-----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, Ndd7AKcE84qGifDIVK15VSGdwqP3t9dJU7Sz1GZWtzzFL+7CiOEiOY6YVEzEVUbW 6DZADLB0HNzNSZAg1f4Y+g== 0000790498-00-000005.txt : 20000316 0000790498-00-000005.hdr.sgml : 20000316 ACCESSION NUMBER: 0000790498-00-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 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: 570758 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 1999 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, 1999. 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, 2000 was approximately $300,500,000. At March 1, 2000, the registrant had outstanding 12,019,986 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1999 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 Shareholders to be held April 26, 2000, 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). On March 3, 2000, the Company entered into a definitive agreement with Veronis, Suhler & Associates Communications Partners III, LP (VS&A III) whereby VS&A III will make a tender offer to all of the Company's shareholders at a price of $29.00 per share. The tender offer is subject to the tender of at least 90% of the outstanding shares as of March 1, 2000. Holders of over 50.1 percent of the Company's outstanding shares have agreed to accept the tender offer and vote to approve the merger. If less than 90% of the outstanding shares are tendered, the Company will merge with an affiliate of VS&A III at the same per share price. Closing of the transaction is subject to government and shareholder approvals and other customary conditions, and is expected to occur during the second quarter of 2000. (b) Financial Information About Industry Segments: Financial information about industry segments for the Company is on page 56 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. (c) Narrative Description of Business: Data Transmission Network Corporation (DTN, the Company) began operations in April 1984 and continues to provide comprehensive, time-sensitive information and communication services primarily for the agricultural, weather, financial and energy industries. DTN grew to 166,900 subscribers throughout the U.S. and Canada at the end of 1999. A review of these industries and services with the year's highlights are discussed in this report. The Company's subscription services are targeted at niche business markets and designed to be timely, simple to use and convenient. The Company's distribution technology provides an efficient means of sending data and information from point to multi-point. The development and enhancement of cost-effective distribution methods including the Internet and satellite delivery, plus a total commitment to customer service and information quality has enabled the Company to become a major player in the communications industry. The Company continues to take advantage of engineering and software advancements for developing and improving distribution in an exciting and growing industry. In 1999, DTN made great strides in the area of e-commerce which will also be discussed in detail in this report. 2 Information Distribution Technologies DTN supports several information distribution technologies allowing the distribution, reception and display of information. The primary technologies used are small dish Ku-band satellite (Ku) and the Internet. Other technologies used are Cable TV (VBI), e-mail, FAX, direct leased line circuits and wireless technology. The Company provides the equipment necessary for subscribers to receive certain services using Ku, FM or VBI technologies. This equipment includes a DTN receiver, a video monitor, FM antenna or a small 30" Ku-band satellite dish. A keyboard, mouse and printer may be provided depending on the service. DTN is responsible for the normal maintenance and repair of subscriber equipment. DTN Internet subscribers use their own personal or business computers to receive information and e-commerce services. In 1992, the Company introduced the Advanced Communications Engine (ACE) receiver, a color graphics receiver system. This system expanded the Company's ability to provide information and communication services using satellite technology. The ACE receiver contains multiple processors. One is dedicated to data communications and storage. The second processor is for manipulating data, interacting with the user and displaying high-resolution color pictures, graphics and text. A third processor enables the unit to play audio clips for weather forecasts, voice advertisements or audio alarms set for when a futures contract or stock price reaches a pre-set price. In addition, this processor can send and retrieve information by using an internal modem connected to a phone line. Additional processors may be present, as necessary, based on the method of information distribution technology used, such as satellite, VBI, etc. The ACE receiver can also download information to a printer or computer. This receiver is equipped with an internal hard drive allowing processed information to be stored, archived and displayed. The receiver's built-in control panel, keyboard or mouse allows subscribers to conveniently view this information. One of the unique aspects of the Company's information distribution technology is the computer software developed by the Company for use with the broadcast system that feeds data to the ACE receivers. This software manages information from a wide array of input sources, runs routines, sets priorities and then initiates transmission to the satellite. The software provides the capability to individually address each receiver unit placed with a subscriber. This permits the Company to transmit specific information to a specific subscriber or group of subscribers. DTN began offering services via the Internet in 1995 and now provides Internet services for the four main divisions - agriculture, weather, financial and energy. In 1998, the Company expanded its Internet initiatives into the e-commerce arena, adding online trading capabilities to real-time Internet financial service products. In 1999, the Company began new initiatives within the cash grain and livestock commodities and futures business as well as for perishable products such as meat, produce and floral. The Company also announced its interactive, advertising based weather site (WX.COM) in 1999. These and more will be discussed later in this report. In 1998, the Company began delivering services to customers via direct leased line circuits. This gives customers in major metropolitan areas the ability to receive the Company's information where options, such as satellite dishes, are impractical. In many instances, this technology provides a redundant delivery method to insure maximum availability of the Company's information. The following is a summary of subscribers by information distribution technology at December 31, 1999. Information Distribution Technologies Subscribers - ------------------------------------------------------------------------- Ku-Band Satellite 142,600 Internet 19,000 Leased Lines 1,600 VBI 800 FM Radio Side Band 2,900 ---------- Total 166,900 3 The Company has approximately 15,000 customers receiving information using Fax technology. The e-mail business is primarily a subscriber (an e-mail source) communicating specific messages to a group of subscribers. There are over 1,200 e-mail sources delivering over 35,000 pages of information to subscribers daily. Service and Equipment Revenue The Company's revenue is derived primarily from six categories: (1) monthly, quarterly or annual subscriptions, (2) equipment sales (3) additional (optional) services, (4) communication services, (5) advertising and (6) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was: 1999 1998 1997 - ---------------------------------------------------------------------------- Subscriptions 80 % 80 % 80 % Equipment Sales 4 % 3 % - Additional Services 5 % 5 % 5 % Communication Services 8 % 7 % 8 % Advertising 2 % 3 % 3 % Service initiation fees 1 % 2 % 4 % (1) Subscription revenue is generated from monthly, quarterly or annual fees for one of the Company's services. The Company offers a discount to subscribers who pre-pay their subscription annually. A more detailed review of each service is found later in this report. (2) A unit of DTN Kavouras Weather Services generated equipment sales of weather systems, workstations and weather radar systems as well as the manufacturing of small and large Doppler radar systems. The Company announced the sale of their radar business to Radtec Engineering, Inc. in December 1999. (3) Additional services are offered to subscribers on an "a la carte" basis, similar to premium channels on cable TV. A third party provides information for these services with DTN receiving a share of the subscription revenue paid by the subscriber. Additional 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. (4) The Company sells communication services allowing companies to cost-effectively communicate a large amount of timely information to their customers or field offices. This category includes revenue generated from FAX and e-mail services. Communications revenue continued to grow in total dollars and management believes this area offers opportunities for future growth. (5) Advertising space is sold and 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 was down slightly due primarily to the weak ag economy. This was somewhat offset due to subscriber and subscription revenue growth as well as the addition of new services with available advertising space. (6) Service initiation fees are one-time charges for new subscriptions depending on the service and the information distribution technology. DTN also charges an initiation fee for those subscribers who convert to another service (i.e., from a monochrome FM to a Ku color service). Agricultural Services 1999 1998 1997 ---- ---- ---- Revenues (in millions) $85.1 $88.3 $87.6 Subscribers at year-end 109,300 113,800 120,500 4 The DTN Agricultural Division consists of five major services: DTN Ag Services, DTNstant, DTN Fresh (an expansion of DTN PROduce), DTNiron and DTN Cotton Network. DTN Ag Services, DTNstant and DTNiron serve DTN's traditional agricultural marketplace, consisting of grain and livestock farmers and agribusinesses with interests in the commodity distribution chain. DTN Fresh is in the fresh produce and perishable vertical market with initiatives in meat and floral. DTN Cotton Network serves cotton gins, warehouses and merchants. Because of the diversity of these markets, the ag sales force has been specialized to best serve prospects and customers in each area. Approximately 80% of DTN ag subscribers are grain farmers and livestock producers, with the balance consisting primarily of grain elevators, agri-businesses 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. The Internet has altered access to information for ag producers. DTN's focus on additional of proprietary content and analysis from a dedicated team of ag journalists continues to set DTN apart from "free" services. Entry into the e-commerce arena, which will be discussed in detail later in this report, has opened new doors of opportunity for the company's ag division. The main competition to the agricultural services is a combination of printed advisory services, radio, television, telephone, other satellite information services, free and subscription Internet services, and old information-gathering habits. There are over 200 premium services available to agricultural subscribers to enhance their subscription. These services consist of advisory, informational and educational products as well as newswire, association and free add-on services. Premium services compliment core services and add value to the subscribers who use them. They are marketed to current subscribers through telemarketing, system wide and individual free trials, direct mail, billing and equipment inserts as well as on screen advertising. Prices range from $2 to $400 per month. Communication services play an important role in providing a cost effective means to reach a large number of targeted customers daily. DTN InfoMail provides information for elevators, seed sales reps, agronomists, chemical sales reps and technical advisors, commodity brokers, processing plants, auction sale barns, feedlots and anyone with a need to communicate to DTN subscribers. Over 40 new InfoMail providers began messaging in 1999. Advertising on DTN Ag Services is another revenue-generator for the ag division. The "always on" interactivity, animation and scheduling flexibility of the DTN systems are very appealing to agri-businesses such as seed companies, equipment dealers, and ag chemical and finance businesses. Advertising revenue in 1999 topped $2.8 million. E-Commerce Initiatives DTN's Ag Division is poised to leverage its critical mass of ag customers by providing easy and affordable access to Internet services with numerous e-commerce initiatives. The DTN Cotton Network is involved in the electronic trade of cotton for over two years and is a combination of DTN's proprietary network and the Internet. DTN Fresh introduced DTN Tradelink, which is involved with electronic data interchange (EDI) in the produce and perishables industry. DTN Tradelink software is used for price discovery and trading. In the fourth quarter of 1999, an alliance with Ag1.com created a program to provide inputs, financing, marketing advice and insurance for producers. This program has been well received in its early stages. DTNstant expanded its capabilities to include cash grain trading between its customers. The Tradelink software allows producer-to-elevator grain trading and will be sold along with InfoMail services. 5 In addition, DTN Ag Services has negotiated an agreement with two brokerage firms to allow electronic commodity futures order entry. The elevator-to-elevator transactions as well as the producer-to-elevator transactions can be executed using DTN ACE receivers or the Internet. In December 1999, DTN and Photon Research Associates, Inc. (PRA) formed a joint-venture company, EarthScan Network, Inc. Earthscan Network is the culmination of a three year relationship bringing the latest in satellite imaging and Internet technology to give the agricultural industry unprecedented capability to manage risk and maximize return. DTN AgDayta DTN Ag Services' leading edge Internet service, DTN AgDayta (www.agdayta.com), incorporates editorial content specifically for AgDayta along with proprietary content developed for satellite services. Internet delivery allows additional functionality and supports interactivity. A newly developed charting package can be downloaded to the user's personal computer, giving impressive charting abilities for both futures and equities. An enhanced Kavouras weather package offers real-time weather updates. The result is DTN Ag Services' most content rich agricultural service. DTN AgDayta serves as the foundation of Ag Services' e-commerce initiatives on the Internet. Ag1.com has been integrated with AgDayta to provide producers with inputs, financing, marketing plans, and crop insurance. Online cash and futures trading will be available on the AgDayta site. DTN AgDayta will provide the customer with easy access to virtually every tool needed throughout the ag production and marketing cycle. DTN AgDaily/FarmDayta Satellite Services DTN AgDaily is the Company's flagship service. Managed on an Advanced Communications Engine (ACE) satellite receiver, subscribers receive delayed commodity futures and options quotes, charts, local cash grain and livestock prices, selected national, regional and world weather updates and a variety of daily analysis, commentary and news affecting grain and livestock prices. DTN Pro Series is an advanced version of DTN AgDaily. Functionality is enhanced with a high interest window to view futures quotes and options on any page, keyword search, customization of up to five pages of selected information and a personal library serving as an archive segment. Packages of weather, news, charts, intraday commodity charting or stocks can be added to the core service. DTN Commodity Pro, Premier and Premier Plus combine two or more of these packages for a more extensive, customized service. DTN FarmDayta II offers similar information using the unique FarmDayta receiver for its delivery method. FarmDayta One service was introduced to fill a special customer niche. Content was developed to provide a lower price point for the first-time DTN customer. This is the most economical color satellite option available from DTN Ag Services. FarmDayta Elite and Elite Plus include all the DTN FarmDayta II features and content with added news, quotes, weather information and functionality. DTNstant DTNstant is a leader in providing delivery of real-time futures and options quotes from the major commodity exchanges and headline commodity news from multiple sources such as the Associated Press, Reuters, Futures World News and Bridge. The service also provides market-leading cash grain and livestock information, in-depth charting capabilities plus all the information available on the DTN AgDaily color service. In addition, the service provides information for the energy, metals, softs (i.e., orange juice, coffee, cocoa), transportation and lumber industries. DTNstant uses compatible software to allow the "pass thru" of data and graphics into an individual's personal computer or a company's local area network (LAN). 6 With this capability, a DTN ACE receiver can feed information to multiple users/traders on the LAN. This "pass thru" software has opened many new markets by utilizing information distribution within a customer's LAN, enhancing analytical capabilities and the manipulation of DTN data in a "PC" environment. DTNstant operates in a very competitive market with many providers of instant commodity quotes. The primary subscribers are commercial grain companies and elevators, feedlots, commodity brokers and commodity speculators. No other product in the industry offers a more comprehensive news and information service. Due to the nature of this industry, the Company provides on-site service and installation by professional service technicians. DTN Fresh (an expansion of DTN PROduce) DTN Fresh provides comprehensive weather, pricing, news and transportation information, as well as e-commerce and electronic data interchange (EDI) solutions for those involved in the buying and selling of perishable commodities. DTN Fresh has two business units. DTN Tradelink provides e-commerce and EDI solutions for buyers and sellers of perishable commodities. DTN Fresh Information Services provides an authoritative source of weather, pricing, market information, news and transportation information for produce, meat, floral and other perishable product industries. DTN Cotton Network DTN Cotton Network is an electronic communications system for the cotton industry designed to operate on a user's personal computer using software developed specifically for cotton accounting and marketing. DTN Cotton Network sells gin and warehouse bale accounting/management software and cotton merchant software designed specifically for these specialized businesses. The combination of the accounting and marketing software and the electronic marketing system provides the cotton industry with an integrated system for moving cotton from farm to shipper. DTN Cotton Network serves the Western Cotton Belt, which includes Texas, Oklahoma, New Mexico, Arizona and California from its office in Lubbock, Texas. The network serves its Eastern Cotton Belt customers in Louisiana, Mississippi, Arkansas, Tennessee, Alabama, Georgia, Florida, South Carolina, North Carolina and Virginia from its Memphis, Tennessee office. Sellers connect to the Cotton Network via the Internet to upload bale ownership information, down-load cotton bale data and list cotton for broadcast to prospective buyers. Buyers may either receive the broadcast via Internet or DTN Ku-band satellite, where the broadcast is passed through a serial port into personal computers at the buyer locations. DTNiron DTNiron is a cost-effective communication resource for the farm implement, construction, truck and trailer dealers which provides an equipment locator and advertising service for dealers at the wholesale and retail levels. A detailed implement listing remains on the DTNiron system for a minimum of 30 days, renewable at the dealer's request. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily service. A retail equipment listing is available on the service's web site (www.DTNiron.com). This allows subscribers to gain additional exposure for their listings at no additional charge. Internet users can easily locate equipment for sale by using a drill-down database search engine directing them to DTNiron's complete web listing. Dealers can also receive e-mail from potential buyers or, if they are not e-mail enabled, DTN will call or fax the message to the dealer. 7 EarthScan Network, Inc. EarthScan Network, Inc. (www.earthscan.com) is a newly formed joint-venture company developed through a partnership between DTN and San Diego based Photon Research Associates, Inc. (PRA). This partnership combines PRA's expertise in the acquisition, archiving, enhancement and distribution of remotely sensed images with DTN, the leader in distribution of information to agriculture and agribusinesses. EarthScan delivers the most sophisticated satellite images available to farmers and their suppliers at an affordable cost through the Internet. The remote sensing service enables the customer to identify and respond faster than before to problems caused by insects, weather or nutrient deficiencies. It also provides real-time measurement and analytical capabilities throughout the growing season. In addition to agriculture, EarthScan Network sees new markets developing in the future in real estate, community planning, mining, fishing, forestry and transportation industries. Weather Services 1999 1998 1997 ---- ---- ---- Revenues (in millions) $38.5 $25.8 $10.7 Subscribers at year-end 23,400 18,300 13,100 DTN Weather Services consists of three major components, DTN Weather Center Services, Kavouras, Inc. and Weather Services Corporation (WSC). The combination of these three DTN companies creates a leading provider of critical weather information and meteorological equipment to small businesses, military, federal government, broadcast television, major utilities, Internet portals and anyone whose business is impacted by weather conditions. DTN Weather Services' future plans includes expanding its presence in markets that rely on DTN services for weather information by offering new transmission methods, including PC-based products and the Internet. The Internet provides many opportunities for growth such as advertising supported sites, monthly subscription sites, "pay-per-view" sites, etc. DTN Weather Services employs a dedicated weather sales force made up of nearly 100 sales professionals for its sales and marketing efforts. This sales force is unique to DTN in the weather industry and is a major reason for the success of the division. Weather conditions impact the profitability and safety of many industries, and DTN Weather Services is dedicated to becoming the sole solution for weather information needs. Competition includes several large private weather companies and on a smaller scale, television and the Internet. The competition lacks the timeliness and current local weather information that DTN services provide. DTN Weather Services constantly looks for new and better ways to provide this critical information to its customers in the quickest, most dependable and cost effective way. WX.COM WX.com (www.WX.com), a free interactive weather web site, made its debut in May of 1999. WX.com features TV quality, 3-D graphics and weather information including international weather, radar, storm tracking, current conditions, weather warnings, and more. WX.com differentiates from other Internet services in that it provides viewers with a dynamic and interactive experience including the ability to easily overlay full-motion weather maps with state and county lines, highways and other familiar landmarks to track weather patterns. The technologically advanced Triton(tm) RT, which was developed by Kavouras Weather Services in Minneapolis as the world's first fully functional 2-D and 3-D weather graphics system, powers WX.com. This system provides WX.com with state-of-the-art weather that is both entertaining to viewers and meteorologically accurate. 8 DTN Weather Center DTN Weather Center is a comprehensive weather information system designed to meet the weather information needs of many industries. Markets specifically targeted by DTN Weather Center are golf courses, turf management, emergency management, state transportation departments, public works departments, construction, broadcast and aviation. DTN Weather Center introduced new products in 1999 designed especially for the aviation and golf industries. DTN Weather Center provides more than 100 full-color maps and other in-depth weather information, from local forecasts and regional radar maps to national infrared satellite images. The service provides short-range (immediate to 48-hour) forecasts, long-range (30-90 day) outlooks and 10-day city forecasts for more than 550 major cities across the United States. A personal programmable segment allows users to customize maps and the archive feature easily stores maps for future reference. DTN Weather Center provides the important weather information and planning tools to make businesses safer, more profitable and easier to manage. DTN Aviation Center DTN Aviation Center is a comprehensive aviation weather package specially designed for pilots, airports and Fixed Based Operators (FBO's), supplying them with the extensive flight-plan information found on many premier "online" systems. This package includes U.S. and regional depiction maps, 24-hour low-level significant weather prognosis, U.S. region winds and temperatures aloft and also METAR (the aviation acronym for airport observations) and TAF (Terminal Aerodome Forecast) information. Subscribers use DTN Aviation Center during flight services to visualize current weather conditions while creating their flight plans. This service also aids in determining alternate route destinations. A new premium service available to Aviation subscribers during 1999 was Flyte Trax, a worldwide flight tracking system. 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 FlightBrief Online In November 1999, DTN purchased FlightBrief Online Service, Inc. The purchase included two web sites, www.weatherconcepts.com which provides real-time weather graphics to aviation, marine, farming and construction subscribers, and www.flightbrief.com which provides real-time weather graphics and interactive flight planning, weather briefing, airport databases and other resources for aviation subscribers. In addition to the web sites, DTN received approximately 3,300 subscribers. This purchase allows DTN to target the more than 600,000 aircraft owners and pilots in the United States. These sites also offer the opportunity for advertisers to reach these niche markets. DTN Broadcast Weather DTN Broadcast Weather is a weather and news information service designed for the broadcast industry. Along with the comprehensive local, regional and national weather forecasts and information, subscribers receive National Oceanic and Atmospheric Administration Warnings & Alerts (NOAA). Learfield World & National News Summary provides hourly summaries of international and national news. The segment contains 20 pages, formatted for about two to three minutes of "rip and read." Announcers can organize the material, print it out or read it directly from the DTN screen. 9 DTNonline DTNonline was added to the DTN Weather Center family of services during 1999. It provides the same maps, forecasts and warnings as the satellite-delivered DTN services, along with NOAA Warnings and Alerts, via the Internet. DTNonline allows subscribers to monitor important weather information at the office, on the job site or at home. Although subscribers prefer the reliability, speed and reception of the satellite service, DTNonline allows the redundancy of having a satellite system along with an Internet back up. This allows for continuous access in the event of rain fade at dish locations or Internet delays due to phone line outages, etc. DTN Contractor Weather DTN Contractor Weather is designed for the construction industry and includes construction-related news and information. The service gives subscribers a competitive advantage by providing valuable weather information necessary for important day-to-day business decisions. Job site weather management options include the DTN Weather Alert Paging System, which provides immediate notification of severe weather directly to the user's alpha pager, and DTNonline (Weather Center's Internet service). NOAA Weather Wire and Severe Weather Maps are included in DTN Contractor Weather Level II, along with the subscriber's choice of the Weather Alert Paging System or DTNonline. The service is a practical tool in improving employee safety, saving labor and material costs, and providing effective scheduling and staffing management for the construction industry. DTN Forestry Center DTN Forestry Center provides critical forest fire information to subscribers. Previously, district forest service offices relied on a modem network assembled in the late 1960's for crucial information on forest fire locations and fire weather forecasts. With DTN Forestry Center, forecast service district managers quickly access fire weather text bulletins along with a comprehensive set of weather maps. Bulletins provided for the forest service are Forest Weather Forecasts, Red Flag Warnings, Fire Danger Indexes, Fire Weather Observations and Fire Weather Notices. A special chapter of fire weather maps provides additional information such as Haines Fire Index, Current and Forecast Relative Humidity, Current and Forecast Wind Speed and Direction, upper air analysis from 5,000 to 10,000 feet, and moisture index information from both the Crop Moisture Index and Palmer Drought Index. DTN Marine Center DTN Marine Center provides satellite-delivered weather information for all areas of the marine industry. The service provides information necessary for cost-effective, efficient decision making regarding towing, shipping, salvage and recreation. It includes Lake and Marine Text Bulletins, Buoy Reports, Lake and Marine Maps and Tide Tables, as well as general weather information and sea conditions. Sea Surface Temperatures are also available as an optional service. DTN Transportation Weather DTN Transportation Weather is designed for anyone responsible for road maintenance and conditions. Comprehensive local, regional and national weather forecasts and information are available to transportation professionals, allowing them to make informed decisions regarding the weather. Subscribers have the choice of the DTN Weather Alert Paging System or DTNonline (DTN Weather Center's Internet service). The Weather Alert Paging system provides immediate notification of severe weather directly to the user's alpha pager. DTNonline enables the subscriber to make management decisions based on weather at home or away from the office with a PC. 10 NOAA Weather Wire and Severe Weather Maps, Travel Cast Maps and Road Conditions, and EarthSAT Winter Weather Information are important features of this product. DTN Travel Center DTN Travel Center is an interactive hotel guest service designed for the hospitality and travel industries. The service targets hotels and motels with 50+ rooms and includes NEXRAD Real-Time Radar Maps, travel forecasts and road conditions, detailed city and national forecasts, national and world news, sports and sports scores. In addition, the service provides business and financial news and market quotes and indexes. DTN Travel Center provides a comprehensive weather and news information package for both the business and vacation traveler. DTN Turf Manager DTN Turf Manager is available to businesses and individuals involved in turf-related operations such as golf courses, lawn maintenance, landscaping and sod farms. The service provides the weather and chemical information needed for effective turf management, making the safest, most cost-effective use of chemicals, labor and other resources. Material Safety Data Sheets (MSDS) are available with Turf Manager, along with the C&P Press Turf Product Index, an information database of more than 275 turf pesticides. Plant Protection Chemical Product Labels were added to the service in 1998. This important segment provides full information on chemicals used in turf care and management. Thor Guard, the only lightning prediction system available, warns of lightning strikes before they happen and is available as an optional service. Evapotranspiration Tables provide regional evapotranspiration rates to plan for watering and chemical application. Golf information, such as ESPN Sports Ticker, the National Golf Course Directory, GCSAA News and USGA News, is provided with DTN Turf Manager. DTN Pro Shop DTN Pro Shop was added to the line of Weather Center products in 1999. It contains the weather information golf course professionals need, along with the golf and sports information their customers enjoy. Regional radar maps, current weather conditions and city forecasts are included in the weather segment. Golf and sports information includes an interactive handicap calculator, an easy-to-use search and sort database of golf courses in the U.S., a golf products section and a golf news and sports segment that provides the latest updates on the major tours and up-to-the-minute coverage of all major sports. DTN Weather Safety Center DTN Weather Safety Center provides weather information for those responsible for protecting lives and property from the hazards of severe weather. NOAA Weather Wire, the most comprehensive warning and alert system available today, is available with the service, along with radar and satellite images, local, regional and national outlooks. DTN Weather Safety Center is invaluable for emergency management professionals. Safety Center subscribers receive a free DTNonline connection for remote or emergency access to weather information in addition to their DTN satellite system. This enhanced option assures continuous access to weather information regardless of conditions that could cause reception problems. 11 StormSentry PC A new product to DTN Weather Center in 1999 is DTN StormSentry PC, a weather information service designed to provide real-time, single-site NEXRAD access on a PC. DTN StormSentry is the ultimate in storm tracking technology. Subscribers can access the storm tracking system at an affordable cost, in an easy-to-use format. The ease of navigation and the multiple "windows" capability allows subscribers to simultaneously monitor critical weather conditions, severe weather, satellite maps and lightning conditions. Users can zoom to the exact location, as small as a one county area, for in-depth viewing of storm cells. StormSentry takes the guesswork out of severe weather forecasting and allows subscribers to be proactive in responding to severe weather. DTN Kavouras Weather Services DTN Kavouras Weather Services is a total weather solutions resource, providing a full spectrum of advanced meteorological information products and services for weather-dependent applications in industries and governments worldwide. The Minneapolis-based subsidiary of DTN produces real-time PC weather workstations, comprehensive meteorological training, and a massive international weather database. DTN Kavouras and its 140 employees offer an expertise level unmatched in the industry. Weather Services Corporation (WSC), based in Lexington, Massachusetts, is one of the largest sources for meteorological consulting and worldwide commercial weather information. WSC provides name awareness for DTN Weather Services through valuable contracts with high profile customers including Metro Networks, TVA (Tennessee Valley Authority) and numerous utilities, broadcasters, agribusinesses and municipalities. Triton RT Triton RT is a real-time 3-D and 2-D weather and news graphics animation system focused on, but not limited to, the broadcast television market. This product uses weather data to create an informative and exciting weather show. MetWork FileServer MetWork FileServer is a robust and dynamic network solution for real-time dissemination of meteorological information based on the versatile and efficient NT format, supporting standard Internet communications protocol and various network configurations. Storm Pro Storm Pro is a workstation that integrates real-time Doppler weather radar with a geographic information data system to create an accurate display with broadcast-quality appearance. The display can be individualized for a unique and defining look important in the television market. StormWatch StormWatch is customizable software that monitors either a weather wire or a DTN Kavouras MetWork Fileserver to generate color-coded maps and/or a crawl message for important watch, warning or advisory weather situations. StormWatch also allows a television station to edit and prioritize information for their viewing areas. SchoolWatch SchoolWatch is customizable software for the Triton RT that helps television stations easily update, prioritize and display late-start and school closing information. This software can also be configured to update information on a station's web site. 12 Data and Customizable Forecasting Services provides a broad range of standard data for a variety of markets. In addition, DTN Kavouras staff provides 24-hour, 365 days a year coverage for tailor-made forecasts to meet customers' special needs. Kavouras MetVision New in 1999, the Kavouras MetVision service represents the highest resolution weather forecast data in the broadcast television industry. MetVision, based on a proprietary numerical weather prediction model developed by the Harris Corporation, produces forecasts of the future state of the atmosphere in four dimensions. The Kavouras Triton RT workstation transforms the MetVision data into visualizations of the forecast information for analysis and spectacular on-air displays. MetVision helps a meteorologist prepare a better weather forecast and also helps to graphically explain the forecast to the average TV viewer. MetVision is an optional Kavouras data product. Kavouras/RT-SET WxStudio Also new in 1999 is Kavouras/RT-SET WxStudio which combines the Kavouras TritonRT weather workstation with RT-SET's cost-effective, entry level Ibis(TM) Virtual Studio System. WxStudio represents the integration of these two complementing technologies and offers the broadcast television the ability to make one purchase to deliver virtual studio effects with news, weather, sports and entertainment programming from the same integrated system. In addition to free-form 3D weather graphics, the WxStudio Virtual Studio System supports an unlimited number of cameras, foreground and background images and obstructions, and instant switching between backgrounds. Financial Services 1999 1998 1997 ---- ---- ---- Revenues (in millions) $19.4 $13.4 $10.3 Subscribers at year-end 21,900 15,800 12,900 DTN Financial Services' core business continues to focus on serving the exploding number of individual investors as well as members of the professional financial industry. This is accomplished by offering an array of time-sensitive yet affordable information services, plus a suite of business applications designed for the financial professional. This strategy is critical due to the highly competitive nature of the industry. DTN Financial Services brings together a broad selection of financial information and has capitalized on the explosive growth in online investing by offering well-conceived and attractively priced Internet services. DTN Financial Services continues to integrate information from a variety of sources such as Bridge, Liberty Brokerage and Market News Service, UPI, New York Times, PR Newswire, Business Wire, Futures World News, Dow Jones, Associated Press and others. In the past year, the services began to transition from information only to services with information and transactional capabilities. A la carte, optional services offer subscribers an even greater variety of financial data, including stock selection and timing advice, earnings estimates, fundamental stock market data, U.S. Treasury quotes and other financial market-related services. These combinations allow each service to maintain a competitive advantage in the market. Subscribers include individual investors, independent brokers, financial advisors and financial institutions. With competition coming from sources such as commodity news services, diversified media companies and smaller niche providers, DTN Financial Services continues to differentiate itself in the industry by offering new services at competitive prices. 13 Individual Investors With the growing number of online investors estimated to reach 15 million by the end of 2000, DTN Financial Services has strategically positioned its two leading, streaming Internet-delivered services, DTN.IQ and InterQuote, to continue to capture market share among this group. Aiding this endeavor was the incorporation of direct access to online trading into both of these services. DTN.IQ Since its inception in May 1998, DTN.IQ (www.DTNIQ.com) has steadily outperformed company expectations, and operating results for fiscal 1999 confirm this trend. A contributing factor to the increase in sales during 1999 was the June integration of direct online trading capabilities. Through our established relationships with several online brokerage firms, DTN.IQ subscribers can execute trading decisions directly from their quote screens in seconds. Utilizing non-browser-based software, traders can place orders and receive return confirmations of their transactions in real-time. A vital consequence of trading integration is the ability of DTN Financial Services to generate revenue from customers' trading activity. Transactions by both DTN.IQ and InterQuote customers became a source of new revenue during the fourth quarter of 1999. In addition, the streaming real-time quotes, news and charting capabilities provided by DTN.IQ offers functionality critical to individual investors and traders using the Internet. InterQuote In May 1999, DTN Financial Services completed the acquisition of Paragon Software, Inc. in Milwaukee, Wisconsin. Paragon's flagship product, InterQuote (www.interquote.com), delivers real-time or delayed market data to individual investors via the Internet and was one of the first such services ever offered. With the acquisition of Paragon, DTN Financial Services obtained 3,800 subscribers and the ability to round out its offerings for both casual and extremely active investors. InterQuote's unique front-end application appeals to investors needing cost effective, a la carte features. An affordable yet robust basic service includes streaming quotes on stocks, futures and options, intraday and historical charts, pager quotes and alerts, and an extensive array of fundamental data. Subscribers may further enhance the service by adding premium services such as Nasdaq Level II pricing, Dow Jones Business News, AP Online News and custom market scanning tools. Additional premium services are planned for inclusion in 2000. Other Financial Services Other financial information services available to the individual and professional investor are DTN Real-Time, DTN SPECTRUM and DTN Wall Street. Each of these services may be delivered by customer preference via satellite, cable television's VBI (vertical blanking interval) or designated phone line. These services provide real-time or delayed stock and stock option quotes, news and commentary as well as other time-sensitive financial market data. All of the services include information integrated from a variety of sources including DTN's commodity ticker plant, Bridge, Standard & Poor's, Liberty Brokerage and over 40 newswires including Dow Jones and AP. Optional services from some of the world's leading investment service providers are also available and may be delivered on most platforms. Financial Professionals For financial professionals, the focus in 1999 turned to Internet-delivered services. In September 1999, National Datamax, Inc., a wholly owned subsidiary of DTN, introduced an extranet service for Broker/Dealers. 14 Rep Center The web-based service, RepCenter (www.repcenter.com), is customized to resemble the Broker/Dealer's public web site and gives representatives secure access to commission reports, sales letters, business forms and home office announcements from anywhere. The service also provides a portal page of quotes, news and charts. RepCenter increases National Datamax's presence with financial professionals and makes it easy for them to launch National Datamax's contact management, fund analysis or portfolio management software from RepCenter's main page or purchase products online. National Datamax also introduced upgrades to all of its fundamental products and expanded the data delivery capabilities for the Mutual Fund, Stock, Industry and Variable Annuity analysis programs. With the addition of RepCenter, National Datamax has expanded its offerings for financial professionals by providing a complete business solution encompassing prospecting, client management, asset management, reporting and business management. Enterprises Financial Window Network (FinWin), a new service introduced in October 1999, dramatically broadened the market for DTN Financial Services to include any enterprise desiring to enrich their web site with popular financial content. Financial Window Network or FinWin Leveraging existing content and technology, in October 1999 DTN Financial Services launched FinWin (www.finwin.com), a financial portal site that may be customized for public or private web sites. FinWin builds traffic instantly to site by the addition of market quotes, news, interactive charts, list of most actives, major indices and custom watchlists and portfolios. FinWin may be added to a site for free (DTN retains advertising space) or by monthly subscription without advertising. With FinWin, DTN Financial Services gains from two solid operating factors, the opportunity to extend product sales beyond the traditional financial market and the creation of a viable advertising-based revenue stream. A survey of current customers attests to this first phenomenon. FinWin customers come from a wide range of industries including Internet service providers, local and regional news organizations, search engines, web development and metropolitan community sites, in addition to conventional financial services businesses. The establishment of an advertising-based service enables DTN Financial Services to fully compete in this prevailing Internet business model, while FinWin customers receive the full advantage of edited content from an established financial expert. Despite a year end release, FinWin established a strong sales record for the final quarter of 1999 and is beginning to contribute to operating cash flow. Energy Services 1999 1998 1997 ---- ---- ---- Revenues (in millions) $18.7 $16.1 $14.3 Subscribers at year-end 8,700 8,400 8,400 Energy related services include DTNergy for the refined fuels, natural gas industries and electric industries. 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. 15 DTNergy is designed to connect refiners (producers of refined fuels) to wholesalers (distributors of refined fuels). The refiner sends refined fuel prices to wholesalers authorized to receive this information. The refiner is also capable of sending terminal alerts, electronic funds transfer notifications, invoices, and other communications to the wholesaler. The DTNergy system carries more than two million messages a month for this industry. Subscribers can also select from a variety of optional services providing additional prices or news related to the petroleum industry. The strength of the DTNergy Refined Fuel service is the ability to deliver, within seconds, accurate refiner terminal prices and other vital communications to the wholesalers. This service is more reliable, timely and less expensive than the competition, which utilize telephone delivered printer-only systems and FAX services. DTNergy generates revenue from two primary sources, the wholesaler and the refiner. Wholesalers currently pay a month subscription fee while refiners pay fees based on the number and length of communications sent to wholesalers. Refiners use DTNergy communications to link to their wholesalers with the implementation in 1997 of EDI (Electronic Data Interchange) fuel invoices. EDI/VAN (Value Added Network) services help automate customers' business processes by converting refiner text invoices into an industry standard format. Once these invoices are in a standard format, the invoice data is transferred into a customer's accounting system from the ACE unit. DTNergy also provides an information service for the natural gas and electric industries. Subscribers receive instant or delayed NYMEX energy futures and options quotes, a comprehensive weather package and industry specific news and market information. This service targets energy producers and generators, transporters, marketers, utilities and larger energy consumers. DTNergy enjoys a strong position within the energy marketplace. Although there are technologies available to petroleum suppliers that would allow these suppliers to communicate directly with their petroleum wholesalers, the suppliers have been unsuccessful in implementing technologies such as the Internet to displace DTNergy. The main reason for DTNergy's continued proliferation within the petroleum industry is that most petroleum wholesalers purchase petroleum products from more than one supplier. DTNergy's ability aggregate supplier data, create standardize data formats for electronic processing of supplier data and provide one-stop customer service for petroleum wholesalers has added value that no one supplier can offer on there own. OTHER SERVICES DTNauto DTNauto is an information and communication service for professionals involved in the automotive, finance and insurance industries. The service offers precision, time sensitive information for analyzing new and used automotive vehicle values. In 1999, DTNauto began development of its web site (www.DTNauto.com) to provide automotive and related industries with time sensitive wholesale pricing and market analysis, portability and enhanced functionality via the Internet. Subscriptions to DTNauto.com will be available in the first half of 2000 and will be competitively priced. DTN Joint Venture Services DTN joined forces with several companies to market their services using DTN technology. These services are DAT Transportation Terminal, TracElectric, DTN InfoLink and DTN Missing Children Information Center (MCIC). 16 DTN InfoLink DTN InfoLink provides real-time news, weather, sports and market information to the grocery and transportation industries. With the addition of the latest card reader terminals and printing technologies, unique promotions and product offerings can be delivered to public use kiosks. These kiosks allow interactive coupon redemption, printing of recipes, and the opportunity to integrate customer loyalty and frequent user programs. DAT The DAT (Dial-A-Truck) Transportation Terminal service, located in Beaverton, OR, is an information communication system for the trucking industry. The service provides load and truck matching performed on a database of 100,000 listings updated daily. DAT allows subscribers to input their listings into the DTN receiver and send this information to a database using the internal modem. The service provides subscribers with the ability to perform extensive searches to locate loads and trucks and to set alarms alerting users of a match. The service also provides regional radar weather maps of major highways and interstate systems, transportation news, diesel fuel prices and other financial information related to the trucking industry. DAT targets all freight brokers and carriers throughout the United States, Canada and Mexico. TracElectric TracElectric is an equipment locator service for the electrical equipment industry. This service provides over 100 pages of new, remanufactured, surplus and used electrical equipment listings. The service connects buyers and sellers throughout the United States and Canada. Missing Children Information Program DTN Missing Children Information Center (MCIC) provides instant transmission of data regarding children in danger to local, regional, national and Canadian outlets. In an effort to assist parents, police and the National Center for Missing and Exploited Children (NCMEC) in locating missing children and the criminals involved, photos and information regarding these children are posted as a public service on all DTN color systems. As a result of the close working relationship with NCMEC, a national kiosk program has been developed. Sponsors for the kiosk program are being identified and kiosks are being placed in shopping malls, airports, schools, hospitals, government buildings and other high-pedestrian traffic areas. 17 Employee Data At December 31, 1999 the Company had approximately 1,100 full and part-time employees. (d) Financial Information about Foreign and Domestic Operations and Export Sales: Not applicable ITEM 2. PROPERTIES. The Company leases its executive and administrative offices in Omaha, Nebraska. Approximately 108,000 square feet of office space is leased for these offices for periods up through May 2010. The Company also occupies approximately 19,000 square feet of office space located in Urbandale, Iowa, through the Broadcast Partners acquisition. As part of the acquisition of Kavouras, Inc., the Company acquired a building in Burnsville, Minnesota with approximately 52,000 square feet which is Kavouras' headquarters. The Houston Company also leases office space in Lubbock, Texas; Memphis, Tennessee; San Diego, California; Milwaukee, Wisconsin; Red Bank, New Jersey; Houston, Texas; and Lexington, Massachusetts for business operations related to acquisitions. In addition, the Company leases three distribution centers for the purpose of storing and distributing the electronic equipment needed by subscribers to receive the company's services. The main distribution center is located in Omaha, Nebraska and occupies approximately 28,000 square feet. The Company also serves its Canadian subscribers with a 2,500 square foot distribution center located in Winnipeg, Manitoba. Approximately 7,000 square feet, located in Urbandale, Iowa, was added to the Company's distribution center by way of the 1996 acquisition. The leases related to these distribution centers are for various periods up through December, 2003. The information set forth in Footnote 14 "Leases" on page 54 of the Company's 1999 Annual Report to Shareholders 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, 1999. 18 EXECUTIVE OFFICERS OF THE REGISTRANT Information on the current executive officers of the company is as follows:
Year Joined Name Title Age the Company - -------------------------------------------------------------------------------------------------- Greg T. Sloma President and Chief 48 1993 Operating Officer Brian L. Larson Senior Vice President, Chief 39 1993 Financial Officer and Secretary James J. Marquiss Senior Vice President, Director 55 1986 of Business Research and Product Development Roger W. Wallace Senior Vice President and 43 1984 President, Ag Services Division Charles R. Wood Senior Vice President and 59 1989 President, Financial Services Division William R. Davison Vice President and 45 1989 President, Ag Services Scott A. Fleck Vice President and 32 1991 Director of Engineering Daniel A. Petersen Corporate Controller and Treasurer 34 1990 Joseph Urzendowski Vice President, Operations 36 1992
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. 19 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 57 and 59 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. The company's most restrictive loan covenant restricts cash dividend payments to 25% of net income after taxes in the previous four quarters. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for the Company is on page 32 of the company's 1999 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and results of operations is on pages 33 through 42 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. Certain Factors That May Affect Future Results From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-K and documents incorporated by reference) may contain statements which are not historical facts, so-called "forward-looking statements". These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual future results may differ significantly from those stated in any forward-looking statements. Forward-looking statements involve a number of risk and uncertainties, including, but not limited to, product demand, pricing, market acceptance, inflation, risks in product and technology development, product competition, acquisitions, key personnel, and other risk factors detailed in this Annual Report on Form 10-K and in the Company's other Securities and Exchange Commission filings. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information concerning quantitative and qualitative disclosures about market risk is on page 36 of the Company's 1999 Annual Report to Shareholders 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 43 through 56 of the Company's 1999 Annual Report to Shareholders and are incorporated herein by reference. Supplementary quarterly financial information is on page 57 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 20 PART III The information required by this Part III is incorporated by reference from the registrant's definitive proxy statement for the 2000 annual meeting of the registrant's stockholders scheduled for April 26, 2000, which involves the election of directors. The definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the year covered by this Form 10-K. 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 1999 Annual Report to Shareholders, pages 43 through 56. With the exception of the aforementioned information and the information incorporated by reference into Items 2,5,6,7,7A and 8 of this report, the Annual Report to Shareholders for the year ended December 31, 1999, 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 Shareholders for the year ended December 31, 1999. 2. Financial Statement Schedule: Page ---- Auditors' Report on Financial Statement Schedule 29 Schedule Number Description of Schedule II Valuation and Qualifying Accounts 30 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 Form 8-K dated March 12, 1999 related to the amendment of its shareholder rights plan to allow for the purchase of up to 15% of the Company's common stock before the rights under the plan became exercisable. 2. The Registrant filed a report on Form 8-K dated March 24, 1999 related to the resignation of Roger R. Brodersen of all of his positions as an officer and director of the Company, the resignation of Scott A. Fleck, Richard R. Jaros, J. Michael Parks, and Jay E. Ricks as directors of the Company, the election of Jay H. Golding, Anthony S. Jacobs and Joseph F. Mazzella as directors of the Company, the amendment of the Bylaws of the Company to reduce from 9 to 7 the number of directors of the Company, and to amend the shareholder rights plan to provide for such rights to expire on March 24, 1999, therefore causing such rights to become unexercisable. 3. The Registrant filed a report on Form 8-K dated March 10, 2000 related to the definitive agreement between the Company and Veronis, Suhler & Associates Communications Partners III, LP (VS&A III) whereby VS&A III will make a tender offer to all of the Company's shareholders at a price of $29.00 per share. 21 No reports on Form 8-K were filed by the Registrant during the fourth quarter of the year ended December 31, 1999. (C) Exhibits: (3) (a) Certificate of Incorporation of Registrant. (b) By-Laws of Registrant. (These documents are filed as exhibits to the Registrant's Registration Statement on Form S-1 as filed December 4, 1987.) (4) (a) Specimen certificate representing shares of Common Stock, $.001 par value, of Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed November 4, 1988.) (b) Certificate of Incorporation of Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed December 4, 1987.) (10) (a) Registrant's Stock Option Plan of 1989. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) (b) Registrant's Non-employee Directors Stock Option Plan. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) (c) Form of indemnification agreement between the Registrant and the Officers and Directors of the Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed May 22, 1989.) (d) First Amendment to Registrant's Employee Stock Option Plan of 1989. (e) First Amendment to Registrant's Non-employee Directors Stock Option Plan. (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 25, 1990.) (f) Second Amendment to Registrant's Employee Stock Option Plan of 1989. (g) Second Amendment to Registrant's Non-employee Directors Stock Option. (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 24, 1991.) (h) Third Amendment to Registrant's Stock Option Plan of 1989. (i) Third Amendment to Registrant's Non-Employee Directors Stock Option. (j) Fourth Amendment to Employee Stock Option Plan of 1989. (k) Fourth Amendment to Non-Employee Directors Stock Option Plan. (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 1994). (l) Restated and amended Non-Employee Directors Stock Option Plan. 22 (This document is included as an exhibit to the Registrant's Proxy Statement for the annual meeting of stockholders to be held April 26, 1995). (m) Senior Subordinated Note dated June 30, 1994 between the Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (This document is included as an exhibit to the Registrant's Annual Report on Form 10-K as filed March 28, 1995). (n) Lease agreement dated May 2, 1995 between the Registrant and The Prudential Insurance Company of America. (o) First Amendment to lease agreement dated May 2, 1995 between the Registrant and The Prudential Insurance Company of America. (p) Purchase and service agreement dated July 13, 1995 between the Registrant and Knight-Ridder Financial. (q) Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (r) First Amendment to Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 22, 1997). (s) Independent Sales Representative Agreement dated September 1, 1997, between Registrant, Huston, Inc., and Phil Huston. (t) Second Amendment to the lease agreement dated May 2, 1995, between the Registrant and The Prudential Insurance Company of America. (u) Third Amendment to the lease agreement dated May 2, 1995, between the Registrant and The Prudential Insurance Company of America. (v) Fourth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (w) Second Amendment to the Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994, between the Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 27, 1997). (x) Fifth Amendment to Employee Stock Option Plan of 1989. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 23, 1997). (y) Purchase and Sale of Assets Agreement dated January 2, 1997, between the Registrant, and Northern Data Communications and Market Quoters, Inc. (z) Purchase and Service Agreement dated October 24, 1997, between the Registrant and the Arkansas Farm Bureau. 23 (aa) Purchase and Restrictive Covenant Agreement dated March 14, 1997, between the Registrant and Market Communications Group, LLC. (ab) Asset Purchase Agreement dated July 1, 1997, between the Registrant and Cotton Communications Network, Inc. (ac) Fifth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (ad) Sixth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (ae) Seventh Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (af) Eighth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (ag) Ninth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (ah) Tenth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (ai) 1997 Revolving Credit Agreement dated February 26, 1997, between the Registrant and a group of banks. (aj) First Amendment to the 1997 Revolving Credit Agreement dated February 26, 1997, between the Registrant and a group of banks. (ak) Second Amendment to the 1997 Revolving Credit Agreement dated February 26, 1997, between the Registrant and a group of banks. (al) 1997 Term Credit Agreement dated February 26, 1997 between the Registrant and a group of banks. (am) 1997 Security Agreement dated February 26, 1997 between the Registrant and a group of banks. (an) Sixth Amendment to Non-Employee Directors Stock Option Plan. (ao) Seventh Amendment to Non-Employee Directors Stock Option Plan. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 30, 1998). (ap) Asset Purchase Agreement dated February 5, 1998 between the Registrant and Market Information of Colorado, Inc. (aq) Asset Purchase Agreement dated March 3, 1998 between the Registrant, CDS Group, Inc. and Tim Huggins. (ar) Stock Acquisition Agreement dated March 30, 1998 among the Registrant, Stephen P. Kavouras and the Stephen P. Kavouras Revocable Trust under agreement dated September 13, 1995 and the Irrevocable GST Trust for Stephen P. Kavouras under agreement dated July 29, 1997. 24 (as) Stock Purchase Agreement dated March 30, 1998 among the Registrant, Stephen P. Kavouras and the Stephen P. Kavouras Revocable Trust under agreement dated September 13, 1995 and the Irrevocable GST Trust for Stephen P. Kavouras under agreement dated July 29, 1997. (at) License Agreement dated April 6, 1998 between Kavouras, Inc. and Earthwatch Communications, Inc. (au) Option Agreement dated April 6, 1998 between Kavouras, Inc. and Earthwatch Communications, Inc. (av) Asset Purchase Agreement dated April 23, 1998 between the Registrant and SmartServ Online. (aw) Stock Purchase Agreement dated May 27, 1998 between the Registrant and Donald W. Bowles, Excel Interfinancial Corporation, Charter Financial Holdings, LLC, Steven L. Reynolds, and Douglas Vanderbilt. (ax) Purchase Agreement dated October 14, 1998 between the Registrant, Asset Growth Corporation, Marcia C. Kennedy and Scott L. Brown. (ay) Agreement and Plan of Merger dated November 12, 1998 between the Registrant, Weather Services Corporation and ABRY Broadcast Partners II, L.P. (az) Issue of Common Stock Purchase Warrant dated December 11, 1998 to Peter R. Leavitt, pursuant to the Agreement and Plan of Merger dated as of November 12, 1998 between the Registrant, Merger Sub, WSC, and ABRY. (ba) Issue of Common Stock Purchase Warrant dated December 11, 1998 to ABRY Broadcast Partners II, LP pursuant to the Agreement and Plan of Merger dated as of November 12, 1998 between the Registrant, Merger Sub, WSC, and ABRY. (bb) Amendment dated January 12, 1999 to Stock Purchase Agreement dated May 27, 1998 between the Registrant and Donald W. Bowles, Excel Interfinancial Corporation, Charter Financial Holdings, LLC, Steven L. Reynolds, and Douglas Vanderbilt. (bc) Letter of Intent dated January 26, 1999 to merge wholly owned subsidiary of the Registrant with SmartServ Online, Inc. (bd) Consent to Prepayment of Subordinated Debt dated March 16, 1998 between Registrant and a group of banks. (be) Third Amendment to the 1997 Revolving Credit Agreement dated February 26, 1997 between the Registrant and a group of banks. (bf) Fourth Amendment to the 1997 Revolving Credit Agreement dated February 26, 1997 between the Registrant and a group of banks. (bg) Fifth Amendment to the 1997 Revolving Credit Agreement dated February 26, 1997 between the Registrant and a group of banks. 25 (bh) First Amendment to the 1997 Term Credit Agreement dated February, 26, 1997 between the Registrant and a group of banks. (bi) Second Amendment to the 1997 Term Credit Agreement dated February 26, 1997 between the Registrant and a group of banks. (bj) First Amendment to the 1997 Security Agreement dated February 26, 1997 between the Registrant and a group of banks. (bk) 1998 Revolving Credit Agreement dated December 7, 1998 between the Registrant and a group of banks. (bl) First Amendment to the 1998 Revolving Credit Agreement dated December 7, 1998 between the Registrant and a group of banks. (bm) 1998 Term Credit Agreement dated December 7, 1998 between the Registrant and a group of banks. (bn) 1998 Security Agreement dated December 7, 1998 between the Registrant and a group of banks. (bo) Subsidiary Security Agreement dated June 1, 1998 between National Datamax, Inc. and a group of banks. (bp) Subsidiary Security Agreement dated July 1, 1998 between Kavouras, Inc. and a group of banks. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 23, 1999). (bq) Purchase Agreement dated January 14, 1999 between the Registrant, Waterman Associates, Inc., Thomas L. Waterman and Louise Waterman (br) Stock Purchase Agreement dated March 17, 1999 between the Registrant, Asset Growth Corporation, Marcia C. Kennedy and Scott L. Brown. (bs) Amendment to License Agreement dated May 1, 1999 between Registrant and SmartServ Online, Inc. (bt) Common Stock Purchase Warrant Agreement dated May 1, 1999 between Registrant and SmartServ Online, Inc. (bu) Funding Agreement dated November 9, 1999 between Registrant and Ag1.com. (bv) Security Agreement dated November 9, 1999 between Registrant and Ag1.com. (bw) Asset Purchase Agreement dated November 11, 1999 between Registrant, FlightBrief Online Service, Inc. and Gregg F. Lewis. (bx) Asset Purchase and Sale Agreement dated December 8, 1999 between Kavouras and Radtec Engineering, Inc. (by) Amendment to Asset Purchase and Sale Agreement dated December 13, 1999 between Kavouras Inc. and Radtec Engineering, Inc. 26 (bz) Series A Preferred Stock Agreement dated December 16, 1999 between the Registrant, EarthScan Network, Inc. and Photon Research Associates, Inc. (ca) Eleventh 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. (cb) Twelfth 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. (cc) Thirteenth 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. (12) Not applicable. (13) Registrant's 1999 Annual Report to Shareholders. (This document is hereby incorporated by reference.) (16) None. (18) None. (21) Subsidiaries. (22) None. (23) Consent of Deloitte & Touche LLP. (24) None. (27) Financial Data Schedule. (28) None. (99) Proxy Statement for the Annual Meeting of Shareholders of the Registrant scheduled for April 26, 2000. (This document is hereby incorporated by reference and will be filed with the Securities and Exchange Commission not later than 120 days after the end of the year covered by this Form 10-K.) 27 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/ Greg T. Sloma -------------------------------- Greg T. Sloma President and Chief Operating Officer Dated March 15, 2000. 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/ Greg T. Sloma March 15, 2000 --------------------------------------------- Greg T. Sloma, President, Chief Operating Officer and Director By: /s/ Peter H. Kamin March 15, 2000 --------------------------------------------- Peter H. Kamin, Chairman of the Board By: /s/ Roger W. Wallace March 15, 2000 --------------------------------------------- Roger W. Wallace, Senior Vice President President-Ag Services Division and Director By: /s/ Brian L. Larson March 15, 2000 --------------------------------------------- Brian L. Larson, Senior Vice President, Chief Financial Officer and Secretary By: /s/ David K. Karnes March 15, 2000 --------------------------------------------- David K. Karnes, Director By: /s/ Jay H. Golding March 15, 2000 --------------------------------------------- Jay H. Golding, Director By: /s/ Anthony S. Jacobs March 15, 2000 --------------------------------------------- Anthony S. Jacobs, Director By: /s/ Joseph F. Mazzella March 15, 2000 --------------------------------------------- Joseph F. Mazzella, Director By: /s/ Daniel A. Petersen March 15, 2000 --------------------------------------------- Daniel A. Petersen, Corporate Controller and Treasurer 28 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Data Transmission Network Corporation Omaha, Nebraska We have audited the consolidated financial statements of Data Transmission Network Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 and have issued our report thereon dated February9, 2000 (March 3, 2000 as to Note 18); such financial statements and report are included in your 1999 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of the Company, 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 9, 2000 (March 3, 2000 as to Note 18) 29 Schedule II DATA TRANSMISSION NETWORK CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
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 1999: $1,300,000 $1,480,000 - $980,000 $1,800,000 Year ended December 31, 1998: $810,000 $1,294,000 - $804,000 $1,300,000 Year ended December 31, 1997: $520,000 $842,000 - $552,000 $810,000
30 EX-10 2 PURCHASE AGREEMENT - WATERMAN PURCHASE AGREEMENT THIS PURCHASE AGREEMENT is made and entered into this 14th day of January, 1999, by and among Waterman Associates, Inc., a Delaware corporation ("Seller"), Data Transmission Network Corporation, a Delaware corporation ("Buyer"), and Thomas L. Waterman, an individual ("Stockholder"), and Louise Waterman, the spouse of Stockholder ("Spouse"). RECITALS: A. Seller is engaged in the business of creating, assembling, marketing and distributing information with respect to the gas and electric energy industries (the "Business"). B. Seller desires to sell substantially all of the assets used by it in the conduct of the Business, and Buyer desires to acquire such assets. C. Stockholder, as the owner of all of the issued and outstanding stock of Seller, joins in this Agreement to confirm certain representations, warranties and agreements of Seller herein and to indemnify Buyer in connection with certain matters. In consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller, Stockholder and Buyer, intending to be legally bound, agree as follows: 1. Purchase and Sale. Buyer agrees to purchase from Seller, and Seller agrees to sell to Buyer, the following assets of the Business (except the Excluded Assets as defined at the end of this Paragraph 1), to-wit: (a) All of Seller's motor vehicles, equipment, inventory, supplies, furniture, trade fixtures, leasehold improvements, promotional materials, and other tangible personal property used in the conduct of the Business, including but not limited to the items listed on Schedule 1 attached hereto and incorporated herein by this reference; (b) All of Seller's intangible property used in the Business to the extent assignable, including but not limited to rights, privileges, benefits and interests under all contracts, agreements, consents and licenses; computer software used or useful in the Business (including but not limited to the software listed on Schedule 1 attached hereto); permits or certificates of occupancy; agreements, leases and arrangements with respect to intangible or tangible property or interests therein; copyrights and trademarks; agreements with suppliers and customers; and Seller's rights in and to the trade names "Btu" and "Natural Gas Publications, Inc."; (c) All of Seller's prepaid items, and unbilled costs and fees related to the Business; -31- (d) All of Seller's information, files, records, data, plans, and recorded knowledge, including customer and supplier lists, related to the Business and similar or related data; and (e) All of Seller's goodwill pertaining to or arising out of the Business. The term "Excluded Assets" means (i) any records not relating to the Business and all corporate, accounting and tax records relating to the Business, (ii) all of Seller's cash and cash equivalents, in hand or in bank accounts, and Seller's accounts receivable, and (iii) Seller's rights under this Agreement. 2. Purchase Price. Buyer agrees to pay, and Seller agrees to accept, as the entire aggregate purchase price for the assets of Seller being acquired by Buyer pursuant to Paragraph 1, the sum of $350,000 (hereinafter referred to as the "Purchase Price"). The Purchase Price shall be paid by Buyer to Seller in cash upon the execution of this Agreement, which payment may include checks payable to the order of Seller and the holders of liens or security interests perfected in the assets being sold pursuant to this Agreement, in amounts agreeable to Seller and Buyer. In the event Stockholder voluntarily terminates his employment with Buyer or such employment is terminated by Buyer for cause within five years of the date of this Agreement, Seller, Stockholder and Spouse jointly and severally agree to pay to Buyer a refund of a portion of the Purchase Price equal to the product of multiplying $5,833.33 by the number of full calendar months in such 5-year period following such termination of employment. 3. Assumption of Liabilities. Buyer shall assume, agree to perform, and discharge when due only those obligations of Seller arising out of the contracts, leases and agreements listed on Schedules 7(j) and 7(k) which are or become assignable with respect to the period from and after the date of this Agreement or the date such contract, lease or agreement becomes assignable, as the case may be (the Assumed Liabilities"). Seller and Buyer agree that, other than the Assumed Liabilities, Buyer does not agree to assume and shall have no responsibility for any of the debts, obligations or liabilities of Seller (the "Excluded Liabilities"), all of which shall remain the sole responsibility of and shall be paid and discharged by Seller as they become due. The Excluded Liabilities include without limitation all of the following: (a) Any tax liability or tax obligation of Seller, its directors, officers, shareholders and agents which has been or may be asserted by any taxing authority, including without limitation any such liability or obligation arising out of or in connection with this Agreement or the transactions contemplated hereby. (b) Any liability or obligation of Seller whether incurred prior to, at or subsequent to the date of this Agreement for any amounts due or which may become due to any person or entity who is or has been a holder of any debt or equity security of Seller. 2 -32- (c) Any trade account payable or note payable of Seller or any contract obligation of Seller (other than the Assumed Liabilities) whether incurred prior to, at or subsequent to the date of this Agreement. (d) Any liability or obligation arising out of any litigation, suit, proceeding, action, claim or investigation, at law or in equity or in arbitration, related to Seller's operation of the Business prior to the date of this Agreement. (e) Any claim, liability or obligation, known or unknown, contingent or otherwise, the existence of which is a breach of, or inconsistent with, any representation, warranty or covenant of Seller set forth in this Agreement. (f) Any liability or obligation specifically stated in this Agreement or the Schedules hereto as not to be assumed by Buyer. 4. Transfer Documents. Concurrently with the execution of this Agreement, Seller shall sell, transfer, assign, convey, and deliver to Buyer the assets referred to in Paragraph 1 by duly executed titles, warranty bill of sale and assignment, and other good and sufficient instruments of sale, assignment, conveyance and transfer as shall be required to effectively vest in Buyer all of Seller's right, title, and interest in and to such assets, free and clear of all liens, encumbrances, security interests, actions, claims and equities of any kind whatsoever, following the closing. Seller agrees to take such actions as may be necessary to make available for use by Buyer where appropriate the trade names "Btu" and "Natural Gas Publications, Inc." Buyer shall be entitled to possession of such assets upon the execution of this Agreement. 5. Additional Documents. Concurrently with the execution of this Agreement, Seller shall cause its legal counsel to execute and deliver to Buyer the opinion of such counsel in the form of Exhibit "A" hereto. Concurrently with the execution of this Agreement, Stockholder and Buyer shall enter into an employment agreement in the form of Exhibit B hereto. 6. Obligations to Employees. Seller agrees that it shall be responsible for any obligations to any of its employees which heretofore may have arisen or hereafter may arise by reason of any services rendered by such employees, including but not limited to salaries, bonuses, vacation pay, retirement benefits, and other fringe benefits; and Seller hereby agrees to pay all of such obligations directly to the employees involved when due. Seller agrees timely to pay all payroll tax, withholding, and unemployment compensation payments required to be made with respect to the compensation of such employees and to hold Buyer harmless therefrom. Seller shall furnish to Buyer such evidence of Seller's compliance with the provisions of this paragraph as Buyer reasonably may request from time to time. 7. Representations and Warranties. Seller and Stockholder jointly and severally warrant, represent and covenant to and with Buyer: (a) That Seller has full right and lawful authority to enter into this Agreement and to sell the items of personal property to be acquired by Buyer pursuant to this Agreement; that Seller's 3 -33- performance of its obligations under this Agreement will not violate any agreement, document, trust (constructive or otherwise), order, judgment or decree to which Seller is a party or by which it is bound; and that, upon the transfer and assignment of such property to Buyer as hereinbefore mentioned, Buyer will acquire good and merchantable title thereto, free and clear of any liens, encumbrances, security interests, actions, claims, and equities of any kind whatsoever. (b) That Seller is the sole and lawful owner of and has good and marketable title to all of the items of personal property to be acquired by Buyer pursuant to this Agreement, free and clear of any liens, encumbrances, security interests, actions, claims, and equities of any kind whatsoever. (c) All material items of tangible personal property to be acquired by Buyer pursuant to this Agreement are in good operating condition, subject to normal wear. (d) That there are no suits, arbitrations or other legal or governmental proceedings pending or threatened against Seller which might conceivably affect the title to the items of personal property to be acquired by Buyer pursuant to this Agreement. (e) That Seller has duly and timely filed all federal, state, and local tax returns of every kind whatsoever required to be filed on or before the date of this Agreement and has paid in full the tax liability shown on such returns; that no unpaid deficiencies are in existence which have been asserted against Seller by any official or agency as a result of the filing of such returns; and that there is not now pending any examination with respect to any such returns nor does Seller know of any impending examination with respect to any such returns. (f) That promptly after the date of this Agreement Seller shall pay all sales and use taxes imposed on or collectible by Seller and shall furnish to Buyer evidence that all of Seller's sales and use taxes have been paid. (g) The property to be acquired by Buyer pursuant to this Agreement includes all rights and property necessary to the conduct of the Business by Buyer in the manner it is presently conducted by Seller and no property excluded from Paragraph 1 hereof constitutes property or rights material to the Business. (h) There is no fact, development, or threatened development with respect to the markets, products, customers, vendors, suppliers, operations, assets or prospects of the Business which are known to Seller which would materially adversely affect the business, operations or prospects of the Business considered as a whole, other than such conditions as may affect as a whole the economy generally. (i) The financial statements of Seller furnished to Buyer fairly and accurately represent the financial operations of the Business for the periods covered thereby. 4 -34- (j) That Seller has listed on Schedule 7(j) all of Seller's contracts (oral or written) with customers and suppliers of the Business; Seller has no other contracts (oral or written) with customers and suppliers of the Business. Seller has delivered to Buyer true, correct and complete copies of all written contracts relating to the Business, and written summaries of the terms of all oral contracts relating to the Business, and all of such contracts are presently in full force and effect and are assignable to Buyer, except as otherwise noted on Schedule 7(j). Seller has not received any notices from any customers or suppliers of the Business that indicate that they intend to terminate any of such contracts and, except as reflected in the copies delivered to Buyer or on Schedule 7(j), such contracts have not been amended and Seller and the other parties to such contracts are not in default in any material respect under such contracts. Seller has not been apprised and does not currently believe or have reason to believe that any of the customers of the Business plan to cancel or reduce the volume under any customer contracts. (k) That Schedule 7(k) contains a complete list of all of Seller's contracts (oral and written) relating to the Business, if any, other than the contracts with customers and suppliers listed on Schedule 7(j). Seller has delivered to Buyer true, correct and complete copies of all such other written contracts relating to the Business and written summaries of the terms of all such other oral contracts relating to the Business, and all of such contracts are presently in full force and effect and are assignable, except as otherwise noted on Schedule 7(k), and, except as reflected in the copies delivered to Buyer or on Schedule 7(k), such contracts have not been amended and Seller and the other parties to such contracts are not in default in any material respect under such contracts. 8. Indemnification. Seller and the Stockholder jointly and severally agree to indemnify Buyer and to hold Buyer harmless from any and all loss, damage, cost, or expense incurred or sustained by Buyer by reason of the failure of any warranty or representation contained in this Agreement to be true or as a result of Seller's failure to abide by any covenant or agreement on its part contained in this Agreement. 9. Bulk Sales. Seller has taken any and all actions required under the bulk sales laws of the State of New Jersey, if any, applicable to the transactions contemplated by this Agreement and will satisfy on or before the date of this Agreement (or make arrangements satisfactory to Buyer in its sole discretion to satisfy) all creditor claims, excluding Assumed Liabilities. 10. Survival. The representations, warranties, and covenants on the part of Seller and/or Stockholder contained in this Agreement shall survive the closing of this Agreement and shall be binding upon Seller and the Stockholders and their heirs, legal representatives, successors and assigns. 11. Payment of Liabilities. Following the closing, Seller shall pay as promptly as possible any and all liabilities of Seller existing on the date of this Agreement and to hold Buyer harmless therefrom. Buyer and Seller agree that Buyer is not assuming and shall have no responsibility for any of the debts, obligations, or liabilities of Seller, including but not limited to any 5 -35- liabilities or obligations of Seller (whether fixed, absolute, contingent, known, unknown, direct, indirect, or otherwise) whether incurred or accrued before or after the date of this Agreement, which in any way relate to the performance or non-performance of, or any other liability or obligation relating to any service or product furnished or sold by Seller prior to or after the date of this Agreement, and Seller hereby agrees to hold Buyer harmless from any cost or expense arising out of or relating to any such debts, obligations, or liabilities; provided, however, such indemnification by Seller does not extend to any Assumed Liabilities. 12. Transfer Taxes. Seller shall pay all sales and other similar taxes imposed on or collectible by Seller or Buyer by reason of the transfer of the property being acquired by Buyer pursuant to this Agreement. 13. Noncompete. For a period of three (3) years after the date of this Agreement, neither Seller, Stockholder or any of their affiliates shall, directly or indirectly, whether as a shareholder, partner or investor possessing any ownership interest, or as principal, agent, employee, proprietor, independent contractor, consultant, information provider or in any other capacity: (a) Solicit for itself or himself or others, or advise or recommend to any other person that such person solicit, any current customer of the Business, for the purpose of competing with Buyer in the Business. (b) Employ, solicit for employment, or advise or recommend to any other person that such person solicit for employment or employ any person employed by or under contract with Buyer. If any court having jurisdiction at any time hereafter shall hold any of such restrictive covenants to be unenforceable or unreasonable as to its scope, territory, or period of time, and such court in its judgment or decree shall declare or determine the scope, territory, or period of time which such court deems to be reasonable, then such scope, territory or period of time, as the case may be, shall be deemed automatically to have been reduced to that declared or determined to be reasonable by such court. Notwithstanding the foregoing, if any clause or provision of this paragraph shall be unenforceable, then such clause or provision shall be deemed to be deleted from this paragraph, but every other clause and provision shall continue in full force and effect. These covenants are an integral part of the asset purchase transaction contemplated by this Agreement and Buyer would not have entered into this Agreement in the absence of such covenants. Seller and Stockholder acknowledge that the agreements contained in this paragraph are reasonable and necessary to protect the Business being purchased by Buyer and that any breach thereof will result in irreparable injury to Buyer for which Buyer has no adequate remedy at law. Seller and Stockholder therefore agree that, in the event either of them breaches any of the agreements contained in this paragraph, Buyer shall be authorized and entitled to seek from any court of competent jurisdiction (i) a temporary restraining order, (ii) preliminary and permanent injunctive relief, (iii) an equitable accounting of all profits or benefits arising out of such breach, and (iv) direct, incidental, and consequential damages resulting from such breach. Such rights or remedies shall be cumulative and in addition to all other rights or remedies to which Buyer may be entitled. 6 -36- 14. Entire Agreement. This document constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified, amended, or terminated except by a written agreement specifically referring to this Agreement and signed by all of the parties hereto. 15. Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 16. Further Instruments. The parties hereto shall execute and deliver such additional instruments and documents as may be reasonably requested by any of them in order to carry out the purposes and intent of this Agreement and to fulfill their respective obligations. 17. Further Actions. Seller agrees to take such actions from time to time as may in the reasonable judgment of Buyer or its counsel be necessary or advisable to confirm the title of Buyer to any of the items of property acquired by Buyer from Seller pursuant to this Agreement. 18. Governing Law. This agreement shall be construed in accordance with the laws of the State of Nebraska. 19. Severability. In the event that one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any of the other provisions contained in this Agreement, which provisions shall remain in full force and effect. 20. Counterparts. This Agreement may be executed in one or more counterparts and by the different parties hereto in separate counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 21. Schedules and Exhibits. All references to Schedules and Exhibits herein, unless otherwise stated, means the schedules and exhibits attached to this Agreement which are hereby incorporated by reference. 22. Spouse Guaranty. Spouse shall guarantee all obligations of Stockholder under this Agreement and any ancillary agreement and such obligations shall be the primary liability of Spouse, not secondary liability. 23. Nonassignable Rights. Seller and Stockholder agree to use their best efforts after closing to obtain the consent of the other parties to the contracts listed on Schedules 7(j) and (k) which are nonassignable. Anything contained herein to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any contract, order, commitment, license or right if an assignment or attempted assignment thereof without the consent of the other party thereto would constitute a breach thereof or in any material way affect the rights of Seller thereunder or hereunder unless such consent is obtained. If any such consent is not obtained, or if an attempted assignment would be ineffective and would materially affect Seller's rights thereunder, so 7 -37- that Buyer would not in fact receive all such rights, the parties agree to cooperate in any reasonable arrangement designed to assure that Buyer shall have all the benefits, rights, obligations and duties under such contracts, orders, commitments, licenses and rights, without further consideration being paid by Buyer. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation By:/s/ Greg T. Sloma --------------------------- Greg T. Sloma Title: President and COO WATERMAN ASSOCIATES, INC., a Delaware corporation By:/s/ Thomas L. Waterman --------------------------- Thomas L. Waterman, President By: /s/ Louise Waterman ---------------------------- Louise Waterman 8 -38- EXHIBIT "A" January __, 1999 Data Transmission Network Corporation 9110 West Dodge Road, Suite 200 Omaha, NE 68114 ATTN: Greg T. Sloma, President Dear Sir: I have acted as corporate counsel for Waterman Associates, Inc., a Delaware corporation (the "Company") in connection with the sale of substantially all of the Company's assets pursuant to the provisions of the Purchase Agreement dated January ___, 1999, (the "Agreement"), by and among the Company, its sole shareholder, the sole shareholder's spouse and Data Transmission Network Corporation (the "Buyer"). This opinion is being rendered to you pursuant to Paragraph 5 of the Agreement. Capitalized terms used herein and not otherwise defined shall have the same meaning give to such terms as in the Agreement. In connection with this opinion, I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates, including certificates of public officials, and other instruments that I have deemed necessary or advisable for purposes of this opinion, including those relating to the authorization, execution and delivery of the Agreement. Without limitation, I reviewed the following documents and agreements: (i) the Agreement; (ii) the Certificate of Incorporation of the Company as certified by the Secretary of State of the State of Delaware (the "Charter"); (iii) the Bylaws of the Company as adopted by the Company on April 1, 1993, and certified by the President/Secretary of the Company on December 28, 1998 (the "Bylaws"); (iv) the Bill of Sale, Assignment and Assumption Agreement dated January ____, 1999, executed by the Company and the Buyer (the "Bill of Sale"); and (iv) actions taken by the shareholders and Board of Directors of the Company to authorize the transactions contemplated by the Agreement. In such examination and review, I have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. As to any facts material to the 9 -39- opinions hereafter expressed which I did not independently establish or verify, I have relied without investigation upon certificates, statements and representations of representatives of the Company. During the course of my discussions with such representatives and my review of the documents described above in connection with the preparation of these opinions, no facts were disclosed to me that caused me to conclude that any such certificate, statement or representation is untrue. In making my examination of the documents executed by entities other than the Company, I have assumed that each such other entity had the power to enter into and perform all its obligations thereunder and the due authorization of, and the due execution and delivery of, such documents by each such entity. As used in this opinion, the expression "to my knowledge" with reference to matters of facts means that after an examination of documents in my files and considering my actual knowledge of legal matters I have handled for the Company, without independent investigation or inquiry as to factual matters, but not including any constructive or imputed notice of any information, I find no reason to believe that the opinions expressed herein are factually incorrect. Beyond that, I have made no independent factual investigation for the purpose of rendering an opinion with respect to such matters. Based upon and subject to the foregoing and subject to the further assumptions, limitations, qualifications and exceptions set forth herein, I am of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority required to conduct the Business and to own and use the properties currently owned and used by it. The Company is in good standing with the State of New Jersey, its state of operation. 2. The Company has the corporate power and the authority to execute and deliver the Agreement and to perform its respective obligations thereunder. The execution and delivery of the Agreement by the Company and the performance of its obligations thereunder have been duly and validly authorized by all necessary corporate action on the part of the Board of Directors and stockholders of the Company. The Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to the effect of (i) applicable bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other similar laws or judicial decisions affecting the validity and enforcement of creditors' rights generally and (ii) the discretion of any court of competent jurisdiction in awarding equitable remedies, including without limitation, specific performance or injunctive relief, and the effect of general principles of equity embodied in New Jersey statutes and common law. 3. Neither the execution and delivery of the Agreement nor the consummation of the transactions contemplated thereby, (i) conflicts with or violates any provision of the Charter or Bylaws, (ii) to my knowledge, requires on the part of the Company any filing with, or permit, authorization, consent or approval of, any federal or state governmental agency or entity, except as specified in the Agreement, (iii) to my knowledge conflicts with, results in a breach of, constitutes (with or without notice or lapse of time or both) a 10 -40- default under, or requires any notice, consent or waiver under any contract, lease, license, franchise, permit, indenture, agreement or mortgage for borrowed money or other agreement to which the Company is a party or by which the Company is bound or to which any of its assets is subject, (iv) to my knowledge violates any statute, rule or regulation, or (v) to my knowledge, violates any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any properties or assets of the Company. 4. To my knowledge, the Company (i) is not subject to any unsatisfied judgment, order, decree, stipulation or injunction and (ii) is not a party to or threatened to be made a party to any complaint, action, suit, proceeding, hearing or investigation of any court or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator. 5. To my knowledge, all authorizations, consents and approvals, if any, of all federal, state and local governmental agencies and entities required in order to permit consummation by the Company of its obligations under the Agreement have been obtained. 6. Assuming payment of the Purchase Price by the Buyer, the Bill of Sale is sufficient to transfer all of the Company's right, title and interest in the properties and assets of the Company to be acquired by the Buyer as contemplated by the Agreement. This opinion relates solely to the laws of the State of New Jersey, the corporate laws of the State of Delaware and applicable federal laws of the United States, and I express no opinion with respect to the effect or applicability of the laws of other jurisdictions. I have assumed that and my opinions expressed in paragraph 2 above are based upon my assumption that the internal laws of the State of New Jersey, the corporate laws of the State of Delaware and federal laws, as applicable, govern the provisions of the Agreement and the transactions contemplated thereby. I am opining only as to the matters expressly set forth herein and no opinion should be inferred as to other matters. The opinions expressed herein are furnished by me, as counsel for the Company, solely for your benefit in connection with the transactions contemplated by the Agreement and upon the understanding that I am not assuming any responsibility to any other person or entity whatsoever. This opinion may not be quoted or relied upon by any other person or entity or used for any other purpose without my written consent. This opinion is rendered as of the date hereof and I do not undertake to advise you of matters which occur subsequent to the date hereof and that affect the opinions expressed herein. Sincerely, Frank C. Capozza, Esq. A Professional Corporation 11 -41- EXHIBIT "B" EMPLOYMENT AGREEMENT This Employment Agreement is made and entered into as of the _____ day of ____________, 199__, between DATA TRANSMISSION NETWORK CORPORATION (the "Company"), a Delaware corporation, and THOMAS L. WATERMAN (the "Employee"). * * * WHEREAS, the Company desires to employ the Employee; and WHEREAS, the Employee desires to accept such employment. NOW, THEREFORE, in consideration of the foregoing recitals and the respective covenants and agreements of the parties contained in this document, the Company and the Employee agree as follows: 1. Employment and Duties. The Company hereby employs the Employee for work in connection with the natural gas and electrical product offerings by the Company (the "Products") with such duties and responsibilities as the Board of Directors of the Company (the "Board") or a person (other than the Employee) so authorized by the Board from time to time may assign to the Employee. 