-----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, CVvdyR1JbDAl5bOj6xscqln+NwTnWaaDxAxhNsc5mXLdOTIanP2DfNQOc/pzJNfm tlOxLIZ6ydwc8D09hau9Hw== 0000790498-96-000003.txt : 19960401 0000790498-96-000003.hdr.sgml : 19960401 ACCESSION NUMBER: 0000790498-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA TRANSMISSION NETWORK CORP CENTRAL INDEX KEY: 0000790498 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 470669375 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15405 FILM NUMBER: 96541207 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 1995 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, 1995. 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 --- --- 1 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, 1996 was approximately $116,000.000. At March 1, 1996, the registrant had outstanding 3,327,530 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1995 are incorporated by reference into Parts I, II, and IV. 2. Portions of the Registrant's definitive Proxy Statement filed for the Registrant's Annual Meeting of Stockholders to be held April 24, 1996, 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. (b) Financial Information About Industry Segments: Not Applicable (c) Narrative Description of Business: Data Transmission Network Corporation (DTN) began operations in April, 1984. The company is in the business of providing information and communication services. During 1995, four new services were released: DTN Weather Center, DTN SPECTRUM, DTN GovRate and a joint venture DAT (Dial-a-Truck) Transportation Terminal. DTN's services reach 95,900 subscribers in the U.S. and Canada. All of these services are discussed in this report. 2 The company's subscription services are targeted at niche business markets and designed to be timely (NEWS...NOT HISTORY), simple to use, and convenient. The company's information distribution technology provides an efficient means of sending data and information from point to multi-point. The development of a cost-effective electronic satellite delivery system, plus a total commitment to customer service and information quality, has enabled the company to become a major player in the communication industry. The company continues to make a large investment to develop and enhance its information distribution technology. This investment has allowed the company to take advantage of many engineering and software advancements in an exciting and growing industry. INFORMATION DISTRIBUTION TECHNOLOGY The company is committed to research and to develop information distribution technologies to cost effectively deliver the timely information (NEWS...NOT HISTORY) that the company's subscribers demand. DTN supports several information distribution technologies allowing the distribution (transmission) and receiving (capture, manipulation and display) of information. These technologies include, FM radio side-band channels (FM), small dish Ku-band satellite (Ku), FAX, E-Mail, TV cable (VBI) (VBI-vertical blanking interval) and the Internet. The first technology used by the company was FM. The Ku technology was added in 1989, providing the ability to reach customers outside the geographic territory of the signal of the FM stations. FAX, TV cable (VBI), E-Mail and the Internet have since been added to further expand our distribution network. The company provides all of the equipment necessary for subscribers to receive their service based on FM, Ku, TV cable (VBI) and E-Mail technologies. This equipment includes a receiver, specifically built for the company, a video monitor, an FM antenna or a small 30" Ku-band satellite dish. A keyboard, mouse and printer may be provided depending on the service. DTN is responsible for the normal maintenance and repair of the subscriber equipment. Prior to 1992, the company utilized a "page-based" receiver and monochrome system. The monochrome system translates the company's data stream into text and has the capability, depending on capacity, to receive and display from 126 to 246 different pages of information. The monochrome receiver has the capability to download information to a printer or computer. In 1992, the company introduced the Advanced Communications EngineSM (ACE) receiver, a color graphics receiver system, that expanded the ability to provide information and communications services. This receiver has multiple processors that capture, manipulate and display high resolution color pictures, graphics, and text. A separate processor provides the ability to play audio clips such as weather forecasts, voice advertisements or audio alarms used when a futures contract reaches a pre-set price. In addition, this processor may send and retrieve information by using an internal modem. The receiver has the ability to download information to a printer or computer. This receiver is equipped with an internal hard drive that allows processed information to be stored, archived (versus frequent rebroadcasting) and then displayed using the receivers built-in control panel, a keyboard or a mouse at the subscribers convenience. 3 One of the unique aspects of the company's information distribution technology is the computer software developed by the company specifically for use with the DTN receivers. This software manages information from a wide array of input sources, runs routines, sets priorities and then initiates transmissions to the satellite. The software provides the capability to individually address each receiver unit placed with a subscriber, permitting the company to transmit specific information to a specific subscriber(s). The company leases FM radio side-band channels, satellite channels and TV cable (VBI) to deliver the information to the company's receivers used by its subscribers. All information is up-linked from Omaha to satellite (except FAX and other telephone delivery technology) and down-linked from the satellite to the subscriber based on the distribution technology. The FM monochrome subscribers receive their information using an FM antenna that receives the information via the side-band signal transmitted from the radio stations. On December 31, 1995, 19,000 subscribers were receiving the companies services via FM distribution technology. The Ku subscribers utilize a 30" satellite dish, a direct down-link, to receive their information. On December 31, 1995, 74,400 subscribers were receiving the companies services via Ku distribution technology. Early in 1994, the company began using a new TV cable distribution technology involving vertical blanking intervals (VBI). The company has contracted with a major cable TV superstation to transmit information along with the station's TV signal. This technology eliminates the need for an FM antenna or satellite dish and is available to businesses or residences that are wired for cable TV and receive the superstation's service. On December 31, 1995, 2,500 subscribers were receiving the companies services by VBI distribution technology. The company has approximately 8,000 FAX customers receiving information using FAX technology. The E-Mail business is primarily a subscriber (an E-Mail source) communicating specific messages to a group of subscribers. Currently, there are over 200 E-Mail sources delivering over 1,000 pages of information to subscribers. The company began to deliver services on the Internet in 1995 and plans to continue researching this information distribution technology. SERVICES OFFERED The company's revenue is derived mainly from five categories: (1) monthly, quarterly or annual subscriptions, (2) optional service subscriptions, (3) communication services, (4) advertising and (5) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was: 4
1995 1994 1993 ---- ---- ---- Subscriptions 74% 73% 72% Optional services 6% 8% 7% Communication services 11% 10% 9% Advertising 3% 5% 7% Service Initiation Fees 6% 4% 5%
The subscription revenue is monthly, quarterly or annual subscription fees for one of the company's services. A more detailed review of each service is found later in this report. Optional services are offered to subscribers on an "a la carte basis", similar to premium channels on cable TV. The information for these services is primarily provided by a third party with DTN receiving a share of the subscription revenue paid by the subscriber. Optional services revenue continues to grow but has decreased as a percentage of total revenue primarily due to the growth in subscriptions revenue. The company sells communication services that allow companies to cost-effectively communicate a large amount of time-sensitive information (NEWS...NOT HISTORY) to their customers or field offices. This category includes revenue generated from FAX and E-Mail services. The company sells advertising space interspersed among the pages of news and information, similar to a newspaper or magazine. The advantage of an electronic advertisement over typical print media is the time-sensitive (NEWS...NOT HISTORY) delivery of the ad, as well as the ability to change the advertising message quickly and as frequent as market conditions dictate. Advertising revenue continues to grow but has decreased as a percentage of total revenue primarily due to the growth in subscriptions revenue. Service initiation fees are one-time charges to new subscribers depending on the service and the information distribution technology. DTN also charges an initiation fee for those subscribers who convert to another service (ie: from a monochrome FM to a Ku color service) DTN Agricultural Services The DTN Agricultural related services include DTN AgDaily(R), DTNstant(R)/Knight-Ridder, DTNironSM, DTN Pro Series, DTN PROduceSM and DTN Weather CenterSM.
1995 1994 1993 ----------- ----------- -------- Revenues $45,000,000 $33,700,000 $27,000,000 Subscribers at year end 77,400 67,100 61,700
5 DTN AGDAILY SERVICE SERVICE REVIEW The company's first service, DTN AgDaily, is an agricultural market information and quotes service. Monochrome (FM and Ku) DTN AgDaily subscribers receive delayed commodity futures and options quotes; local cash grain and livestock prices; selected regional and world weather updates; and a variety of daily analysis, commentary and news that affects grain and livestock prices. The DTN AgDaily color Ku graphics system includes an advanced weather segment with national and regional radar maps (updated every 15 minutes), satellite cloud cover maps, precipitation and temperature maps and much more. The subscriber can custom design high resolution charts and/or select from a library that holds over 1,000 charts. Subscribers can custom program the futures quotes pages to display only the quotes they desire. The service also includes information segments for specific crop and livestock enterprises. Subscribers can select from more than 100 different optional services. The majority of these services have information provided by third parties and range from more advanced weather information to advisory services for specific commodities. Approximately 80% of the services subscribers are farmers or livestock producers with the balance consisting primarily of grain elevators, agribusinesses, and financial institutions. DTN AgDaily subscribers farm one quarter of the nation's total cropland and market 50% of the nation's cattle and hogs. This service has approximately 70% of the market for satellite-delivered agricultural news and information services. Subscribers can be found all across the U.S and Canada. The biggest competitors to this service are considered to be the combination of printed advisory services, radio, television, telephone, other satellite information services, on-line services and the changing of old information gathering habits. The company believes it provides a superior service compared to the services available by its leading competitors. New subscriptions are primarily sold by a sales force of employee district sales representatives as well as by independent, commission-only sales representatives. The company obtains leads for the sales force through telemarketing, direct mail, print media advertising and customer referrals. The price of the monochrome FM service is $25.99 per month, $32.99 per month for monochrome Ku service and $45.99 per month for color Ku service. The company offers a discount to subscribers who pre-pay their subscriptions annually. DTNSTANT/KNIGHT-RIDDER SERVICE SERVICE REVIEW DTNstant/Knight-Ridder(formerly DTNstant) is a color service that provides a selection of real-time futures and options quotes from the major commodity exchanges. The service also provides headline commodity news, market leading cash information, in-depth charting capabilities plus all the information available on the DTN AgDaily color service. The primary subscribers are commercial grain companies and elevators, feedlots, commodity brokers and commodity speculators. Due to the character of this industry, the company provides on-site service and installation by professional service technicians. 6 DTNstant/Knight-Ridder operates in a very competitive market with numerous national and regional providers of instant commodity quotes. This service is the leader in the satellite delivery of instant futures and options quotes. New subscriptions are primarily sold by the district sales force which is supported by telemarketing and direct mail campaigns. This service is available only by color Ku-band satellite transmission and is priced at $160.00 a month. DTNIRON SERVICE SERVICE REVIEW DTNiron is a color service providing a cost-effective communication resource for the farm implement industry. DTNiron is an equipment locator and inventory management service providing a communication tool for the farm implement dealers throughout the U.S and Canada. The service allows dealers of all makes of farm implement equipment to work together to manage their inventory resulting in increased sales and profitability. This service provides valuable information on the national outlook for farm equipment sales. DTNiron provides detailed listings of farm implement equipment for sale by dealers as well as equipment needed by other dealers. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily color service. This service is only available by color Ku-band satellite transmission and costs $94.50 a month. DTN PRO SERIES SERVICE SERVICE REVIEW The DTN Pro Series services are an advanced information source designed for agricultural subscribers who require more extensive information that can be customized for their specific needs and operations. The Pro Series includes five services: Weather Pro, News Pro, Chart Pro, Intraday Pro and Stock Pro. Weather Pro is the "meteorological connection" to the most complete array of current weather, forecast and satellite radar information. This service allows the subscriber to choose from over 70 new weather maps including detailed regional, state and zone forecasts. The Weather Pro service gives the subscriber 32 programmable pages to create their own unique weather information chapter. News Pro is the "broadcast connection" to the most timely (NEWS...NOT HISTORY) business, sports, entertainment, financial, and general news of the day. The service also provides an audio summary of the day's agricultural news. New Pro subscribers receive AP Online, a service of the Associated Press, as a news source. 7 Chart Pro is the "graphic connection" bringing a variety of information to the screen in an organized format to allow the subscriber to analyze trends, patterns and cycles. This service includes 40 pages for programmable charts allowing the subscriber to create an extensive "chart book". Intraday Pro is the "trading connection" to the first low-cost system with the ability to chart market sessions minute-by-minute during the trading day. This service allows the subscriber to choose the time intervals they desire to chart and keep them abreast of the markets. Stock Pro is the "market connection" providing access to prices for over 50,000 issues of stocks, bonds and funds. This service includes stock quotes using either the quick quote feature or the programmable quotes pages. Additional features are the personal library used to store news and information and the high interest windows that allows the subscriber to constantly monitor up to six futures, options, stock or bond quotes. The individual Pro Series services are bundled with DTN Ag Daily. Each individual Pro Series service is $58.99 per month except the Stock Pro which is $66.00 a month. DTN Premier is the package of Weather Pro, News Pro, Chart Pro and Intraday Pro, priced at $73.99 per month. DTN Premier Plus is the package DTN Premier and Stock Pro, priced at $78.00 a month. This service is only available by color Ku-band satellite transmission. DTN PRODUCE SERVICE SERVICE REVIEW DTN PROduce is the authority in providing the produce industry with the most timely weather, prices, transportation and news information available. There are four major components to the DTN PROduce service. First is weather information, providing the single most important piece of information for anyone in the produce business. Second is pricing information, providing immediate updates upon release formatted by commodity, growing area and terminal market. Third is transportation information, providing freight rates and daily truck availability by the major growing areas. Finally, the service provides comprehensive industry specific and general news. The market for the service is the entire produce food chain of growers, shippers, packers, brokers, retailers and institutions. This service is only available via color Ku-band satellite and is priced at $84.50 per month. DTN WEATHER CENTER (New Service) SERVICE REVIEW DTN Weather Center was unveiled at the corporation's annual meeting held in April 1995. This service combines many of DTN's most popular weather features with several new features that allow the service to be marketed to a variety of industries, such as golf course management, construction, emergency management, aviation and public works. This service can be sold to virtually any industry where timely (NEWS...NOT HISTORY), accurate, accessible weather information would cause a decision to be made concerning the deployment of manpower. 8 DTN Weather Center provides 80 weather maps, 20 regional radar maps and four satellite maps. The service provides short-range (24-48 hours) forecasts, long-range (3-10 day) outlooks, and five-day city forecasts in three hour intervals for 223 different cities in the U.S. and Canada. DTN Weather Center features the new Insta-Rad radar maps that allow the company to send this information within five minutes to the subscriber. This service is available only via color Ku-band satellite transmission and is priced at $68.00 per month. OPTIONAL SERVICES SERVICE REVIEW Optional Services include advisory, educational and other informational services offered to DTN subscribers on an "a la carte" basis. Additional Services are marketed by advertising on DTN services, direct mail, invoice stuffers and free trials. An Additional Service is featured on a regular basis providing all subscribers a three-day free trial. Subscribers can request and receive a two-week free trial of any Additional Service. New Additional Services are developed and added to meet customer requests for information. Additional Services range in price from $6 to $300 per quarter depending on the service. DTN FINANCIAL SERVICES DTN Financial Services has grown from a single service in 1989, DTN Wall Street(R), to four services, DTN Wall Street, DTN SPECTRUMSM, DTN FirstRateSM and DTN GovRateSM. DTN Financial Services also includes a variety of optional advisory and fundamental market information services. The financial services compounded revenue growth for the past five years was a very bullish 41%. The financial services objective is to provide a comprehensive in-depth service at an affordable cost to the subscriber. This objective will remain very important due to the highly competitive nature of this business. The "a la carte" optional services are offered to the subscriber to give them an even larger variety of information. The contents of all DTN Financial Services are broader in scope and cost less per month than the services offered by competitors. This combination allows the services to maintain a competitive advantage.
1995 1994 1993 ----------- ----------- -------- Revenues $6,100,000 $5,100,000 $4,100,000 Subscribers at year end 9,600 8,800 7,700
DTN WALL STREET SERVICE 9 SERVICE REVIEW DTN Wall Street provides exchange delayed quotes on stocks, bonds, mutual and money market funds, futures, interest rates, currencies and real-time index quotes. This service also provides in-depth economic, financial and business news and other time-sensitive (NEWS...NOT HISTORY) financial market information such as company-specific news and earnings. The service allows subscribers to custom program the system to track their selection of financial quotes. The subscribers to DTN Wall Street have a variety of optional services from which to choose providing stock selection and timing advice, U.S. Treasury, Agency, mortgage-backed securities quotes and other financial related services. The majority of subscribers are individual investors, independent brokers, financial advisors and financial institutions. The primary competition for DTN Wall Street are satellite, TV cable (VBI) and dial-up quote services. New subscribers to this service are obtained through direct response marketing, primarily print media, television advertising and telemarketing. This service is available by monochrome Ku-band satellite and TV cable (VBI) and is priced at $41.95 per month. DTN SPECTRUM (New Service) SERVICE REVIEW DTN SPECTRUM was an important focus of the new service development team at DTN during 1995. This service was released during November, 1995, and is an enhanced version of DTN Wall Street utilizing the ACE technology. The service provides many additional features and functions that appeal to a wider market. This service provides advanced quote selection and custom programming along with alarms and charting capability. The service will continue to be enhanced during 1996. This service was well received in the short time it was available during 1995. All indications are that subscription sales will be strong in 1996. An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. This marks the entry by the DTN Financial Services into the real-time quotes market. The service will provide a mix of exchange-delayed quotes along with the subscriber's choice of real-time commodities and futures quotes. This service is expected to be well received by the market in 1996. The DTN SPECTRUM and DTN SPECTRUM R-T services are only available by color Ku-band satellite and are priced at $68.00 and $118.00 per month, respectively. These services will become available by TV cable (VBI) during 1996. DTN FIRSTRATE SERVICE SERVICE REVIEW DTN FirstRate is a service for the mortgage industry providing wholesale price information in an easy-to-use standard format and intraday interest rate information to indicate the direction of wholesale prices. This service also provides subscribers with business, economic and financial news, analysis, and commentary including leading economic indicators, employment rates and government economic reports and trend analysis. 10 Sales for DTN FirstRate are slow. Company research suggests we should expect modest success with this service; however, the company is continuing the search for more cost effective sales and marketing programs. This service is available by monochrome Ku-band satellite or TV cable (VBI) and is priced at $111.95 per month. DTN GOVRATE (New Service) SERVICE REVIEW DTN GovRate provides executable U.S. government security quotes from Zions First National Bank. The real-time prices are provided from a primary dealer, the former Discount Corporation of New York (DCNY), now operating as a division of Zions First National Bank. The company views this service as an important development for financial institutions. The service will provide the ability for more than just large, money-center banks and institutions to have access to competitive pricing of U.S. government securities. DTN GovRate will open opportunities for smaller to mid-sized banks, public and corporate treasurers, and independent brokerage firms to participate in the trading of U.S. government securities. Zions First National Bank will facilitate this by offering odd lot trading and repurchase agreements. This service is available by monochrome Ku-band satellite or TV cable (VBI) transmission for $34.95 per month. The service is also currently available on color Ku-band satellite for $68.00 per month. DTN ENERGY SERVICES The energy related services include DTNergy(R) for the refined fuels and natural gas industries.
