option term. Compensation Committee of the Board of Directors ------------------------- David K. Karnes J. Michael Parks Jay E. Ricks Greg T. Sloma 11 - 332 - PROPOSAL NO. 2 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, 1998, subject to ratification by the stockholders of the Company. Deloitte & Touche LLP served as the Company's auditors for the 1997 fiscal year. Ratification of the appointment of the independent auditors requires the affirmative vote of a majority of the shares of Common Stock present, in person or by proxy, and voting at the Meeting. If the stockholders should not ratify the appointment of Deloitte & Touche LLP, the Board of Directors will reconsider the appointment. A representative of Deloitte & Touche LLP is expected to be present at the Meeting, will have an opportunity to make a statement if desired, and will be available to respond to appropriate stockholder questions. The Board of Directors recommends a vote FOR the approval of the appointment of Deloitte & Touche LLP as independent auditors for the Company. TRANSACTIONS WITH MANAGEMENT No reportable transactions occurred during fiscal 1997 between the Company and its officers and directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following directors served on the Compensation Committee of the Company's Board of Directors: David K. Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma. Mr. Sloma, because he is an officer and employee of the Company, abstains from all votes dealing with officer compensation. Also, only Mr. Karnes, Mr. Parks and Mr. Ricks are members of the Stock Option Plan Subcommittee of the Compensation Committee which administers the Company's Stock Option Plan of 1989. STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING Proposals of stockholders for which consideration is desired at the 1999 Annual Meeting of Stockholders must be received by the Company no later than December 31, 1998, in order to be considered for inclusion in the Company's proxy statement and form of proxy relating to such meeting. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers and holders of more than 10% of the Company's common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. The Company believes that during the fiscal year ended December 31, 1997, 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. Herman filed one late report covering one transaction. In addition, Mr. Brodersen filed a Form 5 reporting three transactions which he inadvertently failed to report or incorrectly reported in 1991, 1994 and 1996. In making these statements, the Company has relied solely upon a review of Forms 3 and 4 fur- nished 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 represen- tations from reporting persons that no Form 5 was required. 12 - 333 - 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. However, if any other matters should properly come before the meeting, the persons named in the accompanying form of proxy will have discretionary authority to vote all proxies with respect thereto in accordance with their judgment. 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 $3,000, including the reimbursement of certain expenses. The Company's Annual Report to Stockholders, including financial statements, has been mailed to all stockholders of record as of the close of business on March 2, 1998. Any stockholder who has not received a copy of such Annual Report may obtain a copy by writing the Company. Such Annual Report is not to be treated as a part of this proxy solicitation material nor as having been incorporated herein by reference. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the Compensation Committee Report on page 10 and the Performance Graph on page 9 shall not be incorporated by reference into any such filings. THE BOARD OF DIRECTORS Omaha, Nebraska March 9, 1998 A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, DATA TRANSMISSION NETWORK CORPORATION, 9110 WEST DODGE ROAD, SUITE 200, 0MAHA, NEBRASKA 68114. 13 - 334 - DATA TRANSMISSION NETWORK CORPORATION 9110 West Dodge Road, Suite 200 Omaha, NE 68114 14 - 335 - DATA TRANSMISSION NETWORK CORPORATION PROXY Annual Meeting of Stockholders To Be Held April 22, 1998 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Roger R. Brodersen and Brian L. Larson, or either of them, as proxies of the undersigned, with full power of substitution to either of them, and hereby authorizes them to vote as designated below all shares of common stock of Data Transmission Network Corporation held of record by the undersigned on March 2, 1998 at the Annual Meeting of Stockholders to be held on April 22, 1998 and at any adjournments thereof (a) on the following matters and (b) on any other matters that properly may come before the meeting or any adjournments thereof: 1. ELECTION OF DIRECTORS FOR all nominees listed below (except as marked) ----- WITHHOLD AUTHORITY to vote for all nominees listed below ----- (INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), draw a line through the nominee's name below.) Roger R. Brodersen Scott A. Fleck David K. Karnes J. Michael Parks Jay E. Ricks Greg T. Sloma Roger W. Wallace 2. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP as independent auditors of the Corporation for fiscal year ending December 31, 1998. 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 22, 1998 and the Proxy Statement for such meeting. Dated , 1998 --------------------------- ----------------------------------- ----------------------------------- (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. 15 - 336 - -----END PRIVACY-ENHANCED MESSAGE-----