2. Term. The term of this agreement shall begin on the date of this agreement and shall continue thereafter for a period of ten (10) years, unless terminated earlier in accordance with this agreement. The Employee shall remain an employee at-will. Either the Employee or the Company may terminate the employment relationship at any time, with or without any reason, subject to the other provisions of this agreement. Each party shall provide the other party with sixty (60) days advance written notice of his or its intention to terminate this agreement, except in the event of the termination of Employee's employment pursuant to any of the first three sentences of Section 11 of this agreement. 3. Place of Employment. During the term of this agreement, the Employee will perform his duties at the Company's offices in Red Bank, New Jersey, and he will not be required to relocate or transfer his principal residence during the term of this agreement. 4. Base Salary. For all services to be rendered by the Employee pursuant to this agreement, the Company agrees to pay the Employee during the term of this agreement a base salary (the "Base Salary") at an annual rate of $100,000 through December 31, 1999, and at an annual rate of not less than $100,000 after December 31, 1999; provided, that the Base Salary as then in effect shall be increased as of January 1 of each calendar year after 1999 during the term of this agreement by at least the same percentage that the United States Department of Labor Consumer Price Index (All Items) for All Urban Consumers, 1982-84=100 ("CPI-U") for the November immediately preceding such January 1 increased over the CPI-U for the November one year earlier. The Board shall review the Base Salary at least annually for the purpose of determining whether a Base Salary increase greater than such CPI-U increase should be 12 -42- granted to the Employee for a particular 12-month period. The Employee's annual incentive bonus provided for in Section 5 and all other compensation and benefits to which the Employee is or may become entitled pursuant to this agreement shall be in addition to the Base Salary. The Base Salary shall be paid in periodic installments in accordance with the Company's regular payroll practices. 5. Annual Incentive Bonus. In addition to the Employee's Base Salary and any other benefits to which the Employee is entitled under this agreement, the Employee also shall be entitled to receive an annual incentive bonus (the "Bonus") from the Company of one percent (1%) of the amount, if any, by which the revenues received from the Products by the Company for such calendar year (which revenues will represent only the portion of the revenues of the DTNergy division of the Company directly attributable to the Products) exceed the revenues from the Products for the calendar year ended December 31, 1998. The Bonus shall be paid to the Employee for each full calendar year during the term of this agreement promptly after the revenues from the Products for such year have been computed by the Company. 6. Expenses. During the term of this agreement, the Employee shall be entitled to prompt reimbursement by the Company of all reasonable ordinary and necessary travel, entertainment, and other expenses incurred by the Employee (in accordance with the policies and procedures established by the Company for its employees) in the performance of his duties and responsibilities under this agreement; provided, that the Employee shall properly account for such expenses in accordance with Company policies and procedures. 7. Other Benefits. During the term of this agreement, the Employee shall be entitled to all of the fringe benefits which are provided to employees of the Company generally (such as but not limited to the Company's 401(k) plan), but excluding the Company's discretionary bonus plan, stock option plan and similar programs. 8. Vacations and Holidays. The Employee shall be entitled to paid vacations and holidays in accordance with the Company's policies in effect from time to time for comparable employees. 9. Other Activities. The Employee shall devote substantially all of his working time and efforts during the Company's normal business hours to the business affairs of the Company and to the diligent and faithful performance of the duties and responsibilities assigned to him pursuant to this agreement, except for vacations and holidays. 10. Nondisclosure. During the term of this agreement and thereafter, the Employee shall not, without the prior written consent of the Board or a person (other than the Employee) so authorized by the Board, disclose or use for any purpose (except in the course of his employment under this agreement and in furtherance of the business of the Company or any of its subsidiaries) any confidential information, trade secrets, or proprietary data of the Company or any of its subsidiaries (collectively, for purposes of this agreement, "Confidential Information"); provided, however, that Confidential Information shall not include any information then known generally to the public or ascertainable from public or published information (other than as a result of 13 -43- unauthorized disclosure by the Employee) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company or its subsidiaries, as the case may be. 11. Termination. The Employee's employment under this agreement shall terminate upon his death. If the Employee becomes incapable by reason of physical injury, disease, or mental illness of substantially performing his duties and responsibilities under this agreement for a period of six (6) continuous months or more, then the Company may terminate the Employee's employment under this agreement. The Company also may terminate the Employee's employment under this agreement for Cause; however, for purposes of this agreement, "Cause" shall mean only (i) confession or conviction of theft, fraud, embezzlement, or any other crime involving dishonesty with respect to the Company or any parent, subsidiary, or affiliate of the Company, (ii) material violation of the provisions of any confidentiality agreement or non-competition agreement in force between the Company or DTN and the Employee, (iii) habitual and material negligence by the Employee in the performance of his duties under or pursuant to this agreement, (iv) material non-compliance by the Employee with his obligations under Section 9 (after having received written notice thereof and a right to cure) or (v) failure of the Employee to abide by the lawful directives of the Board that are not inconsistent with the terms of this Agreement. In the event of the termination of the Employee's employment pursuant to any of the first three sentences of this Section 11 or if the Employee voluntarily terminates employment with the Company, the Employee (or, in the event of the Employee's death, his estate) shall be entitled to retain that portion of the Base Salary earned by the Employee up to the effective date of such termination, provided that during any period when the Employee is incapable by reason of physical injury, disease, or mental illness of substantially performing his duties and responsibilities under this agreement, the Company may subtract from such Base Salary the amount of any payments which the Employee receives from Company-sponsored disability insurance as a reimbursement for lost earnings or wages relating to such period. 12. Termination Without Cause. If the Company terminates the employment of the Employee for any reason other than those referred to in Section 11, the Company shall pay the Employee, upon the effective date of such termination, the then current present value of all remaining payments of Base Salary (computed assuming no further increase in the CPI-U) and Bonuses (computed assuming a Bonus each year equal to the Bonus for the year preceding the termination) that would have been paid hereunder but for such termination, less applicable employee tax withholdings and deductions. For purposes of the foregoing present value determination, a discount rate equal to the prime rate on corporate loans at large U.S. money center commercial banks as quoted in the "Money Rates" column of the Wall Street Journal on such effective date shall be used. Except as provided in Sections 11 and 12 of this agreement, the Employee shall not receive any additional severance pay upon his termination of employment, regardless of the Company's severance policy for its employees generally. The Employee agrees to accept the payments provided for in this Section 12 as full and complete liquidated damages for any breach of this agreement resulting from the actual or constructive termination of the Employee's employment under this agreement for a reason other than cause or the Employee's death or disability; and the Employee shall not have and hereby waives and relinquishes any other rights or claims in respect of such breach. 14 -44- 13. Successors and Assigns. This agreement and all rights under this agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees, successors, and assigns. This agreement is personal in nature, and neither of the parties to this agreement shall, without the written consent of the other, assign or transfer this agreement or any right or obligation under this agreement to any other person or entity. 14. Notices. For purposes of this agreement, notices and other communications provided for in this agreement shall be deemed to be properly given if delivered personally or sent by United States certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Thomas L. Waterman 65 Mechanic Street Red Bank, NJ 07701 With a Copy to: Frank C. Capozza A Professional Corporation 1120 Market Tower 10 West Market Street Indianapolis, IN 46204 If to the Company: Data Transmission Network Corporation 9110 West Dodge Road, Suite 200 Omaha, NE 68114 Attn: Greg T. Sloma, President or to such other address as either party may have furnished to the other party in writing in accordance with this paragraph. Such notices or other communications shall be effective only upon receipt. 15. Non-Solicitation of Employees. For a period of one (1) year after the effective date of the termination of the Employee's employment under this agreement for any reason, whether voluntarily or involuntarily and with or without cause, without the prior written consent of the Company the Employee agrees (i) not to directly or indirectly employ, solicit for employment, assist any other person in employing or soliciting for employment, or advise or recommend to any other person that such other person employ or solicit for employment any person who then is an employee of the Company or any of the subsidiaries of the Company and (ii) not to recommend to any then employee of the Company or any of the subsidiaries of the Company that such employee leave the employ of such employer. 16. Post-Termination Noncompetition. Because the Confidential Information known to or developed by the Employee during his employment by the Company encompasses at the highest level information concerning the plans, strategies, services, operations, and existing and prospective customers pertaining to the Products and could not practically be disregarded by the Employee, the Employee acknowledges that his provision of information and other 15 -45- services to a competitor of the Company soon after the termination of the Employee's employment by the Company would inevitably result in the use of the Confidential Information by the Employee in his performance of such services, even if the Employee were to use his best efforts to avoid such use of the Confidential Information. To prevent such use of the Confidential Information and the resulting unfair competition and wrongful appropriation of the goodwill and other valuable proprietary interests of the Company, the Employee agrees that for a period of one (1) year after the termination of his employment by the Company for any reason, whether voluntarily or involuntarily and with or without cause, the Employee will not, directly or indirectly: (a) engage, whether as an employee, agent, consultant, independent contractor, owner, partner, member, information provider, or otherwise, in a business activity which then competes in a material way with the Products then being offered by the Company; (b) solicit or recommend to any other person that such period solicit any then customer of the Company, which customer also was a customer of the Company at any time during the one (1) year period prior to the termination of the Employee's employment by the Company, for the purpose of obtaining the business of such customer in competition with the Products; or (c) induce or attempt to induce any then customer or prospective customer of the Products to terminate or not commence a business relationship with the Company. The restrictions contained in this Section 16 are separate from the restrictive covenants contained in the Purchase Agreement among the Company, Waterman Associates, Inc., Louise Waterman and the Employee, and such 1-year period may run concurrently with the period of restriction in such Purchase Agreement. The Company and the Employee acknowledge and agree that the restrictions contained in this Section 16 are both reasonable and necessary in view of the Employee's position with the Company and that the Employee's compensation and benefits under this agreement are sufficient consideration for the Employee's acceptance of such restrictions. Nevertheless, if any of the restrictions contained in this Section 16 are found by a court having jurisdiction to be unreasonable, or excessively broad as to geographic area or time, or otherwise unenforceable, then the parties intend that the restrictions contained in this Section 16 be modified by such court so as to be reasonable and enforceable and, as so modified by the court, be fully enforced. Nothing contained in this paragraph shall be construed to preclude the investment by the Employee of any of his assets in any publicly owned entity so long as the Employee has no direct or indirect involvement in the business of such entity and owns less than 2% of the voting equity securities of such entity. 17. Injunctive Relief. The Employee acknowledges that his violation of the provisions and restrictions contained in Sections 10, 15, and 16 could cause significant injury to the Company for which the Company would have no adequate remedy at law. Accordingly, the Employee agrees that the Company will be entitled, in addition to any other rights and remedies that then may be available to the Company, to seek and obtain injunctive relief to prevent any breach or potential breach of any of the provisions and restrictions contained in Sections 10, 15, or 16. 16 -46- 18. Miscellaneous. No provision of this agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and is signed by the Employee and an officer of the Company (other than the Employee) so authorized by the Board. No waiver by either party to this agreement at any time of any breach by the other party of, or compliance by the other party with, any condition or provision of this agreement to be performed by the other party shall be deemed to be a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this agreement have been made by either party that are not expressly set forth in this agreement. 19. Validity. The invalidity or unenforceability of any provision or provisions of this agreement shall not affect the validity or enforceability of any other provision of this agreement, which other provision shall remain in full force and effect; nor shall the invalidity or unenforceability of a portion of any provision of this agreement affect the validity or enforceability of the balance of such provision. The provisions of this agreement are severable. 20. Counterparts. This document may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute a single agreement. 21. Headings. The headings of the paragraphs contained in this document are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this agreement. 22. Applicable Law. This agreement shall be governed by and construed in accordance with the internal substantive laws, and not the choice of law rules, of the State of Nebraska. 23. Arbitration. In the event a dispute shall arise as to the parties' respective rights, duties and obligations under this agreement, or in the event of a claim for breach of this agreement by either party (collectively, "Dispute"), the parties agree to utilize arbitration as the exclusive means for resolution of the Dispute. With respect to any such Dispute, the arbitrator shall be selected and the arbitration conducted in accordance with the most recent Employment Dispute Resolution Rules of the American Arbitration Association. The arbitration proceeding shall be held in Omaha, Nebraska, or such other location as may be acceptable to the parties. The arbitrator shall make written findings, including any award, which shall be signed by the arbitrator. The award shall be deemed final and binding thirty (30) days after the award is made. The parties agree to abide by and perform any award rendered by the arbitrator. The arbitrator shall be bound by the provisions of this agreement in determining any award. The parties agree that the proceedings and any decision by the arbitrator, including the amount of any award, shall be kept confidential and not disclosed to any person other than the parties, witnesses and their counsel (who also must each agree to maintain the confidentiality of the proceedings and any decision). A party may enforce any award in any court of competent jurisdiction. 17 -47- IN WITNESS WHEREOF, the Company and the Employee have executed this agreement on the day and year first above written. DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation By:/s/ Greg T. Sloma ----------------------------- Greg T. Sloma Title: President and COO /s/ Thomas L. Waterman --------------------------------------- Thomas L. Waterman 18 -48- SCHEDULE 1 List of Certain Assets "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities and Exchange Commission upon request." 19 -49- SCHEDULE 7(j) Customer and Supplier Contracts "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities and Exchange Commission upon request." 20 -50- SCHEDULE 7(k) List of Other Contracts Ms. Rainey Thynne (Subcontractor) 21 -51- EX-10 3 STOCK PURCHASE AGREEMENT - AGC STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (the "Agreement") dated as of March 17, 1999, by and among Data Transmission Network Corporation, a Delaware corporation ("DTN"), DTN Acquisition, Inc., a Nebraska corporation ("Buyer"), Asset Growth Corporation, a Delaware corporation (the "Company"), Marcia C. Kennedy ("Kennedy"), Scott L. Brown ("Brown"), and the persons listed in Schedule 1 attached hereto (collectively the "Sellers" and individually a "Seller"). RECITALS: WHEREAS, each Seller is the owner, beneficially and of record, of the number of shares of the Common Stock of the Company set forth opposite his or her name on Schedule 1 attached hereto, and Sellers are the owners, in the aggregate, of all of the issued and outstanding capital stock of the Company; WHEREAS, Buyer wishes to purchase from Sellers and Sellers wish to sell to Buyer all of the issued and outstanding capital stock of the Company upon and subject to the terms and conditions set forth herein; WHEREAS, DTN, Kennedy, Brown and the Company are all of the parties to that certain Purchase Agreement dated October 14, 1998, as amended by the Amendment to Agreements (the "Amendment") dated January 1, 1999, among DTN, Buyer, Kennedy, Brown and the Company (such Purchase Agreement, as modified by the Amendment, being referred to herein as the "Master Agreement"); WHEREAS, Buyer and the Company are all of the parties to that certain Management Agreement dated October 14, 1998, as modified by the Amendment (as amended, the "Management Agreement") providing for the Company to manage for Buyer the business conducted by Paragon Software, Inc., an Illinois corporation ("Paragon"); and WHEREAS, the parties hereto wish to terminate the Master Agreement and the Management Agreement upon the consummation of the transactions contemplated by this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties and agreements herein contained, Buyer and Sellers agree as follows: ARTICLE I SALE OF SHARES 1.01 Sale of Shares. Subject to the terms and conditions herein stated, each Seller agrees to sell, assign, transfer and deliver to Buyer on the Closing Date (as defined herein), free and clear of any and all liens, claims and encumbrances, good, valid and marketable title to all of the shares of capital stock of the Company owned by such Seller as set forth opposite his or her name on Schedule 1 (all of such shares to be sold to Buyer hereunder being the "Shares"), and Buyer agrees to purchase the Shares from Sellers on the Closing Date. The certificates representing the Shares shall be duly endorsed in blank, or accompanied by stock powers duly executed in blank, by Sellers. -52- 1.02 Price. In full consideration for the purchase by Buyer of the Shares, Buyer shall at the Closing pay to the Sellers in good funds the aggregate amount of $3,744,183 (the "Cash Purchase Price"). Each Seller shall receive that percentage of the Cash Purchase Price as set forth opposite such Seller's name on Schedule 1 attached hereto. As additional consideration, effective immediately prior to the Closing, DTN hereby forgives all advances paid to the Company pursuant to Section 3(b) of the Management Agreement. 1.03 Closing. The sale referred to in Section 1.01 (the "Closing") shall take place at the office of DTN in Omaha, Nebraska, on the date of the execution of this Agreement, or at such later date as the parties hereto shall by written instrument designate. Such time and date are herein referred to as the "Closing Date". ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS As of the date hereof (except as otherwise specified herein) and as of the Closing Date, each Seller jointly and severally represents and warrants to Buyer as follows: 2.01 Organization and Qualification. At the Closing Date, the Company will be a corporation duly organized, validly existing and in good standing under the laws of Delaware and will have all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Texas is the only jurisdiction in which the Company is qualified or licensed to do business. Buyer has heretofore received true and complete copies of the Certificate of Incorporation and By-laws (or other similar charter documents), as currently in effect, of the Company. 2.02 Capitalization; Title to Stock. The authorized capital stock of the Company consists of (i) 75,000,000 shares of common stock, $0.01 par value per share (the "Common Stock"), of which the Shares are the only shares of Common Stock issued and outstanding as of the date hereof and (ii) 10,000,000 shares of preferred stock, $3.00 par value per share, of which no shares are outstanding. Sellers are the record owners of all the Company's outstanding shares of Common Stock. All of the outstanding shares of Common Stock of the Company are duly authorized, validly issued, fully paid and nonassessable. Except for the sale to Buyer as contemplated by this Agreement, there are no outstanding options, warrants, calls or other rights to subscribe for or purchase or acquire from the Company or Sellers or any affiliate of the Company, or any plans, contracts or commitments providing for the issuance of, or the granting of rights to acquire (i) any capital stock of the Company or (ii) any securities convertible into or exchangeable for any capital stock of the Company. The Company is not contractually obligated to repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock. Each Seller represents and warrants only with respect to that Seller and not with respect to any other Seller, that such Seller (i) has good, valid and marketable title, beneficially and of record, to the respective Shares set forth opposite his, her or its name on Schedule 1 attached hereto, free and clear of all liens, encumbrances and rights of others, (ii) is in rightful possession of duly and validly authorized and issued certificates evidencing his, her or its ownership of record of such Shares, and (iii) at the Closing Date, will have full right, power and authority to sell, transfer, convey and deliver to Buyer, in accordance with the terms of this Agreement, good, valid and marketable title, beneficially and of record, to all of such Shares being sold by such Seller to Buyer hereunder, free and clear of all liens, encumbrances and rights of others. 2 -53- 2.03 Subsidiaries. The Company has no subsidiaries. Except as set forth on Schedule 2.03, there is no corporation, partnership, joint venture or other person or entity in which the Company, directly or indirectly, has, or pursuant to any agreement or agreements has or will have, a right or obligation to acquire or make by any means, an interest or investment (including, without limitation, equity ownership, proprietary interest, loans, guarantees of indebtedness and other similar obligations). 2.04 Authority Relative to the Transactions Contemplated by this Agreement. At the Closing Date, each Seller will have full power, capacity and authority (corporate or otherwise) to execute and deliver this Agreement and to consummate the transactions contemplated hereby. At the Closing Date, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will have been duly and validly authorized on behalf of all Sellers and no other proceedings on behalf of Sellers are or will be necessary to approve and authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Sellers, and (assuming the valid execution and delivery of this Agreement by Buyer) at the Closing Date will constitute a legal, valid and binding agreement of Sellers, enforceable against Sellers in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general principles of equity. 2.05 Consents and Approval; No Violation. Except as set forth on Schedule 2.05, neither the execution and delivery of this Agreement by Sellers, nor the consummation of the transactions contemplated hereby, nor compliance by any Seller with the provisions hereof, will (i) require the Company or any Seller to file or register with, notify, or obtain any permit, authorization, consent or approval of, any governmental or regulatory authority except for those requirements which become applicable to the Company as a result of the specific regulatory status of Buyer or as a result of any other facts that specifically relate to the business activities in which Buyer is engaged; (ii) conflict with or breach any provision of the Certificate of Incorporation, By-laws or trust agreement (or other similar governing documents) of the Company or any Seller; (iii) violate or breach a provision of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any of the terms, covenants, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which the Company or any Seller is a party, or by which the Company or any Seller or any of their respective properties or assets may be bound; or (iv) violate any order, writ, injunction, decree or judgment of any court or governmental authority applicable to the Company or any Seller or any of their material assets. 2.06 Balance Sheet. Sellers have delivered to Buyer the unaudited balance sheet of the Company as of February 28, 1999 (the "Balance Sheet"). The Balance Sheet (i) has been prepared in accordance with the books and records of the Company, and (ii) presents fairly the financial position of the Company as of such date. 2.07 Undisclosed Liabilities. Except (i) as provided for in the Balance Sheet, (ii) as disclosed in Schedule 2.07 or as specifically identified on other Schedules to this Agreement or (iii) for liabilities owed to Buyer or DTN, the Company has no liabilities or obligations of any kind or nature, whether known 3 -54- or unknown or secured or unsecured (whether absolute, accrued, contingent or otherwise, and whether due or to become due). 2.08 Absence of Certain Changes or Events. Except as set forth in Schedule 2.08, or as disclosed in the other Schedules hereto, the Company has not (i) suffered any material adverse change in its assets, liabilities, business, prospects, results of operations or financial condition, (ii) suffered any damage, destruction or casualty loss adversely affecting any material assets of the Company, or (iii) entered into any transaction, or conducted its business or operations, other than in the ordinary and usual course of business, consistent with past practices. 2.09 Title and Related Matters. Except for the lease of office space at Anchor Executive Center - River Oaks (the "Office Lease"), which expires on November, 30 1999, the Company does not own or lease any real property or office space. Except for the assignments of the Office Lease and Furniture Lease (as herein defined) to Sellers as provided in this Agreement, all of the properties, rights and assets, tangible and intangible, now used in or, to the best knowledge of Sellers, necessary for the conduct by the Company of its business as presently conducted will be indirectly transferred to Buyer by its purchase of the Shares. The interests of the Company in its properties, rights and assets (whether owned or as a lessee) are free and clear of all Liens other than (i) Liens for taxes not yet due, (ii) Liens which do not affect the use by, or value to, the Company of its rights and assets, or (iii) Liens set forth on Schedule 2.09. The term "Liens" shall mean any pledge, lien, security interest, conditional sale agreement, or other similar encumbrance. 2.10 Material Contracts. Except as set forth in Schedule 2.10, the Company does not have nor is it bound by (a) any agreement, contract or commitment relating to the employment of any person by the Company, or any bonus, commission, severance or termination pay, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other employee benefit plan, (b) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of its capital stock, (c) any agreement, contract or commitment relating to capital expenditures, (d) any loan or advance to, or investment in, any other person other than cash advances in the ordinary course of business consistent with past practice, or any agreement, contract or commitment relating to the making of any such loan, advance or investment except for cash advances in the ordinary course of business consistent with past practice, (e) any debt obligation for borrowed money or any guarantee or other contingent liability in respect of any indebtedness or obligation of any other person (other than the endorsement of negotiable instruments for collection and other similar transactions in the ordinary course of business), (f) any management, distributorship, sales, service (personal or otherwise), consulting or any other similar type of contract, (g) any agreement, contract or commitment limiting the freedom of the Company to engage in any line of business or to compete with any other person or in any area, (h) any other agreement, contract or commitment which is not cancelable without penalty within 30 days, (i) any outstanding powers of attorney or proxies granted to any person for any purpose whatsoever, (j) any contract or oral or written agreement for the acquisition of any other person, (k) any agreement as to which the United States Government, any state, local or municipal government or any foreign government or any agency or instrumentality of any of the foregoing is a party, exclusive of any such agreement which contains solely the provisions set forth in a form contract used by the Company in its ordinary course of business, which forms have been previously made available to Buyer, or (l) any proposed contract or agreement which upon acceptance of a customer or third party would create a binding 4 -55- obligation upon the Company and which would not be cancelable without penalty within thirty (30) days (all such oral or written agreements, contracts, arrangements and commitments are hereinafter referred to as the "Material Contracts"). True, complete and correct copies of all such written contracts, commitments, agreements or arrangements described on Schedule 2.10 will have been made available to Buyer prior to Closing. Schedule 2.10 contains a complete list of all such oral contracts, agreements, commitments or arrangements and identifies which of such contracts are oral in nature. Except as set forth on Schedule 2.10, there is not, under any of the Material Contracts, any default or event which, with notice or lapse of time or both, would constitute a default on the part of the Company. Neither the Company nor any Seller has received any notice from the other party to such Material Contracts of the termination or threatened termination thereof and no Seller knows of the occurrence of any event which would allow such other party to terminate such Material Contract except as otherwise disclosed in the Schedules hereto. Except as set forth on Schedule 2.10 or any other Schedule hereto, no indebtedness of the Company will be accelerated by its terms, or result from the consummation of the transactions contemplated hereby. Schedule 2.10 contains a complete list of all agreements providing for the payment of severance pay to employees of the Company (the "Termination Benefits Agreements"). Except as expressly indicated on Schedule 2.10, no event has occurred under any of the Termination Benefits Agreements which alone or upon the giving of notice or the passage of time or both would obligate the Company to make any payment under any of the Termination Benefits Agreements. 2.11 Leases. Except for the lease of office furniture from Aaron Rents, Inc. (the "Furniture Lease"), which expires on May 23, 1999, and the Office Lease, the Company is not a party (as lessee) to any other lease. All rents and additional rent due to the Closing Date on such leases have and will have been paid and in each case, the lessee has been in peaceable possession since the commencement of the original term of such lease or arrangement and is not in default thereunder. Except as set forth on Schedule 2.11, there is not, with respect to leases referred to above, any existing default, or an event of default, or event which, with or without notice or lapse of time or both, would constitute a default or an event of default, on the part of the Company. 2.12 Proprietary Rights; Computer Programs, Databases and Software. Schedule 2.12 contains a complete list of all trademarks, trade names, assumed names, service marks, logos, patents, copyrights and copyright registration, and any applications for registration therefor presently owned or held by the Company or with respect to which the Company owns or holds any license or other direct or indirect interest (collectively, the "Proprietary Rights"); and no other Proprietary Rights are used in or are necessary for the conduct of the business of the Company as such business is presently conducted. Unless otherwise indicated in such Schedule 2.12 the Company owns sufficient right, title and interest in and to the material Proprietary Rights for the conduct of its business. No material Proprietary Rights used by the Company conflict with or infringe the rights of any other person. No claims have been asserted by any person with respect to the ownership, validity, license or use of the Proprietary Rights and no Seller knows of any basis for such claim. The Company has taken all measures which it believes to be appropriate to maintain and protect the Proprietary Rights. The Company has the right to use all material Proprietary Rights, to provide and sell the services and products provided and sold by it, and to conduct its business as heretofore conducted, and, except as set forth on Schedule 2.12, the consummation of the transactions contemplated hereby will not alter or impair any such rights. Except as set forth on Schedule 2.12, no person is known to be infringing on or violating the Proprietary Rights used by the Company. Except in the ordinary course of its business or as set 5 -56- forth in Schedule 2.12, the Company has not sold, licensed, leased or otherwise transferred or granted any interest or rights to any of its computer programs, databases or software to any other person. The occurrence in or use by such computer programs, databases and software of dates on or after January 1, 2000 ("Millennial Dates") will not adversely affect the performance thereof with respect to date dependent data, compilations, output, or other functions (including but not limited to calculating, comparing and sequencing) and that such computer programs, databases and software will create, store, process and output information related to or including Millennial Dates without error or omissions. 2.13 Litigation. Schedule 2.13 sets forth a complete list and an accurate description of all claims, actions, suits, proceedings and investigations pending and threatened, by or against or involving the Company or its business. No such pending or threatened claims, actions, suits, proceedings or investigations, if adversely determined, would, individually or in the aggregate, materially adversely affect the business, financial condition, results of operations or prospects of the Company taken as a whole or the transactions contemplated hereby. The Company does not know of any reasonable basis for any other such claim, action, suit, proceeding or investigation. The Company is not subject to any judgment, order or decree entered in any lawsuit or proceeding which may have a material adverse effect on any of its operations, business practices or on its ability to acquire any property or conduct business in any area. 2.14 Employee Benefit Matters. Neither the Company nor any member of the Control Group (within the meaning of section 414(b) of the Internal Revenue Code of 1986, as amended (the "Code")) maintains, has contributed to or has ever been obligated to contribute to, for, on behalf of or with respect to current or former employees of the Company, any employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), multiemployer plan (as defined in ERISA Section 3(37)), stock purchase plan, stock option plan or deferred compensation agreement, plan or funding arrangement. There are no employee welfare benefit plans (as defined in ERISA Section 3(1)) maintained by the Company. 2.15 Governmental Authorizations and Regulations. The Company has all material licenses, franchises, permits and other governmental authorizations necessary to the conduct of its business, as presently conducted and the same are in full force and effect. The business of the Company is being conducted in compliance in all material respects with all applicable licenses, franchises, permits and other governmental authorizations and, to the best knowledge of Sellers, in compliance in all material respects with all applicable laws, ordinances, rules and regulations of all governmental authorities relating to its properties or applicable to its business. Except as set forth on Schedule 2.15, the Company has not received any notice of any alleged violation of any of the foregoing. 2.16 Labor Matters. Except as set forth in Schedule 2.16, (i) the Company is in compliance in all material respects with all applicable laws respecting health and occupational safety, employment and employment practices, terms and conditions of employment and wages and hours (including, without limitation, the Federal Immigration Reform and Control Act of 1986), (ii) there is no unfair labor practice complaint against the Company pending or threatened before the National Labor Relations Board, (iii) there are no proceedings pending or threatened before the National Labor Relations Board with respect to the Company, (iv) there are no discrimination charges (relating to sex, age, religion, race, color, national origin, ethnicity, handicap or veteran status or any other basis protected by relevant law) pending before any federal, state or 6 -57- local agency or authority against the Company or any of its employees, (v) no grievance which might have a material adverse effect upon the Company is currently pending, (vi) the Company is not bound by any collective bargaining agreement and there is no collective bargaining agreement currently being negotiated by the Company and (vii) the Company has not experienced any material labor difficulty during the past three years. 2.17 Insurance. The Company maintains and has maintained insurance coverage (including without limitation workers compensation insurance) which is sufficient for compliance with all requirements of law and of all agreements to which the Company is a party. With respect to all policies, all premiums currently payable or previously due and payable with respect to all periods up to and including the Closing Date will have been paid and no notice of cancellation or termination has been received with respect to any such policy. Such policies will remain in full force and effect through the respective dates set forth in such policies without the payment of additional premiums, unless called for in its original terms. 2.18 Tax Matters. (a) All Federal, state, local and foreign income, profits, franchise, sales, use, occupancy, excise, withholding, payroll, employment and other taxes and assessments (including interest and penalties) payable by, or due from, the Company have been fully paid or adequately disclosed and provided for in the Balance Sheet of the Company. (b) The Company has not filed any election or caused any deemed election under Section 338 of the Code. (c) The Company is not delinquent in the payment of any taxes and no extensions of time have been granted to the Company to file any return required by applicable law to be filed by it prior to or on the Closing Date, which have expired or will expire on or before the Closing Date without such return having been filed. 2.19 Environmental Matters. The Company is in material compliance with, and has not done anything to be in material violation of any federal, state or local laws relating to the environment. 2.20 Brokers and Finders. No Seller has employed any broker or finder and no broker or finder is entitled to any brokerage fees, commissions or finder's fees arising from any act, representation or promise of any of them in connection with the transactions contemplated hereby; provided, however, each Seller so represents and warrants only with respect to that Seller and not with respect to any other Seller. 2.21 Books and Records. The minute books of the Company, as previously made available to Buyer, contain accurate records in all material respects of all meetings of and corporate actions or written consents by the respective stockholders and Boards of Directors of the Company. 2.22 Bank Accounts. Sellers will cause the Company to deliver to Buyer at least 3 business days prior to the Closing an accurate and complete list showing the name and address of each bank in which the Company has an account or safe deposit box, the number of any such account or any such box and the names of all persons authorized to draw thereon or to have access thereto. 7 -58- 2.23 Other Information. The information furnished to Buyer by Sellers or the Company or pursuant to this Agreement, including the exhibits hereto, the schedules identified herein, and in any certificate or other document executed or delivered pursuant hereto by Sellers (which for purposes of this Agreement shall be deemed to be representations and warranties), is not materially false or misleading, does not contain any misstatement of material fact, and does not omit to state any material fact required to be stated in order to make the statements therein not misleading in light of the circumstances under which they were made. ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER As of the date hereof and as of the Closing Date, Buyer represents and warrants to Sellers as follows: 3.01 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Nebraska. 3.02 Authority Relative to this Agreement. Buyer has full power, capacity and authority (corporate or otherwise) to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Buyer and no other proceedings on the part of Buyer or its stockholders are necessary to approve and authorize the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer and (assuming the valid execution and delivery of the Agreement by Sellers) constitutes a legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy and other laws of general application relating to creditors' rights and general principles of equity. 3.03 Consents and Approvals; No Violation. Neither the execution and delivery of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby, nor compliance by Buyer with any of the provisions hereof, will (i) require Buyer to file or register with, notify, or obtain any permit, authorization, consent, or approval of, any governmental or regulatory authority except for those requirements which become applicable to Buyer as a result of the specific regulatory status of the Company or as a result of any other facts that specifically relate to the business activities in which the Company is or proposes to be engaged; (ii) conflict with or breach any provision of the Articles of Incorporation or by-laws of Buyer; (iii) violate or breach any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default under, any of the terms, covenants conditions or provisions of any note, bond mortgage, indenture deed of trust, license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which Buyer is a party, or by which Buyer or any of its properties or assets may be bound, except for such breach or default which would not have a material adverse effect on the transactions contemplated by this Agreement taken as a whole; or (iv) violate any order, writ, injunction, decree, judgment, statute, law or ruling of any court or governmental authority applicable to Buyer or any of its material assets, which violation would have a material adverse effect on the transactions contemplated by this Agreement taken as a whole. 8 -59- 3.04 Litigation; Compliance with Law. Buyer is not a party to any action or proceeding which seeks, or is subject to, any outstanding order, writ, injunction or decree, which restrains or enjoins consummation of the transactions contemplated hereby or which otherwise challenges the transactions contemplated hereby and (ii) there is no litigation, administrative, arbitral or other proceeding, or petition or complaint or, to the knowledge of Buyer, investigation before any court or governmental or regulating authority or body pending or, to the knowledge of Buyer, threatened against or relating to Buyer that would materially adversely affect Buyer's ability to perform its obligations pursuant to this Agreement. 3.05 Brokers and Finders. Buyer has not employed any broker or finder and, to Buyer's knowledge, no broker or finder is entitled to any brokerage fees, commissions or finder's fees arising from any act, representations or promise of Buyer, in connection with the transactions contemplated hereby. 3.06 Purchase for Investment. Buyer will acquire all of the outstanding stock of the Company to be purchased by it hereunder for its own account for investment and not with a view toward any resale or distribution thereof. ARTICLE IV COVENANTS OF THE PARTIES 4.01 Expenses. Whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the respective party that incurred such cost and expense (it being understood, however, that all legal and accounting fees and expenses so incurred by the Company shall be paid by the Sellers). 4.02 Transfer Taxes. All transfer taxes (including all stock transfer taxes, if any) incurred in connection with this Agreement and the transactions contemplated hereby will be borne by Sellers, and Sellers will, at their own expense, file all necessary tax returns and other documentation with respect to all such transfer taxes, and, if required by applicable law, the other parties hereto will (and will cause the Company to) join in the execution of any such tax returns or other documentation. ARTICLE V RELATED AGREEMENTS 5.01 Termination of Master Agreement and Management Agreement. The parties hereto agree that effective as of the Closing Date, the Master Agreement and the Management Agreement shall be terminated and of no further force or effect. 5.02 Release. Effective as of the Closing, Kennedy, Brown and Sellers do hereby fully and absolutely release and forever discharge DTN and Buyer and their Affiliates, officers, directors, employees and agents (the "Released Parties") from any and all claims, demands and causes of action of any kind whatsoever, whether known or unknown at the present time, which any of Kennedy, Brown and Sellers may have against any of the Released Parties with respect to actions of any of the Released Parties prior to the date of this Agreement, 9 -60- including without limitations matters relating to the Master Agreement. The foregoing release is intended and shall be construed as a full and complete release of all claims, demands, and causes of action referred to above. This release shall inure to the benefit of the Released Parties and their respective heirs, representatives, successors and assigns. 5.03 Assignment and Assumption of Leases. Effective as of the Closing, the Company does hereby assign all of its right, title and interest in and to the Office Lease and Furniture Lease to Sellers. Sellers hereby accept such assignment and each Seller hereby jointly and severally agrees to assume all obligations of the Company under the Office Lease and Furniture Lease from and after the Closing Date and to hold Buyer and the Company harmless from any and all liabilities arising under the Office Lease or Furniture Lease from and after the Closing Date. Sellers further agree that promptly after the Closing they will use their best efforts to obtain the release of the Company by the lessors under the Office Lease and Furniture Lease. ARTICLE VI SURVIVAL AND INDEMNIFICATION 6.01 Survival of Representations, Warranties and Covenants. All covenants and agreements of any party hereto set forth herein shall survive the Closing for the period provided for in such covenant or, if not so provided, for a period of one year. The representations and warranties set forth herein shall survive the Closing and shall remain in effect for the applicable statute of limitation. 6.02 Post-Closing Indemnification. (a) From and after the Closing Date, Sellers jointly and severally shall defend, indemnify and hold harmless Buyer and its affiliates (including the Company) and each of their successors, assigns, officers, directors and employees (the "Buyer Indemnitee Group") against and in respect of any and all losses, actions, suits, proceedings, claims, liabilities, damages, causes of action, demands, assessments, judgments, and investigations and any and all costs and expenses paid to third parties, including without limitation, reasonable attorneys' fees and expenses (collectively, "Damages"), suffered by any of them as a result of, or arising from: (i) any inaccuracy in or breach of or omission from any of the representations or warranties made by Sellers in Article II of this Agreement or pursuant hereto, or any nonfulfillment, partial or total, of any of the covenants or agreements made by Sellers in this Agreement to the extent not waived by Buyer in writing; or (ii) any claim, action, suit, proceeding or investigation of any kind relating to or arising from events occurring prior to the Closing Date, instituted by or against or involving the Company or any of its business or assets (other than those claims, actions, suits, proceedings and investigations set forth in Schedule 2.13 of the Disclosure Schedule) regardless of whether such claims, actions, suits, proceedings or investigations are made or commenced before or after the Closing Date, provided that Damages relating to claims, actions, suits, proceedings and investigations that relate to events occurring both before and after the Closing Date shall be equitably allocated between Buyer and Sellers. (b) From and after the Closing Date, Buyer shall defend, indemnify and hold harmless Sellers and their heirs, trustees, successors and assigns against and in respect of any and all losses, actions, suits, proceedings, claims, liabilities, damages, causes of action, demands, assessments, judgments, and investigations and any and all costs and expenses paid to third parties, including without limitation, reasonable attorneys' fees and expenses, suffered 10 -61- by any of them as a result of, or arising from, any inaccuracy in or breach of or omission from any of the representations or warranties made by Buyer in Article III of this Agreement or pursuant hereto, or any non-fulfillment, partial or total, of any of the covenants or agreements made by Buyer in this Agreement to the extent not waived by Sellers in writing. (c) If a claim by a third party is made against an indemnified party, and if such party intends to seek indemnity with respect thereto under this Article VI, the indemnified party shall promptly (and in any case within thirty days of such claim being made) notify the indemnifying party of such claim, provided, however, that the failure to so notify the indemnifying party shall not discharge the indemnifying party of its obligations hereunder except that the indemnifying party shall not be liable for default judgments or any amounts related thereto if the indemnified party shall not have so notified the indemnifying party. Subject to the following sentence, the indemnifying party shall have thirty days after receipt of such notice to undertake, conduct and control, through counsel of its own choosing (which is satisfactory to the indemnified party) the settlement or defense thereof, and the indemnified party shall cooperate with it in connection therewith (provided that the indemnifying party shall permit the indemnified party to participate in such settlement or defense through counsel chosen by the indemnified party, provided that the fees and expenses of such counsel shall be borne by the indemnified party) and the indemnifying party shall promptly reimburse the indemnified party for the full amount of any loss resulting from such claim and all related expenses as incurred by the indemnified party within limits of this Article VI. Notwithstanding anything herein to the contrary, the indemnified party shall have the right to conduct and control the defense of any such claim in the event that such claim (including a claim for equitable relief) or the continuation of such claim could reasonably be expected to materially adversely affect the business, results of operations, prospects or financial condition of the indemnified party or any of its affiliates, provided, however, the indemnified party may not settle any claim for an amount in excess of $25,000 or consent to any settlement which imposes equitable remedies on the indemnifying party or its affiliates without the prior consent of the indemnifying party, which consent shall not be unreasonably withheld, unless the indemnified party agrees to waive any right to indemnity therefor by the indemnifying party. If the indemnifying party does not notify the indemnified party within thirty days after the receipt of the indemnified party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof or if the indemnifying party is not reasonably contesting the claim in good faith, the indemnified party shall have the right to contest, settle or compromise the claim in the exercise of its reasonable judgment, and all losses incurred by the indemnified party, including all fees and expenses of counsel for the indemnified party, shall be paid by the indemnifying party. (d) Claims for indemnification made under this Section 6.02 shall be made within a period of three years from the Closing Date, provided, however, notwithstanding the foregoing, claims for indemnification with respect to any action, lawsuit, proceeding or investigation of any kind relating to or arising out of the matters referred to in Section 6.02(a)(ii) may be made within five years from the Closing Date. 6.03 Tax Indemnity, Etc. (a) Sellers jointly and severally shall be responsible for and pay all Taxes attributable to the Company or its subsidiaries or for which the Company is liable for any period or portion of a period that ends on or before the Closing Date which have not been paid or adequately provided for in the Balance Sheet. Such Taxes shall include but not be limited to the Taxes of any member of an affiliated group of which the 11 -62- Company was a member for federal income tax purposes or any entity with which the Company filed a combined return for state or local tax purposes. (b) Sellers jointly and severally shall indemnify Buyer, the Company and their affiliates and their respective successors and assigns (each, a "Tax Indemnified Party", and collectively, "Tax Indemnified Parties") against and hold the Tax Indemnified Parties harmless on an after-tax basis from all liability, loss or damage and from all expenses paid to third parties (including reasonable attorneys' fees) with respect to all such Taxes described in the immediately preceding clause (a). (c) All tax allocation, tax sharing and similar agreements, if any, to which the Company is or was a party at any time on or before the Closing Date shall be terminated as of the Closing Date with respect to the Company. The Company shall have no obligation for the payment of any amount pursuant to any such agreement, except as expressly provided for in the Balance Sheet. The foregoing indemnity obligations of Sellers and the covenants and agreements of the parties contained in this Section 6.03 shall survive the Closing and be applicable for the applicable statute of limitations (as such may be waived or extended). (d) For purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) upon the Company or its subsidiaries. ARTICLE VII MISCELLANEOUS PROVISIONS 7.01 Amendment and Modification. This Agreement may be amended, modified or supplemented only by written agreement of all of the parties hereto. 7.02 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party or parties entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 7.02. 7.03 No Third Party Beneficiaries. Except as provided in this Agreement, nothing in this Agreement shall confer any rights upon any person or entity which is not a party or a permitted assignee of a party to this Agreement. 7.04 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by cable, telegram or telex, telecopy, 12 -63- courier, express mail delivery service, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows: (a) if to Sellers, Kennedy, Brown or the Company, to: Ms. Marcia C. Kennedy P.O. Box 270746 Houston, TX 77277 With a copy to: Looper, Reed, Mark & McGraw 1300 Post Oak Blvd, Suite 2000 Houston, Texas 77056 Attn: Robert James (b) if to Buyer or DTN, to: Data Transmission Network Corporation 9110 West Dodge Road, Suite 200 Omaha, Nebraska 68114 Attn: Charles R. Wood, Sr. Vice President with a copy to: Abrahams Kaslow & Cassman 8712 West Dodge Road Suite 300 Omaha, Nebraska 68114 Attn: R. Craig Fry or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above (provided that notice of any change of address shall be effective only upon receipt thereof). 7.05 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other parties. 7.06 Governing Law. This Agreement shall be governed by the law of the State of Nebraska as to all matters, including, but not limited to, matters of validity, construction, effect, performance and remedies without giving effect to the principles of choice of law thereof. 7.07 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13 -64- 7.08 Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 7.09 Entire Agreement. This Agreement, including the Exhibits hereto and the documents, schedules, certificates and instruments referred to herein embodies the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such transactions. 7.10 Certain Definitions. (a) An "affiliate" of a person shall mean any person which, directly or indirectly, controls, is controlled by, or is under common control with, such person. (b) The term "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. (c) The term "person" shall mean and include an individual, a partnership, a limited liability company, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (d) The term "day" shall mean a calendar day unless otherwise stated. (e) The term "subsidiary" when used in reference to any other person shall mean any corporation of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors of such corporation are owned directly or indirectly by such other person. (f) Whenever any representation or warranty contained in this Agreement is qualified by reference to the knowledge, information or belief of a party, such party confirms that it has made due and diligent inquiry as to the matters that are the subject of such representation and warranty. IN WITNESS WHEREOF, the parties hereto have signed, or caused this Agreement to be signed by their respective representatives, as the case may be, as of the date first above written. DTN ACQUISITION INC., a Nebraska corporation, Buyer By:/s/ Greg T. Sloma ------------------------------- Greg T. Sloma Title:President & COO DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation By: /s/ Greg T. Sloma ------------------------------ Greg T. Sloma Title:President & COO ASSET GROWTH CORPORATION., a Delaware corporation /s/ Marcia C. Kennedy ---------------------------------------- Marcia C. Kennedy, as Seller and Individually /s/ Scott L. Brown ---------------------------------------- Scott L. Brown, as Seller and Individually 14 -65- SCHEDULE 1 Number of Percentage of Name of Seller Shares Owned Cash Purchase Price - -------------------------------------------------------------------------------- Marcia C. Kennedy 100,000 33 1/3 % Scott L. Brown 200,000 66 2/3 % -------- ---------- TOTALS 300,000 100% 15 -66- DISCLOSURE SCHEDULE None. 16 -67- EX-10 4 AGREEMENT - SMARTSERV ONLINE, INC. AGREEMENT THIS AGREEMENT is made and entered into and is effective as of May 1, 1999, by and between DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation (hereinafter "DTN"), and SMARTSERV ONLINE, INC., a Delaware corporation (hereinafter "SmartServ"). W I T N E S S E T H: WHEREAS, SmartServ and DTN previously entered into a Software License and Service Agreement (the "License Agreement") dated as of May 1, 1998, pursuant to which SmartServ (i) licensed to DTN certain proprietary software programs known as the Internet Software (as such term is defined in the License Agreement) utilized to provide Internet Services (as such term is defined in the License Agreement) to DTN's customers and (ii) agreed to provide other services to DTN; WHEREAS, SmartServ and DTN previously entered into a Source Code Escrow Agreement (the "Escrow Agreement") dated as of May 1, 1998, pursuant to which SmartServ agreed to place the source code for the Internet Software in escrow to be released to DTN upon breach of SmartServ's obligations set forth in the Escrow Agreement or the License Agreement; WHEREAS, SmartServ and DTN previously entered into a letter of intent (the "Letter of Intent") dated January 26, 1999, setting forth the terms and conditions upon which a wholly owned subsidiary of DTN would merge with SmartServ; WHEREAS, the parties hereto desire to (i) amend certain terms and provisions of the License Agreement as specifically set forth in this Agreement and terminate the Letter of Intent, (ii) provide for repayment of indebtedness previously advanced by DTN to SmartServ, (iii) provide for additional consideration to be given by DTN to SmartServ, (iv) provide for SmartServ's issuance to DTN of warrants to purchase 300,000 shares of the Common Stock of SmartServ at an exercise price of $8.60 per share, and (v) agree upon other matters specifically set forth in this Agreement; NOW, THEREFORE, in consideration of the above recitals which are made a contractual part of this Agreement, and in consideration of the mutual agreements, provisions and covenants set forth in this Agreement, the parties do hereby agree as follows: 1 -68- SECTION 1 CONSIDERATION 1.1 In consideration of the parties entering into this Agreement and performing the obligations to be performed by them pursuant to the terms and provisions of this Agreement, (i) SmartServ agrees to repay to DTN in cash concurrently with the execution of this Agreement the cash advances previously made to SmartServ in the aggregate amount of $1,958,300 and (ii) DTN agrees to pay to SmartServ in cash concurrently with the execution of this Agreement the sum of $5,458,300. SECTION 2 AMENDMENTS TO LICENSE AGREEMENT 2.1 Defined Terms. The following definitions shall be inserted in alphabetical order in Section 1.1 of the License Agreement: "Internet Services means those continuous market quotations and other financial and news information services offered from time to time on the internet by DTN, which use the Internet Software to allow its customers direct internet access (non-wireless) to such services. Internet Services Revenue means (i) the revenue received by DTN from the Subscribers for the Internet Services which consist of initiation fees, installation fees and periodic subscription fees plus (ii) the transaction revenue received by DTN from Subscribers and third parties for equities, futures and/or options trading orders executed by Subscribers using an Order Entry System not owned or licensed by SmartServ. Object Code means the form of Internet Software resulting from the translation or processing of the Source Code by a computer into machine language or intermediate code in a form that is not convenient to human understanding but which is appropriate for execution or interpretation by a computer, together with related user documentation. Order Entry System means an equities, futures and/or options trading order entry or routing software application and electronic network directly connected (non-wireless) to the internet that provides Subscribers the ability to effect equities, futures and/or options trades. 2 -69- SmartServ Trading Revenue means the transaction revenue received by DTN from Subscribers and third parties for equities, futures and/or options trading orders executed by Subscribers using an Order Entry System owned or licensed by SmartServ. Source Code means, with respect to the Internet Software, the program instructions and codes written by humans with the intention that the instructions and codes be compiled and interpreted by a computer, including all existing commentary, explanations, control procedures, record layouts for all files and program listings-source codes, design documentation, user manuals, programmers' guides, system guides, current compilation instructions, and all other user documentation and programmer documentation, including data flows, data structures, control logic, flow diagrams, and principles of operation, useful for design, modification and maintenance of the Source Code by a programmer. Subscribers means those customers of DTN who subscribe to Internet Services. Y2K Compliant means: (i) the occurrence in or use by the Internet Software of dates on or after January 1, 2000 ("millennial dates") will not adversely affect the performance of the Internet Software with respect to date-dependent data, computations, output or other functions (including but not limited to calculating, comparing and sequencing) and that the Internet Software will create, store, process and output information related to or including millennial dates without errors or omissions and at no additional cost to DTN." 2.2 Perpetual License. Section 2.1 of the License Agreement is deleted in its entirety and the following is inserted in its place: "2.1 The Licensed Software. SmartServ hereby grants to DTN and its subsidiaries an exclusive, perpetual, worldwide license (the "License") to use the object code of the Internet Software as part of DTN's and its subsidiaries' business operations and to allow the subscribers of DTN and its subsidiaries to use the Internet Software to access the Internet Services. SmartServ agrees not to license, sell, convey or otherwise transfer to anyone other than DTN any rights in the Internet Software except SmartServ may license the "Order Entry FIX Protocol" software to the Bank of New York as provided in this paragraph. In addition, SmartServ shall not use or allow anyone other than DTN to use the Internet Software to compete with the Internet Services. If during any calendar year ending after year 2000 (the "Base Year"), the aggregate SmartServ Trading Revenue for such calendar year does not equal or exceed the aggregate SmartServ Trading Revenue for the Base Year plus 30% thereof for each calendar year following the Base Year, to and including such calendar year, then the exclusivity with respect to the License shall cease and the License shall become nonexclusive unless DTN pays to SmartServ the difference within thirty (30) days after the end of such calendar year. If during any calendar quarter ending after the first twelve months of the License Term, DTN does not obtain at least 800 subscribers to the Internet Services (exclusive of renewing subscribers, but not net of terminating subscribers) at an average of at least $84.00 per subscriber per month, which dollar amount shall be reduced 4% each year thereafter but not 3 -70- below an average of $65.00 per subscriber per month, then the exclusivity with respect to the License shall cease and the License shall become nonexclusive; provided, however, in the event of a sale to any entity listed in Schedule C to this Agreement or to an affiliate of such entity of (i) all or substantially all of the assets of DTN or (ii) sufficient stock of DTN to effect a change in control of DTN, by whatever manner including, without limitation, any merger, consolidation, sale of assets, sale of capital stock or similar transaction, the 800 subscribers requirement shall temporarily be raised to 1200 subscribers for the eighteen (18) month period immediately following the occurrence of such event. SmartServ is negotiating an agreement for the license by SmartServ of its "Order Entry FIX Protocol" software to the Bank of New York or its affiliate which is a permitted exception to the exclusivity of the License as provided above. If the Bank of New York or its affiliate acquires a perpetual right or license to use the "Order Entry FIX Protocol" software, DTN shall be entitled to 30% of the revenues derived by SmartServ therefrom. 2.3 Object Code. The first sentence of Section 2.2 of the License Agreement is deleted in its entirety and the following is inserted in its place: "SmartServ shall deliver the Internet Software to DTN in object code form for loading and operating by DTN on a back up server at a mutually agreeable location. SmartServ agrees not to unreasonably object to any location proposed by DTN." In addition, the following is added to the end of Section 2.2 of the License Agreement: "From and after the occurrence of an Escrow Release Event, DTN shall be entitled to modify the Internet Software and to develop software derivatives of or interfacing with the Internet Software. All such modifications of and software derivatives of the Internet Software developed by DTN shall be and remain the property of DTN, and SmartServ shall have no rights or interests therein." 2.4 Source Code Escrow. Subsection (e) of Section 2.3 of the License Agreement is deleted in its entirety and the following is inserted in its place: "e. The Source Code Escrow Package shall, upon request of DTN, be released from escrow to DTN for use by DTN in accordance with this Agreement upon the occurrence of one or more of the following events (collectively the "Escrow Release Events" and individually an "Escrow Release Event"): i. SmartServ is in breach of its obligations under the Source Code Escrow Agreement with DTN and Escrow Agent; ii. if SmartServ files a petition for liquidation and dissolution under Chapter 7 of the Bankruptcy Code of the United States, or an involuntary petition in bankruptcy is filed against SmartServ and is not dismissed or converted for 4 -71- reorganization under Chapter 11 of the Bankruptcy Code of the United States within sixty (60) days thereafter, or this Agreement is rejected in a proceeding under Chapter 11 of the Bankruptcy Code of the United States; iii. if SmartServ has a negative net worth for any two consecutive fiscal quarters ending after May 31, 2000; iv. if DTN elects to provide its own maintenance of the Internet Software and the Hardware pursuant to the last sentence of Paragraph 4.3; v. in the event of a sale to a DTN competitor listed in Schedule C to this Agreement or to an affiliate of such competitor of (i) all or substantially all of the assets of SmartServ or (ii) sufficient stock of SmartServ to effect a change in control of SmartServ by whatever manner including, without limitation, any merger, consolidation, sale of assets, sale of capital stock or similar transaction; or vi. if SmartServ proves unable or otherwise fails to cure a breach of this Agreement within the applicable cure period set forth in this Agreement." 2.5 License Fee. Section 3.1 of the License Agreement is deleted in its entirety and the following is inserted in its place: "3.1 License and Maintenance Fee. Except as otherwise provided in this Agreement, during the License Term, DTN shall pay to SmartServ a monthly license and maintenance fee (the "License Fee") equal to the sum of seventy percent (70%) of the SmartServ Trading Revenue for such month plus an amount equal to twenty two percent (22%) of the first $909,091 of Internet Services Revenue for such month plus seventeen percent (17%) of the Internet Services Revenue above $909,091 for such month. The License Fees shall be paid to SmartServ within twenty (20) days after the end of the month to which it relates. Notwithstanding the foregoing, upon the occurrence of one or more of the Escrow Release Events, DTN may at its sole cost elect to provide its own maintenance of the Internet Software and the Hardware, in which case DTN shall have no further obligation to pay the License Fees and SmartServ shall have no further obligations under Article 4 of this Agreement. If DTN elects to provide its own maintenance of the Internet Software pursuant to this paragraph, SmartServ agrees not to compete with any of the Internet Services for a period of five (5) years thereafter. The foregoing will not prevent SmartServ from fulfilling its obligations to the Bank of New York as permitted under Section 2.1 of this Agreement." 2.6 Warranties and Indemnification. Sections 6.2 and 6.3 of the License Agreement are deleted in their entirety and the following are inserted in their place: "6.2 Internet Software. SmartServ warrants that the Documentation faithfully and accurately reflects the functionality provided by the Internet Software. SmartServ warrants that the Internet 5 -72- Software (i) is free from known material defects; (ii) materially performs in accordance with the Documentation and (iii) is or will be Y2K Compliant by September 30, 1999. 6.3 Services. In the event that the Internet Software does not perform as warranted in paragraph 6.2 hereof, SmartServ agrees to use its best efforts to promptly make the Internet Software perform as so warranted. If SmartServ is unable to make the Internet Software perform as so warranted upon thirty (30) days' notice, DTN (i) may elect to provide at its sole cost its own maintenance of the Internet Software and the Hardware, in which case DTN shall have no further obligation to pay the License Fees during the remainder of the License Term and SmartServ shall have no further obligations under Article 4 of this Agreement or (ii) may elect to terminate this Agreement." 2.7 License Term. Paragraphs 7.1 and 7.2 of the License Agreement are deleted in their entirety and the following is inserted in their place: "7.1 Term. The term of this Agreement shall commence upon the Effective Date and, unless terminated earlier pursuant to Article 7, shall continue until either party terminates this Agreement by written notice to the other party given at least ninety (90) days in advance of such termination, provided such termination may not occur until such time as there are fewer than 1000 Subscribers at an average of at least $84.00 per subscriber per month, which dollar amount shall be reduced 4% each year thereafter but not below an average of $65.00 per subscriber per month. Such term is referred to in this Agreement as the "License Term". 7.2 Termination for Cause. DTN shall have the right to terminate this Agreement upon the violation, breach or default of SmartServ, its officers or employees, of any material provision of this Agreement, including but not limited to proprietary rights and confidentiality obligations. In addition, DTN shall have the right to terminate this Agreement (i) upon the occurrence of any Escrow Release Event; or (ii) in accordance with Sections 6.3, 6.6 or 7.1 hereof. SmartServ shall have the right to terminate this Agreement (i) upon DTN becoming insolvent, commencing or becoming subject to any proceedings under any bankruptcy or insolvency law or making any assignment for the benefit of creditors, suffering or permitting the appointment of a receiver for its business or assets or commencing the winding up or liquidating its business or affairs, voluntarily or otherwise; (ii) upon the failure of DTN to pay the License Fees in accordance with this Agreement for any two (2) month period, subject to the notice and cure period provided in Section 7.3; or (iii) in accordance with Section 7.1." 2.8 Termination of Service Agreement. Each and every reference to "this Agreement and/or the License" contained in Section 7.3 of the License Agreement shall be changed to "this Agreement". In addition, Section 7.4 of the License Agreement shall be deleted in its entirety and the following inserted in its place: 6 -73- "7.4 Survival of the License. Notwithstanding any provision to the contrary contained in this Agreement, upon termination of this Agreement, the License shall continue in perpetuity and the provisions of Paragraph 2.1 shall survive the termination of this Agreement." 2.9 Schedules. Schedules A and C attached to the License Agreement are deleted in their entirety and Schedules A and C attached to this Agreement are inserted in their place. SECTION 3 OTHER AGREEMENTS 3.1 Termination of The Letter of Intent. The parties agree that, effective immediately, the Letter of Intent is terminated and is of no further force or effect. 3.2 Release. SmartServ does hereby fully and absolutely release and forever discharge DTN and its affiliates, officers, directors, employees and agents (the "Released Parties") from any and all claims, demands and causes of action of any kind whatsoever, whether known or unknown at the present time, which SmartServ may have against any of the Released Parties with respect to or arising out of the Letter of Intent or the transactions contemplated by the Letter of Intent. The foregoing release is intended and shall be construed as a full and complete release of all claims, demands, and causes of action referred to above. This release shall inure to the benefit of the Released Parties and their respective heirs, representatives, successors and assigns. 3.3 Escrow Agreement. The parties shall enter into a new Escrow Agreement pursuant to which SmartServ will place the Source Code for the Internet Software in escrow to be released to DTN upon the occurrence of one or more Escrow Release Events. The parties shall complete the new Escrow Agreement on or before July 23, 1999 with an Escrow Agent mutually agreeable to both parties and upon terms and conditions substantially the same as the existing Escrow Agreement, with such changes as may be required by the Escrow Agent or agreed to by both parties. The costs of the escrow shall be shared by DTN and SmartServ equally. 7 -74- SECTION 4 SmartServ Warrants 4.1 Issuance of Warrant. SmartServ agrees to issue to DTN a warrant (the "Warrant") to purchase from SmartServ 300,000 duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, par value $.01 per share, of SmartServ (the "Common Stock") at the purchase price per share of $8.60, at any time or from time to time prior to April 30, 2003 or the date one year after the Current Market Price (as hereinafter defined) of the Common Stock reaches $8.60 per share, whichever is earlier. SmartServ and DTN shall promptly negotiate in good faith and execute an agreement evidencing the Warrant, which shall contain such terms, conditions and adjustments as may reasonably be requested by the parties, including, but not limited to, antidilution adjustments to the number and kind of securities to be issued upon exercise of the Warrant and the exercise price. In addition, the Warrant shall contain registration rights substantially similar to those attached to this Agreement as Exhibit A. For purposes of this paragraph, "Current Market Price" shall mean, as of any date, the average daily Market Price (as hereinafter defined) during the period of the most recent 20 consecutive business days ending on such date. For purposes of this paragraph, "Market Price" shall mean, as of any date, the amount per share equal to (x) the last sale price of shares of the Common Stock on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which the Common Stock is then listed or admitted to trading, or (y) if no shares of Common Stock are then listed or admitted to trading on any national securities exchange but the Common Stock is designated as a national market system security by the NASD, the last trading price of the Common Stock on such date, or if the Common Stock is not so designated, the average of the reported closing bid and asked prices thereof on such date as shown by the NASDAQ system or, if no shares thereof are then quoted in such system, as published by the National Quotation Bureau, Incorporated or any successor organization, and in either case as reported by any member firm of the New York Stock Exchange selected by SmartServ. SECTION 5 ADDITIONAL OBLIGATIONS 5.1 Right of First Refusal. SmartServ hereby agrees that, during the License Term (as defined in the License Agreement), DTN shall have a right of first refusal to supply content to SmartServ's products and services which is not provided directly by SmartServ or its subsidiaries or affiliates. If, during the License Term, SmartServ desires to acquire from third parties content for its products or services which generally is of a type provided by DTN or its subsidiaries and affiliates, then SmartServ agrees to purchase such content from DTN upon the same terms and conditions that SmartServ would purchase such content from a bona fide and unrelated content provider or vendor; provided, however, such right of first refusal is subject to SmartServ's reasonable 8 -75- determination that DTN can provide such content in a manner and of a quality equal to that of other third party content providers or vendors and on a timely basis. 5.2 Pending Developments. SmartServ agrees to continue with due diligence the development of the CotNet trading software application which has been discussed with DTN. The compensation arrangements with respect to such CotNet trading software application and any other DTN originated trading applications will be agreed upon by the parties on a case by case basis. 5.3 Administrative Software. SmartServ agrees that the Administrative Software used to administratively control user accounts is to be included in the Internet Software; provided, however, that the License as it relates solely to such Administrative Software is provided on a non-exclusive basis to DTN for its internal use only. 5.4 Additional Products and Services. The parties agree that SmartServ is engaged in the business of providing software products and services on the Internet referred to as "DTN IQ", "Order Entry Review & Release", "Order Entry FIX Protocol" and "BrokerNet" which are covered by this Agreement. SmartServ's other business operations (hereinafter the "Excluded Business Operations") including but not limited to (i) its telephone screen services, (ii) any other internet products and services not identified above, or (iii) its wireless or PCS services are not covered by the License granted herein. From time to time, parts of SmartServ's Excluded Business Operations may be available for licensing to DTN's customers. Should any of DTN's customers execute a license to utilize any portion of SmartServ's Excluded Business Operations through DTN, DTN shall be entitled to 30% of the revenues derived therefrom. 5.5 Membership on Board of Directors. During the License Term (as defined in the License Agreement), SmartServ agrees to nominate a person designated from time to time by DTN and acceptable to the SmartServ Board of Directors as a member of the Board of Directors of SmartServ at the appropriate annual meeting of the shareholders of SmartServ held for the purpose of electing directors of SmartServ. SECTION 6 MISCELLANEOUS 6.1 Governing Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Nebraska, without regard to principles of conflicts of laws. 6.2 Entire Agreement. This Agreement, including the Schedules hereto, and the License Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous proposals, both oral and written, negotiations, representations, commitments, writings and all other communications between the parties. This Agreement may not be 9 -76- released, discharged, modified or amended except by an instrument in writing signed by a duly authorized representative of each of the parties. 6.3 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. 6.4 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 6.5 Superseding. From and after the date hereof, all references to the License Agreement (including, but not limited to, such references in the Escrow Agreement and the Asset Purchase Agreement dated April 23, 1998, between SmartServ and DTN) shall mean the License Agreement as amended by this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement to become effective as of the day and year first above written. DATA TRANSMISSION NETWORK SMARTSERV ONLINE, INC., CORPORATION, a Delaware a Delaware corporation corporation By:__________________________ By:____________________________ Title:_________________________ Title:___________________________ 10 -77- SCHEDULE A [Insert description of Internet Software] "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities and Exchange Commission upon request." 11 -78- SCHEDULE C List of Prohibited Transferees Bloomberg L.P. Bridge Information Systems, Inc. CBS MarketWatch.com, Inc. CQG, Inc. Data Broadcast Corporation Futuresource/Bridge, L.L.C. Hoovers, Inc. Media General Financial Services Inc. North American Quotations, Inc. NY Quotes Omega Research, Inc. PC Quote, Inc. Primark Corporation Quote.com, Inc. Reuters Group Plc. Standard and Poor's Comstock, Inc. (S&P Comstock) Star Data Systems, Inc. Telekurs Financial Information, Ltd. Telemet America, Inc. Telescan, Inc. The Thompson Corporation Track Data Corporation Window on WallStreet, Inc. Zannett Securities Corporation 12 -79- EXHIBIT A REGISTRATION RIGHTS [Definitions are in Section 2.] Section 1. Registration under Securities Act, Etc. 1.1 Registration on Request. (a) Request. At any time and from time to time after September 30, 1999, upon the written request of DTN, requesting that the Company effect the registration under the Securities Act of all or part of DTN's Registrable Securities and specifying the intended method of disposition thereof, the Company will use its best efforts to effect its registration under the Securities Act, including by means of a shelf registration pursuant to Rule 415 under the Securities Act if so requested in such request (but in the case of a shelf registration only if the Company is then eligible to use Form S-2-or S-3 (or any successor forms)), of the Registrable Securities which the Company has been so requested to register by DTN for disposition in accordance with the intended method of disposition stated in such request, all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; provided that the Company shall not be required to effect the registration pursuant to this Section 1.1 of any Warrants (but shall be required to effect the registration of Registrable Securities described in clauses (b) and (c) of the definition of Registrable Securities), and provided, further, that DTN, by written notice to the Company within 10 Business Days after its receipt of a copy of a notice from the managing underwriter delivered pursuant to Section 1.1(g), may withdraw such request and, on receipt of such notice of the withdrawal of such request from DTN, the Company may elect not to effect such registration. Subject to subdivision (g), the Company may include in such registration other securities for sale for its own account or for the account of any other Person. (b) Number of Registrations. The Company shall not be required to effect more than one registration pursuant to this Section 1.1, provided that such registration shall permit the disposition of at least 80% of the Registrable Securities issuable to DTN upon exercise of all of the Warrants, provided, further, that if one or more such registrations, in the aggregate, shall not permit the disposition of at least 80% of such Registrable Securities, the Company shall be required to effect one additional registration pursuant to this Section 1.1 so that the aggregate number of such Registrable Securities, shall be at least 80%. (c) Registration Statement Form. The Company may, if permitted by law, effect any registration requested under this Section 1.1 by the filing of a registration statement on Form S-3 (or any successor or similar short form registration statement) unless, if such registration involves an underwritten Public Offering of such Registrable Securities, the managing underwriter of such Public Offering shall notify the Company in writing that, in the judgment of such managing underwriter, the use of a more detailed form specified in such 13 -80- notice is of material importance to the success of the Public Offering of such Registrable Securities, in which case such registration shall be effected on the form so specified. (d) Expenses. The Company will pay all Registration Expenses in connection with any registration and sale effected pursuant to this Section 1.1. (e) Selection of Underwriters. If, in the discretion of DTN, any offering pursuant to this Section 1.1 shall constitute an underwritten offering, the underwriter or underwriters thereof shall be selected, after consultation with the Company, by DTN and shall be acceptable to the Company. (f) Effective Registration Statement. A registration requested pursuant to this Section 1.1 will not be deemed to have been effected (x) unless it has become effective, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed of DTN shall be deemed to have been effected by the Company at the request of DTN, unless DTN shall have elected to pay all Registration Expenses in connection with such registration, (y) if, after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court entered within one year of the effectiveness of such registration if it is a shelf registration pursuant to Rule 415 under the Securities Act or entered within 90 days of the effectiveness of such registration if other than a shelf registration, or (z) if the conditions to closing specified in the underwriting agreement entered into in connection with such registration are not satisfied other than by reason of some act or omission by such Initiating Holders. (g) Priority in Requested Registrations. If a requested registration pursuant to this Section 1.1 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to DTN) that, in its opinion, the total number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in any such registration to the extent of the number which the Company is so advised can be sold in such offering (x) first, Registrable Securities requested to be included in such registration by DTN, (y) second, any securities proposed by the Company to be sold for its own account, and (z) third, other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities. 14 -81- (h) Company Request for Delay. Except with respect to a registration statement covering a shelf registration, the Company shall be entitled to postpone for a reasonable period of time (but not exceeding 180 days) the filing of any registration statement otherwise required to be prepared and filed by it pursuant to this Section 1.1 if the Board of Directors of the Company determines, in its reasonable judgment, that such registration and offering would interfere with any financing, acquisition, corporate reorganization or other material transaction involving the Company or any of its affiliates and promptly gives DTN written notice of such determination, containing a general statement of the reasons for such postponement and approximation of the anticipated delay. If the Company shall so postpone the filing of a registration statement, DTN shall have the right to withdraw the request for registration by giving written notice to the Company within 30 days after receipt of the notice of postponement and, in the event of such withdrawal, such request shall not be counted for purposes of the requests for registration to which holders of Registrable Securities are entitled pursuant to Section 1.1. (i) Shelf Registration Statement. The Company shall be deemed to have complied with a request for registration made by DTN pursuant to this Section 1.1 if, at the time of such request, there shall be an effective shelf registration statement on file with the Commission pursuant to Rule 415 under the Securities Act covering the Registrable Securities which such holders shall have requested to be registered, if such registration statement complies with the provisions of this Section 1.1 and of Section 1.3 and if the Company otherwise fulfills the requirements of Section 1.1 and 1.3 in respect of such registration. 1.2 Incidental Registration. (a) Right to Include Registrable Securities. Notwithstanding any limitation contained in Section 1.1, if the Company at any time on or prior to April 30, 2005 proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4 or S-8 or any successor or similar forms), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will each such time give prompt written notice to DTN of its intention to do so and of DTN's rights under this Section 1.2. Upon the written request of DTN made within 20 days after receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by DTN and the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by DTN, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that (x) the Company shall not be required to effect the registration pursuant to this Section 1.2 of any Warrants (but shall be required to effect the registration of Registrable Securities described in clauses (b) and (c) of the definition of Registrable Securities) and (y) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such 15 -82- registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to DTN and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of DTN to request that such registration be effected as a registration under Section 1.1, and (ix) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 1.2 shall relieve the Company of its obligation to effect any registration statement upon request under Section 1.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 1.2. (b) Priority in Incidental Registrations. If a registration pursuant to this Section 1.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration to the extent of the number which the Company is so advised can be sold in such offering securities determined as follows: (x) if such registration as initially proposed by the Company was solely a primary registration of its securities, (i) first, the securities proposed by the Company to be sold for its own account, (ii) second, any Registrable Securities requested to be included in such registration, and (iii) third, any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities, and (y) if such registration as initially proposed by the Company was in whole or in part requested by holders of securities of the Company, other than DTN, pursuant to demand registration rights, (i) first, securities proposed by the Company to be sold for its own account, (ii) second, such securities held by the holders initiating such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such securities, (iii) third, any Registrable Securities requested to be included in such registration, and (iv) fourth, any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities. 1.3. Registration Procedures. If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 1.1 and 1.2, the Company will as expeditiously as possible: (a) prepare and file with the Commission the requisite registration statement (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) to effect such registration and use its best 16 -83- efforts to cause such registration statement to become effective, provided that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by DTN copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement and the expiration of 90 days after such registration statement becomes effective, except with respect to any such registration statement filed pursuant to Rule 415 (or any successor Rule) under the Securities Act, in which case such period shall be one year; (c) furnish to DTN such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as DTN may reasonably request; (d) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as DTN shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable DTN to consummate the disposition in such jurisdictions of the securities owned by DTN, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (e) if such registration includes an underwritten Public Offering, furnish to DTN a signed counterpart, addressed to DTN (and the underwriters), of (x) an opinion of counsel for the Company, dated the date of any closing under the underwriting agreement, reasonably satisfactory in form and substance to DTN, and (y) a "comfort" letter, dated the effective date of 17 -84- such registration statement and the date of any closing under the underwriting agreement, signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities and, in the case of the accountants' letter, such other financial matters, as the underwriters may reasonably request; (f) immediately notify DTN (w) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective, (x) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information, (y) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and (z) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (g) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible time; (h) immediately notify DTN, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of DTN promptly prepare and furnish to DTN a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and not file any amendment or supplement to such registration statement or prospectus to which DTN shall have reasonably 18 -85- objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder, having been furnished with a copy thereof at least three business days prior to the filing thereof; (j) if and when the Common Stock is so listed, designated or authorized as indicated below, use its best efforts (x) to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange (if such Registrable Securities are not already so listed) and on each additional national securities exchange on which similar securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (y) to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule llAa2-1 of the Commission or, failing that, secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD. The Company may require DTN to furnish the Company such information regarding DTN and the distribution of such securities as the Company may from time to time reasonably request in writing. 1.4 Underwritten Offerings. (a) Requested Underwritten Offerings. If requested by the underwriters for any underwritten offering by holders of Registrable Securities pursuant to the registration requested under Section 1.1, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be satisfactory in substance and form to DTN and the underwriters and to contain such representations and warranties by the Company and such other terms as are customarily contained in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in Section 1.6. DTN shall be a party to such underwriting agreement. DTN shall be required to make such representations and warranties to and agreements with the Company or the underwriters as are customarily contained in such agreements. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 1.2 and such securities are to be distributed by or through one or more underwriters, the Company will, subject to the provisions of Section 1.2(b), if requested by DTN, request such underwriters to include the Registrable Securities to be offered and sold by DTN among the securities to be distributed by such underwriters. DTN shall be a party to the underwriting agreement between the Company and such underwriters. DTN shall be required to make such representations and warranties and agreements with the Company or the underwriters as are customarily contained in such agreements. (c) Holdback Agreements. (x) DTN agrees, if so required by the managing underwriter, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such Registration Statement, during the seven days prior to the date on which any underwritten 19 -86- registration pursuant to Section 1.1 or 1.2 has become effective and the 90 days thereafter, or such longer period as may be required by the managing underwriter. (y) The Company agrees (i) not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the seven days prior to the date on which any underwritten registration pursuant to Section 1.1 or 1.2 has become effective and the 90 days thereafter (or such longer period as may be required by the underwriter), except as part of such underwritten registration and except pursuant to registrations on Form S-4 or S-8 or any successor or similar forms thereto. 1.