1995 1994 1993 ----------- ----------- -------- Revenues $10,000,000 $7,200,000 $4,900,000 Subscribers at year end 7,100 6,700 5,800
DTNERGY SERVICE SERVICE REVIEW DTNergy is a service providing pricing information and communications services for the petroleum industry. This service consists of several pages of delayed energy futures and options quotes plus selected news and financial information. DTNergy is designed to connect refiners (producers of refined fuels) to wholesalers (distributor of refined fuels). The refiner sends refined fuel prices to wholesalers they have authorized to receive this information. The refiner also has the capability to send terminal alerts, electronic funds transfer notifications, invoices, and other communications to the wholesaler. DTNergy subscribers can select from a variety of optional services to give them even more prices or news related to the petroleum industry. 11 The strength of the DTNergy service is the ability to deliver, within seconds, accurate refiner terminal prices and other vital communications to the wholesalers. This service is more reliable, timely and less expensive than the competition, which utilize telephone delivered printer-only systems and FAX services. DTNergy generates revenue from two primary sources, the wholesaler and the refiner. The wholesaler pays a monthly subscription fee of $36.00 for the monochrome Ku-band satellite service. The refiner pays fees based upon the number and length of communications sent to wholesalers. DTNergy developed a service for the natural gas industry. Subscribers receive natural gas flow data, instant or delayed NYMEX energy options and futures quotes, weather and industry specific information. This service is marketed to natural gas producers, distributors and large consumers. The service is only available by color Ku-band satellite and is priced at $129 a month for 30-minute delayed quotes and $160 a month for real-time quotes. DTN AUTO SERVICES SERVICE REVIEW DTNautoSM is a communication and information service for the automobile industry. This service offers automobile dealers precision information to value trade-ins, locate used car inventory plus a host of other information and convenient features. Automobile auction companies and manufacturers are able to communicate directly with the dealers. DTNauto provides information on pre-auction automobile listings, results of past auctions, new and used car industry news, weather and other news. The service allows subscribers to perform searches of the auction listings, upcoming and past, for specific automobile information. The service offers a variety of optional services providing information on credit reporting (CREDCO), vehicle histories (CARFAX), warranty information (The Warranty Guide) and residual value of leased vehicles (Lease Guide). The CARFAX and CREDCO optional services extensively utilize the internal modem to send and receive information. These services create a more comprehensive information service that puts the subscriber in the drivers seat. This service is being marketed by the DTNauto sales force to automobile dealers across the United States. This service is only available by color Ku-band satellite transmission and is priced at $98.00 per month. JOINT VENTURE SERVICES DTN has joined forces with other companies to market their services using the company's technology. These services are TracElectric, a service for the electric equipment industry, and DAT Transportation Terminal, a service for the trucking industry. TRACELECTRIC SERVICE 12 SERVICE REVIEW TracElectric is an equipment locator service for the electrical equipment industry. This service provides over 100 pages of new, remanufactured, surplus and used electrical equipment listings. The service connects buyers and sellers throughout the U.S. and Canada. This service is available only by monochrome Ku-band satellite and DTN receives a percentage of the revenue. DAT Transportation Terminal (New Service) SERVICE REVIEW The DAT (Dial-A-Truck) Transportation Terminal (DAT) service was introduced in the fourth quarter of 1995 and is an information communication system for the trucking industry. This service is a joint venture with DAT in Beaverton, OR and DTN. The service provides load and truck matching performed on a database of 25,000 listings updated daily. DAT service allows subscribers to input their own listings into the ACE receiver and send this information to the database using the internal modem. This service provides the subscriber the ability to perform extensive searches to locate loads and trucks and set alarms to alert the user that a match has occurred. The service also provides regional radar maps of major highways and interstates, transportation news, diesel fuel prices and other financial information related to the trucking industry. The target market includes all freight brokers and carriers throughout U.S. and Canada. This service is only available by color Ku-band satellite and DTN receives a monthly fee per receiver. EMPLOYEE DATA At December 31, 1995 the company had approximately 725 full and part-time employees. (d) Financial Information about Foreign and Domestic Operations and Export Sales: Not applicable ITEM 2. PROPERTIES. The company leases its executive and administrative offices in Omaha, Nebraska and has outside sales offices in Arizona, Colorado, Florida, Illinois and Utah. Approximately 75,000 square feet of office space is leased for these offices for various periods up through May 2005. In addition, the company leases two 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. The leases related to these distribution centers are for various periods up through December, 2003. 13 The information set forth in Footnote 9 "Leases" on page 29-30 of the company's 1995 Annual Report to Stockholders is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. The company is not a party to nor is its property subject to any material pending legal proceedings, other than ordinary routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of the security holders of the company during the fourth quarter of the fiscal year ended December 31, 1995. * * * 14
EXECUTIVE OFFICERS OF THE REGISTRANT Information on the current executive officers of the company is as follows: Year Joined Name Title Age the Company - ------------------- --------------------------- --- ----------- Roger R. Brodersen Chairman of the Board and 50 1984 Chief Executive Officer Greg T. Sloma President and Chief 44 1993 Operating Officer Robert S. Herman Senior Vice President 43 1984 Research and Technology Roger W. Wallace Senior Vice President and 39 1984 Co-President, Ag Services James J. Marquiss Senior Vice President and 51 1986 Co-President, Ag Services Charles R. Wood Senior Vice President and 55 1989 President, Financial Services Keith A. Cook Vice President and 57 1986 President, Auto Services H. Wade German Vice President, 54 1992 Business Research Brian L. Larson Vice President, Chief Financial 35 1993 Officer, Secretary and Treasurer Gordon R. Lundy Vice President and 57 1990 President, Energy Services Charles E. McQuinn Vice President and President, 55 1995 West Financial Services James G. Payne Vice President, Administrative 40 1990 Operations Manager
The executive officers serve annual terms, and are elected by the board of directors at their annual board of directors meeting in April of each year. 15 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 31 and 32 of the company's 1995 Annual Report to Stockholders and is incorporated herein by reference. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. The company's most restrictive loan covenant restricts cash dividend payments to 25% of net income after taxes. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for the company is on page 16 of the company's 1995 Annual Report to Stockholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and results of operations is on pages 17 through 20 of the company's 1995 Annual Report to Stockholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements of the company, together with the Independent Auditors' Report, are on pages 21 through 30 of the company's 1995 Annual Report to Stockholders and are incorporated herein by reference. Supplementary quarterly financial information is on page 31 of the company's 1995 Annual Report to Stockholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 16 PART III ITEM 10. DIRECTORS OF THE REGISTRANT. Information concerning the present directors of the company and all persons nominated to become directors at the Annual Meeting of Stockholders of the company to be held April 24, 1996, is contained in the section captioned "Election of Directors" of the Proxy Statement for such annual meeting. Such section is on pages 2 through 3 of such Proxy Statement, and is incorporated herein by reference. Information concerning the registrant's executive officers is furnished in a separate item captioned "Executive Officers of the Company", included in Part I of this Form 10-K. Compliance With Section 16(a) Of The Exchange Act Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers and holders of more than 10% of the Company's common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. The Company believes that during the fiscal year ended December 31, 1995, its officers, directors and holders of more than 10% of the Company's common stock complied with all Section 16(a) filing requirements, with the following exception. Jay E. Ricks, a director or the Company, filed late his initial report on Form 3 due upon his becomming a director of the Company. In making these statements, the Company has relied solely upon a review of Forms 3 and 4 furnished to the Company during its most recent fiscal year, Forms 5 furnished to the Company with respect to its most recent fiscal year, and written representations from reporting persons that no Form 5 was required. ITEM 11. EXECUTIVE COMPENSATION. Information concerning executive compensation paid by the company is contained in the sections captioned "Executive Compensation" and "Compensation Committee Report on Executive Compensation" on pages 6 through 10 of the Proxy Statement for the Annual Meeting of Stockholders of the company to be held April 24, 1996, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information concerning the ownership of equity securities of the company by certain beneficial owners and management is contained in the sections captioned "Ownership By Certain Beneficial Owners" and "Election of Directors" on pages 2 through 6 of the Proxy Statement for the Annual Meeting of Stockholders of the company to be held April 24, 1996, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information concerning transactions with management and others and indebtedness of management is contained in the section captioned "Transactions with Management" on page 11 of the Proxy Statement for the Annual Meeting of Stockholders of the company to be held April 24, 1996 and is incorporated herein by reference. 17 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 1995 Annual Report to Stockholders, pages 21 through 30. With the exception of the aforementioned information and the information incorporated by reference into Items 2,5,6,7 and 8 of this report, the Annual Report to Stockholders for the year ended December 31, 1995, is not to be deemed filed as a part of this report. The supplemental financial information listed below should be read in conjunction with the financial statements in the Annual Report to Stockholders for the year ended December 31, 1995. (a) 2. Financial Statement Schedules: Page ---- Auditors' Report on Financial Statement Schedules 26 Schedule Number Description of Schedule --------- ---------------------------------- II Valuation and Qualifying Accounts 27 All other schedules are omitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto. (a) 3. 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) Lease Agreement between the Registrant and Embassy Plaza Limited Partnership. (This document is filed as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) (b) Registrant's Stock Option Plan of 1989. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) 18 (c) Registrant's Non-employee Directors Stock Option Plan. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) (d) Form of indemnification agreement between the Registrant and the Officers and Directors of the Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed May 22, 1989.) (e) First Amendment to Registrant's Employee Stock Option Plan of 1989 (amends Exhibit 10(b)). (f) First Amendment to Registrant's Non-employee Directors Stock Option Plan (amends Exhibit 10(c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 25, 1990.) (g) Second Amendment to Registrant's Employee Stock Option Plan of 1989 (amends Exhibit 10(b)). (h) Second Amendment to Registrant's Non-employee Directors Stock Option Plan (amends Exhibit 10(c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 24, 1991.) (i) Loan Agreement dated October 9, 1992 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln and First National Bank of Wahoo. (j) First Amendment to Loan Agreement dated October 9, 1992 among the Registrant, First National Bank of Omaha, FirsTier Bank of Lincoln and First National Bank of Wahoo. (k) Independent Sales Representative Agreement dated March 28, 1990 between the Registrant and Phil Huston. (l) First Amendment dated March 1, 1991 to Independent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Huston. (m) Amendment to Independent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Huston. 20 (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 24, 1993). (n) Third Amendment to Registrant's Stock Option Plan of 1989 (amends Exhibit 10(b)). (o) Third Amendment to Registrant's Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (p) Fourth Amendment to Employee Stock Option Plan of 1989 (amends Exhibit 10(b)). (q) Fourth Amendment to Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 1994). (r) Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (s) Restated Security Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 14, 1994). (t) Restated and amended Non-Employee Directors Stock Option Plan. (This document is included as an exhibit to the Registrant's Proxy Statement for the annual meeting of stockholders to be held April 26, 1995). (u) First Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. 21 (v) Second Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (w) Third Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (x) Fourth Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (y) Lease agreement dated August 30, 1994 between Registrant and The Prudential Insurance Company of America. (z) First Amendment to lease agreement dated August 30, 1994 among the Registrant and The Prudential Insurance Company of America. (aa) Senior Subordinated Note dated June 30, 1994 between the Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 28, 1995). (ab) Fifth Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant and six regional banks. (ac) Sixth Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant and six regional banks. (ad) Lease agreement dated May 2, 1995 between the Registrant and The Prudential Insurance Company of America. (ae) First Amendment to lease agreement dated May 2, 1995 between the Registrant and The Prudential Insurance Company of America. 23 (af) Restated Loan Agreement dated June 29, 1995 among the Registrant and seven regional banks. (ag) Purchase and service agreement dated July 13, 1995 between the Registrant and Knight-Ridder Financial. (ah) Adjustment to Independent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Houston. (ai) Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (aj) First Amendment to Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (11) Statement re computation of income per share. (12) Not applicable. (13) Registrant's 1995 Annual Report to Stockholders. (This document is hereby incorporated by reference.) (16) None. (18) None. (19) None. (22) None. (23) Consent of Deloitte & Touche LLP. (24) None. (25) None. (99) Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held April 24, 1996. (This document is hereby incorporated by reference.) (b) No reports on Form 8-K were filed by the Registrant during the fourth quarter of the year ended December 31, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Data Transmission Network Corporation, a Delaware Corporation By: /s/ Roger R. Brodersen ----------------------- Roger R. Brodersen Chief Executive Officer 24 Dated March 22, 1996. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Roger R. Broderson March 22, 1996 ------------------------------ Roger R. Brodersen, Chairman of the Board, Chief Executive Officer and Director By: /s/ Greg T. Sloma March 22, 1996 ------------------------------ Greg T. Sloma, President and Chief Operating Officer and Director By: /s/ Roger W. Wallace March 22, 1996 ------------------------------ Roger W. Wallace, Senior Vice President, Co-President-Ag Services and Director By: /s/ Robert S. Herman March 22, 1996 ------------------------------ Robert S. Herman, Senior Vice President and Director By: /s/ Brian L. Larson March 22, 1996 ------------------------------ Brian L. Larson, Vice President, Chief Financial Officer, Secretary and Treasurer By: /s/ David K. Karnes March 22, 1996 ------------------------------ David K. Karnes, Director By: /s/ J. Michael Parks March 22, 1996 ------------------------------ J. Michael Parks, Director By: /s/ Jay E. Ricks March 22, 1996 ------------------------------ Jay E. Ricks, Director 25 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Data Transmission Network Corporation Omaha, Nebraska We have audited the financial statements of Data Transmission Network Corporation as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995 and have issued our report thereon dated January 30, 1996; such financial statements and report are included in your 1995 Annual Report to Stockholders and are incorporated herein by reference. our audits also included the financial statement schedules of Data Transmission Network Corporation, listed in Item 14(a)2. These financial statement schedules are the responsibility of the company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - --------------------------- DELOITTE & TOUCHE LLP Omaha, Nebraska January 30, 1996 26
Schedule II DATA TRANSMISSION NETWORK CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994, and 1993 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, 1995: $220,000 $358,000 - $278,000 $300,000 Year ended December 31, 1994: $180,000 $283,000 - $243,000 $220,000 Year ended December 31, 1993: $120,000 $270,000 - $210,000 $180,000
27
EXHIBIT INDEX Exhibit Page Number Item Number - ------- ---- ------ 3.(a) Certificate of Incorporation of Registrant * 3.(b) By-Laws of Registrant * 4.(a) Specimen certificate representing shares of common stock, * $.001 par value, of Registrant 4.(b) Certificate of Incorporation of Registrant * 10.(a) Lease Agreement between the Registrant and Embassy Plaza * Limited Partnership 10.(b) Registrant's Stock Option Plan of 1989 * 10.(c) Registrant's Non-Employee Directors Stock Option Plan * 10.(d) Form of indemnification agreement between the Registrant * and the Officers and Directors of the Registrant 10.(e) First Amendment to Registrant's Stock Option Plan of 1989 * 10.(f) First Amendment to Registrant's Non-Employee Directors * Stock Option Plan 10.(g) Second Amendment to Registrant's Stock Option Plan of 1989 * 10.(h) Second Amendment to Registrant's Non-Employee Directors * Stock Option Plan 10.(i) Loan Agreement dated October 9, 1992 * 10.(j) First Amendment to Loan Agreement dated October 9, 1992 * 10.(k) Independent Sales Representative Agreement with Phil * Huston dated March 28, 1990 10.(l) First Amendment dated March 1, 1991 to Independent Sales * Representative Agreement with Phil Huston 10.(m) Amendment to Independent Sales Representative Agreement * with Phil Huston 10.(n) Third Amendment to Registrant's Stock Option Plan of 1989 * 10.(o) Third Amendment to Registrant's Non-Employee Directors * Stock Option Plan 10.(p) Fourth Amendment to Registrant's Stock Option Plan of 1989 * 10.(q) Fourth Amendment to Registrant's Non-Employee Directors * Stock Option Plan 10.(r) Restated Loan Agreement dated November 8, 1993 * 10.(s) Restated Security Agreement dated November 8, 1993 * 10.(t) Restated and amended Non-Employee Directors Stock Option Plan * 10.(u) First Amendment to Restated Loan Agreement dated November 8, 1993 * 10.(v) Second Amendment to Restated Loan Agreement dated November 8, 1993 * 10.(w) Third Amendment to Restated Loan Agreement dated November 8, 1993 * 10.(x) Fourth Amendment to Restated Loan Agreement dated November 8, 1993 * 10.(y) Lease agreement with The Prudential Insurance Company of America * dated August 30, 1994 10.(z) First amendment to Lease Agreement dated August 30, 1994 * 10.(aa) Senior Subordinated Note between Registrant and The Prudentiaal Insurance * Company of America dated June 30, 1994 10.(ab) Fifth Amendment to the Restated Loan Agreement dated November 8, 1993 31 10.(ac) Sixth Amendment to the Restated Loan Agreement dated November 8, 1993 33 10.(ad) Lease agreement with The Prudential Insuance Company of America 35 dated May 2, 1995
29 10.(ae) First Amendment to Lease Agreeement dated May 2, 1995 68 10.(af) Restated Loan Agreement dated June 29, 1995 73 10.(ag) Purchase Agreement with Knight-Ridder Financial dated July 13, 1995 120 10.(ah) Adjustment to Indenpendent Sales Representative Agreement dated March 28, 1995 151 with Phil Huston 10.(ai) Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 152 10.(aj) First Amendment to Senior Subordinated Notes and Warrant Purchase Agreement dated 267 June 30, 1994 11. Statement re computation of income per share 270 13. Registrant's 1995 Annual Report to Stockholders 272 23. Consent of Deloitte & Touche LLP 325 27. Financial Data Schedule for year ended 12/31/95 326 99. Proxy Statement for the Annual Meeting of Stockholders 327 of the Registrant to be held April 24, 1996 * - These documents have been incorporated by reference as indicated in Item 14(a) (3).