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act, the Company will give DTN, the underwriter, if any, and counsel for the underwriter, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of DTN and such underwriter, to conduct a reasonable investigation within the meaning of the Securities Act. 1.6 Indemnification. (a) The Company will, and hereby does, indemnify, to the extent permitted by applicable law, DTN, its officers and directors, and each Person, if any, who controls DTN within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities Act or common law or otherwise), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (and as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information furnished in writing to the Company by DTN expressly for use therein. If the offering pursuant to any registration statement provided for under this Agreement is made through underwriters, no action or failure to act on the part of such underwriters shall affect the obligations of the Company to indemnify DTN or any other Person pursuant to the preceding sentence. If the offering pursuant to any registration statement provided for under this Agreement is made through underwriters, the Company agrees to enter into an underwriting agreement in customary form with such underwriters and the Company agrees to indemnify such underwriters, their officers and directors, if any, and each Person, if any, who controls such underwriters within the meaning of Section 15 of the Securities Act to the same extent as hereinbefore provided with respect to the indemnification of DTN; provided that the Company shall not be required to indemnify DTN or any such underwriter, or any officer or director of DTN or such underwriter or any Person who controls DTN or such underwriter 20 -87- within the meaning of Section 15 of the Securities Act, to the extent that the loss, claim, damage, liability (or proceedings in respect thereof) or expense for which indemnification is claimed results from DTN's or such underwriter's failure to send or give a copy of the amended or supplemented final prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such amended or supplemented final prospectus prior to such written confirmation and DTN or the underwriter, as the case may be, was given notice of the availability of such amended or supplemented final prospectus. (b) DTN will indemnify, to the extent permitted by applicable law, the Company, its officers and directors and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses resulting from any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or preliminary prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue statement is contained in or such omission is from information so furnished in writing by such holder expressly for use therein, provided that such holder's obligations hereunder shall be limited to an amount equal to the proceeds to such holder of the Registrable Securities sold pursuant to such registration statement. (c) Any Person entitled to indemnification under the provisions of this Section 1.6 shall (x) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification (but the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 1.6, except to the extent that the indemnifying party is actually prejudiced by such failure) and (y) unless a conflict of interest between such indemnified and indemnifying parties exists in respect of such claim, permit such indemnifying party to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified party; and if such defense is so assumed, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party and such indemnifying party shall not be subject to any liability for any settlement made without its consent (which shall not be unreasonably withheld); and any underwriting agreement entered into with respect to any registration statement provided for under this Agreement shall so provide. In the event an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim, unless a conflict of interest exists between such indemnified party and any other of such indemnified parties in respect to such claim. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an indemnified party, its officers, directors or any Person, if any, who controls such party as aforesaid, and shall survive the transfer of such securities by such holder. 21 -88- (d) If the indemnification provided for in this Section 1.6 shall for any reason be held by a court to be unavailable to an indemnified party under Section 1.6(a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under Section 1.6(a) or (b), the indemnified party and the indemnifying party under Section 1.6(a) or (b) shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (x) in such proportion as is appropriate to reflect the relative fault of the Company, DTN and the underwriters, if any, which resulted in such loss, claim, damage or liability, or action or proceeding in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action or proceeding in respect thereof, as well as any other relevant equitable considerations or (y) if the allocation provided by clause (x) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company, DTN and the underwriters, if any, from the offering of the securities covered by such registration statement, provided, that for purposes of clauses (x) or (y), the relative benefits received by DTN shall be deemed not to exceed the amount of proceeds received by DTN and DTN shall not be required to contribute any amount in excess of the amount it could have been required to pay to an indemnified party if the indemnity under subsection (a) of this Section 1.6 was available. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. 1.7 Registration Rights to Others. If the Company shall at any time after the date of this Warrant provide to any holder of any securities of the Company rights with respect to the registration of such securities under the Securities Act, such rights shall not be in conflict with any of the rights provided in this Section 1 to the holders of Registrable Securities; provided, however, the foregoing shall not preclude the Company from granting registration rights which are more favorable than those contained in this Warrant so long as such rights do not preclude the Company from complying with the terms of this Warrant. 1.8 Rule 144. If and when the Common Stock is either listed, designated or authorized as provided in Section 1.3(j), the Company shall take all actions reasonably necessary to enable DTN to sell such shares of Common Stock issuable upon exercise of this Warrant without registration under the Securities Act within the limitation of the provisions of Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rules or regulations hereafter adopted by the Commission, including, without limitation, filing on a timely basis all reports required to be filed pursuant to the Exchange Act. Notwithstanding the provisions of Sections 1.1 and 1.2, the Company has no obligation to effect the registration of any Registrable Securities as provided in such sections if DTN can then sell under Rule 144 all the Registrable Securities which otherwise would be registered in accordance with such sections, as applicable; provided such exception does not preclude DTN from exercising its registration rights on a future occasion. 22 -89- Section 2. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Commission: the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose. Common Stock: the Company's common stock, par value $.01 per share, as constituted on the date hereof, any stock into which such common stock shall have been changed or any stock resulting from any reclassification of such common stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. Company: SmartServ Online, Inc., a Delaware corporation. DTN: Data Transmission Network Corporation or any successor to its business. NASD: the National Association of Securities Dealers. NASDAO: the Automated Quotation System of the NASD. Other Securities: any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which DTN at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to this Warrant or otherwise. Person: an individual, a partnership, an association, a joint venture, a corporation, a business, a trust, an unincorporated organization or a government or any department, agency or subdivision thereof. Public Offering: any offering of Common Stock to the public pursuant to an effective registration statement under the Securities Act. Registrable Securities: (a) the Warrants, (b) any shares of Common Stock or other Securities issued or issuable upon exercise of the Warrants and (c) any securities issued or issuable with respect to any common Stock or Other Securities referred to in subdivision (b) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular 23 -90- Registrable Securities, once issued such securities shall cease to be Registrable Securities when (x) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (y) they shall have been sold as permitted under Rule 144 (or any successor provision) under the Securities Act, or (z) they shall have ceased to be outstanding. Registration Expenses: all expenses incident to the Company's performance of or compliance with Section 1, including, without limitation, all registration, filing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by the underwriters with respect to such registration, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, and the fees and disbursements of DTN's counsel and accountants. Securities Act: the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time of determination. Warrants: the meaning specified in the opening paragraphs of this Warrant. 24 -91- EX-10 5 SSOL - COMMON STOCK PURCHASE WARRANT SMARTSERV ONLINE, INC. COMMON STOCK PURCHASE WARRANT Expiring November 17, 2000 -92- TABLE OF CONTENTS Page 1. Exercise of Warrant ................................................ 1 1.1. Manner of Exercise ........................................ 1 1.2. When Exercise Deemed Effected ............................. 2 1.3. Delivery of Stock Certificates, Etc. ...................... 2 1.4. Company to Reaffirm Obligations ........................... 2 2. Adjustments ........................................................ 3 2.1. Number of Shares; Warrant Price ........................... 3 2.2. Adjustment of Warrant Price ............................... 3 2.2.1. Issuance of Additional Shares of Common Stock..... 3 2.2.2. Extraordinary Dividends and Distributions ........ 3 2.3. Treatment of Options and Convertible Securities ........... 4 2.4. Treatment of Stock Dividends, Stock Splits, Etc. .......... 6 2.5. Computation of Consideration .............................. 6 2.6. Adjustments for Combinations. Etc. ........................ 8 2.7. Dilution in Case of Other Securities ...................... 8 2.8. Minimum Adjustment of Warrant Price ....................... 8 3. Consolidation, Merger, Sale of Assets, Reorganization, Etc. ........ 8 3.1. General Provisions......................................... 8 3.2. Assumption of Obligations ................................. 9 4. Other Dilutive Events ............................................. 10 5. No Dilution or Impairment ......................................... 10 6. Accountants' Report as to Adjustments.............................. 10 7. Notices of Corporate Action ....................................... 11 8. Restrictions on Transfer .......................................... 11 8.1. Restrictive Legends....................................... 11 8.2. Notice of Proposed Transfer; Opinions of Counsel ......... 12 8.3. Termination of Restrictions............................... 13 9. Registration Under Securities Act, Etc. ........................... 13 9.1 Registration on Request .................................. 13 9.2 Incidental Registration .................................. 15 2 -93- 9.3. Registration Procedures .................................. 16 9.4. Underwritten Offerings ................................... 19 9.5. Preparation; Reasonable Investigation .................... 19 9.6. Indemnification .......................................... 20 9.7. Registration Rights to Others ............................ 22 9.8. Rule 144 ................................................. 22 10. Availability of Information ....................................... 22 11. Reservation of Stock. Etc. ........................................ 22 12. Listing on Securities Exchange .................................... 23 13. Ownership, Transfer and Substitution of Warrants .................. 23 13.1. Ownership of Warrants .................................... 23 13.2. Transfer and Exchange of Warrants ........................ 23 13.3. Replacement of Warrants .................................. 23 14. Definitions ....................................................... 23 15. Remedies .......................................................... 28 16. No Rights or Liabilities as Stockholder ........................... 28 17. Notices ............................................................28 18. Expiration ........................................................ 29 19. Miscellaneous ..................................................... 29 3 -94- THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND SUCH SHARES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFERABILITY SET FORTH IN THIS WARRANT. Common Stock Purchase Warrant Expiring November 17, 2000 Stamford, Connecticut January 20, 2000 SMARTSERV ONLINE, INC., a Delaware corporation (the "Company"), for value received, hereby certifies that Data Transmission Network Corporation, or registered assigns, is entitled to purchase from the Company 300,000 duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock") at the purchase price per share of $8.60, at any time or from time to time prior to 3 P.M., New York City time, on November 17, 2000, all subject to the terms, conditions and adjustments set forth below in this Warrant. This Warrant is issued pursuant to that certain Agreement dated May 1, 1999, between the Company and Data Transmission Network Corporation (the "DTN Agreement"). Certain capitalized terms used in this Warrant are defined in Section 14. If a capitalized term used in this Warrant is not defined in Section 14, or elsewhere in this Warrant, such term shall have the meaning given such term in the DTN Agreement. 1. Exercise of Warrant. 1.1. Manner of Exercise. This Warrant may be exercised by the holder hereof, in whole or in part, during normal business hours on any Business Day prior to the expiration of this Warrant by surrender of this Warrant, with the form of subscription at the end hereof (or a facsimile thereof) duly executed by such holder, to the Company at its principal office (or, if such exercise shall be in connection with an underwritten Public Offering of shares of Common Stock (or Other Securities) subject to this Warrant, at the location at which the Company shall have agreed to deliver the shares of Common Stock (or Other Securities) subject to such offering), accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying (a) the number of shares of Common Stock (without giving effect to any adjustment therein) designated in such form of subscription by (b) the Warrant Price, and such holder shall thereupon be entitled to receive 4 -95- the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in Sections 2 through 4. 1.2. When Exercise Deemed Effected. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in Section 1.1, and at such time the person or persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such exercise as provided in Section 1.3 shall be deemed to have become the holder or holders of record thereof. 1.3. Delivery of Stock Certificates, Etc. As soon as practicable after the exercise of this Warrant, in whole or in part, and in any event within ten (10) Business Days thereafter (unless such exercise shall be in connection with an underwritten Public Offering of shares of Common Stock (or Other Securities) subject to this Warrant, in which event concurrently with such exercise), the Company at its expense (including the payment by it of any taxes (other than transfer taxes) payable by the Company) will cause to be issued in the name of and delivered to the holder hereof or, subject to Section 8, as such holder (upon payment by such holder of any applicable transfer taxes) may direct, (a) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash in an amount equal to the same fraction of the Market Price per share of such Common Stock (or Other Securities) on the Business Day next preceding the date of such exercise, and (b) in case such exercise is in part only, a new Warrant of like tenor, calling in the aggregate on the face thereof for the number of shares of Common Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the holder upon such exercise as provided in Section 1.1. 1.4. Company to Reaffirm Obligations. The Company will, at the time of or at any time after each exercise of this Warrant, upon the request of the holder hereof or of any shares of Common Stock (or Other Securities) issued upon such exercise, acknowledge in writing its continuing obligation to afford to such holder all rights (including, without limitation, any right of registration of any shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant pursuant to Section 9) to which such holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such holder. 5 -96- 2. Adjustments. 2.1. Number of Shares; Warrant Price. The number of shares of Common Stock which the holder of this Warrant shall be entitled to receive upon each exercise hereof shall be determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this Section 2) be issuable upon such exercise, as designated by the holder hereof pursuant to Section 1.1, by a fraction of which (a) the numerator is $8.60 and (ii) the denominator is the Warrant Price in effect on the date of such exercise. The "Warrant Price" shall initially be $8.60 per share, and shall be adjusted and readjusted from time to time as provided in this Section 2 and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this Section 2. 2.2. Adjustment of Warrant Price. 2.2.1. Issuance of Additional Shares of Common Stock. In case the Company, at any time or from time to time after April 30, 1999 (the "Initial Date"), shall issue or sell Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 2.3 or 2.4) without consideration or for a consideration per share less than the Base Price in effect, in each case, on the date of and immediately prior to such issue or sale, then, and in each such case, subject to Section 2.8, such Warrant Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Price by a fraction, (a) the numerator of which shall be (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (ii) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at the Base Price, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, provided that, for the purposes of this Section 2.2.1 (x) immediately after any Additional Shares of Common Stock are deemed to have been issued pursuant to Section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding, and (y) treasury shares shall not be deemed to be outstanding. 2.2.2. Extraordinary Dividends and Distributions. In case the Company at any time or from time to time after the Initial Date shall declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of other or additional stock or other securities or property or options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement) on any Common Stock, other than (a) a dividend payable in Additional Shares of Common Stock or in Options for Common Stock or (b) a dividend payable in cash, then, and in each such case, 6 -97- subject to Section 2.8, the Warrant Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of any class of securities entitled to receive such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Price by a fraction, (x) the numerator of which shall be the Current Market Price in effect on such record date or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading, less the value of such dividend or distribution (as determined in good faith by the Board of Directors of the Company) applicable to one share of Common Stock, and (y) the denominator of which shall be such Current Market Price. 2.3. Treatment of Options and Convertible Securities. In case the Company at any time or from time to time after the Initial Date shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then, and in each such case, the maximum number of Additional Shares of Common Stock (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be issued for purposes of Section 2.2 as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), provided that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2.5) of such shares would be less than the Base Price in effect, in each case, on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be, and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued, (a) no further adjustment of the Warrant Price shall be made upon the subsequent issue or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, 7 -98- shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration of any such Options or of the rights of conversion or exchange under any such Convertible Securities which shall not have been exercised (or upon purchase by the Company and cancellation or retirement of any such Options which shall not have been exercised or of any such Convertible Securities the rights of conversion or exchange under which shall not have been exercised), the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (x) in the case of Options for Common Stock or of Convertible Securities, the only Additional Shares of Common Stock issued or sold were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was (i) an amount equal to (A) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (B) the consideration actually received by the Company upon such exercise, minus (C) the consideration paid by the Company for any purchase of such Options which were not exercised, or (ii) an amount equal to (A) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Convertible Securities which were actually converted or exchanged, plus (B) the additional consideration, if any, actually received by the Company upon such conversion or exchange, minus (C) the consideration paid by the Company for any purchase of such Convertible Securities the rights of conversion or exchange under which were not exercised, and (y) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was an amount equal to (i) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (ii) the consideration deemed to have been received by the Company (pursuant to Section 2.4) upon the issue or sale of the Convertible Securities with respect to which such Options were actually exercised, minus (iii) the consideration paid by the Company for any purchase of such Options which were not exercised; 8 -99- (d) no readjustment pursuant to subdivision (b) or (c) above shall have the effect of increasing the Warrant Price by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities, except as a result of any intervening events causing adjustments therein; and (e) in the case of any such Options which expire by their terms not more than 30 days after the date of issue, sale, grant or assumption thereof, no adjustment of the Warrant Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in subdivision (c) above. In case at any time after the Initial Date the Company shall be required to increase the number of Additional Shares of Common Stock subject to any Option or into which any Convertible Securities (other than the Warrants) are convertible or exchangeable pursuant to the operation of anti-dilution provisions applicable thereto, such Additional Shares of Common Stock shall be deemed to be issued for purposes of Section 2.2 as of the time of such increase. 2.4. Treatment of Stock Dividends, Stock Splits, Etc. In case the Company at any time or from time to time after the Initial Date shall declare or pay any dividend or other distribution on any class of stock of the Company payable in Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. 2.5. Computation of Consideration. For the purposes of this Section 2: (a) The consideration for the issue or sale of any Additional Shares of Common Stock or for the issue, sale, grant or assumption of any Options or Convertible Securities, irrespective of the accounting treatment of such consideration, shall (x) insofar as it consists of cash, be computed at the amount of cash received by the Company, without deducting any expenses paid or incurred by the Company or any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, (y) insofar as it consists of consideration (including securities) other than cash, be computed at the fair value thereof at the time of such issue or sale, as determined in good faith by the Board of Directors of the Company, without deducting any expenses paid or incurred by the Company for any commissions or compensation paid or 9 -100- concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, and (z) in case Additional Shares of Common Stock are issued or sold or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, be the proportion of such consideration so received, computed as provided in subdivisions (x) and (y) above, allocable to such Additional Shares of Common Stock or Convertible Securities, as the case may be, all as determined in good faith by the Board of Directors of the Company. (b) All Options issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both and which does not set forth an allocation of such consideration in the documentation for such transaction, all Additional Shares of Common Stock, Options or Convertible Securities issued in payment of any dividend or other distribution on any class of stock of the Company and all Additional Shares of Common Stock issued to effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) shall be deemed to have been issued without consideration. (c) Additional Shares of Common Stock deemed to have been issued for consideration pursuant to Section 2.3, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing (x) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subdivision (a), by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (d) Additional Shares of Common Stock issued or deemed to have been issued pursuant to the operation of anti-dilution provisions applicable to Convertible Securities (other than the Warrants), Options 10 -101- or other securities of the Company (either as a result of the adjustments provided for by the Warrants or otherwise) shall be deemed to have been issued without consideration. 2.6. Adjustments for Combinations, Etc. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Warrant Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 2.7. Dilution in Case of Other Securities. In case any Other Securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any Common Stock (or Other Securities) of the Company (or any issuer of Other Securities or any other Person referred to in Section 3) or to subscription, purchase or other acquisition pursuant to any options issued or granted by the Company (or any such other issuer or Person) for a consideration such as to dilute, on a basis consistent with the standards established in the other provisions of this Section 2, the purchase rights granted by this Warrant, then, and in each such case, the computations, adjustments and readjustments provided for in this Section 2 with respect to the Warrant Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the exercise of this Warrant, so as to protect the holder of this Warrant against the effect of such dilution. 2.8. Minimum Adjustment of Warrant Price. If the amount of any adjustment of the Warrant Price required pursuant to this Section 2 would be less than one-tenth of one percent of the Warrant Price in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one-tenth of one percent of such Warrant Price; provided that, upon the exercise of this Warrant, all adjustments carried forward and not theretofore made up to and including the date of such exercise shall be made to the nearest one one-hundredth of a cent. 3. Consolidation, Merger, Sale of Assets, Reorganization. Etc. 3.1. General Provisions. In case the Company, after the Initial Date, (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, Common Stock or Other Securities shall be changed into or exchanged for cash, stock or other securities of any other Person or any other property, or (c) shall transfer all or substantially all of its properties and assets to any other Person, or (d) shall effect a capital reorganization or reclassification of Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the Warrant Price is provided in Section 2.2.1 or 2.2.2), then, and in the case of each such transaction, the Company 11 -102- shall give written notice thereof to the holder of this Warrant not less than 30 days prior to the consummation thereof and proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Section 3, the holder of this Warrant, upon the exercise hereof at any time after the consummation of such transaction, shall be entitled to receive, at the aggregate Warrant Price in effect at the time of such consummation for all Common Stock (or other Securities) issuable upon such exercise immediately prior to such consummation, in lieu of the Common Stock (or Other Securities) issuable upon such exercise prior to such consummation, the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder upon such consummation if such holder had exercised this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in Section 2 and this Section 3, provided that if a purchase, tender or exchange offer shall have been made to and accepted by the holders of Common Stock under circumstances in which, upon completion of such purchase, tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Section 13(d)(3) of the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of Common Stock, and if the holder of this Warrant so designates in such notice given to the Company, the holder of this Warrant shall be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder if the holder of this Warrant had exercised this Warrant prior to the expiration of such purchase, tender or exchange offer, accepted such offer and all of the Common Stock held by such holder had been purchased pursuant to such purchase, tender or exchange offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in Section 2 and this Section 3. 3.2. Assumption of Obligations. Notwithstanding anything contained in this Warrant or the DTN Agreement to the contrary, the Company will not effect any of the transactions described in subdivisions (a), (b) or (d) of Section 3.1 unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any cash, stock or other securities or other property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the holder of this Warrant, (a) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant) and (b) the obligation to deliver to such holder such cash, stock or other securities or other property as, in accordance with the foregoing provisions of this Section 3, such holder may be entitled to receive, and such Person shall have similarly delivered to such holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such holder, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of Section 2 and this Section 3) shall be applicable to the cash, stock or other securities or other property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto. 12 -103- 4. Other Dilutive Events. In case any event shall occur as to which the provisions of Section 2 or Section 3 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such sections, then, in each such case, the Company shall appoint a firm of independent public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Sections 2 and 3, necessary to preserve, without dilution, the purchase rights represented by this Warrant. Upon receipt of such opinion the Company will promptly mail a copy thereof to the holder of this Warrant and shall make the adjustments described therein. 5. No Dilution or Impairment. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all outstanding warrants issued by the Company (including this Warrant) from time to time, and (c) will not take any action which results in any adjustment of the Warrant Price if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all outstanding warrants issued by the Company (including this Warrant) would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise. 6. Accountants' Report as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable upon the exercise of this Warrant, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of this Warrant, and will prepare a certificate of the chief financial officer of the Company setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including without limitation a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Warrant Price in effect immediately prior to such issue or sale and as adjusted and readjusted (if required by Section 2) on account thereof. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant and will, upon the written request at any time of the holder of this Warrant, furnish to such holder a like certificate setting forth the Warrant Price at the time in effect and showing in reasonable detail how it was calculated. In addition, with respect to any fiscal year of the Company during 13 -104- which any such adjustment or readjustment shall have been made, the Company will cause the independent public accountants reporting upon the Company's financial statements for such fiscal year to verify, concurrently with their annual audit of the Company's financial statements, the computations made by the Company during such fiscal year and to prepare and to deliver to the holder of this Warrant a report setting forth substantially the information described above in this Section 6 with respect to all such adjustments and readjustments. The Company will also keep copies of all such certificates and reports at its principal office and will cause the same to be available for inspection at such office during normal business hours by the holder of this Warrant or any prospective purchaser of this Warrant designated by the holder thereof. 7. Notices of Corporate Action. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company will mail to the holder of this Warrant a notice specifying (x) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (y) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date therein specified, in the case of any date referred to in the foregoing subdivision (x), and at least 30 days prior to the date therein specified, in the case of the date referred to in the foregoing subdivision (y). 8. Restrictions on Transfer. 8.1. Restrictive Legends. Except as otherwise permitted by this Section 8, each certificate for Common Stock (or Other Securities) issued upon the exercise of this Warrant and each certificate issued upon the direct or indirect Transfer of any such Common Stock (or Other Securities) shall be 14 -105- stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be transferred except in compliance with such Act and applicable state securities laws. Such shares are also subject to certain restrictions on transferability imposed by a Common Stock Purchase Warrant expiring November 17, 2000, a copy of which is on file at the offices of the Company." 8.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to any Transfer of any Restricted Securities which are not registered under an effective registration statement under the Securities Act (other than a Transfer pursuant to Rule 144 or any comparable rule under such Act), the holder thereof will give written notice to the Company of such holder's intention to effect such Transfer and to comply in all other respects with this Section 8.2. Each such notice (a) shall describe the manner and circumstances of the proposed Transfer in sufficient detail to enable counsel to render the opinions referred to below, and (b) shall designate counsel for the holder giving such notice (who may be internal counsel for such holder). The holder giving such notice will submit a copy thereof to the counsel designated in such notice and the Company will promptly submit a copy thereof to its counsel. The following provisions shall then apply: (x) If in the opinion of such counsel for the holder the proposed Transfer may be effected without registration (a copy of which opinion shall be delivered to the Company), and if such opinion is reasonably satisfactory to the Company, such holder shall thereupon be entitled to Transfer such Restricted Securities in accordance with the terms of the notice delivered by such holder to the Company. Each Warrant or certificate, if any, issued upon or in connection with such Transfer shall bear the appropriate restrictive legend set forth in Section 8.1 unless, in the opinion of such counsel and the Company's counsel, such legend is no longer required to ensure compliance with the Securities Act. (y) If the opinion of such counsel for the holder is not to the effect that the proposed Transfer may legally be effected without registration of such Restricted Securities under the Securities Act, such holder shall not be entitled to Transfer such Restricted Securities (other than in a Transfer pursuant to Rule 144 or any comparable rule under the Securities Act) until the conditions specified in subdivision (x) above shall be satisfied or until registration of such Restricted Securities under the Securities Act has become effective. Notwithstanding the foregoing provisions of this Section 8.2, the holder of any Restricted Securities shall be permitted to Transfer any such Restricted Securities pursuant to Rule 144A under the Securities Act, provided that each transferee agrees in writing to be bound by all the restrictions on transfer of such Restricted Securities contained in this Section 8.2. 15 -106- 8.3. Termination of Restrictions. The restrictions imposed by this Section 8 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities (a) when such securities shall have been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering such Restricted Securities, (b) when, in the opinions of both counsel for the holder thereof and counsel for the Company, such restrictions are no longer required in order to ensure compliance with the Securities Act, or (c) when such securities may be immediately sold by the holder as determined under Rule 144 under the Securities Act. Whenever such restrictions shall terminate as to any Restricted Securities, as soon as practicable thereafter and in any event within ten Business Days, the holder thereof shall be entitled to receive from the Company, without expense (other than transfer taxes, if any), new securities of like tenor not bearing the legend set forth in Section 8.1 hereof. 9. Registration under Securities Act, Etc. 9.1 Registration on Request. (a) Request. At any time and from time to time after September 30, 1999, upon the written request of DTN, requesting that the Company effect the registration under the Securities Act of all or part of the Registrable Securities and specifying the intended method of disposition thereof, the Company will use its best efforts to effect its registration under the Securities Act, including by means of a shelf registration pursuant to Rule 415 under the Securities Act if so requested in such request (but in the case of a shelf registration only if the Company is then eligible to use Form S-2 or S-3 (or any successor forms)), of the Registrable Securities which the Company has been so requested to register by DTN for disposition in accordance with the intended method of disposition stated in such request, all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; provided that the Company shall not be required to effect the registration pursuant to this Section 9.1 of any Warrants (but shall be required to effect the registration of Registrable Securities described in clauses (b) and (c) of the definition of Registrable Securities), and provided, further, that DTN, by written notice to the Company within 10 Business Days after its receipt of a copy of a notice from the managing underwriter delivered pursuant to Section 9.1(g), may withdraw such request and, on receipt of such notice of the withdrawal of such request from DTN, the Company may elect not to effect such registration. Subject to subdivision (g), the Company may include in such registration other securities for sale for its own account or for the account of any other Person. (b) Number of Registrations. The Company shall not be required to effect more than one registration pursuant to this Section 9.1, provided that such registration shall permit the disposition of at least 80% of the Registrable Securities issuable to DTN upon exercise of all of the Warrants, provided, further, that if one or more such registrations, in the aggregate, shall not permit the disposition of at least 80% of such Registrable Securities, the Company shall be required to effect one additional registration pursuant to this Section 9.1 so that the aggregate number of such Registrable Securities shall be at least 80%. 16 -107- (c) Registration Statement Form. The Company may, if permitted by law, effect any registration requested under this Section 9.1 by the filing of a registration statement on Form S-3 (or any successor or similar short form registration statement) unless, if such registration involves an underwritten Public Offering of such Registrable Securities, the managing underwriter of such Public Offering shall notify the Company in writing that, in the judgment of such managing underwriter, the use of a more detailed form specified in such notice is of material importance to the success of the Public Offering of such Registrable Securities, in which case such registration shall be effected on the form so specified. (d) Expenses. The Company will pay all Registration Expenses in connection with any registration and sale effected pursuant to this Section 9.1. (e) Selection of Underwriters. If, in the discretion of DTN, any offering pursuant to this Section 9.1 shall constitute an underwritten offering, the underwriter or underwriters thereof shall be selected, after consultation with the Company, by DTN and shall be acceptable to the Company. (f) Effective Registration Statement. A registration requested pursuant to this Section 9.1 will not be deemed to have been effected (x) unless it has become effective, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed of DTN shall be deemed to have been effected by the Company at the request of DTN, unless DTN shall have elected to pay all Registration Expenses in connection with such registration, (y) if, after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court entered within one year of the effectiveness of such registration if it is a shelf registration pursuant to Rule 415 under the Securities Act or entered within 90 days of the effectiveness of such registration if other than a shelf registration, or (z) if the conditions to closing specified in the underwriting agreement entered into in connection with such registration are not satisfied other than by reason of some act or omission by DTN. (g) Priority in Requested Registrations. If a requested registration pursuant to this Section 9.1 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to DTN) that, in its opinion, the total number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in any such registration to the extent of the number which the Company is so advised can be sold in such offering (x) first, Registrable Securities requested to be included in such registration by DTN, (y) second, any securities proposed by the Company to be sold for its own account, and (z) third, Other Securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities. (h) Company Request for Delay. Except with respect to a registration statement covering a shelf registration, the Company shall be entitled to postpone for a reasonable period of time (but not exceeding 180 days) the filing 17 -108- of any registration statement otherwise required to be prepared and filed by it pursuant to this Section 9.1 if the Board of Directors of the Company determines, in its reasonable judgment, that such registration and offering would interfere with any financing, acquisition, corporate reorganization or other material transaction involving the Company or any of its affiliates and promptly gives DTN written notice of such determination, containing a general statement of the reasons for such postponement and approximation of the anticipated delay. If the Company shall so postpone the filing of a registration statement, DTN shall have the right to withdraw the request for registration by giving written notice to the Company within 30 days after receipt of the notice of postponement and, in the event of such withdrawal, such request shall not be counted for purposes of the requests for registration to which holders of Registrable Securities are entitled pursuant to Section 9.1. (i) Shelf Registration Statement. The Company shall be deemed to have complied with a request for registration made by DTN pursuant to this Section 9.1 if, at the time of such request, there shall be an effective shelf registration statement on file with the Commission pursuant to Rule 415 under the Securities Act covering the Registrable Securities which such holders shall have requested to be registered, if such registration statement complies with the provisions of this Section 9.1 and of Section 9.3 and if the Company otherwise fulfills the requirements of Section 9.1 and 9.3 in respect of such registration. 9.2 Incidental Registration. (a) Right to Include Registrable Securities. Notwithstanding any limitation contained in Section 9.1, if the Company at any time on or prior to April 30, 2005 proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4 or S-8 or any successor or similar forms), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will each such time give prompt written notice to DTN of its intention to do so and of DTN's rights under this Section 9.2. Upon the written request of DTN made within 20 days after receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by DTN and the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by DTN, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that (x) the Company shall not be required to effect the registration pursuant to this Section 9.2 of any Warrants (but shall be required to effect the registration of Registrable Securities described in clauses (b) and (c) of the definition of Registrable Securities) and (y) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to DTN and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from 18 -109- its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of DTN to request that such registration be effected as a registration under Section 9.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 9.2 shall relieve the Company of its obligation to effect any registration statement upon request under Section 9.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 9.2. (b) Priority in Incidental Registrations. If a registration pursuant to this Section 9.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration to the extent of the number which the Company is so advised can be sold in such offering securities determined as follows: (x) if such registration as initially proposed by the Company was solely a primary registration of its securities, (i) first, the securities proposed by the Company to be sold for its own account, (ii) second, any Registrable Securities requested to be included in such registration, and (iii) third, any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities, and (y) if such registration as initially proposed by the Company was in whole or in part requested by holders of securities of the Company, other than DTN, pursuant to demand registration rights, (i) first, securities proposed by the Company to be sold for its own account, (ii) second, such securities held by the holders initiating such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such securities, (iii) third, any Registrable Securities requested to be included in such registration, and (iv) fourth, any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities. 9.3 Registration Procedures. If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 9.1 and 9.2, the Company will as expeditiously as possible: (a) prepare and file with the Commission the requisite registration statement (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) to effect such registration and use its best efforts to cause such registration statement to become effective, provided that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by DTN copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel; 19 -110- (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement and the expiration of 90 days after such registration statement becomes effective, except with respect to any such registration statement filed pursuant to Rule 415 (or any successor Rule) under the Securities Act, in which case such period shall be one year; (c) furnish to DTN such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as DTN may reasonably request; (d) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as DTN shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable DTN to consummate the disposition in such jurisdictions of the securities owned by DTN, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (e) if such registration includes an underwritten Public Offering, furnish to DTN a signed counterpart, addressed to DTN (and the underwriters), of (x) an opinion of counsel for the Company, dated the date of any closing under the underwriting agreement, reasonably satisfactory in form and substance to DTN, and (y) a "comfort" letter, dated the effective date of such registration statement and the date of any closing under the underwriting agreement, signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in 20 -111- opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities and, in the case of the accountants' letter, such other financial matters, as the underwriters may reasonably request; (f) immediately notify DTN (w) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective, (x) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information, (y) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and (z) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (g) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible time; (h) immediately notify DTN, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of DTN promptly prepare and furnish to DTN a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and (i) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and not file any amendment or supplement to such registration statement or prospectus to which DTN shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder, having been furnished with a copy thereof at least three business days prior to the filing thereof. 21 -112- The Company may require DTN to furnish the Company such information regarding DTN and the distribution of such securities as the Company may from time to time reasonably request in writing. 9.4 Underwritten Offerings. (a) Requested Underwritten Offerings. If requested by the underwriters for any underwritten offering by holders of Registrable Securities pursuant to the registration requested under Section 9.1, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be satisfactory in substance and form to DTN and the underwriters and to contain such representations and warranties by the Company and such other terms as are customarily contained in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in Section 9.6. DTN shall be a party to such underwriting agreement. DTN shall be required to make such representations and warranties to and agreements with the Company or the underwriters as are customarily contained in such agreements. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 9.2 and such securities are to be distributed by or through one or more underwriters, the Company will, subject to the provisions of Section 9.2(b), if requested by DTN, request such underwriters to include the Registrable Securities to be offered and sold by DTN among the securities to be distributed by such underwriters. DTN shall be a party to the underwriting agreement between the Company and such underwriters. DTN shall be required to make such representations and warranties and agreements with the Company or the underwriters as are customarily contained in such agreements. (c) Holdback Agreements. (x) DTN agrees, if so required by the managing underwriter, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such registration statement, during the seven days prior to the date on which any underwritten registration pursuant to Section 9.1 or 9.2 has become effective and the 90 days thereafter, or such longer period as may be required by the managing underwriter. (y) The Company agrees not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the seven days prior to the date on which any underwritten registration pursuant to Section 9.1 or 9.2 has become effective and the 90 days thereafter (or such longer period as may be required by the underwriter), except as part of such underwritten registration and except pursuant to registrations on Form S-4 or S-8 or any successor or similar forms thereto. 9.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act, the Company will give DTN, the underwriter, if any, and counsel for the underwriter, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the 22 -113- Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of DTN and such underwriter, to conduct a reasonable investigation within the meaning of the Securities Act. 9.6 Indemnification. (a) The Company will, and hereby does, indemnify, to the extent permitted by applicable law, DTN, its officers and directors, and each Person, if any, who controls DTN within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities Act or common law or otherwise), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (and as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information furnished in writing to the Company by DTN expressly for use therein. If the offering pursuant to any registration statement provided for under this Agreement is made through underwriters, no action or failure to act on the part of such underwriters shall affect the obligations of the Company to indemnify DTN or any other Person pursuant to the preceding sentence. If the offering pursuant to any registration statement provided for under this Agreement is made through underwriters, the Company agrees to enter into an underwriting agreement in customary form with such underwriters and the Company agrees to indemnify such underwriters, their officers and directors, if any, and each Person, if any, who controls such underwriters within the meaning of Section 15 of the Securities Act to the same extent as hereinbefore provided with respect to the indemnification of DTN; provided that the Company shall not be required to indemnify DTN or any such underwriter, or any officer or director of DTN or such underwriter or any Person who controls DTN or such underwriter within the meaning of Section 15 of the Securities Act, to the extent that the loss, claim, damage, liability (or proceedings in respect thereof) or expense for which indemnification is claimed results from DTN's or such underwriter's failure to send or give a copy of the amended or supplemented final prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such amended or supplemented final prospectus prior to such written confirmation and DTN or the underwriter, as the case may be, was given notice of the availability of such amended or supplemented final prospectus. (b) DTN will indemnify, to the extent permitted by applicable law, the Company, its officers and directors and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses resulting from any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or preliminary prospectus 23 -114- or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue statement is contained in or such omission is from information so furnished in writing by DTN expressly for use therein, provided that DTN's obligations hereunder shall be limited to an amount equal to the proceeds to DTN of the Registrable Securities sold pursuant to such registration statement. (c) Any Person entitled to indemnification under the provisions of this Section 9.6 shall (x) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification (but the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 9.6, except to the extent that the indemnifying party is actually prejudiced by such failure) and (y) unless a conflict of interest between such indemnified and indemnifying parties exists in respect of such claim, permit such indemnifying party to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified party; and if such defense is so assumed, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party and such indemnifying party shall not be subject to any liability for any settlement made without its consent (which shall not be unreasonably withheld); and any underwriting agreement entered into with respect to any registration statement provided for under this Agreement shall so provide. In the event an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim, unless a conflict of interest exists between such indemnified party and any other of such indemnified parties in respect to such claim. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an indemnified party, its officers, directors or any Person, if any, who controls such party as aforesaid, and shall survive the transfer of such securities by such holder. (d) If the indemnification provided for in this Section 9.6 shall for any reason be held by a court to be unavailable to an indemnified party under Section 9.6(a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under Section 9.6(a) or (b), the indemnified party and the indemnifying party under Section 9.6(a) or (b) shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (x) in such proportion as is appropriate to reflect the relative fault of the Company, DTN and the underwriters, if any, which resulted in such loss, claim, damage or liability, or action or proceeding in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action or proceeding in respect thereof, as well as any other relevant equitable considerations or (y) if the allocation provided by clause (x) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company, DTN and the underwriters, if any, from the offering of the securities covered by such registration statement, provided, that for purposes of clauses (x) or (y), the relative benefits received by DTN shall be deemed not to exceed the amount of proceeds received by DTN and DTN shall not be required to contribute any amount in excess 24 -115- of the amount it could have been required to pay to an indemnified party if the indemnity under subsection (a) of this Section 9.6 was available. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. 9.7 Registration Rights to Others. If the Company shall at any time after the date of this Warrant provide to any holder of any securities of the Company rights with respect to the registration of such securities under the Securities Act, such rights shall not be in conflict with any of the rights provided in this Section 9 to the holders of Registrable Securities; provided, however, the foregoing shall not preclude the Company from granting registration rights which are more favorable than those contained in this Warrant so long as such rights do not preclude the Company from complying with the terms of this Warrant. 9.8 Rule 144. If and when the Common Stock is either listed, designated or authorized as provided in Section 9.3(j), the Company shall take all actions reasonably necessary to enable DTN to sell such shares of Common Stock issuable upon exercise of this Warrant without registration under the Securities Act within the limitation of the provisions of Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rules or regulations hereafter adopted by the Commission, including, without limitation, filing on a timely basis all reports required to be filed pursuant to the Exchange Act. Notwithstanding the provisions of Sections 9.1 and 9.2, the Company has no obligation to effect the registration of any Registrable Securities as provided in such sections if DTN can then sell under Rule 144 all the Registrable Securities which otherwise would be registered in accordance with such sections, as applicable; provided such exception does not preclude DTN from exercising its registration rights on a future occasion. 10. Availability of Information. The Company will cooperate with each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will furnish to the holder of this Warrant, promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, and copies of all regular and periodic reports and all registration statements and prospectuses filed by the Company with any securities exchange or with the Commission. 11. Reservation of Stock, Etc. The Company will at all times reserve and keep available, solely for issuance and delivery upon exercise of this Warrant, the number of shares of Common Stock (or Other Securities) from time to time issuable upon exercise of this Warrant at the time outstanding. All shares of Common Stock (or Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable, with no liability on the part of the holders thereof. 25 -116- 12. Listing on Securities Exchange. The Company will, at all times after any Common Stock is so listed, designated or authorized as indicated below, (a) list on each national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon exercise of this Warrant, and will maintain such listing of, all shares of Common Stock from time to time issuable upon exercise of this Warrant or (b) secure and maintain designation of all shares of Common Stock from time to time issuable upon exercise of this Warrant as a NASDAQ "national market system security" within the meaning of Rule llAa2-1 of the Commission or, failing that, secure NASDAQ authorization for such shares of Common Stock. 13. Ownership, Transfer and Substitution of Warrants. 13.1. Ownership of Warrants. The Company may treat the person in whose name this Warrant is registered on the register kept at the principal office of the Company as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, except that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes, notwithstanding any notice to the contrary. Subject to Section 8, a Warrant, if properly assigned, may be exercised by a new holder without first having a new Warrant issued. 13.2. Transfer and Exchange of Warrants. Upon the surrender of any Warrant, properly endorsed, for registration of transfer or for exchange at the principal office of the Company, the Company at its expense will (subject to compliance with Section 8, if applicable) execute and deliver to or upon the order of the holder thereof a new Warrant or Warrants of like tenor, in denominations of at least 1,000 shares, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 13.3. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant held by a Person other than the Purchaser or any institutional investor, upon delivery of indemnity reasonably satisfactory to the Company in form and amount or, in the case of any such mutilation, upon surrender of such Warrant for cancellation at the principal office of the Company, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 14. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Acquiring Person: the continuing or surviving corporation or other entity of a consolidation or merger with the Company (if other than the Company), the transferee of substantially all of the properties and assets of the Company, the corporation or other entity consolidating with or merging into the Company in a consolidation or merger in connection with which the Common Stock is changed into or exchanged for stock or other securities of any other 26 -117- Person or cash or any other property, or, in the case of a capital reorganization or reclassification, the Company. Acquisition Price: as applied to the Common Stock, with respect to any transaction to which Section 3 applies, (a) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the date of consummation of such transaction: (x) the Market Price of the Common Stock and (y) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which the holder of this Warrant would have been entitled as a shareholder to receive upon such consummation if such holder had exercised this Warrant immediately prior thereto, or (b) if a purchase, tender or an exchange offer is made by the Acquiring Person (or by any of its affiliates) to the holders of the Common Stock and such offer is accepted by the holders of more than 50% of the outstanding shares of Common Stock, the greater of (i) the price determined in accordance with the foregoing subdivision (a), and (ii) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the acceptance of such offer by the holders of more than 50% of the outstanding shares of Common Stock: (A) the Market Price of the Common Stock and (B) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which the holder of this Warrant would be entitled as a shareholder to receive pursuant to such offer if such holder had exercised this Warrant immediately prior to the expiration of such offer and accepted the same. Additional Shares of Common Stock: all shares (including treasury shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be issued) by the Company after the Initial Date, whether or not subsequently reacquired or retired by the Company, other than (a) shares of Common Stock issued upon the exercise of any Warrants and (b) not more than 700,000 shares of Common Stock issued upon the exercise of stock options granted to directors, officers and other employees of the Company pursuant to the existing stock option plans, as amended, and (c) 3,646,000 shares of Common Stock issuable upon the exercise of existing warrants and existing options not issued pursuant to the stock option plans referred to in clause (b) above. Base Price: on any date specified herein, the lesser of (a) the Current Market Price or (b) the Warrant Price. Business Day: any day other than a Saturday or a Sunday or a day on which commercial banking institutions in the City of New York are authorized by law to be closed, provided that, in determining the period within which certificates or Warrants are to be issued and delivered pursuant to Section 1.3 at a time when shares of Common Stock (or Other Securities) are listed or admitted to trading on any national securities exchange or in the over-the-counter market and in determining the Market Price of any securities listed or admitted to trading on any national securities exchange or in the over-the-counter market, "Business Day" shall mean any day when the principal exchange in which securities are then listed or admitted to trading is open for trading or, if such securities are traded in the over-the-counter market in the United States, such system is open for trading, and provided, further, that any reference to "days" (unless Business Days are specified) shall mean calendar days. 27 -118- Commission: the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose. Common Stock: the Company's common stock, par value $.01 per share, as constituted on the date hereof, any stock into which such common stock shall have been changed or any stock resulting from any reclassification of such common stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. Company: SmartServ Online, Inc., a Delaware corporation. Convertible Securities: any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. Current Market Price: on any date specified herein, (a) with respect to Common Stock or to Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, (x) the average daily Market Price during the period of the most recent 20 consecutive Business Days ending on such date, or (y) if shares of Common Stock or such Voting Common Stock (or equivalent equity interests), as the case may be, are not then listed or admitted to trading on any national securities exchange and if the closing bid and asked prices thereof are not then quoted or published in the over-the-counter market, the Market Price on such date; and (b) with respect to any other securities, the Market Price on such date. DTN: Data Transmission Network Corporation or any successor to its business. DTN Agreement: the meaning specified in the opening paragraphs of this Warrant. Exchange Act: the Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time of determination. Fair Value: with respect to any securities or other property, the fair value thereof as of a date which is within 15 days of the date as of which the determination is to be made (a) determined by an agreement between the Company and DTN or (b) if the Company and DTN fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by DTN, either of which firms may be an independent investment banking firm regularly retained by the Company or DTN or (c) if the Company or DTN shall fail so to retain an independent 28 -119- investment banking firm within five Business Days of the retention of such firm by DTN or the Company, as the case may be, determined solely by the firm so retained or (d) if the firms so retained by the Company and by DTN shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm which is not a regular investment banking firm of the Company or DTN chosen by the first two such firms. Each of the Company and DTN shall be responsible for the fees and expenses of the investment banking firm retained by them under the foregoing clause (b) and shall share equally the fees and expenses of any investment banking firm retained under the foregoing clause (d). Initial Date: the meaning specified in Section 2.2. Market Price: on any date specified herein, (a) with respect to Common Stock or to Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, the amount per share equal to (x) the last sale price of shares of such security, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which the same are then listed or admitted to trading, or (y) if no shares of such security are then listed or admitted to trading on any national securities exchange but such security is designated as a national market system security by the NASD, the last trading price of such security on such date, or if such security is not so designated, the average of the reported closing bid and asked prices thereof on such date as shown by the NASDAQ system or, if no shares thereof are then quoted in such system, as published by the National Quotation Bureau, Incorporated or any successor organization, and in either case as reported by any member firm of the New York Stock Exchange selected by the Company, or (z) if no shares of such security are then listed or admitted to trading on any national exchange or designated as a national market system security and if no closing bid and asked prices thereof are then so quoted or published in the over-the-counter market, the higher of (i) the book value thereof as determined by agreement between the Company and the Requisite Holders, or if the Company and the Requisite Holders fail to agree, by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Company, as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made and (ii) the fair value thereof determined in good faith by the Board of Directors of the Company thereof as of a date which is within 15 days of the date as of which the determination is to be made; and (b) with respect to any other securities, the fair value thereof determined in good faith by the Board of Directors of the Company as of a date which is within 15 days of the date as of which the determination is to be made. NASD: the National Association of Securities Dealers. NASDAO: the Automated Quotation System of the NASD. Options: rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. Other Securities: any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which DTN 29 -120- at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to this Warrant or otherwise. Parent: as to any Acquiring Person, any corporation or other Person which (a) controls the Acquiring Person directly or indirectly through one or more intermediaries, (b) is required to include the Acquiring Person in its consolidated financial statements under generally accepted accounting principles and (c) is not itself included in the consolidated financial statements of any other Person (other than its consolidated subsidiaries). Person: an individual, a partnership, a limited liability company, an association, a joint venture, a corporation, a business, a trust, an unincorporated organization or a government or any department, agency or subdivision thereof. Public Offering: any offering of Common Stock to the public pursuant to an effective registration statement under the Securities Act. Registrable Securities: (a) this Warrant, (b) any shares of Common Stock or Other Securities issued or issuable upon exercise of this Warrant and (c) any securities issued or issuable with respect to any Common Stock or Other Securities referred to in subdivision (b) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (x) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (y) they shall have been sold as permitted under Rule 144 (or any successor provision) under the Securities Act, or (z) they shall have ceased to be outstanding. Registration Expenses: all expenses incident to the Company's performance of or compliance with Section 9, including, without limitation, all registration, filing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by the underwriters with respect to such registration, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, and the fees and disbursements of DTN's counsel and accountants. Restricted Securities: (a) any Warrants bearing the applicable legend set forth in Section 8.1, (b) any shares of Common Stock (or Other Securities) which have been issued upon the exercise of Warrants and which are evidenced by a certificate or certificates bearing the applicable legend set forth in such Section 8.1, and (c) unless the context otherwise requires, any shares of Common Stock (or Other Securities) which are at the time issuable upon the exercise of Warrants and which, when so issued, will be evidenced by a 30 -121- certificate or certificates bearing the applicable legend set forth in Section 8.1. Securities Act: the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time of determination. Subsidiary: any corporation, association or other business entity a majority (by number of votes) of the Voting Common Stock of which is at the time owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. Transfer: unless the context otherwise requires, any sale, assignment, pledge or other disposition of any security, or of any interest therein, which could constitute a "sale" as that term is defined in Section 2(3) of the Securities Act. Voting Common Stock: with respect to any corporation, association or other business entity, stock of any class or classes (or equivalent interest) , if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or persons performing similar functions) of such corporation, association or business entity, even if the right so to vote has been suspended by the happening of such a contingency. Warrant Price: the meaning specified in Section 2.1. Warrants: this Common Stock Purchase Warrant and any warrant or warrants into which it has been changed including, without limitation, any new or replacement warrants referred to in Sections 13.2 and 13.3. 15. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 16. No Rights or Liabilities as Stockholder. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof any voting or other rights as a stockholder of the Company or as imposing any liabilities on such holder to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. 17. Notices. All notices and other communications under this Warrant shall be in writing and shall be mailed by registered or certified mail, return receipt requested, addressed (a) if to the holder of this Warrant or any holder of any Common Stock (or Other Securities), at the registered address of such holder as set forth in the register kept at the principal office of the Company, 31 -122- or (b) if to the Company, to the attention of its Chief Financial Officer at its principal office, provided that the exercise of any Warrant shall be effected in the manner provided in Section 1. 18. Expiration. The right to exercise this Warrant shall expire at 3 P.M., New York City time, on November 17, 2000. The registration rights provided in Section 9 shall expire at 3 P.M., New York City time, April 30, 2005 with respect to any shares of Common Stock issued previously to such time upon the exercise hereof. 19. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. The agreements of the Company contained in this Warrant other than those applicable solely to the Warrants and the holders thereof shall inure to the benefit of and be enforceable by any holder or holders at the time of any Common Stock (or Other Securities) issued upon the exercise of Warrants, whether so expressed or not. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Delaware. The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof. SMARTSERV ONLINE, INC. By: /s/ Mario Rossi ---------------------------- Mario Rossi Its:VP of Operations 32 -123- EX-10 6 FUNDING AGREEMENT - AG1.COM FUNDING AGREEMENT This Funding Agreement ("Agreement") is made as of November 9 , 1999, between Data Transmission Network Corporation, a Delaware corporation ("DTN"), and Ag1.Com, Inc., a Wyoming corporation ("Ag1"). WITNESSETH: WHEREAS, Ag1 and DTN entered into a nonbinding letter of intent dated September 27, 1999 (the "Acquisition Proposal"), which contemplates the acquisition (the "Acquisition") by DTN of a controlling equity interest in Ag1. WHEREAS, the Acquisition Proposal also contemplates a working capital agreement pursuant to which DTN would provide working capital funds to Ag1 upon terms mutually agreeable to DTN and Ag1. WHEREAS, the parties desire to enter into this Agreement for the purpose of agreeing upon the terms and conditions of funding by DTN for Ag1 during the period in which Ag1 and DTN negotiate, document and consummate the Acquisition. NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained, it is agreed as follows: 1. The Advances. Commencing on November 1, 1999, and continuing until the earlier of May 31, 2000 or the closing of the Acquisition (the "Term"), DTN will make advances to Ag1, subject to the terms and conditions contained in this Agreement. Upon receipt of an application for an advance complying with Section 4, DTN will make advances (collectively called the "Operational Advances" and individually called an "Operational Advance) to Ag1 which in the aggregate will not exceed Five Hundred Twenty Five Thousand Dollars ($525,000). Upon receipt of an application for an advance complying with Section 4, DTN will make advances (collectively called the "Construction Advances" and individually called a "Construction Advance") for capital expenditures relating to the tenant finish, trade fixtures and equipment to be included in Ag1's leased office facility (the "Project") which are in accordance with the Plans approved by DTN as provided in Section 4(a). The Construction Advances in no event shall exceed One Million Six Hundred Thousand Dollars ($1,600,000) in the aggregate. The Operational Advances and Construction Advances sometimes will be referred to in this Agreement collectively as the "Advances" and individually as an "Advance". All Operational Advances shall be utilized solely to satisfy the working capital needs (exclusive of capital expenditures) of Ag1 in operating its business in the ordinary course consistent with past practices. All Construction Advances shall be utilized solely for payment of the costs of constructing the improvements and equipping the Project in substantial compliance with the Plans for the Project approved by DTN as provided in Section 4(a). Ag1 shall in no event divert funds for any other purpose. The Advances do not constitute revolving credit, and once an Advance has been repaid, DTN is not obligated to make the Advance again. All Advances shall be subject at all times to all maximum limits and conditions set forth in this Agreement. The Advances shall be evidenced by Ag1's promissory -124- note (the "Note") in the form set forth as Exhibit "A" hereto, with appropriate insertions. All Advances made by DTN to Ag1 pursuant to this Agreement and all payments of principal shall be evidenced by DTN on the schedule attached to the Note, which schedule shall be rebuttable presumptive evidence of the subject matter thereof. 2. Interest Charges. The unpaid principal amount of the Advances shall bear interest from time to time prior to maturity at a rate per annum (the "Interest Rate) which is one-half a percentage point (.005) above the rate announced from time to time in the "Money Rates" section of The Wall Street Journal as the "prime rate" (the base rate on corporate loans at large U.S. money center commercial banks). The initial Interest Rate shall be the Interest Rate most recently announced prior to the date of this Agreement, and such Interest Rate shall be adjusted upward or downward on each date such rate changes. The unpaid principal amounts of the Advances which are not paid when due shall bear interest accruing from and including the date such amount shall have become due to the date of payment thereof in full at the rate per annum which is four percentage points above the Interest Rate in effect on such date. 3. Payments of Principal and Interest. If the Term expires upon the closing of the Acquisition, then Ag1 and DTN agree that the principal of and interest on the Advances shall be applied to the working capital funds to be provided by DTN to Ag1 pursuant to the documentation for the Acquisition as contemplated by the Acquisition Proposal. If the Term expires without the closing of the Acquisition, then Ag1 agrees (i) to pay to DTN within ten (10) days of the expiration of the Term all unpaid interest on the Advances accrued through May 31, 2000, (ii) to repay the entire principal amount of the Advances to DTN in twenty-four (24) equal monthly payments commencing on June 30, 2000, and continuing on the last day of each calendar month thereafter, and (iii) to pay to DTN the interest on the unpaid Advances accruing after May 31, 2000, at the Interest Rate in effect from time to time as provided in Section 2, in monthly payments in arrears commencing on June 30, 2000, and continuing on the last day of each calendar month thereafter until paid in full. All payments hereunder shall first be applied to accrued and unpaid interest and the remainder shall be applied to the unpaid principal balance of the Advances. Interest after maturity shall be payable on demand. Interest on the unpaid principal amount of the Advances shall be computed on the basis of a year consisting of 360 days and paid for actual days elapsed. 4. Disbursement of Advances. DTN's obligation to make Advances under this Agreement shall be subject to there being at the time of such Advance no condition which is or with the passage of time would be an event of default under this Agreement. DTN's obligation to make Construction Advances under this Agreement also shall be subject to the fulfillment to DTN's satisfaction of all of the following conditions: (a) DTN shall have approved in writing a complete set of plans and construction and purchase contracts (the "Plans") for all improvements and equipment for the Project and the construction thereof, and Ag1 shall have furnished to DTN upon request copies of all permits and requisite approvals of any governmental body necessary for the construction and use of the Project. 2 -125- (b) All work for which a Construction Advance is requested (other than the application for a Construction Advance for the initial deposit to be given the general contractor of the Project or other deposits required under the Plans) shall have been done in a good and workmanlike manner and all materials, fixtures and equipment related to such Construction Advance shall have been furnished and installed, all in compliance with the Plans. Ag1 shall also have furnished to DTN such proofs as DTN may require to establish the progress of the work, compliance with applicable laws, freedom from liens, and the basis for the Construction Advance. (c) Ag1 shall have obtained and attached to each application for a Construction Advance, executed acknowledgments of payments of all sums due and releases of mechanic's and materalmen's liens, satisfactory to DTN, from any party having lien rights, which acknowledgments of payment and releases of liens shall cover all work, labor, equipment, materials done, supplied, performed, or furnished prior to such application for the Construction Advance. Each application for an Advance shall be on a form approved by DTN, executed by Ag1, and supported by such evidence as DTN shall reasonably require. Each application for an Advance shall be deemed a certification of Ag1 that as of the date of such application, all representations and warranties contained in this Agreement are true and correct, and that Ag1 is in compliance with all of the provisions of this Agreement. With respect to Construction Advances, other than the application for a Construction Advance for the initial deposit to be given the general contractor of the Project or other deposits required under the Plans, Ag1 shall apply only for disbursement with respect to work actually done and for materials and equipment actually incorporated into the Project. At the sole option of DTN, Construction Advances may be paid in the joint names of Ag1 and the general contractor, subcontractor(s) or supplier(s) in payment of sums due in connection with the Project. 5. Security. All Advances shall be secured by a first lien security interest on all of the collateral granted to DTN by Ag1 under that Security Agreement executed concurrently herewith (the "Security Agreement") and by the Assignment of Lease to be executed by Ag1 and its landlord within thirty days after the date of this Agreement in a form approved by DTN (the "Assignment of Lease"). Ag1 shall comply with all the terms and conditions of the Security Agreement, the Assignment of Lease, and any other instruments and documents now or hereafter delivered in connection herewith or therewith. 6. Default. Each of the following shall constitute an event of default under this Agreement: (a) if any representation or warranty made by Ag1 proves to be untrue in any material respect; 3 -126- (b) Ag1's default in the due observance or performance of any of the terms, conditions or agreements herein or under the terms, conditions or agreements contained in the Note, Security Agreement or Assignment of Lease; (c) the financial condition of Ag1 or the security for the Advances is materially affected in any adverse manner; (d) the filing by or against Ag1 of any petition in bankruptcy or insolvency or for reorganization, or for appointment of a receiver, liquidator, or trustee, or the making of an assignment for the benefit of creditors or the filing of a petition for an arrangement; (e) a change deemed by DTN to be material or substantial occurs in the assets or net worth or credit standing of Ag1; (f) any judgment is rendered against Ag1 which in the sole discretion of DTN constitutes a material impairment of Ag1's credit standing; or (g) a default by Ag1 occurs under the Security Agreement, the Assignment of Lease or any other instrument securing the Note and Ag1 has not cured such default within the applicable cure period set forth in the Security Agreement, the Assignment of Lease or such other instrument, if any. 7. Remedies on Default. If any event of default occurs, DTN may, but shall not be required to, disburse or cause to be disbursed part or all of the Advances to observe or perform all or portions of Ag1's obligations hereunder or under the Security Agreement or the Assignment of Lease. If any event of default occurs, DTN, at its option, may declare all outstanding indebtedness under the Note, together with all accrued but unpaid interest thereon, immediately due and payable without presentation, demand, protest, or further notice of any kind, and DTN may then proceed to enforce each and every remedy provided for herein or in the Security Agreement or the Assignment of Lease either at law or in equity for the collection of the indebtedness. All rights and remedies herein expressed are cumulative and not exclusive of any right or remedy DTN may have either at law or in equity and are in addition to those rights set forth in the Security Agreement and the Assignment of Lease. 8. Ag1's Representations, Warranties and Covenants. To induce DTN to make the Advances provided for herein, Ag1 represents and warrants (as of the date of this Agreement and as of the date of each Advance), covenants and agrees : (a) That Ag1 has all requisite power and authority to enter into this Agreement and all documents relative hereto to which it is a party and to perform its duties hereunder, and has taken all actions necessary and proper in order to exercise such power and authority; that this Agreement and the Funding Documents (as hereinafter defined) have been duly authorized, executed and delivered and constitute valid and legally binding obligations of Ag1 and are enforceable according to their terms; that Ag1 is not 4 -127- in breach of or in default of any regulation, order, injunction, rule or decree of any governmental authority or court or of any agreement or instrument to which it is a party and that the execution hereof will not cause any such breach or default; and that no proceeding at law or in equity or before any administrative body is pending or threatened which would prevent Ag1 from entering into or carrying out its duties under this Agreement or any of the other Funding Documents. (b) To keep or cause to be kept in full force and effect all insurance required by the Security Agreement and the Assignment of Lease. (c) To fully observe and perform all of the terms, covenants, and conditions of this Agreement, the Note, the Security Agreement, the Assignment of Lease and such other documents as are executed between the parties as of the date hereof, which documents are referred to collectively herein as the "Funding Documents". (d) To promptly pay and discharge or cause to be paid and discharged all lawful applicable taxes and assessments, if any, whether they are imposed upon Ag1's personal property and improvements or upon Ag1; to pay promptly for all labor, services and materials and to prevent the filing of liens or claims therefor against the property of Ag1. (e) To use the Advances hereunder solely for the purposes set forth in paragraph 1 hereof. (f) To permit DTN and DTN's agents at all reasonable times to inspect the books and records and the physical assets of the business of Ag1. (g) Not to assign this Agreement nor any interest in disbursements or Advances to be made hereunder. Not to transfer, convey or encumber the property which is security for the Advances, except sale of the inventory in the ordinary course of business. (h) To execute, deliver and record where appropriate all Funding Documents. 9. No Solicitation of Transactions. The stockholders of Ag1 executing this Agreement for the purpose of making the covenants set forth is this paragraph (the "Stockholders") and Ag1 agree that during the Term none of them shall, and that they shall cause their subsidiaries and representatives not to, directly or indirectly, initiate, solicit or encourage any inquiries or the making of any proposal or offer with respect to a sale, transfer, exchange, merger, reorganization, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Ag1, or any purchase or sale of all or any significant portion of the assets of Ag1 and its subsidiaries, taken as a whole, or fifteen percent (15%) of more of the equity securities of Ag1 (any such proposal or offer being hereinafter referred to as a 5 -128- "Competing Transaction"). The Stockholders and Ag1 further agree that neither of them shall, and that they shall cause their subsidiaries and representatives not to, directly or indirectly, have any discussion with or provide any confidential information or data relating to Ag1 or any of it subsidiaries to any person or entity relating to a Competing Transaction or engage in any negotiations concerning a Competing Transaction, or otherwise facilitate any effort or attempt to make or implement a Competing Transaction or accept a Competing Transaction. The Stockholders and Ag1 agree that they will take the necessary steps to promptly inform each of their subsidiaries and representatives of the obligations undertaken in this paragraph. Effective as of the date hereof, the Stockholders and Ag1 shall terminate and cause their subsidiaries and representatives to terminate any existing activities, discussions or negotiations with any third parties that may be ongoing with respect to any Competing Transaction and shall request that all confidential information previously furnished to any such third parties be returned promptly. The Stockholders represent and warrant to DTN that together they are the owners of more than ninety percent (90%) of the equity securities of Ag1. 10. Conduct of Business of Ag1. During the Term, Ag1 shall (i) conduct its business and operations according to its ordinary course of business consistent with past practice, except as otherwise provided in this Agreement and (ii) use its reasonable best efforts to preserve intact its business organization and its relationship with licensors, suppliers, distributors, employees, customers and others having business relationships with them, except as may otherwise be agreed by Ag1 and DTN. Without limiting the generality of the foregoing, during the Term, without the prior written consent of DTN (which consent will not be unreasonably withheld so long as the act to be consented to is within the ordinary course of business of Ag1), Ag1 shall not: (a) change or amend its Articles of Incorporation or By-laws (or similar governing documents); (b) create, incur or assume any debt, liability or obligation, direct or indirect, whether accrued, absolute, contingent or otherwise, other than obligations incurred in the ordinary course of business consistent with past practice, or assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, or make any loans or advances to any person, except in the ordinary course of business consistent with past practice; (c) declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of the capital stock of Ag1, or redeem or otherwise acquire any of the capital stock of Ag1 or split, combine or otherwise similarly change the capital stock of Ag1 or authorize the creation or issuance of or issue or sell any shares of its capital stock or any securities or obligations convertible into or exchangeable for, or giving any person any right to acquire from it, any shares of its capital stock, or agree to take any such action; (d) change in any manner the rate or terms of compensation or bonus payable or to become payable to any director, officer or employee or change in any manner the rate or terms of any insurance, 6 -129- pension, severance, or other employee benefit plan, payment or arrangement made to, for or with any employees; (e) enter into any agreement or commitment for any capital expenditure in excess of $50,000, individually or in the aggregate, or enter into any agreement or commitment for any borrowing or capital financing; (f) sell, lease, transfer or dispose of any of its properties or assets, waive or release any rights of material value, or cancel, compromise, release or assign any indebtedness owed to it or any claims held by it in each case other than in the ordinary course of business consistent with past practice; (g) make any investment of a capital nature either by purchase of stock or securities, contributions to capital, property transfers or otherwise, or by the purchase of any material property or assets of any other individual, firm, corporation or entity; or (h) enter into an agreement to do any of the things described in clauses (a) through (g) above. 11. Definitive Purchase Agreement. DTN, Ag1 and the Stockholders agree to negotiate in good faith to complete and execute a definitive purchase and sale agreement consistent with the terms of the Acquisition Proposal (the "Purchase Agreement") on or before December 31, 1999. The Purchase Agreement shall contain customary representations, warranties and indemnifications by Ag1 and the Stockholders as are appropriate to the Acquisition. The Purchase Agreement shall also contain customary conditions precedent to the obligations of the parties to consummate the Purchase Agreement, including, but not limited to, the due diligence, lien searches, litigation and proceedings, environmental matters, taxes and other liabilities of Ag1 being satisfactory to DTN and receipt of all approvals and consents of all necessary regulatory authorities. In addition to such customary conditions precedent, the obligations of DTN to consummate the Acquisition shall be conditioned upon the approvals (the "Approvals") of the Purchase Agreement and the Acuqisition by DTN's Board of Directors and the lenders under DTN's credit facilities. If the Purchase Agreement is executed, but the closing of the Purchase Agreement does not occur on or before May 31, 2000, due to the breach of the Purchase Agreement by DTN or due to the failure of DTN to obtain the Approvals (but not due to failure to satisfy the customary conditions precedent referred to above or the failure of the parties to the Purchase Agreement other than DTN), then (i) one-half of the aggregate amount of Operational Advances outstanding on May 31, 2000 shall be deemed forfeited by DTN and (ii) DTN and its subsidiaries will not engage in the business of selling agricultural inputs (such as seed, fertilizer, and chemicals), crop insurance or agricultural financing in competition with the business of Ag1 during the one year period commencing June 1, 2000 and ending May 31, 2001; provided, however, such non-compete provision shall not preclude DTN or its subsidiaries from furnishing agricultural information in a manner similar to its existing business. 7 -130- 12. Miscellaneous. (a) Time is of the essence of this Agreement. (b) No delay on the part of either party in exercising any rights or remedies of such party under this Agreement shall operate as a waiver nor shall any partial exercise or any partial waiver of any such right, remedy or privilege preclude any subsequent exercise of such right, remedy, or privilege hereunder or otherwise. (c) This Agreement shall bind and inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors and, subject to the provisions hereof, assigns, and shall remain in full force and effect so long as any obligation of Ag1 under this Agreement or under any of the Funding Documents remains unfulfilled. (d) This Agreement shall be governed in all respects by the laws of the State of Nebraska without regard to choice of laws or conflict of laws provisions thereof. (e) This Agreement may be executed in any number of counterparts and signatures may be delivered by facsimile, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. [SIGNATURE PAGE FOLLOWS] 8 -131- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation By:/s/ Greg T. Sloma ----------------------------- Greg T. Sloma Title: President and COO AG1.COM, INC., a Wyoming corporation By:/s/ William T. Rose ----------------------------- William T. Rose Title:CEO The following persons or entities execute this Agreement for the sole purpose of making the representations, warranties and covenants set forth in Paragraphs 9 and 11 thereof. /s/ William T. Rose ------------------------------ William T. Rose /s/Gerald B. Murphy ------------------------------ Gerald B. Murphy /s/James Lewis ------------------------------ James Lewis 9 -132- Exhibit "A" PROMISSORY NOTE $2,125,000 Date:November 8, 1999 1. Ag1's Promise to Pay Principal and Interest. For value received, the undersigned maker ("Ag1") promises to pay to Data Transmission Network Corporation ("Holder"), a Delaware corporation, at its corporate office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska, or at such other place as the Holder of this Note may from time to time designate, the principal sum of Two Million One Hundred Twenty-Five Thousand Dollars ($2,125,000), or such lesser amount as may be the aggregate unpaid principal amount of the Advances, as such term is defined in the Funding Agreement referred to below, advanced to Ag1 pursuant to such Funding Agreement. Ag1 promises to pay interest on the unpaid principal amount of the Advances from time to time outstanding from the date of their advance until payment in full at the rates per annum which shall be determined in accordance with the provisions of the Funding Agreement. Ag1 promises to pay the principal amount of the Advances from time to time outstanding and any interest thereon in accordance with the provisions of the Funding Agreement. Such payments of principal and interest shall be payable on each date and in such manner as provided for in the Funding Agreement; provided, however, that any payment which is not paid when due shall be payable on demand. If not sooner paid, the principal balance, together with all interest and other sums due under this Note, shall be paid in full on or before May 31, 2002. 2. Funding Agreement. This instrument is the Note referred to in, and is subject to the terms and provisions of, the Funding Agreement of even date herewith (as the same may be amended, modified or supplemented from time to time, herein called the "Funding Agreement") between Ag1.Com, Inc. and Data Transmission Network Corporation, to which Funding Agreement reference is hereby made for a statement of such terms and provisions. 3. Grid Schedule. All advances made by the Holder under this Note, and all payments made by Ag1 on account of the unpaid principal amount hereof, shall be recorded on the schedule attached to this Note, and Ag1 agrees that in any action or proceeding instituted to collect or enforce collection of this Note, the amount shown as owing on this Note on the schedule attached hereto shall be deemed prima facie correct. 4. Default by Ag1. Should default be made in the payment of any installment of principal or interest when due, or if an event of default has occurred as provided in the Funding Agreement, the whole sum of principal and interest shall become immediately due at the option of the Holder and regardless of any prior forbearance. Interest shall accrue following any default hereunder at the default rate provided for in the Funding Agreement. 5. Prepayment Privilege. The principal amount due on this Note may be prepaid in whole or in part at any time. All payments shall first be applied to interest and then to principal. 10 -133- 6. Governing Law. This Note shall be construed under and governed by the substantive laws of the State of Nebraska, but not the choice of law rules thereof. 7. Obligations of Persons Under this Note. In this Note, the singular shall include the plural and this Note shall be the joint and several obligation of each Maker. 8. Assumability of this Note. This Note may not be assumed or assigned by Ag1 without the express written consent of the Holder hereof, which consent may be withheld in Holder's sole and absolute discretion. 9. Maximum Interest. In no event whatsoever shall the amount paid, or agreed to be paid, to the Holder for the use, forbearance, or retention of the money to be loaned hereunder ("Interest") exceed the maximum amount permissible under applicable law. If the performance or fulfillment of any provision hereof shall result in Interest exceeding the limit for interest prescribed by law, then the amount of such Interest shall be reduced to the maximum rate which may lawfully be charged or collected by the Holder. If, from any circumstances whatsoever, the Holder should receive as Interest an amount which would exceed the highest lawful rate, the amount which would be excessive Interest shall be applied to the reduction of the principal balance owing hereunder (or, at the option of the Holder, be paid over to Ag1) and not to the payment of Interest. 10. Costs of Collection. Ag1 promises to pay: (a) all costs and expenses of collection, including without limitation, attorneys' fees, in the event this Note or any portion of this Note is placed in the hands of attorneys for collection and such collection is effected without suit; (b) attorneys' fees, as determined by the judge of the court, and all other costs, expenses, and fees incurred by the Holder in the event suit is instituted to collect this Note or any portion of this Note; (c) all costs and expenses incurred by or on behalf of the Holder in connection with collecting or otherwise enforcing any right of the Holder under this Note or any other instrument given as security for this Note; and (d) all costs and expenses, including, without limitation, attorneys' fees, incurred by the Holder in connection with any bankruptcy, insolvency, or reorganization proceeding or receivership in which Ag1 is involved, including, without limitation, attorneys' fees incurred in making any appearances in any such proceeding or in seeking relief from any stay or injunction issued in or arising out of any such proceeding. 11. Certain Waivers. Ag1 waives diligence, grace, demand, presentment for payment, exhibition of this Note, protest, notice of protest, notice of dishonor, notice of demand, notice of nonpayment, and any and all exemption rights against the indebtedness evidenced by this Note, and agrees to any and all extensions or renewals from time to time without notice and to any partial payments of this Note made before or after maturity and that no such extension, renewal, or partial payment shall release Ag1 from the obligation of payment of this Note or any installment of this Note. 11 -134- EXECUTED as of November 8, 1999. AG1.COM, INC., a Wyoming corporation By:/s/ William T. Rose -------------------------- William T. Rose Title:CEO 12 -135- EX-10 7 SECURITY AGREEMENT - AG1.COM SECURITY AGREEMENT THIS SECURITY AGREEMENT ("Agreement") is made and entered into as of November 9, 1999, by and among Ag1.Com, Inc., a Wyoming corporation (hereinafter referred to as the "Debtor"), and Data Transmission Network Corporation, a Delaware corporation (hereinafter referred to as the "Secured Party"). WITNESSETH: WHEREAS, Debtor has executed and delivered to Secured Party a Promissory Note in the principal amount not to exceed $2,125,000 dated the same date as this Agreement (hereinafter the "Note"); and WHEREAS, in order to induce Secured Party to accept the Note, Debtor has agreed to grant Secured Party a security interest in the property described below to secure the Note. NOW, THEREFORE, in consideration of the above recitals and the promises and covenants contained herein, the parties agree as follows: 1. Security Interest and Collateral. As collateral security for the full and timely payment and performance of the Note, including all replacements, renewals, extensions, substitutions and modifications thereof, and to secure the prompt payment in full of any and all other indebtedness and obligations, liabilities, covenants and duties of Debtor to Secured Party, of every kind and description (whether or not evidenced by the Note or any invoice, billing, guaranty or other instrument, and whether or not for the payment of money), direct or indirect, absolute or contingent, liquidated or unliquidated, due or to become due, now existing or hereafter arising, including, without limitation, any debt, liability or obligation owing from Debtor to Secured Party; damages for breach of this Agreement and expenses and attorneys' fees chargeable to Debtor, whether or not provided in this Agreement (collectively, "Obligations"), Debtor hereby grants to Secured Party a continuing security interest in the following property of Debtor (collectively, the "Collateral"), including all proceeds and products thereof: INVENTORY: All inventory of every type and description, now owned or hereafter acquired by Debtor, including inventory consisting of whole goods, spare parts or components, supplies or materials and inventory acquired, held or furnished for sale, for lease or under service contracts or for manufacture or processing, or any other purpose, and wherever located. DOCUMENTS OF TITLE: All warehouse receipts, bills of lading and other documents of title of every type and description now owned or hereafter acquired by Debtor. RECEIVABLES: Each and every right of Debtor to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property, out of a rendering of services, out of a loan, out of the overpayment of taxes or other liabilities, or any -136- other transaction or event, whether such right to payment is created, generated or earned by Debtor or by some other person whose interest is subsequently transferred to Debtor, whether such right to payment is or is not already earned by performance, and howsoever such right to payment is or is not already earned by performance, and rights and interests (including all liens, security interests and guaranties) which Debtor may at any time have by law or agreement against any account debtor or other person obligated to make any such payment or against any property of such account debtor or other person; all contract rights, chattel papers, bonds, notes and other debt instruments, and all loans and obligations receivable, tax refunds and other rights to payment in the nature of general intangibles. EQUIPMENT AND FIXTURES: All equipment of every type and description now owned or hereafter acquired by Debtor including (without limitation) all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and record keeping equipment, parts, tools, supplies and all other goods (except inventory) used or bought for use by Debtor for any business or enterprise and including all goods that are or may be attached or affixed to or otherwise become fixtures upon any real property. GENERAL INTANGIBLES: All general intangibles of every type and description now owned or hereafter acquired by Debtor, including (without limitation) all present and future domestic and foreign patents, patent applications, software (source code and object code), software applications, trademarks, trademark applications, copyrights, trade names, trade secrets, shop drawings, engineering drawings, blueprints, specifications, parts lists, manuals, operating instructions, customer or supplier lists and contracts, contract rights, licenses, permits, franchises, the right to use Debtor's corporate name and the goodwill of Debtor's business. 2. Representations, Warranties and Agreements of Debtor. Debtor hereby represents, warrants and agrees that: (a) Debtor has (or will have at the time Debtor acquires rights in Collateral hereafter arising) absolute title to each item of Collateral free and clear of all security interests, liens and encumbrances, and will defend the Collateral against all claims or demands of all persons other than Secured Party. Debtor will not sell or otherwise dispose of any material Collateral or any interest therein (other than the sale of inventory in the ordinary course of business of Debtor and other than the disposition of obsolete or damaged equipment) without the prior written consent of Secured Party. (b) Debtor will not permit any tangible Collateral to be located in any state (and, if county filing is required, in any county) in which a financing statement covering such Collateral is required to be, but has not in fact been, filed in order to perfect the security interest herein granted to Secured Party. (c) Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral 2 -137- is (or will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, set-off or counterclaim (other than those arising in the ordinary course of business) of the account debtor or other obligor named therein or in Debtor's records pertaining thereto as being obligated to pay such obligation. Debtor will neither agree to any material modification or amendment nor agree to any cancellation of any such obligation without Secured Party's prior written consent, and will not subordinate any such right to payment to claims of other creditors of such account debtor or other obligor. (d) Debtor will (i) promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the security interest herein granted to Secured Party; (ii) keep all Collateral free and clear of all security interests, liens and encumbrances, except the security interest herein granted to Secured Party; (iii) at all reasonable times, permit Secured Party or its representatives to examine or inspect any Collateral, wherever located, and to examine, inspect and copy Debtor's books and records pertaining to the Collateral and its business and financial condition and, after the occurrence of an Event of Default, to discuss with account debtors and other obligors requests for verifications of amounts owed to Debtor; (iv) keep accurate and complete records pertaining to the Collateral and pertaining to each Debtor's business and financial condition and submit to Secured Party such periodic reports concerning the Collateral and each Debtor's business and financial condition as Secured Party may from time to time reasonably request; (v) promptly notify Secured Party of any loss of or material damage to any Collateral or of any adverse change, known to Debtor, in the prospect of payment of any sums due on or under any instrument, chattel paper, or account constituting Collateral; (vi) if Secured Party at any time so requests after the occurrence of an Event of Default, promptly deliver to Secured Party any instrument, document or chattel paper constituting Collateral, duly endorsed or assigned by Debtor; (vii) at all times keep all tangible Collateral insured against risk of loss and such other risks and in such amounts as Secured Party may reasonably request, with any loss being payable to Secured Party to the extent of its interest; (viii) from time to time execute such financing statements as Secured Party may reasonably require in order to perfect the security interest herein granted to Secured Party; (ix) pay when due or reimburse Secured Party on demand for all costs of collection of any of the Obligations and all other out-of-pocket expenses (including in each case all reasonable attorneys' fees) incurred by Secured Party in connection with the creation, perfection, satisfaction, protection, defense or enforcement of the security interest herein granted to Secured Party or the creation, continuance, protection, defense or enforcement of this Agreement or any or all of the Obligations, including expenses incurred in any litigation, bankruptcy or insolvency proceedings; (x) execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings which Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the security interest herein granted to Secured Party and Secured Party's rights under this Agreement; and (xi) permit Secured Party at any time and from time to time to send requests to account debtors or other obligors for verification of amounts owed to Debtor. If Debtor at any time fails to perform or observe any agreement contained in this Section 2(d), immediately upon the occurrence of such failure, without notice or lapse of time, Secured Party may (but need not) perform or observe such 3 -138- agreement on behalf and in the name, place and stead of Debtor (or, at Secured Party's option, in Secured Party's own name) and may (but need not) take any and all other actions which Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens, or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the execution of financing statements, the endorsement of instruments, and the procurement of repairs, transportation or insurance); and, except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Debtor shall thereupon pay Secured Party on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys' fees) incurred by Secured Party in connection with or as a result of Secured Party's performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable under the Note. To facilitate the performance or observance by Secured Party of such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Debtor, any and all instruments, documents, financing statements, applications for insurance and other agreements, and writings required to be obtained, executed, delivered or endorsed by Debtor under this Section 2. 3. Collection Rights of Secured Party. Secured Party may, at any time after the occurrence of an Event of Default, notify any account debtor, or any other person obligated to pay any amount due, that such chattel paper, account, or other right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party. If Secured Party so requests at any time, Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due is payable directly to Secured Party. At any time after Secured Party or Debtor gives such notice to an account debtor or other obligor, Secured Party may (but need not), in its own name or in Debtor's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, account, or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor. 4. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called "Event of Default"): (i) Debtor shall fail to pay any or all of the Obligations when due or (if payable on demand) on demand, or shall fail to observe or perform any covenant or agreement herein binding on it; (ii) any representation or warranty by Debtor set forth in this Agreement or made to Secured Party in any financial statements or reports submitted to Secured Party by or on behalf of Debtor shall prove materially false or misleading; (iii) a garnishment, summons or a writ of attachment shall be issued against or served upon the Secured Party for the attachment of any property of Debtor or any indebtedness owing to Debtor; (iv) the Debtor shall voluntarily file, or have filed against it involuntarily, a 4 -139- petition under the United States Bankruptcy Code; (v) there shall be an Event of Default under the Note, as defined therein, or (vi) Secured Party shall in good faith believe that the prospect of due and punctual payment of any or all of the Obligations is impaired. 5. Remedies Upon Event of Default. Upon the occurrence of an Event of Default under Section 4 above and at any time thereafter, Secured Party may exercise any one or more of the following rights or remedies: (i) declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment or other notice or demand, (ii) exercise and enforce any or all rights and remedies available upon default to a secured party under the Uniform Commercial Code, including, but not limited to, the right to take possession of any Collateral, proceeding without judicial process or by judicial process, and the right to sell, lease or otherwise dispose of any or all of the Collateral, and in connection therewith, Secured Party may require Debtor to make the Collateral available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties, and if notice to Debtor of any intended disposition of Collateral or any other intended action is required by applicable law in a particular instance, such notice shall be deemed commercially reasonable if given in the manner specified in Section 6 below at least ten (10) calendar days prior to the date of disposition or other action, (iii) apply any and all money owing by Secured Party to Debtor under any funding agreement or similar type agreement now or hereafter entered into between Secured Party and Debtor to the payment of the Obligations, or (iv) exercise or enforce any or all other rights or remedies available to Secured Party by law or agreement against the Collateral, against Debtor or against any other person or property. Upon the occurrence of the Event of Default, all Obligations shall be immediately due and payable without demand or notice therefor. 6. Notices. All notices to be given to Debtor shall be deemed sufficiently given if delivered by overnight courier or mailed by registered or certified mail, postage prepaid and return receipt requested, to Debtor at the address set forth opposite its name or at the most recent address shown on Secured Party' records. 7. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 8. Modification; Amendment; Waiver. This Agreement can be modified, amended, terminated or discharged, and the security interest can be released, only explicitly in a writing signed by Secured Party. A waiver signed by Secured Party shall be effective only in the specific instance and for the specific interest given. 9. Severability. If any term, provision, covenant or condition of this Agreement is held by a Court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provision, covenant or condition shall remain in full force and effect and shall in no way be affected, impaired or invalidated, unless to do so would substantially destroy the fundamental purpose of this Agreement. 10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nebraska without regard to its conflict of laws principles. 5 -140- IN WITNESS WHEREOF, this Security Agreement has been duly executed by Debtor and Secured Party as of the day and year first above-written. Address: AG1.COM, INC., a Wyoming corporation, Debtor Ag1.Com, Inc. Attention: President By: /s/ William T. Rose ------------------------------ William T. Rose Title: CEO Address: DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation, Data Transmission Network Corporation Secured Party 9110 West Dodge Road, Suite 200 Omaha, Nebraska 68114 Attention: President By: /s/ Greg T. Sloma ------------------------------- Greg T. Sloma, President 6 -141- EX-10 8 ASSET PURCHASE AGREEMENT - FLIGHTBRIEF ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is made and entered into this 11th day of November, 1999, by and among FlightBrief Online Service, Inc., a Georgia corporation ("Seller"), Data Transmission Network corporation, a Delaware corporation ("Buyer"), and Gregg F. Lewis, an individual (the "Stockholder"). RECITALS: A. Seller is engaged in the business of creating, assembling, marketing, maintaining and publishing two web sites (the "Web Sites") www.weatherconcepts.com, which provides real-time weather graphics to aviation, marine, farming and construction subscribers, and www.flightbrief.com, which provides real-time weather graphics and interactive flight planners, airport databases and other resources to aviation subscribers (the "Business"). B. Seller desires to sell certain of its assets used in the conduct of the Business, and Buyer desires to acquire such assets. C. The Stockholder, as the owner of all of the issued and outstanding stock of Seller, joins in this Agreement to confirm certain representations, warranties and agreements of Seller herein, to agree to certain restrictive covenants, and to indemnify Buyer in connection with certain matters. In consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller, the Stockholder and Buyer, intending to be legally bound, agree as follows: 1. Purchase and Sale. Buyer agrees to purchase from Seller, and Seller agrees to sell to Buyer, the Business and all right, title and interest in and to the following property and assets of Seller (collectively the "Assets"): (a) All of Seller's computer hardware, web hosting servers, equipment and other tangible personal property used in the conduct of the Business, including but not limited to the items listed on Schedule 1 attached hereto and incorporated herein by this reference; (b) All of Seller's right, title and interest in the software used in the Business to the extent assignable, including but not limited to the software listed on Schedule 1 attached hereto; (c) All of Seller's right, title and interest in the subscriptions (whether written, oral, or entered into via the Web Sites) with customers to use the Web Sites, including but not limited to the prepaid and unearned revenue from such subscriptions; -142- (d) All right, title and interest in and to the registered trademark FLIGHTBRIEF and the unregistered trademarks WXBRIEF.COM, WEATHERCONCEPTS.COM and FLIGHTBRIEF.COM (the "Trademarks") and the Internet domain names WXBRIEF.COM, WEATHERCONCEPTS.COM and FLIGHTBRIEF.COM (the "Domain Names"); (e) All of Seller's information, files, records, data, plans, and recorded knowledge, including subscriber and supplier lists, related to the Business and similar or related data; and (f) All of Seller's goodwill pertaining to or arising out of the Business. 2. Consideration. Buyer agrees to pay, and Seller agrees to accept, as the entire aggregate consideration for the Assets and the noncompete agreements of Seller and the Stockholder referred to in Paragraph 15, the cash sum of $18,000 plus the amount determined by multiplying $108.00 (the "Subscriber Price") by the lesser of (i) the aggregate number of subscribers to the Web Sites on the Closing Date or (ii) the aggregate number of subscribers to the Web Sites on the date (the "Settlement Date") 100 days after the Closing. One Hundred Five Thousand Dollars ($105,000) of the purchase price shall be paid by Buyer to Seller on the Closing. Prepaid subscription revenue shall be prorated as of the Closing Date and the unearned portion thereof shall be paid by Seller to Buyer at Closing or sum amount shall be credited against the payment due to Seller at Closing. Eighty Seven Thousand Five Hundred Dollars ($87,500) of the purchase price shall be paid to Seller from the escrowed funds referred to below when the Web Sites are operational using the servers located at Buyer's facilities. The balance of the purchase price shall be paid to Seller, without interest, on the Settlement Date. The consideration to be given by Buyer under this paragraph shall be allocated among the Assets and such noncompete agreements as described in Schedule 3. Seller, the Stockholder and Buyer 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 such allocation. Time is of the essence with respect to payment on the Settlement Date. As security for such payment, Seller shall escrow all conveyance instruments and Buyer shall escrow the cash sum of $262,500 with a title insurance company acceptable to Buyer and Seller (the "Escrow Agent") at Closing. On the date that the Escrow Agent is notified by Seller and Buyer that the Web Sites are operational using the servers located at Buyer's facilities, the Escrow Agent shall release $87,500 to Buyer as provided above. On the Settlement Date, the Escrow Agent shall release the funds to Seller to the extent the purchase price remains unpaid and shall release the conveyance instruments and any surplus cash to Buyer; provided, however, in the event Buyer, prior to the Settlement Date, notifies the Escrow Agent in writing that it has a bona fide and material dispute with Seller under this Agreement, then all of the escrowed funds are to be retained by the Escrow Agent until the dispute is resolved. Interest on the escrowed funds shall belong to Buyer unless otherwise agreed or imposed upon the parties by a court of competent jurisdiction. On or before the Closing, Buyer and Seller shall enter into an escrow agreement with the Escrow Agent consistent with the terms set forth in this paragraph. 3. Assumption of Liabilities. Buyer shall assume, agree to perform, and discharge when due only those obligations of Seller arising out of the 2 -143- subscriptions listed on Schedule 2 with respect to the period from and after the Closing Date (the Assumed Liabilities"). Seller and Buyer agree that, other than the Assumed Liabilities, Buyer does not agree to assume and shall have no responsibility for any of the debts, obligations or liabilities of Seller (the "Excluded Liabilities"), all of which shall remain the sole responsibility of and shall be paid and discharged by Seller as they become due. The Excluded Liabilities include without limitation all of the following: (a) Any tax liability or tax obligation of Seller, its directors, officers, shareholders and agents which has been or may be asserted by any taxing authority, including without limitation any such liability or obligation arising out of or in connection with this Agreement or the transactions contemplated hereby. (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 the Assumed Liabilities) whether incurred prior to, at or subsequent to the Closing Date, including without limitation all obligations to Unisys Corporation (including the payment for termination of the contract with Unisys Corporation), Freese-Notis, and NW Aero. (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 Buyer. 4. Transfer Documents. Seller shall sell, transfer, assign, convey, and deliver to Buyer at the Closing the Assets by (i) a warranty bill of sale and assignment in the form of Exhibit A hereto, (ii) the Registrant Name Change Agreements for submission to Network Solutions, Inc. in the form of Exhibit B hereto to transfer the Domain Names, (iii) an Assignment of Trademarks for submission to the Patent and Trademark Office in the form of Exhibit C hereto to transfer the Trademarks, and (iv) such other good and sufficient instruments of sale, assignment, conveyance and transfer as shall be required to effectively vest in Buyer all of Seller's right, title, and interest in and to the Assets, free and clear of all liens, encumbrances, security interests, actions, claims and equities of any kind whatsoever. Seller agrees to take such actions as may be necessary to make available for use by Buyer the Domain Names and Trademarks, including without limitation Seller's change of its corporate name. Buyer shall be entitled to possession of the Assets upon the Closing. From time to time after the Closing, at Buyer's request and without further consideration, Seller 3 -144- agrees to execute and deliver such other instruments of conveyance and transfer and take such other action as Buyer reasonably may require more effectively to convey, transfer to and vest in Buyer, and to put Buyer in possession of, any of the Assets. 5. Closing. Subject to the termination of this Agreement as provided in Section 10, the closing of the transactions provided for in this Agreement (the "Closing") shall take place at _______________________________________, at 10:00 a.m. on ___________, 1999 (the "Closing Date"), or such other place, time and date as the parties may agree. Time is of the essence of this Agreement. 6. Obligations to Employees. Seller agrees that it shall be responsible for any obligations to any of its employees which heretofore may have arisen or hereafter may arise by reason of any services rendered by such employees, including but not limited to salaries, bonuses, vacation pay, retirement benefits, and other fringe benefits; and Seller hereby agrees to pay all of such obligations directly to the employees involved when due. Seller agrees timely to pay all payroll tax, withholding, and unemployment compensation payments required to be made with respect to the compensation of such employees and to hold Buyer harmless therefrom. Seller shall furnish to Buyer such evidence of Seller's compliance with the provisions of this paragraph as Buyer reasonably may request from time to time. 7. Representations and Warranties. Seller warrants, represents and covenants to and with Buyer: (a) That Seller has full right and lawful authority to enter into this Agreement and to sell the Assets; that Seller's performance of its obligations under this Agreement will not violate any agreement, document, trust (constructive or otherwise), order, judgment or decree to which Seller is a party or by which it is bound; and that, upon the transfer and assignment of the Assets to Buyer as hereinbefore mentioned, Buyer will acquire good and merchantable title thereto, free and clear of any liens, encumbrances, security interests, actions, claims, and equities of any kind whatsoever. (b) That Seller is the sole and lawful owner of and has good and marketable title to all of the Assets, free and clear of any liens, encumbrances, security interests, actions, claims, and equities of any kind whatsoever; provided, however, with respect to software Seller represents that it is the rightful licensee (not owner) and that it has the right to assign its license to Buyer, and with respect to trademarks, Seller makes no representation as to the ability of third parties to assert a competing claim to any mark used in Seller's business. (c) All material items of tangible personal property to be acquired by Buyer pursuant to this Agreement are in good operating condition, subject to normal wear. 4 -145- (d) That there are no suits, arbitrations or other legal or governmental proceedings pending or threatened against Seller which might conceivably affect the title to the Assets. (e) That Seller has duly and timely filed all federal, state, and local tax returns of every kind whatsoever and has paid in full the tax liability shown on such returns; that no unpaid deficiencies are in existence which have been asserted against Seller by any official or agency as a result of the filing of such returns; and that, to the knowledge of Seller, there is not now pending any examination with respect to any such returns nor does Seller know of any impending examination with respect to any such returns. (f) That promptly after the Closing Date Seller shall pay all sales and use taxes imposed on or collectible by Seller and shall furnish to Buyer evidence that all of Seller's sales and use taxes have been paid (it being understood that Buyer is purchasing the Assets for use in its business of producing goods and services). (g) To the best of Seller's knowledge, use of the Trademarks do not require the consent of any other person and the same are freely transferable and are owned exclusively by Seller free and clear of any licenses, charges, attachments, liens, encumbrances or adverse claims. No other person has an interest in or right or license to use, or the right to license others to use, any of the Trademarks. There are no claims or demands of any other person pertaining thereto and no proceedings have been instituted, or, to the best of Seller's knowledge, are pending or threatened, which challenge Seller's rights in respect of the Trademarks. None of the Trademarks is subject to any outstanding order, decree, judgment or stipulation, or, to the best knowledge of Seller, is being infringed by others. No claim has been made and no proceeding has been filed or, to the best of Seller's knowledge, is threatened to be filed charging Seller with infringement of any adversely held trade name or trademark. (h) There is no undisclosed fact, development, or threatened development with respect to the markets, products, customers, vendors, suppliers, operations, assets or prospects of the Business which are known to Seller which would materially adversely affect the business, operations or prospects of the Business considered as a whole, other than such conditions as may affect as a whole the economy generally. (i) Seller's tax return for the year 1998 furnished to Buyer fairly and accurately represents the financial operations and condition of the Business for such year. (j) That Seller has listed on Schedule 2 all of Seller's subscriptions to the Web Sites as of ____________, 1999; Seller has no other contracts (oral or written or entered into via the Web Sites) with the customers of the Business. Seller has delivered to Buyer true, correct and complete copies of all written contracts with subscribers to the Web Sites relating to the Business, and written summaries of the terms of all oral or 5 -146- computer generated contracts relating to the Business, and all of such contracts are presently in full force and effect and are assignable to Buyer. (k) Except to the extent disclosed to Buyer in writing prior to the date of this Agreement, all Date Data and Date-Sensitive Systems (each as hereinafter defined) are Year 2000 Compliant (as hereinafter defined). "Date Data" means any data of any type that includes date information or which is otherwise derived from, dependent on or related to date information. "Date-Sensitive System" means any software, microcode or hardware system or component, including any electronic or electronically controlled system or component, that processes any Date Data and that is included within the Assets. "Year 2000 Compliant" means (i) with respect to Date Data, that such data is in proper format and accurate for all dates in the twentieth and twenty-first centuries, and (ii) with respect to Date-Sensitive Systems, that each such system accurately processes all Date Data, including for the twentieth and twenty-first centuries, without loss of any functionality or performance, including but not limited to calculating, comparing, sequencing, storing and displaying such Date Data (including all leap year considerations), when used as a stand-alone system or in combination with other software or hardware. (l) That from the date of this Agreement to the Closing Date, Seller will conduct the Business in a normal and regular manner and will use its best efforts to retain the subscribers to the Web Sites. (m) That from the date of this Agreement to the Closing Date, Seller agrees to aid and assist Buyer in obtaining access to the Web Sites and servers to coordinate and facilitate the transfer of the Business to Buyer at the Closing and to coordinate in advance the input of Buyer's content on to the Web Sites. 8. Indemnification. Provided that Buyer has fully performed hereunder, Seller and the Stockholder, jointly and severally, agree to indemnify Buyer and hold Buyer 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 material breach occurring within twelve (12) months after Closing of any representation, warranty, covenant or agreement made by Seller and/or the Stockholder in this Agreement or in any agreement, statement, certificate, instrument or other document furnished or delivered or to be furnished or delivered to Buyer 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 6 -147- (d) Buyer agrees to give Seller and Stockholder reasonable notice of and opportunity to defend and/or cure any indemnity claim it intends to present. Buyer agrees to indemnify Seller and Stockholder and hold Seller and Stockholder 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 (i) Buyer's material breach hereunder, (ii) the Buyer's failure to perform under the Assumed Liabilities, or (iii) Buyer's act or omission in its post-Closing operation of the Assets. 9. Conditions to Buyer's Obligations at Closing. The obligations of Buyer to purchase the Assets hereunder and consummate the transactions contemplated hereby are conditioned on the satisfaction, unless waived, of the following conditions at the Closing: (a) The representations and warranties made by Seller in Section 7 shall be true and correct in all material respects as of the Closing Date and Seller shall execute and deliver a certificate to such effect to Buyer at Closing. (b) Buyer shall have determined in its sole discretion that the Assets being transferred to Buyer hereunder are free and clear of any liens, claims, encumbrances, charges and the like. (c) Seller shall have in all material respects performed and complied with all of its agreements and obligations hereunder which are to be performed or complied with prior to or on the Closing Date. 10. Termination. (a) Termination by Mutual Consent. At any time prior to the Closing, this Agreement may be terminated by mutual written consent of Buyer and Seller. (b) Termination by Buyer. Buyer may terminate this Agreement at any time prior to the Closing by delivery of written notice to Seller if: (i) Seller has failed to perform any of its covenants under this Agreement or has violated this Agreement in any material respect; or (ii) Any representation or warranty made by Seller in this Agreement is false or inaccurate in any material respect or there is any material misrepresentation or material omission by Seller. (c) Termination by Seller. Seller may terminate this Agreement at any time prior to the Closing by delivery of written notice to Buyer if: (i) Buyer has violated this Agreement in any material respect; or 7 -148- (ii) Any representation or warranty made by Buyer in this Agreement is false or inaccurate in any material respect or there is any material misrepresentation or material omission by Buyer. (d) Effect of Termination. In the event of termination as provided above, this Agreement shall then become of no further force or effect, all parties hereto shall bear their own costs associated with this Agreement and all transactions mentioned herein, and there shall be no obligation on the part of Buyer or Seller or the officers, directors or shareholders of Buyer or Seller. 11. Bulk Sales. The parties represent that no inventory of any kind is being sold by Seller to Buyer hereunder; thus neither party intends to provide any notice under the bulk sales provisions of the Uniform Commercial Code. Seller has taken any and all actions required under local law with respect to the transactions contemplated by this Agreement and will satisfy on or before the Closing Date (or make arrangements satisfactory to Buyer in its sole discretion to satisfy) all creditor claims, excluding Assumed Liabilities. 12. Survival. The representations, warranties, and covenants on the part of Seller and/or the Stockholder contained in this Agreement shall survive the Closing and shall be binding upon Seller and the Stockholder and their heirs, legal representatives, successors and assigns. 13. Payment of Liabilities. Seller agrees to pay as promptly as possible any and all liabilities of Seller existing on the Closing date and to hold Buyer harmless therefrom. Buyer and Seller agree that Buyer is not assuming and shall have no responsibility for any of the debts, obligations, or liabilities of Seller, including but not limited to any liabilities or obligations of Seller (whether fixed, absolute, contingent, known, unknown, direct, indirect, or otherwise) whether incurred or accrued before or after the Closing Date, which in any way relate to the performance or non-performance of, or any other liability or obligation relating to any service or product furnished or sold by Seller prior to or after the Closing Date, and Seller hereby agrees to hold Buyer harmless from any cost or expense arising out of or relating to any such debts, obligations, or liabilities; provided, however, such indemnification by Seller does not extend to any Assumed Liabilities. 14. Transfer Taxes. Seller shall pay all sales and other similar taxes imposed on or collectible by Seller or Buyer by reason of the transfer of the Assets. 15. Noncompete. For a period of three (3) years after the date of this Agreement, neither Seller nor the Stockholder shall, directly or indirectly, whether as a shareholder, partner or investor possessing any ownership interest, or as principal, agent, employee, proprietor, independent contractor, consultant or in any other capacity: (a) Solicit for itself or others, or advise or recommend to any other person that such person solicit, any of the customers or subscribers of the Business for the purpose of competing with Buyer or any of its members in the Business. 8 -149- (b) Offer, sell, license, lease, facilitate or promote the use of any products or services presently provided or being developed by Seller in competition with Buyer or any of its affiliates in the Business anywhere within those territories in the United States of America in which Seller was conducting the Business on the date of this Agreement. (c) Compete with Buyer or any of its affiliates in the business of delivering or publishing over the Internet real-time weather graphics, interactive flight planners or airport databases. If any court having jurisdiction at any time hereafter shall hold any of such restrictive covenants to be unenforceable or unreasonable as to its scope, territory, or period of time, and such court in its judgment or decree shall declare or determine the scope, territory, or period of time which such court deems to be reasonable, then such scope, territory or period of time, as the case may be, shall be deemed automatically to have been reduced to that declared or determined to be reasonable by such court. Notwithstanding the foregoing, if any clause or provision of this paragraph shall be unenforceable, then such clause or provision shall be deemed to be deleted from this paragraph, but every other clause and provision shall continue in full force and effect. These covenants are an integral part of the asset purchase transaction contemplated by this Agreement and Buyer would not have entered into this Agreement in the absence of such covenants. Seller and the Stockholder acknowledge that the agreements contained in this paragraph are reasonable and necessary to protect the Business being purchased by Buyer and that any breach thereof will result in irreparable injury to Buyer for which Buyer has no adequate remedy at law. Seller and the Stockholder therefore agree that, in the event either of them breaches any of the agreements contained in this paragraph, Buyer shall be authorized and entitled to seek from any court of competent jurisdiction (i) a temporary restraining order, (ii) preliminary and permanent injunctive relief, (iii) an equitable accounting of all profits or benefits arising out of such breach, and (iv) direct, incidental, and consequential damages resulting from such breach. Such rights or remedies shall be cumulative and in addition to all other rights or remedies to which Buyer may be entitled. 16. Entire Agreement. This document constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified, amended, or terminated except by a written agreement specifically referring to this Agreement and signed by all of the parties hereto. 17. Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 18. Further Instruments. The parties hereto shall execute and deliver such additional instruments and documents as may be reasonably requested by any of them in order to carry out the purposes and intent of this Agreement and to fulfill their respective obligations. 19. Governing Law. This agreement shall be construed in accordance with the laws of the State of Georgia. 9 -150- 20. 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. 21. 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. 22. Schedules and Exhibits. All references to Schedules and Exhibits herein, unless otherwise stated, means the schedules and exhibits attached to this Agreement which are hereby incorporated by reference. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation By:/s/ Greg T. Sloma ------------------------- Greg T. Sloma, President FLIGHTBRIEF ONLINE SERVICE, INC., a Georgia corporation By:/s/ Gregg F. Lewis ----------------------------- Gregg F. Lewis, President 10 -151- SCHEDULE 1 List of Certain Assets Tangible Personal Property calm.weather.net VA Linux StartX-MP single 450 MHz PIII 256 Meg memory, two 128 meg modules Jaton 4mb PCI video card 40x CD-ROM Keyboard and mouse RedHat v6, RedHat Secure Web Server parhelion.weather.net Sun SparcStation 20 50 MHZ 128 MB RAM 1 GB HD 1 GB External HD Tape Back-up CD-ROM Drive 3.5" Floppy Drive easterlies.weather.net Sun SparcStation 20 50 MHZ 128 MB RAM 1 GB HD CD-ROM Drive 3.5" Floppy Drive Computer Software In-house e-commerce credit billing software. 11 -152- SCHEDULE 2 List of Seller's Subscriptions "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities and Exchange Commission upon request." 12 -153- SCHEDULE 3 Allocation of Acquisition Consideration Computer equipment.......................... $8,000.00 The noncompete agreements of Seller and the Stockholder referred to in Paragraph 15 of the Asset Purchase Agreement................$20,000.00 Subscriber list, FlightBrief Name, Goodwill........................Final Settlement Price minus items listed above. 13 -154- EXHIBIT A GENERAL BILL OF SALE AND ASSIGNMENT KNOW ALL MEN BY THESE PRESENTS, that FlightBrief Online Service, Inc., a Georgia corporation (the "Seller"), pursuant to and in consideration of the terms and conditions of the Asset Purchase Agreement dated November 11, 1999 (the "Asset Purchase Agreement") among Seller, Gregg F. Lewis and Data Transmission Network Corporation, a Delaware corporation ("Buyer"), and in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt of which is hereby acknowledged, has sold, granted, assigned, conveyed, transferred and set over to, and by these presents does sell, grant, assign, convey, transfer and set over to Buyer, its successors and assigns, all of Seller's right, title and interest in and to the "Assets" as such term is defined in Section 1 of the Asset Purchase Agreement, and all rights (whether at common law or otherwise), claims, and causes of action of Seller arising out of transactions occurring on or prior to the date hereof in connection with the Assets irrespective of the time or date on which any such right, claim, or cause of action may arise or accrue. TO HAVE AND TO HOLD, the same unto Buyer, its successors and assigns forever. Seller hereby represents and warrants to Buyer that it has good and marketable title to the Assets, free and clear of all liens and encumbrances, except as otherwise disclosed in the Asset Purchase Agreement. Seller, for itself and its successors and assigns, covenants and agrees with Buyer to warrant and defend the sale of the Assets hereby sold to Buyer, its successors and assigns, against the lawful claims and demands of all persons, except as set forth in the Asset Purchase Agreement, and agrees to take all steps necessary to put Buyer, its successors and assigns, in actual possession and operating control of the Assets. IN WITNESS WHEREOF, Seller has caused this General Bill of Sale and Assignment to be executed as of the 11th day of November, 1999. FLIGHTBRIEF ONLINE SERVICE, INC., a Georgia corporation By:/s/ Gregg F. Lewis ---------------------------- Gregg F. Lewis Title: President 14 -155- EXHIBIT B Form of Registrant Name Change Agreement Incorporated herein by this reference is the form of Registrant Name Change Agreement Version 3.0 which is currently in effect for Network Solutions, Inc. 15 -156- EXHIBIT C ASSIGNMENT OF TRADEMARKS THIS ASSIGNMENT is made this 11th day of November, 1999, by FLIGHTBRIEF ONLINE SERVICE, INC., a Georgia corporation ("Assignor"), of 1987 Cobblewood Drive, Kennesaw, Georgia 30152, to DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation ("Assignee"), of 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS: A. Assignor is the owner of various trademarks and service marks, and registrations and applications for registration therefor, if any, used in connection with its business (collectively, the "Marks"). B. Assignee is acquiring Assignor's business and in connection therewith all of Assignor's right, title and interest in and to the Marks and the registrations and applications for registration therefor, including without limitation the Marks listed on Exhibit A. If Assignor has filed intent-to-use applications for any of the Marks and has not yet filed a statement of use thereof, Assignor confirms that Assignee is the successor to the business of the Assignor within the meaning of 15 U.S.C. 1060. NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged: Assignor hereby assigns to Assignee all of Assignor's right, title and interest in and to the Marks, together with all of the goodwill of the business in connection with which the Marks are used and which is symbolized by the Marks, all registrations and applications for registration of the Marks, including without limitation the above identified registrations and applications for registration therefor, and the right to recover for past infringement of the Marks. FLIGHTBRIEF ONLINE SERVICE, INC. a Georgia Corporation By: /s/ Gregg F. Lewis ----------------------------- Gregg F. Lewis, President 16 -157- STATE OF ____________ ) ) ss COUNTY OF __________ ) On this day of _________, 1999, before me appeared Gregg F. Lewis, President of FlightBrief Online Service, Inc., a Georgia corporation, the Assignor, who acknowledged that he signed the foregoing instrument voluntarily on behalf of such company. ------------------------- Notary Public [Notary Seal] 17 -158- EXHIBIT A TO ASSIGNMENT OF TRADEMARKS BY FLIGHTBRIEF ONLINE SERVICE, INC. TO DATA TRANSMISSION NETWORK CORPORATION SCHEDULE OF TRADEMARKS "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities and Exchange Commission upon request." 18 -159- EX-10 9 ASSET PURCHASE AND SALE AGREEMENT - RADTEC ASSET PURCHASE AND SALE AGREEMENT THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered into as of the 8 day of December, 1999, by and between Kavouras, Inc., a Minnesota corporation ("Seller"), and Radtec Engineering, Inc., a Colorado corporation ("Buyer"). RECITALS: A. Seller is engaged in the business (the "Business") of manufacturing, marketing, selling, installing and servicing a line of Klystron and TWT-based Doppler weather radar systems known as the Triton Doppler Radar Series (the "Meteorological Equipment") which is marketed to users including broadcast television, aviation, universities, governments and militaries. B. Seller desires to sell certain of the fixed assets, inventory and intellectual property used in the conduct of the Business, and Buyer desires to acquire such assets. In consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer, intending to be legally bound, agree as follows: 1. Purchase and Sale. Buyer agrees to purchase from Seller, and Seller agrees to sell to Buyer, all right, title and interest in and to the following property and assets of Seller (collectively the "Assets"): (a) All of Seller's machinery and equipment, supplies, tools, promotional materials and other tangible personal property (other than inventory) used solely in the conduct of the Business, the principal items of which are listed on Schedule 1(a) attached hereto; (b) All of Seller's right, title and interest in the SCAMP software programs and applications and related documentation (the "SCAMP Software") which represents all of the principal items of software included in the Meteorological Equipment (other than the Storm Pro Software referred to in Section 13(a) and those software programs owned by third parties); (c) Those items of Seller's raw materials inventory, work-in-process inventory, and finished goods inventory of Meteorological Equipment listed on Schedule 1(c) attached hereto, which excludes inventory items for the KABC (Los Angeles) and KMA (Korea) projects; (d) All right, title and interest in and to the registered trademark TRITON DOPPLER RADAR (the "Trademark"), but, without limitation, excluding the other registered and unregistered trademarks of Seller including, but not limited to, Triton, Triton X, Triton Art Paint, Triton i7, and Triton RT; 1 -160- (e) All assignable or conveyable rights of Seller under contracts or agreements with sales agents, written or oral, listed on Schedule 1(e); (f) All assignable or conveyable licenses, permits, approvals or qualifications issued or to be issued to Seller with respect to the Business by any government or any agency or instrumentality thereof, listed on Schedule 1(f); (g) All of Seller's intellectual information, files, records, data, plans, and recorded knowledge related solely to the Meteorological Equipment, including maintenance manuals, electronic schematics, mechanical drawings, assembly drawings, test data, customer and supplier lists, and similar or related data; and (h) All of Seller's goodwill pertaining to or arising out of the Business. Without limitation, the Assets shall not include (i) Seller's cash and cash equivalents, accounts receivable, notes receivable, credits, prepaid expenses, deferred charges, securities, contracts and contract rights, causes of action, furniture, trade fixtures, motor vehicles, and real property and fixtures, whether or not derived from or used in connection with the Business, (ii) Seller's assets used exclusively in its numerous other businesses other than the Business, (iii) Seller's assets used jointly by the Business and any of Seller's other businesses, except to the extent specifically identified above or in Schedules 1 or 2 attached hereto, (iv) any records not relating to the Business and all corporate, accounting and tax records relating to the Business, and (v) refunds for taxes, insurance premiums, insurance policies and employee benefit plans. 2. Purchase Price. Buyer agrees to pay, and Seller agrees to accept, as the entire aggregate purchase price for the Assets of Seller being acquired by Buyer pursuant to Section 1, the sum of Eight Hundred Sixty Four Thousand Dollars ($864,000) (hereinafter referred to as the "Purchase Price"). Sixty Four Thousand Dollars ($64,000) of the Purchase Price shall be paid by Buyer to Seller on the Closing. The balance of the Purchase Price shall be paid to Seller by delivery to Seller at Closing of Buyer's promissory note in the form attached hereto as Exhibit A (the "Promissory Note"). The Promissory Note shall be co-signed by Dennis Treddenick and Larry G. Davis. The Purchase Price shall be allocated among the Assets as described in Schedule 2. Seller and Buyer 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 such allocation. 3. Assumption of Liabilities. Buyer shall assume, agree to perform, and discharge when due those obligations of Seller with respect to the period from and after the Closing Date (i) to provide the warranty services and materials under the customer contracts listed on Schedule 3(i), (ii) to supply parts and repair services under the customer contracts listed on Schedule 3(ii), and (iii) under sales agency contracts, written or oral, listed on Schedule 1(e) (collectively the "Assumed Liabilities"); provided, however, the provision of such warranty services and materials under each contract identified in Schedule 3(i) shall not begin until after the applicable Meteorological Equipment has been installed and accepted by the customer. Buyer shall be compensated for such warranty services and materials as provided in Section 13(e). Seller and Buyer agree that, other than the Assumed Liabilities, Buyer does not agree to assume 2 -161- and shall have no responsibility for any of the debts, obligations or liabilities of Seller (the "Excluded Liabilities"), all of which shall remain the sole responsibility of and shall be paid and discharged by Seller as they become due. The Excluded Liabilities include without limitation all of the following: (a) Any tax liability or tax obligation of Seller, its directors, officers, shareholders and agents which has been or may be asserted by any taxing authority, other than any such liability or obligation arising out of or in connection with transfer of the Assets as contemplated by this Agreement. (b) Any liability or obligation of Seller or any contract obligation of Seller (other than the Assumed Liabilities) whether incurred prior to, at or subsequent to the Closing Date, arising out of Seller's operation of the Business. (c) 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. (d) 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. (e) Any liability or obligation specifically stated in this Agreement or the Schedules hereto as not to be assumed by Buyer. 4. Transfer and Assumption Documents. Seller shall sell, transfer, assign, convey, and deliver to Buyer at the Closing the Assets by (i) a warranty bill of sale and assignment in the form of Exhibit B hereto, (ii) an Assignment of Trademark for submission to the Patent and Trademark Office in the form of Exhibit C hereto to transfer the Trademark, and (iii) such other good and sufficient instruments of sale, assignment, conveyance and transfer as shall be required to effectively vest in Buyer all of Seller's right, title, and interest in and to the Assets, free and clear of all liens, encumbrances, security interests, actions, claims and equities of any kind whatsoever. At the Closing, Buyer shall execute and deliver to Seller such instruments of assumption, satisfactory in form and substance to Seller, as shall be reasonably necessary to evidence Buyer's assumption of the Assumed Liabilities. Buyer shall be entitled to possession of the Assets upon the Closing and Buyer shall have until February 28, 2000 to remove the Assets from Seller's premises. Buyer shall, at its expense, remove the pedestal, antenna and radome from the tower attached to the roof of Seller's building, and Seller shall be responsible for the disposal of the tower and all repair to the building not negligently caused by Buyer's removal of the pedestal, antenna and radome. From time to time after the Closing, at Buyer's request and without further consideration, Seller agrees to execute and deliver such other instruments of conveyance and transfer and take such other action as Buyer reasonably may require more effectively to convey, transfer to and vest in Buyer, and to put Buyer in possession of, any of the Assets. From time to time after the Closing, at Seller's request and without further consideration, Buyer agrees to execute and deliver such other instruments of assumption and take such other action as Seller reasonably may require to more effectively evidence Buyer's assumption of the Assumed Liabilities. 3 -162- 5. Closing. Subject to the termination of this Agreement as provided in Section 10, the closing of the transactions provided for in this Agreement (the "Closing") shall take place at the offices of Seller in Burnsville, Minnesota, at 10:00 a.m. on December 31, 1999 (the "Closing Date"), or such other place, time and date as the parties may agree. Time is of the essence of this Agreement. 6. Obligations to Employees. Without the consent of Seller, Buyer will not communicate with Seller's employees of the Business in respect of the transactions contemplated hereby. Seller agrees that it shall be responsible for any obligations to any of its employees which heretofore may have arisen or hereafter may arise by reason of any services rendered by such employees, including but not limited to salaries, bonuses, vacation pay, retirement benefits, and other fringe benefits; and Seller hereby agrees to pay all of such obligations directly to the employees involved when due. 7. Representations and Warranties of Seller. Seller warrants, represents and covenants to and with Buyer as follows: (a) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. Seller possesses all requisite corporate power and authority to own, operate and lease its properties and carry on its business, and to execute and deliver, and perform its obligations under, this Agreement. (b) The execution and delivery of this Agreement and performance by Seller of its obligations hereunder, and all transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action. This Agreement has been, and the other agreements and documents required to be delivered by Seller in accordance with the provisions hereof (the "Seller's Documents") will be, duly executed and delivered on behalf of Seller by duly authorized officers of Seller; and this Agreement constitutes, and Seller's Documents when executed and delivered will constitute, the valid and binding obligations of Seller, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws from time to time in effect affecting creditor's rights generally and by legal and equitable limitations on the availability of specific remedies. (c) Neither the execution and delivery by Seller of this Agreement and the Seller's Documents, nor the consummation by Seller of the transactions contemplated hereby and thereby, will, with or without the giving of notice or passage of time, or both, be contrary to or violate, breach, or constitute a default under, or permit the termination or acceleration of maturity of, or result in the imposition of any lien, claim or encumbrance on any property or asset of Seller pursuant to any provision of, any note, bond, indenture, mortgage, deed of 4 -163- trust, evidence of indebtedness or lease agreement, other agreement or instrument or any judgment, order, injunction or decree by which Seller is bound, to which Seller is a party, or to which the assets of Seller are subject; nor is the effectiveness or enforceability of this Agreement or such other documents adversely affected by any provision of the certificate of incorporation or bylaws of Seller. (d) Except as otherwise set forth herein, no authorization or approval of, or filing with, any governmental agency, authority or other body or any other third persons will be required in connection with Seller's execution and delivery of this Agreement and Seller's Documents or its consummation of the transactions contemplated hereby and thereby. (e) Seller is the sole and lawful owner of and has good and marketable title to all of the Assets, free and clear of any liens, encumbrances, security interests, actions, claims, and equities of any kind whatsoever, except for the security interest granted to First National Bank of Omaha as agent for a group of lenders, which security interest will be released prior to Closing. (f) That there are no suits, arbitrations or other legal or governmental proceedings pending or threatened against Seller which might conceivably affect the title to the Assets. (g) Except for Seller's other trademarks of or including the word "Triton" and Seller's right to continue use of such marks and any new variations thereof, to Seller's knowledge, no other person has an interest in or right or license to use, or the right to license others to use the Trademark. There are no claims or demands of any other person pertaining thereto and no proceedings have been instituted or, to Seller's knowledge, are pending or threatened, which challenge Seller's rights in respect of the Trademark. The Trademark is not subject to any outstanding order, decree, judgment or stipulation or, to the knowledge of Seller, is being infringed by others. (h) Seller has delivered to Buyer true, correct and complete copies of all written contracts with WPTV, KABC, WHO, WRDW, KMA and Haikou Airport. (i) Except as otherwise expressly set forth in this Agreement, the Assets shall be conveyed to Buyer on an "as-is, where-is" basis without any representations or warranties of any kind, express or implied, either oral or written, made by Seller or any agent or representative of Seller with respect to the physical or structural condition or sufficiency or adequacy of the Assets. Except as otherwise expressly set forth in this Agreement, Seller has made and hereby makes no warranty or representation whatsoever and hereby disclaims any implied warranty regarding the fitness for particular purpose, quality or merchantability of the Assets or any portion thereof. 5 -164- 8. Representations and Warranties of Buyer. Buyer warrants, represents and covenants to and with Seller as follows: (a) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. Buyer possesses all requisite corporate power and authority to own, operate and lease its properties and carry on its business, and to execute and deliver, and perform its obligations under, this Agreement. (b) The execution and delivery of this Agreement and performance by Buyer of its obligations hereunder, and all transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action. This Agreement has been, and the other agreements and documents required to be delivered by Buyer in accordance with the provisions hereof (the "Buyer's Documents") will be, duly executed and delivered on behalf of Buyer by duly authorized officers of Buyer; and this Agreement constitutes, and Buyer's Documents when executed and delivered will constitute, the valid and binding obligations of Buyer, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws from time to time in effect affecting creditor's rights generally and by legal and equitable limitations on the availability of specific remedies. (c) Neither the execution and delivery by Buyer of this Agreement and the Buyer's Documents, nor the consummation by Buyer of the transactions contemplated hereby and thereby, will, with or without the giving of notice or passage of time, or both, be contrary to or violate, breach, or constitute a default under, or permit the termination or acceleration of maturity of, or result in the imposition of any lien, claim or encumbrance on any property or asset of Buyer pursuant to any provision of, any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness or lease agreement, other agreement or instrument or any judgment, order, injunction or decree by which Buyer is bound, to which Buyer is a party, or to which the assets of Buyer are subject (including, without limitation, Buyer's contract with Baron Services, Inc.); nor is the effectiveness or enforceability of this Agreement or such other documents adversely affected by any provision of the certificate of incorporation or bylaws of Buyer. (d) Except as otherwise set forth herein, no authorization or approval of, or filing with, any governmental agency, authority or other body or any other third persons will be required in connection with Buyer's execution and delivery of this Agreement and Buyer's Documents or its consummation of the transactions contemplated hereby and thereby. (e) Buyer has conducted or has had the opportunity to conduct and will conduct its own inspection and investigation of the Assets and, except as otherwise expressly set forth in this Agreement, is purchasing the Assets on an "as-is, where-is" basis with no warranties of any kind, express or implied, 6 -165- either oral or written, made by Seller or any agent or representative of Seller with respect to the physical or structural condition or sufficiency or adequacy of the Assets. 9. Indemnification By Seller. Seller agrees to indemnify Buyer and hold Buyer harmless from and against any and all liability, loss, litigation, expense or claim (including reasonable attorney fees) to the extent arising out of, resulting from, or caused by: (a) Any breach of any representation, warranty, covenant or agreement made by Seller in this Agreement or the Seller's Documents or in connection with the transactions contemplated herein or therein; (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); and (c) The Excluded Liabilities. Notwithstanding any provision to the contrary contained in this Agreement, in no event shall Seller's total cumulative liability to Buyer, if any, for all claims of any kind resulting from Seller's breach of its representations, warranties or covenants contained in this Agreement, including but not limited to Seller's indemnification obligations hereunder, or otherwise arising from or relating to the subject matter of this Agreement, exceed the amount of the Purchase Price. 10. Indemnification By Buyer. Buyer agrees to indemnify Seller and hold Seller harmless from and against any and all liability, loss, litigation, expense or claim (including reasonable attorney fees) to the extent arising out of, resulting from, or caused by: (a) Any breach of any representation, warranty, covenant or agreement made by Buyer in this Agreement or the Buyer's Documents or in connection with the transactions contemplated herein or therein; (b) The Assumed Liabilities; and (c) Any sales, transfer or similar tax imposed upon the transfer of the Assets to Buyer pursuant to this Agreement. 11. Conditions to Buyer's Obligations at Closing. The obligations of Buyer to purchase the Assets hereunder and consummate the transactions contemplated hereby are conditioned on the satisfaction, unless waived, of the following conditions at the Closing: (a) The representations and warranties made by Seller in Section 7 shall be true and correct in all material respects as of the Closing Date and Seller shall execute and deliver a certificate to such effect to Buyer at Closing. (b) Buyer shall have determined in its sole discretion that the Assets being transferred to Buyer hereunder are free and clear of any liens, claims, encumbrances, charges and the like. 7 -166- (c) Seller shall have in all material respects performed and complied with all of its agreements and obligations hereunder which are to be performed or complied with prior to or on the Closing Date. 12. Conditions to Seller's Obligations at Closing. The obligations of Seller to sell the Assets hereunder and consummate the transactions contemplated hereby are conditioned on the satisfaction, unless waived, of the following conditions at the Closing: (a) The representations and warranties made by Buyer in Section 8 shall be true and correct in all material respects as of the Closing Date and Buyer shall execute and deliver a certificate to such effect to Seller at Closing. (b) Buyer shall have in all material respects performed and complied with all of its agreements and obligations hereunder which are to be performed or complied with prior to or on the Closing Date, and Dennis Treddenick and Larry G. Davis shall have executed the Promissory Note at Closing. (c) Seller shall have received the written approval of this Agreement and the transactions contemplated hereby by its lenders and the release or termination by such lenders of their security interests in the Assets. 13. Related Agreements and Post-Closing Matters. (a) At the Closing, Buyer and Seller shall each execute and deliver to each other the License Agreement in the form attached hereto as Exhibit D, pertaining to the license by Seller to Buyer of the Storm Pro software. (b) At the Closing, Buyer and Seller shall each execute and deliver to each other the Subcontract Agreement in the form attached hereto as Exhibit E, pertaining to the services to be performed by Buyer under Seller's contract with the Supply Administration of the Republic of Korea. (c) For a period of two weeks following the Closing Date, Seller shall provide at its office in Burnsville, Minnesota, informal training with respect to the Meteorological Equipment for representatives of Buyer. Such training shall consist of one week of training regarding the Klystron Doppler weather radar systems and one week of training regarding the TWT-based Doppler weather radar systems. Such training will cover system operations, documentation review, test procedures, and assembly procedures. Buyer will select its representatives for training (which number shall not exceed 10) and will be responsible for the costs of their travel, lodging and meals while attending the training. (d) For a period of fifteen (15) years following the Closing Date, Buyer agrees to provide professional customer service and support for the Meteorological Equipment sold by Seller prior to the Closing Date using a skilled staff fully qualified to perform their respective duties. During such period, Buyer shall maintain an inventory of spare parts or equivalents for the Meteorological Equipment in the manner similar to which it maintains an inventory of spare parts for its existing lines 8 -167- of weather radar systems. Buyer agrees to charge for such spare parts the net invoice cost of such parts plus Buyer's then current mark-up and international fees, if applicable. Buyer agrees to charge its then current labor rates for such customer service. Promptly after the Closing, Buyer shall contact each of such customers directly and furnish to them the addresses, phone numbers and related information needed for such customers to contact Buyer directly for such customer service. (e) As set forth in Section 3, Buyer will provide from and after the Closing Date the warranty services (labor and materials) pursuant to the customer contracts listed on Schedule 3(i) and for the respective warranty periods set forth for such contracts on Schedule 3(i). At the Closing, Buyer, Seller and an escrow agent mutually agreeable to Buyer and Seller (the "Escrow Agent") shall execute and deliver the Escrow Agreement in the form attached hereto as Exhibit F (the "Escrow Agreement"). At the Closing, Seller shall pay $185,000 to the Escrow Agent representing the contributions for the contracts (other than the contract with the Supply Administration of the Republic of Korea; the "Korean Contract") listed on Schedule 3(i). With respect to the Korean Contract, (i) if a 5650 MHz system is to be installed, then Seller shall pay $200,000 to the Escrow Agent upon receipt of the payment due to Seller upon final acceptance of the goods under such contract and (ii) if a 5300 MHz system is to be installed, then no additional funds are to be paid to the Escrow Agent for the Korean Contract. During the respective warranty periods, Buyer shall submit applications to Seller for reimbursement of its actual direct costs incurred in providing such warranty services and Seller shall authorize the Escrow Agent to release funds in payment of such applications; except in the event a 5300 MHz system is to be installed pursuant to the Korean Contract, in which case Buyer will not receive reimbursement for warranty services in connection with the Korean Contract, but will instead be compensated entirely pursuant to the Subcontract Agreement attached hereto as Exhibit E. With respect to the labor provided by Buyer to perform such warranty services, the direct costs thereof shall consist of the actual time spent by the employees of Buyer at the standard hourly wages paid to such employees by Buyer, without inclusion of fringe benefits or other indirect or overhead costs incurred by Buyer. With respect to the materials provided by Buyer to perform such warranty services, the direct costs thereof shall be the actual net invoice cost of such materials. In the event the initial contribution by Seller to the Escrow Agent with respect to a contract as specified on Schedule 3(i) is used up prior to the expiration of the applicable warranty period, Buyer and Seller shall each contribute equally to the Escrow Agent the additional funds needed to reimburse Buyer for the direct costs of providing such warranty services. At the end of the warranty period applicable to a contract as specified on Schedule 3(i), any portion of the contributions with respect to such contract which remains with the Escrow Agent shall be distributed equally to Seller and Buyer. (f) For a period of up to 90 days after the Closing Date Seller shall, as reasonably requested by Buyer, use its commercially reasonable efforts (without the requirement of expenditure of funds) to assist Buyer in obtaining (i) the approvals of the FCC and other governmental agencies necessary for Buyer to use the licenses and permits listed on Schedule 1(f) and (ii) the consents of any third parties needed for the assignment of those contracts and agreements with sales agents listed on Schedule 1(e). 9 -168- 14. Termination. (a) Termination by Mutual Consent. At any time prior to the Closing, this Agreement may be terminated by mutual written consent of Buyer and Seller. (b) Termination by Buyer. Buyer may terminate this Agreement at any time prior to the Closing by delivery of written notice to Seller if: (i) Seller has failed to perform any of its covenants under this Agreement or has violated this Agreement in any material respect; or (ii) Any representation or warranty made by Seller in this Agreement is false or inaccurate in any material respect or there is any material misrepresentation or material omission by Seller. (c) Termination by Seller. Seller may terminate this Agreement at any time prior to the Closing by delivery of written notice to Buyer if: (i) Buyer has failed to perform any of its covenants under this Agreement of has violated this Agreement in any material respect; or (ii) Any representation or warranty made by Buyer in this Agreement is false or inaccurate in any material respect or there is any material misrepresentation or material omission by Buyer. (d) Effect of Termination. In the event of termination as provided above, this Agreement shall then become of no further force or effect, all parties hereto shall bear their own costs associated with this Agreement and all transactions mentioned herein, and there shall be no obligation on the part of Buyer or Seller or the officers, directors or shareholders of Buyer or Seller. 15. Survival. The representations, warranties, and covenants on the part of Seller and Buyer contained in this Agreement shall survive the Closing and shall be binding upon Seller and Buyer and their heirs, legal representatives, successors and assigns. 16. Transfer Taxes. Buyer shall pay all sales and other similar taxes imposed on or collectible by Seller or Buyer by reason of the transfer of the Assets. 17. Entire Agreement. This document constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified, amended, or terminated except by a written agreement specifically referring to this Agreement and signed by all of the parties hereto. 10 -169- 18. Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 19. Further Instruments. The parties hereto shall execute and deliver such additional instruments and documents as may be reasonably requested by any of them in order to carry out the purposes and intent of this Agreement and to fulfill their respective obligations. 20. Governing Law. This agreement shall be construed in accordance with the laws of the State of Minnesota. 21. 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. 22. 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. 23. Schedules and Exhibits. All references to Schedules and Exhibits herein, unless otherwise stated, means the schedules and exhibits attached to this Agreement which are hereby incorporated by reference. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. RADTEC ENGINEERING, INC., a Colorado corporation By:/s/ Larry G. Davis ---------------------------- Larry G. Davis, President KAVOURAS, INC., a Minnesota corporation By:/s/ Laura Burrow ---------------------------- Laura Burrow, Vice President 11 -170- SCHEDULE 1(a) List of Certain Tangible Personal Property "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities & Exchange Commission upon request." 12 -171- SCHEDULE 1(c) List of Inventory "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities & Exchange Commission upon request." 13 -172- SCHEDULE 1(e) List of Sales Agency Contracts "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities & Exchange Commission upon request." 14 -173- SCHEDULE 1(f) List of Licenses and Permits Type Acceptance Non Broadcast Transmitter MPDTDR4370A-C1 Non Broadcast Transmitter MPDZDR4370A-C2 Non Broadcast Transmitter MPDTDRFP70B-C1 Non Broadcast Transmitter MPDTDR3070A-C1 Experimental XD FX KQ2XSX 4662-EX-R-97 15 -174- SCHEDULE 2 Allocation of Purchase Price "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities & Exchange Commission upon request." 16 -175- SCHEDULE 3(i) List of Contracts for Warranty Services and Materials "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities & Exchange Commission upon request." 17 -176- SCHEDULE 3(ii) List of Contracts for Services and Parts The following are international contracts that promise Service and Parts. Sanya China Repairs after installation are required. If repair is required on site, the field engineer must arrive within 20 days of request. Barcelona, Spain Service 24 hours per day, 7 days a week Jindezhen and Ganzhou Airport, China Service 24 hours per day, 7 days a week and free software upgrades. Beijing, China Spares parts available for 15 years. Haikou, China Spares parts available for 15 years. 18 -177- EXHIBIT A PROMISSORY NOTE $800,000.00 Date: December 13, 1999 Burnsville, Minnesota 1. Makers' Promise to Pay. For value received, the undersigned makers (whether one or more, the "Maker") jointly and severally promise to pay to Kavouras, Inc. (the "Holder") the principal sum of Eight Hundred Thousand Dollars ($800,000.00), in twenty (20) equal, consecutive monthly payments of $40,000.00 commencing on the date one month after the date of this Note and continuing on the same day of each month thereafter until fully paid. All payments and any other sums due under this Note shall be paid to the Holder at its address at 11400 Rupp Drive, Burnsville, Minnesota 55337-1279, or at such other address as the Holder may from time to time designate. 2. Default by Maker. Should default be made in the payment of any installment due under this Note, all sums due or not yet due under this Note, being the sum of all unpaid installments, immediately shall be due and payable in full without further notice by Holder. Following any default hereunder, interest shall accrue on the unpaid principal balance at the rate of eighteen percent (18%) per annum and shall be due and payable upon demand. 3. Note Payable in U.S. Dollars. Principal, interest, and any other charges due under this Note are payable in lawful money of the United States. 4. Late Charge. Maker agrees: (a) to pay immediately, without demand, to the Holder, in the event any installment required under this Note is not received by the Holder within three (3) days after its due date, an amount equal to one and one-half percent (1.5%) of the then unpaid principal balance of this Note; (b) that it would be impractical or extremely difficult to fix the Holder's actual damages in the event that any installment shall not be paid when due; and (c) that such amount shall be presumed to be the amount of damages for such late payment and is reasonable. 5. Assumption of this Note. This Note may not be assumed or assigned by Maker without the express written consent of the Holder hereof, which consent may be withheld in Holder's sole and absolute discretion. 6. Maximum Interest. In no event whatsoever shall the amount paid, or agreed to be paid, to the Holder for the use, forbearance, or retention of the money evidenced hereby ("Interest") exceed the maximum amount permissible under applicable law. If the performance or fulfillment of any provision hereof shall result in Interest exceeding the limit for interest prescribed by law, then the amount of such Interest shall be reduced to the maximum rate which may lawfully be charged or collected by the Holder. If, from any circumstances whatsoever, the Holder should receive as Interest an amount which would exceed the highest 19 -178- lawful rate, the amount which would be excessive Interest shall be applied to the reduction of the principal balance owing hereunder (or, at the option of the Holder, be paid over to Maker) and not to the payment of Interest. 7. Costs of Collection. Maker promises to pay: (a) all costs and expenses of collection, including without limitation, attorneys' fees, in the event this Note or any portion of this Note is placed in the hands of attorneys for collection and such collection is effected without suit; (b) attorneys' fees, as determined by the judge of the court, and all other costs, expenses, and fees incurred by the Holder in the event suit is instituted to collect this Note or any portion of this Note; (c) all costs and expenses incurred by or on behalf of the Holder in connection with collecting or otherwise enforcing any right of the Holder under this Note; and (d) all costs and expenses, including, without limitation, attorneys' fees incurred by the Holder in connection with any bankruptcy, insolvency, or reorganization proceeding or receivership in which the Maker is involved, including, without limitation, attorneys' fees incurred in making any appearances in any such proceeding or in seeking relief from any stay or injunction issued in or arising out of any such proceeding. 8. Certain Waivers. Maker waives diligence, grace, demand, presentment for payment, exhibition of this Note, protest, notice of protest, notice of dishonor, notice of demand, notice of nonpayment, and any and all exemption rights against the indebtedness evidenced by this Note, and agrees to any and all extensions or renewals from time to time without notice and to any partial payments of this Note made before or after maturity and that no such extension, renewal, or partial payment shall release Maker from the obligation of payment of this Note or any installment of this Note. 9. Governing Law. This Note shall be construed under and governed by the substantive laws of the State of Minnesota. 10. Obligations of Persons Under this Note. In this Note, the singular shall include the plural and this Note shall be the joint and several obligation of each Maker. EXECUTED as of the date first above written. RADTEC ENGINEERING, INC. By: /s/ Larry G. Davis -------------------------- Larry G. Davis Title: President /s/ Dennis Treddenick ------------------------- Dennis Treddenick /s/ Larry G. Davis ------------------------- Larry G. Davis 20 -179- EXHIBIT B GENERAL BILL OF SALE AND ASSIGNMENT KNOW ALL MEN BY THESE PRESENTS, that Kavouras, Inc., a Minnesota corporation (the "Seller"), pursuant to and in consideration of the terms and conditions of the Asset Purchase and Sale Agreement dated December 8, 1999 (the "Asset Purchase Agreement") among Seller and Radtec Engineering, Inc., a Colorado corporation ("Buyer"), and in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt of which is hereby acknowledged, has sold, granted, assigned, conveyed, transferred and set over to, and by these presents does sell, grant, assign, convey, transfer and set over to Buyer, its successors and assigns, all of Seller's right, title and interest in and to the "Assets" as such term is defined in Section 1 of the Asset Purchase Agreement. TO HAVE AND TO HOLD, the same unto Buyer, its successors and assigns forever. Seller hereby represents and warrants to Buyer that it has good and marketable title to the Assets, free and clear of all liens and encumbrances, except as otherwise disclosed in the Asset Purchase Agreement. Seller, for itself and its successors and assigns, covenants and agrees with Buyer to warrant and defend the sale of the Assets hereby sold to Buyer, its successors and assigns, against the lawful claims and demands of all persons, except as set forth in the Asset Purchase Agreement, and agrees to take all steps necessary to put Buyer, its successors and assigns, in actual possession and operating control of the Assets. IN WITNESS WHEREOF, Seller has caused this General Bill of Sale and Assignment to be executed as of the 13th day of December, 1999. KAVOURAS, INC., a Minnesota corporation By: /s/ Laura Burrow ------------------------- Laura Burrow Printed Name: Title: Vice President 21 -180- EXHIBIT C ASSIGNMENT OF TRADEMARK THIS ASSIGNMENT is made this 13th day of December, 1999, by KAVOURAS, INC., a Minnesota corporation ("Assignor"), of 11400 Rupp Drive, Burnsville, Minnesota 55337-1279, to RADTEC ENGINEERING, INC., a Colorado corporation ("Assignee"), of 2150 West 6th Avenue, Bloomfield, CO 80020. RECITALS: A. Assignor uses the trademark "Triton Doppler Radar" and (the "Mark"). B. Assignee is acquiring the portion of Assignor's business pertaining to the manufacture, sale, installation and service of a line of Klystron and TWT-based Doppler weather radar systems know as the Triton Doppler Radar Series (the "Business") and in connection therewith all of Assignor's right, title and interest in and to the Mark and the registration thereof. NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged: Assignor hereby assigns to Assignee all of Assignor's right, title and interest in and to the Mark, together with all of the goodwill of the Business in connection with which the Mark is used and which is symbolized by the Mark, the registration of the Mark, and the right to recover for past infringement of the Mark; provided, however, this Assignment does not include the other registered and unregistered trademarks and service marks of Assignor which include the word "Triton" (the "Excluded Marks"), including, without limitation, the marks "Triton", "Triton i7", and "Triton RT". This Assignment is subject to the retention by Assignor of all of its rights, title and interest in and to the Excluded Marks and the registrations and applications for registration therefor. KAVOURAS, INC., a Minnesota corporation By: /s/ Laura Burrow ------------------------------- Laura Burrow, Vice President 22 -181- EXHIBIT D LICENSE AGREEMENT THIS LICENSE AGREEMENT (the "Agreement"), effective as of December 13, 1999 (the "Effective Date"), is by and between KAVOURAS , INC., a Minnesota corporation, having its principal place of business at 11400 Rupp Drive, Burnsville, Minnesota 55337-1279 ("Kavouras") and RADTEC ENGINEERING, INC., a Colorado corporation having a place of business at 2150 West 6th Ave, Unit D, Broomfield, CO 80020 ("Radtec"). Capitalized terms shall have the meanings set forth in Section 3 or otherwise defined in the body of the Agreement. 1. Scope. This Agreement governs Radtec's authorization to distribute to its customers certain Software Products which it licenses from Kavouras on the terms and conditions set forth in this Agreement. 2. Appointment. Kavouras hereby authorizes Radtec to market and distribute the Software Products solely in connection with Radtec's sale of Meteorological Equipment to End Users. 3. Definitions. The following terms shall have a defined meaning as used in this Agreement: (a) "End User" means a licensee of Software Products which acquires such products in connection with such licensee's purchase of Meteorological Equipment from Radtec, for its own use rather than distribution or resale. (b) "Intellectual Property Rights" means all intellectual property rights worldwide arising under statutory law, common law or by contract, and whether or not perfected, including, without limitation, all (i) patents, patent applications and patent rights; (ii) rights associated with works of authorship including copyrights, copyright applications, copyright registrations, mask work rights, mask work applications, mask work registrations; (iii) rights relating to the protection of trade secrets and confidential information; (iv) any right analogous to those set forth in this Section 3(b) and any other proprietary rights relating to intangible property (but specifically excluding trademark, trade dress, trade name, design patent or service mark rights); and (v) divisions, continuations, renewals, reissues and extensions of the foregoing (as and to the extent applicable) now existing, hereafter filed, issued or acquired. (c) "Kavouras Marks" shall mean the Kavouras trademarks, trade names and logos, including but not limited to the trade name "Storm Pro," supplied by Kavouras to Radtec in the splash screen and windows of the Software Products. (d) "Meteorological Equipment" shall mean Klystron and TWT-based Doppler weather radar systems known as the Triton Doppler Radar Series the technology for which was acquired by Radtec from Kavouras pursuant to an Asset Purchase Agreement between the parties dated December 8, 1999. 23 -182- (e) "Software Products" means the software products, in object code form, as well as related supporting documentation ("User Documentation") marketed by Kavouras under the "Storm Pro" trade name, and which are provided to Radtec for distribution in accordance with Section 4(a) of this Agreement. (f) "Update" means modifications of releases that pertain to the Software Products that incorporate corrections of minor functional errors and problems and also provide minor functional improvements. 4. Grant of Rights. (a) Kavouras Marks. Subject to the conditions and restrictions set forth herein, Kavouras hereby grants to Radtec a nontransferable, nonexclusive and limited right and license to reproduce, copy and publicly display the Kavouras Marks on the splash screen and windows of the Software Products. Radtec may not use the Kavouras Marks for any other purpose. (b) Software Products Distribution License. Subject to and in consideration of the conditions and restrictions set forth herein and payment to Kavouras of the applicable royalties set forth herein, Kavouras hereby grants to Radtec a personal, nontransferable, nonexclusive and limited right and license to reproduce and distribute the Software Products to End Users in connection with such End User's purchase of Meteorological Equipment from Radtec, including the right to use the Software Products to test the performance of the Meteorological Equipment. Radtec may distribute the Software Products on CD-ROM, or other standard media. (c) User Documentation Modification and Distribution License. Subject to and in consideration of the conditions and restrictions set forth herein and payment to Kavouras of the applicable fees set forth herein, Kavouras hereby grants to Radtec a personal, nontransferable, nonexclusive and limited right and license to: (i) make such modifications to the User Documentation as are reasonably required to permit customization of the User Documentation; and (ii) distribute the User Documentation to End Users in connection with such End User's purchase of Meteorological Equipment from Radtec. Notwithstanding the foregoing, all Kavouras copyright and restricted rights notices shall be reproduced and maintained in all Radtec versions of the User Documentation. (d) End User Agreements. Radtec will take all steps necessary to protect Kavouras' proprietary rights in the Software Products and to ensure that each copy of the Software Products distributed by Radtec will be accompanied by a localized copy of Radtec's standard software license agreement applicable to such software. Such license will include terms and conditions substantially equivalent to those set forth in Exhibit A to this Agreement. The license specified above may 24 -183- be (i) a written agreement signed by the End User; (ii) a written agreement in the package containing the Software Products that the End User accepts by opening the package; or (iii) an electronic license agreement provided that Radtec ensures that upon the initial use of the Software Products, the End User is presented with a copy of the End User agreement and is required to electronically accept the terms of the End User agreement prior to accessing use of the functions of the Software Product. (e) Enforcement. Radtec shall use its best efforts to enforce any End User agreements. If an End User materially fails to fulfill any of its obligations under any such agreement, Kavouras may, upon its election and in addition to any other remedies that it may have, notify Radtec in writing of such breach and require Radtec to terminate all the rights granted, with respect to the Software Products, in such agreement. Radtec shall terminate such rights by not more than sixty (60) days notice to the End User, if the breach is not cured within such notice period. If Radtec, in Kavouras' sole discretion, fails to perform its obligations stated in this section, Kavouras may, in addition to any other remedies it may have, terminate the agreement with the End User, and/or undertake appropriate enforcement directly on Kavouras' behalf. Radtec shall pay all reasonable costs incurred by Kavouras, including but not limited to, attorneys' fees, in connection with such enforcement actions undertaken by Kavouras. (f) Internal Use License. Subject to the terms and conditions set forth herein, Kavouras grants to Radtec a non-exclusive, non-transferable license to reproduce and distribute and/or electronically distribute within Radtec the Software Products for non-production, internal marketing purposes (such as internal training, centers of excellence, demonstrations and other non-billable/non-client specific prototyping) only. Radtec agrees that it will not use the Software Products for any other internal purpose, including but not limited to (i) use for internal application development and (ii) except as provided in Section 4(b), use to test applications that will be deployed by an End User. All copyright and restricted rights notices shall be reproduced in all Radtec internal use copies. (g) Training. Subject to and in consideration of the conditions and restrictions set forth, Kavouras hereby grants to Radtec a personal, nontransferable, nonexclusive and limited right and license to: (i) offer and provide Kavouras' training materials to End Users and prospective End Users of the Software Products; (ii) make such modifications to the Kavouras training materials as are reasonably required to permit customization and expansion of the training materials, including removing all Kavouras trademarks and trade names; and (iii) reproduce and distribute the Radtec version(s) of the training materials to End Users and prospective End Users which have purchased such training from Radtec. Notwithstanding the foregoing right to customize the training materials, all Kavouras copyright and restricted rights notices shall be reproduced and maintained in all Radtec versions of such materials. A copy of the Radtec version(s) of the training materials shall be provided to Kavouras and Radtec hereby grants to Kavouras an unlimited right and license to use, copy, reproduce, publicly display, publicly perform and distribute such Radtec version(s) of the training materials. 25 -184- (h) No Publicity. Radtec agrees that it will not (i) publish findings in the press of any evaluation of the Software Products against competitive products or (ii) publish to any third party the results of any benchmark tests or other evaluation of the Software Products without prior written notice and pre-approval by Kavouras. (i) No Other Rights. Other than what is stated herein, and in the Exhibits hereto, no other license, right or interest is granted to Radtec for any other purpose. 5. Commercial Terms. (a) Delivery. Promptly after the Effective Date, Kavouras shall deliver to Radtec a copy of the Software Products and any related User Documentation electronically, on CD-ROM or on such other mutually agreeable standard media. Radtec acknowledges and agrees that it has had an opportunity to test the Software Products prior to the Effective Date and that the Software Products and related Kavouras User Documentation shall therefore be accepted upon delivery, and shall not be subject to any rights of rejection or revocation on behalf of the Radtec. All User Documentation delivered under this Agreement shall be in the form generally provided by Kavouras. Radtec shall be responsible for any required modification of the User Documentation and shall make such modifications in accordance with Section 4(c). (b) Product Royalties. In consideration of the distribution rights granted to Radtec hereunder, Radtec shall pay to Kavouras a royalty of $10,000.00 for each copy of the Software Products which it distributes; provided, however, no royalty shall be payable to Kavouras for the initial six (6) copies of the Software Products which are licensed for use by End Users. Kavouras and Radtec acknowledge and agree that Radtec shall be free to set the price of any license of the Software Products to End Users so long as such price is not less than $35,000. (c) Support Pricing. In consideration of the rights granted to Radtec and the obligations of Kavouras hereunder, Radtec shall pay to Kavouras a support fee of $1,000 per year for each copy of the Software Products which are supported by Updates. (d) Updates. The fees specified herein are for the current release of the Software Products and for those Updates provided by Kavouras to Radtec for distribution to its End Users during the term of this Agreement. Kavouras may, at its sole discretion, modify the Software Products. For purposes of this Agreement, Kavouras shall have the sole discretion as to whether and how often an Update is made to the Software Products. During the term of this Agreement, Kavouras shall deliver to Radtec all Updates to the Software Products provided under the terms of this Agreement. Upon receipt of any Updates, Radtec has thirty (30) days (i) to make any required modifications to the updated User Documentation in accordance with Section 4(c) of this Agreement; (ii) to cease distribution of the existing version of the Software Products; and (iii) to commence distribution of such Updates. Payment to Kavouras as provided in Section 5(c) is required for Radtec's distribution of Updates to existing End Users. 26 -185- (e) Payment Terms. All payments required under Sections 5(b) and 5(c) shall be made on a quarterly basis within thirty (30) days following the end of the fiscal quarter to which they relate, and shall be accompanied by the records required pursuant to Section 5(g) below. Within thirty (30) days following the end of the fiscal quarter, Radtec shall submit records pursuant to Section 5(g) below, even if no royalty or support payment is required. (f) Taxes. The fees listed in this Agreement are exclusive of all federal, state, municipal or other government excise, sales, use, occupational, or like taxes or duties now in force or enacted in the future. Any such tax, fee, or charge of any nature whatsoever imposed by any governmental authority on, or measured by, the transactions between Kavouras and Radtec (exclusive of taxes based on Kavouras' net income) shall be paid by Radtec in addition to the prices invoiced. All payments to Kavouras shall be made free and clear of, and without reduction for, any withholding taxes. In the event that Kavouras pays any such tax, fee, or charge, at the time of sale or thereafter, Radtec shall promptly reimburse Kavouras therefor. (g) Records. Radtec shall maintain and provide to Kavouras, along with any payments made in accordance with Section 5(e), a quarterly report of royalty and support payments. The quarterly report shall specify, the product name, number of units, total royalty due, total support payments due and any additional information as may reasonably be requested by Kavouras. Such quarterly report shall be provided by Radtec even if no royalty or support payments are due. As part of its records, Radtec shall maintain a listing of all Radtec End Users and shall provide such listing to Kavouras, upon Kavouras' reasonable request. (h) Audit Rights. Kavouras shall have the right to audit the records and accounts of Radtec kept in accordance with Section 5(g) above. Any such audit shall be performed only during Radtec's normal business hours and shall be performed in such a manner as to avoid unreasonable interference with Radtec's business operations. Kavouras shall bear costs and expenses associated with the exercise of its right to audit except that in the event of an underpayment of more than ten percent (10%) of the amount due for the period audited, Radtec shall pay all costs associated with such audit. In the event that any errors in payment shall be determined, such errors shall be corrected by appropriate adjustment in payment (plus interest at the highest rate permitted by law) for the quarterly period during which the error is discovered. 