30 EX-10 2 5TH AMEND TO RESTATED LOAN AGREEMENT FIFTH AMENDMENT TO 1993 RESTATED LOAN AGREEMENT THIS FIFTH AMENDMENT TO 1993 RESTATED LOAN AGREEMENT is intended to amend the terms of the 1993 Restated Loan Agreement (the "Agreement") dated as of November 8, 1993, as amended by the First Amendment to Restated Loan Agreement (the "First Amendment") dated as of April 11, 1994, as amended by the Second Amendment to and Extension of 1993 Restated Loan Agreement (the "Second Amendment") dated as of June 29, 1994, as amended by the Third Amendment to 1993 Restated Loan Agreement (the "Third Amendment") dated as of August 30, 1994 and as amended by the Fourth Amendment to 1993 Restated Loan Agreement (the "Fourth Amendment") dated as of November 29, 1994 among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, N.A., NORWEST BANK NEBRASKA, N.A. and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS. All terms and conditions of the Agreement shall remain in full force and effect except as expressly amended herein. All capitalized terms herein shall have the meanings prescribed in the Agreement. The Agreement shall be amended as follows: The parties hereby acknowledge that, effective as of the date hereof, $2,250,000 of the outstanding balance of the Borrower's loan shall be converted to a term loan in accordance with Sections 2.3 and 2.4 of the Agreement. In Section 2.1 of the Agreement, change the reference to the maximum amount of revolving credit advanced from $23,400,000 to $21,150,000 and reduce the references to each Bank's maximum advance limit accordingly on a pro rata basis. In connection with this amendment the Borrower is contemporaneously executing and delivering to the Banks six Secured Business Promissory Notes dated as of the date hereof in the respective principal amounts of $699,750, $418,500, $22,500, $418,500, $396,000 and $294,750. This amendment shall not affect and there remain outstanding from the Borrower to the Banks, the Existing Term Notes and the Related Bank Debt and those certain Secured Business Promissory Notes dated as of June 29, 1994, August 30, 1994 and November 29, 1994. This Amendment may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this FIFTH AMENDMENT TO 1993 RESTATED LOAN AGREEMENT dated as of February 27, 1995. DATA TRANSMISSION NETWORK CORPORATION By: /s/ Greg T. Sloma ------------------------ Title: Executive Vice President and Chief Operating Officer ------------------------- 31 FIRST NATIONAL BANK OF OMAHA By: /S/ James P. Bonham -------------------------- Title: Vice President -------------------------- FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA By: /s/ John Arrigo ---------------------------- Title: Officer ---------------------------- FIRST NATIONAL BANK, WAHOO, NEBRASKA By: /s/ Elizabeth E. Rezac ---------------------------- Title: Loan Officer ---------------------------- NBD BANK, N.A. By: /s/ Thomas A. Levasseur ---------------------------- Title: Vice President ---------------------------- NORWEST BANK NEBRASKA, N.A. By: /s/ Leslie J. Volk ---------------------------- Title: Vice President ---------------------------- THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By: /s/ Joseph L. Scooter, Jr. ---------------------------- Title: Vice President ---------------------------- 4429E/70-76 32 EX-10 3 6TH AMEND TO RESTATED LOAN AGREEMENT SIXTH AMENDMENT TO 1993 RESTATED LOAN AGREEMENT THIS SIXTH AMENDMENT TO 1993 RESTATED LOAN AGREEMENT is intended to amend the terms of the 1993 Restated Loan Agreement (the "Agreement") dated as of November 8, 1993, as amended by the First Amendment to Restated Loan Agreement (the "First Amendment") dated as of April 11, 1994, as amended by the Second Amendment to and Extension of 1993 Restated Loan Agreement (the "Second Amendment") dated as of June 29, 1994, as amended by the Third Amendment to 1993 Restated Loan Agreement (the "Third Amendment") dated as of August 30, 1994, as amended by the Fourth Amendment to 1993 Restated Loan Agreement (the "Fourth Amendment") dated as of November 29, 1994, and as amended by the Fifth Amendment to 1993 Restated Loan Agreement (the "Fifth Amendment") dated as of February 27, 1995, among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, N.A., NORWEST BANK NEBRASKA, N.A. and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS. All terms and conditions of the Agreement shall remain in full force and effect except as expressly amended herein. All capitalized terms herein shall have the meanings prescribed in the Agreement. The Agreement shall be amended as follows: (a) The definition of "Consolidated Tangible Net Worth" in Article I of the Agreement shall be deleted. (b) The last sentence of Section 4.3 of the Agreement shall be deleted and all references in the Agreement to Section 4.3 shall, after the date hereof, exclude any reference to the omitted sentence. This Amendment may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this SIXTH AMENDMENT TO 1993 RESTATED LOAN AGREEMENT dated as of April 28, 1995. DATA TRANSMISSION NETWORK CORPORATION By: /s/ Greg T. Sloma ---------------------------- Title: Executive Vice President and Chief Operating Officer --------------------------- 33 FIRST NATIONAL BANK OF OMAHA By: /S/ James P. Bonham -------------------------- Title: Vice President -------------------------- FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA By: /s/ John Arrigo ---------------------------- Title: Officer ---------------------------- FIRST NATIONAL BANK, WAHOO, NEBRASKA By: /s/ Elizabeth E. Rezac ---------------------------- Title: Loan Officer ---------------------------- NBD BANK, N.A. By: /s/ Thomas A. Levasseur ---------------------------- Title: Vice President ---------------------------- NORWEST BANK NEBRASKA, N.A. By: /s/ Leslie J. Volk ---------------------------- Title: Vice President ---------------------------- THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By: /s/ Joseph L. Scooter, Jr. ---------------------------- Title: Vice President ---------------------------- 4429E/70-76 34 EX-10 4 LEASE AGREEMENT EMBASSY PLAZA STANDARD OFFICE LEASE THIS LEASE is made this 2nd day of May, 1995, between The Prudential Insurance Company of America, having an office at One Prudential Plaza, Suite 1200, Chicago, Illinois 60601 ("Landlord"), and Data Transmission Network Corporation, having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska, 68114 ("Tenant"), for space in the building located at 9110 West Dodge Road, Omaha, Nebraska (such building, the related parking areas, driveways and other improvement, together with the land described in Exhibit "C" attached hereto upon which such building and improvements are situated, being herein referred to as the "Building"). The following schedule sets forth certain basic terms of this Lease: BASIC TERMS: A. Premises: Approximately 75,931 rentable square feet (RSF) of space in the Building described above, and more specifically known as Suites #175A (10,144 RSF), #110 (4,141 RSF), #200 (27,719 RSF), #300 (2,268 RSF), #301 (1,843 RSF), #310 (5,970 RSF), #320 (1,406 RSF), #325 (2,177 RSF), #340 (12,477 RSF), #360 (6,472), and #362 (1,314 RSF), as shown on the floor plans attached hereto, marked as Exhibits "A", "B", and "C" and by this reference made a part hereof. B. Base Rent: Nine Million, Nine Hundred Sixty-Six Thousand, Eight Hundred Fifty-Six Dollars and Thirty-Seven Cents ($9,966,856.37) for the Term, payable monthly as follows: May 1, 1995 - May 31, 1995 $64,496.94 June 1, 1995 - December 31, 1997 $71,166.40 Per Month January 1, 1998 - May 31, 2000 $83,635.07 Per Month June 1, 2000 - May 31, 2005 $87,846.40 Per Month C. Term: That period of time commencing May 1, 1995; for Suites #110, #200, #300, #310, #340, #360, and #362; June 1, 1995, for Suites #301, #320. and #325; and January 1, 1998 for Suite 175A (the "Commencement Dates") and ending May 31, 2005, (the "Expiration Date") unless sooner terminated as set forth herein. D. Tenant's Proportionate Share: Tenant's Proporationate Share shall be equivilent to the percentage Tenant's total leased Premises is to the Building's total rentable square feet (130,436 RSF). The following is a schedule of Tenant's Proporationate Share relative to the Commencement Dates specified in Paragraph C of the Basic Terms: May 1, 1995 - May 31, 1995 46.37% (60,361 RSF / 130,173 RSF) June 1, 1995 - December 31, 1997 50.44% (65,787 RSF / 130,436 RSF) January 1, 1998 - May 31, 2005 58.21% (75,931 RSF / 130,436 RSF) 35 E. Base Expense Year and Base Tax Year: 1994 F. Security Deposit: No Deposit Required G. Broker(s): Pacific Realty Group, Inc. ("Broker") H. Guarantor(s): None I. Exhibits: A. First Floor Plan of Premises B. Second Floor Plan of Premises C. Third Floor Plan of Premises D. Legal Description of Building E. Tenant Improvement Work Schedule F. Rules and Regulations G. Antenna License Agreement 1. DEMISE AND TERM. Landlord leases to Tenant and Tenant leases from Landlord the premises (the "Premises") described in Item "A" of the Basic Terms and shown on the floor plans, attached hereto as Exhibits "A" and "B", subject to the covenants and conditions set forth in this Lease, for a term (the "Term") commencing on the Commencement Date and expiring on the Expiration Date described in Item C of the Basic Terms, unless terminated earlier as otherwise provided in this Lease. If Tenant shall occupy the Premises prior to the beginning of the Term of this Lease with Landlord's consent, all the provisions of this Lease shall be in full force and effect as soon as Tenant occupies the Premises. 2. RENT. A. Definitions. For purposes of this Lease, the following terms shall have the following meanings: (i) "Base Expenses" or "Base Expense Year" shall mean the amount or the year set forth in Item E of the Basic Terms (ii) "Expenses" shall mean all expenses, costs and disbursements (including Taxes) paid or incurred by Landlord in connection with the ownership, management, maintenance, operation, replacement and repair of the Building. Expenses shall not include: (a) costs of tenant alterations; (b) costs of capital improvements (except for costs of any capital improvements made or installed for the purpose of reducing Expenses or made or installed pursuant to governmental requirement or insurance requirement, which costs shall be amortized by Landlord in accordance with sound accounting and management principles); (c) interest and principal payments on mortgages (except interest on the cost of any capital improvements for which amortization may be included in the definition of Expenses) or any rental payments on any ground leases (except for rental payments which constitute reimbursement for Taxes and Expenses); (d) advertising expenses and leasing commissions; (e) any cost or expenditure for which Landlord is reimbursed, whether by insurance proceeds or otherwise, except through Adjustment Rent (hereinafter defined); (f) the cost of any kind of service furnished to any other tenant in the Building which Landlord does not generally make available to all tenants in the Building; (g) legal expenses of negotiating leases; (h) salaries and fringe benefits of employees 36 above the grade of building manager. Expenses shall be determined on a cash or accrual basis, as Landlord may elect. (iii)"Rent" shall mean Base Rent, Adjustment Rent and any other sums or charges due by Tenant hereunder. (iv) "Taxes" shall mean all taxes, assessments and fees levied upon the Building, the property of Landlord located therein or the rents collected therefrom, by any governmental entity based upon the ownership, leasing, renting or operation of the Building, including all costs and expenses of protesting any such taxes, assessments or fees. Taxes shall not include any net income, capital stock, succession, transfer, franchise, gift, estate or inheritance taxes; provided, however, if at any time during the Term, a tax or excise on income is levied or assessed by any governmental entity, in lieu of or as a substitute for, in whole or in part, real estate taxes or other ad valorem taxes, such tax shall constitute and be included in Taxes. For the purpose of determining Taxes for any given year, the amount to be included for such year (a) from special assessments payable in installments shall be the amount of the installments (and any interest) due and payable during such year, and (b) from all other Taxes shall at Landlord's election either be the amount accrued, assessed or otherwise imposed for such year or the amount due and payable in such year. (v) "Tenant's Proportionate Share" shall mean the percentage set forth in Item D of the Basic Terms which has been determined by dividing the rentable square feet in the Premises by the rentable square feet in the Building. B. Components of Rent. Tenant agrees to pay the following amounts to Landlord at the office of the Building or at such other place as Landlord designates: (i) Base rent ("Base Rent") to be paid in monthly installments in the amount set forth in Item B of the Basic Terms in advance on or before the first day of each month of the Term, except that Tenant shall pay the first month's Base Rent upon execution of this Lease. (ii) Adjustment rent ("Adjustment Rent") in an amount equal to Tenant's Proportionate Share of (a) the increase in Expenses for any calendar year over the Base Expenses and (b) the increase in Taxes for any calendar year over the Base Taxes. (If the Basic Terms set forth a Base Expense Year and a Base Tax Year rather than Base Expenses and Base Taxes, the Base Expenses and the Base Taxes shall equal the amount of Expenses and Taxes, respectively, for the Base Expense Year and the Base Tax Year.) Prior to each calendar year, Landlord shall estimate the amount of Adjustment Rent due for such year, and Tenant shall pay Landlord one-twelfth of such estimate on the first day of each month during such year. Such estimate may be revised by Landlord whenever it obtains information relevant to making such estimate more accurate. After the end of each calendar year, Landlord shall deliver to Tenant a report setting forth the actual Expenses and Taxes for such calendar year and a statement of the amount of Adjustment Rent 37 that Tenant has paid and is payable for such year. Within thirty days after receipt of such report, Tenant shall pay to Landlord the amount of Adjustment Rent due for such calendar year, minus any payments of Adjustment Rent made by Tenant for such year. If Tenant's estimated payments of Adjustment Rent exceed the amount due Landlord for such calendar year, Landlord shall apply such excess as a credit against Tenant's other obligations under this Lease or promptly refund such excess to Tenant if the Term has already expired, provided Tenant is not then in default hereunder, in either case without interest to Tenant. C. Payment of Rent. The following provisions shall govern the payment of Rent: (i) if this Lease commences or ends on a day other than the first day or last day of a calendar month, the Rent for the month in which this Lease so begins or ends shall be prorated and adjusted accordingly; (ii) all Rent shall be paid to Landlord without offset or deduction, and the covenant to pay Rent shall be independent of every other covenant in this Lease; (iii) if during all or any portion of any year the Building is not fully rented and occupied, Landlord may elect to make an appropriate adjustment of Expenses and/or Taxes for such year to determine the Expenses that would have been paid or incurred by Landlord had the Building been fully rented and occupied for the entire year and the amount so determined shall be deemed to have been the Expenses and/or Taxes for such year; (iv) any sum due from Tenant to Landlord which is not paid when due shall bear interest from the date due until the date paid at the annual rate of eighteen percent (18%) or the maximum rate permitted by law, whichever is less (the "Default Rate"); and, in addition, Tenant shall pay Landlord a late charge for any Rent payment which is paid more than five days after its due date equal to five percent of such payment; (v) if changes are made to this Lease or the Building changing the number of square feet contained in the Premises or in the Building, Landlord shall make an appropriate adjustment to Tenant's Proportionate Share; (vi) Tenant shall have the right to inspect Landlord's accounting records relative to Expenses and Taxes during normal business hours at any time within thirty days following the furnishing to Tenant of the annual statement of Rent Adjustment; and, unless Tenant shall take written exception to any item in any such statement within such thirty day period, such statement shall be considered as final and accepted by Tenant; (vii) in the event of the termination of this Lease prior to the determination of any Adjustment Rent, Tenant's agreement to pay any such sums and Landlord's obligation to refund any such sums (provided Tenant is not in default hereunder) shall survive the termination of this Lease; (viii) no adjustment to the Rent by virtue of the operation of the rent adjustment provisions in this Lease shall result in the payment by Tenant in any year of less than the Base Rent set forth in Item B of the Basic Terms; (ix) Landlord may at any time change the fiscal year of the Building; (x) each amount owed to Landlord under this Lease for which the date of payment is not expressly fixed shall be due on the same date as the Rent listed on the statement showing such amount is due; and (xi) if Landlord fails to give Tenant an estimate of Adjustment Rent prior to the beginning of any calendar year, Tenant shall continue to pay Adjustment Rent, as the case may be, at the rate for the previous calendar year until Landlord delivers such estimate. D. Allocation of Rent. (INTENTIONALLY DELETED) 38 3. USE. Tenant agrees that it shall occupy and use the Premises only as business offices and for no other purposes. Tenant shall comply with all federal, state and municipal laws, ordinances and regulations and all covenants, conditions and restrictions of record applicable to Tenant's use or occupancy of the Premises. Without limiting the foregoing, Tenant shall not cause, nor permit, any hazardous or toxic substances to be brought upon, produced, stored, used, discharged or disposed of in, on or about the Premises without the prior written consent of Landlord and then only in compliance with all applicable environmental laws. If as a result of Tenant's use of the Premises (a) the amount of insurance premiums payable by Landlord for insurance maintained by Landlord for or in respect to the Building is increased, (b) any such insurance coverage is decreased, or (c) cancellation or refusal to renew any such insurance policy is threatened, Landlord shall so notify Tenant, whereupon Tenant shall immediately pay any such increased premium or cease any such use, failing which (or in the event of a threatened cancellation or refusal to renew any such insurance policy which may not be cured by the payment of an additional premium) Landlord shall have the right and option, in addition to Landlord's other rights and remedies hereunder, to terminate this Lease upon written notice to Tenant effective on the date set forth in such notice. 4. CONDITION OF PREMISES. Tenant's taking possession of the Premises shall be conclusive evidence that the Premises were in good order and satisfactory condition when Tenant took possession. No agreement of Landlord to alter, remodel, decorate, clean or improve the Premises or the Building (or to provide Tenant with any credit or allowance for the same), and no representation regarding the condition of the Premises or the Building, have been made by or on behalf of Landlord or relied upon by Tenant, except as stated herein or in the Tenant Improvement Work Schedule executed by Landlord and Tenant and attached hereto as Exhibit "E". 