6. Radtec Obligations. (a) Indemnity. Radtec agrees to indemnify and hold Kavouras harmless from and against all claims from Radtec's End Users or other third parties arising out of any acts and/or omissions of Radtec or its employees or representatives. (b) Fair Representation. Radtec shall display, demonstrate, and represent the Software Products fairly and shall make no representations concerning Kavouras or the Software Products which are false, misleading, or inconsistent with those representations set forth 27 -186- in promotional materials, literature and manuals published and supplied by Kavouras. (c) Notification of Infringement. Radtec shall immediately inform Kavouras by telephone, telex or facsimile, with written confirmation by mail, if it becomes aware of any facts indicating that any person is infringing any Intellectual Property Rights of Kavouras and its suppliers or is engaging in unauthorized distribution of any Software Products. (d) Registrations and Licenses. Radtec will obtain, at its own expense, all registrations, licenses, and approvals from any authorities and agencies which may be needed in order for Radtec to export, import, market or sell the Software Products. Any such applications will identify the Software Products as originating from Kavouras. (e) Compliance with Laws. In exercising its rights and performing its obligations under this Agreement, Radtec shall comply with all applicable international, national, and local laws and regulations. Radtec further agrees not to violate any provisions of the U.S. Foreign Corrupt Practices Act of 1977 as amended, which generally prohibits the payment of monies or anything of value to government officials in order to obtain benefits from such government officials or their governments. (f) Restrictions on Use. Radtec agrees not to translate the Software Products into another computer language, in whole or in part. Except as set forth in this Agreement, Radtec shall not make copies or make media translations of the Software Products, including, without limitation, the User Documentation, in whole or in part, without Kavouras' prior written approval. Radtec agrees that if, for any reason, it comes into possession of any source code, or portion thereof, for any Kavouras product, which source code is not generally provided by Kavouras as a part of a Software Products, it will immediately deliver all copies of such source code to Kavouras. Unless Radtec pays for an End User license, Radtec shall not use the Software Products as an End User. Radtec shall not rent or timeshare the Software Products or otherwise license or distribute the Software Products other than as specified in this Agreement. Radtec shall not reverse compile, disassemble, or otherwise reverse engineer the Software Products. Nothing contained in this Agreement shall be interpreted so as to exclude or prejudice the rights (if any) of Radtec or any End User under the European Directive 91/250 on the Legal Protection of Computer Programs (14 May 1991, OJ 1991 (122/42) as implemented in the relevant jurisdiction) with respect to the Software Products. (g) Other Government Agreements. Radtec will take all reasonable steps in making proposals and agreements with governments other than the United States which involve the Software Products to ensure that Kavouras' proprietary rights in such Software Products receive the maximum protection available from such governments for commercial computer software and related documentation developed at private expense. (h) Failure to Comply. Failure to comply with any of the foregoing obligations will constitute a material breach of this Agreement. 28 -187- 7. Trademarks, Logos and Product Designs. Except as provided in Section 4(a) of this Agreement, Radtec is granted no right, title or license to, or interest in, any Kavouras trademarks, trade names, logos or product designs. Radtec acknowledges Kavouras' rights in the Kavouras Marks and agrees that any use of the Kavouras Marks by Radtec shall inure to the sole benefit of Kavouras. Radtec agrees not to: (i) challenge Kavouras' ownership or use of; (ii) register; or (iii) infringe any Kavouras Marks nor shall Radtec, without the prior written consent of Kavouras, incorporate any Kavouras Marks into Radtec's trademarks, service marks, company names, Internet addresses, domain names, or any other similar designations. If Radtec acquires any rights in any Kavouras Marks by operation of law or otherwise, it will immediately at no expense to Kavouras assign such rights to Kavouras along with any associated goodwill, applications and/or registrations. This section does not limit in any manner the rights of Radtec to use the trademark "Triton Doppler Radar" which it acquired from Kavouras. 8. Ownership of Intellectual Property Rights. Radtec acknowledges that the structure, organization and code of the Software Products are proprietary to Kavouras or its suppliers and that Kavouras or its suppliers retain exclusive ownership of the Software Products. Radtec will take reasonable measures to protect Kavouras' Intellectual Property Rights in the Software Products, including such assistance and measures as are reasonably requested by Kavouras from time to time. Except as provided herein, Radtec is not granted any other Intellectual Property Rights, or any other rights, franchises or licenses, with respect to the Software Products. 9. Confidential Information. The Software Products provided to Radtec under this Agreement shall be held in confidence. Radtec may not disclose Kavouras' confidential or proprietary information and may use it only for purposes specifically contemplated in this Agreement. Kavouras will treat tangible business and financial information of Radtec that has been previously identified as confidential, with the same degree of care as it does its own similar information. The foregoing obligations do not apply to information which: (i) is or becomes known by recipient without an obligation to maintain its confidentiality, (ii) is or becomes generally known to the public through no act or omission of recipient, or (iii) is independently developed by recipient without use of confidential or proprietary information. This section will not affect any other confidential disclosure agreement between the parties. 10. No Warranty. THE SOFTWARE PRODUCT(S) ARE PROVIDED "AS IS." KAVOURAS DOES NOT MAKE AND HEREBY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR CONDITIONS, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE. 11. Limitation of Liability. KAVOURAS AND ITS SUPPLIERS WILL NOT BE LIABLE FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES OR ANY INDIRECT, SPECIAL, INCIDENTAL, 29 -188- OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR ANY OTHER LEGAL OR EQUITABLE THEORY EVEN IF KAVOURAS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WILL KAVOURAS' AGGREGATE CUMULATIVE LIABILITY TO RADTEC FOR ANY CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED THE ROYALTIES PAID BY RADTEC TO KAVOURAS UNDER THIS AGREEMENT. THE LIMITATIONS IN THIS SECTION SHALL APPLY WHETHER OR NOT THE ALLEGED BREACH OR DEFAULT IS A BREACH OF A FUNDAMENTAL CONDITION OR TERM, OR A FUNDAMENTAL BREACH, OR IF ANY LIMITED WARRANTY OR LIMITED REMEDY FAILS OF ITS ESSENTIAL PURPOSE. 12. Discontinuance of Software Products. If, during the term of this Agreement, Kavouras discontinues one or more of the Software Products provided to Radtec under this Agreement, Kavouras shall continue to provide support for the then-current version of such discontinued Software Products in accordance with Kavouras' obligations under this Agreement and only for the remaining term of this Agreement. 13. Indemnification. Kavouras will defend or settle at its option and expense any legal proceeding brought against Radtec or affecting its right to use the Software Products as provided herein (including, but not limited to, the pending lawsuit filed by Baron Services, Inc. against Kavouras), to the extent that it is based on a claim that the Software Products directly infringe a copyright or U.S. patent, and will pay all damages and costs awarded by a court of final appeal attributable to such claim, provided that Radtec: (i) gives written notice of the claim promptly to Kavouras, (ii) gives Kavouras sole control of the defense and settlement of the claim, (iii) provides to Kavouras all available information and assistance, and (iv) has not compromised or settled such a claim. If any Software Products is found to infringe, or in Kavouras' opinion is likely to be found to infringe, Kavouras may elect to: (i) obtain for Radtec the right to use such Software Products in accordance with the terms of this Agreement, (ii) replace or modify the Software Products so that it becomes non-infringing; or if neither of these alternatives is reasonably available, (iii) refund to Radtec all royalties paid by Radtec for such Software Products. Kavouras has no obligation under this section for any claim which results from: (i) use of the Software Products in combination with any equipment other than Meteorological Equipment; (ii) Kavouras' compliance with designs or specifications of Radtec; (iii) modification of the Software Products; or (iv) use of allegedly infringing Software Products, if the alleged infringement could be avoided by the use of a different version of the Software Products made available to Radtec. THIS SECTION STATES THE SOLE AND EXCLUSIVE REMEDY OF RADTEC AND THIRD PARTIES AND THE ENTIRE LIABILITY AND OBLIGATION OF KAVOURAS WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT BY THE SOFTWARE PRODUCTS OR ANY PART THEREOF. 30 -189- 14. Term and Termination. (a) Term. The term of this Agreement shall commence as of the Effective Date and shall continue for ten (10) years or until terminated pursuant to Section 14(b) or (c) below. (b) Without Cause. This Agreement may be terminated by Radtec without cause, for any reason, on written notice to Kavouras. (c) Termination With Cause. This Agreement may be terminated by either party (i) immediately, by notice, upon material breach by the other party, if such breach cannot be remedied; (ii) by notice, if the other party fails to cure any material remedial breach of this Agreement within thirty (30) days notice of such breach; or (iii) immediately, by notice, upon the second commission of a previously remedied material breach. Kavouras may also terminate this Agreement immediately, by notice, in the event that Radtec makes an unauthorized distribution or use of the Software Products. (d) Effect of Termination. Upon any termination or expiration of this Agreement, Radtec shall no longer be authorized to use, reproduce or distribute the Software Products. Notwithstanding the foregoing, End User licenses already granted by Radtec shall not be affected by any the termination or expiration of this Agreement. (e) Acceleration of the Payment Date. The payment date of all monies due to Kavouras shall automatically be accelerated so that they shall become due and payable on the effective date of termination, even if longer terms had been provided previously. (f) Surviving Terms. The provisions of Sections 3, 5(g), 5(h), 6(a), 6(e), 7, 8, 9, 10, 11, 12, 13, 14(d), 14(e) and 15 shall survive the expiration or termination of this Agreement by either party for any reason. All other rights and obligations under this Agreement which by their nature should survive, will remain in effect after termination or expiration hereof. (g) Return of Software Products Upon Termination. Radtec shall certify to Kavouras within one (1) month after expiration or termination that Radtec has destroyed or has returned to Kavouras the Software Products in all types of media and computer memory, and whether or not modified or merged into other materials. 15. Miscellaneous. (a) Export Control. All Software Products and technical data delivered under this Agreement are subject to U.S. export control laws and may be subject to export or import regulations in other countries. Radtec agrees to comply strictly with all such laws and regulations and acknowledges that it has the responsibility to obtain such licenses to export, re-export or import as may be required after delivery to Radtec. 31 -190- (b) Notices. All written notices required by this Agreement must be delivered in person or by means evidenced by a delivery receipt and will be effective upon receipt. If notice is sent to Kavouras, it shall be sent to the person bearing the title set forth below Kavouras' signature to this Agreement. (c) Force Majeure. A party is not liable under this Agreement for non-performance caused by events or conditions beyond that party's control, if the party makes reasonable efforts to perform. This provision does not relieve Radtec of its obligation to make payments then owing. (d) Assignment. Radtec may not assign or otherwise transfer any of its rights or obligations under this Agreement, without the prior written consent of Kavouras. (e) Waiver. Any express waiver or failure to exercise promptly any right under this Agreement will not create a continuing waiver or any expectation of non-enforcement. (f) Severability. In the event that any provision of this Agreement shall be unenforceable or invalid under any applicable law or be so held by applicable court decision, such unenforceability or invalidity shall not render this Agreement unenforceable, or invalid as a whole, and, in such event, any such provision shall be changed and interpreted so as to best accomplish the objectives of such unenforceable or intended provision within the limits of applicable law or applicable court decisions. (g) Injunctive Relief. It is understood and agreed that notwithstanding any other provisions of this Agreement, a breach by Radtec of this Agreement will cause Kavouras irreparable damage for which recovery of money damages would be inadequate, and that, in addition to any and all remedies available at law, Kavouras shall be entitled to seek timely injunctive relief to protect Kavouras' rights under this Agreement. (h) Attorneys' Fees. In the event any proceeding or lawsuit is brought by Kavouras, its suppliers, or Radtec in connection with this Agreement, the prevailing party in such proceeding shall be entitled to receive its costs, expert witness fees, and reasonable attorneys fees, including costs and fees on appeal. (i) Controlling Law. Any action related to this Agreement will be governed by Minnesota law and controlling U.S. federal law. No choice of law rules of any jurisdiction will apply. The United Nations Convention on the International Sale of Goods shall not apply to this Agreement. (j) No Agency. This Agreement is not intended to create a relationship such as a partnership, franchise, joint venture, agency or employment relationship. Neither party may act in a manner which expresses or implies a relationship other than that of independent contractor, nor bind the other party. 32 -191- (k) Headings. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or extent of such section or in any way affect such section. (l) Warranty. Each party warrants that it has full power and authority to enter into and perform this Agreement, and the person signing this Agreement on such party's behalf has been duly authorized and empowered to enter into this Agreement. Each party further acknowledges that it has read this Agreement, understands it and agrees to be bound by it. (m) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument. (n) Entire Agreement. This Agreement is the parties' entire agreement relating to its subject matter. It supersedes all prior or contemporaneous proposals, conditions, representations and warranties and prevails over any conflicting or additional terms of any quote, order, acknowledgment, or other communication between the parties relating to its subject matter during the term of this Agreement. No modification to this Agreement will be binding unless in writing and signed by an authorized representative of each party. IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. KAVOURAS, INC.: RADTEC ENGINEERING, INC.: /s/ Laura Burrow /s/ Dennis Treddenick - ------------------------- -------------------------- Authorized Signature Authorized Signature - ------------------------- -------------------------- Printed Name Printed Name Vice President Vice President Title Title December 13, 1999 December 13, 1999 Date Date 33 -192- Exhibit A MINIMUM TERMS OF END USER AGREEMENTS This package may contain the following materials provided by Licensor to Licensee: software and related explanatory written materials ("Documentation"). The term "Software" shall include any upgrades, modified versions, additions, and copies of the Software. Licensor grants to Licensee a nonexclusive license to use the Software and Documentation, provided that Licensee agrees to the following: 1. License Grant. Licensee may use the Software in object code form only and only in connection with Licensee's use of Klystron or TWT-based Doppler weather radar systems which have been purchased by Licensee from Licensor. Licensee may copy the Software only for backup purposes, provided that Licensee reproduce all copyright and other proprietary notices that are on the original copy of the Software. 2. Documentation. Licensor will deliver a master copy of the end user documentation for the Software (the "Documentation") to Licensee. Licensee shall have the right to use, reproduce and distribute internally, the Documentation solely in connection with Licensee's authorized use of the Software. 3. Restrictions. Licensee may not use, copy, modify, or transfer the Software, or any copy thereof, in whole or in part, except as expressly provided for in this Agreement. Licensee may not reverse engineer, disassemble, decompile, or translate the Software, or otherwise attempt to derive the source code of the Software, except to the extent allowed under any applicable law. Any attempt to transfer any of the rights, duties or obligations hereunder is void. Licensee may not rent, lease, load, resell for profit, or distribute the Software, or any part thereof. 4. Ownership. The Software is licensed, not sold, to Licensee for use only under the terms of this Agreement, and Licensor and its suppliers reserve all rights not expressly granted to Licensee. Licensee owns the media, if any, on which the Software or Documentation is recorded, but Licensor and its suppliers retain ownership of all copies of the Software and Documentation itself. 5. Reservation of Rights. Except as stated above, this Agreement does not grant Licensee any intellectual property rights in the Software or Documentation. 6. Term. This Agreement will terminate immediately upon notice to Licensee if Licensee materially breaches any term or condition of this Agreement. Licensee agrees upon termination to promptly destroy the Software and all copies. 7. Warranty Disclaimer. NEITHER LICENSOR NOR ANY OF ITS REPRESENTATIVES OR SUPPLIERS MAKES OR PASSES ON TO LICENSEE OR OTHER THIRD PARTY ANY WARRANTY OR REPRESENTATION ON BEHALF OF LICENSOR'S SUPPLIERS, INCLUDING BUT NOT LIMITED TO 34 -193- ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 8. Limitation of Liability. IN NO EVENT WILL LICENSOR OR LICENSOR'S SUPPLIERS BE LIABLE TO LICENSEE FOR ANY CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS OR LOST SAVINGS, EVEN IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY THIRD PARTY. Some states or jurisdictions do not allow the exclusion or limitation of incidental, consequential or special damages, so the above limitations may not apply to Licensee. 9. Notice to Government End Users. The Software is a "commercial item" as that term is defined at 48 C.F.R. 2.101 (OCT 1995), consisting of "commercial computer software" and "commercial computer software documentation," as such terms are used in 48 C.F.R. 12.212 (SEP 1995). Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4 (JUN 1995), all U.S. Government End Users acquire the Software with only those rights set forth herein. 10. General. This Agreement will be governed by the laws of the State of Minnesota without regard to or application of conflicts of law rules or principles. This Agreement will not be governed by the United Nations Convention on Contracts for the International Sale of Goods, the application of which is expressly excluded. If any part of this Agreement is found void and unenforceable, it will not affect the validity of the balance of the Agreement, which shall remain valid and enforceable according to its terms. Licensee agrees that the Software will not be shipped, transferred or exported into any country or used in any manner prohibited by the United States Export Administration Act or any other export laws, restrictions or regulations. This Agreement shall automatically terminate upon failure by Licensee to comply with its terms. This Agreement may only be modified in writing signed by an authorized officer of Licensor and its suppliers. 11. Third-Party Beneficiary. Licensee is hereby notified that Kavouras, Inc., having its principal place of business at 11400 Rupp Drive, Burnsville, Minnesota 55337-1279 ("Kavouras"), is a third-party beneficiary to this agreement to the extent that this agreement contains provisions which relate to Licensee's use of the Software and Documentation licensed hereby. Such provisions are made expressly for the benefit of Kavouras and are enforceable by Kavouras in addition to Licensor. 35 -194- EXHIBIT E SUBCONTRACT AGREEMENT This Agreement is made and entered into this 13th day of December, 1999, by and between Kavouras, Inc., a Minnesota corporation, having a principal place of business at 11400 Rupp Drive, Burnsville, Minnesota 55337-1279 (hereinafter "Contractor"), and Radtec Engineering, Inc., a Colorado corporation, having a principal place of business at 2150 West 6th Avenue, Unit D, Bloomfield, CO 80020. (hereinafter "Subcontractor"). Recitals: A. Contractor has entered into a contract dated July 23, 1999 with the Supply Administration, the Republic of Korea ("SAROK") for Contractor to manufacture, assemble, deliver, install, test, provide spare parts for, and service a weather radar system for operation in Korea. Such contract, as amended and supplemented by the bid documents and the drawings, plans, specifications, statements, certifications and addenda to or incorporated by reference in such contract, is hereinafter referred to as the "Contract Documents". Copies of the Contract Documents are attached to this Agreement and incorporated herein by this reference. B. Contractor and SAROK are negotiating whether the weather radar system to be installed pursuant to the Contract Documents is to be a TDR 4384 5650 MHz system (the "5650 MHz System") or a TDR 4384 5300 MHz system (the "5300 MHz System"). The duties of Contractor and Subcontractor under this Agreement vary depending on whether the 5650 MHz System or the 5300 MHz System is to be installed. C. Contractor agrees to engage Subcontractor to perform all of the work and provide all of the materials pursuant to the Contract Documents, other than the Kavouras Work and the Kavouras Work Product (as each are defined in Article 2), and Subcontractor agrees to accept such engagement, subject to the provisions of this Agreement. Article 1 TERM AND TERMINATION 1.1 Term. This Agreement will become effective on the date first shown above and will continue in effect through the completion of the Work (as described in Section 3.1 hereof), unless earlier terminated pursuant to Section 1.2 hereof. 1.2 Termination of Work. Should Subcontractor refuse to replace defective materials or Work, fail to perform the Work with diligence, or violate any covenant or condition of this Agreement or the Contract Documents and such failure continues for thirty (30) days after written notice thereof to Subcontractor, or should Subcontractor make a general assignment for the benefit of creditors, or should a receiver of any of Subcontractor's property be appointed, or should a petition be filed, either by or against Subcontractor, in any bankruptcy or insolvency proceedings, then Contractor may, in addition to 36 -195- any other rights or remedies Contractor may have, terminate this Agreement, enter Subcontractor's premises to gain possession of the Work, and complete or employ any other person or persons to complete the Work at the expense of Subcontractor. In the event of the termination of this Agreement, as provided in this Section 1.2, Subcontractor shall prepare a statement of cost to that date with respect to the Work, plus all obligations incurred by Subcontractor in the interests of the Work but not yet due. 1.3 Survival. In the event of any termination of this Agreement, Articles 4, 5 and 7 hereof shall survive and continue in effect. Article 2 DUTIES OF CONTRACTOR 2.1 5650 MHz System. Contractor has partially performed the Contract Documents by manufacturing and assembling a portion of the 5650 MHz System at its office in Burnsville, Minnesota (the "Kavouras Work Product"). If the 5650 MHz System is to be installed, Contractor will provide the payment, performance and warranty bonds and the contract administration by Contractor pursuant to the Contract Documents and will furnish the Kavouras Work Product. 2.2 5300 MHz System. If the 5300 MHz System is to be installed, Contractor will negotiate the terms of SAROK's letter of credit, organize and present documents as required to draw on SAROK's letter of credit, provide the payment and performance bonds (but not the warranty bond), and receive the proceeds paid by SAROK and handle the disbursements of such proceeds as provided in this Agreement. 2.3 Kavouras Work. For purposes of this Agreement, the term "Kavouras Work" shall mean those duties described in Section 2.1 if a 5650 MHz System is to be installed and those duties described in Section 2.2 if a 5300 MHz System is to be installed. Article 3 SERVICES TO BE PERFORMED BY SUBCONTRACTOR 3.1 Work. Subcontractor agrees to furnish all supervision, labor, equipment, materials, and incidentals and perform all work under the Contract Documents, other than the Kavouras Work, in strict compliance with the Contract Documents (the "Work"). Subcontractor agrees to assume all obligations Contractor has under the Contract documents as they relate to the Work. Subcontractor further agrees to fulfill such obligations without default of any kind or nature whatsoever and agrees to perform all of the affirmative covenants set forth in the Contract Documents applicable to the Work without further notice of any kind or nature from Contractor. If a 5650 MHz System is to be installed, Contractor will provide Subcontractor with access to the premises of Contractor for the purpose of removing the Kavouras Work Product, which removal 37 -196- will be the responsibility and expense of Subcontractor. If a 5300 MHz System is to be installed, the parties agree to amend the Contract Documents as reasonably requested by SAROK, and Subcontractor agrees to provide an interim radar system as required in Section 6.1(b). 3.2 Method of Performing Services. Consistent with the requirements of the Work, Subcontractor, in conjunction with its personnel, will determine the means of performing the work to be carried out for Contractor. Contractor, however, shall be entitled to exercise a general power of supervision and control over the results of work performed by Subcontractor to ensure satisfactory performance. This power of supervision shall include the right to inspect, stop work, and make suggestions or recommendations as to the details of the work. 3.3 Place of Work. Subcontractor's personnel will perform all work for Contractor at Subcontractor's premises or as provided in the Contract Documents. Article 4 COMPENSATION 4.1 Compensation if 5650 MHz System. This Section 4.1 shall apply to this Agreement if and only if the 5650 MHz System is to be installed. For full and complete performance of the Work by Subcontractor as provided in this Agreement, Contractor agrees to pay to Subcontractor a portion of the Net Proceeds (as hereinafter defined) as determined in accordance with this Section 4.1. The term "Net Proceeds" means the funds received by Contractor pursuant to the terms of the Contract Documents, less any brokerage fees or commissions due to third parties and less the amount contributed to the warranty escrow as provided below. The Net Proceeds shall first be distributed to Contractor and Subcontractor to reimburse them for their portion of the Total Costs (as hereinafter defined); provided, however, if the Total Costs exceeds the Net Proceeds, then the Net Proceeds shall be distributed between Contractor and Subcontractor proportionately based upon their respective portion of the Total Costs. The term "Total Costs" means the sum of the actual direct costs and expenses incurred by Subcontractor in performing the Work, the actual direct costs and expenses incurred by Contractor in performing the Kavouras Work and, with respect to the Kavouras Work Product, the book value of such inventory on the books of Contractor as of the date of this Agreement (which book value was $453,000 as of November 19, 1999); provided, however, with respect to the labor provided to perform the Work or Kavouras Work, the direct costs thereof shall consist of the actual time spent by the employees at the standard hourly wages paid to such employees by Contractor or Subcontractor, without inclusion of fringe benefits or other indirect or overhead costs incurred by the employer and, with respect to the materials provided in the Work, the direct costs thereof shall be the actual net invoice cost of such materials to Contractor. The excess of the Net Proceeds over the Total Costs of Contractor and Subcontractor, if any, shall be distributed equally between Contractor and Subcontractor. Contractor shall contribute $200,000 of the proceeds from SAROK pursuant to the Contract Documents to the escrow agent under the Escrow Agreement dated the same date as this Agreement among Contractor, Subcontractor and such escrow agent (the "Escrow Agreement") to fund the warranty work to be performed by Subcontractor under the Contract Documents. Subcontractor shall be compensated for such warranty work in accordance with the terms of the Escrow Agreement and Section 13(e) of the Asset Purchase and Sale Agreement between Contractor and Subcontractor. Subcontractor shall submit statements of its portion of the Total Costs to Contractor monthly. 38 -197- 4.2 Compensation if 5300 MHz System. This Section 4.2 shall apply to this Agreement if and only if the 5300 MHz System is to be installed. For full and complete performance of the Work by Subcontractor as provided in this Agreement, Contractor agrees to pay to Subcontractor all of funds received by Contractor pursuant to the terms of the Contract Documents, less (i) the sum of $150,000 to be retained by Contractor (the "Contractor Fee") and (ii) any brokerage fees or commissions due to third parties with respect to the sale to SAROK. 4.3 Date for Payment of Compensation. If the 5650 MHz System is to be installed, Contractor shall distribute the Net Proceeds between Contractor and Subcontractor as provided in Section 4.1 hereof from time to time within fifteen (15) days after receipt. Any interim distributions shall be made proportionately based upon the Total Costs incurred by Contractor and Subcontractor prior to the end of the calendar month preceding such distribution and adjusted for the prior distributions already received by the respective parties. The parties agree to make any final adjustments to the allocations upon the final settlement of the Total Costs when the Work is fully completed. If the 5300 MHz System is to be installed, Contractor shall distribute to itself the Contractor Fee from the first draw on SAROK's letter of credit upon acceptance of the order, pay the brokerage fees and commissions from the proceeds received from SAROK as they become due, and remit to Subcontractor the remaining proceeds with fifteen (15) days after receipt. 4.4 Expenses. Except as otherwise agreed in this Agreement, Subcontractor shall be responsible for all costs and expenses incident to the performance of services for Contractor, including all costs incurred by Subcontractor to do business. 4.5 Sale of Kavouras Work Product. If the 5300 MHz System is to be installed, then Subcontractor agrees to purchase from Contractor, and Contractor agrees to sell to Subcontractor, the Kavouras Work Product for the purchase price of $400,000.00 (the "Purchase Price") as provided in this section. Contractor will provide Subcontractor with access to the premises of Contractor for the purpose of removing the Kavouras Work Product, which removal will be the responsibility and expense of Subcontractor. Subcontractor will pay the Purchase Price to Contractor, without interest, in ten (10) equal, consecutive monthly payments of $40,000 each commencing on the date twenty one months after the date of this Agreement and continuing on the same day of each month thereafter until fully paid; provided, however, the entire unpaid portion of the Purchase Price shall be paid in full upon the sale or other conveyance of the Kavouras Work Product by Subcontractor. Subcontractor agrees to use its commercial best efforts to sell the Kavouras Work Product to a customer and agrees that the Kavouras Work Product will be the first TDR 4384 5650 MHz weather radar system sold by Subcontractor. Upon request of Contractor, Subcontractor agrees to execute and deliver a promissory note to Contractor to evidence the payment obligations under this section. Contractor will convey the Kavouras Work Product to Subcontractor by a warranty bill of sale; provided that Subcontractor is purchasing the Kavouras Work Product on an "as-is, where-is" basis with no warranties of any kind, express or implied, made by Contractor with respect to the physical or structural condition or sufficiency of the Kavouras Work Product. 39 -198- Article 5 TREATMENT OF SUBCONTRACTOR'S PERSONNEL 5.1 Compensation of Subcontractor's Personnel. Subcontractor shall bear sole responsibility for payment of compensation to its personnel. Subcontractor shall pay and report, for all personnel assigned to Contractor's work, federal and state income tax withholding, social security taxes, and unemployment insurance applicable to such personnel as employees of Subcontractor. Subcontractor shall bear sole responsibility for any health or disability insurance, retirement benefits, or other welfare or pension benefits, if any, to which such personnel may be entitled. Subcontractor agrees to defend, indemnify, and hold harmless Contractor, Contractor's officers, directors, employees and agents, and the administrators of Contractor's benefit plans, from and against any claims, liabilities, or expenses relating to such compensation, tax, insurance, or benefit matters; provided that Contractor shall (1) promptly notify Subcontractor of each such claim when and as it comes to Contractor's attention; (2) cooperate with Subcontractor in the defense and resolution of such claim; and (3) not settle or otherwise dispose of such claim without Subcontractor's prior written consent, such consent not to be unreasonably withheld. 5.2 Workers' Compensation. Notwithstanding any other workers' compensation or insurance policies maintained by Contractor, Subcontractor shall procure and maintain workers' compensation coverage sufficient to meet the statutory requirements of every state in which Subcontractor's personnel are engaged in Contractor's work. 5.3 State and Federal Taxes. As neither Subcontractor nor its personnel are Contractor's employees, Contractor shall not take any action or provide Subcontractor's personnel with any benefits or commitments inconsistent with any of such undertakings by Subcontractor. In particular: o Contractor will not withhold FICA (Social Security) from Subcontractor's payments. o Contractor will not make state or federal unemployment insurance contributions on behalf of Subcontractor or its personnel. o Contractor will not withhold state and federal income tax from payment to Subcontractor. o Contractor will not make disability insurance contributions on behalf of Subcontractor. o Contractor will not obtain workers' compensation insurance on behalf of Subcontractor or its personnel. 40 -199- Article 6 TIMING; NO ASSIGNMENT 6.1 Time is of the Essence. Subcontractor acknowledges that it understands the terms of the Contract Documents and agrees that those terms are a part of this Agreement. If the 5650 MHz System is to be installed pursuant to the Contract Documents, then Subsection 6.1(a) shall apply to this Agreement; and if the 5300 MHz System is to be installed pursuant to the Contract Documents, then Subsection 6.1(b) shall apply to this Agreement. (a) Subcontractor agrees to start the Work promptly and to complete the Work in accordance with the time frames provided for in the Contract Documents. If Contractor incur any damages, liquidated or otherwise, because Subcontractor does not complete the Work on time, Subcontractor will be obligated to reimburse Contractor for those damages. Time is of the essence of this Agreement. (b) Subcontractor agrees to start the Work promptly and to use its commercially reasonable best efforts to complete the Work as soon as practicable, including the delivery and installation of an interim weather radar system no later than May 1, 2000. Such interim system will allow SAROK to operate with substantially all of the essential functions to be provided by the 5300 MHz System until the 5300 MHz System is installed. If despite the commercially reasonable best efforts of Subcontractor the Work is not completed in accordance with the time frames provided for in the Contract Documents, Contractor shall be responsible for any damages, liquidated or otherwise, due under the Contract Documents as a result of the Work not being completed before December 31, 2000, to the extent such damages exceed the maximum liquidated damages set forth in the Contract Documents, and Subcontractor will be obligated to reimburse Contractor for any damages, liquidated or otherwise, due under the Contract Documents as a result of the Work being competed after December 31, 2000. Contractor may pay the liquidated damages using the proceeds received under the Contract Documents or, if such proceeds have already been paid to Subcontractor, Subcontractor will be obligated to reimburse Contractor for such liquidated damages. Time is of the essence of this Agreement. 6.2 No Assignment. Subcontractor agrees not to assign or sublet any of the Work without the written consent of Contractor. 41 -200- Article 7 OTHER OBLIGATIONS OF SUBCONTRACTOR 7.1 Compliance with Laws. Subcontractor agrees to comply with all applicable laws and regulations relating in any way to its performance under this Agreement. Subcontractor shall be solely responsible for the procurement from governmental agencies of all authorizations, licenses, certificates or other approvals necessary to perform its obligations pursuant to this Agreement. Subcontractor shall notify Contractor within ten (10) days of any action, proceeding, suit, decree or order which may adversely affect the validity of any such authorizations, licenses, certificates or other approvals. 7.2 Indemnification. Subcontractor hereby agrees to protect, defend, indemnify and save Contractor, its principals, subsidiaries, affiliates, directors, officers, employees, agents and attorneys free and harmless from any and all claims, actions, suits, liabilities, costs and expenses, including but not limited to reasonable attorneys' fees and costs of settlement, of any nature arising out of: (i) the breach of any obligations of Subcontractor under this Agreement or any Work; or (ii) the negligent performance or failure to perform any obligation by Subcontractor, its agents or employees, under this Agreement or any Work. Article 8 GENERAL PROVISIONS 8.1 Notices. Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but each party may change such address by written notice in accordance with this paragraph. Notices delivered personally will be deemed communicated as of actual receipt. Mailed notices will be deemed communicated as of two days after mailing. 8.2 No Discrimination. Subcontractor agrees that in the performance of this Agreement it will not discriminate or permit discrimination against any person or group of persons on the grounds of sex, race, color, religion, or natural origin in any manner prohibited by the laws of the United States. 8.3 Entire Agreement of the Parties. This Agreement supersedes any and all agreements, either oral or written, between the parties hereto with respect to the rendering of services by Subcontractor for Contractor and contains all the covenants and agreements between the parties with respect to the rendering of such services in any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, that are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged. 42 -201- 8.5 Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions will nevertheless continue in full force without being impaired or invalidated in any way. 8.6 Parties in Interest. This Agreement is enforceable only by Subcontractor and Contractor. The terms of this Agreement are not a contract or assurance regarding compensation, continued employment, or benefit of any kind to any of Subcontractor's personnel assigned to Contractor's work, or any beneficiary of any such personnel, and no such personnel, or any beneficiary thereof, shall be a third-party beneficiary under or pursuant to the terms of this Agreement. 8.7 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Minnesota. 8.8 Successors. This Agreement shall inure to the benefit of, and be binding upon, Subcontractor and Contractor, their successors and permitted assigns. 8.9 Independent Contractor Status. It is the intention of the parties that Subcontractor be an independent contractor and not an employee, agent, joint venturer, or partner of Contractor. Nothing in this Agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between Contractor and either Subcontractor or any employee or agent of Subcontractor. Subcontractor shall retain the right to perform work for others during the terms of this Agreement. Contractor shall retain the right to cause work of the same or a different kind to be performed by its own personnel or other contractors during the term of this Agreement. Subcontractor: Radtec Engineering, Inc. By: /s/Dennis Treddenick ------------------------- Dennis Treddenick Title: Vice President Social Security or Taxpayer Identification Number 84-124-9773 43 -202- Kavouras, Inc. By: /s/ Laura Burrow -------------------------- Laura Burrow Title: Vice President 44 -203- EXHIBIT F ESCROW AGREEMENT THIS ESCROW AGREEMENT ("Escrow Agreement") is made this December 13, 1999, by and among KAVOURAS, INC., a Minnesota corporation ("Kavouras"), RADTEC ENGINEERING, INC., a Colorado corporation ("Radtec"), and First National Bank of Omaha ("Escrow Agent"). All capitalized terms used herein and not otherwise defined herein shall have the meanings given them, respectively, in the Asset Purchase and Sale Agreement (the "Asset Purchase Agreement") dated December 8, 1999, as it may be amended, among Kavouras and Radtec. RECITALS: A. This Escrow Agreement is entered into in conjunction with the closing of the Asset Purchase Agreement, effective this date, and as required by Section 13(e) of the Asset Purchase Agreement. B. Pursuant to Section 13(e) of the Asset Purchase Agreement, Kavouras has paid the sum of One Hundred Eighty Five Thousand Dollars ($185,000) (the "Escrow Funds") to Escrow Agent to be held and distributed by Escrow Agent upon the terms and conditions set forth in this Escrow Agreement. NOW, THEREFORE, in consideration of the above recitals and the mutual agreements set forth in this Escrow Agreement, the parties hereto agree as follows: ARTICLE I - ESCROW 1.1 Deposit of Escrow Funds. Pursuant to Section 13(e) of the Asset Purchase Agreement, Kavouras has delivered to Escrow Agent the Escrow Funds. Escrow Agent hereby acknowledges receipt of the Escrow Funds. Escrow Agent shall place the Escrow Funds in a segregated account (the "Escrow Account"). Pursuant to Section 13(e) of the Asset Purchase Agreement, Kavouras and Radtec may from time to time deliver additional funds to Escrow Agent for deposit in the Escrow Account, which funds shall be considered part of the Escrow Funds for all purposes. Any earnings in respect of the Escrow Funds shall be solely for the account of Kavouras, shall not be considered a part of the Escrow Funds, and shall be distributed to Kavouras from time to time at its request. 1.2 Purpose of Escrow. The Escrow Funds are to be distributed to Radtec from time to time as reimbursement for warranty services (labor and materials) performed by Radtec under certain of Kavouras' customer contracts, with any remaining funds relating to a contract being distributed equally to Kavouras and Radtec upon completion of the applicable warranty period, all in accordance with Section 13(e) of the Asset Purchase Agreement. 45 -204- 1.3 Duration of Escrow. The Escrow Agent shall hold the Escrow Funds in the Escrow Account until authorized or directed hereunder to deliver all or a portion thereof as provided in Section 1.4. This Escrow Agreement shall terminate when the Escrow Agent shall have delivered all of the Escrow Funds pursuant to Section 1.4. 1.4 Application or Release of Escrow Funds. The Escrow Agent shall deliver the Escrow Funds from time to time pursuant to Sections 1.4.1, 1.4.2 and 1.4.3. 1.4.1 Payment of Warranty Services. The Escrow Agent shall deliver funds from the Escrow Funds to Radtec in payment of warranty services rendered by Radtec within five (5) business days after receipt of any of the following: (a) A statement signed by Kavouras stating that reimbursement for warranty services rendered by Radtec shall be paid out of the Escrow Funds, indicating the amount to be applied to payment of such services; or (b) An award rendered by an arbitrator, pursuant to an arbitration conducted in accordance with Section 1.4.4 of this Escrow Agreement, directing that reimbursement for warranty services rendered by Radtec shall be paid out of the Escrow Funds in accordance with Section 13(e) of the Asset Purchase Agreement, indicating the amount to be applied to payment of such services; or (c) An order of a court of competent jurisdiction, which has not been appealed within the applicable time period or is non-appealable, directing that reimbursement for warranty services rendered by Radtec shall be paid out of the Escrow Funds in accordance with Section 13(e) of the Asset Purchase Agreement, indicating the amount to be applied to payment of such services. 1.4.2 Interim Payments. The Escrow Agent shall deliver from time to time equally to Kavouras and Radtec from the Escrow Funds within five (5) business days after receipt of a joint statement signed by Kavouras and Radtec stating the amount to be paid to them from excess Escrow Funds relating to a certain contract upon completion of the warranty period in connection with such contract in accordance with Section 13(e) of the Asset Purchase Agreement. 1.4.3 Release of Escrow Funds. Unless a dispute has already been referred to arbitration by written notice pursuant to Section 1.4.4(b), on December 31, 2003, the Escrow Agent shall release equally to Kavouras and Radtec from the Escrow Funds the remaining amount of Escrow Funds then held by Escrow Agent. 46 -205- 1.4.4 Resolution of Dispute. (a) Good Faith Efforts. It is agreed that Kavouras and Radtec shall endeavor to reach agreement with respect to any reimbursement to Radtec for warranty services rendered in accordance with the Asset Purchase Agreement as soon as practicable after Radtec submits to Kavouras an application for reimbursement. In furtherance thereof, Kavouras and Radtec agree that they shall negotiate in good faith and use all reasonable efforts to agree upon the rights of the respective parties with respect to payment of such warranty services. If Kavouras and Radtec so agree, a statement setting forth such agreement shall be furnished to the Escrow Agent by Kavouras as provided in Section 1.4.1(a). (b) Submission to Arbitration. If Kavouras and Radtec have not reached final agreement upon such claim for payment of warranty services, as evidenced by Kavouras signing and delivering to Escrow Agent a statement in accordance with Section 1.4.1(a) setting forth such agreement, then such dispute shall be settled by arbitration in Omaha, Nebraska, before a single arbitrator pursuant to the rules of the American Arbitration Association. Arbitration may be commenced at any time by any party hereto giving written notice to each other party to a dispute that such dispute has been referred to arbitration under this Section 1.4.4. With respect to all matters referred to arbitration under this Section 1.4.4, Kavouras and Radtec shall use all reasonable efforts to obtain expeditious arbitration. The arbitrator shall be selected by the joint agreement of Kavouras and the Radtec, but if they do not so agree within twenty (20) days after the date of the notice referred to above, the selection shall be made pursuant to the rules of the Association from the panel of arbitrators maintained by such Association. Any award rendered by the arbitrator shall be conclusive and binding upon the parties hereto; provided, however, that any such award shall be accompanied by a written opinion of the arbitrator giving the reasons for the award. This provision for arbitration shall be specifically enforceable by the parties and the decision of the arbitrator in accordance herewith shall be final and binding and there shall be no right of appeal therefrom. Each party shall pay its own expenses of arbitration and the expenses of the arbitrator shall be equally shared; provided, however, that if in the opinion of the arbitrator any claim for payment of warranty services or any defense or objection thereto was unreasonable, the arbitrator may assess, as part of his award, all or any part of the arbitration expenses of the other party (including reasonable attorneys' fees) and of the arbitrator against the party raising such unreasonable claim, defense or objection. 47 -206- ARTICLE II - INVESTMENT OF ESCROW FUNDS 2.1 Types of Investments. Subject to the conditions set forth in this Section 2.1 and any conditions imposed by Escrow Agent, Kavouras may direct the investment of the Escrow Funds from time to time. The Escrow Funds shall be invested in interest bearing accounts or certificates of deposit with appropriate maturity dates to satisfy the anticipated release of Escrow Funds pursuant to this Escrow Agreement. ARTICLE III - MISCELLANEOUS 3.1 Fees and Expenses. The Escrow Agent shall be paid at its published rates from time to time as compensation for its services hereunder and reimbursed for all expenses, including counsel fees, reasonably incurred by it in connection with the performance of its duties and obligations under this Escrow Agreement. Such compensation shall be paid one-half by Kavouras and one-half by Radtec. 3.2 Limitation of Liability of Escrow Agent. The Escrow Agent shall not be responsible for the genuineness of any certificate or signature and may rely conclusively upon and shall be protected when acting upon any notice, affidavit, request, consent, instruction, check or other instrument believed by it in good faith to be genuine or to be signed or presented by the proper person or duly authorized or properly made. The Escrow Agent shall not be bound in any way by any agreement between Kavouras and Radtec (whether or not the Escrow Agent has knowledge thereof) and the only duties and responsibilities of the Escrow Agent shall be to hold the Escrow Funds received hereunder and to deliver and release such Escrow Funds in accordance with the terms of this Escrow Agreement. The Escrow Agent shall not be responsible or liable for any act or omission on its part in the performance of its duties as Escrow Agent under this Agreement except to the extent such act or omission constitutes bad faith or fraud or gross negligence or willful misconduct. The Escrow Agent may consult with legal counsel in the event of any dispute or question as to the construction of any of the provisions of this Escrow Agreement or its duties hereunder and it shall incur no liability and shall be fully protected in acting in accordance with the advice of such counsel. Kavouras and Radtec each agree to indemnify, hold harmless and defend Escrow Agent, as to one-half each, from and against any and all losses, claims, liabilities and reasonable expenses of its counsel, which it may incur hereunder or in connection herewith, except such as shall result solely and directly from Escrow Agent's own gross negligence or willful misconduct. 48 -207- 3.3 Successor Escrow Agent. The Escrow Agent may resign and be discharged from its duties hereunder at any time by giving notice of such resignation to Kavouras and Radtec specifying a date (not less than thirty (30) days after the giving of such notice) when such resignation shall take effect. Promptly after such notice, Kavouras and Radtec shall appoint a mutually agreeable successor escrow agent, such successor escrow agent to become Escrow Agent hereunder upon the resignation date specified in such notice. If Kavouras and Radtec are unable to agree upon a successor escrow agent within thirty (30) days after such notice, the Escrow Agent shall continue to serve until its successor accepts the escrow and receives the Escrow Funds or until the Escrow Agent deposits the Escrow Funds with a court of competent jurisdiction. Kavouras and Radtec may agree at any time to substitute a new escrow agent by giving fifteen (15) days' written notice thereof to the Escrow Agent then acting. Any successor escrow agent appointed hereunder shall be a bank or trust company or escrow company located in Omaha, Nebraska. 3.4 Non-Limitation of Liability. Nothing in this Escrow Agreement shall be construed to limit the liability of the parties hereto for any breach of the warranties, representations or covenants of the Asset Purchase Agreement to the amount of the Escrow Funds or for the duration of this Escrow Agreement. 3.5 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by telegram or by registered mail, postage prepaid, as follows: (a) If to Kavouras, to: Kavouras, Inc. 11400 Rupp Drive Burnsville, Minnesota 55337 Attention: Laura Burrow With a required copy to: Abrahams, Kaslow & Cassman 8712 West Dodge Road Suite 300 Omaha, Nebraska 68114 Attention: R. Craig Fry 49 -208- (b) If Radtec, to: Radtec Engineering, Inc. 2150 West 6th Avenue, Unit D Broomfield, CO 80020 Larry G. Davis (c) If to Escrow Agent, to: First National Bank of Omaha Trust Department One First National Center Omaha, NE 68102-1596 John E. Lenihan or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date so delivered, telegraphed or mailed. 3.6 Binding Effect. In accordance with its terms, this Escrow Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of Kavouras, Radtec and the Escrow Agent. 3.7 Governing Law. This Escrow Agreement shall be interpreted and enforced in accordance with the laws of the State of Minnesota applicable thereto. 3.8 Acceptance by Escrow Agent. By its signature below, the undersigned Escrow Agent hereby agrees to act as Escrow Agent under this Escrow Agreement. 3.9 Counterparts. This Agreement may be executed in several counterparts, each of which will be deemed to be an original, and which together will constitute but one and the same instrument. 3.10 Capitalized Terms. Unless otherwise defined herein, all capitalized terms used herein shall have the meaning given to such terms in the Asset Purchase Agreement. 3.11 Controlling Provisions. This Escrow Agreement may contain certain provisions which are additional to or different from the provisions in the Asset Purchase Agreement. In the event of any perceived conflict or silence on any particular issue which is the subject of this Escrow Agreement, the provisions of this Escrow Agreement shall control over Section 13(e) of the Asset Purchase Agreement. [Signature page follows] 50 -209- IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be signed as of the date first above written. KAVOURAS, INC., a Minnesota corporation By:/s/ Laura Burrow ---------------------------- Laura Burrow, Vice President RADTEC ENGINEERING, INC., a Colorado corporation By: /s/Dennis Treddenick --------------------------- Dennis Treddenick, President (Escrow Agent) By: John E.Lenihan 51 -210- EX-10 10 AMENDMENT TO ASSET PURCHASE & SALE AGRT-RADTEC AMENDMENT TO ASSET PURCHASE AND SALE AGREEMENT This AMENDMENT TO ASSET PURCHASE AND SALE AGREEMENT ("Amendment") is dated as of December 13, 1999 (the "Effective Date"), and is entered into by and between Kavouras, Inc., a Minnesota corporation ("Seller"), and Radtec Engineering, Inc., a Colorado corporation ("Buyer"). RECITALS: A. Buyer and Seller all of the present parties to that certain Asset Purchase and Sale Agreement dated December 8, 1999 (the "Agreement"). B. Buyer and Seller desire to amend and modify the Agreement as specifically set forth in this Amendment to complete the allocation of the purchase price under the Agreement and to recognize that the Trademark (as defined in the Agreement) has not been registered by Seller. NOW, THEREFORE, in consideration of the Recitals which are incorporated into and made a part of this Amendment and the mutual covenants and agreements set forth therein and herein, the parties hereto agree as follows: 1. Amendments to Agreement. (a) From and after the Effective Date, Schedule 2 of the Agreement is deleted in its entirety and Schedule 2 attached to this Amendment is inserted in its place. (b) From and after the Effective Date, the word "registered" in the first sentence of Section 1(d) of the Agreement is deleted. (c) From and after the Effective Date, the first sentence of Section 4 of the Agreement is deleted in its entirety and the following is inserted in its place: "Seller shall sell, transfer, assign, convey, and deliver to Buyer at the Closing the Assets by (i) a warranty bill of sale and assignment in the form of Exhibit B hereto, (ii) an Assignment of Trademark in the form of Exhibit C hereto to transfer the Trademark, and (iii) such other good and sufficient instruments of sale, assignment, conveyance and transfer as shall be required to effectively vest in Buyer all of Seller's right, title, and interest in and to the Assets, free and clear of all liens, encumbrances, security interests, actions, claims and equities of any kind whatsoever." (d) From and after the Effective Date, Exhibit C of the Agreement is deleted in its entirety and Exhibit C attached to this Amendment is inserted in its place. 1 -211- 2. Binding Effect. This Amendment shall be binding upon and inure to the benefit of Buyer and Seller and their respective successors and permitted assigns. 3. Superseding. From and after the Effective Date, all references to the Agreement shall mean the Agreement, as amended by this Amendment. 4. Confirmation. Except as otherwise expressly set forth in this Amendment, the Agreement is hereby ratified and confirmed and remains in full force and effect. 5. Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written. Kavouras, Inc., a Minnesota corporation By:/s/ Laura Burrow ------------------------------- Laura Burrow, Vice President Radtec Engineering, Inc., a Colorado corporation By: /s/ Dennis Treddenick --------------------------------- Dennis Treddenick, Vice President 2 -212- SCHEDULE 2 Allocation of Purchase Price "The reporting person agrees to furnish supplementally a copy of this omitted schedule to the Securities and Exchange Commission upon request." 3 -213- EXHIBIT C ASSIGNMENT OF TRADEMARK THIS ASSIGNMENT is made this 13th day of December, 1999, by KAVOURAS, INC., a Minnesota corporation ("Assignor"), of 11400 Rupp Drive, Burnsville, Minnesota 55337-1279, to RADTEC ENGINEERING, INC., a Colorado corporation ("Assignee"), of 2150 West 6th Avenue, Broomfield, Colorado 80020. RECITALS: A. Assignor uses the trademark "Triton Doppler Radar" (the "Mark"). B. Assignee is acquiring the portion of Assignor's business pertaining to the manufacture, sale, installation and service of a line of Klystron and TWT-based Doppler weather radar systems know as the Triton Doppler Radar Series (the "Business") and in connection therewith all of Assignor's right, title and interest in and to the Mark. NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged: Assignor hereby assigns to Assignee all of Assignor's right, title and interest in and to the Mark, together with all of the goodwill of the Business in connection with which the Mark is used and which is symbolized by the Mark, and the right to recover for past infringement of the Mark; provided, however, this Assignment does not include the other registered and unregistered trademarks and service marks of Assignor which include the word "Triton" (the "Excluded Marks"), including, without limitation, the marks "Triton", "Triton X", "Triton Art Paint", "Triton i7", and "Triton RT". This Assignment is subject to the retention by Assignor of all of its rights, title and interest in and to the Excluded Marks and the registrations and applications for registration therefor. KAVOURAS, INC., a Minnesota corporation By: /s/ Laura Burrow ---------------------------- Laura Burrow, Vice President 4 -214- EX-10 11 STOCK PURCHASE AGREEMENT - EARTHSCAN SERIES A PREFERRED STOCK PURCHASE AGREEMENT Dated as of December 16, 1999 1 -215- TABLE OF CONTENTS 1. Purchase and Sale of Stock............................................1 1.1. Sale and Issuance of Series A Preferred Stock................1 1.2. Closing......................................................1 1.3. Delivery.....................................................1 2. Representations and Warranties of the Company.........................2 2.1. Organization, Good Standing and Qualification................2 2.2. Capitalization...............................................2 2.3. Subsidiaries.................................................3 2.4. Liabilities..................................................3 2.5. Authorization................................................3 2.6. Valid Issuance of Preferred and Common Stock.................3 2.7. Governmental Consents........................................4 2.8. Litigation...................................................4 2.9. Compliance with Other Instruments............................4 2.10. Brokers or Finders...........................................5 3. Representations and Warranties of the Investors.......................5 3.1. Experience...................................................5 3.2. Purchase Entirely for Own Account............................5 3.3. Rule 144.....................................................6 3.4. No Public Market.............................................6 3.5. Access to Data...............................................6 3.6. Authorization................................................6 3.7. Principal Address............................................7 4. Conditions of the Investors' Obligations at Closing...................7 4.1. Representations and Warranties...............................7 4.2. Performance..................................................7 4.3. Compliance Certificate.......................................7 4.4. Absence of Litigation........................................7 4.5. Blue Sky.....................................................7 4.6. Opinion of Company Counsel...................................8 4.7. Supporting Documents.........................................8 4.8. Other Agreements.............................................8 4.9. Restated Certificate.........................................8 4.10. Stock Incentive Plan.........................................8 5. Conditions of the Company's Obligations at the Closing................8 5.1. Representations and Warranties...............................8 5.2. Performance..................................................9 5.3. Compliance Certificate.......................................9 5.4. Blue Sky.....................................................9 5.5. Other Agreements.............................................9 5.6. Absence of Litigation........................................9 5.7. Restated Certificate.........................................9 5.8. Stock Incentive Plan.........................................9 2 -216- 6. Participation Rights.................................................10 7. Miscellaneous........................................................10 7.1. Governing Law...............................................10 7.2. Survival....................................................11 7.3. Successors and Assigns......................................11 7.4. Entire Agreement; Amendment.................................11 7.5. Notices, Etc................................................11 7.6. Delays or Omissions.........................................11 7.7. California Corporate Securities Law.........................12 7.8. Expenses....................................................12 7.9. Counterparts................................................12 7.10. Severability................................................12 7.11. Dispute Resolution..........................................12 Exhibits: - -------- Exhibit A List of Investors Exhibit B License Agreement Exhibit C Amended and Restated Certificate of Incorporation Exhibit D Form of Opinion of Company Counsel Exhibit E Stockholders Agreement Exhibit F Common Stock Purchase Agreement Exhibit G Warrants Exhibit H 1999 Stock Incentive Plan Exhibit I Form of DTN Promissory Note Exhibit J Form of Opinion of DTN Counsel 3 -217- This Series A Preferred Stock Purchase Agreement (this "Agreement") is made as of December 16, 1999 (the "Effective Date"), by and among EarthScan Network Inc., a Delaware corporation (the "Company"), with its principal offices located at 6565 Americas Parkway, Albuquerque, New Mexico, 87110 and the Investors listed on Exhibit A attached hereto, each of which is referred to herein as an "Investor" and all of which are collectively referred to herein as the "Investors." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1. Sale and Issuance of Series A Preferred Stock. Subject to the terms and conditions of this Agreement, each Investor agrees to purchase and the Company agrees to sell and issue to each Investor on the Closing Date, that number of shares of Series A Preferred Stock set forth opposite such Investor's name on Exhibit A hereto, with a fair market value as of the Closing Date of $100.00 (One Hundred Dollars) per share. The shares of Series A Preferred Stock to be sold to the Investors pursuant to this Agreement are collectively referred to herein as the "Shares." In exchange for its Shares, Data Transmission Network Corporation ("DTN") will pay to the Company in cash the aggregate amount of $500,000 (Five Hundred Thousand U.S. Dollars) and will execute and deliver to the Company the promissory note with an initial outstanding principal amount equal to $2,500,000 (Two Million Five Hundred Thousand U.S. Dollars) in the form attached hereto as Exhibit I (the "Promissory Note"). In exchange for its Shares, Photon Research Associates, Inc. ("PRA") will grant to the Company the exclusive licenses and other rights as set forth in the License Agreement attached hereto as Exhibit B (the "License Agreement"). The Shares will have the powers, rights, preferences, privileges and restrictions set forth in the Amended and Restated Certificate of Incorporation, in the form attached hereto as Exhibit C (the "Restated Certificate"). 1.2. Closing. The closing of the purchase and sale of the Shares hereunder (the "Closing") shall take place at the offices of Latham & Watkins, 701 "B" Street, San Diego, California, at 10:00 a.m. on December 28, 1999, or at such other time and place as the Company and the Investors mutually agree (the "Closing Date"). 1.3. Delivery. On the Closing Date, the Company will deliver to each Investor a certificate or certificates registered in such Investor's name representing the Shares purchased by the Investor, as set forth on Exhibit A hereto, against (i) payment by DTN to the Company, by check or wire transfer, of the cash portion of the purchase price for its Shares, together with the execution and delivery of the Promissory Note, representing payment in full of the purchase price for its Shares and (ii) execution and delivery of the License Agreement by PRA, representing payment in full of the purchase price for its Shares. In addition to the foregoing, each party will deliver at the Closing such other agreements, instruments, documents and certificates which are referred to in Sections 4 and 5 hereof. Immediately following the Closing, the issuance of Shares will be recorded in the Company's share register. 4 -218- 2. Representations and Warranties of the Company. Except as affected by the transactions contemplated hereby, the Company hereby represents and warrants to the Investors as of the date hereof and as of the Closing as follows: 2.1. Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own its properties and carry on its business as currently conducted and as it is currently planned to be conducted. The Company is duly qualified to do business as a foreign corporation in each state in which the failure to do so could reasonably be expected to result in a material adverse effect on the Company. 2.2. Capitalization. As of the date hereof and immediately prior to the issuance of the Shares (i) the authorized capital stock of the Company consists of 200,000 shares of Common Stock, and 100,000 shares of Preferred Stock, of which 60,000 are designated Series A Preferred Stock (the "Series A Stock") and 40,000 remain undesignated; and (ii) the Company has reserved 60,000 shares of Common Stock for issuance upon conversion of the Shares, 9,000 shares of Common Stock for issuance to key employees pursuant to the Company's 1999 Stock Incentive Plan, 4,000 shares of Common Stock for issuance to certain key employees, consultants and officers of the Company pursuant to the Common Stock Purchase Agreement executed concurrently herewith, and 1,500 shares of Common Stock for issuance upon exercise of certain Warrants (defined below) issued to the Company's financial advisor concurrently herewith. Except as contemplated by this Agreement, the Stockholders Agreement (defined below), the License Agreement and the Warrants, there are no other outstanding rights, options, warrants, preemptive rights, rights of first refusal or similar rights for the purchase or acquisition from the Company (or any of its subsidiaries) of any securities of the Company (or any of its subsidiaries) nor are there any commitments to issue or execute any such rights, options, warrants, preemptive rights or rights of first refusal. Neither the offer nor the issuance or sale of the Shares constitutes an event, under any anti-dilution provisions of any securities issued or issuable by the Company or any agreements with respect to the issuance of securities by the Company, which will either increase the number of shares issuable pursuant to such provisions or decrease the consideration per share to be received by the Company pursuant to such provisions. Except as provided in this Agreement, no holder of any security of the Company is entitled to any preemptive or similar rights to purchase any securities of the Company from the Company. 2.3. Subsidiaries. The Company does not own or control, directly or indirectly, any interest in any other corporation, limited liability company, trust, association or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. 2.4. Liabilities. The Company has no material liabilities or obligations, absolute or contingent except liabilities and obligations that (i) were incurred in the ordinary course of business or (ii) are set forth on Schedule 2.4 attached hereto. 5 -219- 2.5. Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and each of such documents included herein as Exhibits to this Agreement, hereinafter referred to as the "Ancillary Documents," the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Shares being sold hereunder and the Common Stock issuable upon conversion of the Shares has been taken and this Agreement and the Stockholders Agreement constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to: (i) judicial principles limiting the availability of specific performance, injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights; and (iii) limitations on the enforceability of any indemnification provisions. 2.6. Valid Issuance of Preferred and Common Stock. The Shares being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Ancillary Documents and under applicable state and federal securities laws. The Common Stock issuable upon conversion of the Shares purchased under this Agreement has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of this Agreement and the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Ancillary Documents and under applicable state and federal securities laws. 2.7. Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority, on the part of the Company is required in connection with the offer, sale or issuance of the Shares (and the Common Stock issuable upon conversion of the Shares) or the consummation of any other transaction contemplated hereby, except for the following: (i) the filing of a notice of exemption pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended (the "California Securities Law"), which shall be filed by the Company promptly following the Closing; and (ii) the compliance with other applicable state and federal securities laws, which compliance will have occurred within the appropriate time periods therefor. Assuming that the representations of the Investors set forth in Section 3 below are true and correct, the offer, sale and issuance of the Shares in conformity with the terms of this Agreement are exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), and from the qualification requirements of Section 25110 of the California Securities Law. 2.8. Litigation. There is no action, suit, proceeding or investigation pending or, to the best of the Company's knowledge, currently threatened before any court, administrative agency or other governmental body (nor, to best of the Company's knowledge, is there any basis for any such action, suit, proceeding or investigation), which (i) would reasonably be 6 -220- expected to have a material adverse effect on the condition (financial or otherwise), business, property, assets or liabilities of the Company, taken as a whole, or (ii) would reasonably be expected to have an adverse effect on the ability of the Company to consummate the transactions contemplated by this Agreement or the Ancillary Documents, or which otherwise challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement or the Ancillary Documents. The Company is not a party or subject to, and none of the assets of the Company is bound by, the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. To the best knowledge of the Company, the Company has not been threatened with any action or proceeding under any business or zoning ordinance, law or regulation. 2.9. Compliance with Other Instruments. The business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of all governmental authorities. The Company is not in violation or default of any provision of its Certificate of Incorporation or By-laws, each as amended and in effect as of the Closing. The Company is not in violation or default of any provision of any instrument, mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or obligation to which it is a party or by which it or any of its properties or assets are bound which would materially adversely affect the condition (financial or otherwise), business, property, assets or liabilities of the Company or of any provision of any federal, state or local statute, rule or governmental regulation which would materially adversely affect the condition (financial or otherwise), business, property, assets or liabilities of the Company, taken as a whole. The execution, delivery and performance of and compliance with this Agreement and the Ancillary Documents and the issuance and sale of the Shares will not result in any such violation, be in conflict with or constitute, with or without the passage of time or giving of notice, a default under any such provision, require any consent or waiver under any such provision (other than any consents or waivers that have been obtained), or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company pursuant to any such provision. The Company is not subject to any legal or contractual restriction which would prohibit it from entering into or performing its obligations under this Agreement or the Ancillary Documents. 2.10. Brokers or Finders. Except for the issuance of the Warrants and payment of $180,000 in fees to the Company's financial advisor, Flemming, Lessard & Shields, the Company has not engaged any brokers, finders or agents and the Investors have not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement and the transactions it contemplates. The Company agrees to indemnify and hold harmless the Investors from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investors or any of their respective officers, partners, employees or representatives is responsible as a result of any action taken by the Company, except for fees disclosed in the preceding sentence. 7 -221- 3. Representations and Warranties of the Investors. Each Investor severally and not jointly hereby represents and warrants as of the date hereof and as of the Closing as follows: 3.1. Experience. Such Investor is experienced in evaluating start-up companies such as the Company, and has either individually or through its current officers such knowledge and experience in financial and business matters that such Investor is capable of evaluating the merits and risks of the Investor's prospective investment in the Company, and has the ability to bear the economic risks of the investment. Investor is an "accredited investor" within the meaning of Rule 501 promulgated under the Securities Act. 3.2. Purchase Entirely for Own Account. Such Investor is acquiring the Shares (and the Common Stock issuable upon conversion of the Shares) for investment for such Investor's own account and not with the view to, or for resale in connection with, any distribution thereof. Such Investor understands that the Shares (and the Common Stock issuable upon conversion of the Shares) have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. Such Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any of the Shares (or any Common Stock acquired upon conversion thereof). Such Investor understands and acknowledges that the offering of the Shares pursuant to this Agreement will not, and any issuance of Common Stock on conversion may not, be registered under the Securities Act on the ground that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from the registration requirements of the Securities Act. 3.3. Rule 144. Such Investor acknowledges that the Shares (and the Common Stock issuable upon conversion of the Shares) must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Such Investor is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions. Such Investor covenants that, in the absence of an effective registration statement covering the stock in question, such Investor will sell, transfer, or otherwise dispose of the Shares (and any Common Stock issued on conversion thereof) only in a manner consistent with the such Investor's representations and covenants set forth in this Section 3. In connection therewith, such Investor acknowledges that the Company will make a notation on its stock books regarding the restrictions on transfers set forth in this Section 3 and will transfer securities on the books of the Company only to the extent not inconsistent therewith. 3.4. No Public Market. Such Investor understands that no public market now exists for any of the securities issued by the Company, and there is no assurance that a public market will ever exist for the Shares (or the Common Stock issuable upon conversion of the Shares). 8 -222- 3.5. Access to Data. Such Investor has received and reviewed information about the Company and has had an opportunity to discuss the Company's business, management and financial affairs with its management and to review the Company's facilities. Such Investor understands and acknowledges that such discussions, as well as any written information issued by the Company, (i) were intended to describe the aspects of the Company's business and prospects which the Company believes to be material, but were not necessarily an exhaustive description, and (ii) may have contained forward-looking statements involving known and unknown risks and uncertainties which may cause the Company's actual results in future periods or plans for future periods to differ materially from what was anticipated and that no representations or warranties were or are being made with respect to any such forward-looking statements or the probability of achieving any of the results projected in any of such forward-looking statements, except that the Company represents that all such written information was prepared in good faith with a reasonable basis. 3.6. Authorization. Each of this Agreement and the Stockholders Agreement when executed and delivered by such Investor will constitute a valid and legally binding obligation of such Investor, enforceable in accordance with its terms subject to: (i) judicial principles limiting the availability of specific performance, injunctive relief, and other equitable remedies and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights. 4. Conditions of the Investors' Obligations at Closing. The obligation of each Investor to purchase Shares at the Closing is subject to the fulfillment on or before the Closing Date of each of the following conditions by the Company, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 4.1. Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date. 4.2. Performance. Each party thereto (other than such Investor) shall have performed and complied with all agreements, obligations and conditions contained in this Agreement and the Ancillary Documents that are required to be performed or complied with by it on or before the Closing Date. 4.3. Compliance Certificate. The President or Chief Executive Officer of the Company shall deliver to each Investor on the Closing Date a certificate stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 9 -223- 4.4. Absence of Litigation. No action, suit, or proceeding shall be threatened, instituted or pending before any court or administrative agency of any federal, state or local jurisdiction seeking an injunction, judgment, order, decree, ruling, or charge which would prevent consummation of any of the transactions contemplated by this Agreement or cause any of the transactions contemplated by this Agreement to be rescinded following consummation. 4.5. Blue Sky. The Company shall have obtained all necessary permits and qualifications, if any, or secured an exemption therefrom, required by any state or country prior to the offer and sale of the Shares. 4.6. Opinion of Company Counsel. Each Investor shall have received from Latham & Watkins, counsel for the Company, an opinion with respect to the Shares, dated as of the Closing Date, in the form attached hereto as Exhibit D. (a) A copy of resolutions of the Board of Directors of the Company certified by the secretary of the Company authorizing and approving the execution, delivery and performance of this Agreement; (b) A certificate of incumbency executed by the secretary of the Company certifying the names, titles and signatures of the officers authorized to execute this Agreement and further certifying that the Restated Certificate of the Company delivered to legal counsel for the Investors at the time of the execution of this Agreement have been validly adopted and have not been amended or modified. 4.8. Other Agreements. Each party thereto (other than such Investor) shall have entered into: (i) the Stockholders Agreement between the Company and certain named investors of even date herewith and attached in the form as Exhibit E (the "Stockholders Agreement"); and (ii) the License Agreement. The Company shall have entered into (a) the Common Stock Purchase Agreement in the form attached hereto as Exhibit F (the "Common Agreement"); and (b) the five year warrant to purchase 1,500 shares of Common Stock in the form attached hereto as Exhibit G (the "Warrants"). 4.9. Restated Certificate. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. 4.10. Stock Incentive Plan. The Company's Board of Directors shall have adopted and approved the 1999 Stock Incentive Plan of the Company (the "Stock Option Plan") in the form attached hereto as Exhibit H. 5. Conditions of the Company's Obligations at the Closing. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing Date of each of the following conditions by that Investor: 10 -224- 5.1. Representations and Warranties. The representations and warranties of each Investor contained in Section 3 shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date. 5.2. Performance. Each Investor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing Date. 5.3. Compliance Certificate. An executive officer of each Investor shall deliver to the Company at the Closing Date a certificate stating that the conditions specified in Sections 5.1 and 5.2 have been fulfilled. 5.4. Blue Sky. The Company shall have obtained all necessary permits and qualifications, if any, or secured an exemption therefrom, required by any state for the offer and sale of the Shares. 5.5. Other Agreements. Each party thereto other than the Company shall have entered into the: (i) Stockholders Agreement; (ii) the License Agreement; (iii) the Common Agreement; and (iv) the Warrants. 5.6. Absence of Litigation. No action, suit, or proceeding shall be threatened, instituted or pending before any court or administrative agency of any federal, state or local jurisdiction seeking an injunction, judgment, order, decree, ruling, or charge which would prevent consummation of any of the transactions contemplated by this Agreement or cause any of the transactions contemplated by this Agreement to be rescinded following consummation. 5.7. Restated Certificate. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. 5.8. Stock Incentive Plan. The Company's Board of Directors shall have adopted and approved the Stock Incentive Plan. 5.9 Promissory Note. DTN shall have executed and delivered the Promissory Note to the Company. 5.10 Opinion of DTN Counsel. The Company shall have received from Abrahams Kaslow & Cassman, counsel for DTN, an opinion with respect to the Promissory Note, dated as of the Closing Date, in the form attached hereto as Exhibit J. 6. Participation Rights 6.1. The Company agrees that if it proposes to issue additional equity securities or any instruments, options, warrants, convertible securities or other rights for or convertible into additional equity securities (collectively, "New Equity Securities"), each holder of Shares (or any Common 11 -225- Stock issued upon conversion thereof) shall be entitled to purchase a percentage of such New Equity Securities to be issued by the Company equal to the percentage of the Company's aggregate outstanding Shares (and any Common Stock issued upon conversion thereof) held by such stockholder. If a holder elects not to purchase all of the New Equity Securities to which it is entitled, then each of the other such holders shall be entitled to purchase its proportionate share of such New Equity Securities. 6.2. The rights set forth in Section 6.1 shall not apply to: (a) shares issued in connection with acquisitions by the Company or any of its subsidiaries of businesses or assets; (b) shares issued to strategic partners of the Company or any of its subsidiaries pursuant to transactions approved by the Company's Board of Directors; (c) shares reserved for issuance upon exercise of options or warrants granted or to be granted to officers, directors, employees and consultants of the Company or any of its subsidiaries and approved by the Board of Directors of the Company; (d) shares issued or issuable in connection with credit lines and equipment financing and leasing; (e) shares issued upon exercise or conversion of options, warrants or convertible securities; (f) shares issued pursuant to a registered public offering; and (g) shares issued in connection with stock splits, stock dividends and similar events. 6.3. The rights set forth in this Section 6 shall terminate without further action by the Company or any holder of Shares upon completion of a firmly underwritten public offering by the Company. 7. Miscellaneous 7.1. Governing Law. This Agreement shall be governed in all respects by the laws of the State of Delaware without regard to choice of laws or conflict of laws provisions thereof. 7.2. Survival. The representations, warranties, covenants and agreements made herein shall survive the closing of the transactions contemplated hereby. 7.3. Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto; 12 -226- provided, however, that the rights of each Investor to purchase Shares shall not be assignable without the consent of the Company and the other Investor in their sole discretion. 7.4. Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. Notwithstanding the foregoing, holders of a majority of the outstanding Shares (whether or not converted) may waive or amend, on behalf of each Investor and other holders of Shares, any provisions hereof benefiting the Investors so long as the effect thereof will be that all such Investors and other holders of Shares will be treated equally. 7.5. Notices, Etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, return receipt requested, or otherwise delivered by hand or by messenger, addressed (a) if to an Investor at such Investor's address set forth on Exhibit A to this Agreement or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, at its address set forth on the first page of this Agreement addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Investors. If notice is provided by mail, notice shall be deemed to be given upon proper deposit in a mailbox. 7.6. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any holder of any Shares upon any breach or default of the Company under this Agreement shall impair any such right, power or remedy of such holder, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing or as provided in this Agreement. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 7.7. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH 13 -227- SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 7.8. Expenses. The Company and each Investor shall bear their own expenses and legal fees incurred on their behalf with respect to this Agreement and the transactions contemplated hereby. 7.9. Counterparts. This Agreement may be executed in any number of counterparts and signatures may be delivered by facsimile, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.10. Severability. If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement and the balance of this Agreement shall be enforceable in accordance with its terms. 7.11. Dispute Resolution. Any dispute, claim or controversy arising under this Agreement or in any way related to this Agreement, or its interpretation, enforceability or inapplicability that cannot be resolved by mutual agreement of the parties shall be submitted to binding arbitration. The arbitration shall be conducted by a single arbitrator mutually agreed upon by the parties or, if no arbitrator is mutually selected within thirty (30) days of a demand therefor, then by a retired judge from the Judicial Arbitration and Mediation Service/Endispute ("JAMS") office located in San Diego, California. The arbitration shall be conducted in San Diego, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration award shall be final and binding, and judgment on the award may be entered in any court having jurisdiction thereof. The parties hereby consent to the consolidation of any arbitration hereunder with any arbitration commenced under the License Agreement, the Stockholders Agreement, the Common Stock Purchase Agreement and/or the Warrants. [SIGNATURE PAGE FOLLOWS] 14 -228- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: EARTHSCAN NETWORK INC. By:/s/ John Rasure ------------------------------ John Rasure Title: President By:/s/ Sonya Kay Porth ------------------------------ Sonya Kay Porth Title:Corporate Secretary INVESTORS: DATA TRANSMISSION NETWORK CORPORATION By:/s/Greg T. Sloma ------------------------------ Greg T. Sloma Title:President & COO By:/s/ Brian L. Larson ------------------------------ Brian L. Larson Title:SVP & CFO PHOTON RESEARCH ASSOCIATES, INC. By:/s/ James A. Myer ------------------------------- James A. Myer Title: CO-COB By:/s/ Sonya Kay Porth ------------------------------ Sonya Kay Porth Title:Corporate Secretary/Treasurer 15 -229- Exhibit A List of Investors "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 16 -230- Exhibit B License Agreement LICENSE AGREEMENT THIS LICENSE AGREEMENT ("Agreement") is made as of December 16, 1999 (the "Effective Date") by and between Photon Research Associates, Inc., a California corporation ("Licensor") and EarthScan Network Inc., a Delaware corporation ("Licensee"), with reference to the following facts: A. Licensor has developed and owns certain Technology. B. Licensee is desirous of licensing and exploiting the Technology, on the terms and conditions set forth within this Agreement. NOW THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, as well as other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as set forth below. 1. Definitions. a. "Affiliate" shall mean any corporation or other business entity, in whatever country organized, which, directly or indirectly, controls, is controlled by or is under common control with Licensee. "Control" as used in this definition shall mean the ownership of more than 50% of the issued share capital or the legal power to direct or cause the direction of the general management and policies of the party in question, by contract or otherwise. b. "Documentation" means (i) the internal source code (including, without limitation, all comments and procedural code, flow charts, schematics, statements of principles of operations and architecture standards) for the software included in the Licensed Products (other than Third Party Software); (ii) development process documents (including schematics, diagrams and flow charts) prepared in connection with the development of the Licensed Products (other than Third Party Software); and (iii) the end user manual for the Licensed Products. c. "Improvements" means and comprises any correction, modification, alteration, enhancement, improvement, update or revision to the Licensed Products or the Documentation. d. "Intellectual Property" means and comprises any patents, patent applications, copyrights and copyright applications and trade secrets of Licensor claiming or embodied in the Licensed Products, the Documentation or the Improvements thereto. e. "Know How" means and comprises technical data and information in Licensor's possession necessary or helpful for Licensee to make, have made and use the Licensed Products, the Documentation or any Improvements thereto, including, but not limited to, techniques, methods, formulations, plans, specifications, programs, schematics, designs and other similar information. 17 -231- f. "Licensed Products" means and comprises the "Tierra Station" system and related software which incorporates or is derived in part from the Technology and is described in Exhibit "A" attached hereto, but excluding any Third Party Software. g. "Technology" means and comprises the Know-How and Intellectual Property. h. "Third Party Software" means and comprises those software programs owned by third parties which are used in connection with or are integrated with the Licensed Products, as set forth on Exhibit "B" attached hereto. 2. Grant of Licenses. a. Technology License. Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee an exclusive (even as against Licensor), worldwide, fully-paid, perpetual license, with rights to sublicense, to (i) use, test, update, upgrade, enhance, modify, lease and sell the tangible elements of the Technology, Licensed Products and Licensor's Improvements to Licensed Products and Documentation to ingest, process, store and disseminate information to customers within the Field of Exploitation (as defined in Section 2(b) below) and (ii) reproduce, make derivative works of, publicly perform, publicly display in any form or medium, whether now known or later developed, distribute, make and have made, use and sell any of the Technology and all intangible elements of the Licensed Products and Documentation and Licensor's Improvements to Licensed Products and Documentation for the purposes of developing and marketing products and services of Licensee within the Field of Exploitation. Notwithstanding the foregoing, Licensee will not sublicense, distribute, lease or sell all or any portions of the Technology, Licensed Products or Documentation or Licensor's Improvements thereto to third parties without the prior approval of Licensee's Board of Directors. b. Field of Exploitation. "Field of Exploitation" means all commercial applications or markets for information disseminated through the Licensed Products and any Improvements thereto, but excluding the exploitation in any manner of Licensed Products and any Improvements thereto in military or government intelligence applications or markets worldwide. Notwithstanding the foregoing, if Licensor desires to exploit the Licensed Products or any Improvements thereto in a commercial application or market that is otherwise included in the Field of Exploitation, Licensor may so indicate its desire by written notice to Licensee and Data Transmission Network Corporation ("DTN"). Within thirty (30) days following receipt of such notice, Licensee shall convene a meeting of its Board of Directors, who shall consider such commercial application or market described in Licensor's notice, and the Licensee's Board of Directors shall determine whether Licensee shall (i) pursue such application or market (in which case Licensee shall then use commercially reasonable efforts to pursue such application or market, in light of Licensee's then-current business plan and product development plan) or (ii) elect not to pursue such application or market. However, if Licensee's Board of Directors is evenly split on whether or not to pursue any such application or market and all of the directors appointed by DTN (pursuant to Section ___ of that certain Stockholders Agreement between Licensor, Licensee, DTN and other persons of even date herewith) have voted to pursue such appplication or market, then such application or market shall remain included in the Field of Exploitation 18 -232- regardless of whether Licensee pursues such application or market. If Licensee's Board of Directors elects not to pursue any such application or market or the Board is at an impasse other than under the circumstances described in the preceding sentence, then such application or market shall thereafter be deemed excluded from the Field of Exploitation and Licensor may pursue the exploitation of such application or market independently. c. Third Party Software. Notwithstanding any provision of this Agreement to the contrary, Licensee acknowledges and agrees that the use of Third Party Software is required to achieve the intended functionality of the Licensed Products, that Licensee must independently obtain its own licenses to use the Third Party Software, and that Licensor is not licensing or otherwise providing to Licensee any rights to the Third Party Software or the documentation related thereto. Licensor makes no representation or warranty whatsoever concerning the Third Party Software or related documentation, or the ability of Licensee to obtain the rights to use such software or related documentation. d. Ownership. The entire rights, title and interest in and full ownership of the Licensed Products, Documentation and Technology, and all Improvements and copies thereof, together with all Intellectual Property rights claiming or embodied in the foregoing, shall remain exclusively with and the exclusive property of Licensor, subject only to the right and license expressly granted to Licensee herein. This Agreement does not provide Licensee with title or ownership of the Licensed Products, Documentation or Technology, or any Improvements thereto, but only a right of limited use. 3. Improvements. a. Licensee Improvements. To the extent developed, written, or conceived by Licensee or its agents or contractors after the Effective Date, Licensee shall own all Improvements and all technology, know-how and intellectual property claiming or embodied in such Improvements or the documents related thereto (to the extent not already licensed to Licensee hereunder). Licensee agrees to promptly disclose and deliver to Licensor all such Improvements during the Term of this Agreement. Licensee hereby grants to Licensor a non-exclusive, worldwide, fully-paid, perpetual license, with rights to sublicense, to (i) use, test, update, upgrade, enhance, modify, lease and sell the tangible elements of the technology, know-how and intellectual property claiming or embodied in Licensor's Improvements to Licensed Products and Documentation to ingest, process, store and disseminate information to customers outside the Field of Exploitation and (ii) reproduce, make derivative works of, publicly perform, publicly display in any form or medium, whether now known or later developed, distribute, make and have made, use and sell all intangible elements of Licensee's Improvements to Licensed Products and Documentation for the purposes of developing and marketing products and services of Licensor outside of the Field of Exploitation. b. Licensor Improvements. To the extent developed, written, or conceived by Licensor or its agents or contractors, Licensor shall own all Improvements and all Technology claiming or embodied in such Improvements or the documents related thereto. Licensor agrees to promptly disclose and deliver to Licensee all such Improvements during the Term of this Agreement. All Improvements by Licensor during the Term of this Agreement shall become a part 19 -233- of the Technology upon creation and subject to the licenses granted under Section 2 and the other terms and conditions of this Agreement. 4. Non-Disclosure of Information. a. Confidentiality Obligation. Each party shall keep in confidence, use only for the purposes and as expressly authorized herein, and prevent the disclosure to any person or persons (outside its organization or to any unauthorized person or persons) of all of the ideas, processes, trade secrets, inventions, discoveries, know-how, other technical research and development, and commercial and proprietary information disclosed to such party by the other party (collectively, "Proprietary Information"). Each party's obligation to keep Proprietary Information of the other in confidence will include disclosing Proprietary Information to employees or agents of such party only as necessary for the performance of such party's obligations under this Agreement, requiring third parties to whom such party discloses Proprietary Information to enter into confidentiality obligations similar to those included in this Paragraph, marking written copies of Proprietary Information as "Confidential/Proprietary Trade Secret Information" and maintaining similar markings on files in which Proprietary Information is stored. Either party shall have the right to disclose Proprietary Information of the other to any sublicensee, subject to its first obtaining the written agreement of such sublicensee to abide by the provisions of this Section 4. b. Information Not Included. Proprietary Information, as defined in Paragraph 4(a), does not include any information which: (i) was in the public domain at the time it was disclosed; (ii) was independently known to a party at the time of disclosure as shown by documentation sufficient to establish such knowledge, from a source not subject to confidentiality obligations to the other party; or (iii) was disclosed to a party by third parties not subject to confidentiality obligations to the other party. c. Documents. All documents, books, notebooks, papers, drawings, sketches, formulas (or copies of extracts thereof), and other data of any kind and description pertaining to the Proprietary Information (collectively, "Proprietary Documents") that have been or will be disclosed by one party to the other party have been or will be disclosed with a clear understanding by the receiving party that they contained or will contain information valuable to the disclosing party. The receiving party shall make only one copy of the Proprietary Documents and Documentation (other than the end user manual) to create an archive copy for use as a backup. Upon termination of this Agreement, each party will promptly deliver to the other party all Proprietary Documents and Documentation of the other party, including all copies of the Proprietary Documents and Documentation in its possession. d. Compelled Disclosure. In the event that a party or anyone to whom such party transmits any Proprietary Information or Proprietary Documents of the other party in accordance with this Agreement is legally requested (by oral questions, interrogatories, request for information or documents, subpoena, 20 -234- civil investigative demand or similar process) or otherwise required to disclose any Proprietary Information or Proprietary Documents of the other party, such party will provide the other party with notice, prior to disclosing such Proprietary Information or Proprietary Documents, so that the other party may seek an appropriate protective order and/or waive compliance with this Agreement. If, in the absence of a protective order or the receipt of a waiver hereunder, such party is nonetheless legally compelled to disclose such information, it may, without liability hereunder, furnish that portion of such Proprietary Information or Proprietary Documents. 5. [Intentionally Omitted.] 6. Marking Products. Licensee shall appropriately mark all Licensed Products (and components thereof) as reasonably required by Licensor from time to time. 7. Representations and Warranties. Licensor represents and warrants to Licensee and DTN as of the Effective Date that: (a) Licensor has the right, power and authority to grant the licenses granted in this Agreement and to perform its obligations hereunder; (b) the Technology does not infringe any U.S. or foreign patent, trademark or copyright of any third party, nor is Licensor aware of any threatened claim of any such infringement; (c) Licensor is not aware of any third-party products which infringe on its proprietary rights in the Technology; (d) this Agreement constitutes valid and legally binding obligations of Licensor, enforceable against Licensor in accordance with its terms, subject to: (i) judicial principles limiting the availability of specific performance, injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors' rights; and (iii) limitations on the enforceability of indemnification provisions; (e) except with respect to Third Party Software and hardware manufactured by third parties included in the Licensed Products, for which no representation or warranty is made hereunder, Licensor is the owner of all right, title and interest in and to the Licensed Products and Technology and has not granted licenses thereunder to any other entity in the Field of Exploitation; (f) except with respect to Third Party Software and hardware manufactured by third parties included in the Licensed Products, for which no representation or warranty is made hereunder, the Licensed Products are free from defects in manufacture, materials and design; (g) the Licensed Products function on the machines and with operating systems for which they are designed; and (h) the Licensed Products conform to the specifications and functions set forth in the Documentation. Licensor further represents and warrants to Licensee and DTN that neither the performance nor the functionality of the Licensed Products will be affected by any changes to the date format or date calculations within any part of the Licensed Products either before, during or after the year 2000. Without limiting the generality of the foregoing, Licensor represents and warrants that the Licensed Products are year 2000 compliant. Year 2000 compliant means fault-free performance in the processing of date and date-related data (including, but not limited to, calculating, comparing and sequencing) by the Licensed Products, individually and in combination, as a system. Fault-free performance means (i) no invalid or incorrect results or abnormal termination will occur prior to, during and after January 1, 2000 as a result of date or date-related data or data processing; (ii) proper calculation and handling of leap years; and (iii) except for normal user interfaces (e.g. four digit date entry) identified in the Documentation, such date data processing shall be transparent to a user. Except as provided in this Section 7, Licensor makes no representations or warranties, express or implied, concerning this Agreement, the Technology, the Documentation or the 21 -235- Licensed Products. The representations and warranties of Licensor under this Section 7 shall survive for a period of five years from and after the Effective Date. Any claim for a breach of such representations and warranties or indemnification in respect thereof must be asserted in writing with particularity against Licensor prior to the expiration of such five-year period. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS SECTION 7, LICENSOR DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR ARISING FROM A COURSE OF DEALING OR USAGE IN TRADE. 8. Indemnification. a. Except for claims which are subject to Licensor's indemnification as set forth in Section 8(b) below, Licensee hereby indemnifies and agrees to hold harmless Licensor and its officers, directors and shareholders from and against any and all claims, demands, and actions, and any liabilities, damages, or expenses resulting therefrom, including court costs and reasonable attorneys' fees, resulting from the manufacture or use (or misuse) of Licensed Products, Documentation or Technology (or any Improvements thereto made by Licensee) by Licensee or its Affiliates or any breach of Licensee's obligations under this Agreement. Licensee's obligations under this Section 8(a) shall survive the termination of this Agreement for any reason. Licensor agrees to give Licensee prompt notice of any such claim, demand, or action and to cooperate in the defense and settlement of said claim, demand, or action as reasonably requested by Licensee; provided, that Licensee shall reimburse Licensor for all reasonable expenses incurred by such cooperation. Licensee shall not settle any such claim, demand or action without the prior written consent of Licensor, not to be unreasonably withheld or delayed. b. Licensor hereby indemnifies and agrees to hold harmless Licensee and DTN and their respective officers and directors from and against any and all claims, demands, and actions, and any liabilities, damages, or expenses resulting therefrom, including court costs and reasonable attorneys' fees, resulting from a breach of Licensor's representations and warranties or covenants set forth herein. Subject to Section 7, Licensor's obligations under this Section 8(b) shall survive the termination of this Agreement for any reason. Licensee and DTN agree to give Licensor prompt notice of any such claim, demand, or action and to cooperate in the defense and settlement of said claim, demand, or action as reasonably requested by Licensor; provided, that Licensor shall reimburse Licensee and DTN for all reasonable expenses incurred by such cooperation. If Licensee's use of the Licensed Products or Improvements thereto made by Licensor is enjoined, Licensee agrees to allow Licensor at Licensor's option and expense, to either secure the right for Licensee to continue to exercise its rights in such Licensed Products or Improvements, or to replace or modify them in an equivalent manner so they become noninfringing. Licensee hereby agrees that Licensor shall have no liability for or with respect to infringement actions or claims to the extent that they arise by reason or result from: (a) modification of Licensed Products or Improvements other than by Licensor; or (b) Licensee's failure to utilize an updated or modified version provided by Licensor; or (c) Licensor's compliance with Licensee's designs, plans or specifications; or (d) the combination of non-infringing items with items not supplied or specified by Licensor; provided, the infringement described in (a) through (d) would have been avoided but for such modification, use, compliance or combination; or (e) any infringement claim in which Licensee 22 -236- has an interest. Licensee shall indemnify Licensor from all claims and expenses, including reasonable attorneys' fees, which are occasioned by the exceptions stated in the preceding sentence of this paragraph. 9. Enforcement of Intellectual Property. a. Enforcement. Licensee, at its sole expense, shall have the first right, but not the obligation, to enforce all proprietary rights in the Technology with respect to any suspected infringement of such proprietary rights in the Field of Exploitation which occurs in whole or in part prior to the termination of this Agreement and, subject to Section 9(c), to retain any recovery arising out of the prosecution of such actions. Licensee shall promptly notify Licensor if it becomes aware of any suspected infringement by third parties of any proprietary rights in the Technology. Licensor shall have the non-exclusive right to enforce the proprietary rights in the Technology with respect to any suspected infringement in the Field of Exploitation which occurs, if after thirty (30) days after Licensee's receipt of Licensor's request for Licensee to initiate an action, Licensee has not initiated an action to enforce such proprietary rights with respect to such infringement. Licensee shall cooperate with Licensor in any such action at Licensor's request and expense, but Licensee shall not be obligated to become a party to any such proceeding unless the laws of the jurisdiction in which the action is to be filed preclude Licensor from enforcing the proprietary rights in the Technology without joining Licensee as a party. Licensor shall be entitled to any recovery from any proceeding it pursues at its sole expense under this Section 9. Licensor shall have the exclusive right to enforce all proprietary rights in the Technology with respect to any suspected infringement outside the Field of Exploitation. b. Right to Intervene. Each party shall have the right to intervene in any action relating to an infringement of the Technology in the Field of Exploitation brought by the other party, at the intervening party's sole expense. c. Joint Action. If any action relates to infringing activities described above under Section 9(a) and the parties jointly participate in the proceeding (in more than name only), each bearing their own expenses, then the parties shall equitably share the recovery. 10. Termination. a. Termination. This Agreement shall be effective as of the Effective Date and shall continue in effect until terminated as provided in Section 10(b) below (the "Term"). b. Termination Rights. This Agreement may be terminated, without liability to the party terminating: (i) By Licensee, upon 90 days' notice to Licensor. (ii) By a party, immediately upon notice to the other party, if: 23 -237- (1) that other party makes a general assignment of all or substantially all of its assets for the benefit of its creditors; (2) that other party applies for, consents to, or acquiesces in the appointment of a receiver, trustee, custodian, or liquidator for its business or all or substantially all of its assets; (3) that other party files, or consents to or acquiesces in, a petition seeking relief or reorganization under any bankruptcy or insolvency laws; or (4) a petition seeking relief or reorganization under any bankruptcy or insolvency laws is filed against that other party and is not dismissed within 90 days after it was filed. (iii) By a party, immediately upon notice to the other party, if the other party's material breach of this Agreement continues uncured or uncorrected for 30 days after notice; provided, however, if the breaching party (i) reasonably requires longer than 30 days to cure or correct such breach within such 30-day period, and (ii) notifies the non-breaching party of the circumstances requiring such longer period to cure or correct such breach and the breaching party's plans to cure or correct such breach, then the cure period shall be extended for such reasonable time as may be so required to effect such cure or correction, subject to a maximum of 180 days, so long as during that time the breaching party diligently acts in accordance with such plan to effect that cure or correction. c. Effect of Termination. Upon the termination of this Agreement: (i) The rights and licenses granted hereby to Licensee shall immediately terminate, notwithstanding the designation of such licenses as perpetual hereunder; and (ii) The rights and licenses granted hereby to Licensor under Section 3(a) shall immediately terminate, notwithstanding the designation of such licenses as perpetual hereunder; (iii) each party shall immediately return to the other all physical embodiments of all technology and Proprietary Information, including all Proprietary Documents and documentation, owned by the other party. Each party shall thereafter cease to use the technology and any Proprietary Information, including all Proprietary Documents and documentation, of the other party; and (iv) notwithstanding the termination of license rights granted to a party, said license rights shall survive such termination solely with respect to those products (including improvements thereto) which have been sold, leased or distributed to third parties during the Term of this Agreement. 24 -238- 11. Limitation of Liability. In no event shall Licensor's total cumulative liability to Licensee and/or DTN (considered in the aggregate), if any, for all claims of any kind resulting from Licensor's breach of its representations and warranties hereunder or indemnification in respect thereof or otherwise arising from or relating to a breach of such representations and warranties, exceed $3,000,000 in the aggregate. IN THE EVENT OF ANY CONFLICT BETWEEN THIS SECTION 11 AND ANY OTHER PROVISION OF THIS AGREEMENT, THIS SECTION 11 SHALL CONTROL. THIS SECTION 11 SHALL APPLY NOTWITHSTANDING ANY FAILURE OF REMEDY HEREUNDER. 12. Miscellaneous. a. Entire Agreement; Modifications. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated hereby, and contains all of the terms and conditions thereof and supersedes all prior agreements and understandings relating to the subject matter hereof. No changes or modifications of or additions to this Agreement shall be valid unless the same shall be in writing and signed by each party hereto. b. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any one or more of the provisions hereof shall not affect the validity and enforceability of the other provisions hereof. c. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. d. Waivers. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provision of this Agreement, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver of any provision of this Agreement shall be binding on the parties hereto unless it is executed in writing by the party making the waiver. e. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and by overnight courier with next-day delivery, and shall be effective as of the delivery date shown by such overnight courier's documentation if sent postage prepaid, and properly addressed to the following addresses: If to Licensor: Photon Research Associates, Inc. 5720 Oberlin Drive San Diego, CA 92121 Attention: Sonya Porth, Corporate Secretary 25 -239- If to Licensee: EarthScan Network Inc. 6565 Americas Parkway Albuquerque, New Mexico 87110 Attention: John Rasure, President If to DTN: Data Transmission Network Corp. 9110 W Dodge Road., Suite 200 Omaha, Nebraska 68114-3316 Attention: Greg Sloma, President Either party may change the address to which notices to such party are to be addressed by giving the other party hereto written notice of such change in the manner herein set forth. f. Governing Law. This Agreement is made and shall be governed by, and construed and enforced in accordance with (i) the laws of the United States of America and (ii) the internal laws of the State of California, without regard to the conflict of laws principles thereof, as the same apply to agreements executed solely by residents of California and wholly to be performed within California. g. Dispute Resolution. Any dispute, claim or controversy arising under this Agreement or in any way related to this Agreement, or its interpretation, enforceability or inapplicability that cannot be resolved by mutual agreement of the parties shall be submitted to binding arbitration. The arbitration shall be conducted by a single arbitrator mutually agreed upon by the parties or, if no arbitrator is mutually selected within thirty (30) days of a demand therefor, then by a retired judge from the Judicial Arbitration and Mediation Service/Endispute ("JAMS") office located in San Diego, California. The arbitration shall be conducted in San Diego, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration award shall be final and binding, and judgment on the award may be entered in any court having jurisdiction thereof. The parties hereby consent to the consolidation of any arbitration hereunder with any arbitration commenced under the Series A Preferred Stock Purchase Agreement, the Stockholders Agreement, the Common Stock Purchase Agreement and/or the Warrants. h. Independent Contractors. Each party is engaged in an independent business and shall perform its obligations under this Agreement as an independent contractor and not as an agent or representative of any other party. Neither party shall have any right or authority to create any obligation or make any representation or warranty in the name or on behalf of the other party. This Agreement shall not be interpreted or construed to create an association, joint venture or partnership between the parties or to impose any partnership obligation or liability upon any party. i. Attorneys' Fees. In any arbitration or other legal action hereunder, the prevailing party shall be entitled, in addition to any other 26 -240- relief granted, to all actual out-of-pocket costs and expenses incurred by such prevailing party in connection with such arbitration or action and the enforcement and collection of any judgment rendered therein, including, without limitation, all reasonable attorneys' fees, consultant fees and expert witness fees, and a right to such costs and expenses shall be deemed to have accrued upon the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. j. Survival. The parties hereto agree that, upon termination or expiration of this Agreement for any reason, Sections 1, 2(d), 4, 8, 10(c), 11 and 12 shall survive. k. No Third-Party Benefits. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any third-party beneficiary; provided, however, that DTN shall be an express third-party beneficiary of the representations and warranties set forth in Section 7 and the indemnification provisions in Section 8(b) but in connection therewith shall be subject to the provisions of Sections 4, 11 and 12 hereof. l. Counterparts. This Agreement may be executed in several counterparts all of which together shall constitute one and the same instrument with the same force and effect as though each of the parties had executed the same document. m. Headings. The Section and Subsection headings used herein are for convenience of reference only, are not a part of this Agreement and are not to affect the construction of, or be taken into consideration in interpreting, any provision of this Agreement. n. Bankruptcy. THE PARTIES INTEND FOR THIS AGREEMENT AND THE LICENSES GRANTED HEREUNDER PRIOR TO THE DATE OF TERMINATION PURSUANT TO THE TERMS HEREOF TO COME WITHIN SECTION 365(n) OF THE U.S. BANKRUPTCY CODE AND, NOTWITHSTANDING THE BANKRUPTCY OR INSOLVENCY OF LICENSOR OR LICENSEE, AS APPLICABLE, THIS AGREEMENT AND THE LICENSES GRANTED HEREIN SHALL REMAIN IN FULL FORCE AND EFFECT SO LONG AS LICENSEE OR LICENSOR, AS APPLICABLE, IS IN MATERIAL COMPLIANCE WITH THE TERMS AND CONDITIONS HEREOF. o. Compliance with Export Regulations. Licensee shall at all times comply with all export control statutes and regulations of the United States and foreign governments in effect from time to time, including the Export Administration Regulations of the U.S. Department of Commerce. Licensee shall not: (i) ship, transfer or export the Licensed Products or underlying information or Technology or any Improvements thereto into any country to which the U.S. has embargoed goods; or (ii) let it be used by anyone on the U.S. Treasury Department's list of Specially Designated Nationals or the U.S. Commerce Department's Table of Denial Orders. By using the Licensed Products or any Improvements thereto, Licensee acknowledges the foregoing and represents and warrants that it is not under the control of a national or resident of any such country or on any such list. [SIGNATURE PAGE FOLLOWS] 27 -241- IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the Effective Date. Photon Research Associates, Inc. By:/s/ James A. Myer ---------------------------- James A. Myer Title: COB By:/s/ Sonya Kay Porth ---------------------------- Sonya Kay Porth Title: Corporate Secretary/Treasurer EarthScan Network Inc. By:/s/ John Rasure ------------------------ John Rasure Title: President By:/s/ Sonya Kay Porth ----------------------------- Sonya Kay Porth Title: Corporate Secretary/Treasurer 28 -242- EXHIBIT A Description of Licensed Products "The reporting person agrees to furnish supplementally a copy of this omitted exhibit to the Securities and Exchange Commission upon request." 29 -243- EXHIBIT B Description of Third Party Software Microsoft Windows NT Server 4.0 (Includes Internet Information Server 4.0) Microsoft Windows SQL Server 7.0 with Internet Extension Microsoft Windows Visual Studio 6.0 ESRI MapObjects 2.0 and Internet Map Server 2.0 Research Systems, Inc.'s Interactive Data Language (IDL) 5.2 30 -244- Exhibit C Amended and Restated Certificate of Incorporation "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 31 -245- Exhibit D Form of Opinion of Company Counsel "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 32 -246- Exhibit E Stockholders Agreement THIS STOCKHOLDERS AGREEMENT (the "Agreement") is entered into as of December 16, 1999 (the "Effective Date"), by and among EarthScan Network Inc., a Delaware corporation (the "Company"), the persons set forth on the Schedule of Preferred Stockholders attached hereto as Exhibit A (the "Preferred Stockholders"), the persons set forth on the Schedule of Common Stockholders attached hereto as Exhibit B (the "Founders"), and Flemming, Lessard & Shields, LLC ("Warrant Holder"). The Preferred Stockholders, the Founders and the Warrant Holder are referred to herein as the "Investors." RECITALS WHEREAS, concurrently herewith the Company and the Preferred Stockholders are entering into a Series A Preferred Stock Purchase Agreement of even date herewith (the "Preferred Agreement"), pursuant to which the Company shall sell, and the Preferred Stockholders shall acquire, shares of the Company's Series A Preferred Stock. WHEREAS, concurrently herewith the Company and the Founders are entering into a Common Stock Purchase Agreement of even date herewith (the "Common Agreement"), pursuant to which the Company shall sell, and the Founders shall acquire, shares of the Company's Common Stock. The shares of Common Stock sold pursuant to the Common Agreement are collectively referred to as the "Founder Shares." WHEREAS, concurrently herewith the Company is granting to the Warrant Holder certain five-year warrants to purchase 1,500 shares of the Company's Common Stock ("the Warrants"). WHEREAS, the Company, the Preferred Stockholders, the Founders and the Warrant Holder desire certain rights and are willing to undertake certain obligations with respect to the outstanding securities of the Company which they own or may acquire, as set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows: SECTION 1. Restrictions on Transferability; Registration Rights 1.1 Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Affiliates" shall have the meaning set forth in Rule 405 of the Securities Act. 33 -247- "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Company's Common Stock, par value $0.0001 per share. "Common Stock Equivalents" shall mean all options ("Options") and stock purchase rights ("Stock Purchase Rights") received by participants under the Company's 1999 Stock Incentive Plan. "Conversion Shares" shall mean the Common Stock issued or issuable upon conversion of the Series A Preferred Stock or upon exercise of the Warrants. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations thereunder, all as the same shall be in effect from time to time. "Holder" shall mean (i) any Investor holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Agreement have been transferred in accordance with Section 1.14 hereof, and (iii) any holder of Common Stock Equivalents. "Initiating Holders" shall mean any holder of Registrable Securities or transferees of holders of Registrable Securities under Section 1.14 hereof who in the aggregate are Holders of not less than fifty percent (50%) of the Registrable Securities of Common Stock (including, without limiting the definition of Conversion Shares, shares which will be issued upon the future conversion of the Series A Preferred Stock or upon future exercise of the Warrants). "Permitted Transferee" means an Affiliate of any Investor or a Related Party of any Investor. "Qualified Public Offering" shall mean a firmly underwritten public offering of Common Stock registered under the Securities Act, other than a registration relating solely to a transaction under Rule 145 under the Securities Act (or any successor thereto) or to an employee benefit plan of the Company. The terms "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registrable Common Stock" shall mean (i) the Common Stock; (ii) any Common Stock or other securities issued or issuable with respect to the Common Stock upon any stock split, stock dividend, recapitalization, or similar event; provided, however, (x) the Registrable Common Stock shall not include Registrable Securities, and (y) shares of Common Stock or other securities shall only be treated as Registrable Common Stock if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public 34 -248- distribution or a public securities transaction, (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, (C) transferred in a transaction pursuant to which the registration rights are not also assigned in accordance with Section 1.14 hereof, or (D) become eligible for sale under Rule 144 of the Securities Act (or any similar or successor rule). "Registrable Securities" shall mean (i) the Conversion Shares; (ii) the Founder Shares; (iii) Common Stock issued pursuant to the exercise of Options or Stock Purchase Rights under the Company's 1999 Stock Incentive Plan; and (iv) any Common Stock of the Company issued or issuable in respect to the Common Stock referred to in clauses (i), (ii) and (iii) above by way of stock split, stock dividend, recapitalization, or similar event; provided, however, that shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, (C) transferred in a transaction pursuant to which the registration rights are not also assigned in accordance with Section 1.14 hereof, or (D) become eligible for sale under Rule 144 of the Securities Act (or any similar or successor rule). "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 1.5, 1.6 and 1.7 hereof, including, without limitation, all registration, qualification, listing and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one special counsel for the selling Holders, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Related Party" means an individual's spouse, issue, sibling, parent or other member of his or her immediate family or a trust established for the benefit of such person(s) for estate planning purposes. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders, and all fees and disbursements of counsel for the Holders except as provided under Registration Expenses. 35 -249- "Series A Preferred Stock" shall mean Series A Preferred Stock, $0.0001 par value per share, issued to certain Investors pursuant to that certain Series A Preferred Stock Purchase Agreement of even date herewith. "Shares" shall mean the Series A Preferred Stock sold to the Preferred Stockholders pursuant to the Preferred Agreement, the Common Stock sold to Founders pursuant to the Founders Agreements and the Warrants. "Transfer" shall have the meaning set forth in Section 3.1 herein. 1.2 Restrictions. Subject to the provisions of Sections 2.1 and 2.2 of this Agreement, neither the Shares nor the Conversion Shares may be sold, assigned, transferred or pledged to any third party other than to a Permitted Transferee of such Investor. Each Investor will cause any proposed purchaser, assignee, transferee or pledgee of the Shares or the Conversion Shares held by such Investor to assume the transferor's obligations under and agree to take and hold such securities subject to the rights and upon the conditions and other provisions specified in this Agreement, and, as applicable, the Series A Preferred Stock Purchase Agreement and the Common Stock Purchase Agreement. The provisions set forth in this Section 1.2 shall terminate immediately prior to the consummation of a Qualified Public Offering. 1.3 Restrictive Legend. Each certificate representing (i) the Shares (other than the Warrants), (ii) the Conversion Shares, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii) upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR, IF THE COMPANY SO REQUESTS, UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT." "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY." Each Warrant shall bear the legends set forth above, but modified, as appropriate, to replace the word "SHARES" with the word "WARRANTS". Each Investor consents to the Company's making a notation on its records and giving instructions to any transfer agent of the Restricted Securities in order to 36 -250- implement the restrictions on transfer established in this Section 1. 1.4 Notice of Proposed Transfers. The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section 1. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail to permit the Company to ascertain transferor's compliance with this Section 1, and shall be accompanied at such holder's expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, or (ii) a "no action" letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, or (iii) any other evidence reasonably satisfactory to counsel to the Company, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company and the terms of this Agreement. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the first paragraph of the restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such first paragraph of the restrictive legend if, in the opinion of counsel for such holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act. Until the consummation of a Qualified Public Offering, each certificate evidencing Restricted Securities transferred as above provided shall bear the second paragraph of the restrictive legend set forth in Section 1.3 above. 1.5 Requested Registration. (a) Request for Registration. If the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, and in any event within 120 days, use its best efforts to effect such registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion 37 -251- of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within thirty (30) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.5: (1) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (2) Prior to six months following the effective date of a Qualified Public Offering; (3) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending the date six (6) months immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective and that the Company's estimate of the date of filing such registration statement is made in good faith; (4) After the Company has effected two (2) such registrations pursuant to this subparagraph 1.5(a), and each of such registrations has been declared or ordered effective and the securities offered pursuant to each of such registrations have been sold; or (5) If the Company shall furnish to such Holders a certificate, signed by the President or Chief Executive Officer of the Company, stating that in the good faith judgment of the Board of Directors it would adversely affect or would require the premature disclosure of any financing, acquisition, disposition, or other corporate transaction, or would require the Company to make public disclosure of information which would have a material adverse effect on the Company, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed one-hundred and twenty (120) days from the date of receipt of written request from the Initiating Holders; provided, however, that the Company may not utilize this right more than twice in any twelve (12) month period. Subject to the foregoing clauses (1) through (5), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). The right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5 and the inclusion of such Holder's Registrable Securities in the underwriting, to the extent requested, to the extent provided herein. 38 -252- The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into and perform its obligations under an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders (which managing underwriter shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution during the period specified in Section 1.15. 1.6 Company Registration (a) Notice of Registration. If at any time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders other than (i) a registration relating solely to employee benefit plans, (ii) a registration relating solely to a Rule 145 transaction, or (iii) a registration on any registration form that does not permit secondary sales, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made within fifteen (15) days after receipt of such written notice from the Company by any Holder, but only to the extent that such inclusion will not diminish the number of securities included by the Company or by holders of the Company's securities who have demanded such registration. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such 39 -253- underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into and perform its obligations under an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company (or by the holders who have demanded such registration). Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may exclude all Registrable Securities from, or limit the number of Registrable Securities to be included in the registration and underwriting on a pro rata basis based on the total number of securities (including, without limitation, Registrable Securities) entitled to registration pursuant to registration rights granted to the participating Holders by the Company. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder or other holder to the nearest 100 shares. If any Holder or other holder disapproves of the terms of any such underwriting, he or she may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution during the period specified in Section 1.15. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration, whether or not any Holder has elected to include securities in such registration. 1.7 Registration on Form S-3 (a) The Company shall register (whether or not required by law to do so) its Common Stock under the Exchange Act in accordance with the provisions of the Exchange Act following the effective date of the first registration of any securities of the Company on Form S-1 or any comparable or successor form or forms, and the Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form at such time. (b) If any Holder or Holders of not less than twenty percent (20%) of the Registrable Securities then outstanding requests that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of the Registrable Securities, the reasonably anticipated aggregate price to the public of which, net of underwriting discounts and commissions, would exceed $1,000,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use its best efforts to cause such Registrable Securities to be registered for the offering on such form. The Company will (i) promptly give written notice of the proposed registration to all other Holders, and (ii) as soon as practicable, use its best efforts to 40 -254- effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within thirty (30) days after receipt of the written notice from the Company referred to in the preceding clause (i). The substantive provisions of Section 1.5(b) shall be applicable to each registration initiated under this Section 1.7. (c) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 1.7: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) during the period starting with the date sixty (60) days prior to the filing of, and ending on the date six (6) months following the effective date of, any registration statement (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iii) if the Company shall furnish to such Holder a certificate signed by the President or Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors, it would adversely affect or would require the premature disclosure of any financing, acquisition, disposition or other corporate transaction, or would require the Company to make public disclosure of information which would have a material adverse effect on the Company, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed one hundred twenty (120) days from the receipt of the request to file such registration by such Holder or Holders; provided, however, that the Company may not utilize this right more than twice in any twelve (12) month period. 1.8 Limitations on Subsequent Registration Rights. From and after the date hereof, the Company shall not enter into any agreement granting any holder or prospective holder of any securities of the Company registration rights with respect to such securities unless (i) such new registration rights, including standoff obligations, are on a pari passu basis with those rights of the Holders hereunder; or (ii) such new registration rights, including standoff obligations, are subordinate to the registration rights granted Holders hereunder. 1.9 Expenses of Registration. All Registration Expenses incurred in connection with any registration pursuant to Sections 1.5 and 1.6 shall be borne by the Company, provided that the Company shall not be required to pay the Registration Expenses of any registration proceeding begun pursuant to Section 1.5, the request of which has been subsequently withdrawn by the Initiating Holders. In such case, (i) the Holders of Registrable Securities to have been registered shall bear all such Registration Expenses pro rata on the basis of the number of shares to have been registered, and (ii) the Company shall be deemed not to have effected a registration pursuant to subparagraph 1.5(a) of this Agreement. Notwithstanding the foregoing, however, if at the time of the withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request, of which the Company had knowledge at the time of the request, then the Holders shall not be required to pay any of said Registration Expenses. In such case, the Company shall be deemed not to have effected a registration pursuant to subparagraph 1.5(a) of this Agreement. 41 -255- Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all Registration Expenses incurred in connection with any registration pursuant to Section 1.7 shall be borne by the Holders of the registered securities included in such registration pro rata on the basis of the number of shares so registered. 1.10 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof and, at its expense, the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least ninety (90) days or until the distribution described in the registration statement has been completed; provided, however, that in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that if Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that if applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (y) includes any prospectus required by Section 10(a)(3) of the Securities Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (y) and (z) above shall be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to 42 -256- state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchaser of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; (e) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (f) Cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed; (g) Provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (h) Otherwise use its best efforts to comply with the applicable rules and regulations promulgated by the Securities and Exchange Commission; (i) If and to the extent obtained from the Company's independent accountants, provide to each Holder a copy of any "comfort letter" regarding such registration statement and prospectus; and (j) Make available for inspection by any Holder participating in such registration, any underwriter participating in any disposition pursuant to such registration, and any attorney or accountant retained by any such Holder or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers and directors to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such registration statement; provided, however, that such Holder, underwriter, attorney or accountant shall agree to hold in confidence and trust all information so provided. 1.11 Indemnification (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact 43 -257- contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, as such expenses are incurred, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as such expenses are incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided that in no event shall any indemnity under this subparagraph 1.11(b) exceed the net proceeds received by such Holder in such registration. Each Holder under this subparagraph 1.11(b) shall be severally, not jointly, liable. (c) Each party entitled to indemnification under this Section 1.11 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall 44 -258- permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense; provided, however, that an Indemnified Party (together with all other Indemnified Parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 1.11 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any claim, loss, damage, liability or action referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such claim, loss, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified party on the other in connection with the actions that resulted in such claims, loss, damage, liability or action, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact related to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 1.11(d) were based solely upon the number of entities from whom contribution was requested or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 1.11(d). (e) The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to above in this Section 1.11 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim, subject to the provisions of Section 1.11 hereof. Notwithstanding the provisions of this Section 1.11, no Holder shall be required to contribute any amount or make any other payments under this Agreement which in the aggregate exceed the net proceeds (after selling expenses) received by such Holder. No person guilty of fraudulent misrepresentation (within the meaning of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 45 -259- 1.12 Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.13 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 1.14 Transfer of Registration Rights. The rights to cause the Company to register securities granted to any party hereto under Sections 1.5, 1.6 and 1.7 may be assigned to a transferee or assignee reasonably acceptable to the Company in connection with any transfer or assignment of Registrable Securities by such party (together with any Affiliate); provided that (a) such transfer may otherwise be effected in accordance with applicable securities laws, (b) notice of such assignment is given to the Company and the Company has given its consent in writing to such transfer as provided above in this Section 1.14, and (c) such transferee or assignee is a Permitted Transferee. 1.15 Standoff Agreement. Each Holder agrees in connection with any registration of the Company's securities (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan) that, upon request of the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, pledge or otherwise hypothecate or encumber, grant any option for the purchase of, or otherwise dispose of any Registrable Securities or Registrable Common Stock (other than those included in the registration) without the prior written 46 -260- consent of such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days from the effective date of such registration in the case of a registration for the Company's initial public offering and ninety (90) days from the effective date of such registration in the case of other registrations) as may be requested by such managing underwriters. 1.16 Termination of Rights. The rights of any particular Holder to cause the Company to register Registrable Securities under Sections 1.5, 1.6 and 1.7 shall terminate with respect to such Registrable Securities owned by such Holder on the date such securities become eligible for sale under Rule 144 of the Securities Act (or any similar or successor rule). 1.17 Additional Equity Securities. If the Company issues additional equity securities in the future, the Company and the parties hereto shall cause any person or entity who acquires such securities to become an Investor hereunder and such holder and the Company shall execute a counterpart of this Agreement and an amendment adding such holder's name hereto shall be a condition of any issuance of such additional securities. The covenants set forth in this Section 1.17 shall terminate immediately prior to the consummation by the Company of a qualified Public Offering. SECTION 2. TAG ALONG RIGHT; RIGHTS TO COMPEL SALE 2.1 Tag Along. (a) At least 20 days prior to any proposed transfer (other than pursuant to a public sale) of an aggregate of at least 20% of the outstanding Common Stock (assuming the exercise of all options and warrants and the conversion of all convertible securities) or more of the outstanding Common Stock in a transaction or series of transactions to one or more bona fide third parties and, for so long as they continue to own shares of Series A Preferred Stock (or Common Stock issued upon conversion thereof), with the prior written consent of each of DTN and PRA, in their sole and absolute discretion (a "Transfer"), by one or more Investors making such a Transfer (the "Transferor"), the Transferor shall give or cause to be given a written notice (the "Tag Along Notice") to the Company and the other Investors (which may be included in the Notice of Proposed Transfer delivered pursuant to section 1.4); (b) Each Tag Along Notice shall specify: (i) the name of the proposed transferee, (ii) the number of shares of Preferred Stock or Common Stock to be transferred and (iii) the price per share and all other material terms and conditions of the offer. Each Investor may participate in the contemplated transfer described in the Tag Along Notice on a pro rata basis at the same price per Share and on the same terms by delivering written to the Transferor within 15 days after delivery of the Tag Along Notice. The failure of an Investor to provide the selling Investor with notice within such 15-day period shall be deemed for all purposes of this Agreement to be an irrevocable election by such Investor not to participate in the Transfer. If any Investor has elected to participate in such Transfer, he or she may sell in the Transfer (at the same price and on the same terms), a number of Shares equal to the product of (i) the 47 -261- quotient determined by dividing the percentage of the Corporation's total outstanding shares which are owned by such participating Investor by the percentage of the Corporation's total outstanding shares which are owned by the Transferor and the participating Investors participating in such sale (as a group) and (ii) the number of Shares to be sold in the contemplated Transfer. (c) The Transferor shall use its reasonable best efforts to obtain the agreement of the prospective transferee(s) to the participation by the Investors in any contemplated Transfer, and the Transferor shall not transfer any of its Shares to any prospective transferee if such prospective transferee(s) declines to allow the participation by the Investors. Each Investor transferring Shares pursuant to this section 2.1 shall be obligated to join on a pro rata basis (based on the number of Shares to sold to the transferee(s)) in any indemnification or other obligations that the Transferor reasonably agrees to provide in connection with such Transfer (other than any such obligations that relate specifically to a particular Investor such as indemnification with respect to representations and warranties given by an Investor regarding such Investor's title to and ownership of shares, provided that no Investor shall be obligated in connection with such Transfer to agree to indemnify or hold harmless the transferees with respect to an amount in excess of the net cash proceeds paid to such Investor in connection with such Transfer). (d) All reasonable costs and expenses incurred in connection with any Transfer made pursuant to Section 2.1, including all cost and disbursements, finders' fees or brokerage commissions and the fees and disbursements of a single counsel representing all shares to be transferred in connection therewith, shall be allocated pro rata between the Transferor and the participating Investors based on the aggregate proceeds received by the Transferor and the participating Investors in the Transfer. (e) The rights and obligations of the parties set forth in this Section 2.1 shall terminate immediately prior to the consummation by the Company of a Qualified Public Offering. 2.2 Rights to Compel Sale. (a) If one or more Investors propose to sell all or any portion of their Shares in any transaction or any series of transactions in which Shares in an aggregate amount of at least 51% of the outstanding Common Stock (on a fully-diluted basis assuming exercise of outstanding options and warrants and conversion of convertible securities) will be sold to a third party, and, for so long as they continue to own shares of Series A Preferred Stock (or shares of Common Stock issued upon conversion thereof), with the prior written consent of each of DTN and PRA, in their sole and absolute discretion, the selling Investor(s) may compel all other Investors to sell their Pro Rata Share (as defined below) of the aggregate number of Shares owned by such Investor (the "Seller Shares") to such third party for the same per Share consideration and otherwise on the terms and conditions provided in this Section 2.2. (b) The selling Investor(s) shall send written notice of the exercise of their rights pursuant to this Section 2.2 to each of the remaining Investors (the "Drag Along Notice"), setting forth the percentage of the outstanding 48 -262- Common Stock to be transferred (the "Pro Rata Share"), the consideration per Share to be paid by a third party purchaser and the other terms and conditions of the transaction. Within 15 days following the date of the Drag Along Notice, each Investor shall deliver certificates representing the Seller Shares, duly endorsed, together with all other documents required to be executed in connection with such transactions. If any Investor should fail to deliver such certificates, the Company shall cause the books and records of the Company to show that such Shares are bound by the provisions of this Section 2.2 and that such Shares have been transferred to the third party purchaser and each Investor consents to such action by the Company. (c) Simultaneously with the consummation of the sale of the Shares pursuant to this Section 2.2, the selling Investor(s) shall promptly, but in any event not later than three (3) business days thereafter, remit to each other Investor the total sale price of the Seller Shares sold by such Investor pursuant thereto; and shall furnish such other evidence of the completion and time of completion of such sale or other disposition and the terms thereof as may be reasonably requested by such other Investor. (d) The purchase from the Investor pursuant to this Section 2.2 shall be on the same date of transfer and on the same terms and conditions as are to be received by the selling Investor(s), which date, terms and conditions shall be stated in the Drag Along Notice (provided, however, that if any securities are to be received by the Investors in connection with such sale, each Investor will have the right to receive non-voting securities). No Investor shall be required to make any representations or warranties in connection with such sale other than customary limited representations solely with respect to such Investor's ownership of its Shares and authorization to participate in the transaction. (e) The rights and obligations of the parties set forth in this Section 2.2 shall terminate immediately prior to the consummation of a Qualified Public Offering. SECTION 3. AFFIRMATIVE COVENANTS OF THE COMPANY The Company hereby covenants and agrees as follows: 3.1 Financial Information. So long as an Investor is a holder of at least 10% of the issued and outstanding Series A Preferred Stock (including shares of Common Stock issued upon conversion thereof), the Company will furnish to such Investor the following reports: (a) As soon as practicable after the end of each fiscal year, and in any event within one hundred and twenty (120) days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of national standing selected by the Company; and 49 -263- (b) As soon as practicable after the end of each calendar quarter, and in any event within 30 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of each calendar quarter, and consolidated statements of income and cash flow for such period and for the current fiscal year to date, together with a comparison of such statements to the Company's operating plan then in effect. 3.2 Assignment of Rights to Financial Information. The rights granted pursuant to Section 3.1 may be assigned by an Investor to a Permitted Transferee, provided that the Company receives notice thirty (30) days prior to such assignment. 3.3 Termination of Covenants. The covenants set forth in Section 3 shall terminate on, and be of no further force or effect after, the date on which the Company is required to file reports with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. 3.4 Definition of Investor. For purposes of determining the amount of Shares held by an Investor, all Investors affiliated with any Investor shall be treated as a single Investor. SECTION 4. Election of Directors; DEADLOCKS 4.1 Voting Agreement. Until the termination of the covenants contained in this Section 4.1 in accordance with Section 4.2 below, and notwithstanding anything in the Company's Amended and Restated Certificate of Incorporation or Bylaws to the contrary, (i) the Company's Board of Directors shall consist of six members, and (ii) at any annual or special meeting of the stockholders of the Company at which one or more Board members are to be elected, or in any action by written consent of the stockholders of the Company pursuant to which one or more Board members are to be elected (whether such Board member(s) are to be elected due to expiration of term, or a vacancy, removal or resignation), each Investor agrees that he, she or it shall vote the Common Stock and other voting securities of the Company held by such Investor in a manner consistent with the following appointments: (i) three representatives appointed by Data Transmission Network Corporation ("DTN") without limitations; and (ii) three representatives appointed by Photon Research Associates, Inc. ("PRA") without limitations. A Director appointed by DTN and a Director appointed by PRA shall each serve as Co-Chairmen of the Board, with the initial Co-Chairmen being Greg Sloma and Jim Myer. 4.2 Termination of Voting Agreement. The covenants set forth in Section 4.1 shall terminate immediately prior to the consummation of a Qualified Public Offering. 4.3 Impasses. (a) Negotiation. In the event the Company's Board of Directors is evenly split with respect to any proposed action by the Company which requires the approval of its Board of Directors (an "Impasse"), the matter will be immediately referred to the Co-Chairmen of the Board, who will attempt in good faith to negotiate a mutually acceptable resolution for presentation to the Board of Directors. 50 -264- (b) Mediation. If the Co-Chairmen of the Board are unable to agree on a resolution which breaks the Impasse within ten (10) days, the parties will attempt in good faith to reach a mutually acceptable resolution through a non-binding mediation to be conducted in accordance with procedures to be agreed upon by the parties at that time. The mediation process shall be concluded as expeditiously as possible but not more than forty-five (45) days after the expiration of the initial ten-day negotiation period. Any such mediation shall be held in Albuquerque, New Mexico unless the parties otherwise agree to another location. (c) Impasse Sale. (i) If the Impasse still exists following the conclusion of the mediation referred to in Section 4.3(b) above, then either DTN or PRA, as the case may be (the "First Party") may deliver written notice to the other party (the "Second Party") of its election to commence an Impasse sale under this Section 4.3(c) (an "Impasse Sale Notice"). The Impasse Sale Notice shall set forth the purchase price (the "Purchase Price") for the First Party's entire ownership interest in the Company determined in its sole discretion, and shall constitute a binding offer by the First Party to (A) sell its entire ownership interest in the Company to the Second Party for the Purchase Price, or (B) to purchase the Second Party's entire ownership interest in the Company for the Purchase Price. (ii) Within thirty (30) days of its receipt of the Impasse Sale Notice, the Second Party shall elect by written notice to the First Party (the "Response") either to sell its entire ownership interest in the Company to the First Party for the Purchase Price, or to purchase the First Party's entire ownership interest in the Company for the Purchase Price. In the event the Second Party fails to respond within the requisite 30-day period, the Second Party shall be compelled to sell its entire ownership interest in the Company for the Purchase Price. (iii) Within one hundred twenty (120) days of the delivery of the Response or, if no Response is delivered, the expiration of the 30-day period described in clause (ii) above, the parties shall consummate the purchase and sale of the selling party's entire ownership interest in the Company (the "Impasse Sale Closing") in accordance with the Response and this Section 4.3(c). The party acquiring the other party's ownership interest shall provide ten (10) days' prior written notice to the other party of the date and time of the Impasse Sale Closing. (iv) The purchase and sale pursuant to this Section 4.3(c) shall be accomplished through an escrow established at a title insurance or escrow company mutually approved by the parties. The parties shall execute such further instructions as the escrow holder and the purchasing party reasonably may require to consummate such escrow, provided such instructions are not inconsistent with the terms of this Agreement. Closing costs shall be shared equally by the parties. The selling party shall transfer to the purchasing party its entire ownership interest in the Company free and clear of all liens, security interests and competing claims, and shall deliver to the purchasing party such instruments of transfer and such evidence of due authorization, execution and delivery and of the absence of such liens, security interests or competing claims as the purchasing party shall reasonably request. The selling party shall also deliver letters of resignation from the directors it has 51 -265- appointed pursuant to Section 4.1 above. At the Impasse Sale Closing, the purchasing party shall pay the Purchase Price to the selling party by a wire transfer of immediately available funds to a bank account designated by the selling party. (v) If the selling party or any of its affiliates is a guarantor of any obligations of the Company or otherwise liable thereon, prior to the Impasse Sale Closing the purchasing party shall use reasonable best efforts to obtain a release of each such guaranty or liability in form and content reasonably acceptable to the selling party and its guarantor affiliates. If such release cannot be obtained prior to the Impasse Sale Closing, the purchasing party shall hold the selling party and its guarantor affiliates harmless with respect to such guarantees and liabilities in form and content reasonably acceptable to the selling party and its guarantor affiliates. (vi) If the purchasing party fails to close the transaction within the 120-day period referred to in clause (iii) above, and such failure was caused by or within the reasonable control of the purchasing party, then the selling party may elect to acquire the defaulting purchasing party's entire ownership interest in the Company for ninety percent (90%) of the Purchase Price, by delivering written notice of such election to the defaulting purchasing party within ten (10) days of the expiration of the 120-day period. If the other party so elects, then the transaction shall be consummated in accordance with clauses (iii)-(v) above. If the selling party does not deliver a notice to the defaulting purchasing party within such 10-day period, then the Company's business shall continue as before and the First Party may not deliver another Impasse Sale Notice for a period of eighteen (18) months following the date of such party's original Impasse Sale Notice. (vii) Either party shall have the right to seek specific performance of this Section 4.3(c) in a court of competent jurisdiction or arbitration, and the other party shall not plead as a defense that an adequate remedy at law exists. (d) The covenants set forth in Section 4.3 shall terminate immediately prior to the consummation of a Qualified Public Offering. SECTION 5. Miscellaneous 5.1 Assignment. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. 5.2 Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. 52 -266- 5.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware without regard to choice of laws or conflict of laws' provisions thereof. 5.4 Counterparts. This Agreement may be executed in two or more counterparts and signature pages may be delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5.5 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be sent by prepaid registered or certified mail, return receipt requested, addressed to the other party at the address shown below or at such other address for which such party gives notice hereunder. Such notice shall be deemed to have been given three (3) days after deposit in the mail. 5.6 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, portions of such provisions, or such provisions in their entirety, to the extent necessary, shall be severed from this Agreement, and the balance of this Agreement shall be enforceable in accordance with its terms. 5.7 Amendment and Waiver. Any provision of this Agreement may be amended or waived with the written consent of the Company and the Holders of at least sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of the Registrable Securities; provided that (i) no such amendment or waiver shall impose or increase any liability or obligation on a Holder without the consent of such Holder; and (ii) no such amendment or waiver having a disproportionately adverse effect on any Holder in relation to the other Holders may be made without consent of such Holder. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder of Registrable Securities and the Company. In addition, the Company may waive performance of any obligation owing to it, as to some or all of the Holders of Registrable Securities, or agree to accept alternatives to such performance, without obtaining the consent of any Holder of Registrable Securities. In the event that an underwriting agreement is entered into between the Company and any Holder, and such underwriting agreement contains terms differing from this Agreement, as to any such Holder the terms of such underwriting agreement shall govern. 5.8 Effect of Amendment or Waiver. The Investors and their successors and assigns acknowledge that by the operation of Section 5.7 hereof (but subject to the limitations therein) the Holders of the requisite percentage of the outstanding Registrable Securities, acting in conjunction with the Company, will have the right and power to diminish or eliminate any or all rights pursuant to this Agreement. 5.9 Rights of Holders. Each party to this Agreement shall have the absolute right to exercise or refrain from exercising any right or rights that such party may have by reason of this Agreement, including, without limitation, the right to consent to the waiver or modification of any obligation under this Agreement, and such party shall not incur any liability to any other party or other Holder of any securities of the Company as a result of exercising or refraining from exercising any such right or rights. 53 -267- 5.10 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of the other party, shall impair any such right, power or remedy of such non-breaching party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 5.11 Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto related to the subject matter hereof, and supersedes all prior agreements between the parties, whether written or oral, related to such subject matter. 5.12 Aggregation of Stock. All securities held or acquired by Affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 5.13 Dispute Resolution. Any dispute, claim or controversy arising under this Agreement or in any way related to this Agreement, or its interpretation, enforceability or inapplicability that cannot be resolved by mutual agreement of the parties shall be submitted to binding arbitration. The arbitration shall be conducted by a single arbitrator mutually agreed upon by the parties or, if no arbitrator is mutually selected within thirty (30) days of a demand therefor, then by a retired judge from the Judicial Arbitration and Mediation Service/Endispute ("JAMS") office located in San Diego, California. The arbitration shall be conducted in San Diego, California, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration award shall be final and binding, and judgment on the award may be entered in any court having jurisdiction thereof. The parties hereby consent to the consolidation of any arbitration hereunder with any and all arbitrations commenced under the License Agreement, the Series A Preferred Stock Purchase Agreement, the Common Stock Purchase Agreement and/or the Warrants. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 54 -268- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. FOUNDERS: /s/ John Rasure ----------------------------- John Rasure /s/ Mark Servilla ----------------------------- /s/ Dan Long ----------------------------- Dan Long COMPANY: EARTHSCAN NETWORK INC. By:/s/ John Rasure ---------------------- John Rasure Title: President By:/s/ Sonya Kay Porth ---------------------- Sonya Kay Porth Title:Corporate Secretary/Treasurer 55 -269- INVESTORS: DATA TRANSMISSION NETWORK CORPORATION By:/s/ Greg T. Sloma ------------------------- Greg T. Sloma Title: President & COO By: /s/ Brian L. Larson ------------------------ Brian L. Larson Title: SVP & CFO PHOTON RESEARCH ASSOCIATES, INC. By:/s/ James A. Myer ------------------------- James A. Myer Title:CO-COB By:/s/ Sonya Kay Porth ------------------------- Sonya Kay Porth Title:Corporate Secretary FLEMMING, LESSARD & SHIELDS, LLC By:/s/ B. Mason Flemming, Jr. ---------------------------- B. Mason Flemming, Jr. Title: Managing Director By: Title: 56 -270- A-1 EXHIBIT A Schedule of Investors Investor Name & Address Photon Research Associates, Inc. 5720 Oberlin Drive San Diego, California 92121 Data Transmission Network Corporation 9110 W. Dodge Road, #200 Omaha, NE 68114-3316 John Rasure 6565 Americas Parkway, Suite 660 Albuquerque, New Mexico 87110 Mark Servilla 6565 Americas Parkway, Suite 660 Albuquerque, New Mexico 87110 Dan Long 6565 Americas Parkway, Suite 660 Albuquerque, New Mexico 87110 57 -271- Exhibit F Common Stock Purchase Agreement "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 58 -272- Exhibit G Warrants "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 59 -273- Exhibit H 1999 Stock Incentive Plan "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 60 -274- Exhibit I Form of DTN Promissory Note "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 61 -275- Exhibit J Form of Opinion of DTN Counsel "The reporting person agrees to furnish supplementally a copy of this omitted Exhibit to the Securities and Exchange Commission upon request." 62 -276- EX-10 12 ELEVENTH AMENDMENT TO LEASE ELEVENTH AMENDMENT TO LEASE THIS ELEVENTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this 31st day of March, 1998, 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, a Ninth Amendment To Lease dated September 19, 1997, and a Tenth Amendment To Lease dated December 23, 1997. The combined terms of the Lease and subsequent Amendments shall herein be referred to as 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. Waiver. The following shall be added to Paragraph 11A of the Lease: "Each party hereby waives all claims for recovery from the other party for any loss or damage to any of its property insured under valid and collectible insurance policies to the extent of any recovery collectible under such insurance, subject to the limitation that this waiver shall apply when permitted by the applicable policy of insurance. 2. Electrical Room Key. Landlord agrees to provide Tenant with a key to access the electrical rooms that serve its Premises or the purpose of performing on-going maintenance and incidental modifications of the circuits that serve Tenant's Premises. As a condition of this agreement, Landlord, at Tenant's sole expense, will engage a competent electrical contractor to perform semi-annual load testing and infrared scanning of all electrical circuits and panels within these electrical rooms. To the extent any repairs or corrective actions are required as a result of Tenant's activities in such electrical rooms, Tenant agrees, at its sole cost, to immediately perform such repairs or corrective actions. Tenant's contractor for any of the above work shall be subject to Landlord's approval in its sole discretion. Landlord's agreement to provide Tenant with access to the above electrical rooms in no way circumvents, cancels, or modifies any provisions of the Lease with respect to Tenant's liability or requirements for Landlord's approval of any Tenant alterations. Landlord may, at any time and in its sole discretion, cancel the provisions of this paragraph and require Tenant to return such key. Should Tenant not return such key upon demand or duplicate such key, Landlord will change the locks on all effected electrical rooms and Tenant agrees to pay for all costs associated with changing such locks. 3. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. -277- 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, representations and warranties in the Lease as amended by the 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:/s/ Greg T. Sloma By: Lowe Enterprises Investment -------------------------- Management, Inc. Greg T. Sloma Its: Authorized Agent Its:President and COO By:/s/ Kari O'Neil ---------------------- Kari O'Neil Its:Vice President 2 -278- EX-10 13 TWELFTH AMENDMENT TO LEASE TWELFTH AMENDMENT TO LEASE THIS TWELFTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this 12th day of May, 1999, 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., 1515 Arapahoe Street, Tower III, Suite 900, 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 Tenant entered into that certain Lease dated as of May 2, 1995. Subsequently, The Prudential Insurance Company of America and Tenant executed a First Amendment to Lease dated September 29, 1995, a Second Amendment to Lease dated January 5, 1996, and a Third Amendment to Lease dated January 5, 1996, and thereafter, Landlord and Tenant executed 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, a Seventh Amendment to Lease dated September 19, 1997, an Eighth Amendment to Lease dated September 19, 1997, a Ninth Amendment to Lease dated September 19, 1997, a Tenth amendment to Lease dated December 23, 1997, and an Eleventh Amendment to Lease dated March 31, 1998. The lease and all amendments thereto are hereinafter referred to as the "Lease." B. Pursuant to the Lease, Tenant occupies Suites #175A, #175B, #100, #101, #110, #130, #200, #300, #301, #310, #315, #320, #325, #340, #350, #350A, #350B, #360, and #362, containing approximately 107,576 rentable square feet (the "Current Premises") in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska pursuant to the Lease. C. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in the 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: I. EXTENSION OF LEASE FOR CURRENT PREMISES. 1. Term. The term of the Lease with respect to the Current Premises is hereby extended for an additional term of five (5) years commencing June 1, 2005 ("Current Premises Extension Commencement Date") and expiring May 31, 2010 ("Current Premises Extension Term"). -279- 2. Base Rent. Tenant shall pay as Base Rent for the Current Premises Extension Term the sum of Two Million Two Hundred Fifty-Nine Thousand Ninety Six Dollars ($2,259,096.00) per year, payable in advance on the first day of each month in the amount of $188,258.00 per month, in accordance with the provisions of Paragraph 2 of the Lease. In addition, Tenant shall continue to pay as additional Base Rent $39,999.96 per year, payable in monthly installments of $3,333.33, for the Additional Parking until May 31, 2005. 3. Base Expense Year and Base Tax Year. The Base Expense Year and Base Tax Year for the Current Premises Extension Term shall be the calendar year 2005. 4. Tenant Improvements. Landlord shall provide a tenant improvement allowance of up to $215,152.00 to be applied toward the cost of Tenant's desired Premises improvements. All improvements shall be performed in accordance with the terms of the Tenant Improvement Work Schedule attached hereto and by this reference made a part hereof, marked Exhibit "B". Such allowance shall be made available to Tenant beginning on the Expansion Premises Commencement Date. II. EXPANSION OF PREMISES 1. Premises. Pursuant to the provisions of Paragraph 29 of the Lease, effective the earlier of October 1, 2002 or the date Landlord delivers possession of the Expansion Premises to Tenant ("Expansion Premises Commencement Date"), the Premises shall be expanded to include Suites 120 and 160, containing approximately 23,563 rentable square feet as depicted on the floor plans attached hereto, marked Exhibit "A" and by this reference made a part hereof (the "Expansion Premises"), for a total in the Premises of approximately 131,139 rentable square feet. Beginning on the Expansion Premises Commencement Date, the"Premises," as that term is defined in the Lease, shall be amended to mean and include the Expansion Premises and, subject to the terms of this Amendment, the demise of the Expansion Premises shall be subject to each and every term, provision and condition set forth in the Lease as if the Expansion Premises were originally demised thereunder. Notwithstanding the foregoing, Tenant acknowledges that Kirkham Michael & Associates, Inc. (the Current Tenant") currently leases the Expansion Premises, with such lease expiring on September 30, 2002. Should the Current Tenant holdover and not vacate the Expansion Premises prior to the Expansion Premises Commencement Date, Landlord will not be liable to Tenant for any damages suffered by Tenant as a result of such holdover. However, in such event, Landlord will use reasonable efforts to pursue its legal remedies to evict the Current Tenant from the Expansion Premises. Alternatively, in the event that the Current Tenant vacates the Expansion Premises prior to the expiration of its lease therefor, Landlord shall deliver possession of the Expansion Premises earlier than October 1, 2002. Tenant hereby represents and warrants to Landlord that Tenant shall not engage in any 2 -280- discussions with the Current Tenant concerning early termination of the Current Tenant's premises, or related issues, without Landlord being present. Landlord and Tenant agree that upon delivery by Landlord to Tenant of the Expansion Premises, the parties will execute a Commencement Date Certificate in the form attached hereto as Exhibit "C" confirming the Expansion Premises Commencement Date. 2. Term. The term of the Lease with respect to the Expansion Premises shall be for a period of ten years commencing on the Expansion Premises Commencement Date and expiring ten years thereafter ("Expansion Premises Term"). 3. Base Rent. Tenant shall pay as Base Rent for the Expansion Premises during the Expansion Premises Term an amount equal to $20.00 per rentable square foot per year increased by an amount equal to 3.5% per year for each calendar year from the date of this Amendment until the calendar year in which the Expansion Premises Commencement Date occurs. So, for example, if the Expansion Premises Commencement Date occurs in calendar year 2000, the Base Rent per rentable square foot for the Expansion Premises would be $20.70 per rentable square foot. Base Rent shall be payable in monthly installments in accordance with the provisions of Paragraph 2 of the Lease. In addition, on the 61st month of the Expansion Premises Term, Base Rent shall be increased in an amount equal to the monthly installment of Base Rent paid on the 60th month, as provided in this Paragraph 3, multiplied by a number which is reached by dividing the "Consumer Price Index for Wage Earners and Clerical Workers in the City of Denver--All Items," as published by the Bureau of Labor Statistics, U.S. Department of Labor (the "Denver CPI") figure for January of the calendar year in which the 61st month of the Expansion Premises Term occurs by the Denver CPI figure for January of the calendar month in which the Expansion Premises Commencement Date occurs. If the official monthly Denver CPI is not available for use as a cost-of-living index for the months provided to be used as a basis for such formula, it is agreed that the Denver CPI as issued and published for the earliest preceding months should be used in determining such formula. If, at any time during the term hereof, the U.S. Bureau of Labor Statistics shall discontinue the issuance of the Bureau of Labor Statistics Consumer Price Index, the parties shall use any other standard, nationally recognized cost-of-living index then issued and available, which is published by the U.S. government. 4. Adjustment Rent. Effective upon the Expansion Premises Commencement Date, Tenant shall pay Adjustment Rent with respect to the Expansion Premises in accordance with the provisions of Paragraph 2 of the Lease. The Base Expense Year and Base Tax Year for the Expansion Premises Term shall be the calendar year in which the Expansion Premises Commencement Date occurs. 5. Tenant Improvements. Tenant is taking the Expansion Premises in an "As Is" condition, and Landlord shall have no responsibility to provide any tenant improvements in such premises. However, Tenant shall have the right to use any remaining tenant improvement allowance amounts which were granted by Landlord in prior Lease amendments for other premises of Tenant, including without limitation the improvement allowance granted to Tenant under Article 1, Paragraph 4 of this amendment, subject to Landlord's prior written approval of such improvements, and provided that all improvements shall be performed in accordance with the terms of the Tenant Improvement Work Schedule attached 3 -281- hereto and by this reference made a part hereof, marked Exhibit "B". Such allowance shall be made available to Tenant beginning on the Expansion Premises Commencement Date. 6. Parking. Tenant shall have the right to use all of the exposed parking spaces at the Building (but not at any other building in the complex) at no additional charge during the Expansion Premises Lease Term. Landlord shall not be responsible for unauthorized use of parking spaces, and any such unauthorized use shall not be a default by Landlord under the Lease. Landlord may, at Landlord's sole option, relocate Tenant's parking spaces to a suitable alternative parking area during repair or reconstruction of the parking areas. If at any time Landlord fails to or is unable to provide all or any portion of such parking spaces to Tenant, such fact shall not be a default by Landlord under the Lease, either in whole or in part, and Tenant shall not be entitled to any claim or remedy. Tenant and its employees shall have the right to use the parking spaces described herein 24 hours a day, seven days per week. Landlord reserves the right to post and enforce reasonable rules governing parking, and to take away the parking rights of any individual who fails to abide by such rules. 7. Right of Relocation. The Expansion Premises Term is expected to continue beyond the expiration of the Current Premises Extension Term. As a result, when the Current Premises Extension Term Expires, Tenant shall have the right to choose what portion of the Premises, as expanded hereunder, comprising 23,000 rentable square feet, it will continue occupying for the duration of the Expansion Premises Term (the "Continuing Premises"), and what portion of the Premises it surrenders to Landlord, subject to the following: (a) The Continuing Premises must be physically contiguous, or located in the same pod of the Building on each of the first and second floors; (b) Landlord shall have no obligation to construct any improvements in the Continuing Premises, and to the extent Tenant requires any consolidation finish work, such improvements shall be at Tenant's sole cost and expense; and (c) Tenant shall be required to reimburse Landlord for the reasonable costs incurred by Landlord associated with construction of a demising wall, and any other construction necessary to segregate the Continuing Premises from the remainder of the Premises being surrendered. 4 -282- III. GENERAL PROVISIONS 1. Notices. Landlord's notice address as set forth in Paragraph 24 of the Lease shall be revised to reflect the following changes: If to Landlord: LAFP-SF, Inc. c/o Lowe Enterprises Colorado, Inc. 1515 Arapahoe Street, Tower III, Suite 900 Denver, Colorado 80202 Attn: Senior Vice President - Operations with a copy to: Pacific Realty Group, Inc. 1905 Harney Street, Suite 403 Omaha, Nebraska 68102 Attn: Senior Vice President - Management Operations 2. Density Cap. Tenant shall not allow an occupancy density in excess of five (5) people per 1,000 rentable square feet. If Tenant fails to comply with such occupancy limit, in addition to Landlord's other rights and remedies under the Lease, Landlord shall have the right and option to terminate this Lease upon written notice to Tenant effective on the date set forth in such notice. 3. Removal of Equipment. Paragraph 15 of the Lease is hereby amended by inclusion of the following language at the end of said paragraph: "The application of the foregoing provisions shall include, without limitation, any and all telecommunications equipment installed in the Premises or elsewhere in the Building by or on behalf of Tenant, including wiring, or other facilities for telecommunications transmittal." 4. Brokerage Disclosure. Tenant represents and warrants to Landlord that it has dealt only with Pacific Realty Group, acting as Landlord's exclusive agent ("Broker") in the negotiation of this Amendment. Landlord shall make payment of the brokerage fee due to the Broker pursuant to and in accordance with a separate agreement with the Broker. Landlord and Tenant each hereby agrees to indemnify and hold harmless the other of and from any and all damages, losses, costs or expenses (including without limitation, all attorneys' fees and disbursements) by reason of any claim of or liability to any other broker or other person claiming through the other party and arising out of or in connection with the negotiation, execution and delivery of this Amendment. 5 -283- 5. Reaffirmation of Lease. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. The parties hereto hereby reaffirm and ratify all covenants, representations and warranties in the Lease as amended by this Amendment. 6. Binding Effect. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network LAFP-SF, Inc. Corporation, a Delaware corporation By:/s/ Greg T. Sloma By: Lowe Enterprises Investment ------------------------ Management, Inc. Greg T. Sloma Its: Authorized Agent Its:President and COO By:/s/ Tom Maul ------------------------- Tom Maul Its:Vice President 6 -284- EXHIBIT "B" to be made a part of a Twelfth amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant) dated ______, 2000. TENANT IMPROVEMENTS WORK SCHEDULE ARTICLE 1 Landlord's Construction Obligations Tenant accepts the Expansion Premises in an "As Is" condition and shall be responsible for any and all improvements required for its occupancy and use in the Premises in accordance with Article II of this Exhibit "B". If requested by Tenant, Landlord's representative will provide construction management services for Tenant's work in the space. Landlord's fee for such services will be 5% of the total construction cost, including any associated professional fees. As a part of this Amendment, Landlord and Tenant have agreed to upgrade certain parts of the Building's electrical and mechanical systems. Landlord agrees to pay one-half of the cost to replace the main electrical switchgear and feeders, at an estimated cost of approximately $58,000. The remaining one-half of the cost therefor ("Tenant's Share of Switchgear") shall be paid by Tenant as Additional Rent amortized over the remaining term of the Lease in accordance with the provisions contained in the next paragraph below. Tenant agrees to pay for the entire remaining cost of electrical system upgrades upon receipt from Landlord of invoices therefor. Landlord shall retain a qualified MEP engineer, which shall bid the specifications for the electrical and mechanical upgrades following approval thereof by Landlord and Tenant as provided in Article II below. No portion of Tenant's costs associated with such electrical system upgrade shall be amortized over the Lease term, except for Tenant's Share of Switchgear. Landlord agrees to loan to Tenant the initial costs of the mechanical system upgrade plus an additional $100,000 for other incidental costs incurred by Tenant provided that Tenant's pro rata share of the total costs of the mechanical system upgrade paid by Landlord (based upon a useful life for such upgrades of 17.5 years), together with said $100,000 and Tenant's Share of Switchgear, shall be repaid to Landlord as Additional Rent amortized over the remaining portion of the current term of the Lease (which expires May 31, 2005) for the Current Premises, at a rate of 12% per annum, noncompounded. ARTICLE II Construction of Tenant Improvements Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Premises in accordance with the provisions of Paragraph 9 of the Lease. Tenant shall have the right to apply up to $84,320.19, which amount constitutes the amount remaining from improvement 7 -285- allowances previously provided by Landlord to Tenant for Suites 315 and 350A ("Carry Over Improvement Allowance"), and, in addition, Landlord shall provide to Tenant an additional improvement allowance of up to two hundred fifteen thousand, one hundred fifty-two dollars ($215,152) ("Additional Improvement Allowance"), all of which may be applied toward the cost of any such tenant-provided improvements as follows (the Carry Over Improvement Allowance and the Additional Improvement Allowance are hereinafter sometimes referred to together as the "Improvement Allowance"): 1. At least three (3) weeks prior to the commencement of any construction, Tenant shall furnish Landlord with two (2) complete sets of plans and specifications for Tenant's proposed improvements for review and assessment as to the compatibility of said improvements with the Building's systems. Such review shall be a Tenant's sole cost and expense and shall not be unduly delayed. Tenant agrees to make such modifications as are reasonably required by Landlord. 2. The Improvement 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 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 the invoices are accompanied by lien waivers in the amount equal to that of the invoices, and provided further that the Final Installment, as defined in paragraph 8 below, shall be paid only upon compliance with the provisions of said paragraph 8. Landlord shall make such periodic payments within thirty days of complete submittal by Tenant in accordance with the provisions hereof. The Improvement Allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" within the following time frame, subject to Excusable Delays: Additional Improvement Allowance - Between the Expansion Premises Commencement Date and the later of 12 months thereafter or June 30, 2003. Carry Over Improvement Allowance - Between the date of this Amendment and June 30, 2000 ("Tenant Improvement Periods"). For purposes of the foregoing sentence, "Excusable Delays" shall mean any delays due to acts of God, strike, riot, war, weather, failure to obtain labor and materials, or any other reason beyond the reasonable control of Tenant; provided, however, that for purposes of this definition, Tenant's or its contractors' or agents' lack of funds shall not be deemed to be a cause beyond the reasonable control of Tenant. The Tenant Improvement Periods shall be extended on a day-to-day basis for each day of an Excusable Delay, provided that Tenant shall immediately notify Landlord in the event of an Excusable Delay. 8 -286- 3. Tenant will not be entitled to any payment or credit for any portion of the improvement allowance which is not actually invoiced and submitted by Tenant on or before sixty days following the end of each Tenant Improvement Period, subject to an Excusable Delay, in accordance with the provisions of paragraph 2 above. 4. 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) comply with all applicable 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, upon receipt of same from Landlord; (c) maintain such insurance (such as general liability and workman's compensation) in force and effect as may be reasonably requested by Landlord or as customarily required for similar construction activities; (d) be responsible for reaching an agreement with Landlord (to which Landlord shall not unreasonably withhold its consent) 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 thirty (30) 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 9 -287- Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 5. 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 comply with the requirements of paragraph 4 above. 6. 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 attorney's 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. 7. 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. 8. Within thirty (30) days of the completion of Tenant's improvements, Tenant shall deliver to Landlord two (2) copies of the final drawings showing the plans and specifications of all improvements completed by Tenant or on Tenant's behalf under Article II. Landlord shall not be obligated to pay to Tenant the Final Installment of the Improvement Allowance until Tenant has delivered such drawings. For purposes hereof, the "Final Installment" shall mean with respect to each phase of work, an amount equal to 10% of the full cost of such work as retainage. 9. With respect to the electrical upgrades which will be made at Tenant's sole cost, Landlord shall submit to Tenant invoices for the cost of all such work. Tenant shall reimburse Landlord for all such amounts within thirty (30) days of receipt of each invoice. All such amounts owed to Landlord shall constitute Additional Rent, and Tenant's failure to so reimburse Landlord within said thirty-day period shall constitute a material monetary default under the Lease. 10 -288- EXHIBIT "C" to be made a part of a Twelfth Amendment To Lease between LAFP-SP, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant) dated ______, 1999. COMMENCEMENT DATE AGREEMENT This Commencement Date Agreement is entered into by Landlord and Tenant pursuant to Article II, Paragraph 1 of this Amendment. 1. DEFINITIONS. In this Agreement, the following terms have the meanings given to them: (a) Landlord: LAFP-SP, Inc. (b) Tenant: Data Transmission Network Corporation (c) Lease: Lease between Landlord and Tenant, dated May 2, 1995, and amended by 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, a Seventh Amendment to Lease dated September 19, 1997, an Eighth Amendment to Lease dated September 19, 1997, a Ninth Amendment to Lease dated September 19, 1997, a Tenth Amendment to Lease dated December 23, 1997, and an Eleventh Amendment to Lease dated March 31, 1998. 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 ___________, 20___. Landlord and Tenant have executed this Commencement Date Agreement as of the date set below. Tenant: Landlord: Data Transmission Network LAFP-SP, Inc. Corporation, a Delaware corporation By:/s/ Greg T. Sloma By:Lowe Enterprises Investment --------------------------- Management, Inc. Greg T. Sloma Its:President and COO Its: Authorized Agent Date:5/4/99 By:____________________________ Its:____________________________ Date:___________________________ 11 -289- EX-10 14 THIRTEENTH AMENDMENT TO LEASE THIRTEENTH AMENDMENT TO LEASE THIS THIRTEENTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this 18th day of October, 1999, 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., 1515 Arapahoe Street, Tower III, Suite 900, 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 Tenant entered into that certain Lease dated as of May 2, 1995. Subsequently, The Prudential Insurance Company of America and Tenant executed a First Amendment to Lease dated September 29, 1995, a Second Amendment to Lease dated January 5, 1996, and a Third Amendment to Lease dated January 5, 1996, and thereafter, Landlord and Tenant executed 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, a Seventh Amendment to Lease dated September 19, 1997, an Eighth Amendment to Lease dated September 19, 1997, a Ninth Amendment to Lease dated September 19, 1997, a Tenth Amendment to Lease dated December 23, 1997, an Eleventh Amendment to Lease dated March 31, 1998 and a Twelfth Amendment to Lease dated May 12, 1999. The lease and all amendments thereto are hereinafter referred to as the "Lease". B. Pursuant to the Lease, Tenant occupies Suites #175A, #175B, #100, #101, #110, #130, #200, #300, #301, #310, #315, #320, #325, #340, #350A, #350B, #360, and #362, containing approximately 107,576 rentable square feet (the "Current Premises"0 in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska pursuant to the Lease. C. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Installation of Generator. Landlord shall allow Tenant to construct and install a generator, diesel tank and related equipment on a pad site within the Building Complex as more particularly described on the site plan attached hereto and incorporated herein by this reference as Exhibit A (the "Pad Site"), provided that all governmental authorities having jurisdiction thereover have granted the necessary approvals and/or licenses therefor. Tenant shall construct and install the generator and related equipment in strict accordance with the attached plan which has been approved by Landlord. All construction work shall 1 -290- be supervised by Tenant and overseen and approved by Landlord, it being agreed that Tenant shall bear all responsibility for the completion of the construction and installation of the generator, and that Landlord shall in no event bear any responsibility therefor. All costs incurred in the pursuit and obtainment of approvals or licenses, and the costs of construction, installation, maintenance and removal of the generator shall be at Tenant's sole expense. Tenant agrees to indemnify and hold Landlord harmless from any damages or losses whatsoever occasioned by Landlord as a result of such installation, maintenance or removal. At the end of the Lease term, Tenant shall remove the generator and all related components thereto, and shall return the Pad Site and any other portions of the Building Complex to the condition that existed prior to the installation of the generator. 2. Use Restrictions. Tenant shall run the generator only: i) in the event that there is a power failure in the Building and ii) to test the system, provided that such testing shall occur only on weekdays before 7:00 a.m. or after 7:00 p.m. or after 1:00 p.m. on Saturdays. 3. Reaffirmation of Lease. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. The parties hereto hereby reaffirm and ratify all covenants, representations and warranties in the Lease as amended by this Amendment. 4. Binding Effect. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network LAFP-SF, Inc. Corporation a Delaware Corporation By: /s/ Greg T. Sloma By: Lowe Enterprises Investment ------------------------------ Management, Inc. Greg T. Sloma Its: Authorized Agent Its: President and COO By: /s/ Tom Rau ---------------------------------- Tom Rau Its: Vice President 2 -291- EX-99.B2 15 1999 Data Transmission Network Corporation (DTN(r)), an electronic information and communications services company headquartered in Omaha, Nebraska, is a leader in the delivery of time-sensitive information (NEWS...NOT HISTORY(r)). DTN is committed to providing comprehensive, timely and affordably priced information to our customers. DTN's services are tailored to meet subscribers' needs and are valuable tools in managing business and personal affairs. The Company began operations in 1984, went public in January 1987, and continues to evolve into a full-service information provider and communications network. DTN primarily distributes information via small dish Ku-band satellite and the Internet. Other distribution systems include FM radio side band channels, TV cable, direct leased line circuits, wireless pagers, Fax and e-mail. Subscribers receiving information via satellite utilize a DTN receiver capturing information around the clock and converting it to text, graphics and audio. Prior to 1992, DTN supported only a monochrome receiver system capable of receiving and displaying information. In 1992, the Company introduced the Advanced Communications EngineSM (ACE) receiver that expanded the information and communication services provided by the Company. DTN receivers contain multiple processors for capturing, manipulating and displaying high-resolution color video pictures, graphics and text. In addition, these processors provide the ability to play audio clips and to utilize a phone modem. The ACE receiver is equipped with an internal hard drive allowing processed information to be stored, archived and then displayed by using the built-in control panel, a keyboard or a mouse. In 1995, DTN began offering services on the Internet and is currently pursuing e-commerce initiatives in the agricultural, weather, financial and energy industries. The Internet has become a significant part of the Company's growth strategy for the future. DTN's services reach subscribers in the U.S. and Canada. The Company receives the majority of its revenues from the agricultural, weather, financial and energy industries. These industries and the services offered are profiled on pages 10-13 of this report. DTN's strategy is to focus on growing the business organically, through acquisitions and by pursuing opportunities to provide services to niche markets within other industries. Led by customer suggestions and demands, Data Transmission Network Corporation has engineered growth and evolution from what we were - the first low-cost, electronically delivered agricultural commodities information service, to what we are today - a multi-faceted information provider, utilizing a full range of technological communication systems to deliver the most valuable of commodities, timely information. -292- 2 Financial Highlights 3 Five Years in Review 4 To Our Shareholders 8 Our Business 10 Our Services 14 Agricultural Services 18 Weather Services 24 Financial Services 28 Energy Services 30 Other Services 32 Selected Historical Consolidated Financial Data 33 Management's Discussion and Analysis 43 Management's Responsibility for Financial Statements and Independent Auditor's Report 44 Consolidated Financial Statements 48 Notes to Consolidated Financial Statements 57 Quarterly Data and Trading Information 58 Board of Directors and Corporate Officers 1 -293- Financial Highlights