5. BUILDING SERVICES. A. Basic Services. Landlord shall furnish the following services: (i) heating and air conditioning to provide a temperature condition required, in Landlord's judgment, for comfortable occupancy of the Premises under normal business operations, daily from 7:30 A.M. to 6:00 P.M. (Saturday from 8:00 A.M. to 1:00 P.M.), Sundays and holidays excepted; (ii) water for drinking, and, subject to Landlord's approval, water at Tenant's expense for any private restrooms and office kitchen requested by Tenant; (iii) men's and women's restrooms at locations designated by Landlord, in common with other tenants of the Building; (iv) daily janitor service in the Premises and common areas of the Building, weekends and holidays excepted and (v) passenger elevator service in common with Landlord and other tenants of the Building, 24 hours a day, 7 days a week; and freight elevator service daily, weekends and holidays excepted, upon request of Tenant and subject to scheduling and charges by Landlord. Notwithstanding the above, Tenant will not be required to meter and pay for water used within the Premises (except through the provisions of paragraph 2B(ii) as an Expense), unless Tenant installs special equipment that specifically utilizes water for processing or cooling, such as but not limited to air conditioning or computers, excluding drinking fountains. B. Electricity. Electricity shall be distributed to the Premises either by the electric utility company serving the Building or, at Landlord's option, by Landlord, and Landlord shall permit Landlord's wire and conduits, to the extent 39 available, suitable and safely capable, to be used for such distribution. If and so long as Landlord is distributing electricity to the Premises, Tenant shall obtain all of its electricity from Landlord and shall pay all of Landlord's charges, which charges shall be based, at Landlord's option, either on meter readings or on a survey of Tenant's electrical usage made by Landlord or on Tenant's prorata share of all space, including the Premises, which is commonly metered with the Premises. If the electric utility company is distributing electricity to the Premises, Tenant at its cost shall make all necessary arrangements with the electric utility company for metering and paying for electric current furnished to the Premises. C. Telephones. Tenant shall arrange for telephone service directly with one or more of the public telephone companies servicing the Building and shall be solely responsible for paying for such telephone service. If Landlord acquires ownership of the telephone cables in the Building at any time, Landlord shall permit Tenant to connect to such cables on such terms and conditions as Landlord may prescribe. In no event does Landlord make any representation or warranty with respect to telephone service in the Building, and Landlord shall have no liability with respect thereto. D. Additional Services. Landlord shall not be obligated to furnish any services other than those stated above. If Landlord elects to furnish services requested by Tenant in addition to those stated above (including services at times other than those stated above), Tenant shall pay Landlord's then prevailing charges for such services as Additional Rent within ten (10) days of Landlord's invoice therefor. If Tenant shall fail to make any such payment, Landlord may, without notice to Tenant and in addition to all other remedies available to Landlord, discontinue any additional services. No discontinuance of any such service shall result in any liability of Landlord to Tenant or be considered as an eviction or a disturbance of Tenant's use of the Premises. In addition, if Tenant's concentration of personnel or equipment adversely affects the temperature or humidity in the Premises or the Building, Landlord may install supplementary air conditioning units in the Premises; and Tenant shall pay for the cost of installation, utility charges, and maintenance thereof. E. Failure or Delay in Furnishing Services. Tenant agrees that Landlord shall not be liable for damages for failure or delay in furnishing any service stated above if such failure or delay is caused, in whole or in part, by any one or more of the events stated in Section 25(j) below, nor shall any such failure or delay be considered to be an eviction or disturbance of Tenant's use of the Premises, or relieve Tenant from its obligation to pay any Rent when due or from any other obligations of Tenant under this Lease. 6. RULES AND REGULATIONS. Tenant shall observe and comply, and shall cause its subtenants, assignees, invitees, employees, contractors and agents to observe and comply, with the rules and regulations listed on Exhibit "E" attached hereto and with such reasonable modifications and additions thereto as Landlord may make from time to time. Landlord shall not be liable for failure of any person to obey such rules and regulations. Landlord shall not be obligated to enforce such rules and regulations against any person, and the failure of Landlord to enforce any such rules and regulations shall not constitute a waiver thereof or relieve Tenant from compliance therewith. 40 7. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the following rights, each of which Landlord may exercise without notice to Tenant and without liability to Tenant, and the exercise of any such rights shall not be deemed to constitute an eviction or disturbance of Tenant's use or possession of the Premises and shall not give rise to any claim for set-off or abatement of rent or any other claim: (a) to change the name or street address of the Building or the suite number of the Premises; (b) to install, affix and maintain any and all signs on the exterior or interior of the Building; (c) to make repairs, decorations, alterations, additions, or improvements, whether structural or otherwise, in and about the Building, and for such purposes to enter upon the Premises, temporarily close doors, corridors and other areas in the Building and interrupt or temporarily suspend services or use of common areas, and Tenant agrees to pay Landlord for overtime and similar expenses incurred if such work is done other than during ordinary business hours at Tenant's request; (d) to retain at all times, and to use in appropriate instances, keys to all doors within and into the Premises; (e) to grant to any person or to reserve unto itself the exclusive right to conduct any business or render any service in the Building; (f) to show or inspect the Premises at reasonable times and, if vacated or abandoned, to prepare the Premises for reoccupancy; (g) to install, use and maintain in and through the Premises pipes, conduits, wires and ducts serving the Building, provided that such installation, use and maintenance does not unreasonably interfere with Tenant's use of the Premises; and (h) to take any other action which Landlord deems reasonable in connection with the operation, maintenance or preservation of the Building. Notwithstanding the above, Landlord shall not change the name of the Building without the Tenant's prior approval, which shall not be unreasonably withheld. In addition, the Tenant's suite numbers will not be changed without prior approval of the Tenant, which shall not unreasonably be withheld. 8. MAINTENANCE AND REPAIRS. Tenant, at its expense, shall maintain and keep the Premises in good order and repair at all times during the Term. In addition, Tenant shall reimburse Landlord for the cost of any repairs to the Building necessitated by the acts or omissions of Tenant, its subtenants, assignees, invitees, employees, contractors and agents, to the extent Landlord is not reimbursed for such costs under its insurance policies. Subject to the preceding sentence, Landlord shall perform any maintenance or make any repairs to the Building as Landlord shall desire or deem necessary for the safety, operation or preservation of the Building, or as Landlord may be required or requested to do by the City of Omaha, Nebraska or by the order or decree of any court or by any other proper authority. 9. ALTERATIONS. A. Requirements. Tenant shall not make any replacement, alteration, improvement or addition to or removal from the Premises (collectively an "alteration") without the prior written consent of Landlord. In the event Tenant proposes to make any alteration, Tenant shall, prior to commencing such alteration, submit to Landlord for prior written approval: (i) detailed plans and specifications; (ii) sworn statements, including the names, addresses and copies of contracts for all contractors; (iii) all necessary permits evidencing compliance with all applicable governmental rules, regulations and requirements; (iv) certificates of insurance in form and amounts required by Landlord, naming Landlord and any other parties designated by Landlord as additional insureds; and (v) all other documents and information as Landlord may reasonably request in connection with 41 such alteration. Tenant agrees to pay Landlord's standard charges for review of all such items and supervision of the alteration. Neither approval of the plans and specifications nor supervision of the alteration by Landlord shall constitute a representation or warranty by Landlord as to the accuracy, adequacy, sufficiency or propriety of such plans and specifications or the quality of workmanship or the compliance of such alteration with applicable law. Tenant shall pay the entire cost of the alteration and, if requested by Landlord, shall deposit with Landlord, prior to the commencement of the alteration, security for the payment and completion of the alteration in form and amount required by Landlord. Each alteration shall be performed in a good and workmanlike manner, in accordance with the plans and specifications approved by Landlord, and shall meet or exceed the standards for construction and quality of materials established by Landlord for the Building. In addition, each alteration shall be performed in compliance with all applicable governmental and insurance company laws, regulations and requirements, including, without limitation, all requirements of The Americans with Disabilities Act. Each alteration shall be performed in harmony with Landlord's employees, contractors and other tenants. Each alteration, whether temporary or permanent in character, made by Landlord or Tenant in or upon the Premises (excepting only Tenant's furniture, equipment and trade fixtures) shall become Landlord's property and shall remain upon the Premises at the expiration or termination of this Lease without compensation to Tenant; provided, however, that Landlord shall have the right to require Tenant to remove such alteration at Tenant's sole cost and expense in accordance with the provisions of Section 15 of this Lease. Notwithstanding the above, Landlord recognizes Tenant will arrange for and supervise its own construction. Landlord's charges for review of plans and construction will be limited to the actual cost of any third party consultants reasonably required by Landlord (such as, but not limited to, Structural Engineers, Mechanical/Electrical Engineers, or Architects). In addition, Landlord recognizes that Tenant may relocate its existing self contained package air conditioning units (with no network of above ceiling ductwork) to supplement the Building's system in the Premises. If such is the case or if Tenant purchases with its own funds and installs similar type units, upon expiration or termination of this Lease, Tenant will be allowed to or Landlord, at its sole discretion, may require Tenant to remove such units at Tenant's sole cost and expense in accordance with the provisions of Section 15 of this Lease. Notwithstanding the above, Landlord as a part of its review of Tenant's proposed alterations under this Paragraph 9, shall stipulate at the time the Tenant requests approval of the proposed alterations, any proposed alterations that will be required to be removed by Tenant upon surrender of the Premises by the Tenant. B. Liens. Upon completion of any alteration, 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 alteration. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any alteration performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorneys' fees. 42 10. INSURANCE. Tenant, at its expense, shall maintain at all times during the Term the following insurance policies: (a) fire insurance, including extended coverage, vandalism, malicious mischief, sprinkler leakage and water damage coverage and demolition and debris removal, insuring the full replacement cost of all improvements, alterations or additions to the Premises made at Tenant's expense, and all other property owned or used by Tenant and located in the Premises; (b) commercial general liability insurance, contractual liability insurance and property damage insurance with respect to the Building and the Premises, with limits to be set by Landlord from time to time but in any event not less than $3,000,000 combined single limit for personal injury, sickness or death or for damage to or destruction of property for any one occurrence; and (c) insurance against such other risks and in such other amounts as Landlord may from time to time require. The form of all such policies and deductibles thereunder shall be subject to Landlord's prior approval. All such policies shall be issued by insurers acceptable to Landlord and licensed to do business in the State of Nebraska and shall contain a waiver of any rights of subrogation thereunder. In addition, the policies shall name Landlord and any other parties designated by Landlord as additional insureds, shall require at least thirty days' prior written notice to Landlord of termination or modification and shall be primary and not contributory. Tenant shall, at least ten days prior to the Commencement Date, and within ten days prior to the expiration of each such policy, deliver to Landlord certificates evidencing the foregoing insurance or renewal thereof, as the case may be. 11. WAIVER AND INDEMNITY. A. Waiver. Tenant releases Landlord, Landlord's beneficiaries and their respective agents and employees from, and waives all claims for, damage or injury to person or property and loss of business sustained by Tenant and resulting from the Building or the Premises or any part thereof or any equipment therein becoming in disrepair, or resulting from any accident in or about the Building. This paragraph shall apply particularly, but not exclusively, to flooding, damage caused by Building equipment and apparatus, water, snow, frost, steam, excessive heat or cold, broken glass, sewage, gas, odors, excessive noise or vibration or the bursting or leaking of pipes, plumbing fixtures or sprinkler devices. Without limiting the generality of the foregoing, Tenant waives all claims and rights of recovery against Landlord, Landlord's beneficiaries and their respective agents and employees for any loss or damage to any property of Tenant, which loss or damage is insured against, or required to be insured against, by Tenant pursuant to Section 10 above, whether or not such loss or damage is due to the fault or negligence of Landlord or such beneficiaries, agents or employees, and regardless of the amount of insurance proceeds collected or collectible under any insurance policies in effect. B. Indemnity. Tenant agrees to indemnify, defend and hold harmless Landlord, Landlord's beneficiaries and their respective agents and employees, from and against any and all claims, demands, actions, liabilities, damages, costs and expenses (including attorneys' fees), for injuries to any persons and damage to or theft or misappropriation or loss of property occurring in or about the Building and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises (including, without limitation, any alteration by Tenant) or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed under this Lease or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, 43 contractors and agents. Without limiting the foregoing, Tenant shall indemnify, defend and hold Landlord harmless from any claims, liabilities, damages, costs and expenses arising out of the use or storage of hazardous or toxic materials in the Building by Tenant. If any such proceeding is filed against Landlord or any such indemnified party, Tenant agrees to defend Landlord or such party in such proceeding at Tenant's sole cost by legal counsel reasonably satisfactory to Landlord, if requested by Landlord. 12. FIRE AND CASUALTY. If all or a substantial part of the Premises or the Building is rendered untenantable by reason of fire or other casualty, Landlord may, at its option, either restore the Premises and the Building, or terminate this Lease effective as of the date of such fire or other casualty. Landlord agrees to give Tenant written notice within sixty days after the occurrence of any such fire or other casualty designating whether Landlord elects to so restore or terminate this Lease. If Landlord elects to terminate this Lease, Rent shall be paid through and apportioned as of the date of such fire or other casualty. If Landlord elects to restore, Landlord's obligation to restore the Premises shall be limited to restoring those improvements in the Premises existing as of the date of such fire or other casualty which were made at Landlord's expense and shall exclude any furniture, equipment, fixtures, additions, alterations or improvements in or to the Premises which were made at Tenant's expense. If Landlord elects to restore, Rent shall abate for that part of the Premises which is untenantable on a per diem basis from the date of such fire or other casualty until Landlord has substantially completed its repair and restoration work, provided that Tenant does not occupy such part of the Premises during said period. If the restoration takes longer than two hundred and ten (210) days or if such damage occurs during the last eighteen (18) months of the Lease Term, the Tenant shall have the option to terminate this Lease as of the date of casualty by submitting written notice to the Landlord. 13. CONDEMNATION. If the Premises or the Building is rendered untenantable by reason of a condemnation (or by a deed given in lieu thereof), then either party may terminate this Lease by giving written notice of termination to the other party within thirty days after such condemnation, in which event this Lease shall terminate effective as of the date of such condemnation. If this Lease so terminates, Rent shall be paid through and apportioned as of the date of such condemnation. If such condemnation does not render the Premises or the Building untenantable, this Lease shall continue in effect and Landlord shall promptly restore the portion not condemned to the extent reasonably possible to the condition existing prior to the condemnation. In such event, however, Landlord shall not be required to expend an amount in excess of the proceeds received by Landlord from the condemning authority. Landlord reserves all rights to compensation for any condemnation. Tenant hereby assigns to Landlord any right Tenant may have to such compensation, and Tenant shall make no claim against Landlord or the condemning authority for compensation for termination of Tenant's leasehold interest under this Lease or interference with Tenant's business, unless Tenant is entitled by applicable law to separate award which does not diminish or reduce award otherwise made to Landlord. 14. ASSIGNMENT AND SUBLETTING. The Tenant covenants and agrees not to assign, sublet, license or grant a concession or part with possession of the leased premises or any part thereof without first obtaining the written consent of the Landlord, except in the case of assignment or sublet to Tenant affiliate company, provided assignee or sublessee affiliate company has, at a minimum, equal credit worthiness as Tenant such consent not to be unreasonable withheld. 