Percent 1999 1998 Change Operating Results (year ended) Revenues $ 166,508,602 $ 148,986,346 12 % Operating cash flow1 57,883,986 53,013,798 9 % Cash provided by operating activities2 51,173,936 42,415,869 21 % Net loss3 (3,706,691) (3,742,759) 1 % Diluted loss per share3 $ (.32) $ (.33) 3 % Balance Sheet Data (at year end) Total assets $ 184,003,178 $ 197,185,082 (7)% Long-term debt (including current portion) 103,119,999 122,248,540 (16)% Shareholders' equity 37,496,920 32,149,886 17 % Book value per share $ 3.13 $ 2.79 12 % Other Operating Data (year ended) Total subscribers 166,900 159,300 5 % Annualized subscriber retention rate 81.3 % 80.6 % 1 % Net development costs4 $ 7,274,692 $ 6,533,965 11 % Operating cash flow from core services5 $ 65,111,052 $ 59,434,670 10 % Property and Equipment capital expenditures $ 23,199,839 $ 29,145,219 (20)% Free cash flow6 $ 25,863,671 $ 15,418,911 68 % Debt leverage ratio7 1.8 2.3 (22)% As a Percent of Revenue (year ended) Operating cash flow1 34.8 % 35.6 % Cash provided by operating activities2 30.7 % 28.5 % Operating cash flow from core services5 39.4 % 40.8 % Free cash flow6 15.5 % 10.3 % Depreciation and amortization 32.3 % 32.8 % Interest expense 5.3 % 5.7 %
[FN] 1 Operating cash flow (EBITDA) defined as operating income before depreciation and amortization expense. Excluding the $.7 million non-recurring severance costs and $4.1 million loss on the sale of radar operations in 1999 and the $5.8 million non-recurring satellite costs in 1998, operating cash flow for 1999 would have been $62.7 million compared to $58.8 million for the same period of 1998. As a percent of revenue, operating cash flow would have been 37.7% and 39.5% for 1999 and 1998, respectively. 2 Excluding the $.7 million non-recurring severance costs and $4.1 million loss on the sale of radar operations in 1999 and the $5.8 million non-recurring satellite costs in 1998, cash provided by operating activities would have been $56.0 million in 1999 compared to $48.2 million for the same period of 1998. As a percent of revenue, cash provided by operating activities would have been 33.6% and 32.4% for 1999 and 1998, respectively. 3 Excluding the non-recurring costs of $.7 million related to severance costs ($.5 million net of tax) and the $4.1 million loss on sale of radar operations ($2.6 million net of tax) in 1999 and the $5.8 million of satellite costs ($3.7 million net of tax) and before the $1.7 million debt extinguishment costs ($1.1 million net of tax) in 1998, the net loss for the 1999 would have been $.6 million or ($.05) per share on a dilutive basis compared to net income of $1.0 million or $.09 per share on a diluted basis for the same period of 1998. 4 Net Development Costs defined as the sum of 1) market research activities, 2) hardware and software development and 3) the negative operating cash flow (prior to corporate allocations plus interest) for the development of new services. 5 Core services are services no longer in the initial development process. Operating cash flow from core services as a percent of revenue is calculated on core services revenue. Excluding the $.7 million non-recurring severance costs and $4.1 million on loss of sale of radar operations in 1999 and $5.8 million non-recurring satellite costs in 1998, operating cash flow from core services would have been $70.0 million for 1999 compared to $65.2 million for the same period in 1998. As a percent of revenue, operating cash flow from core services would have been 42.4% and 44.7% for 1999 and 1998, respectively. 6 Free cash flow defined as operating cash flow (EBITDA) less property and equipment capital expenditures and interest expense. Excluding the $.7 million non-recurring severance costs and $4.1 million loss on sale of radar operations in 1999 and the $5.8 million non-recurring satellite costs in 1998, free cash flow would have been $30.7 million for 1999 compared to the $21.2 million for the same period of 1998. As a percent of revenue, free cash flow would have been 18.4% and 14.2% for 1999 and 1998, respectively. 7 Debt leverage ratio defined as total long-term debt (including current portion) divided by last twelve months operating cash flow. Excluding the $.7 million non-recurring severance costs and $4.1 million loss on sale of radar operations in 1999 and the $5.8 million non-recurring satellite costs in 1998, the debt leverage ratio would have been 1.7 and 2.1 for 1999 and 1998, respectively. 2 -294- Five Years in Review FIVE YEARS IN REVIEW - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORM: 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Revenues ($ millions) 62.3 98.4 126.4 149.0 166.5 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Operating Cash Flow ($ millions) 23.2 40.4 54.7 58.8* 62.7* 53.0 57.9 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Operating Cash Flow (percent of revenue) 37% 41% 43% 40%* 38%* 36% 35%* 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Net Development Costs ($ millions) 3.7 5.3 5.2 6.5 7.3 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Subscribers At Year End (thousands) 95.9 145.9 158.8 159.3 166.9 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Subscriber Retention Rate (percent) 91.0 89.3 88.1 80.6 81.3 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Annual Revenue Per Subscriber ($ based on average subscribers) 700 775 830 937 1,021 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Annual Operating Cash Flow Per Subscriber ($ based on average subscribers) 260 318 359 370* 384* 333 355 *Pro-forma results before $5.8 million non-recurring satellite costs in 1998 and $.7 million non-recurring severance costs and $4.1 million loss on sale of radar operations in 1999. 3 -295- (Picture of the Executive Team) DTN Corporate Executive Team (l-r): Greg T. Sloma, President and Chief Operating Officer; Brian L. Larson, Senior Vice President, Chief Financial Officer and Secretary; Joseph A. Urzendowski, Vice President of Operations "There have never been more exciting opportunities for our four divisions to capture revenue in e-commerce and other growth areas." - Greg T. Sloma To Our Shareholders As you may have read or heard, on March 3, 2000, the Company entered into a definitive agreement with Veronis, Suhler & Associates Communications Partners III, L.P. (VS&A III) whereby VS&A III will make a tender offer to all of the Company's shareholders at a price of $29.00 per share. The Tender offer is subject to the tender of at least 90% of the Company's outstanding shares as of March 1, 2000. If less than 90% of the outstanding shares are tendered, the Company will merge with an affiliate of VS&A III at the same per share price. Holders of over 50.1 percent of the Company's outstanding shares have agreed to accept the tender offer and vote to approve the merger. Closing of the transaction is subject to government and shareholder approvals and other customary conditions, and is expected to occur during the second quarter of 2000. With that said, I will now discuss what the Company accomplished during 1999, both financially and operationally, while the "Shareholder Value Enhancement" process was proceeding. In keeping with my previous three quarterly reports in 1999, I plan to discuss subscribers and revenues, operating cash flow (EBITDA), operating income, other income and expenses, net income, free cash flow and our debt leverage ratio. In addition, I will review our operations including new services we offered in 1999 and acquisitions. The last topic will be the process on enhancing shareholder value. SUBSCRIBERS AND REVENUES Total subscribers increased 5% to 166,900 at December 31, 1999 compared to 159,300 at December 31, 1998. Total Internet subscribers were 19,000 at December 31, 1999 compared to 4,700 at December 31, 1998. Total revenues for 1999 increased 12% to $166.5 million compared to $149.0 million for 1998. Total subscription revenues per subscriber per month for 1999 was $68 compared to $62 for 1998. Subscription revenue per subscriber per month for all new subscription sales for 1999 was $74. 4 -296- OPERATING CASH FLOW Operating cash flow (EBITDA) for 1999 increased 9% to $57.9 million compared to $53.0 million for 1998. Excluding non-recurring costs and the loss on sale of radar operations, operating cash flow for 1999 would have increased 7% to $62.7 million compared to $58.8 million for the same period of 1998. Operating cash flow margin (EBITDA margin) for 1999 was 35% compared to 36% for 1998. Excluding non-recurring costs and the loss on sale of radar operations, operating cash flow margins for 1999 would have been 38% compared to 40% for 1998. Excluding non-recurring costs, the loss on sale of radar operations and Kavouras operating results, operating cash flow margins for 1999 and 1998 would have been 43%. OPERATING INCOME Operating income (EBIT) for 1999 and 1998 was $4.2 million. Excluding non-recurring costs and the sale of radar operations, operating income for 1999 would have been $9.0 million compared to $10.0 million for 1998. Operating income excluding non-recurring costs, the sale of radar operations and amortization expense from acquisitions increased 18% to $21.7 million for 1999 compared to $18.4 million for 1998. NET INCOME The net loss for 1999 was ($3.7) million or ($.32) per share on a diluted basis, compared to a net loss of ($3.7) million or ($.33) per share on a diluted basis for 1998. Excluding the non-recurring costs related to severance and the satellite outage, the loss on the sale of radar operations and the one-time debt extinguishment charge, the net loss for 1999 would have been ($.6) million or ($.05) per share on a diluted basis compared to net income of $1.0 million or $.09 per share on a diluted basis for 1998. FREE CASH FLOW Free cash flow (defined as operating cash flow (EBITDA) less property and equipment capital expenditures and interest expense) for 1999 increased 68% to $25.9 million compared to $15.4 million for 1998. Property and equipment capital expenditures for 1999 were down 20% to $23.2 million compared to $29.1 million for 1998. Included in 1999 and 1998 were $8.6 million and $3.1 million, respectively, of one-time expenditures for satellite equipment and new product initiatives. Excluding non-recurring costs, the sale on radar operations and one-time property and equipment capital expenditures, free cash flow for 1999 would have increased 62% to $39.3 million compared to $24.3 for 1998. DEBT LEVERAGE RATIO The Company's debt leverage ratio is defined as total long-term debt (including current portion) divided by the last twelve months operating cash flow (EBITDA). The Company's debt leverage ratio was 1.8 for the twelve month period ended December 31, 1999 compared to 2.3 for the twelve month period ended December 31, 1998. OPERATIONS REVIEW During 1999, we focused our energies and resources on our core businesses of Agriculture, Weather, Financial Services and Energy. The agriculture economy remained weak due to low commodities and livestock prices. We continued to integrate the Kavouras weather business into our business and began offering services for the middle markets and the Internet. Our Energy business continued to grow through increased communication (messaging) revenues. The Financial Services business focused on providing Internet services to the individual investor markets and began offering subscribers the ability to trade equities using our services. We continued to focus on growing revenues, operating cash flow and free cash flow. Our efforts produced positive results as the summaries demonstrate. Subscription, additional services and communications revenues all set records and this growth produced excellent operating cash flow and free cash flow (as defined by the Company). Our total revenues were up 12% for the year and we made substantial progress with our Internet services. Total revenues from Internet subscribers for 1999 grew 500% to $8.3 million compared to $1.4 million for 1998. Operating cash flow continued to grow and led to impressive growth in Free Cash Flow. We have defined free cash flow as Operating Cash Flow (EBITDA) less property and equipment capital expenditures and interest expense. Free cash flow grew 68% to $25.9 million in 1999, compared to $15.4 for 1998. More importantly, free cash flow, excluding non-recurring costs, the sale of radar operations and one-time property and equipment capital expenditures was an impressive $39.3 million for the current year. Operating cash flow margins, excluding non-recurring costs, the sale of radar operations and our Kavouras operations continued to be very strong at 43%. On a final note, our core services operating cash flow margins, excluding Kavouras operating results, non-recurring costs and the loss on sale of radar operations, remained strong at 48% for both 1999 and 1998. This demonstrates that we have grown our businesses efficiently. Operating income and net income, excluding non-recurring costs and the sale of radar operations were down due to higher amortization from acquisition activities. However, cash earnings (operating income before amortization expense related to acquisitions) excluding non-recurring costs and the sale of radar operations, increased 18% for 1999 over 1998. Our balance sheet remains 5 -297- conservative with a debt leverage ratio of 1.8. This ratio indicates operating cash flow could repay our bank debt in less than 2 years. We introduced several new services and a strategic alliance during 1999. The following is a brief description of these services and the alliance. DTN Tradelink - An Internet based service for the produce, floral, meat and other fresh related grocery products. This service is an electronic data interchange (EDI) system that will link buyers and suppliers in these markets. This product will be released in stages to the markets. StormSentry PC - A new weather information service designed to provide real-time, single-site NEXRAD access on a PC. This product is the ultimate in storm tracking technology and software that identifies dangerous weather cells, analyzes characteristics, locations, speeds, directions, and estimated times of arrival. DTN Pro Shop - A weather information service designed to provide instant access to weather, golf and sports information in golf course pro shops. This service contains weather information needed to operate a golf course in the safest and most profitable way. WX.COM (www.WX.com) - WX.COM provides viewers with a dynamic and interactive experience including the ability to easily overlay full-motion weather maps with state and county lines, highways and other familiar landmarks to track weather patterns. WX.COM is an Internet service featuring TV quality, 3-D graphics and weather information including interactive weather, radar, storm tracking, current conditions, weather warnings and much more. Preferred Interactive - An alliance was formed with DTN and Preferred Interactive Inc. to provide one of the fastest, most efficient and comprehensive Internet stock trading and information services available for individual investors and active traders. DTN.IQ customers (www.DTNIQ.com) receive fully integrated access to Preferred Trade, a real-time low-cost, windows-based online trade order entry and execution system for investors and traders. Cyber Corp - An alliance was formed with DTN and Cyber Corp to deliver electronic trading using CyberXchange. CyberXchange searches all possible market makers and all major electronic communications networks (ECNs), scanning their bids and asks, before forwarding the order to the trader with the best price at that moment. CyBerCorp's trade execution technology offers direct access connections to six ECNs, an unprecedented number. DTN FinWin - A free page of market news, quotes and other financial content for web sites (www.finwin.com). DTN will generate revenue from selling advertising space on these pages. Our management team is focused on making acquisitions that fit into our operating strategies. The following is a list of our accomplishments for 1999. Waterman Associates - In January, DTN acquired Waterman Associates, a business engaged in creating, assembling, marketing and distributing information in the natural gas and electric energy industries. This information is made available to DTN subscribers as part of the DTN Natural Gas and Electric services. DTN acquired Waterman Associates for $350,000 cash. Paragon Software, Inc. - In March, DTN completed the acquisition of Paragon Software, Inc. (PSI) for $3,800,000 cash. PSI has approximately 4,000 subscribers receiving real-time streaming (continuously updating) quotes to investors. PSI provides Internet subscribers with an affordable and flexible real-time quotes system that includes such features as scrolling ticker tape, historical and intra-day charts and portfolio analysis under the name InterQuote (www.interquote.com). SmartServ Online, Inc. - In January, we announced a Letter of Intent whereby DTN would merge with SmartServ Online, Inc. (SSOL). As you may recall in April 1998, DTN received the exclusive rights to market the Internet based financial services information products of SmartServ Online and the Internet information distribution technology. These services include: DTN.IQ, a real-time tick-by-tick stock quote and news service, and TradeNet and BrokerNet, real-time trading and account information products for the brokerage industry. Through this alliance, DTN received the following: i) a proven Internet real-time quote and news service providing convenience and advanced features for the user; (ii) an electronic trading and back-office system designed for the small and mid-sized brokerage firm; (iii) access to a talented development team to support and enhance the new products and (iv) SmartServ Online subscribers. After further review by both companies, we decided to extend our current arrangement with SSOL instead of purchasing the company. Under the new terms DTN paid $5,458,000 to SSOL for an exclusive perpetual, worldwide license, to ensure a strong, long-term business alliance. SSOL provides online programming for 6 -298- future enhancements to products and services as well as server support for Internet products. DTN provides marketing, sales, customer service and administration support. Both DTN and SSOL believe the new exclusive license agreement best serves the long-term goals of the companies. The new agreement solidifies the business relationship, started in April 1998, which launched DTN.IQ (www.DTNIQ.com), our very successful real-time streaming quotes, news and information service. FlightBrief - In November, DTN acquired the assets of FlightBrief Online Service, Inc., an Internet weather service for the aviation industry. This purchase included two web sites, www.weatherconcepts.com which provides real-time weather graphics to aviation, marine, farming and construction subscribers and www.flightbrief.com which provides real-time graphics and interactive flight planning, weather briefings, airport databases and other resources for aviation subscribers. The target market is 600,000 aircraft owners and pilots in the United States. We paid approximately $370,000 for the services and 3,300 subscribers. In addition to making strategic acquisitions and acquiring the SmartServ license we also made an investment in a new company. In December, DTN and Photon Research Associates, Inc. (PRA) formed the joint venture company, EarthScan Network, Inc. (EarthScan). EarthScan delivers the most sophisticated satellite images available to farmers and suppliers through the Internet (www.EarthScan.com). DTN committed to a $3.0 million investment in EarthScan. During December we divested ourselves of the radar operations of our Kavouras, Inc. subsidiary. In 1998 we acquired Kavouras, Inc. which included the manufacture and sale of weather radar equipment. In December of 1999, we sold these radar operations to Radtec Engineering, Inc. of Colorado for $1.3 million. We recorded a loss of $4.1 million for the sale of assets, severance and other operation closing costs. The sale of these operations allows the Kavouras team to focus on providing the industry with the most advanced weather display and data services available. We continue to explore growth opportunities and look for possible acquisition targets. We are pursuing e-commerce and other initiatives in our four main businesses. These initiatives come in all shapes and sizes. We will pursue vigorously those opportunities with the best "fit" and future potential. At this time, I would like to thank DTN employees and their families for their commitment and hard work during 1999. In addition, a thank you is in order to customers, shareholders, financiers and suppliers for their continued support. Very sincerely yours, Greg T. Sloma President and COO The Company continually identifies leading edge technologies to best serve its diverse group of customers. (Photograph) From left to right: James L. Marquiss, Senior Vice President and Director of Business Research and Product Development; Scott A. Fleck, Vice President and Director of Engineering; Raymond E. Johnson, Director of Broadcast Operations; Kurt Sowers, Broadcast Operations Manager. 7 -299- Our Business Business Review Data Transmission Network Corporation (DTN, the Company) began operations in April 1984 and continues to provide comprehensive, time-sensitive information and communication services primarily for the agricultural, weather, financial and energy industries. DTN grew to 166,900 subscribers throughout the U.S. and Canada at the end of 1999. A review of these industries and services with the year's highlights are discussed in this report. The Company's subscription services are targeted at niche business markets and designed to be timely, simple to use and convenient. The Company's distribution technology provides an efficient means of sending data and information from point to multi-point. The development and enhancement of cost-effective distribution methods including the Internet and satellite delivery, plus a total commitment to customer service and information quality has enabled the Company to become a major player in the communications industry. The Company continues to take advantage of engineering and software advancements for developing and improving distribution in an exciting and growing industry. In 1999, DTN made great strides in the area of e-commerce which will also be discussed in detail in this report. Information Distribution Technologies DTN supports several information distribution technologies allowing the distribution, reception and display of information. The primary technologies used are small dish Ku-band satellite (Ku) and the Internet. Other technologies used are Cable TV (VBI), e-mail, FAX, direct leased line circuits and wireless technology. The Company provides the equipment necessary for subscribers to receive certain services using Ku, FM or VBI technologies. This equipment includes a DTN receiver, a video monitor, FM antenna or a small 30" Ku-band satellite dish. A keyboard, mouse and printer may be provided depending on the service. DTN is responsible for the normal maintenance and repair of subscriber equipment. DTN Internet subscribers use their own personal or business computers to receive information and e-commerce services. In 1992, the Company introduced the Advanced Communications Engine (ACE) receiver, a color graphics receiver system. This system expanded the Company's ability to provide information and communication services using satellite technology. The ACE receiver contains multiple processors. One is dedicated to data communications and storage. The second processor is for manipulating data, interacting with the user and displaying high-resolution color pictures, graphics and text. A third processor enables the unit to play audio clips for weather forecasts, voice advertisements or audio alarms set for when a futures contract or stock price reaches a pre-set price. In addition, this processor can send and retrieve information by using an internal modem connected to a phone line. Additional processors may be present, as necessary, based on the method of information distribution technology used, such as satellite, VBI, etc. The ACE receiver can also download information to a printer or computer. This receiver is equipped with an internal hard drive allowing processed information to be stored, archived and displayed. The receiver's built-in control panel, keyboard or mouse allows subscribers to conveniently view this information. One of the unique aspects of the Company's information distribution technology is the computer software developed by the Company for use with the broadcast system that feeds data to the ACE receivers. This software manages information from a wide array of input sources, runs routines, sets priorities and then initiates transmission to the satellite. The software provides the capability to individually address each receiver unit placed with a subscriber. This permits the Company to transmit specific information to a specific subscriber or group of subscribers. DTN began offering services via the Internet in 1995 and now provides Internet services for the four main divisions - agriculture, weather, financial and energy. In 1998, the Company expanded its Internet initiatives into the e-commerce arena, adding online trading capabilities to real-time Internet financial service products. In 1999, the Company began new initiatives within Timeline of History of DTN Services & Distribution Technology Advancements
History of DTN Services Year Distribution of Technology Advancements Year Agricultural Services Began 1984 FM Radio Side Band 1984 DTN Goes Public (NASDAQ:DTLN) 1987 Ku-Band Satellite 1989 Financial Services Began 1989 ACE Color Receiver Fax 1992 Energy Services Began 1991 Cable TV (VBI) 1994 Weather Services Began 1995 Internet Services Began 1995 Direct Leased Lines Wireless 1998 E-Commerce Services 1998 Online Stock Trading 1999 Free Interactive Web Sites 1999
8 -300- the cash grain and livestock commodities and futures business as well as for perishable products such as meat, produce and floral. The Company also announced its interactive, advertising based weather site (WX.COM) in 1999. These and more will be discussed later in this report. In 1998, the Company began delivering services to customers via direct leased line circuits. This gives customers in major metropolitan areas the ability to receive the Company's information where options, such as satellite dishes, are impractical. In many instances, this technology provides a redundant delivery method to insure maximum availability of the Company's information. The following is a summary of subscribers by information distribution technology at December 31, 1999. Information Distribution Technologies Subscribers Ku-Band Satellite 142,600 Internet 19,000 Leased Lines 1,600 VBI 800 FM Radio Side Band 2,900 ------- Total 166,900 The Company has approximately 15,000 customers receiving information using Fax technology. The e-mail business is primarily a subscriber (an e-mail source) communicating specific messages to a group of subscribers. There are over 1,200 e-mail sources delivering over 35,000 pages of information to subscribers daily. Service and Equipment Revenue The Company's revenue is derived primarily from six categories: (1) monthly, quarterly or annual subscriptions, (2) equipment sales (3) additional (optional) services, (4) communication services, (5) advertising and (6) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was: 1999 1998 1997 Subscriptions 80 % 80 % 80 % Equipment Sales 4 % 3 % - Additional Services 5 % 5 % 5 % Communication Services 8 % 7 % 8 % Advertising 2 % 3 % 3 % Service initiation fees 1 % 2 % 4 % [FN] (1) Subscription revenue is generated from monthly, quarterly or annual fees for one of the Company's services. The Company offers a discount to subscribers who pre-pay their subscription annually. A more detailed review of each service is found later in this report. (2) A unit of DTN Kavouras Weather Services generated equipment sales of weather systems, workstations and weather radar systems as well as the manufacturing of small and large Doppler radar systems. The Company announced the sale of their radar business to Radtec Engineering, Inc. in December 1999. (3) Additional services are offered to subscribers on an "a la carte" basis, similar to premium channels on cable TV. A third party provides information for these services with DTN receiving a share of the subscription revenue paid by the subscriber. Additional 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. (4) The Company sells communication services allowing companies to cost-effectively communicate a large amount of timely information to their customers or field offices. This category includes revenue generated from FAX and e-mail services. Communications revenue continued to grow in total dollars and management believes this area offers opportunities for future growth. (5) Advertising space is sold and 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 was down slightly due primarily to the weak ag economy. This was somewhat offset due to subscriber and subscription revenue growth as well as the addition of new services with available advertising space. (6) Service initiation fees are one-time charges for new subscriptions depending on the service and the information distribution technology. DTN also charges an initiation fee for those subscribers who convert to another service (i.e., from a monochrome FM to a Ku color service). 9 -301- Our Services The Agriculture Industry DTN AgDaily(r)/DTN FarmDayta(r) provides agricultural market information, delayed commodity futures and options quotes, local cash grain and livestock prices, regional and weather updates and a variety of daily analysis, commentary and news affecting grain and livestock prices. DTN AgDayta (www.agdayta.com) provides an Internet solution combining the best of DTN AgDaily and DTN FarmDayta for up-to-date agricultural weather, markets, news and commentary, quotes, local cash grain and livestock prices. DTN Ag1.com (www.ag1.com) offers a unique, Internet-based, personalized business plan that incorporates discounted inputs, financing, marketing, personal insurance, tax and estate planning and crop revenue insurance services into one program, "Your One Resource". DTN Pro SeriesSM/DTN FarmDayta Elite Plus(r) provides services with advanced information sources for ag producers, agribusinesses and commodity traders requiring extensive information to be customized for their specific needs. DTNstant(r) provides real-time futures and options quotes, comprehensive analytics and real-time commodity news from Bridge, Reuters and Future World News as well as proprietary cash market information for the ag sector. This service also includes all the information found on DTN Ag Daily. DTN Fresh, an expansion of the DTN PROduce service, provides comprehensive weather, pricing, news and transportation information as well as e-commerce and electronic data interchange (EDI) solutions for those involved in the buying and selling of perishable commodities. It includes two business units, DTN Tradelink and DTN Fresh Information Services. DTN Cotton Network provides an electronic marketing system for the cotton industry. The service allows gins, brokers, buyers, and warehouses to share data allowing fast and accurate marketing and accounting of cotton offered and sold. DTNironSM provides an equipment locator and inventory management service for the farm implement dealer. It is designed to allow dealers to work together in locating, buying and selling used farm equipment with other dealers/subscribers. Agricultural Joint Venture EarthScan Network, Inc. (www.earthscan.com) is an agricultural remote sensing tool that delivers year-round farm management solutions. By providing crop monitoring and site measurement capabilities, EarthScan is an inexpensive entry into precision agriculture that requires nothing more than a personal computer and Internet access. 10 -302- The Weather Industry DTN Weather Center www.WX.com is DTN's free interactive weather website providing TV quality, 3-D weather graphics including international weather, radar, storm tracking, current conditions, weather warnings and more. DTN Weather Center(r)/DTN Online Weather Center provides a comprehensive weather information system to meet the weather information needs of many industries. Subscribers to DTN Weather Center rely on accurate and easily accessible weather information as a critical ingredient in operating, operations planning, and staffing decisions. DTN Aviation CenterSM provides comprehensive aviation weather and flight planning information specifically for pilots, airports and Fixed Base Operators (FBO's). FlightBrief Online (www.flightbrief.com) provides real-time weather graphics and interactive flight planning, weather briefings, airport databases and other resources for aviation subscribers via the Internet. DTN Broadcast Weather provides comprehensive local, regional and national weather forecasts plus national and international news for the broadcast industry. DTN Contractor WeatherSM is an easy to use stand-alone system providing a complete package of current weather, forecasts and construction related news. Information is accessed by using a mouse or keypad to select pages viewed on a super VGA color monitor. DTN Transportation Weather provides time-sensitive and often critical, local, regional and national weather forecasts for transportation professionals. Subscribers also receive information through a pager or via DTNonline, DTN Weather Center's Internet service. DTN Turf ManagerSM provides weather information to individuals and businesses involved in turf-related operations such as outdoor sports facilities, golf courses, lawn maintenance, landscaping and sod farms. The service provides chemical, weather and specialty information designed for turf management. DTN Pro Shop provides instant access to weather, golf and sports information. The service contains all the weather information needed to operate a golf course in the safest and most profitable way. DTN Weather Safety Center provides valuable weather information, warnings and alerts to emergency management professionals and anyone who is responsible for protecting lives and property from the hazards of severe weather. This service couples with the DTN Weather Alert Paging System to provide immediate notification of severe weather to alpha pagers. StormSentry PC is storm tracking software that identifies dangerous weather cells, analyzes their characteristics, their locations, their speeds, their directions, their estimated times of arrival...all automatically. Other Specialty Weather Services are provided for the marine, forestry and travel industries which includes additional weather reports and maps targeted to these industries. DTN Kavouras Weather Services TritonTM RT is a real-time 3-D and 2-D weather and news graphics animation system focused on, but not limited to, the broadcast television market. This product uses weather data to create an informative and exciting weather show. MetWorkTM FileServer is a robust and dynamic network solution for real-time dissemination of meteorological information based on the versatile and efficient NT format, supporting standard Internet communications protocol and various network configurations. Storm ProTM is a workstation that integrates real-time Doppler weather radar with a geographic information data system to create an accurate display with broadcast-quality appearance. The display can be individualized for a unique and defining look important in the television market. StormWatch(r) is customizable software that monitors either a weather wire or a DTN Kavouras MetWork Fileserver to generate color-coded maps and/or a crawl message for important watch, warning or advisory weather situations. StormWatch also allows a television station to edit and prioritize information for their viewing areas. SchoolWatchTM is customizable software for the Triton RT that helps television stations easily update, prioritize and display late-start and school closing information. This software can also be configured to update information on a station's Web site. Data and Customizable Forecasting Services provides a broad range of standard data for a wide variety of markets and 24-hour, 365 days a year coverage for tailor-made forecasts to meet customers' special needs. 11 -303- The Financial Service Industry DTN Financial Services DTN.IQ and Interquote (www.DTNIQ.com and www.interquote.com) use cutting edge Internet technology to deliver two distinct services for online stock trading with tick-by-tick quotes, full-text news, intraday and historical charts, portfolio manager, alerts and more, for individual and professional investors. DTN FinWin (www.finwin.com) is a customizable window of financial quotes, news and charts for web sites. FinWin is free for sites that generate a minimum amount of traffic or for a monthly subscription without advertising. DTN Real-Time(r) provides real-time quotes on more than 260,000 stocks, stock options, commodities, and indexes, plus news, earnings, and economic data. The Service provides Nasdaq Level II, intraday and historical charts, portfolio tracking and more using third-party software or DTN's free Windows-based application. DTN SPECTRUM(r) provides delayed quotes, plus business news, economic data and financial information with charting capabilities. Data is available on a stand-alone system with user-programmable pages or via PC using third party software. DTN SPECTRUM(r) R-T provides the same information as DTN SPECTRUM with futures updated in real-time. DTN FirstRate(r) provides wholesale mortgage rates and U.S. Agency/Mortgaged-Backed Securities prices as well as delayed quotes on stocks, futures and futures options, plus market commentary, business news and economic reports. DTN FirstRate+(r) provides the same information as DTN First Rate and includes coverage of the U.S. Treasury market, live Mortgage-Backed Securities pricing, FNMA and FHLMC cash pricing, mortgage industry analysis, plus real-time Treasury quotes, futures and futures options. National Datamax Services RepCenter (www.repcenter.com) offers Broker/Dealers a secure Internet site where their representatives can access news, quotes, charts, home office information, business forms, commission reports and client prospect files. ProSource provides portfolio, contact and business management software for financial planners, including downloads of client information and the Mutual Fund Manager and Variable Annuity Manager with monthly updates. ProSource Premier includes the features found in ProSource plus tracks most types of investments and generates presentation-quality portfolio reports. It also creates business reports and is customizable for business networks. Mutual Fund Manager software allows user-defined analysis on more than 10,000 equity, bond and money market mutual funds, with performance data updated monthly or quarterly in seventy data fields for each fund. Variable Annuity Manager provides searchable performance data for analysis and comparison on more than 4,000 variable annuities, variable life sub-accounts updated monthly or quarterly. Stock & Industry Manager provides an analysis program with fundamental data on 6,000 stocks and 99 industries. Data is updated monthly or quarterly at the customer's choice. 12 -304- The Energy Industry DTNergy(r) - Refined Fuels provides terminal prices, alerts, electronic fund transfer notifications and other communication services from Petroleum Refiners to their customers (also DTN Subscribers). DTNergy(r) - Natural Gas and Electricity provides instant or delayed energy options and futures quotes from all energy affiliated exchanges along with weather, news and industry specific information. ProphetX (www.fimi.com) provides access to DTNergy's real-time market data using Financial Information Management Inc.'s (FIMI) client-service software on the Internet. EnergyView (www.energyview.com) provides access to DTNergy's real-time data using GlobalView's client-service software on the Internet. This service provides energy news and industry specific content for the International Markets (Petroleum Argus, ISIS LOR, APPI, International Weather, etc.). Other Services DTNautoSM provides a communication and information service for the automobile industry including wholesale and retail values on new and used vehicles, a used car inventory locating service and direct communication services for manufacturers and automobile auctions. DTN InfoLink provides real-time news, weather, sports and market information to the grocery and transportation industries delivered to public-use kiosks. These kiosks allow interactive coupon redemption, unique promotions and product offerings and the opportunity to integrate customer loyalty and frequent user programs. DAT Services provides an information communication system for the trucking industry that provides load and truck matching on a database of 100,000 listings updated daily. TracElectric provides an equipment locator service for the electric equipment industry with over 100 pages of new, remanufactured, surplus and used electrical equipment listings. DTN Missing Children Information CenterSM provides instant transmission of data regarding children in danger to local, regional, national and Canadian outlets. 13 -305- Agricultural Services Revenues in million of dollars 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- 44.0 69.7 87.6 88.3 85.1 14 -306- The DTN Agricultural Division consists of five major services: DTN Ag Services, DTNstant, DTN Fresh (an expansion of DTN PROduce), DTNiron and DTN Cotton Network. DTN Ag Services, DTNstant and DTNiron serve DTN's traditional agricultural marketplace, consisting of grain and livestock farmers and agribusinesses with interests in the commodity distribution chain. DTN Fresh is in the fresh produce and perishable vertical market with initiatives in meat and floral. DTN Cotton Network serves cotton gins, warehouses and merchants. Because of the diversity of these markets, the ag sales force has been specialized to best serve prospects and customers in each area. Approximately 80% of DTN ag subscribers are grain farmers and livestock producers, with the balance consisting primarily of grain elevators, agri-businesses 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. The Internet has altered access to information for ag producers. DTN's focus on additional of proprietary content and analysis from a dedicated team of ag journalists continues to set DTN apart from "free" services. Entry into the e-commerce arena, which will be discussed in detail later in this report, has opened new doors of opportunity for the company's ag division. The main competition to the agricultural services is a combination of printed advisory services, radio, television, telephone, other satellite information services, free and subscription Internet services, and old information-gathering habits. There are over 200 premium services available to agricultural subscribers to enhance their subscription. These services consist of advisory, informational and educational products as well as newswire, association and free add-on services. Premium services compliment core services and add value to the subscribers who use them. They are marketed to current subscribers through telemarketing, system wide and individual free trials, direct mail, billing and equipment inserts as well as on screen advertising. Prices range from $2 to $400 per month. Communication services play an important role in providing a cost effective means to reach a large number of targeted customers daily. DTN InfoMail provides information for elevators, seed sales reps, agronomists, chemical sales reps and technical advisors, commodity brokers, processing plants, auction sale barns, feedlots and anyone with a need to communicate to DTN subscribers. Over 40 new InfoMail providers began messaging in 1999. Advertising on DTN Ag Services is another revenue-generator for the ag division. The "always on" interactivity, animation and scheduling flexibility of the DTN systems are very appealing to agri-businesses such as seed companies, equipment dealers, and ag chemical and finance businesses. Advertising revenue in 1999 topped $2.8 million. E-Commerce Initiatives DTN's Ag Division is poised to leverage its critical mass of ag customers by providing easy and affordable access to Internet services with numerous e-commerce initiatives. The DTN Cotton Network is involved in the electronic trade of cotton for over two years and is a combination of DTN's proprietary network and the Internet. DTN Fresh introduced DTN Tradelink, which is involved with electronic data interchange (EDI) in the produce and perishables industry. DTN Tradelink software is used for price discovery and trading. In the fourth quarter of 1999, an alliance with Ag1.com created a program to provide inputs, financing, marketing advice and insurance for producers. This program has been well received in its early stages. DTNstant expanded its capabilities to include cash grain trading between its customers. The Tradelink software allows producer-to-elevator grain trading and will be sold along with InfoMail services. In addition, DTN Ag Services has negotiated an agreement with two brokerage firms to allow electronic commodity futures order entry. The elevator-to-elevator transactions as well as the producer-to-elevator transactions can be executed using DTN ACE receivers or the Internet. In December 1999, DTN and Photon Research Associates, Inc. (PRA) formed a joint-venture company, EarthScan Network, Inc. Earthscan Network is the culmination of a three year relationship bringing the latest in satellite imaging and Internet technology to give the agricultural industry unprecedented capability to manage risk and maximize return. DTN AgDayta DTN Ag Services' leading edge Internet service, DTN AgDayta (www.agdayta.com), incorporates editorial content specifically for AgDayta along with proprietary content developed for satellite services. Internet delivery allows additional functionality and supports interactivity. A newly developed charting package can be downloaded to the user's personal computer, giving impressive charting abilities for both futures and equities. An enhanced Kavouras weather package offers real-time weather updates. The result is DTN Ag Services' most content rich agricultural service. DTN AgDayta serves as the foundation of Ag Services' e-commerce initiatives on the Internet. Ag1.com has been integrated with AgDayta to provide producers with inputs, financing, marketing plans, and crop insurance. Online cash and futures trading will be available on the AgDayta site. DTN AgDayta will provide the customer with easy access to virtually every tool needed throughout the ag production and marketing cycle. DTN AgDaily/FarmDayta Satellite Services DTN AgDaily is the Company's flagship service. Managed on an Advanced Communications Engine (ACE) satellite receiver, subscribers receive delayed commodity futures and options quotes, charts, local cash grain and livestock 15 -307- prices, selected national, regional and world weather updates and a variety of daily analysis, commentary and news affecting grain and livestock prices. DTN Pro Series is an advanced version of DTN AgDaily. Functionality is enhanced with a high interest window to view futures quotes and options on any page, keyword search, customization of up to five pages of selected information and a personal library serving as an archive segment. Packages of weather, news, charts, intraday commodity charting or stocks can be added to the core service. DTN Commodity Pro, Premier and Premier Plus combine two or more of these packages for a more extensive, customized service. DTN FarmDayta II offers similar information using the unique FarmDayta receiver for its delivery method. FarmDayta One service was introduced to fill a special customer niche. Content was developed to provide a lower price point for the first-time DTN customer. This is the most economical color satellite option available from DTN Ag Services. FarmDayta Elite and Elite Plus include all the DTN FarmDayta II features and content with added news, quotes, weather information and functionality. 1999 DTN Ag Services Highlights 1999 was a year of e-commerce initiatives, continuing focus on customer retention and exploration of new technologies. The alliance with Ag1.com offers Ag Services' customers a broad range of value-added services including financing, marketing advice, inputs, crop insurance, personal insurance and financial planning. DTN AgDayta will allow Ag1.com to deliver marketing and financial products along with a complete ag information package via the Internet. This is the first step in integrating the AgDayta site into all the DTN Ag Services e-commerce initiatives. DTN began testing a new Internet delivery method to provide select small rural communities the high speed Internet access currently available in most urban areas. Most rural customers are interested in the Internet but lack a local Internet service provider and high speed phone lines. In 1999, DTN Ag Services formalized a new Customer Care program to identify accounts in crisis and proactively investigate and correct customer issues. The result has been an increase in customer satisfaction and retention. DTN Ag Services continues to be the leader in the distribution of market news, analysis and weather for farmers. Through advancements on the Internet and with e-commerce initiatives, DTN will provide customers with a one-stop-shop for all of their business. DTNstant DTNstant is a leader in providing delivery of real-time futures and options quotes from the major commodity exchanges and headline commodity news from multiple sources such as the Associated Press, Reuters, Futures World News and Bridge. The service also provides market-leading cash grain and livestock information, in-depth charting capabilities plus all the information available on the DTN AgDaily color service. In addition, the service provides information for the energy, metals, softs (i.e., orange juice, coffee, cocoa), transportation and lumber industries. DTNstant uses compatible software to allow the "pass thru" of data and graphics into an individual's personal computer or a company'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 has opened many new markets by utilizing information distribution within a customer's LAN, enhancing analytical capabilities and the manipulation of DTN data in a "PC" environment. DTNstant operates in a very competitive market with many providers of instant commodity quotes. The primary subscribers are commercial grain companies and elevators, feedlots, commodity brokers and commodity speculators. No other product in the industry offers a more comprehensive news and information service. Due to the nature of this industry, the Company provides on-site service and installation by professional service technicians. 1999 DTNstant Highlights DTNstant experienced a dynamic 1999 with over half of the subscriber growth occurring via LAN (Local Area Network) subscribers. The individual subscribers access DTN data through third party software providers. They receive all of DTNstant's data combined with the technical capabilities that the software and the computer's desktop allow. Due to the location of many new DTNstant subscribers, the product is now available via leased landline or the Internet. Both of these information delivery methods are growing at a rapid pace. Over the last half of 1999, DTNstant actively pursued and developed several e-commerce ventures that will be announced throughout 2000. DTN Fresh (an expansion of DTN PROduce) DTN Fresh provides comprehensive weather, pricing, news and transportation information, as well as e-commerce and electronic data interchange (EDI) solutions for those involved in the buying and selling of perishable commodities. DTN Fresh has two business units. DTN Tradelink provides e-commerce and EDI solutions for buyers and sellers of perishable commodities. DTN Fresh Information Services provides an authoritative source of weather, pricing, market information, news and transportation information for produce, meat, floral and other perishable product industries. 1999 DTN Fresh Highlights DTN Tradelink staff worked with leaders in the industry and the Uniform Code Council to develop and adopt EDI trading standards making it easier and more cost effective to add trading partners. The first fully integrated procurement system for the perishable system was introduced in October 1999. Contractual arrangements have been made with most of the top wholesalers/retailers to implement Tradelink in the coming year. DTN Fresh Information Services continues to expand its web-based business with customers on virtually every continent and continues to be recognized as a leader in delivering time-sensitive information to the perishable industries including produce, meat and floral. 16 -308- DTN Cotton Network DTN Cotton Network is an electronic communications system for the cotton industry designed to operate on a user's personal computer using software developed specifically for cotton accounting and marketing. DTN Cotton Network sells gin and warehouse bale accounting/management software and cotton merchant software designed specifically for these specialized businesses. The combination of the accounting and marketing software and the electronic marketing system provides the cotton industry with an integrated system for moving cotton from farm to shipper. DTN Cotton Network serves the Western Cotton Belt, which includes Texas, Oklahoma, New Mexico, Arizona and California from its office in Lubbock, Texas. The network serves its Eastern Cotton Belt customers in Louisiana, Mississippi, Arkansas, Tennessee, Alabama, Georgia, Florida, South Carolina, North Carolina and Virginia from its Memphis, Tennessee office. Sellers connect to the Cotton Network via the Internet to upload bale ownership information, down-load cotton bale data and list cotton for broadcast to prospective buyers. Buyers may either receive the broadcast via Internet or DTN Ku-band satellite, where the broadcast is passed through a serial port into personal computers at the buyer locations. 1999 DTN Cotton Network Highlights 1999 marks the first year that DTN Cotton Network added international customers. DTN Cotton Network sold warehouse software to four cotton warehouses in the Ivory Coast of Africa. DTN Cotton Network currently has 75 gins using the electronic marketing system, a 50% increase in customers over 1998, and 50 buyer customers. The Cotton Network added 50 new customers, including gins, warehouses and merchants, to its management software packages bringing the management software customer base to over 300. The total customer count is over 400. This represents 40% of cotton gins and warehouses having access to DTN Cotton Network. DTNiron DTNiron is a cost-effective communication resource for the farm implement, construction, truck and trailer dealers which provides an equipment locator and advertising service for dealers at the wholesale and retail levels. A detailed implement listing remains on the DTNiron system for a minimum of 30 days, renewable at the dealer's request. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily service. A retail equipment listing is available on the service's web site (www.DTNiron.com). This allows subscribers to gain additional exposure for their listings at no additional charge. Internet users can easily locate equipment for sale by using a drill-down database search engine directing them to DTNiron's complete web listing. Dealers can also receive e-mail from potential buyers or, if they are not e-mail enabled, DTN will call or fax the message to the dealer. 1999 DTNiron Highlights DTNiron added an Internet-based service in 1999 (www.DTNiron.com) which contains the basic elements of the satellite system for less than half the price. All equipment listed for sale as well as equipment wanted are merged and transmitted on both the satellite and Internet platforms. The wholesale system is available to DTNiron subscribers whereas the retail information on DTNiron.com remains free of charge to the public. EarthScan Network, Inc. EarthScan Network, Inc. (www.earthscan.com) is a newly formed joint-venture company developed through a partnership between DTN and San Diego based Photon Research Associates, Inc. (PRA). This partnership combines PRA's expertise in the acquisition, archiving, enhancement and distribution of remotely sensed images with DTN, the leader in distribution of information to agriculture and agribusinesses. EarthScan delivers the most sophisticated satellite images available to farmers and their suppliers at an affordable cost through the Internet. The remote sensing service enables the customer to identify and respond faster than before to problems caused by insects, weather or nutrient deficiencies. It also provides real-time measurement and analytical capabilities throughout the growing season. In addition to agriculture, EarthScan Network sees new markets developing in the future in real estate, community planning, mining, fishing, forestry and transportation industries. (Photograph) Roger R. Wallace, Senior Vice President and President of the Ag Division and William R. Davison, Vice President and President Ag Services continue to guide the ag division and create vision in an ever changing ag environment. 17 -309- Weather Services Weather Services Revenues in million of dollars 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- 1.0 5.6 10.7 25.8 38.5 18 -310- DTN Weather Services consists of three major components, DTN Weather Center Services, Kavouras, Inc. and Weather Services Corporation (WSC). The combination of these three DTN companies creates a leading provider of critical weather information and meteorological equipment to small businesses, military, federal government, broadcast television, major utilities, Internet portals and anyone whose business is impacted by weather conditions. DTN Weather Services' future plans includes expanding its presence in markets that rely on DTN services for weather information by offering new transmission methods, including PC-based products and the Internet. The Internet provides many opportunities for growth such as advertising supported sites, monthly subscription sites, "pay-per-view" sites, etc. DTN Weather Services employs a dedicated weather sales force made up of nearly 100 sales professionals for its sales and marketing efforts. This sales force is unique to DTN in the weather industry and is a major reason for the success of the division. Weather conditions impact the profitability and safety of many industries, and DTN Weather Services is dedicated to becoming the sole solution for weather information needs. Competition includes several large private weather companies and on a smaller scale, television and the Internet. The competition lacks the timeliness and current local weather information that DTN services provide. DTN Weather Services constantly looks for new and better ways to provide this critical information to its customers in the quickest, most dependable and cost effective way. www.WX.com WX.com (www.WX.com), a free interactive weather web site, made its debut in May of 1999. WX.com features TV quality, 3-D graphics and weather information including international weather, radar, storm tracking, current conditions, weather warnings, and more. WX.com differentiates from other Internet services in that it provides viewers with a dynamic and interactive experience including the ability to easily overlay full-motion weather maps with state and county lines, highways and other familiar landmarks to track weather patterns. The technologically advanced Triton(tm) RT, which was developed by Kavouras Weather Services in Minneapolis as the world's first fully functional 2-D and 3-D weather graphics system, powers WX.com. This system provides WX.com with state-of-the-art weather that is both entertaining to viewers and meteorologically accurate. DTN Weather Center DTN Weather Center is a comprehensive weather information system designed to meet the weather information needs of many industries. Markets specifically targeted by DTN Weather Center are golf courses, turf management, emergency management, state transportation departments, public works departments, construction, broadcast and aviation. DTN Weather Center introduced new products in 1999 designed especially for the aviation and golf industries. DTN Weather Center provides more than 100 full-color maps and other in-depth weather information, from local forecasts and regional radar maps to national infrared satellite images. The service provides short-range (immediate to 48-hour) forecasts, long-range (30-90 day) outlooks and 10-day city forecasts for more than 550 major cities across the United States. A personal programmable segment allows users to customize maps and the archive feature easily stores maps for future reference. DTN Weather Center provides the important weather information and planning tools to make businesses safer, more profitable and easier to manage. DTN Aviation Center DTN Aviation Center is a comprehensive aviation weather package specially designed for pilots, airports and Fixed Based Operators (FBO's), supplying them with the extensive flight-plan information found on many premier "online" systems. This package includes U.S. and regional depiction maps, 24-hour low-level significant weather prognosis, U.S. region winds and temperatures aloft and also METAR (the aviation acronym for airport observations) and TAF (Terminal Aerodome Forecast) information. Subscribers use DTN Aviation Center during flight services to visualize current weather conditions while creating their flight plans. This service also aids in determining alternate route destinations. A new premium service available to Aviation subscribers during 1999 was Flyte Trax, a worldwide flight tracking system. 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 FlightBrief Online In November 1999, DTN purchased FlightBrief Online Service, Inc. The purchase included two web sites, www.weatherconcepts.com which provides real-time weather graphics to aviation, marine, farming and construction subscribers, and www.flightbrief.com which provides real-time weather graphics and interactive flight planning, weather briefing, airport databases and other resources for aviation subscribers. In addition to the web sites, DTN received approximately 3,300 subscribers. This purchase allows DTN to target the more than 600,000 aircraft owners and pilots in the United States. These sites also offer the opportunity for advertisers to reach these niche markets. DTN Broadcast Weather DTN Broadcast Weather is a weather and news information service designed for the broadcast industry. Along with the comprehensive local, regional and national weather forecasts and information, subscribers receive National Oceanic and Atmospheric Administration Warnings & Alerts (NOAA). 19 -311- Learfield World & National News Summary provides hourly summaries of international and national news. The segment contains 20 pages, formatted for about two to three minutes of "rip and read." Announcers can organize the material, print it out or read it directly from the DTN screen. DTNonline DTNonline was added to the DTN Weather Center family of services during 1999. It provides the same maps, forecasts and warnings as the satellite-delivered DTN services, along with NOAA Warnings and Alerts, via the Internet. DTNonline allows subscribers to monitor important weather information at the office, on the job site or at home. Although subscribers prefer the reliability, speed and reception of the satellite service, DTNonline allows the redundancy of having a satellite system along with an Internet back up. This allows for continuous access in the event of rain fade at dish locations or Internet delays due to phone line outages, etc. DTN Contractor Weather DTN Contractor Weather is designed for the construction industry and includes construction-related news and information. The service gives subscribers a competitive advantage by providing valuable weather information necessary for important day-to-day business decisions. Job site weather management options include the DTN Weather Alert Paging System, which provides immediate notification of severe weather directly to the user's alpha pager, and DTNonline (Weather Center's Internet service). NOAA Weather Wire and Severe Weather Maps are included in DTN Contractor Weather Level II, along with the subscriber's choice of the Weather Alert Paging System or DTNonline. The service is a practical tool in improving employee safety, saving labor and material costs, and providing effective scheduling and staffing management for the construction industry. DTN Forestry Center DTN Forestry Center provides critical forest fire information to subscribers. Previously, district forest service offices relied on a modem network assembled in the late 1960's for crucial information on forest fire locations and fire weather forecasts. With DTN Forestry Center, forecast service district managers quickly access fire weather text bulletins along with a comprehensive set of weather maps. Bulletins provided for the forest service are Forest Weather Forecasts, Red Flag Warnings, Fire Danger Indexes, Fire Weather Observations and Fire Weather Notices. A special chapter of fire weather maps provides additional information such as Haines Fire Index, Current and Forecast Relative Humidity, Current and Forecast Wind Speed and Direction, upper air analysis from 5,000 to 10,000 feet, and moisture index information from both the Crop Moisture Index and Palmer Drought Index. DTN Marine Center DTN Marine Center provides satellite-delivered weather information for all areas of the marine industry. The service provides information necessary for cost-effective, efficient decision making regarding towing, shipping, salvage and recreation. It includes Lake and Marine Text Bulletins, Buoy Reports, Lake and Marine Maps and Tide Tables, as well as general weather information and sea conditions. Sea Surface Temperatures are also available as an optional service. DTN Transportation Weather DTN Transportation Weather is designed for anyone responsible for road maintenance and conditions. Comprehensive local, regional and national weather forecasts and information are available to transportation professionals, allowing them to make informed decisions regarding the weather. Subscribers have the choice of the DTN Weather Alert Paging System or DTNonline (DTN Weather Center's Internet service). The Weather Alert Paging system provides immediate notification of severe weather directly to the user's alpha pager. DTNonline enables the subscriber to make management decisions based on weather at home or away from the office with a PC. NOAA Weather Wire and Severe Weather Maps, Travel Cast Maps and Road Conditions, and EarthSAT Winter Weather Information are important features of this product. DTN Travel Center DTN Travel Center is an interactive hotel guest service designed for the hospitality and travel industries. The service targets hotels and motels with 50+ rooms and includes NEXRAD Real-Time Radar Maps, travel forecasts and road conditions, detailed city and national forecasts, national and world news, sports and sports scores. In addition, the service provides business and financial news and market quotes and indexes. 20 -312- DTN Travel Center provides a comprehensive weather and news information package for both the business and vacation traveler. DTN Turf Manager DTN Turf Manager is available to businesses and individuals involved in turf-related operations such as golf courses, lawn maintenance, landscaping and sod farms. The service provides the weather and chemical information needed for effective turf management, making the safest, most cost-effective use of chemicals, labor and other resources. Material Safety Data Sheets (MSDS) are available with Turf Manager, along with the C&P Press Turf Product Index, an information database of more than 275 turf pesticides. Plant Protection Chemical Product Labels were added to the service in 1998. This important segment provides full information on chemicals used in turf care and management. Thor Guard, the only lightning prediction system available, warns of lightning strikes before they happen and is available as an optional service. Evapotranspiration Tables provide regional evapotranspiration rates to plan for watering and chemical application. Golf information, such as ESPN Sports Ticker, the National Golf Course Directory, GCSAA News and USGA News, is provided with DTN Turf Manager. DTN Pro Shop DTN Pro Shop was added to the line of Weather Center products in 1999. It contains the weather information golf course professionals need, along with the golf and sports information their customers enjoy. Regional radar maps, current weather conditions and city forecasts are included in the weather segment. Golf and sports information includes an interactive handicap calculator, an easy-to-use search and sort database of golf courses in the U.S., a golf products section and a golf news and sports segment that provides the latest updates on the major tours and up-to-the-minute coverage of all major sports. DTN Weather Safety Center DTN Weather Safety Center provides weather information for those responsible for protecting lives and property from the hazards of severe weather. NOAA Weather Wire, the most comprehensive warning and alert system available today, is available with the service, along with radar and satellite images, local, regional and national outlooks. DTN Weather Safety Center is invaluable for emergency management professionals. Safety Center subscribers receive a free DTNonline connection for remote or emergency access to weather information in addition to their DTN satellite system. This enhanced option assures continuous access to weather information regardless of conditions that could cause reception problems. StormSentry PC A new product to DTN Weather Center in 1999 is DTN StormSentry PC, a weather information service designed to provide real-time, single-site NEXRAD access on a PC. DTN StormSentry is the ultimate in storm tracking technology. Subscribers can access the storm tracking system at an affordable cost, in an easy-to-use format. The ease of navigation and the multiple "windows" capability allows subscribers to simultaneously monitor critical weather conditions, severe weather, satellite maps and lightning conditions. Users can zoom to the exact location, as small as a one county area, for in-depth viewing of storm cells. StormSentry takes the guesswork out of severe weather forecasting and allows subscribers to be proactive in responding to severe weather. 1999 DTN Weather Services Highlights DTN Weather Center increased its subscriber base in 1999 to approximately 20,000 subscribers. Government agencies (emergency management and state transportation departments), aviation, golf and turf management, and construction-related businesses continue to be the leading industries for DTN Weather Center. WX.com, DTN Pro Shop, DTNonline and DTN StormSentry PC were introduced in 1999. WX.com, a free, advertising-based service, introduced DTN's expert weather information to the Internet. DTN StormSentry PC has encouraged growth in new markets such as utilities, railroads and manufacturing companies. DTN Weather Center is continuing to make its presence known as the industry leader in providing timely, accurate weather information to a variety of industries and continues to gain a strong foothold in the emergency management and Department of Transportation (DOT) segments. DTN Kavouras Weather Services DTN Kavouras Weather Services is a total weather solutions resource, providing a full spectrum of advanced meteorological information products and services for weather-dependent applications in industries and governments 21 -313- worldwide. The Minneapolis-based subsidiary of DTN produces real-time PC weather workstations, comprehensive meteorological training, and a massive international weather database. DTN Kavouras and its 140 employees offer an expertise level unmatched in the industry. Weather Services Corporation (WSC), based in Lexington, Massachusetts, is one of the largest sources for meteorological consulting and worldwide commercial weather information. WSC provides name awareness for DTN Weather Services through valuable contracts with high profile customers including Metro Networks, TVA (Tennessee Valley Authority) and numerous utilities, broadcasters, agribusinesses and municipalities. Triton RT Triton RT is a real-time 3-D and 2-D weather and news graphics animation system focused on, but not limited to, the broadcast television market. This product uses weather data to create an informative and exciting weather show. MetWork FileServer MetWork FileServer is a robust and dynamic network solution for real-time dissemination of meteorological information based on the versatile and efficient NT format, supporting standard Internet communications protocol and various network configurations. Storm Pro Storm Pro is a workstation that integrates real-time Doppler weather radar with a geographic information data system to create an accurate display with broadcast-quality appearance. The display can be individualized for a unique and defining look important in the television market. StormWatch StormWatch is customizable software that monitors either a weather wire or a DTN Kavouras MetWork Fileserver to generate color-coded maps and/or a crawl message for important watch, warning or advisory weather situations. StormWatch also allows a television station to edit and prioritize information for their viewing areas. SchoolWatch SchoolWatch is customizable software for the Triton RT that helps television stations easily update, prioritize and display late-start and school closing information. This software can also be configured to update information on a station's web site. Data and Customizable Forecasting Services provides a broad range of standard data for a variety of markets. In addition, DTN Kavouras staff provides 24-hour, 365 days a year coverage for tailor-made forecasts to meet customers' special needs. Kavouras MetVision New in 1999, the Kavouras MetVision service represents the highest resolution weather forecast data in the broadcast television industry. MetVision, based on a proprietary numerical weather prediction model developed by the Harris Corporation, produces forecasts of the future state of the atmosphere in four dimensions. The Kavouras Triton RT workstation transforms the MetVision data into visualizations of the forecast information for analysis and spectacular on-air displays. MetVision helps a meteorologist prepare a better weather forecast and also helps to graphically explain the forecast to the average TV viewer. MetVision is an optional Kavouras data product. Kavouras/RT-SET WxStudio Also new in 1999 is Kavouras/RT-SET WxStudio which combines the Kavouras TritonRT weather workstation with RT-SET's cost-effective, entry level IbisTM Virtual Studio System. WxStudio represents the integration of these two complementing technologies and offers the broadcast television the ability to make one purchase to deliver virtual studio effects with news, weather, sports and entertainment programming from the same integrated system. In addition to free-form 3D weather graphics, the WxStudio Virtual Studio System supports an unlimited number of cameras, foreground and background images and obstructions, and instant switching between backgrounds. 1999 DTN Kavouras Weather Services Highlights In July 1998, DTN acquired Kavouras, Inc., and in late 1998, reached a definitive agreement with Weather Services Corporation creating DTN Kavouras Weather Services. In 1999, DTN Kavouras Weather Services entered into new partnerships creating two new services, MetVision and WxStudio. These new services, in addition to the current products and services, offer unique specialties to form content-rich weather services, products and solutions to serve a diverse client base, from small-town farmers to big-city broadcasters and governments across the globe. 22 -314- DTN's Broadcast Center provides the "heartbeat" to deliver critical, time-sensitive data 24 hours a day, 7 days a week. 23 -315- Financial Services Financial Services Revenues in million of dollars 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- 6.1 8.6 10.3 13.4 19.4 24 -316- DTN Financial Services' core business continues to focus on serving the exploding number of individual investors as well as members of the professional financial industry. This is accomplished by offering an array of time-sensitive yet affordable information services, plus a suite of business applications designed for the financial professional. This strategy is critical due to the highly competitive nature of the industry. DTN Financial Services brings together a broad selection of financial information and has capitalized on the explosive growth in online investing by offering well-conceived and attractively priced Internet services. DTN Financial Services continues to integrate information from a variety of sources such as Bridge, Liberty Brokerage and Market News Service, UPI, New York Times, PR Newswire, Business Wire, Futures World News, Dow Jones, Associated Press and others. In the past year, the services began to transition from information only to services with information and transactional capabilities. A la carte, optional services offer subscribers an even greater variety of financial data, including stock selection and timing advice, earnings estimates, fundamental stock market data, U.S. Treasury quotes and other financial market-related services. These combinations allow each service to maintain a competitive advantage in the market. Subscribers include individual investors, independent brokers, financial advisors and financial institutions. With competition coming from sources such as commodity news services, diversified media companies and smaller niche providers, DTN Financial Services continues to differentiate itself in the industry by offering new services at competitive prices. Individual Investors With the growing number of online investors estimated to reach 15 million by the end of 2000, DTN Financial Services has strategically positioned its two leading, streaming Internet-delivered services, DTN.IQ and InterQuote, to continue to capture market share among this group. Aiding this endeavor was the incorporation of direct access to online trading into both of these services. DTN.IQ Since its inception in May 1998, DTN.IQ (www.DTNIQ.com) has steadily outperformed company expectations, and operating results for fiscal 1999 confirm this trend. A contributing factor to the increase in sales during 1999 was the June integration of direct online trading capabilities. Through our established relationships with several online brokerage firms, DTN.IQ subscribers can execute trading decisions directly from their quote screens in seconds. Utilizing non-browser-based software, traders can place orders and receive return confirmations of their transactions in real-time. A vital consequence of trading integration is the ability of DTN Financial Services to generate revenue from customers' trading activity. Transactions by both DTN.IQ and InterQuote customers became a source of new revenue during the fourth quarter of 1999. In addition, the streaming real-time quotes, news and charting capabilities provided by DTN.IQ offers functionality critical to individual investors and traders using the Internet. InterQuote In May 1999, DTN Financial Services completed the acquisition of Paragon Software, Inc. in Milwaukee, Wisconsin. Paragon's flagship product, InterQuote (www.interquote.com), delivers real-time or delayed market data to individual investors via the Internet and was one of the first such services ever offered. With the acquisition of Paragon, DTN Financial Services obtained 3,800 subscribers and the ability to round out its offerings for both casual and extremely active investors. InterQuote's unique front-end application appeals to investors needing cost effective, a la carte features. An affordable yet robust basic service includes streaming quotes on stocks, futures and options, intraday and historical charts, pager quotes and alerts, and an extensive array of fundamental data. Subscribers may further enhance the service by adding premium services such as Nasdaq Level II pricing, Dow Jones Business News, AP Online News and custom market scanning tools. Additional premium services are planned for inclusion in 2000. Other Financial Services Other financial information services available to the individual and professional investor are DTN Real-Time, DTN SPECTRUM and DTN Wall Street. Each of these services may be delivered by customer preference via satellite, cable television's VBI (vertical blanking interval) or designated phone line. 25 -317- (Photograph) DTN Financial Services employees analyze and edit data daily to provide up-to-the-minute news and financial information. 26 -318- These services provide real-time or delayed stock and stock option quotes, news and commentary as well as other time-sensitive financial market data. All of the services include information integrated from a variety of sources including DTN's commodity ticker plant, Bridge, Standard & Poor's, Liberty Brokerage and over 40 newswires including Dow Jones and AP. Optional services from some of the world's leading investment service providers are also available and may be delivered on most platforms. Financial Professionals For financial professionals, the focus in 1999 turned to Internet-delivered services. In September 1999, National Datamax, Inc., a wholly owned subsidiary of DTN, introduced an extranet service for Broker/Dealers. Rep Center The web-based service, RepCenter (www.repcenter.com), is customized to resemble the Broker/Dealer's public web site and gives representatives secure access to commission reports, sales letters, business forms and home office announcements from anywhere. The service also provides a portal page of quotes, news and charts. RepCenter increases National Datamax's presence with financial professionals and makes it easy for them to launch National Datamax's contact management, fund analysis or portfolio management software from RepCenter's main page or purchase products online. National Datamax also introduced upgrades to all of its fundamental products and expanded the data delivery capabilities for the Mutual Fund, Stock, Industry and Variable Annuity analysis programs. With the addition of RepCenter, National Datamax has expanded its offerings for financial professionals by providing a complete business solution encompassing prospecting, client management, asset management, reporting and business management. Enterprises Financial Window Network (FinWin), a new service introduced in October 1999, dramatically broadened the market for DTN Financial Services to include any enterprise desiring to enrich their web site with popular financial content. Financial Window Network or FinWin Leveraging existing content and technology, in October 1999 DTN Financial Services launched FinWin (www.finwin.com), a financial portal site that may be customized for public or private web sites. FinWin builds traffic instantly to site by the addition of market quotes, news, interactive charts, list of most actives, major indices and custom watchlists and portfolios. FinWin may be added to a site for free (DTN retains advertising space) or by monthly subscription without advertising. With FinWin, DTN Financial Services gains from two solid operating factors, the opportunity to extend product sales beyond the traditional financial market and the creation of a viable advertising-based revenue stream. A survey of current customers attests to this first phenomenon. FinWin customers come from a wide range of industries including Internet service providers, local and regional news organizations, search engines, web development and metropolitan community sites, in addition to conventional financial services businesses. The establishment of an advertising-based service enables DTN Financial Services to fully compete in this prevailing Internet business model, while FinWin customers receive the full advantage of edited content from an established financial expert. Despite a year end release, FinWin established a strong sales record for the final quarter of 1999 and is beginning to contribute to operating cash flow. 1999 Highlights With the close of 1999, DTN Financial Services finds that 49% of its subscribers elect Internet-delivered services. This is up from 12% as of January 1, 1999. Major initiatives during the year allowed DTN Financial Services to create additional revenue streams from transactions and advertising-based business models to supplement its core subscription-based revenue. This strategy will continue to receive significant investment in the coming year. In addition, paramount to the success of current and future individual investor sales was the completion of a fully redundant operations plant for delivering the DTN.IQ service. By year's end, all DTN.IQ subscribers benefited from fully redundant Internet connections, servers and datafeeds to ensure the highest standard of reliability in the industry. Overall, revenue for the Financial Services division grew 45% in 1999, continuing a stellar pattern of 34% compounded revenue growth for the past five years. 27 -319- Energy Services Energy Services Revenues in million of dollars 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- 10.0 12.2 14.3 16.1 18.7 28 -320- Energy related services include DTNergy for the refined fuels, natural gas industries and electric industries. DTNergy provides pricing information and communication services for the refined fuels industry. This service consists of several pages of delayed energy futures and options quotes plus selected news and financial information. DTNergy is designed to connect refiners (producers of refined fuels) to wholesalers (distributors of refined fuels). The refiner sends refined fuel prices to wholesalers authorized to receive this information. The refiner is also capable of sending terminal alerts, electronic funds transfer notifications, invoices, and other communications to the wholesaler. The DTNergy system carries more than two million messages a month for this industry. Subscribers can also select from a variety of optional services providing additional prices or news related to the petroleum industry. The strength of the DTNergy Refined Fuel service is the ability to deliver, within seconds, accurate refiner terminal prices and other vital communications to the wholesalers. This service is more reliable, timely and less expensive than the competition, which utilize telephone delivered printer-only systems and FAX services. DTNergy generates revenue from two primary sources, the wholesaler and the refiner. Wholesalers currently pay a monthly subscription fee while refiners pay fees based on the number and length of communications sent to wholesalers. Refiners use DTNergy communications to link to their wholesalers with the implementation in 1997 of EDI (Electronic Data Interchange) fuel invoices. EDI/VAN (Value Added Network) services help automate customers' business processes by converting refiner text invoices into an industry standard format. Once these invoices are in a standard format, the invoice data is transferred into a customer's accounting system from the ACE unit. DTNergy also provides an information service for the natural gas and electric industries. Subscribers receive instant or delayed NYMEX energy futures and options quotes, a comprehensive weather package and industry specific news and market information. This service targets energy producers and generators, transporters, marketers, utilities and larger energy consumers. DTNergy enjoys a strong position within the energy marketplace. Although there are technologies available to petroleum suppliers that would allow these suppliers to communicate directly with their petroleum wholesalers, the suppliers have been unsuccessful in implementing technologies such as the Internet to displace DTNergy. The main reason for DTNergy's continued proliferation within the petroleum industry is that most petroleum wholesalers purchase petroleum products from more than one supplier data, create standardize data formats for electronic processing of supplier data and provide one-stop customer service for petroleum wholesalers has added value that no one supplier can offer on there own. 1999 DTNergy Highlights Two Internet-based services were introduced in 1998. ProphetX (www.fimi.com) provides the ability to access DTNergy's real-time market data using Financial Information Management Inc.'s (FIMI) client-service software, ProphetX. In November 1998, a joint venture between DTN and GlobalView Software, Inc. prompted the formation of GlobalData, which is aimed at serving the international energy markets. This partnership allows DTNergy to provide real-time data for the international markets with GlobalView Software, Inc. providing the graphical user interface for the service. EnergyView (www.energyview.com) is the Internet product creation of GlobalData. In the fourth quarter of 1999, GlobalView expanded the service to include real-time data and analytical trading software to the international marketplace. These two Internet initiatives, ProphetX and EnergyView, showed steady growth and increased market awareness in 1999. In addition, DTNergy developed a new service, Petroleum Posted Price Reports, which will be available to petroleum refiners and wholesalers in the first quarter of 2000. This service will provide access to petroleum rack-pricing data for benchmarking fuel contracts and competitive analysis. Currently, there is only one dominant player in the market providing rack-pricing data to both refiners and wholesalers, Oil Price Information Service (OPIS). 29 -321- Other Services Other Services Revenues in million of dollars 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- 1.0 2.3 3.5 4.6 4.8 DTNauto DTNauto is an information and communication service for professionals involved in the automotive, finance and insurance industries. The service offers precision, time sensitive information for analyzing new and used automotive vehicle values. In 1999, DTNauto began development of its web site (www.DTNauto.com) to provide automotive and related industries with time sensitive wholesale pricing and market analysis, portability and enhanced functionality via the Internet. Subscriptions to DTNauto.com will be available in the first half of 2000 and will be competitively priced. DTN Joint Venture Services DTN joined forces with several companies to market their services using DTN technology. These services are DAT Transportation Terminal, TracElectric, DTN InfoLink and DTN Missing Children Information Center (MCIC). DTN InfoLink DTN InfoLink provides real-time news, weather, sports and market information to the grocery and transportation industries. With the addition of the latest card reader terminals and printing technologies, unique promotions and product offerings can be delivered to public use kiosks. These kiosks allow interactive coupon redemption, printing of recipes, and the opportunity to integrate customer loyalty and frequent user programs. DAT The DAT (Dial-A-Truck) Transportation Terminal service, located in Beaverton, OR, is an information communication system for the trucking industry. The service provides load and truck matching performed on a database of 100,000 listings updated daily. DAT allows subscribers to input their listings into the DTN receiver and send this information to a database using the internal modem. The service provides subscribers with the ability to perform extensive searches to locate loads and trucks and to set alarms alerting users of a match. The service also provides regional radar weather maps of major highways and interstate systems, transportation news, diesel fuel prices and other financial information related to the trucking industry. DAT targets all freight brokers and carriers throughout the United States, Canada and Mexico. TracElectric TracElectric is an equipment locator service for the electrical equipment industry. This service provides over 100 pages of new, remanufactured, surplus and used electrical equipment listings. The service connects buyers and sellers throughout the United States and Canada. Missing Children Information Program DTN Missing Children Information Center (MCIC) provides instant transmission of data regarding children in danger to local, regional, national and Canadian outlets. In an effort to assist parents, police and the National Center for Missing and Exploited Children (NCMEC) in locating missing children and the criminals involved, photos and information regarding these children are posted as a public service on all DTN color systems. As a result of the close working relationship with NCMEC, a national kiosk program has been developed. Sponsors for the kiosk program are being identified and kiosks are being placed in shopping malls, airports, schools, hospitals, government buildings and other high-pedestrian traffic areas. 30 -322- Employees in DTN's Broadcast Center control room constantly monitor critical applications to ensure continual service to 167,000 subscribers. 31 -323- Selected Historical Consolidated Financial Data 1999 Revenues DTN Ag Services 51% DTN Weather Services 23% DTN Financial Services 12% DTN Energy Services 11% Other Services 3% 1998 Revenues DTN Ag Services 59% DTN Weather Services 17% DTN Financial Services 9% DTN Energy Services 11% Other Services 4% 1997 Revenues DTN Ag Services 69% DTN Weather Services 8% DTN Financial Services 8% DTN Energy Services 5% Other Services 3% 1999 Subscribers at Year End DTN Ag Services 65% DTN Weather Services 14% DTN Financial Services 13% DTN Energy Services 5% Other Services 3% 1998 Subscribers at Year End DTN Ag Services 71% DTN Weather Services 11% DTN Financial Services 10% DTN Energy Services 5% Other Services 3% 1997 Subscribers at Year End DTN Ag Services 76% DTN Weather Services 8% DTN Financial Services 8% DTN Energy Services 5% Other Services 3%
In thousands, except per share data 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Operating Data (For the Year): Total Revenues $ 166,509 $ 148,986 $ 126,374 $ 98,384 $ 62,288 Operating income $ 4,156 1 $ 4,163 3 $ 12,383 $ 6,921 $ 4,343 Net income (loss) $ (3,707)2 $ (3,743)4 $ 2,236 $ (958) $ (283) Basic income (loss) per share $ (.32) $ (.33) $ .20 $ (.09) $ (.03) Diluted income (loss) per share $ (.32) $ (.33) $ .19 $ (.09) $ (.03) Basic shares outstanding 11,734 11,359 11,101 10,658 9,909 Diluted shares outstanding 11,734 11,359 12,083 10,658 9,909 Dividends paid5 -- -- -- -- -- Dividends paid per share5 -- -- -- -- Balance Sheet Data (At Period End): Working capital (deficit) $ (19,642) $ (17,447) $ (21,520) $ (14,748) $ (10,472) Total assets $ 184,003 $ 197,185 $ 162,431 $ 177,730 $ 92,672 Long-term debt and subordinated notes $ 79,038 $ 100,620 $ 72,891 $ 97,748 $ 47,021 Shareholders' equity $ 37,497 $ 32,150 $ 32,196 $ 28,290 $ 12,877