44 Provided that in any such assignment, subletting, license, concession or parting with possession, the Landlord shall reserve its right to approve any further assignment, license or concession or parting with possession and may require the Assignee, Sublessee, Licensee, Concessionaire or person taking possession to covenant directly with the Landlord to observe, perform and comply with the event of such assignment, subletting license, concession or parting with possession, all monies payable by the Assignee, Sublessee, Licensee, Concessionaire or person taking possession shall be paid directly to the Landlord, who shall credit the same as payments required and reserve hereunder. The Landlord shall be entitled to receive any excess of such monies over and above monies payable and reserved hereunder, for its own use absolutely and forever. Tenant shall remain responsible for all of the terms and conditions of this Lease, except in the case when an assignment has been approved by Landlord to an assignee to have, at a minimum, equal credit worthiness as Tenant. If at any time herein: (i) any person other than the Tenant has or exercises the right to manage or control the leased premises, or any part thereof or any of the business carried on therein other than subject to the direct and full supervisions and control of the Landlord; or (ii) effective control of the Lease is acquired or exercised by any person or persons not having effective control of the same shall constitute a default entitling the Landlord, at its option, to terminate this Lease, unless prior thereto the Tenant shall have received the written consent of the Landlord. As an alternative to such consent (and without being so obliged or affecting its other rights) the Landlord at its option, shall have the right within thirty (30) days of its being asked for such consent to, by written notice to the Tenant, cancel this Lease as of and from the date at which the Tenant wishes to assign, sublet, license or grant a concession or part with possession of the leased premises or any part thereof; provided the Tenant shall have thirty (30) days from the date of its receipt of such written notice to deliver a written revocation of such request for consent to the Landlord; in which event the Landlord's right to cancel pursuant to this Paragraph 14 shall be deemed lapsed until the next such request. Any attempt to assign, sublet, license or grant a concession or part with possession of the leased premises or any part thereof without complying with the terms and provisions of this Paragraph shall be null and void. 15. SURRENDER. Upon termination of the Term or Tenant's right to possession of the Premises, Tenant shall return the Premises to Landlord in good order and condition, ordinary wear and damage by fire or other casualty excepted. If Landlord requires Tenant to remove any alterations pursuant to Section 9, then such removal shall be done in a good and workmanlike manner; and upon such removal Tenant shall restore the Premises to its condition prior to the installation of such alterations. If Tenant does not remove such alterations after request to do so by Landlord, Landlord may remove the same and restore the Premises; and Tenant shall pay the cost of such removal and restoration to Landlord, plus a fee equal to twenty percent (20%) of Landlord's cost, as Additional Rent upon demand. Tenant shall also remove its furniture, equipment, trade fixtures and all other items of personal property from the Premises prior to termination of the Term or Tenant's right to possession of the Premises. If Tenant does not remove such items, Tenant shall be conclusively presumed to have conveyed the same to Landlord without further payment or credit by Landlord to Tenant; or at Landlord's sole option such items shall be deemed abandoned, in which event Landlord may cause such items to be removed and disposed of at 45 Tenant's expense without notice to Tenant and without obligation to compensate Tenant. 16. DEFAULTS AND REMEDIES. A. Default. The occurrence of any of the following shall constitute a default (a "Default") by Tenant under this Lease: (i) Tenant fails to pay any Rent when due and such failure is not cured within five days after notice from Landlord (which notice may be in the form of a landlord statutory five-day notice); (ii) Tenant fails to perform any other provision of this Lease and such failure is not cured within thirty days (or immediately if the failure involves a hazardous condition) after notice from Landlord; (iii) the leasehold interest of Tenant is levied upon or attached under process of law; (iv) Tenant or any guarantor of this Lease dies or dissolves; (v) Tenant vacates the Premises; or (vi) any voluntary or involuntary proceedings are filed by or against Tenant or any guarantor of this Lease under any bankruptcy, insolvency or similar laws and, in the case of any involuntary proceedings, are not dismissed within thirty days after filing. B. Right of Re-Entry. Upon the occurrence of a Default, Landlord may elect to terminate this Lease or, without terminating this Lease, terminate Tenant's right to possession of the Premises. Upon any such termination, Tenant shall immediately surrender and vacate the Premises and deliver possession thereof to Landlord. Tenant grants to Landlord the right to enter and repossess the Premises and to expel Tenant and any others who may be occupying the Premises and to remove any and all property therefrom, without being deemed in any manner guilty of trespass and without relinquishing Landlord's rights to Rent or any other right given to Landlord hereunder or by operation of law. C. Reletting. If Landlord terminates Tenant's right to possession of the Premises without terminating this Lease, Landlord may relet the Premises or any part thereof. In such case, Landlord shall use reasonable efforts to relet the Premises on such terms as Landlord shall reasonably deem appropriate; provided, however, Landlord may first lease Landlord's other available space and shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. If the consideration collected by Landlord upon any such reletting, after payment of the expenses of reletting the Premises which have not been reimbursed by Tenant, is greater than the amount necessary to pay the full amount of the Rent, the full amount of such excess shall be retained by Landlord and shall in no event be payable to Tenant. D. Termination of Lease. If Landlord terminates this Lease, Landlord may recover from Tenant and Tenant shall pay to Landlord, on demand, as and for liquidated and final damages, an accelerated lump sum amount equal to the amount by which Landlord's estimate of the aggregate amount of Rent owing from the date of such termination through the Expiration Date plus Landlord's estimate of the aggregate expenses of reletting the Premises, exceeds Landlord's estimate of the fair rental value of the Premises for the same period (after deducting from such fair rental value the time needed to relet the Premises and the amount of concessions which would normally be given to a new tenant) both discounted to present value at the rate of five percent per annum. 46 E. Other Remedies. Landlord may but shall not be obligated to perform any obligation of Tenant under this Lease; and, if Landlord so elects, all costs and expenses paid by Landlord in performing such obligation, together with interest at the Default Rate, shall be reimbursed by Tenant to Landlord on demand. Any and all remedies set forth in this Lease: (i) shall be in addition to any and all other remedies Landlord may have at law or in equity, (ii) shall be cumulative, and (iii) may be pursued successively or concurrently as Landlord may elect. The exercise of any remedy by Landlord shall not be deemed an election of remedies or preclude Landlord from exercising any other remedies in the future. F. Bankruptcy. If Tenant becomes bankrupt, the bankruptcy trustee shall not have the right to assume or assign this Lease unless the trustee complies with all requirements of the United States Bankruptcy Code; and Landlord expressly reserves all of its rights, claims, and remedies thereunder. G. Waiver of Trial by Jury. Landlord and Tenant waive trial by jury in the event of any action, proceeding or counterclaim brought by either Landlord or Tenant against the other in connection with this Lease. H. Venue. If either Landlord or Tenant desires to bring an action against the other in connection with this Lease, such action shall be brought in the federal or state courts located in Omaha, Nebraska. Landlord and Tenant consent to the jurisdiction of such courts and waive any right to have such action transferred from such courts on the grounds of improper venue or inconvenient forum. 17. HOLDING OVER. If Tenant retains possession of the Premises after the expiration or termination of the Term or Tenant's right to possession of the Premises, Tenant shall pay Rent during such holding over at one hundred and forty percent (140%) of the rate in effect immediately preceding such holding over computed on a monthly basis for each month or partial month that Tenant remains in possession. Tenant shall also pay, indemnify and defend Landlord from and against all claims and damages, consequential as well as direct, sustained by reason of Tenant's holding over. The provisions of this Section do not waive Landlord's right of re-entry or right to regain possession by actions at law or in equity or any other rights hereunder, and any receipt of payment by Landlord shall not be deemed a consent by Landlord to Tenant's remaining in possession or be construed as creating or renewing any lease or right of tenancy between Landlord and Tenant. 18. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit the security deposit set forth in Item "F" of the Basic Terms (the "Security Deposit") with Landlord as security for the performance of Tenant's obligations under this Lease. Upon the occurrence of a Default, Landlord may use all or any part of the Security Deposit for the payment of any Rent or for the payment of any amount which Landlord may pay or become obligated to pay by reason of such Default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of such Default. If any portion of the Security Deposit is used, Tenant shall within five days after written demand therefor deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit. In no event shall the Security Deposit be considered an advanced payment of Rent, and in no event shall Tenant be entitled to use the Security Deposit for the payment of Rent. If no default by Tenant exists hereunder, the Security Deposit or any balance thereof shall be returned to 47 Tenant within thirty days after the expiration of the Term and vacation of the Premises by Tenant. Landlord shall have the right to transfer the Security Deposit to any purchaser of the Building. Upon such transfer, Tenant shall look solely to such purchaser for return of the Security Deposit; and Landlord shall be relieved of any liability with respect to the Security Deposit. 19. SUBSTITUTION OF OTHER PREMISES. Except for Tenant's computer and transmission areas, at any time hereafter, Landlord may upon thirty days' prior notice to Tenant substitute for the Premises other premises in the Building (the "New Premises"), provided that the New Premises shall be reasonably usable for Tenant's business hereunder; and, if Tenant is already in occupancy of the Premises, then in addition Landlord shall pay the expenses of moving Tenant from the Premises to the New Premises and for improving the New Premises so that they are substantially similar to the Premises. 20. ESTOPPEL CERTIFICATE. Tenant agrees that, from time to time upon not less than ten days' prior request by Landlord, Tenant shall execute and deliver to Landlord a written certificate certifying: (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, a description of such modifications and that this Lease as modified is in full force and effect); (ii) the dates to which Rent has been paid; (iii) that Tenant is in possession of the Premises, if that is the case; (iv) that Landlord is not in default under this Lease, or, if Tenant believes Landlord is in default, the nature thereof in detail; (v) that Tenant has no off-sets or defenses to the performance of its obligations under this Lease (or if Tenant believes there are any off-sets or defenses, a full and complete explanation thereof); and (vi) such additional matters as may be requested by Landlord, it being agreed that such certificate may be relied upon by any prospective purchaser, mortgagee, or other person having or acquiring an interest in the Building. If Tenant fails to execute and deliver any such certificate within ten days after request, Tenant shall be deemed to have irrevocably appointed Landlord and Landlord's beneficiaries as Tenant's attorneys-in-fact to execute and deliver such certificate in Tenant's name. 21. SUBORDINATION. This Lease is and shall be expressly subject and subordinate at all times to (i) any ground or underlying lease of the Building, now or hereafter existing, and all amendments, renewals and modifications to any such lease; and (ii) the lien of any mortgage or trust deed now or hereafter encumbering fee title to the Building and/or the leasehold estate under any such lease. If any such mortgage or trust deed is foreclosed, or if any such lease is terminated, upon request of the mortgagee, holder or lessor, as the case may be, Tenant will attorn to the purchaser at the foreclosure sale or to the lessor under such lease, as the case may be. The foregoing provisions are declared to be self-operative and no further instruments shall be required to effect such subordination and/or attornment; provided, however, that Tenant agrees upon request by any such mortgagee, holder, lessor or purchaser at foreclosure, to execute and deliver such subordination and/or attornment instruments as may be required by such person to confirm such subordination and/or attornment. If Tenant fails to execute and deliver any such instrument within ten days after request, Tenant shall be deemed to have irrevocably appointed Landlord and Landlord's beneficiaries as Tenant's attorneys-in-fact to execute and deliver such instrument in Tenant's name. 48 22. QUIET ENJOYMENT. As long as no Default exists, Tenant shall peacefully and quietly have and enjoy the Premises for the Term, free from interference by Landlord, subject, however, to the provisions of this Lease. The loss or reduction of Tenant's light, air or view will not be deemed a disturbance of Tenant's occupancy of the Premises nor will it affect Tenant's obligations under this Lease or create any liability of Landlord to Tenant. 23. BROKER. Tenant represents to Landlord that Tenant has dealt only with the broker(s) set forth in Item "G" of the Basic Terms (the "Broker") in connection with this Lease and that, insofar as Tenant knows, no other broker negotiated this Lease or is entitled to any commission in connection herewith. Tenant agrees to indemnify, defend and hold Landlord and Landlord's beneficiaries and agents harmless from and against any claims for a fee or commission made by any broker, other than the Broker, claiming to have acted by or on behalf of Tenant in connection with this Lease. Landlord agrees to pay the Broker a commission in accordance with a separate agreement between Landlord and the Broker. 24. NOTICES. All notices and demands to be given by one party to the other party under this Lease shall be given in writing, mailed or delivered, if to Tenant, at Suite 200 in the Building, and if to Landlord at the address set forth below or at such other address as either party may hereafter designate. If to Landlord: The Prudential Insurance Company of America One Prudential Plaza; Suite 1200 130 East Randolph Street Chicago, Illinois 60601 Attn.: Vice President - Equity Investments and The Prudential Insurance Company of America One Prudential Plaza; Suite 1300 130 East Randolph Street Chicago, Illinois 60601 Attn.: Regional Counsel with a copy to: Pacific Realty Group, Inc. 1905 Harney Street, Suite 403 Omaha, Nebraska 68102 Attn.:Senior Vice President- Management Operations Notices shall be delivered by United States certified or registered mail, postage prepaid, return receipt requested, or by a nationally recognized overnight courier service. Notices shall be considered to have been given upon the earlier to occur of actual receipt or two business days after posting in the United States mail. 25. MISCELLANEOUS. A. Successors and Assigns. Subject to Section 14 of this Lease, each provision of this Lease shall extend to, bind and inure to the benefit of Landlord and Tenant and their respective legal representatives, successors and assigns; and all references herein to Landlord and Tenant shall be deemed to include all such parties. 49 B. Entire Agreement. This Lease, and the riders and exhibits, if any, attached hereto which are hereby made a part of this Lease, represent the complete agreement between Landlord and Tenant; and Landlord has made no representations or warranties except as expressly set forth in this Lease. No modification or amendment of or waiver under this Lease shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant. C. Time of Essence. Time is of the essence of this Lease and each and all of its provisions. D. Execution and Delivery. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of space or an option for lease, and it is not effective until execution and delivery by both Landlord and Tenant. Execution and delivery of this Lease by Tenant to Landlord shall constitute an irrevocable offer by Tenant to lease the Premises on the terms and conditions set forth herein, which offer may not be revoked for fifteen days after such delivery. E. Severability. The invalidity or unenforceability of any provision of this Lease shall not affect or impair any other provisions. F. Governing Law. This Lease shall be governed by and construed in accordance with the laws of the State of Nebraska. G. Delay in Possession. In no event shall Landlord be liable to Tenant if Landlord is unable to deliver possession of the Premises to Tenant on the Commencement Date for causes outside Landlord's reasonable control. If Landlord is unable to deliver possession of the Premises to Tenant by the Commencement Date, the Commencement Date shall be deferred until Landlord can deliver possession to Tenant, and the Expiration Date shall be deferred for an equal number of days. H. Joint and Several Liability. If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant's obligations under this Lease. I. Force Majeure. Landlord shall not be in default hereunder and Tenant shall not be excused from performing any of its obligations hereunder if Landlord is prevented from performing any of its obligations hereunder due to any accident, breakage, strike, shortage of materials, acts of God or other causes beyond Landlord's reasonable control. J. Demolition or Renovation. Landlord shall have the right to terminate this Lease without compensation to Tenant upon one hundred and eighty (180) days' prior notice to Tenant if Landlord is required to renovate or demolish the Building or a substantial part thereof. However, if such renovation or demolition is discretionary on behalf of the Landlord, Landlord will pay the Tenant the fair market value of Tenant's remaining leasehold interest and reasonable physical moving costs, based on the actual costs incurred. K. Captions. The headings and titles in this Lease are for convenience only and shall have no effect upon the construction or interpretation of this Lease. 50 L. No Waiver. No receipt of money by Landlord from Tenant after termination of this Lease or after the service of any notice or after the commencing of any suit or after final judgment for possession of the Premises shall renew, reinstate, continue or extend the Term or affect any such notice or suit. No waiver of any default of Tenant shall be implied from any omission by Landlord to take any action on account of such default if such default persists or be repeated, and no express waiver shall affect any default other than the default specified in the express waiver and then only for the time and to the extent therein stated. M. Limitation of Liability. Any liability of Landlord under this Lease shall be limited solely to its interest in the Building, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord. N. Hazardous Materials. In the event any Hazardous Material (hereinafter defined) is brought into or onto the Premises by Tenant, its employees or agents, Tenant shall handle any such material in compliance with all applicable federal, state and/or local regulations. For purposes of this Section, "Hazardous Materials" means and includes any hazardous, toxic or dangerous waste, substance or material defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or any federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect. Tenant shall submit to Landlord on an annual basis copies of any approved hazardous materials communication plan, OSHA monitoring plan and permits required by the Resource Recovery and Conversation Act of 1976, which Tenant is required to prepare, file or obtain. Tenant will indemnify and hold harmless Landlord from any losses, liabilities, damages, costs or expenses (including reasonable attorneys' fees) which Landlord may suffer or incur as a result of Tenant's introduction into or unto the Premises of any Hazardous Material. This Section shall survive the expiration or sooner termination of this Lease. O. Modification for Mortgage. Should any mortgage, leasehold or similar arrangement require a modification or modifications of this Lease, which modification or modifications will not bring about any increased cost or expense to Tenant or in any other way substantially change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified. Tenant further agrees to execute and deliver any documents requested to evidence such modification within ten (10) days following such request. P. Rider. A Rider consisting of one (2) pages, and containing paragraphs 26 through 32 is attached hereto and made a part of this Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. 51 TENANT: LANDLORD: Data Transmission Network Corporation, The Prudential Insurance Company a Delaware corporation of America, a New Jersey corporation By: Pacific Realty Group, Inc., By: /s/ Greg T. Sloma its Managing Agent ---------------------------- Its: Executive Vice President and Chief Operating Officer ---------------------------- 52 EXHIBIT "D" - to be made a part of a Lease between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord) and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated May 2, 1995. LEGAL DESCRIPTION OF BUILDING That part of the Southeast Quarter of the Southwest Quarter of Section 15, Township 15 North, Range 12 East of the 6th P.M., in the City of Omaha, in Douglas County, Nebraska, more particularly described as follows: Beginning at a point on the Westerly right-of-way line of 90th Street which is 50.00 feet West of the East line and 92.59 feet North of the South line of said Southeast Quarter of the Southwest Quarter; thence North 00(degree)00'00" East (assumed bearing) along said Westerly right-of-way line of 90th Street a distance of 718.41 feet to a point on the Southerly right-of-way line of Embassy Row; thence North 90(degree)00'00" West along said Southerly right-of-way line of Embassy Row a distance of 190.00 feet to a point of curve; thence Southwesterly on a curve to the left, along said Southerly right-of-way line of Embassy Row, said curve having a radius of 595.24 feet, a long chord of 420.72 feet bearing South 69(degree)18'22" West and an arc length of 430.09 feet; thence South 44(degree)41'22" East a distance of 182.60 feet; thence South 00(degree)18'38" West a distance of 460.04 feet to a point on the Northerly right-of-way line of West Dodge Road; thence South 89(degree)41'22" East along said Northerly right-of-way line of West Dodge Road a distance of 173.30 feet; thence North 00(degree)18'32" East along said Northerly right-of-way line of West Dodge Road a distance of 11.00 feet; thence South 89(degree)41'22" East along said Northerly right-of-way line of West Dodge Road, a distance of 270.00 feet; thence North 51(degree)10'21" East along said Northerly right-of-way line of West Dodge Road a distance of 18.36 feet to the Point of Beginning. 53 EXHIBIT"E" to be made a part of a Lease between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated May 2, 1995. (Page 1 of 2) TENANT IMPROVEMENTS WORK SCHEDULE ARTICLE I Landlord's Construction Obligations Landlord shall have no construction obligations under this Amendment. Tenant accepts the Additional Premises in an "as is" condition, with all faults and with the understanding that it shall be responsible for any and all improvements required for its occupancy and use in accordance with Article II of this Exhibit "B". ARTICLE II Construction of Tenant Improvements Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Additional Premises in accordance with the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant finish allowance of up to One Hundred Eighty-Six Thousand, Eight Hundred Forty Dollars and No Cents ($186,840.00) to be applied toward the cost of any such tenant-provided improvements as follows: 1. The tenant finish allowance shall be paid in periodic installments, not more frequently than once per month, equal to the total of the contractor's or consultant's invoice amounts for improvements made to the Additional Premises, excluding any furnishings or business equipment (such as computers, satellite/microwave dish, office equipment, etc.), as submitted by Tenant and verified to Landlord's reasonable satisfaction; provided, however, that such payments will be made only if Tenant is not then in Default under the terms of this Lease and invoices are accompanied by lien waivers in the amount equal to that of the invoices. The tenant finish allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" as follows: June 1, 1995 - February 29, 1996 Up To $65,112.00 January 1, 1998 - September 30, 1998 Up To $121,728.00 2. Upon the earlier of the end dates identified in the allocation schedule specified in Paragraph 1 above, or the satisfaction of all obligations associated with the tenant improvements covered under this Article II and receipt of the associated lien waivers for the work, the Tenant shall forfeit any unused portion of the allowance. Any requests for payment received by the Landlord after the above specified end dates, will be returned to the Tenant and will be the obligation and sole responsibility of the Tenant. 3. In addition to the provisions set forth in Paragraph 9 of the Lease, Tenant's contractor shall (and its contract shall so provide): (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; 54 (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall promptly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's materialmen's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 55 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. 56 EXHIBIT "F" to be made a part of a Lease between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated May 2, 1995. (Page 1 of 2) RULES & REGULATIONS 1. Sidewalks, doorways, vestibules, halls, stairways, elevator lobbies and other similar areas in the common areas of the Building shall not be used for the storage of materials or disposal of trash, be obstructed by tenants or Landlord, or be used by tenants or Landlord for any purpose other than entrance to and from the tenant's leased areas and the Building and for going from one part of the Building to another part of the Building. 2. Plumbing fixtures shall be used only for the purposes for which they are designed, and no sweepings, rubbish, rags or other unsuitable materials shall be disposed into them. Damage resulting to any such fixtures proven to result from misuse by a tenant, and not by Landlord's cleaning contractors responsible for cleaning the tenant's leased area and the Building, shall be the liability of said tenant. 3. Signs, advertisements, graphics or notices visible in or from public corridors, any common area or public areas of the Building or from outside the Building shall be subject to Landlord's (or Landlord's property manager's) prior written approval, which approval shall not be unreasonably withheld. No part of the Complex may be defaced by Tenants . 4. Significant movement in or out of the Building of furniture, office equipment, or any other bulky or heavy materials shall be restricted to such hours as Landlord (or Landlord's property manager) shall reasonably designate. Landlord (or Landlord's property manager) will determine the method and routing of the movement of said items so as to ensure the safety of all persons and property concerned and Tenant shall be responsible for all costs and expenses associated therewith. Advance written notice of intent to move such items must be made to the Landlord (or Landlord's property manager) at least twenty-four (24) hours before the time of such move. For non significant movement in or out of the Building of portable items which do not require use of dollies or other moving equipment, notice to Landlord (or Landlord's property manager) shall not be required. 5. All deliveries to a tenant's leased premises, requiring dedicated elevator service for multiple trips that potentially will disrupt service for visitors and other tenants of the Building during normal business operations as defined in paragraph 5.A., shall be made through special arrangements with the Landlord. In general, passenger elevators are to be used only for the movement of persons and small deliveries during these normal business hours. Tenants may obtain the prior written consent of Landlord (or Landlord's property manager) for any exception to the provisions of this Paragraph 5. 6. Landlord (or Landlord's property manager) shall have the authority to approve the proposed weight and location of any safes and heavy furniture and equipment, which shall in all cases stand on supporting devices approved by Landlord in order to distribute the weight. 7. Corridor doors which lead to common areas of the Building (other than doors opening into the elevator lobby on floors leased entirely to a tenant) shall be kept closed at all times. 57 8. Each tenant shall cooperate with Landlord (and Landlord's property manager) in keeping its leased area neat and clean. No tenant shall employ any person for the purpose of such cleaning other than the Building's cleaning and maintenance personnel without prior approval of Landlord (or Landlord's property manager). 9. All elevator lobbies are to be kept neat and clean. The disposal of trash or storage of materials in these areas is prohibited. 10. No birds, fish or other animals shall be brought into or kept in, on or about the Building (except for Seeing Eye dogs). 11. Tenants shall not tamper with or attempt to adjust temperature control thermostats in their leased premises. Landlord shall promptly respond to each tenant's notices as to, and Landlord (or Landlord's property manager) shall adjust thermostats as required to maintain, the Building standard temperature. Each tenant shall use reasonable efforts to keep all window blinds down and tilted at a 45 degree angle toward the street to help maintain comfortable room temperatures and conserve energy. 12. Each tenant will comply with all security procedures necessary both during business hours and after hours and on weekends. Landlord will provide each tenant with prior notice of such security procedures and any changes thereto promptly. 13. Tenants are requested to lock all office doors leading to corridors and to turn out all lights at the close of their working day; provided, however, that no tenant shall be responsible to ensure that Landlord's cleaning contractor locks doors and turns out lights after cleaning the tenant's leased premises. 14. All requests for overtime air conditioning or heating must be submitted in writing to Landlord (or Landlord's property manager) by an authorized representative of the tenant. A list of persons authorized to request such overtime services (and any amendments thereto) will be furnished by the tenant to Landlord and Landlord shall be entitled to rely thereon. Any such request must be made by 2:00 p.m. on the day desired for weekday requests, by 2:00 p.m. Friday for weekend requests and by 2:00 p.m. on the preceding business day for holiday requests. Requests made after that time may result in an additional charge (not to exceed Landlord's cost) to such Tenant, if acted upon by Landlord. Landlord will make reasonable efforts to accommodate untimely requests by Tenant for overtime air conditioning or heating. Charges for overtime operation of air conditioning or heating shall be at the then current cost of operating the required system components. Charges will be billed on Tenant's monthly statement and are due within thirty (30) days of receipt of by Tenant of the statement. 15. No flammable or explosive fluids or materials shall be kept or used within the Building except in areas approved by Landlord, and each tenant shall comply with all applicable building and fire codes relating thereto. 16. Tenants may not make any modifications, alterations, additions or repairs to their leased premises and may not install any furniture, fixture or equipment in their leased premises which is in violation of any applicable building and/or fire code governing their lease premises or the Project. The tenant must obtain prior approval from Landlord (or) Landlord's property manager) of any such alterations, modifications and additions and shall deliver 58 "as built" plans therefor to Landlord (or Landlord's property manager), upon completion, except as otherwise permitted in the tenant's lease. Such alterations include, but are not limited to, any communication equipment and associated wiring which must meet fire code. The contractor conducting the modifications and additions must be a licensed contractor, is subject to all rules and regulations of Landlord (and Landlord's property manager) while performing work in the Building and must obtain all necessary permits and approvals prior to commencing the modifications and additions. 17. No vending machines of any type shall be allowed in tenant space without the prior written consent of Landlord (or Landlord's property manager), which will not be unreasonably withheld. Landlord acknowledges that Tenant has advised that it will have vending machines in their Premises. 18. All locks for doors in each tenant's leased areas shall be Building Standard except as otherwise permitted by Landlord and no tenant shall place any additional lock or locks on any door in its leased area without Landlord's (or Landlord's property manager's) written consent except as otherwise permitted in such tenant's lease. All requests for duplicate keys shall be made to Landlord (or Landlord's property manager). 19. No tenant (or their visitors) shall interfere in any way with other tenants' (or their visitors') quiet enjoyment of their leased premises. 20. Except in cases of gross negligence on behalf of the Landlord, Landlord will not be liable or responsible for lost or stolen money, jewelry or other personal property from any tenant's leased area or public areas of the Building or Project. 21. No machinery of any kind other than normal office equipment shall be operated by any tenant in its leased area without the prior written consent of Landlord (or Landlord's property manager). 22. Canvassing, peddling, soliciting and distribution of hand bills in the Building (except for activities within a tenant's leased premises which involve only such tenant's employees) is prohibited. Each tenant is requested to notify Landlord (or Landlord's property manager) if such activities occur. 23. All tenants will refer all contractors, contractors' representatives and installation technicians tendering any service to them to Landlord for Landlord's supervision, approval and control before the performance of any contractual services. This provision shall apply to all work performed in the Building (other than work under contract for installation or maintenance of security equipment or banking equipment), including, but not limited to, installations of telephones, telegraph equipment, electrical devices and attachments, and any and all installations of every nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment and any other physical portion of the Building. 24. Smoking is not permitted in the restrooms, stairwells, elevators, public lobbies or public corridors. 59 25. Each tenant and their contractors are responsible for removal of trash resulting from large deliveries or move-ins. Such trash must be removed from the Building and Building facilities may not be used for dumping. If such trash is not promptly removed, Landlord (or Landlord's property manager) may cause such trash to be removed at the tenant's sole cost and expense plus a reasonable additional charge to be determined by Landlord to cover Landlord's administrative costs in connection with such removal. 26. Tenants may not install, leave or store equipment, supplies, furniture or trash in the common areas of the Building (i.e., outside their leased premises). 27. Each tenant shall provide Landlord's property manager with names and telephone numbers of individuals who should be contacted in an emergency. 28. Tenants shall comply with the Building life safety program established by Landlord (or by Landlord's property manager), including without limitation fire drills, training programs and fire warden staffing procedures, and shall exercise all reasonable efforts to cause all tenant employees, invitees and guests to comply with such program. 29. To insure orderly operation of the Building, no ice, mineral or other water, towels, newspapers, etc., shall be delivered to any leased area except by persons appointed or approved by Landlord in writing. 30. Should a tenant require telegraphic, telephonic, annunciator or other communication service, Landlord will direct the electricians where and how wires are to be introduced and placed and none shall be introduced or placed except as Landlord shall approve. Electric current shall not be used for space heaters, cooking or heating devices or similar appliances without Landlord's prior written permission. 31. Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairways. 32. No portion of any tenant's leased area shall at any time be used or occupied as sleeping or lodging quarters, nor shall personnel occupancy loads exceed limits reasonably established by Landlord for the Building. 60 EXHIBIT "G" - to be made a part of a Lease between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord) and DATA TRANSMISSION NETWORK CORPORATION (Tenant) dated May 2, 1995. (Page 1 of 2) Property #: 21139 ANTENNA LICENSE AGREEMENT BETWEEN THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND DATA TRANSMISSION NETWORK CORPORATION This Agreement made as of the day of , 1995, by and between The Prudential Insurance Company Of America, a New Jersey corporation, (hereinafter called "Licenser") and Data Transmission Network Corporation, a Delaware corporation, (hereinafter called "Licensee"). WITNESSETH: I. Licenser, for and in consideration of the payments hereinafter set forth and of the covenants and agreements made by Licensee herein contained, does hereby grant unto the Licensee a non-exclusive license to utilize space in the building located at 9110 West Dodge Road, Omaha, Nebraska, (hereinafter called the "Building") for the purpose of installing and using various satellite dishes (herein referred to as "Antenna") to be attached to the roof of the Building during the Term of the Lease unless extended or sooner terminated as provided herein. II. Licensee shall make payments to Licenser, at the office of the Building, or elsewhere as designated from time to time by notice in writing to Licensee, in monthly installments as follows: "Except for the Rent required under the Lease and as otherwise provided herein, Licensee shall not be required to pay any monthly rental for this Antenna License Agreement." III. The size, location and placement as well as the manner and method of installation and removal of the Antenna and related equipment shall be subject to the prior written approval of Licenser. If Licenser elects to hire structural, mechanical, roofing and/or other engineers or consultants to review such plans and specifications, Licensee shall reimburse Licenser for the reasonable costs thereof, whether or not Licenser grants such approval. Notwithstanding the above, all Antenna installed as of the date of this agreement do not need written approval. IV. In addition to the monthly rental, Licensee shall pay for all utilities consumed to install, maintain, operate and remove its Antenna and equipment, as well as the reasonable costs of any engineers or consultants employed by Licenser to review or monitor same. 61 V. Prior to the installation of said Antenna and equipment, Licensee shall secure and shall at all time thereafter maintain all required approvals and permits of the Federal Communications Commission and all other governmental bodies having jurisdiction over its business, including its communications, operations and facilities. Licensee shall at all times comply with all laws and ordinances and all rules and regulations of municipal, state and federal governmental authorities relating to the installation, maintenance, height, location, use, operation, and removal of said Antenna and equipment and shall fully indemnify Licenser against any loss, cost, or expense which may be sustained or incurred by it as a result of the installation, maintenance, operation, or removal of said Antenna and equipment. Licenser makes no representation that applicable laws, ordinances or regulations permit the installation or operation of antennas on the subject real estate. VI. Licenser hereby grants unto Licensee the right, to be exercised as herein set forth, to enter upon the roof of the Building for the sole purpose of gaining access to the Licensee's installation. In addition thereto, Licenser grants unto Licensee the right, to be exercised as herein set forth, to install such equipment, conduits, cables and materials (hereinafter called "the connecting equipment") in shafts, ducts, conduits, chases, utility closets and other facilities of the Building as designated by Licenser as is reasonably necessary to connect Licensee's Antenna to Licensee's other machinery and equipment in other parts of the Building, subject to the requirements of any permits and the codes, regulations and rules of any governmental body, agency or authority. Licenser further grants to Licensee the right of access to the areas where such connecting equipment is located for the purposes of maintaining, repairing, testing and replacing the connecting equipment; provided, that such access and installations do not cause damage to or interfere with the operation or maintenance of any part of the Building or with any other tenant's operation. VII. Licensee shall promptly reimburse Licenser for the costs of repairs of any damage to the Building