[FN] 1 Includes $.7 million non-recurring severance costs related primarily to the resignation of the Company's Chairman and CEO and $4.1 million related to the loss on sale of radar operations. 2 Includes $.7 million related to severance costs ($.5 million net of tax), $4.1 million related to loss on sale of radar business ($2.6 million net of tax) and $.2 million related to equity in loss of affiliate (.1 million net of tax). 3 Includes $5.8 million non-recurring satellite costs related to the loss of control of Galaxy IV satellite by PanAmSat, the Company's primary satellite provider. 4 Includes $5.8 million related to satellite costs ($3.7 million net of tax), $1.7 million extraordinary item related to debt extinguishment charge for the early retirement of the Company's $15,000,000 11.25% Senior Subordinated Notes due 2004 ($1.1 million net of tax). 5 DTN has not paid any dividends in the last five years and currently intends to retain earnings for use in its business. 32 -324- Management's Discussion and Analysis The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto in this annual report. From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Annual Report to Shareholders and documents incorporated by reference) may contain statements which are not historical facts, so-called "forward-looking statements". These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual future results may differ significantly from those stated in any forward-looking statements. Forward-looking statements involve a number of risk and uncertainties, including, but not limited to, product demand, pricing, market acceptance, inflation, risks in product and technology development, product competition, acquisitions, key personnel, and other risk factors detailed in this Annual Report to Shareholders and in the Company's other Securities and Exchange Commission filings. Financial Condition General Overview The equipment used by subscribers is a large capital investment for the Company. The cost of subscriber equipment, net of depreciation, accounted for 39% and 46% of the Company's total assets at December 31, 1999 and 1998, respectively. The Company financed the majority of the investment in subscriber equipment with long-term debt. In 1999, 1998 and 1997, the cash provided by operating activities exceeded the cost of new subscriber equipment and was used for acquisitions and to service long-term debt. The Company made significant investments during 1999, 1998 and 1997 to acquire subscribers and businesses that fit the Company's business model. The net intangible assets (primarily goodwill) from acquisitions was 34% and 33% of the Company's total assets at December 31, 1999 and 1998, respectively. The acquisitions of subscribers and businesses are expected to enhance the long-term operating performance and financial condition of the Company. The investment in acquisitions required the Company to increase long-term debt during 1998 and 1997. The Company's overall financing strategy has been simple, use long-term debt financing versus equity, whenever possible, to prevent the dilution of shareholder value. The Company's management plans to continually review this strategy to support the continued growth of the Company. Cash Flows From Operating Activities Net cash provided by operating activities for 1999 was $51.2 million compared to $42.4 million for 1998. The increase of $8.8 million was primarily due to the $4.9 million increase in operating cash flow (operating income before depreciation and amortization expense), generally referred to as EBITDA (earnings before interest, taxes, depreciations and amortization expenses) and a $5.8 million decrease in net operating assets offset by increases in cash paid for interest and income taxes. The Company had $19.6 million and $17.4 million of negative working capital at December 31, 1999 and 1998, respectively. The decrease in working capital is primarily due to the following 1) the $2.1 million decrease in inventory, primarily related to the sale of the radar operations of the Kavouras, Inc. subsidiary (see footnote 2 - Sale of Radar Operations), 2) the increase of $1.0 million in accounts payable and 3) the $2.5 million increase in current portion of long-term debt related to the EarthScan Network, Inc. (see footnote 7 - Investment In Affiliate). These decreases were offset by the increase in Investment in Securities of $3.7 million related to the warrants in SmartServ Online, Inc. (see footnote 5 - Investments In Securities) CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities for 1999 was $35.2 million compared to $66.8 million for 1998. The decrease of $31.6 million is due to the following 1) the $27.2 million decrease in acquisitions, 2) the $5.9 million decrease for purchases of property and equipment, 3) the net effect of $1.0 million for the sale of radar operations and 4) the cash Investment in Affiliate of $.5 million. Subscriber Equipment Historically, the majority of the investment in equipment used by subscribers has been a direct result of the growth in the Company's subscriber base. The Company's marketing efforts to obtain new subscribers requires investing in subscriber equipment for trial and complimentary subscriptions. 33 -325- In 1999, purchases of subscriber equipment were primarily to maintain the current base of satellite subscribers and upgrade existing equipment, mainly hard drives. These upgrades are primarily related to subscribers upgrading to more advanced higher priced services. Included were one-time non-recurring capital expenditures of $5.0 million for satellite equipment to enhance signal reception to subscribers. During 1999, approximately 6,000 monochrome system (FM and Ku) and DTN FarmDayta subscribers upgraded service to the color Ku-band system with 97% of these conversions involving DTN AgDaily subscribers. The remaining 3% involved DTN Financial Services and DTNergy subscribers. The conversion of approximately 1,800 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 also resulted in upgraded equipment. DTN decreased the inventory of color receivers and components to build color receivers during 1999. At December 31, 1999 the Company had approximately $12 million of this inventory compared to $19 million in 1998. The build up of inventory in 1998 occurred due to advance commitments on equipment purchases and the unexpected increase in cancellations due to the Galaxy IV satellite outage discussed below. The Company adjusted purchasing and production schedules in the second half of 1998 to reduce the inventory related to sales and cancellation activity. Other Property and Equipment The majority of the investment in other property and equipment is computer equipment, software, communications equipment, furniture and leasehold improvements. The increase in other property and equipment of $.6 million is due to the following, 1) the increase of $1.0 million in computer equipment, 2) an increase of $.9 million in software costs, 3) a decrease of $.8 million in leasehold improvements and, 4) a decrease of $.5 million in furniture, fixtures and other purchases. The increase in computer equipment is due to the growth of operations, including having the Kavouras operations for 12 months, and providing redundant facilities for service delivery. The increase in software costs is due to new projects related to new product initiatives. These costs are primarily one-time in nature and were $3.6 million and $3.1 million for 1999 and 1998, respectively. The reduction in furniture, fixtures and other purchases and leasehold improvements is due to expansion at the Company's corporate headquarters in 1998. Acquisitions The Company paid $10.5 million cash in 1999 for acquisitions and a license agreement compared to $37.6 million cash during 1998. The acquisitions in 1999 were primarily financed using internally generated cash from operations. The Company's growth strategy includes developing services for niche markets plus acquisitions that fit the business model and/or competitive strategies. The Company closed on several acquisitions during 1999. The Company closed on two acquisitions during the first quarter, amended the SmartServ Online (SSOL) licensing agreement in the second quarter and closed on one acquisition during the fourth quarter. Included in the first quarter of 1999 was the acquisition of Paragon Software, Inc., an Internet company that supplies real-time streaming quotes under the product name InterQuote (www.interquote.com). In May 1999, the Company completed an amendment to its existing license agreement with SSOL and its services, primarily DTN.IQ (www.DTNIQ.com), to create a long-term business relationship with SSOL including an exclusive, perpetual, worldwide license. The Notes to the Consolidated Financial Statements have more detail on all acquisitions and the completed license agreement (See footnote 4 - Acquisitions). Investment in Affiliate In December of 1999, the Company and Photon Research Associates, Inc. (PRA) formed a joint venture company, EarthScan Network, Inc. (EarthScan). EarthScan will deliver the most sophisticated satellite images available to farmers and their suppliers through the Internet (www.EarthScan.com). DTN and PRA each have approximately a 47% ownership of EarthScan and have 50% voting rights. DTN contributed $3.0 million to EarthScan, $.5 million cash and a $2.5 million note. The note will be paid as the venture requires funds for operating and investing activities. CASH FLOW FROM FINANCING ACTIVITIES In 1999, net cash used by financing activities of $16.0 million was the result of a decrease in term debt outstanding of $21.6 million offset by the proceeds from the exercise of stock options of $5.6 million. In 1998, net cash provided by financing activities of $23.5 million was primarily the result of an increase in total debt outstanding of $27.5 million. The increase in debt outstanding was primarily due to an increase of $51.0 million in the revolving credit line to fund acquisitions and capital expenditures. The Company made $24.8 million of principal payments on term notes and $5.2 million of payments on debt acquired through acquisitions. The Company also financed the prepayment of the $15.0 million 11.25% Senior Subordinated Notes due 2004 and the $1.1 million prepayment cost with $16.0 million of term notes and revolver. FACTORS THAT MAY AFFECT FUTURE RESULTS Acquisitions - The Company's strategy includes continued growth through acquisitions of complimentary services, technologies or businesses, which may result in the diversion of management's attention from the day-to-day operations of the Company's business. Other risks include, but are not limited to, possible difficulties in the integration of operations, products and personnel, 34 -326- difficulty in applying internal controls to acquired businesses and particular problems, liabilities or contingencies related to the businesses being acquired. If efforts to integrate past or future acquisitions fail, there could be a material adverse effect on the Company's business, financial condition, results of operations and cash flows. The Company plans to pursue opportunities that it believes fit its business strategy. Competition - The Company operates in a highly competitive environment, competing with information and communication services utilizing various types of electronic media including satellite delivery, the Internet, TV Cable delivery, electronic bulletin boards, television, radio, cellular, and telephone communications. In addition to the various electronic publishers, the Company competes with print media and "old information gathering habits." Many of the Company's actual and potential competitors have substantially greater resources than the Company. Indebtedness - The Company anticipates that internally generated cash flow and its bank credit lines will be sufficient to fund short term and long term operating activities, capital expenditures and service interest and principal payments on long-term debt. Inflation - The Company believes that inflationary trends have a limited effect on the business. However, since a large percentage of the Company's subscribers and revenues are related to the agricultural industries, the general state of the agricultural economy may impact the Company's business operations and financial condition. Technology - The business of the Company is subject to the continuous changes in information distribution technology affecting how information is distributed to the Company's customers. Currently, the two primary information distribution technologies the Company utilizes for the delivery of information are satellite and Internet. Other technologies used are the FM side band channels, VBI (vertical blanking interval through a cable TV signal), leased land lines, wireless, E-mail and Fax. The Company is not aware of any other technology that may replace the current electronic delivery systems and equipment at a competitive price. New developments in electronic hardware capabilities and in data distribution technologies could cause the Company's delivery systems and equipment to become obsolete, economically inefficient or less attractive compared to available alternatives. The improvement and enhancement (and subsequent lower cost) of delivery technologies like the Internet, are providing the Company with alternatives to its largest delivery method, which is satellite. Year 2000 (Y2K) - The Company engaged in a comprehensive review of its computer systems to identify and remediate the systems that could be affected by the Year 2000 issue. The Company assessed its state of readiness in the areas of service delivery, customer service, cash flow and physical environment. This was accomplished in four phases 1) inventory, 2) assessment of business impact, 3) remediation and 4) testing and management of subsequent changes. These phases were all completed by December 31, 1999. The Company used existing internal resources to complete all work on the four phases, and the cost of using internal resources through December 31, 1999 was $1.2 million. The Company expects that the cost of making any on-going changes will not be significant and will be less than $.2 million. The Company continues to maintain a formal contingency plan that would be employed in the event of any Y2K failures. Subsequent to January 1, 2000 and through this report date of February 9, 2000, the Company has not experienced any material Y2K failures. Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board issued Statement No. 133. "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), that would have been effective January 1, 2000. In June 1999, the Financial Accounting Standards Board issued Statement No. 137, "Accounting for Derivatives Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No 133", postponing the effective date for implementing SFAS 133 to fiscal years beginning after June 15, 2000. The Company will adopt this Statement effective January 1, 2001. At this time, the Company believes the impact of adopting this Statement should not be significant to the results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101 related to revenue recognition in financial statements. This SAB will affect the Company's recognition of service initiative fees to require these fees to be deferred and recognized over the term of the service arrangement or the expected period of performance. The Company has not completed the process of evaluating the impact of adopting this SAB. The Company anticipates adopting the SAB in the first quarter of 2000 with a cumulative effect adjustment as a change in accounting principles in accordance with APB Opinion No. 20, Accounting Changes. SUBSEQUENT EVENT On March 3, 2000, the Company entered into a definitive agreement with Veronis, Suhler & Associates Communications Partners III, LP (VS&A III) whereby VS&A III will make a tender offer to all of the Company's shareholders at a 35 -327- price of $29.00 per share. The tender offer is subject to the tender of at least 90% of the outstanding shares as of March 1, 2000. If less than 90% of the outstanding shares are tendered, the Company will merge with an affiliate of VS&A III at the same per share price. Closing of the transaction is subject to government and shareholder approvals and other customary conditions, and is expected to occur during the second quarter of 2000. MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS The risk inherent in the Company's market risk sensitive instruments and positions is the potential loss arising from adverse changes in interest rates and equity prices, as discussed below. Interest Rates - The Company's earnings are affected by changes in interest rates due to the impact those changes have on its variable-rate debt instruments. The Company has three components that make up its total loan debt: 1) Fixed Term Notes, 2) Variable Term Notes and 3) Revolving Credit Line. Assuming a hypothetical 10% change in 1999 and 1998 interest rates, the following is an analysis of what the impact would have been on 1999 and 1998 interest expense: Debt Balance Percent Interest - -------------------------------------------------------------------------------- Fixed Term Notes $ 32,425,500 31% $ - Variable Term Notes 15,194,499 15% 113,400 Revolving Credit Line (a) 55,500,000 54% 412,900 Total $ 103,119,999 100% $ 526,300 1998 Debt Balance Percent Interest Fixed Term Notes $ 49,822,540 41% $ - Variable Term Notes 16,926,000 14% 153,400 Revolving Credit Line (a) 55,500,000 45% 178,500 Total $ 122,248,540 100% $ 331,900 (a) The Company's Revolving Credit Agreement includes the ability to fix the revolving credit line based on the Revolving Credit Rate in effect at the beginning of the month (see Note 9). The ability to look back to the interest rates at the beginning of the month, reduces the market risk of an increase in First National Bank of Omaha's "National Base Rate". Market risk for fixed-rate term debt is estimated as the potential change in fair value from a hypothetical change in interest rates. The Company had $32,425,500 and $49,822,540 of fixed term debt with an estimated fair value of $32,452,043 and $50,395,940 or an increase of $26,543 and $537,400 as of December 31, 1999 and 1998, respectively. The fair value was calculated using existing terms of the debt and interest rates present valued at the Company's current available term debt rate (See Note 9). Warrants - The Company has an investment in security, due to warrants in SmarServ Online (SSOL), in which the value is related to the market price of the stock. The implication of a change in value, due to market price changes, is not reflected in the Company's net income (loss) but does affect comprehensive income (loss) and Shareholders' Equity. The market price of SSOL as of December 31, 1999 was $19.72 and as of the report date of February 9, 2000, the market price was $133. RESULTS OF OPERATIONS Revenues and Operating Cash Flow in millions of dollars
1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Revenues 62.3 98.4 126.4 149.0 166.5 Operating Cash Flow 23.2 40.4 54.7 58.8* 62.7* 53.0 57.9
*Pro-Forma results before non-recurring satellite costs of $5.8 million for 1998 and non-recurring severance costs of $.7 million and loss on sale of radar operations of $4.1 million for 1999. GENERAL OVERVIEW The financial dynamics of DTN's business operations are similar to businesses that sell monthly subscriptions such as electronic publications and communications and cable TV companies. The financial dynamics are similar because DTN makes an initial investment of variable marketing costs to obtain new subscribers (generally a one year subscription agreement) and the Company makes a capital expenditure to provide the subscriber with the necessary equipment to receive the Company's satellite based services. Internet subscribers utilize their own personal computer. In addition, DTN has a level of fixed costs, including satellite leases, certain news, weather, quotes and information providers along with general and administrative expenses, not directly affected by the number of subscribers receiving the Company's services. SALE OF RADAR OPERATIONS In December of 1999, the Company sold the radar operations of its Kavouras, Inc. subsidiary. The assets were sold for $1.3 million and the Company recorded a pre-tax loss of $4.1 million, which was included in operating expenses. The breakdown of these expenses were as follows: 1) $3.2 million related to the sale of the inventory, fixed assets, and intangibles, 2) an accrual of $1.2 million for costs related to the severance of approximately 30 radar operations employees not retained by Kavouras (of which, $.3 million was paid in 1999) and 3) the accrual of $.9 million for other operation closing costs. The radar operations recorded negative direct operating cash flow (not including allocated Kavouras administration expenses) for 1999 and 1998 of $1.3 million and $.8 million on revenues of $1.5 million and $2.5 million respectively. NON-RECURRING COSTS Satellite Costs (Galaxy IV) On May 20, 1998, nearly all of the Company's 159,000 subscribers were unable to receive their data due to loss of control of the Galaxy IV satellite by PanAmSat. This satellite was used by the Company to transmit service to nearly all its subscribers. By May 21, 1998, solutions were available for all subscribers, however, the impacts on DTN operations were significant. 36 -328- The costs related to the failure of Galaxy IV include telecommunications, overtime labor, satellite costs and customer communications and these unusual, non-recurring satellite costs were $5.8 million and recorded in May of 1998. These costs included costs to convert subscribers to the new satellite and handle the large customer service call volume, duplicate satellite charges and other service costs related to this change. Although the Company believes the charge was reasonable, the impact and cost of customer retention is more difficult to quantify and actual costs may have varied. The Company's management believes the impact from this problem will not significantly impact the longer-term growth prospects of the Company. Severance Costs During the first quarter of 1999, the Company incurred non-recurring costs of $.7 million for severance payments primarily related to the resignation of the Company's Chairman and CEO. The former Chairman and CEO received a $.5 million cash severance payment, as approved by the Board of Directors, upon his resignation in March of 1999. OPERATING CASH FLOW (EBITDA) The Company's operating cash flow (operating income before depreciation and amortization expense), known in the industry as EBITDA (earnings before interest, taxes, depreciation and amortization expenses), is a key indicator monitored by DTN management. EBITDA should not be considered in isolation from, or as a substitute for, operating income, net income or cash flows from operating activities computed in accordance with generally accepted accounting principles. While not a required disclosure under generally accepted accounting principles, EBITDA is a widely used measure of a company's performance in its industry. EBITDA assists in comparing performance on a consistent basis without regard to depreciation and amortization, which may vary significantly depending on accounting methods (particularly when acquisitions may be involved). Management of the Company believes that EBITDA is a meaningful measure given the widespread industry acceptance as a basis for financial analysis. Further, certain covenants of the Company's debt agreements are based upon EBITDA, as defined above. Due to the variety of methods that may be used by companies and analysts to calculate EBITDA, the EBITDA measures presented herein may not be comparable to that presented by other companies. The following graph details the trend in operating cash flow as a percentage of revenue to illustrate operating leverage. Operating Cash Flow percent of revenue 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- 37 41 43 40* 38* 36 35 *Pro-Forma results before non-recurring satellite costs of $5.8 million for 1998 and non-recurring severance costs of $.7 million and loss on sale of radar operations of $4.1 million for 1999. Growth in operating cash flow results from a growing base of subscribers, as well as, increased revenues per subscriber covering the Company's fixed expenses. Operating cash flow for 1999 increased 9% to $57.9 million compared to $53.0 million for 1998. Excluding non-recurring severance costs of $.7 million and loss on sale of radar operations of $4.1 million in 1999 and the non-recurring satellite costs of $5.8 million in 1998, operating cash flow for 1999 would have been $62.7 million compared to $58.8 million for 1998. Operating cash flow as a percent of revenue (operating cash flow margin) for 1999 was 34.8% compared to 35.6% for 1998. Excluding the non-recurring costs, and loss on sale of radar operations, operating cash flow margin for 1999 would have been 37.7% compared to 39.5% for 1998. Kavouras equipment sales have lower operating cash flow margins and have decreased the Company's total operating cash flow margin. A further analysis shows that, excluding the Kavouras operating results, non-recurring costs, and loss on sale of radar operations, operating cash flow margin for 1999 would have been 43.2% compared to 42.5% for 1998. FREE CASH FLOW Free cash flow is defined as operating cash flow (EBITDA) less property and equipment capital expenditures and interest, and is a measurement used by DTN's management team to monitor the Company's source of funds available to grow the business. Free cash flow for 1999 increased 68% to $25.9 million compared to $15.4 million for 1998. Property and equipment capital expenditures for 1999 were down 20% to $23.2 million compared to $29.1 million for 1998. Included in 1999 and 1998 were $8.6 million and $3.1 million, respectively of one-time expenditures primarily for satellite equipment, the DTN for Windows (DIRECTV) project, and other new product initiatives. Excluding the non-recurring costs, and one-time capital expenditures, free cash flow for 1999 would have increased 62% to $39.3 million compared to $24.3 million for 1998. 37 -329- DEBT LEVERAGE RATIO The Company's debt leverage ratio is defined as total long-term debt (including current portion) divided by last twelve months operating cash flow (EBITDA). The debt leverage ratio was 1.8 for the period ended December 31, 1999 compared to 2.3 for the period ended December 31, 1998. The debt leverage ratio at December 31, 1999 is based on $103.1 million of total long-term debt (including current portion) divided by $57.9 million of last twelve months operating cash flow (EBITDA) for the twelve month period ending December 31, 1999. This ratio demonstrates the Company's ability to pay off total long-term debt (including current portion) in 1.8 years. The debt leverage ratio at December 31, 1998 is based on $122.2 million of long-term debt (including current portion) divided by $53.0 million of last twelve months operating cash flow (EBITDA) for the twelve month period ending December 31, 1998. NET DEVELOPMENT COSTS Operating cash flow is affected by the Company's research and development activities. DTN accumulates research and development activities as "Net Development Costs". The Company defines "Net Development Costs" as 1) market research activities, 2) hardware and software engineering, research and development, and 3) the negative operating cash flow (prior to corporate allocations plus interest) of new services. The Company includes new services in the "Net Development Costs" classification until the service shows positive operating cash flow prior to corporate allocations plus interest for a full quarter. The service becomes a core service after reaching this level in the developmental process. During 1998, the Company's developmental activities increased to $6.5 million compared to $5.2 million for 1997, with the Kavouras operations (acquired in July 1998) contributing $1.3 million. Operating cash flow margin in 1998 declined to 35.6% compared to 43.3% in 1997. This decline was primarily due to the $5.8 million non-recurring satellite costs and the Kavouras operations as discussed in the Operating Cash Flow segment above. Core services operating cash flow margin for 1998 decreased to 40.8% compared to 48.5% for 1997. Excluding Kavouras operating results and non-recurring satellite costs, core services operating cash flow margin for 1998 would have been 48.1% compared to 48.5% for 1997. During 1999, the Company's development activities increased to $7.3 million compared to $6.5 million for 1998, with the Kavouras operations contributing $2.5 million. Operating cash flow margin decreased to 34.8% in 1999 compared to 35.6% in 1998. Core services operating cash flow margin for 1999 was 39.4% compared to 40.7% for 1998. Excluding Kavouras operating results, non-recurring costs, and loss on sale of radar operations, core services operating cash flow margin for 1999 would have been 48.5% compared to 48.1% for 1998. 1999 COMPARED TO 1998 The 1999 operating results were affected by a continued weak agriculture economy, the sale of the radar business and strategic acquisitions completed by the Company. The operating results for 1999 include twelve months of the operations of Kavouras, Inc. (Kavouras), acquired in July 1998. The Kavouras operations, including the Weather Services Corporation (WSC) operations, are included in the Weather Services division of the Company. PERCENT In Thousands 1999 1998 CHANGE - ------------------------------------------------------------------------------- Subscribers 166.9 159.3 5 % Revenues $166,509 $148,986 12 % Operating cash flow 57,884 53,014 9 % Operating income 4,157 4,163 - Net loss $ (3,707) $ (3,743) 1 % REVENUES Total revenue increased 12% for 1999 compared to 1998. Recurring operating revenues, consisting of subscriptions, additional services, communications and advertising, increased to $80 per subscriber per month for 1999 compared to $74 for 1998. The Company attributes the revenue increases for 1999 compared to 1998 primarily to revenue generated by the increase in subscribers, an increase in average subscription rates and acquisitions. At a segment level, three of the Company's main segments (Weather Services, Financial Services and Energy Services) showed solid revenue growth for 1999 compared with the prior year. This growth was primarily driven by an increasing subscriber base and acquisitions, as well as, upgrading the existing customers to more sophisticated and higher priced services. The Ag Services segment showed a decrease in revenue for 1999 compared with the prior year, due to the continued weakness in the agricultural economy. The increase in total Company revenues resulted in total revenues per subscriber per month increasing to $85 for 1999 compared to $77 for 1998. Subscriptions - Subscription revenue for 1999 grew 12% to $134.0 million compared to $119.5 million for 1998. The increase was primarily due to acquisitions completed in 1999 and 1998, increases in total subscribers, and the ability to move subscribers to higher priced services. The increase in total subscribers in 1999 was primarily due to acquisition activities. The Company added 7,500 subscribers from acquisitions. The Weather, Financial Services and Energy divisions all increased subscribers on a net basis. Agriculture subscribers declined but the retention rate improved in 1999 compared to 1998. The Kavouras operations (including WSC operations) contributed $13.2 million of subscription revenue to the Weather Services division of the Company for 1999 and $5.1 million for 1998 on a consolidated basis. This revenue accounted for 56% of the $14.4 million increase in the Company's subscription revenues for 1999 and 28% of the $18.3 million increase for 1998. 38 -330- The increase in subscribers from new subscription sales and acquisitions for 1999 resulted in total subscription revenues on a per subscriber per month basis of $68 compared to $62 for 1998. The Company continues to add new subscribers at higher subscription rates. Subscription revenue per subscriber, per month for all new subscription sales in 1999 was $74. Equipment Sales - The Company's July 1, 1998 acquisition of Kavouras, Inc., added a new market niche for the Company, the manufacture and sale of various meteorological equipment and radar systems. The Kavouras acquisition added $6.1 and $4.8 million of meteorological equipment and radar sales for 1999 and 1998, respectively. This accounted for the majority of the Company's equipment sales for 1999 and 1998. In December 1999, the Company sold the radar operations of Kavouras, Inc. The Kavouras radar revenues were $1.5 million for 1999 and $2.5 million for 1998. The revenues from meteorological equipment grew to $4.6 million compared to $2.3 million for 1998 primarily due to the introduction of the Triton RT system. Additional Services - The Company offers a variety of "a la carte" optional services. Additional services revenues grew 13% for 1999 compared to 1998. This increase is primarily due to the growth in the Financial Services and Energy segments related to new products and acquisitions. Communication Services - The growth in communications revenue was primarily in the Energy Services division. The DTNergy service transmits refiner prices and communications to wholesaler/subscribers. The number of refiner communications (messages) increased and helped produce a total company revenue growth of 15% for 1999 over 1998. Advertising - Advertising revenue fell 9% to $3.1 million for 1999, compared to $3.5 million for 1998. The Agricultural Services division accounts for the majority of advertising revenues, therefore, the agriculture economy has negatively impacted the 1999 and 1998 advertising revenues of the Company. Service Initiation Fees - Service initiation fees revenue for 1999 fell 30% to $2.3 million compared to $3.3 million for 1998. This decline is due to discounting in the Agricultural Services division, the direct result of the weak agricultural economy. EXPENSES Total operating expenses for 1999 increased 12% to $162.4 million compared to $144.8 million for 1998. Excluding the non-recurring severance costs of $.7 and $4.1 million loss on sale of radar operations for 1999 and non-recurring satellite costs of $5.8 million for 1998, total expenses for 1999 and 1998 would have been $157.5 million and $139.0 million, respectively. The increase in total operating expenses, excluding non-recurring costs, was primarily due to having the Kavouras operations (including WSC operations) for 12 months in 1999 compared to 6 months in 1998 and the amortization expense from acquisitions. Total operating expenses (excluding sales commissions, cost of equipment sales, non-recurring costs and loss on sale of radar operations) increased on a per subscriber per month basis to $71 for 1999 compared to $65 for 1998. Selling, General and Administrative - Selling, general and administrative expenses on a per subscriber per month basis for 1999 increased to $44 compared to $39 for 1998. These costs increased in 1999 as a result of expenses associated with acquisitions. Selling, general and administrative expenses in 1999 grew 15% compared to 1998 and as a percentage of revenue increased to 52% in 1999 compared to 50% in 1998. Selling, general and administrative expenses, excluding selling, general and administrative related to the Kavouras operations (including WSC operations), remained flat in 1999 compared to 1998. Cost of Equipment Sales - Cost of equipment sales for 1999 and 1998 were $5.2 million and $4.2 million, respectively. These expenses were primarily the direct result of the Kavouras acquisition which brought a new market niche for the Company, the manufacture and sale of various meteorological equipment and radar systems. The Kavouras radar operation was sold in December of 1999. Cost of equipment sales related to the radar operations were $1.8 million in 1999 compared to $2.5 million in 1998. Sales Commissions - Sales commissions are generated from new subscription sales and cash flows related to the DTNergy service. Sales commissions increased 13% during 1999 compared to 1998. This increase is primarily a result of Kavouras operations (including WSC operations) and an increase in DTNergy cash flows in which sales commissions in the energy division are based. Sales commissions, excluding sales commissions related to the Kavouras operations, grew 9% in 1999 compared to 1998. Depreciation and Amortization - Depreciation and amortization expense for 1999 increased 10% to $53.7 million compared to $48.9 million for 1998. This increase is primarily due to the increase in amortization related to the intangible assets (primarily goodwill) from acquisitions. As a percentage of total revenues, depreciation and amortization expense for 1999 was 32% compared to 33% in 1998. Depreciation and amortization expense for 1999, excluding depreciation and amortization related to the Kavouras operations, grew 4% in 1999 compared to 1998. Loss on Sale of Radar Operations - The loss on the sale of radar operations was $4.1 million for 1999. This loss was due to the sale of the Kavouras radar operations in December of 1999. The loss included the sale of assets, severance and other operation closing costs. OPERATING INCOME Operating income (EBIT) was $4.2 million for 1999 and 1998, respectively. Excluding non-recurring severance costs of $.7 million and $4.1 million loss on sale of radar operations in 1999 and non-recurring satellite costs of $5.8 million for 1998, operating income for 1999 would have been $9.0 million compared to $10.0 million for 1998. Operating income excluding non-recurring 39 -331- costs and loss on sale of radar operations, and before amortization expenses related to acquisitions increased 18% to $21.7 million for 1999 compared to $18.4 million for 1998. INTEREST EXPENSE Interest expense for 1999 increased 4% to $8.8 million compared to $8.4 million for 1998. This increase is primarily due to higher average debt outstanding. As a percentage of total revenue, interest expense for 1999 decreased to 5% compared to 6% for 1998. EQUITY IN LOSS OF AFFILIATE The equity loss of affiliate for 1999 was $.2 million. This loss is the result of the joint venture formed by the Company and Photon Research, Inc. in December of 1999. The losses are a result of certain operating costs at the start of the joint venture. OTHER INCOME (EXPENSE) During 1998, the Company received a federal income tax refund from amended returns for prior years and as a result, recorded one time interest income of $181,000 from those refunds. INCOME TAX BENEFIT The Company's federal and state effective tax benefit rate was 23% and 34% for 1999 and 1998, respectively. The change is primarily due to non-deductible goodwill from acquisitions. LOSS BEFORE EXTRAORDINARY ITEM The loss before extraordinary item for 1999 was $3.7 million or $.32 per share on a diluted basis compared to a loss of $2.7 million or $.24 per share for 1998. Excluding the non-recurring severance and satellite costs and the loss on the sale of radar operations, the loss before extraordinary item for 1999 would have been $.6 million or $.05 per share on a diluted basis compared to income of $1.0 million or $.09 per share on a diluted basis for 1998. EXTRAORDINARY ITEM, NET OF TAX During the first quarter of 1998, the Company refinanced the $15,000,000 11.25% Senior Subordinated Notes due 2004 with 7.5% Senior Term Notes. The Company incurred a one-time charge to earnings of $1.1 million, net of tax, or $.09 per share on a diluted basis. This one-time charge was for the pre-payment penalties and write-offs for debt issuance and discount costs not fully amortized related to the subordinated notes. NET INCOME (LOSS) The net loss for 1999 was $3.7 million or $.32 per share on a diluted basis compared to a net loss of $3.7 million or $.33 per share for 1998. Excluding the non-recurring severance and satellite costs, loss on the sale of radar operations and the extraordinary item discussed above, the net loss for 1999 would have been $.6 million or $.05 per share on a diluted basis compared to net income of $1.0 million or $.09 per share on a diluted basis for 1998. 1998 COMPARED TO 1997 The 1998 operating results were affected by the weak agriculture economy, the satellite outage and the strategic acquisitions completed by the Company. The operating results for 1998 include six months of the operations of Kavouras, Inc. (Kavouras), acquired in July 1998. The Kavouras operations are included in the Weather Services division of the Company. Operating income declined primarily due to the $5.8 million non-recurring satellite costs and higher amortization expense related to acquisitions. PERCENT In Thousands 1998 1997 CHANGE - ------------------------------------------------------------------------------ Subscribers 159.3 158.8 - Revenues $148,986 $126,374 18 % Operating cash flow 53,014 54,699 (3)% Operating income 4,163 12,383 (66)% Net income (loss) (3,743) 2,236 - REVENUES Total revenue increased 18% for 1998 compared to 1997. Recurring operating revenues, consisting of subscriptions, additional services, communications and advertising, increased to $74 per subscriber per month for 1998 compared to $66 for 1997. Subscriptions - Subscription revenue for 1998 grew 18% to $119.5 million compared to $101.2 million for 1997. The increase was primarily due to acquisitions completed in 1998, increases in total subscribers, and the ability to move subscribers to higher priced services. The increase in total subscribers in 1998 was primarily due to acquisition activities. The Company added 3,300 subscribers from acquisitions and incurred a loss of 2,800 subscribers, excluding the acquired subscribers, due to lower retention. The Company believes the lower retention is due to lower commodity prices in the Agriculture industry and the Galaxy IV satellite outage. The Kavouras acquisition contributed $4.5 million of subscription revenue on a consolidated basis to the Weather Services division of the Company. This revenue accounted for 24% of the $18.3 million increase in the Company's subscription revenues. The Company continues to add new subscribers at higher subscription rates. Subscription revenue per subscriber, per month for all new subscription sales in 1998 was $77 compared to $68 for 1997. The increase in subscribers from new subscription sales and acquisitions resulted in total subscription revenues on a per subscriber per month basis to increase for 1998 to $63 compared to $55 for 1997. Equipment Sales - The Company's July 1, 1998 acquisition of Kavouras, Inc., in Minneapolis, added a new market niche for the Company, the manufacture and 40 -332- sale of various meteorological equipment and radar systems. The Kavouras acquisition added $4.8 million of meteorological equipment and radar sales for 1998. This accounted for the majority of the Company's equipment sales for 1998. Additional Services - The Company increased the number of information services through "a la carte" optional services (230 in 1998 versus 200 in 1997). The growth in services, subscribers and marketing efforts resulted in a 5% increase in additional service revenues. Communication Services - The growth in communications revenue was primarily in the Energy Services division. The DTNergy service transmits refiner prices and communications to wholesaler/subscribers. The number of refiner communications increased and produced a revenue growth of 7% in 1998 over 1997. Advertising - Advertising revenue fell 9% to $3.5 million for 1998, compared to $3.8 million for 1997. Advertising had a record year in 1997 fueled by strong advertising related to new product introductions by companies in the agriculture industry. The Agricultural Services division accounts for the majority of advertising revenues, therefore, the recent downturn in the agriculture economy has negatively impacted the 1998 advertising revenues of the Company. Service Initiation Fees - Service initiation fees revenue for 1998 fell 29% to $3.3 million compared to $4.6 million for 1997. This decline is due to slower sales in the Agricultural Services division, the direct result of the weak agricultural economy, and the inability of the Company's sales force to focus on new sales while assisting subscribers for three months related to the satellite outage. EXPENSES Total operating expenses for 1998 increased 27% to $144.8 million compared to $114.0 million for 1997. Excluding the $5.8 million of non-recurring satellite costs related to Galaxy IV, total expenses for 1998 increased 22% compared to 1997. The increase in total operating expenses, excluding non-recurring satellite costs, was primarily due to the Company's growth in subscribers, initiatives to expand distribution programs, the $11.2 million of operating expenses from the Kavouras operations (including $4.1 million of costs of equipment sales) and the amortization expense from other acquisitions. Total operating expenses (excluding sales commissions, cost of equipment sales and non-recurring satellite costs) increased on a per subscriber per month basis to $65 for 1998 compared to $57 for 1997. Selling, General and Administrative - Selling, general and administrative expenses on a per subscriber per month basis for 1998 increased to $39 compared to $34 for 1997. These costs increased in 1998 as a result of expenses associated with acquisitions and the initiatives to expand distribution programs. Selling, general and administrative expenses in 1998 grew 21% compared to 1997 and as a percentage of revenue increased to 50% compared to 49% in 1997. Selling, general and administrative expenses, excluding selling, general and administrative related to the Kavouras operations, grew 13% in 1998 compared to 1997. Cost of Equipment Sales - Cost of equipment sales for 1998, was $4.2 million. These expenses were primarily the direct result of the Kavouras acquisition which brought a new market niche for the Company, the manufacture and sale of various meteorological equipment and radar systems. Sales Commissions - Sales commissions are generated from new subscriptions sales and cash flows related to the DTNergy service. Sales commissions increased 12% during 1998 compared to 1997. This increase is due to incentive programs to the national sales force and sales management related to initiatives to expand distribution programs. Sales commissions, excluding sales commissions related to the Kavouras operations, grew 7% in 1998 compared to 1997. Depreciation and Amortization - Depreciation and amortization expense for 1998 increased 15% to $48.9 million compared to $42.3 million for 1997. These increases are primarily due to the increase in subscriber equipment for the added subscribers, increase in subscriber equipment inventory and amortization related to the intangible assets (primarily goodwill) from acquisitions. As a percentage of total revenues, depreciation and amortization expense for 1998 and 1997 remained level at 33%. Depreciation and amortization expense for 1998, excluding depreciation and amortization related to the Kavouras operations, grew 11% in 1998 compared to 1997. OPERATING INCOME Operating income (EBIT) for 1998 decreased 66% to $4.2 million compared to $12.4 million for 1997. Excluding the $5.8 million non-recurring satellite costs related to Galaxy IV, operating income for 1998 was $10.0 million compared to $12.4 million for 1997. These decreases in operating income for 1998 are primarily related to lower operating income from acquired operations due to lower operating cash flow margins and increased amortization expense. Amortization expense related to acquisitions was $8.4 million for 1998 compared to $5.9 million for 1997. INTEREST EXPENSE Interest expense for 1998 decreased 7% to $8.4 million compared to $9.1 million for 1997. In the first quarter of 1998 the Company refinanced its 11.25% Senior Subordinated Notes down to 7.5% Senior Term notes which had a direct impact on interest expense in 1998 compared to 1997. As a percentage of total revenue, interest expense for 1998 decreased to 6% compared to 7% for 1997. 41 -333- OTHER INCOME (EXPENSE) During 1998, the Company received a federal income tax refund from amended returns for prior years and as a result, recorded one time interest income of $181,000 from those refunds. INCOME TAX PROVISION (BENEFIT) The Company's federal and state effective tax rate was 34% for both 1998 and 1997. INCOME (LOSS) BEFORE EXTRAORDINARY ITEM The loss before extraordinary item for 1998 was $2.7 million or $.24 per share on a diluted basis compared to income of $2.2 million or $.19 per share for 1997. Excluding the non-recurring satellite costs, the income before extraordinary item for 1998 would have been $1.0 million or $.09 per share on a diluted basis. EXTRAORDINARY ITEM, NET OF TAX During the first quarter of 1998, the Company refinanced the $15,000,000 11.25% Senior Subordinated Notes due 2004 with 7.5% Senior Term Notes. The Company incurred a one-time charge to earnings of $1.1 million, net of tax, or $.09 per share on a diluted basis. This one-time charge was for the pre-payment penalties and write-offs for debt issuance and discount costs not fully amortized related to the subordinated notes. NET INCOME (LOSS) The net loss for 1998 was $3.7 million or $.33 per share on a diluted basis compared to net income of $2.2 million or $.19 per share for 1997. Excluding the non-recurring satellite costs and the extraordinary item discussed above, the net income for 1998 would have been $1.0 million or $.09 per share on a diluted basis. 42 -334- (Photograph) DTN's accounting functions span several divisions and geographical locations, all under the watchful eye of Daniel A. Petersen, Corporate Controller and Treasurer, and his team. Management's Responsibility for Financial Statements To Our Stockholders: The management of Data Transmission Network Corporation is responsible for the preparation, integrity and objectivity of the accompanying financial statements and related notes. To meet these responsibilities, we maintain a system of internal controls to provide reasonable assurance that assets are safeguarded and transactions are properly authorized and recorded. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts based upon our estimates and judgments, as required. The financial statements have been audited by Deloitte & Touche LLP who have expressed their opinion, presented below, with respect to the fairness of the statements. Their audit included a review of the system of internal control and tests of transactions to the extent they considered necessary to render their opinion. The Audit Committee of the Board of Directors is composed solely of outside directors. The Audit Committee meets periodically with our independent auditors and management to review accounting, auditing, internal control and financial reporting matters. /s/ Greg T. Sloma /s/ Brian L. Larson - ---------------------- ------------------------- Greg T. Sloma Brian L. Larson President Senior Vice President Chief Operating Officer Chief Financial Officer and Secretary Independent Auditor's Report Board of Directors and Stockholders Data Transmission Network Corporation We have audited the accompanying consolidated balance sheets of Data Transmission Network Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Data Transmission Network Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP - -------------------------- Deloitte & Touche LLP Omaha, Nebraska February 9, 2000 (March 3, 2000 as to note 18) 43 -335- Consolidated Balance Sheets As of December 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash $ - $ - Accounts receivable, net of allowance for doubtful accounts of $1,800,000 and $1,300,000 10,073,472 10,475,426 Note Receivable 412,142 - Investment in securities 3,675,000 - Inventory 1,480,922 3,575,580 Prepaid expenses 1,961,613 2,219,778 Deferred commission expense 2,844,195 2,695,475 ------------ ------------ Total Current Assets 20,447,344 18,966,259 Investment in affiliate 2,788,024 - Property and Equipment Equipment Used By Subscribers 258,211,698 244,613,085 Other Property and Equipment 47,082,196 38,788,491 ------------ ------------ Total Property and Equipment 305,293,894 283,401,576 Less: Accumulated Depreciation 214,172,557 174,164,486 ------------ ------------ Net Property and Equipment 91,121,337 109,237,090 Intangible Assets From Acquisitions 92,564,678 82,266,913 Less: Accumulated Amortization 30,661,366 18,121,533 ------------ ------------ Net Intangible Assets 61,903,312 64,145,380 Other Assets 7,743,161 4,836,353 ------------ ------------ Total Assets $184,003,178 $197,185,082 - -------------------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current Liabilities Accounts payable $ 6,822,995 $ 5,820,579 Accrued expenses 9,184,969 8,963,856 Current portion of long-term debt 24,081,667 21,628,542 ------------ ------------ Total Current Liabilities 40,089,631 36,412,977 Revolving Debt 55,500,000 55,500,000 Long-Term Debt 23,538,332 45,119,998 Equipment Deposits 383,009 653,753 Unearned Revenue 26,995,286 27,348,468 Commitments and Contingencies Shareholders' Equity Common stock, par value $.001, authorized 20,000,000 shares, issued 11,985,319 and 11,516,392 11,985 11,516 Paid-in capital 41,724,043 35,022,787 Accumulated deficit (6,591,108) (2,884,417) Accumulated other comprehensive income 2,352,000 - ------------ ------------ Total Shareholders' Equity 37,496,920 32,149,886 ------------ ------------ Total Liabilities and Shareholders' Equity $184,003,178 $197,185,082 The accompanying notes are an integral part of these financial statements.
44 -336- Consolidated Statements of Operations Years ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Subscriptions $ 133,991,755 $ 119,543,225 $ 101,194,290 Equipment sales 6,727,485 4,871,481 - Additional services 7,976,731 7,059,007 6,694,754 Communication services 12,381,509 10,787,952 10,050,073 Advertising 3,129,052 3,455,194 3,809,748 Service initiation fees 2,302,070 3,269,487 4,625,487 -------------- -------------- -------------- 166,508,602 148,986,346 126,374,352 Expenses -------------- -------------- -------------- Selling, general and administrative 86,086,879 74,919,319 61,790,861 Cost of equipment sales 5,205,275 4,192,737 - Sales commissions 12,475,315 11,060,492 9,884,783 Depreciation and amortization 53,727,233 48,850,622 42,315,305 Loss on sale of radar operations 4,121,319 - - Non-recurring costs 735,828 5,800,000 - -------------- -------------- -------------- 162,351,849 144,823,170 113,990,949 -------------- -------------- -------------- Operating Income 4,156,753 4,163,176 12,383,403 Interest expense (8,820,476) (8,449,668) (9,098,231) Equity in loss of affiliate (211,976) - - Other income, net 70,539 217,929 121,909 -------------- -------------- -------------- Income (Loss) Before Income Taxes and Extraordinary Item (4,805,160) (4,068,563) 3,407,081 Income tax (benefit) provision (1,098,469) (1,402,684) 1,171,000 -------------- -------------- -------------- Income (Loss) Before Extraordinary Item (3,706,691) (2,665,879) 2,236,081 Extraordinary Item, Net of tax - 1,076,880 - -------------- -------------- -------------- Net Income (Loss) $ (3,706,691) $ (3,742,759) $ 2,236,081 - ------------------------------------------------------------------------------------------------------------------------------------ Basic Income (Loss) Per Share Income (loss) before Extraordinary Item $ (0.32) $ (0.24) $ 0.20 Extraordinary Item, net of tax - (0.09) - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (loss) $ (0.32) $ (0.33) $ 0.20 - ------------------------------------------------------------------------------------------------------------------------------------ Diluted Income (Loss) Per Share Income (loss) before Extraordinary Item $ (0.32) $ (0.24) $ 0.19 Extraordinary Item, net of tax - (0.09) - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (loss) $ (0.32) $ (0.33) $ 0.19 - ------------------------------------------------------------------------------------------------------------------------------------ Basic Shares Outstanding 11,734,190 11,358,934 11,100,684 Diluted Shares Outstanding 11,734,190 11,358,934 12,082,556 The accompanying notes are an integral part of these financial statements.
45 -337- Consolidated Statement of Shareholders' Equity Years ended December 31, 1997, 1998 and 1999
- ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Retained Other Total Common Common Paid-in Earnings Treasury Comprehensive Shareholders' Shares Stock Capital (Deficit) Stock Income Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 1997 11,074,224 $ 11,074 $ 30,025,990 $ (1,404,602) $(342,173) $ - $ 28,290,289 Net income - - 2,236,081 - - 2,236,081 Treasury stock issued on exercise of employee stock options - - 26,863 342,173 - 369,036 Issuance of common stock on exercise of employee stock options 73,828 74 625,693 - - - 625,767 Tax benefit related to exercise of employee stock options - 675,000 - - - 675,000 ---------- -------- ------------ ----------- --------- ----------- ------------ Balance, December 31, 1997 11,148,052 $ 11,148 $ 31,326,683 $ 858,342 $ - $ - $ 32,196,173 Net loss - - (3,742,759) - - (3,742,759) Issuance of common stock on exercise of employee stock options 368,340 368 2,677,308 - - - 2,677,676 Tax benefit related to exercise of employee stock options - 688,796 - - - 688,796 Issuance of warrants - 330,000 - - - 330,000 ---------- -------- ------------ ----------- --------- ----------- ------------ Balance, December 31, 1998 11,516,392 $ 11,516 $ 35,022,787 $(2,884,417) $ - $ - $ 32,149,886 Net loss - - (3,706,691) - - (3,706,691) Net unrealized investment gain - - - - 2,352,000 2,352,000 Total comprehensive loss (1,354,691) Issuance of common stock on exercise of employee stock option 468,927 469 5,648,256 - - - 5,648,725 Tax benefit related to exercise of employee stock options - 1,053,000 - - - 1,053,000 ---------- -------- ------------ ----------- --------- ----------- ------------ Balance, December 31, 1999 11,985,319 $ 11,985 $ 41,724,043 $(6,591,108) $ - $ 2,352,000 $ 37,496,920
The accompanying notes are an integral part of these financial statements. 46 -338- Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net income (loss) $ (3,706,691) $ (3,742,759) $ 2,236,081 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 53,727,233 48,850,622 42,315,305 Amortization of debt issue costs and discount 76,642 38,437 147,880 Extraordinary loss on early extinguishment of debt - 1,682,880 - Equity in loss of affiliate 211,976 - - Noncash loss on sale of radar operations 630,366 - - Deferred income taxes (2,421,469) (1,254,753) 1,056,000 Change in assets and liabilities: Accounts receivable 403,404 (1,721,398) (1,278,437) Inventory 2,094,658 1,144,102 - Prepaid expenses 224,565 (851,447) (180,068) Deferred commission expense (148,720) 614,502 (400,469) Other assets (150,950) - - Accounts payable 1,000,360 (3,151,545) 518,361 Accrued expenses (98,512) (2,091,048) (1,113,749) Equipment deposits (270,744) (542,752) (51,175) Unearned revenue (398,182) 3,441,028 4,293,666 ------------- ------------- ------------ Net Cash Provided By Operating Activities 51,173,936 42,415,869 47,543,395 Cash Flows From Investing Activities Capital expenditures: Equipment used by subscribers (13,816,323) (20,341,583) (21,137,267) Other Property and Equipment (9,383,516) (8,803,636) (3,367,535) Acquisitions (10,467,165) (37,621,363) (5,687,196) Proceeds from sale of radar operations 64,000 - - Note receivable from sale of radar operations (1,091,116) - - Investment in affiliate (500,000) - - ------------- ------------- ------------ Net Cash Used By Investing Activities (35,194,120) (66,766,582) (30,191,998) Cash Flows From Financing Activities Proceeds: Revolving credit line - 51,000,000 4,000,000 Term notes - 16,000,000 - Exercise of stock options 5,648,725 2,677,676 994,803 Payments: Term notes (21,628,541) (24,810,833) (22,217,083) Debt acquired through acquisitions - (5,228,300) - Subordinated notes and prepayments costs - (16,125,000) - ------------- ------------- ------------ Net Cash (Used) Provided By Financing Activities (15,979,816) 23,513,543 (17,222,280) ------------- ------------- ------------ Net Increase (Decrease) in Cash - (837,170) 129,117 Cash at Beginning of Period - 837,170 708,053 ------------- ------------- ------------ Cash at End of Period $ - $ - $ 837,170 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental Cash Flow Information Noncash financing activities: Note due to affiliate - exchange for equity interest $ 2,500,000 $ - $ -
The accompanying notes are an integral part of these financial statements. 47 -339- Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Data Transmission Network Corporation and its wholly owned subsidiaries (the Company or DTN). All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company provides its subscribers with equipment or access through the Internet to receive information and communications services. DTN charges a recurring subscription fee and in many instances a one-time service initiation fee. The subscriptions are contracted for an initial period of one year and are generally billed quarterly in advance. Payments received in advance for subscriptions, additional services and advertising are deferred and recognized as the services are provided to the subscribers. Equipment sales are recognized when the equipment is shipped. Service initiation fees are recognized in income since these fees are less than the marketing and setup costs related to a new subscriber. Communication services are generally billed monthly in arrears based on the number and length of the messages delivered to subscribers. Inventory Inventories are stated at the lower of cost or market with cost determined on a first in, first out basis. Deferred Commission Expense Commissions and bonuses which are paid at the time of the initial subscription to sales representatives, to company representatives, or to subscribers for successful customer referrals, are deferred and expensed over the initial twelve-month subscription period. Equipment Used By Subscribers Equipment used by subscribers to receive the Company's electronically transmitted information and communication services is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over a useful life of three to eight years for assets placed in service prior to July 1, 1992, and three to six years for assets placed in service subsequent to July 1, 1992. Other Property and Equipment Other property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective classes of assets as follows: Computer Equipment 3-5 years Software 2-3 years Furniture, Fixtures and Other 3-7 years Leasehold improvements 5-10 years Building 40 years Intangible Assets Intangible assets are stated at cost less accumulated amortization. These costs are amortized using the straight-line method over three to ten years. The carrying value of fixed and intangible assets is periodically assessed by the Company by reviewing the recoverability of the assets over the amortization period based on the projected undiscounted future cash flows of the related business unit. Cash flow projections are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competition and economic conditions. Income Taxes Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Earnings (Loss) Per Share Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, including stock options and warrants. Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. During the years ended December 31, 1999, 1998 and 1997, the Company made interest payments of $8,886,000, $8,367,000 and $8,983,000, respectively. Capital expenditures for subscriber equipment included in accounts payable totalled $342,000 and $1,105,000 at December 31, 1998 and 1997, respectively. The Company paid $934,000 and $136,000 federal income taxes in 1999 and 1998, respectively and no federal income taxes during 1997. Research and Development Expenditures for research and development are charged to expense as they are incurred and approximated $5,777,000, $4,423,000, and $3,059,000 for the years ended December 31, 1999, 1998, and 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Fair Value of Financial Instruments Because of their maturities and/or interest rates, the Company's financial instruments generally have a fair value approximating their carrying value. These instruments include accounts receivable, investment in securities, 48 -340- revolving credit and term borrowings, subordinated debt, commercial paper, and trade payables. The Company had $32,425,500 and $49,822,540 of fixed term debt as of December 31, 1999 and 1998 with an estimated fair value of $32,452,043 and $50,395,940. The Company has an investment in security with an estimated fair value of $3,675,000 as of December 31, 1999. Comprehensive Income Unrealized gains and losses on the Company's available-for-sale securities are included in other comprehensive income and separately included as a component of shareholders' equity, net of related deferred taxes. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133. "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), that would have been effective January 1, 2000. In June 1999, the Financial Accounting Standards Board issued Statement No. 137, "Accounting for Derivatives Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No 133", postponing the effective date for implementing SFAS 133 to fiscal years beginning after June 15, 2000. The Company will adopt this Statement effective January 1, 2001. At this time, the Company believes the impact of adopting this Statement should not be significant to the results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101 related to revenue recognition in financial statements. This SAB will affect the Company's recognition of service initiation fees to require these fees to be deferred and recognized over the term of the service arrangement or the expected period of performance. The Company has not completed the process of evaluating the impact of adopting this SAB. The Company anticipates adopting the SAB in the first quarter of 2000 with a cumulative effect adjustment as a change in accounting principles in accordance with APB Opinion No. 20, Accounting Changes. Reclassifications Certain reclassifications have been made to 1998 amounts to conform to 1999 presentations. 2. Sale of Radar Operation In December of 1999, the Company sold the radar operations of its Kavouras, Inc. subsidiary. The assets were sold for $1.3 million and the Company recorded a pre-tax loss of $4.1 million, which was included in operating expenses. The breakdown of these expenses were as follows: 1) $3.2 million related to the sale of the inventory, fixed assets and intangibles, 2) an accrual of $1.2 million for costs related to the severance of approximately 30 radar operations employees not retained by Kavouras (of which, $.3 million was paid in 1999) and 3) the accrual of $.9 million for other operations closing costs. The radar operations recorded negative direct operating cash flow (not including allocated Kavouras administration expenses) for 1999 and 1998 of $1.3 million and $.8 million on revenues of $1.5 million and $2.5 million, respectively. 3. Non-recurring Costs Severance Costs During the first quarter of 1999, the Company incurred non-recurring costs of $735,828 for severance payments to employees, primarily related to the resignation of the Company's Chairman and CEO. Satellite Costs On May 20, 1998, nearly all of the Company's 159,000 subscribers were unable to receive their data due to loss of control of the Galaxy IV satellite by PanAmSat. This satellite was used by the Company to transmit service to nearly all its subscribers. The costs related to the failure of Galaxy IV include telecommunications, overtime labor, satellite costs and customer communications and these unusual, non-recurring satellite costs were $5.8 million and recorded in May of 1998. 4. Acquisitions The Company has completed the acquisitions described below and all have been accounted for as a purchase. Accordingly, the purchase price has been allocated to the identifiable net assets acquired based upon estimates of their fair market values at the acquisition dates and the excess of purchase price over the estimated fair value of total net assets acquired which was allocated to goodwill. The consolidated financial statements include the operating results from the date of acquisition. Market Quoters, Northern Data and Market Communications Group LLC During the first quarter of 1997, the Company acquired 2,900 real-time commodity subscribers through two separate acquisitions. Approximately 500 of the subscribers were acquired from Market Quoters and Northern Data Services for $750,000 cash. The remaining 2,400 subscribers were acquired from Market Communications Group, LLC (MCG), a joint venture between Reuters America, Inc., and Farmland Industries, Inc. The Company paid $3.6 million cash for the 2,400 subscribers, certain assets and assumed certain liabilities. In total, the Company capitalized approximately $4.5 million as an intangible asset (primarily goodwill) and is amortizing this cost using the straight-line method over three to eight years. The MCG acquisition included the preferred rights to distribute relevant Reuters real-time news and information to the commodities, energy and metals markets. The Network, Inc. In July of 1997, the Company acquired the assets of The Network, Inc., an electronic cotton trading network service. The Company agreed to pay $1,000,000 cash over five years. The Company has the option to terminate the agreement at any time and cease all payments and return the assets to the owner. The Company paid $200,000 cash in 1997, 1998 and 1999, and will pay $200,000 cash on each of 49 -341- the next two anniversary dates. The Company is capitalizing the $200,000 payments when made as an intangible asset (primarily goodwill) and amortizing this cost using the straight-line method over 12 months. To date the Company has capitalized a total of $700,000. In effect, if all payments are made, the Company is amortizing the $1,000,000 purchase price over five years. Arkansas Farm Bureau ACRES Service In October of 1997, the Company agreed to acquire the approximately 700 subscribers on the ACRES platform from the Arkansas Farm Bureau (AFB). The Company agreed to pay approximately $600 for each subscriber that converted to a DTN service. The Company converted 628 subscribers to a DTN service. In addition, the Company will pay the AFB a $6 monthly residual for the lesser of the life of the subscriber or ten years for those subscribers converting to a DTN service. The Company capitalized $376,800 as an intangible asset and is amortizing this cost using the straight-line method over eight years. Market Information of Colorado, Inc. In February of 1998, DTN acquired 100 subscribers receiving real-time commodities and futures information from Market Information of Colorado, Inc. (MIC) for $135,000 cash. The Company capitalized $133,205 as an intangible asset and is amortizing this cost using the straight-line method over eight years. CDS Group, Inc. In March of 1998, DTN acquired CDS Group, Inc. (CDS) for $250,000 cash and the assumption of certain liabilities. CDS is engaged in the business of marketing software for tracking bales of cotton for businesses in the cotton industry. This acquisition complements the acquisition of The Network, Inc., an electronic cotton trading network (discussed above). The Company has capitalized $337,600 as an intangible asset (goodwill) and is amortizing this cost using the straight-line method over five years. SmartServ Online, Inc. In April of 1998, DTN signed an agreement to acquire exclusive rights to market the Internet based financial services information products of SmartServ Online, Inc. (SSOL) based in Stamford, CT (OTC-BB:SSOL), their Internet information distribution technology, and their subscribers for $850,000 cash plus $1,055,000 for minimum payments for the first twelve months of the contract. These services include: SmartServ Pro, now DTN.IQ, a real-time, tick-by-tick stock quote and news service, and TradeNet and BrokerNet, real-time trading and account information services for the brokerage industry. This agreement transferred the 850 subscribers using SmartServ Online to DTN. All new subscribers to these services will be DTN customers and DTN will pay SmartServ Online, Inc. an ongoing royalty based on revenues. The first year minimum payments in excess of the calculated payments has been capitalized as part of the purchase price. In January of 1999, the Company and SSOL signed a Letter of Intent whereby the Company would merge with SmartServ Online, Inc. and shareholders of SmartServ Online, Inc. would receive stock of the Company. The Letter of Intent had been signed by the holders of a majority of the stock of SSOL on a fully diluted basis. In May of 1999, the Company and SSOL agreed to forgo the proposed merger and amend certain terms and provisions of the original License Agreement dated April of 1998. Under the new terms, DTN agreed to pay additional consideration of $5,458,000 to SSOL in return for an exclusive, perpetual, worldwide license, to insure a long-term business alliance. In addition the Company received warrants to purchase 300,000 shares of the Common Stock of SmartServ at an exercise price of $8.60 per share. The Company capitalized the additional consideration as an intangible asset (goodwill) and is amortizing the amount, including the remaining unamortized amount of the $1,905,000 or $1,524,000, using the straight-line method over ten years, dating back to the original agreement date of April 1, 1998. National Datamax, Inc. In June of 1998, DTN signed an agreement to acquire 100% of the capital stock outstanding of National Datamax, a software development and information services firm specializing in integrated systems for the financial information services industry. DTN has agreed to pay $3,000,000 cash, assume the assets and liabilities of National Datamax, Inc., plus pay any earn-out based upon revenue growth from quarter ending December 31, 1997, through quarter ending September 30, 1999. National Datamax is a wholly owned subsidiary of DTN and operates out of California. The Company has capitalized $3,543,295 as an intangible asset (primarily goodwill) and is amortizing this cost using the straight-line method over three to five years. Kavouras, Inc. In July of 1998, DTN signed an agreement to acquire 100% of the capital stock outstanding in Kavouras, Inc. Kavouras is engaged in the development, design, manufacture, marketing and service of meteorological equipment and provides meteorological data services to government, aviation, commercial broadcast and other industries, including DTN. The Company agreed to assume the assets and liabilities of Kavouras, Inc. and pay $22,650,000 cash of which $20,650,000 was paid at closing. The remaining $2,000,000 cash will be paid out in equal $400,000 payments over the next five anniversary dates of closing to Steve Kavouras as a non-compete. Kavouras, Inc. is a wholly owned subsidiary of DTN and operates out of Minnesota under the name DTN Kavouras Weather Services. The Company has capitalized $18,208,749 as an intangible asset (primarily goodwill) and is amortizing this cost using the straight-line method over five to ten years. In a related transaction, in April of 1998, Kavouras signed a License Agreement with Earthwatch Communication, Inc. for the exclusive rights to use, 50 -342- market license and sell the Licensed Products of a U.S. Patent which provides a "Method for Creating a 3D Image of Terrain and Associated Weather." In conjunction with the acquisition agreement, an Assignment Agreement was signed on March 30, 1998, between Kavouras and the Company to assign this License to DTN Market Communications Group, Inc., a wholly owned subsidiary of the Company. As a result of this assignment, the Company paid $3,000,000 cash for the License Agreement with Earthwatch Communication, Inc., which is being capitalized as an intangible asset and amortized using the straight-line method over ten years. Paragon Software, Inc. In March of 1999, the Company acquired Asset Growth Corporation (AGC) and the option to purchase Paragon Software, Inc. (PSI). AGC, a holding company, held an option to purchase PSI. In order to acquire PSI, DTN purchased both AGC and PSI. The Company agreed to pay $9,500,000 cash. Approximately $5,300,000 was paid in October 1998 and the remainder was paid in March 1999. The Company has capitalized $10,408,510 as an intangible asset (primarily goodwill) and is amortizing this cost using the straight-line method over three to five years. Weather Services Corporation In December of 1998, the Company acquired 100% of the capital stock outstanding in Weather Services Corporation (WSC). WSC provides meteorological consulting and worldwide commercial weather information to Internet, newspaper, utilities, broadcasters, agribusinesses and municipalities. The Company agreed to pay $3,807,700 cash to acquire the stock and assume certain liabilities plus a warrant to purchase 20,000 shares of DTN's common stock at $34.00. The Company has capitalized $3,806,533 as an intangible asset (goodwill) and is amortizing this cost using the straight-line method over ten years. The fair value of the warrant is included in shareholder's equity. Waterman Associates In January of 1999, DTN acquired Waterman Associates, a business engaged in creating, assembling, marketing and distributing information in the natural gas and electric energy industries. This information is made available to DTN subscribers as part of the DTN Natural Gas and Electric services. DTN acquired Waterman Associates for $350,000 cash. The Company has capitalized $397,000 as an intangible asset (goodwill) and is amortizing this cost using the straight-line method over five years. FlightBrief Online Service, Inc. In October 1999, DTN acquired the assets of FlightBrief Online Service, Inc., an Internet weather service for the aviation industry. DTN agreed to pay $108 per converted customer, up to $367,500. At closing, $92,000 was paid to the seller and $262,500 was paid into an escrow account to be settled 100 days after the closing date based on the number of converted customers. The Company has capitalized $354,500 as an intangible asset (goodwill) and is amortizing this cost using the straight-line method over five years. Pro Forma Financial Information All of the acquisitions have been accounted for using the purchase method of accounting. With the exception of National Datamax, Kavouras, PSI and WSC, the acquisitions in 1998 were primarily acquisitions of subscribers and not entire businesses. The following unaudited pro forma financial information reflects the consolidated results of operations of the Company for the fiscal years ended December 31, 1998 as though the Kavouras, National Datamax and WSC acquisitions, had occurred at the beginning of the period presented. The remaining 1998 acquisitions were deemed not material in nature to the overall operating statements of the Company, thus are excluded from the pro forma information disclosure. This proforma information has been prepared for comparative purposes only and does not necessarily represent actual operating results that may be achieved in the future or that would have occurred had the acquisition been consummated on January 1, 1998. Proforma information for 1999 would not have been significantly different from the historical results of operations. Pro Forma December 31, 1998 - -------------------------------------------------------------------------------- Revenues $161,544,338 Loss before extraordinary item $ (5,684,895) Loss per share before extraordinary item Basic $ (0.50) Diluted $ (0.50) 5. Investments In Securities As part of the SmartServ Online, Inc. amended license agreement, dated May of 1999, the Company received warrants to purchase 300,000 shares of the Common Stock of SmartServ at an exercise price of $8.60 per share. At December 31, 1999, the Common Stock of SmartServ was trading at $19.72. The Company recorded the estimated fair value of the warrants as a current investment in an available-for-sale security of $3,675,000 and also recorded other comprehensive income for the unrealized gain of $2,352,000, net of $1,323,000 in deferred income taxes. Other comprehensive income has no impact to the Company's net loss, but is included as part of shareholders' equity. 6. Inventories Inventories are primarily related to the equipment sales as a result of the acquisition of Kavouras. The major classes of inventory are as follows: December 31 1999 1998 - -------------------------------------------------------------------------------- Raw Materials $ 914,339 $ 2,684,857 Work-in-Process 39,818 728,415 Finished Goods 526,765 162,308 $ 1,480,922 $ 3,575,580 51 -343- 7. Investment in Affiliate In December of 1999, the Company and Photon Research Associates, Inc. (PRA) formed a joint venture company, EarthScan Network, Inc. (EarthScan) to provide remote sensing images of cropland and other tools for the agricultural industry. DTN owns approximately 47% of the EarthScan stock and has a 50% voting interest. The Company accounts for EarthScan under the equity method because the Company has the ability to exercise significant influence over its operating and financial policies. The equity in loss of EarthScan was $211,976 for the year ended December 31, 1999. 8. Other Property and Equipment Other property and equipment are stated at cost. The respective costs of the classes of assets are as follows: December 31, 1999 1998 - -------------------------------------------------------------------------------- Computer Equipment $ 21,968,903 $ 17,520,801 Software 10,509,485 7,149,835 Furniture, Fixtures and Other 8,885,232 8,527,904 Leasehold improvements 3,016,340 2,909,196 Building 2,481,967 2,460,486 Land 220,269 220,269 - -------------------------------------------------------------------------------- Total $ 47,082,196 $ 38,788,491 9. 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, 2001 unless extended, provides for a total commitment of up to $122,900,000 in new borrowings. As of December 31, 1999, $55,500,000 of the total commitment had been borrowed, with the remaining $67,400,000 available to the Company subject to certain restrictions as discussed below. December 31, 1999 1998 - -------------------------------------------------------------------------------- Revolving Credit Agreement Revolving credit line $ 55,500,000 $ 55,500,000 Term notes 20,875,000 34,421,875 Term Credit Agreement Term notes 24,244,999 32,326,665 Note Due to Affiliate 2,500,000 - - -------------------------------------------------------------------------------- Total Loan Agreements 103,119,999 122,248,540 - -------------------------------------------------------------------------------- Less current portion 24,081,667 21,628,542 - -------------------------------------------------------------------------------- Total Long-Term Debt $ 79,038,332 $100,619,998 Additional borrowings under the Revolving Credit Agreement are available to the Company, as long as at the time of the advance, no default exists with any of the Company loan agreements and the ratio of the Company's total borrowings to operating cash flow ("the Leverage Ratio") does not exceed thirty-six. As of December 31, 1999 based on current operating cash flow, the Company would be able to borrow $25,600,000 of the remaining $67,400,000 commitment available. In addition to the restrictions mentioned above with respect to advances, total debt outstanding is limited to forty-eight times monthly operating cash flow. The Company is required to maintain total stockholders' equity of at least $23,500,000 plus fifty percent (50%) of net income (but not losses) at fiscal year end through June 30, 2001. The minimum stockholders' equity required to be maintained is $24,618,040 as of December 31, 1999. The Company is required to maintain a ratio of quarterly operating cash flow to interest expense (as defined) of at least 2.25 to 1. The Company is permitted to pay cash dividends in any one year, which are, in the aggregate, less than 25% of the Company's net operating profit after taxes in the previous four quarters. Interest on the outstanding borrowings (prior to when the borrowings might be converted to term loans, as discussed below) is at a variable rate, depending on the ratio of the Company's total borrowings to operating cash flow (the "Leverage Ratio"). The following table outlines the "Leverage Ratio", the applicable Margin, Unused Commitment Fees and Fixed Note Margin discussed below.
Unused Fixed Commitment Note Leverage Ratio Margin Fee Margin - ------------------------------------------------------------------------------------------------ greater than 42 .250% .375% 2.25% greater than 36 and less than =42 .500% .250% 2.25% greater than 30 and less than =36 .750% .250% 2.00% greater than 24 and less than =30 1.000% .250% 2.00% greater 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 changed quarterly. As of December 31, 1999, the Revolving Credit Rate is 7.25%. 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, 1999 the commitment fee was 1/4% on all unused revolving credit commitment. In the event the total borrowings exceed 36 times Operating Cash Flow, any term note accruing interest at less than 7.5% is included in a "Trigger Event". The Company is obligated to pay the holders of such term notes a fee of 0.375% of the outstanding balance of the notes upon the occurrence of the Trigger Event and like amounts on the six month anniversary and the twelve month anniversary of the Trigger Event. The Company has the option to convert the outstanding revolving credit borrowings to term loans at any time, payable in forty-eight fixed principal installments, plus interest. Interest on the converted term loans is at the Company's option, a variable interest rate of 1/4% over the Revolving Credit Rate or at a fixed rate of 3/8% over the Revolving Credit Rate in effect on the date of the notice (as defined) or the applicable Fixed Note Margin (based on the "Leverage Ratio") over the average of the 3 and 5 year U. S. treasury securities, as quoted in the prior month "Federal Reserve Statistical Release", whichever is greater. Through a refinancing of Senior Subordinated Notes, as of 52 -344- March 17, 1998, the Company converted $16,000,000 of revolving credit to term notes accruing interest at the rate of 7.50% (see footnote 10). As of December 31, 1999, $55,500,000 of the total borrowings outstanding had not been converted to term loans. As of December 31, 1999, $20,875,000 of term loans were outstanding with monthly installments due up through 2002 having interest rates ranging from 7.50% to 7.865%. The Company has a Term Credit Agreement with a group of banks providing for an aggregate principal amount of $48,490,000 to be repaid in 72 fixed principal installments which began January 31, 1997. As of December 31,1999, the principal balance was $24,244,999 with $12,694,499 accruing at a variable interest rate of the NY prime rate less one-half of one percent, or 8.00% and the remaining $11,550,500 accruing at a fixed interest rate of 7.75%. In December of 1999, the Company and Photon Research Associates, Inc. (PRA) formed a joint venture company, EarthScan Network, Inc. (EarthScan). As part of this new company, DTN contributed $3,000,000 to EarthScan, which included $500,000 cash and a $2,500,000 note. This note agreement calls for periodic payments to EarthScan upon ten days written demand. Interest on the unpaid balance is at a variable rate equal to DTN's revolving credit rate currently in effect, minus two percent. This note is classified as current long-term debt as the Company expects to payoff the note during the next twelve months. Minimum Principal Maturities of Long-Term Debt* - -------------------------------------------------------------------------------- Year Ending December 31, 2000 $ 24,081,667 2001 14,456,667 2002 9,081,665 - -------------------------------------------------------------------------------- Total $ 47,619,999 * 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. 10. Extraordinary item On March 17, 1998, the Company refinanced its Senior Subordinated Notes with 7.50% term notes with fixed principal payments plus interest. The Company recorded an extraordinary loss for the pre-payment penalty of $1,125,000 or 7.5% of the principal balance of $15,000,000 to retire the Subordinated Notes early. In addition, $557,880 of debt issuance and discount costs related to the senior subordinated notes were also recorded as an extraordinary loss in the first quarter of 1998. The extraordinary loss was reduced by a tax benefit of $606,000. 11. Income Taxes Components of the income tax (benefit) provision are as follows: 1999 1998 1997 - -------------------------------------------------------------------------------- Current $ 1,323,000 $ 156,000 $ 115,000 Deferred (2,421,469) (1,558,684) 1,056,000 - -------------------------------------------------------------------------------- $ (1,098,469) $(1,402,684) $ 1,171,000 The income tax (benefit) provision differs from the (benefit) provision at federal statutory rates for the following reasons: 1999 1998 1997 - -------------------------------------------------------------------------------- Federal $(1,634,469) $(1,383,313) $ 1,158,000 State Taxes (96,000) (81,371) 68,000 Other 632,000 62,000 (55,000) - -------------------------------------------------------------------------------- $(1,098,469) $(1,402,684) $ 1,171,000 The components of deferred tax liability (asset) are as follows and is included in other assets on the balance sheet. 1999 1998 - -------------------------------------------------------------------------------- Deferred Tax Assets Net operating loss carryforwards $ 5,415,000 $ 8,630,000 AMT and R&D credits 2,022,000 860,000 Allowance for doubtful accounts 648,000 468,000 Accruals and other 1,388,000 771,000 Total deferred tax assets 9,473,000 10,729,000 Deferred Tax Liabilities Unrealized gain on investment securities $(1,323,000) $ - Depreciation (991,000) (4,910,000) Intangible assets (163,000) (828,000) Other (74,000) (220,000) Total deferred tax liabilities (2,551,000) (5,958,000) Net Deferred Tax Assets $ 6,922,000 $ 4,771,000 The Company had approximately $15,042,000 of unused net operating loss (NOL) carryforwards at December 31, 1999. The NOL carryforwards will expire in the years 2010 to 2018. 12. 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 53 -345- 1992. The common stock repurchased may be used to provide shares for the Company's existing stock options and warrants outstanding. In June 1994, pursuant to the sale of subordinated debt, the Company issued a warrant to purchase 75,000 shares of the Company's common stock at $7.39 per share on or before June 30, 2004. During 1999, the warrant to purchase these 75,000 shares was exercised. In August of 1997, the Company adopted a shareholder rights plan with respect to its Common Stock, under which the Board declared a dividend distribution of one preferred shares purchase right to holders of each share of Common Stock. The rights are not exercisable until ten days after a person or group announces the acquisition of 11% or more of the Company's voting stock or announces a tender offer for 11% or more of the Company's outstanding common stock. Each right entitles the holder to purchase common stock at one half the stock's market value. The rights are redeemable at the Company's option for $.01 per Right at any time on or prior to public announcement that a person has acquired 11% or more of the Company's voting stock. The rights are automatically attached to and trade with each share of Common Stock. In March of 1999, the Board of Directors amended the plan for the rights to expire on March 24, 1999, therefore the rights became unexercisable. In December of 1998, pursuant to the purchase of Weather Services Corporation, the Company issued a warrant to purchase 20,000 shares of the Company's common stock at $34.00 per share on or before December 11, 2005. At December 31, 1999 the warrant to purchase 20,000 shares had not been exercised. 13. Benefit Plans The Company have defined contribution plans under provisions of Internal Revenue Code Section 401(k). All employees with at least one year of service may participate in the plans. The Company matches the employee's contribution up to 4% of the employee's compensation, and may make additional discretionary contributions. During 1999, 1998 and 1997, the Company contributed $1,313,000, $1,029,000 and $848,000, respectively, to the plans as matching contributions. 14. 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 2010 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, 1999 are as follows: Year Ending December 31 - -------------------------------------------------------------------------------- 2000 $ 5,700,752 2001 4,961,261 2002 3,457,704 2003 2,495,318 2004 2,052,491 2005 and after 12,375,609 - -------------------------------------------------------------------------------- Total future minimum lease payments $31,043,135 Total rent expense on all operating leases was $6,610,000, $5,920,000 and $4,842,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 15. Stock-Based Compensation The Company has employee and non-employee 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 one to five years. At December 31, 1999, shares of the Company's authorized but unissued common stock were reserved for issuance as follows: Shares - -------------------------------------------------------------------------------- Employee stock option plans 219,287 Non-employee director plan 65,503 - -------------------------------------------------------------------------------- Total 284,790 The Company accounts for its stock-based compensation plans under the provisions of APB 25. Accordingly, no compensation cost has been recognized for its fixed stock option plans. The effects on 1999, 1998 and 1997 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:
Pro Forma 1999 1998 1997 - ------------------------------------------------------------------------------------------- Net Income (Loss) As Reported $ (3,706,691) $ (3,742,759) $ 2,236,081 Proforma $ (6,746,353) $ (5,427,339) $ 920,827 Diluted Income (Loss) per share As Reported $ (0.32) $ (0.33) $ 0.19 Proforma $ (0.57) $ (0.48) $ 0.08 - ------------------------------------------------------------------------------------------- Fair Value Per Share $ 12.84 $ 15.70 $ 11.56
54 -346- 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: 1999 1998 1997 - -------------------------------------------------------------------------------- Risk-free interest rate 6.5 % 5.5 % 5.5 % Dividend yield 0.0 % 0.0 % 0.0 % Expected volatility 52.0 % 53.0 % 51.0 % Expected life (years) 5.36 4.95 5.60 The following table summarizes the stock options as of December 31, 1999, 1998, 1997:
1999 1998 1997 -------------------------- -------------------------- ---------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at beginning of year 1,384,377 $ 14.53 1,546,432 $ 10.55 1,520,810 $ 9.04 Granted 633,135 $ 23.58 253,458 $ 29.87 207,350 $ 21.60 Exercised (393,927) $ 12.94 (368,992) $ 7.25 (119,644) $ 8.33 Cancelled (118,696) $ 28.73 (46,521) $ 22.59 (62,084) $ 14.23 ------------------------------------------------------------------------------------------------ Outstanding at end of year 1,504,889 $ 17.67 1,384,377 $ 14.57 1,546,432 $ 10.55 ------------------------------------------------------------------------------------------------ Exercisable at end of year 763,755 $ 11.52 895,230 $ 9.48 968,834 $ 7.25 The following table summarizes the stock options outstanding as of December 31, 1999:
- -------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable ----------------------------------------------------- -------------------------------- Shares Weighted-Average Weighted-Average Shares Weighted-Average Outstanding Remaining Life Exercise Price Exercisable Exercise Price - -------------------------------------------------------------------------------------------------------------------- $ 0.00 -$15.50 588,278 3.8 years $ 7.66 588,278 $ 7.66 $15.67 -$27.50 588,855 8.3 years $ 21.33 159,456 $ 22.88 $28.00 -$41.75 327,756 9.0 years $ 29.07 16,021 $ 39.91 - -------------------------------------------------------------------------------------------------------------------- $ 0.00 -$41.75 1,504,889 6.7 years $ 17.67 763,755 $ 11.52
16. Earnings Per Share The following table shows the amounts used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. The dilutive potential common shares outstanding were 552,018 and 878,837 for 1999 and 1998, respectively, and were not included in computing diluted earnings per share because their effects were antidilutive.
1999 1998 1997 ----------------------------------- --------------------------------- ----------------------------- Per-Share Per-Share Per-Share Income Shares Amount Income Shares Amount Income Shares Amount - ------------------------------------------------------------------------------------------------------------------------------------ Basic EPS Net Income (Loss) $(3,706,691) 11,734,190 $(0.32) $(3,742,759) 11,358,934 $(0.33) $2,236,081 11,100,684 $0.20 Effect of Dilutive Securities Stock Options and Warrants - - - - - - - 981,872 - - ------------------------------------------------------------------------------------------------------------------------------------ Diluted EPS $(3,706,691) 11,734,190 $(0.32) $(3,742,759) 11,358,934 $(0.33) $2,236,081 12,082,556 $0.19
55 -347- 17. Industry Segment Data The Company operates in four principal industry segments - Agricultural, Weather, Financial and Energy. All segments provide comprehensive, time-sensitive information and communication services for their respective industries. The Agricultural segment (DTN Ag Services) provides information and services, including: agricultural market information, delayed and real time futures and options quotes and comprehensive news and weather for a variety of agribusiness industries; equipment locator and inventory management service for the farm implement dealer; weather, pricing, news and transportation information for the produce industry; and an electronic marketing system for the cotton industry. The Weather segment (DTN Weather Services) provides a comprehensive weather information system to meet the weather information needs of many industries including: aviation, broadcast, construction, forestry, marine, transportation, turf-related operations, emergency management and any other business relying on weather information to help carry out its operations. The Financial segment (DTN Financial Services) provides comprehensive information and services including; real-time quotes, news, charts and alerts for professional investors delivered via proprietary hardware, PC or over the Internet; delayed quotes, business news and economic data for the individual investor; wholesale mortgage rates and prices for the mortgage industry; and software and data services to financial planners and independent brokers. The Energy segment (DTN Energy Services) provides pricing information and communications services including, delayed futures and options quotes plus selected financial information for the refined fuels industry, thus linking the refiners with their customers and real-time or delayed options and futures quotes, weather, news and information for the gas and electricity industries. The Other segment (Other Services) is general corporate activities not attributable to a specific industry segment and other industry services not material in nature and eliminations of inter-segment activity. Management primarily evaluates performance of each segment based on operating cash flow (operating income before depreciation and amortization), EBITDA. The Company does not allocate income taxes and infrequent or extraordinary items to the individual industry segments. Inter-segment revenues have been recorded at amounts approximating market. The following table summarizes additional information regarding the Company's individual industry segments:
1999 1998 1997 - ---------------------------------------------------------------------------------------- External revenues DTN Ag Services $ 85,050,566 $ 88,313,568 $ 87,574,829 DTN Weather Services 38,509,656 25,760,861 10,665,701 DTN Financial Services 19,364,093 13,350,361 10,316,370 DTN Energy Services 18,741,278 16,108,597 14,344,714 Other Services 4,843,009 5,452,959 3,472,738 - ---------------------------------------------------------------------------------------- Total $166,508,602 $148,986,346 $126,374,352 - ---------------------------------------------------------------------------------------- Inter-segment revenues DTN Ag Services $ - $ - $ - DTN Weather Services 2,361,003 1,038,231 - DTN Financial Services 41,603 24,611 - DTN Energy Services - - - Other Services - - - - ---------------------------------------------------------------------------------------- 2,402,606 1,062,842 - Inter-segment Elimination (2,402,606) (1,062,842) - - ---------------------------------------------------------------------------------------- Total $ - $ - $ - - ---------------------------------------------------------------------------------------- Operating Income DTN Ag Services $ 13,869,768 $ 16,797,670 $ 18,773,860 DTN Weather Services (4,756,251) (2,649,423) (2,174,723) DTN Financial Services (5,237,561) (3,559,403) (2,701,058) DTN Energy Services 7,006,227 6,282,467 5,720,451 Other Services (6,725,430)1 (12,708,135)2 (7,235,127) - ---------------------------------------------------------------------------------------- Total $ 4,156,753 $ 4,163,176 $ 12,383,403 - ---------------------------------------------------------------------------------------- Depreciation and Amortization DTN Ag Services $ 32,475,285 $ 33,176,299 $ 31,989,604 DTN Weather Services 10,313,620 6,839,166 3,575,805 DTN Financial Services 6,639,959 4,226,327 3,196,835 DTN Energy Services 1,509,260 2,003,109 2,124,352 Other Services 2,789,109 2,605,721 1,428,709 - ---------------------------------------------------------------------------------------- Total $ 53,727,233 $ 48,850,622 $ 42,315,305 - ---------------------------------------------------------------------------------------- Interest Expense DTN Ag Services $ 3,369,757 $ 5,813,030 $ 7,554,514 DTN Weather Services 3,550,777 1,812,353 694,197 DTN Financial Services 1,108,229 454,981 442,381 DTN Energy Services 165,098 158,535 184,024 Other Services 626,615 210,769 223,115 - ---------------------------------------------------------------------------------------- Total $ 8,820,476 $ 8,449,668 $ 9,098,231 - ---------------------------------------------------------------------------------------- Operating Cash Flow (EBITDA) DTN Ag Services $ 46,345,053 $ 49,973,969 $ 50,763,464 DTN Weather Services 5,557,369 4,189,743 1,401,082 DTN Financial Services 1,402,398 666,924 495,777 DTN Energy Services 8,515,487 8,285,576 7,844,803 Other Services (3,936,321)1 (10,102,414)2 (5,806,418) - ---------------------------------------------------------------------------------------- Total $ 57,883,986 $ 53,013,798 $ 54,698,708 - ----------------------------------------------------------------------------------------
[FN] 1 Includes $.7 million for non-recurring severance costs and $4.1 million on loss of sale of radar operations. 2 Includes $5.8 million for non-recurring satellite costs related to the Galaxy IV outage. 18. Subsequent Event On March 3, 2000, the Company entered into a definitive agreement with Veronis, Suhler & Associates Communications Partners III, L.P. (VS&A III) whereby VS&A III will make a tender offer to all of the Company's shareholders at a price of $29.00 per share. The tender offer is subject to the tender of at least 90% of the outstanding shares as of March 1, 2000. If less than 90% of the outstanding shares are tendered, the Company will merge with an affiliate of VS&A III at the same per share price. Closing of the transaction is subject to government and shareholder approvals and other customary conditions, and is expected to occur during the second quarter of 2000. 56 -348- Quarterly Financial Data (Unaudited) Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------------------- Quarter First Second Third Fourth Total - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal 1999 Revenues $ 41,684,017 $ 41,152,494 $ 41,509,078 $ 42,163,013 $ 166,508,602 Operating Income (Loss) $ 1,277,603 4 $ 2,281,912 $ 2,212,134 $ (1,614,896) 5 $ 4,156,753 Net Loss $ (769,458)4 $ (202,532) $ (193,139) $ (2,541,562) 6 $ (3,706,691) Basic Loss Per Share $ (.07) $ (.02) $ (.02) $ (0.21) $ (0.32) Diluted Loss Per Share $ (.07) $ (.02) $ (.02) $ (0.21) $ (0.32) Operating Cash Flow1 $ 14,577,356 4 $ 15,722,212 $ 15,672,486 $ 11,911,932 5 $ 57,883,986 Free Cash Flow2 $ 6,156,145 4 $ 7,982,155 $ 5,960,391 $ 5,764,980 5 $ 25,863,671 Total Subscribers 163,900 165,100 165,400 166,900 166,900 - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal 1998 Revenues $ 34,425,147 $ 34,797,482 $ 39,733,540 $ 40,030,177 $ 148,986,346 Operating Income $ 3,701,311 $ (3,030,844) $ 2,124,238 $ 1,368,471 $ 4,163,176 Income (Loss) Before Extraordinary Item $ 1,087,406 $ (3,076,542) $ 9,987 $ (686,730) $ (2,665,879) Net Income (Loss) $ 10,526 7 $ (3,076,542) 8 $ 9,987 $ (686,730) $ (3,742,759) Basic Income (Loss) Per Share3 Income (Loss) before extraordinary item $ 0.10 $ (0.27) $ - 9 $ (0.06) $ (0.24) Net Income (Loss) $ - 9 $ (0.27) $ - 9 $ (0.06) $ (0.33) Diluted Income (Loss) Per Share3 Income (Loss) before extraordinary item $ 0.10 $ (0.27) $ - 9 $ (0.06) $ (0.24) Net Income (Loss) $ - 9 $ (0.27) $ - 9 $ (0.06) $ (0.33) Operating Cash Flow1 $ 14,784,727 $ 8,581,3387 $ 15,028,263 $ 14,619,470 $ 53,013,798 Free Cash Flow2 $ 6,686,972 $ (2,755,689) $ 4,731,786 $ 6,755,842 $ 15,418,911 Total Subscribers 160,400 160,100 158,400 159,300 159,300
[FN] 1 Operating income before depreciation and amortization expense. 2 Operating cash flow less property and equipment capital expenditures and interest. 3 Net income per share for each of the four quarters may not agree to net income per share for the year due to rounding. 4 Includes $735,828 on a pre-tax basis and $470,930 on an after tax basis for non-recurring severance costs. 5 Includes $4,121,319 on a pre-tax basis for loss on Sale of Radar Operations. 6 Includes $4,121,319 and $211,976 on a pre-tax basis and $2,637,644 and $135,665 on an after tax basis for loss on sale of radar business and equity in loss of affiliate. 7 Includes an Extraordinary item, net of tax $1,076,880 for the early extinguishment of $15,000,000 11.25% Senior Subordinated Notes due December 2004. 8 Includes $5,800,000 on a pre-tax basis and $3,716,000 on an after tax basis for non-recurring costs related to Galaxy IV outage. 9 Less than one cent per share. Trading Information - -------------------------------------------------------------------------------- Market Price 1999 Market Price 1998 ----------------------- ----------------------- Quarter Ended High Low Last High Low Last March 31 33 1/4 16 1/8 23 7/8 38 1/2 26 1/4 34 1/2 June 30 28 3/8 20 28 1/8 46 34 3/4 40 September 30 28 5/16 23 9/16 24 15/16 40 1/2 24 30 December 31 26 3/4 16 1/2 17 1/4 35 22 1/4 28 7/8 The Company's common stock trades on the Nasdaq Stock Market under the symbol: DTLN. On December 31, 1999, there were approximately 500 stockholders of record, not including beneficial holders whose shares are held in names other than their own. 57 -349- Board of Directors Peter H. Kamin Joseph F. Mazzella President, Non-Executive Chairman of the Board Partner Peak Management, Inc. Law Firm of Lane Altman & Owens LLC Director Jay H. Golding Alliant Techsystem, Inc. Chairman and Chief Executive Officer Insurance Auto Auctions, Inc. American International Partners, LLC Director Greg T. Sloma Bogan Aerotech President Chief Operating Officer Anthony S. Jacobs Data Transmission Network Private Investor Corp. David K. Karnes Roger W. Wallace President Senior Vice President Chief Executive Officer President, Ag Services Div. The Fairmont Group Inc. Data Transmission Network Of Counsel, Kutak Rock law firm Corp. Corporate Officers Greg T. Sloma William R. Davison President Vice President Chief Operating Officer President, Ag Services Brian L. Larson Scott A. Fleck Senior Vice President Vice President Chief Financial Officer and Director of Engineering Secretary Daniel A. Petersen James J. Marquiss Corporate Controller and Senior Vice President Treasurer Director of Business Research and Product Development Joseph A. Urzendowski Vice President, Operations Roger W. Wallace Senior Vice President President, Ag Services Division Charles R. Wood Senior Vice President President, Financial Services Division 58 -350- 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 is scheduled for Wednesday, April 26, 2000. 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. 59 -351- EX-21 16 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT: (1) Kavouras, Inc. which is organized and operates out of Minnesota under the same name. (2) National Datamax which is organized and operates out of California under the same name. (3) Weather Services Corporation which is organized and operates out of Massachusetts under the same name. (4) DTN Market Communications Group, Inc. which is organized in Nebraska and includes the EarthWatch License Agreement. (5) Paragon Software, Inc. which is organized in Illinois and operates out of Wisconsin under the same name. (6) Asset Growth Corporation which is organized in Delaware. (7) Electronic Futures Trading Corporation which is organized in Nebraska. -348- EX-23 17 INDEPENDENT AUDITORS' CONSENT 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 and subsidiaries on Forms S-8 of our reports dated February 9, 2000 (March 3, 2000 as to Note 18), appearing in and incorporated by reference in this Annual Report on Form 10-K of the Data Transmission Network Corporation and subsidiaries for the year ended December 31, 1999. DELOITTE & TOUCHE LLP Omaha, Nebraska March 15, 2000 -349- EX-27.1 18 ARTICLE 5 FDS FOR 1999 10-K
5 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 0 0 11,873,472 1,800,000 0 20,447,344 305,293,894 214,172,557 184,003,178 40,089,631 79,038,332 0 0 11,985 37,484,935 184,003,178 166,508,602 166,508,602 0 162,351,849 0 0 8,820,476 (4,805,160) (1,098,469) (3,706,691) 0 0 0 (3,706,691) (0.32) (0.32)
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