directly or indirectly caused by Licensee's installations or the operation, maintenance or removal thereof. VIII. Licensee, at its expense, shall be solely responsible for and shall maintain its Antenna and related equipment in a safe, structural, sound, clean and sightly condition and shall indemnify and save harmless Licenser against all liens and claims of mechanics and material men furnishing labor and materials in the construction and maintenance of same. IX. Licensee agrees to defend, indemnify and save harmless Licenser and to assume all liability for death or injury to any persons and all liability for loss, damage or injury to any property incurred or sustained by Licensee arising from, growing out of or resulting from Licensee's installation or its use of the roof of the Building or any other areas in the Building where Licensee's related equipment is located, including costs, attorney's fees and other expenses incurred by Licenser in defending any such claim unless such loss, damage or injury is due to the negligence of Licenser, its employees, agents, or invitees. X. The license hereby granted to Licensee shall not be deemed to give to Licensee the exclusive right to use the roof or tower of the Building and shall not preclude Licenser from granting a license or licenses to others. The rights of other licensees shall be exercised without causing unreasonable interference with the activities being carried on by Licensee in accordance with this 62 license. Similarly, the rights of Licensee hereunder shall be exercised without causing interference with the activities being carried on by other licensees in accordance with their respective licenses. Licensee shall not change or materially alter the Antenna or related equipment agreed to herein without the prior written consent of Licenser. XI. Licensee hereby waives and releases all claims arising out of this agreement, or in any way whatsoever connected with the subject matter of this agreement, against licenser its officers, directors, agents, employees and servants, and agrees that they shall not be liable for injury to person or damage to property sustained by Licensee or by any occupancy of the Building or any other person occurring in or about the Building resulting directly or indirectly from any existing or future condition, defect, matter of thing in the Building or any part of it or from equipment or appurtenance becoming out of repair, or from any occurrence, act, or from the negligence or omission of any tenant or occupant of the Building or of any other person; except for the negligence or omission by Licenser, its officers, directors, agents, employees and servants. XII. No notice or demand related to or required by this Agreement shall be effective unless same is in writing and is delivered as provided in paragraph 24 of the Lease. XIII. Licenser shall have the right to terminate this License upon written notice to Licensee, in the event that: (a) Licensee shall default in the performance of any of the obligations imposed upon it hereunder and shall not, after being notified by Licenser of the existence of such default, immediately take all reasonable steps to cure the same; or (b) it shall be determined that such installation or use materially interferes with the operation of machinery and apparatus of the Building, such as the elevators; or (c) it is found by public authority having jurisdiction over the Building that such installation and use constitute a nuisance or hazard to the public or to the occupants of the Building; or (d) the use of such antenna interferes with the use of any tenant's equipment or data processing machines in the Building; or (e) Licensee's lease or right to possession of space in the Building shall expire or be terminated. XIV. At the termination of this license by lapse of time or otherwise, the Antenna and the related equipment installed under the terms of this license shall be removed by Licensee and the area of the Building where they were installed shall be restored by Licensee to as good condition as existed immediately prior to installation of such Antenna and related equipment. XV. This Agreement shall be binding upon the successors and assigns of the parties hereto, provided that Licensee shall not assign or transfer this License to anyone else without Licenser's prior written consent which may be withheld at its sole discretion. 63 LICENSEE: LICENSER: Data Transmission Network Corporation, The Prudential Insurance Company Of Delaware corporation America, New Jersey corporation By: Pacific Realty Group, Inc. its Managing Agent 64 RIDER This Rider forms a part of that certain Standard Office Lease dated May 2, 1995, between The Prudential Insurance Company of America, as Landlord, and Data Transmission Network Corporation, as Tenant. OTHER PROVISIONS: 26. TENANT'S USE OF THE PREMISES. It is understood that the Tenant's intended use of the Premises will be for general administration and office space, as well as, for the installation and operation of the various technical equipment used in Tenant's primary business, such as but not limited to, transmission and other network equipment. In the event that the Tenant's use of the space or population of either people or equipment within the Premises results in above standard requirements of the base building's structural, mechanical and electrical systems, it will be the obligation and sole responsibility of the Tenant to make any modifications to or supplement the base building structural, mechanical and electrical systems that may be required in the reasonable discretion of the Landlord. 27. ELECTRICITY METERS. Notwithstanding the provisions of paragraph 5B of the Lease, Tenant will be responsible for the cost of any above standard electrical requirements as a result of its use and occupancy, including but not limited to, the cost of providing the separate metering, additional service facilities, and the on-going associated utility costs. Landlord will periodically undertake, through a certified engineering consultant, a study of the estimated utility usage and associated systems impact of all tenants of the Building. The study will be used to establish the average usage per rentable square foot of tenants with "like type office uses" in the building. This average will then be used as a standard for the calculation of any above standard usage and any corresponding utility charges to be paid by Tenant in accordance with the provisions of this paragraph and paragraph 5B. 28. MONUMENT SIGNAGE. The Tenant will be allowed, at its sole cost and expense, subject to the provisions of Exhibit "D" of the Lease, to cause to be designed and installed a monument sign identifying its occupancy in the building, It is anticipated that this monument sign will be low-profile and located on the West Dodge Road side of the property. It is understood that the Tenant will be limited to Tenant's Proportionate Share of the total signage allowed for the project, based upon all current codes and ordinances that regulate monument signage in Omaha, Nebraska. The Landlord reserves the right, in its reasonable discretion, to approve the design and materials of the Tenant's proposed monument sign. The final location of the proposed monument sign will be mutually agreed upon between the Tenant and the Landlord. 29. FUTURE EXPANSION. Provided Tenant is not then in Default, and subject to the further provisions of this Paragraph 27, Landlord grants to Tenant the following opportunities to expand the Premises: A. Option Space. Provided Tenant is not then in Default, Tenant shall have a one time option add to the Premises, as a part of this Lease, Suite 175B (10,144 R.S.F.) (the "Option Space") on the first floor of the Building as further shown on Exhibit "A", subject to the further provisions herein. 65 (i) Requirements. In order to exercise this option, Tenant must notify the Landlord of its intent to exercise this option prior to June 1, 1997. If Tenant exercises this option, then such Option Space will become part of the Premises leased to Tenant, subject to all of the terms and conditions of the Lease. Tenant agrees to enter into an amendment to the Lease setting forth the terms on which the Option Space is to be added to the Premises within fifteen (15) days after receipt of such amendment from Landlord. If Tenant does not timely exercise its option, or if Tenant fails to execute and deliver such lease amendment with respect thereto within such fifteen (15) day period, then Landlord will have the right to lease such Option Space to a third party and Tenant's option as to such space hereunder will lapse and be of no further effect. (ii) Terms and Conditions. Should Tenant exercise this option as provided herein, the Commencement Date for said Option Space shall be January 1, 1998, and end coterminous with this Lease. The annual Base Rental rate for the Option Space will be $14.75 per R.S.F., plus the then current Adjustment Rent, based on increases in Expenses over the Base Expenses and increases in Taxes over the Base Taxes above the Base Expense Year and Base Tax Year of 1994. As a part of this option, and subject to the provisions of Exhibit "E" to the Lease, Landlord shall provide Tenant a tenant finish allowance of up to $121,728.00 to be applied toward the cost of any tenant-provided improvements to the Option Space. B. Right Of First Refusal. Provided Tenant is not then in Default, Landlord grants to Tenant a right of first refusal on all or any space in the Building that becomes "available" for lease during the term of the Lease. For the purpose of this lease provision, "available" shall mean the rights contained in the lease of an existing tenant have expired and the tenant has no other rights to occupy the space. In addition, such right shall be subject to the rights of the other current tenants of the Building. (i) Requirements. If any space in the Building becomes available, prior to leasing the available space to a third party, Landlord will notify Tenant of Landlord's intent to lease such space and the date such space will be available for occupancy ("Landlord's Notice"). Tenant will have five (5) business days after receipt of Landlord's Notice, time being of the essence, within which to exercise Tenant's right of first refusal by giving notice thereof to Landlord in the manner specified in the Lease for giving notices. If Tenant exercises such right of first refusal, then such additional space will become part of the Premises leased to Tenant pursuant to the Lease, as amended, on the commencement date specified in Landlord's Notice to Tenant, subject to all of the terms and conditions of the Lease, as amended. Tenant agrees to enter into an amendment to the Lease setting forth the terms on which the additional space is to be added to the Premises within fifteen (15) days after receipt of such amendment from Landlord. If Tenant does not timely exercise its right of first refusal, or if Tenant fails to execute and deliver such lease amendment with respect thereto within such 15-day period, then Landlord will have the right to lease such additional space to a third party and Tenant's right of first refusal as to such space hereunder will lapse and be of no further effect. This right of first refusal is personal to Data Transmission Network Corporation, and in no event will any assignee of the Lease or sublessee of the Premises have the right of first refusal set forth in this Paragraph. 66 (ii) Terms and Conditions. During the period from June 1, 1995, through January 1, 1998, the annual Base Rental rate for the space will be $14.75 per R.S.F., plus the then current Adjustment Rent, based on increases in Expenses over the Base Expenses and increases in Taxes over the Base Taxes above the Base Expense Year and Base Tax Year of 1994. Associated with this Base Rental rate, will be a Tenant Improvement Allowance of up to $12.00 per R.S.F., pro-rated based on the remaining lease term at the time the space becomes a part of the master lease. Space that becomes available after January 1, 1998, shall be offered to the Tenant at the then current market rate for similar space in the West Omaha Suburban market. 30. SATELLITE SCREEN. At any time during the Term of this Lease, Landlord, at its sole discretion, may require Tenant to spend up to $10,000.00 towards the design and construction of architectural screening to be located around Tenant's antennas and/or satellites located on the roof of the building. Landlord reserves the right, in its sole discretion, to approve the design and materials of any proposed screening. Provided however, in no event shall such screening render the antennas and/or satellites inoperable. 31. TERMINATION OF PREVIOUS LEASES. Upon commencement of this Lease, the previous lease between Data Transmission Network (Lessee) and The Prudential Insurance Company Of America (Lessor), successor in interest to Pacific Realty Group, Inc. and Embassy Plaza Limited Partnership, commencing June 1, 1990, and as further amended by the parties in Addendum No. 1, dated October 12, 1990, Lease Addendum No. 2, dated February 18, 1992, Lease Addendum No. 3, dated May 13, 1992, Lease Addendum No. 4, dated November 5, 1992, Lease Addendum No. 5, dated February 23, 1993, Lease Addendum No. 6, dated June 8, 1993, and a Modification of Lease Addendum, dated January 31, 1994, shall be terminated. This termination shall not in any way relieve Tenant of any obligations owed under such previous lease prior to its termination. In addition, upon commencement of this Lease, the previous lease between Data Transmission Network (Tenant) and The Prudential Insurance Company Of America (Landlord), dated August 31, 1994, and as further amended by a First Amendment to Lease, dated October 11, 1994, shall be terminated. This termination shall not in any way relieve Tenant or Landlord of any obligations owed under such previous lease prior to its termination. 32. SATTELLITE/ANTENNA AGREEMENTS. The satellite/antenna agreements contained in this Lease and Exhibit G of this Lease shall supersede and replace in its entirety any prior agreements related to satellites and/or antennas between the parties, including agreements contained in that certain lease, commencing June 1, 1990, between Embassy Plaza Limited Partnership (Lessor) and Data Transmission Network, a Delaware corporation, and as further amended by the parties in Addendum No. 1, dated October 12, 1990, Lease Addendum No. 2, dated February 18, 1992, Lease Addendum No. 3, dated May 13, 1992, Lease Addendum No. 4, dated November 5, 1992, Lease Addendum No. 5, dated February 23, 1993, Lease Addendum No. 6, dated June 8, 1993, and a Modification of Lease Addendum, dated January 31, 1994, and any other agreements either written or verbal. TENANT: LANDLORD: Data Transmission Network Corporation, The Prudential Insurance Company a Delaware corporation of America, a New Jersey Corporation By: Pacific Realty Group, Inc., its Managing Agent 67 EX-10 5 1ST AMENDMENT TO LEASE FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (the "Amendment") is made and entered into this 29th day of September, 1995, by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Landlord"), having an address at One Prudential Plaza, Suite 1200, Chicago, Illinois, 60601, and DATA TRANSMISSION NETWORK CORPORATION ("Tenant"), having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS A. The Prudential Insurance Company of America and Data Transmission Network Corporation entered into that certain Lease dated as of May 2, 1995 (the "Lease"), for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340, #360, and #362 containing 75,931 rentable square feet in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska ("the Premises"). B. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Premises. The Premises shall be expanded to include: Space "A", effective October 1, 1995, measuring 3,688 RSF; and Space "B", effective July 1, 1996, measuring 2,902 RSF (the "Additional Premises"). Both Space "A" and Space "B" are located on the third floor of the Building as shown on the floor plan attached hereto, marked as Exhibit "A", and by this reference made a part hereof. As of October 1, 1995, the Premises shall consist of 79,619 RSF and as of July 1, 1996, the Premises shall consist of 82,521 RSF (the Revised Premises) 2. Term. The term of the Lease with respect to Space "A" and Space "B" shall be that period of time commencing October 1, 1995, for Space "A", and July 1, 1996, for Space "B" and ending on May 31, 2005, (the "Expiration Date"). 3. Base Rent. Tenant shall pay as Base Rent for the Additional Premises during the Term the sum of Nine Hundred and Seven Thousand, Five Hundred Twenty-One Dollars and No Cents ($907,521.00) payable monthly as follows: October 1, 1995 - June 30, 1996 $4,533.17 / Month July 1, 1996 - May 31, 2005 $8,100.21 / Month 68 4. Tenant Improvements. Landlord shall provide a tenant improvement allowance of up to $30,412.00 for Space "A", and up to $30,790.22 for Space "B", to be applied toward the cost of Tenant's required building improvements. All improvements shall be performed in accordance with the Tenant Improvement Work Schedule attached hereto, marked as Exhibit "B", and by this reference made a part hereof. 5. Tenant's Proportionate Share. The schedule of Tenant's Proportionate Share contained in Item D of the Basic Terms of the Lease shall be replaced with the following schedule: May 1, 1995 - May 31, 1995 46.37% (60,361 RSF / 130,173 RSF) June 1, 1995 - September 30, 1995 50.44% (65,787 RSF / 130,436 RSF) October 1, 1995 - June 30, 1996 53.05% (69,475 RSF / 130,950 RSF) July 1, 1996 - December 31, 1997 55.21% (72,377 RSF / 131,094 RSF) January 1, 1998 - May 31, 2005 62.95% (82,521 RSF / 131,094 RSF) 6. Adjustment Rent. Effective with commencement of the Term for Spaces "A" and "B", Tenant shall pay Adjustment Rent in accordance with the terms and conditions contained in Paragraph 2 of the Lease. 7. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. 6. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 7. The parties hereto hereby reaffirm and ratify all covenants, representations and warranties in the Lease as amended by this Amendment. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. Tenant: Landlord: Data Transmission Network Corporation, The Prudential Insurance Company a Delaware corporation of America, a New Jersey corporation By: /s/ Greg T. Sloma By: Pacific Realty Group, Inc., ----------------------------- its Managing Agent Its: Executive Vice President and Chief Operating Officer ----------------------------- 69 EXHIBIT "B" to be made a part of a First Amendment To Lease between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated September 29, 1995. (Page 1 of 2) TENANT IMPROVEMENTS WORK SCHEDULE ARTICLE I Landlord's Construction Obligations Landlord shall have no construction obligations under this Amendment. Tenant accepts the Additional Premises in an "as is" condition, with all faults and with the understanding that it shall be responsible for any and all improvements required for its occupancy and use in accordance with Article II of this Exhibit "B". ARTICLE II Construction of Tenant Improvements Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Additional Premises in accordance with the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant finish allowance of up to Sixty-One Thousand, Eight Hundred Thirty-Two Dollars and Twenty Cents ($61,832.20) to be applied toward the cost of any such tenant-provided improvements as follows: 1. The tenant finish allowance shall be paid in periodic installments, not more frequently than once per month, equal to the total of the contractor's or consultant's invoice amounts for improvements made to the Additional Premises, excluding any furnishings or business equipment (such as computers, satellite/microwave dish, office equipment, etc.), as submitted by Tenant and verified to Landlord's reasonable satisfaction; provided, however, that such payments will be made only if Tenant is not then in Default under the terms of this Lease and invoices are accompanied by lien waivers in the amount equal to that of the invoices. The tenant finish allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" as follows: October 1, 1995 - February 29, 1996 Up To $30,412.00 July 1, 1996 - November 30, 1996 Up To $30,790.22 2. Upon the earlier of the end dates identified in the allocation schedule specified in Paragraph 1 above, or the satisfaction of all obligations associated with the tenant improvements covered under this Article II and receipt of the associated lien waivers for the work, the Tenant shall forfeit any unused portion of the allowance. Any requests for payment received by the Landlord after the above specified end dates, will be returned to the Tenant and will be the obligation and sole responsibility of the Tenant. 3. In addition to the provisions set forth in Paragraph 9 of the Lease, Tenant's contractor shall (and its contract shall so provide): (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; 70 (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall promptly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's materialmen's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 71 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. 72 EX-10 6 RESTATED LOAN AGREEMENT 1995 RESTATED LOAN AGREEMENT This 1995 Restated Loan Agreement (the "Agreement") is entered into as of the 29th day of June, 1995 among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the "Borrower"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 ("FNB-O"), FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("FirsTier"), FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236 ("Boatmen's"), and AgAmerica, FCB, a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska 68102-1745 ("AgAmerica"). WITNESSETH: WHEREAS, the Borrower, FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's are parties to a 1993 Restated Loan Agreement dated as of November\8,\1993, as amended by a First Amendment to Restated Loan Agreement dated as of April\11,\1994, a Second Amendment to and Extension of Restated Loan Agreement dated as of June\29,\1994, a Third Amendment to 1993 Restated Loan Agreement dated as of August\30,\1994, a Fourth Amendment to 1993 Restated Loan Agreement dated as of November\29,\1994, a Fifth Amendment to 1993 Restated Loan Agreement dated as of February\27,\1995, and a Sixth Amendment to 1993 Restated Loan Agreement dated as of April\28,\1995; 73 WHEREAS, the Borrower, FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's wish to further amend such prior 1993 Restated Loan Agreement, as amended; WHEREAS, the Borrower, FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's wish to restate such prior 1993 Restated Loan Agreement, as amended, and to have this 1995 Restated Loan Agreement be the controlling agreement with respect to the matters set forth herein, which shall supersede the prior 1993 Restated Loan Agreement, as amended; WHEREAS, the Borrower, FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's do not intend for this 1995 Restated Loan Agreement to be deemed to extinguish any existing indebtedness of the Borrower or to release, terminate or affect the priority of any security therefor; and WHEREAS, AgAmerica wishes to become a party to this 1995 Restated Loan Agreement, and the other parties are agreeable thereto; NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows: I. DEFINITIONS For purposes of this Agreement, the following definitions shall apply: ADVANCE: Any advance of funds to the Borrower by the Banks or any of them pursuant to this Agreement. AGAMERICA: AgAmerica, FCB, a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska 68102-1745, and its successors and assigns. AGREEMENT: This 1995 Restated Loan Agreement dated as of June\29,\1995 between the Borrower and the Banks. BANKS: FNB-O, FirsTier, FNB-W, NBD, Norwest, Boatmen's and AgAmerica. BASE RATE: The floating interest rate announced from time to time by FNB-O as its "National Base Rate." This rate is set by FNB-O, solely in its discretion, to reflect generally the rates charged by national money center banks as their reference rates. (Previously, the rate was announced by 74 FNB-O as its "New York Base Rate.") Rates charged by FNB-O may be at, above or below the National Base Rate, as determined by FNB-O as to each respective customer. BOATMEN'S: The Boatmen's National Bank of St. Louis, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63166-0236, and its successors and assigns. BORROWER: Data Transmission Network Corporation, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114. BUSINESS DAY: Any day other than a Saturday, Sunday or a legal holiday on which banks in the State of Nebraska are not open for business. CHANGE OF CONTROL: (a) At any time when any of the equity securities of the Borrower shall be registered under Section 12 of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), (i) any person, entity or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) (other than any person which is a management employee, or any such "group" which consists entirely of management employees, of the Borrower) being or becoming the beneficial owner, directly or indirectly, of more than 50% of the voting stock of the Borrower, or (ii) a majority of the members of the Borrower's board of directors (the "Board") consisting of persons other than Continuing Directors (as hereinafter defined); and (b) at any other time, less than 50% of the voting stock of the Borrower being owned beneficially, directly or indirectly, by employees of the Borrower or its subsidiaries. As used herein, the term "Continuing Director" means any member of the Board on the date hereof and any other member of the Board who shall be recommended or elected to succeed a Continuing Director by a majority of Continuing Directors who are the members of the Board. 75 COLLATERAL: All personal property of the Borrower described in the Security Agreement, whether now owned or hereafter acquired, including, without limitation: (a) all of the Borrower's accounts, accounts receivable, chattel paper, documents, instruments, goods, inventory, equipment, general intangibles; and (b) all proceeds and products of the foregoing. CONVERSION: This term shall have the meaning set forth in Section 2.3. EXISTING TERM NOTES: Those certain promissory notes from the Borrower to FNB-O, FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of January\15, 1992, February\4, 1992, March\3, 1992, May\6, 1992, July\7, 1992, October\1, 1992, October\12, 1992, October 13, 1992, October\19, 1992, November\3, 1992, December 7, 1992, December\31, 1992, January\4, 1993, February\9, 1993, April\16, 1993, July\8, 1993, August\30, 1994, November\29, 1994, and February\27, 1995, all as described on Schedule A hereto. FIRSTIER: FirsTier Bank, National Association, Lincoln, Nebraska, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508, and its successors and assigns. FNB-O: First National Bank of Omaha, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102, and its successors and assigns. FNB-W: First National Bank, Wahoo, Nebraska, a national banking association having its principal place of business at Wahoo, Nebraska 68066, and its successors and assigns. FIXED RATE NOTICE: This term shall have the meaning set forth in Section 2.4. NBD: NBD Bank, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226. 76 NET WORTH: The Borrower's net worth as determined in accordance with generally accepted accounting principles plus subordinated debt. For purposes of this definition, "subordinated debt" means indebtedness of the Borrower which is subordinate, in a manner satisfactory to the Banks, to the indebtedness due to the Banks, and the repayment of which is forbidden during the existence of any Event of Default hereunder; provided however, that any such indebtedness shall not be deemed subordinated debt to the extent of the amount of principal payments that are due thereon within one year from the date of determination. NORWEST: Norwest Bank Nebraska, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102, and its successors and assigns. Note A: Promissory note dated as of the date hereof and made by the Borrower to FNB-O in the principal amount of $9,315,000, or any promissory note given in extension or substitution thereof. Note B: Promissory note dated as of the date hereof and made by the Borrower to FirsTier in the principal amount of $3,795,000, or any promissory note given in extension or substitution thereof. Note C: Promissory note dated as of the date hereof and made by the Borrower to FNB-W in the principal amount of $345,000, or any promissory note given in extension or substitution thereof. Note D: Promissory note dated as of the date hereof and made by the Borrower to NBD in the principal amount of $7,245,000, or any promissory note given in extension or substitution thereof. Note E: Promissory note dated as of the date hereof and made by the Borrower to Norwest in the principal amount of $6,555,000, or any promissory note given in extension or substitution thereof. Note F: Promissory note dated as of the date hereof and made by the Borrower to AgAmerica in the principal amount of $7,245,000 or any promissory note given in extension or substitution thereof. 77 NOTES: Note A, Note B, Note C, Note D, Note E and Note F and any separate promissory notes given to evidence the term loans created by Conversion. OPERATING CASH FLOW: The Borrower's average monthly earnings or loss before interest, depreciation and taxes, less current tax expense and plus or minus any non-ordinary non-cash charges or credits to earnings, which average shall be based on the Borrower's actual financial results in the two full calendar months preceding the date of determination. For purposes of calculating Operating Cash Flow for this Agreement, the Borrower shall not permit deferred commission expenses to be capitalized for any period in excess of twelve months. OPERATIVE DOCUMENTS: This 1995 Restated Loan Agreement, the Related Loan Agreement, the Notes, the Existing Term Notes, the Security Agreement, the financing statements regarding the Collateral and the documents and certificates delivered pursuant to Article V. PRINCIPAL LOAN AMOUNT: As to the Revolving Credit facility, the aggregate principal amount of all unpaid Advances outstanding at any time not including the unpaid balance under the Existing Term Notes or any amounts converted to a term loan hereunder, and as to term loan hereunder, the unpaid principal amount of any Conversion under Section 2.3. QUARTERLY COMPLIANCE CERTIFICATE: The certificate delivered to the Banks by the Borrower pursuant to Section 4.1(d). RELATED BANK DEBT: The aggregate unpaid balance of all indebtedness, now or hereafter existing (including future advances) under the Related Loan Agreement, including, without limitation the amounts outstanding under those certain promissory notes from the Borrower to FNB-O, FirsTier and FNB-W dated as of October 13, 1992 and December 7, 1992. 78 RELATED LOAN AGREEMENT: The Loan Agreement dated as of October 9, 1992 between the Borrower and FNB-O, FirsTier and FNB-W. REVOLVING CREDIT RATE: The Base Rate plus the applicable margin as determined pursuant to Section 2.2. REVOLVING LENDERS: FNB-O, FirsTier, FNB-W, NBD, Norwest and AgAmerica. SECURITY AGREEMENT: The Restated Security Agreement dated as of November 8, 1993 between the Borrower and FNB-O, as agent for the Banks, as amended from time to time. SUBSCRIBERS: Those customers of the Borrower which have subscribed for the Borrower's "Basic DTN Subscription Service" and/or other services and who are not in default of their payment or other obligations with respect thereto. TOTAL INDEBTEDNESS: All loans and other obligations of the Borrower for borrowed money (including, without limitation, the indebtedness due to the Banks) regardless of the maturity thereof but such term shall not include subordinated debt, as such term is defined in the definition of Net Worth up to $15,000,000 if such subordinated debt is existing on the date of this Agreement. All accounting terms not otherwise defined herein shall have the meaning ordinarily applied under generally accepted accounting principles. II. LOAN TERMS 2.1 Revolving Credit. Until the earlier of June\30, 1996 or the date on which the loan hereunder is converted to a term loan in accordance with Section 2.3, the Revolving Lenders agree to advance funds not to exceed $34,500,000 to the Borrower on a revolving credit basis (amounts outstanding under the Existing Term Notes and Related Bank Debt shall not be counted against such $34,500,000 limit). Such advances shall be made on a pro rata basis by the Revolving Lenders, based on the following maximum advance limits for each Revolving Lender: (1) as to FNB-O, $9,315,000; (ii) as to FirsTier, $3,795,000; 79 (iii) as to FNB-W, $345,000; (iv) as to NBD, $7,245,000; (v) as to Norwest, $6,555,000; and (vi) as to AgAmerica, $7,245,000. The Borrower shall not be entitled to any Advance hereunder if, after the making of such Advance, the Total Indebtedness would exceed thirty-six times the Borrower's Operating Cash Flow, determined at the time of the Advance. Nor shall the Borrower be entitled to any further Advances hereunder after the occurrence of a material adverse change in its management personnel, as described in Section 4.14(b). Advances shall be made, on the terms and conditions of this Agreement, upon the Borrower's request. Requests shall be made by 12 noon Omaha time on the Business Day prior to the requested date of the Advance. Requests shall be made by presentation to FNB-O of a drawing certificate in the form of Exhibit A. The Borrower shall pay to the Revolving Lenders a commitment fee of one quarter of one percent (.25%) per annum of the unadvanced portion of the $34,500,000 credit line described above. Such fee shall be paid to FNB-O quarterly (calendar quarters) in arrears and based on the average unused portion of the revolving credit commitment during the preceding quarter. FNB-O shall distribute to each Revolving Lender its pro rata share of such fee based on the maximum advance limits set forth above. If the Borrower's most recent Quarterly Compliance Certificate shows that, as of the end of the prior quarter (the "Applicable Quarter"), Total Indebtedness was equal to or in excess of 250% of Net Worth, then each Revolving Lender may deduct from the amount of any subsequent advance requested during the quarter following the Applicable Quarter a closing fee equal to one-half of one percent (.50%) of the amount of the advance (if an advance is requested and made during the first twenty days of a quarter, and the Borrower has not yet made the foregoing calculation as to the Applicable Quarter, the Revolving Lenders reserve the right to invoice the Borrower for, or deduct from any subsequent advance, any such fee which would have been deducted but for the fact that the Quarterly Compliance Certificate for the Applicable Quarter had not been completed). In addition to the foregoing fees, the Borrower will pay at closing a commitment fee to each Bank shown below in the amount indicated opposite such Bank's name:
Commitment Bank Increase in Facility Fee -------- ---------------------- ---------- FNB-O $2,758,500 $ 3,448.13 FNB-W 133,500 166.88 NBD 3,226,500 4,033.13 Norwest 2,959,500 3,699.38 ---------- $11,347.47
Furthermore the Borrower will pay to FNB-O at closing an agenting fee equal to $2,826.72. 80 2.2 Interest on Revolving Credit. Until the earlier of June 30, 1996 or the date on which the loan hereunder is converted to a term loan, interest shall accrue on the Principal Loan Amount outstanding from time to time at a variable rate, which shall fluctuate on a monthly basis, equal to the Base Rate plus a margin as determined below, except that after an Event of Default has occurred, interest shall accrue on the entire outstanding balance of principal and interest at a fluctuating rate equal to the Revolving Credit Rate as defined below plus four percent (4.00%). The margin shall be adjusted quarterly after receipt of the Borrower's Quarterly Compliance Certificate. Adjustments shall be retroactive to the beginning of the current quarter. (i) If the Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was less than 200% of Net Worth, the margin for the current quarter (meaning the quarter in which the certificate is required to be delivered) shall be zero. (ii) If the Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was equal to or greater than 200% of Net Worth but less than 250% of Net Worth, the margin for the current quarter shall be one quarter of one percent (.25%). (iii) If the Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was equal to or greater than 250% of Net Worth but less than 300% of Net Worth, the margin for the current quarter shall be three quarters of one percent (.75%). (iv) If the Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was equal to or greater than 300% of Net Worth, the margin for the current quarter shall be one and one quarter percent (1.25%). The Base Rate plus the applicable margin as determined above is hereinafter referred to as the "Revolving Credit Rate." Interest shall be calculated on the basis of the actual number of days outstanding and a 360-day year. Changes in the Base Rate shall be effective on the first day of each month, based on the Base Rate in effect on such day. Interest shall be due upon the rendering of each monthly invoice therefor by FNB-O. 2.3 Term Loan. Upon the earlier of: (i) June\30, 1996; or (ii) the Borrower's giving notice of its election to convert the loan hereunder, or any portion thereof, to a term loan, the revolving credit loan described above (or applicable portion thereof) shall be deemed converted to a term loan (hereinafter referred to as "Conversion"). At the option of the parties, 81 any such term loans may be evidenced by notes separate from Notes A, B, C, D, E and F. Upon Conversion, no further Advances shall be made by the Revolving Lenders on the converted amount and the then outstanding Principal Loan Amount of the respective term loan shall become due and payable in forty-eight equal installments of principal, with the first such installment due on the 30th day of the month following Conversion, or, if such day is not a Business Day, on the next succeeding Business Day, and subsequent installments due on the same day of each consecutive month thereafter. In any event, the total amount of all unpaid principal and accrued interest hereunder shall be due and payable no later than June\30, 2000. 2.4 Interest on Term Loan. After Conversion, interest shall accrue on the Principal Loan Amount outstanding on the respective term loan from time to time at a variable rate, which shall fluctuate on a monthly basis, which is equal to the Revolving Credit Rate plus one quarter of one percent (.25%). For purposes of computing such variable rate, changes in the Base Rate shall be effective on the first day of each month based on the Base Rate in effect on such day. Notwithstanding anything in the foregoing to the contrary, after Conversion, the Borrower may elect one of the following alternatives in order to have a fixed interest rate apply to the outstanding Principal Loan Amount converted and outstanding after the date of giving notice of such fixed rate election (the "Fixed Rate Notice"): (a) if the Fixed Rate Notice is given within twelve months of Conversion, the Borrower may elect a fixed rate equal to the greater of (i) the Revolving Credit Rate in effect on the date of the notice, plus three quarters of one percent (.75%), or (ii) two and one-half percent (2.50%) above the average of the yields on constant maturity Treasury Bonds with maturities of three years and five years, as quoted in the immediately preceding monthly Federal Reserve Statistical Release (the "Release") for the month preceding such Release; (b) if the Fixed Rate Notice is given after twelve months but within twenty-four months of Conversion, the Borrower may elect a fixed rate equal to the greater of (i) the Revolving Credit Rate in effect on the date of the notice, plus three quarters of one percent (.75%), or (ii) two and one-half percent (2.50%) above the yield on constant maturity Treasury Bonds with a 82 maturity of three years as quoted in the immediately preceding monthly Release for the month preceding such Release; (c) if the Fixed Rate Notice is given after twenty-four months of Conversion but within thirty-six months of Conversion, the Borrower may elect a fixed rate equal to the greater of (i) the Revolving Credit Rate in effect on the date of the notice, plus one-half of one percent (.50%), or (ii) two and one-half percent (2.50%) above the yield on constant maturity Treasury Bonds with a maturity of two years, as quoted in the immediately preceding monthly Release for the month preceding such Release; and (d) if the Fixed Rate Notice is given after thirty-six months of Conversion but prior to the maturity of the term loan, the Borrower may elect a fixed rate equal to the Revolving Credit Rate in effect on the date of the notice, plus one-half of one percent (.50%). Any election of a fixed rate by the Borrower shall be final and irrevocable. Notwithstanding the foregoing, after an Event of Default has occurred interest shall accrue on the entire outstanding balance of principal and interest at a fluctuating rate equal to the Revolving Credit Rate plus four percent (4.00%). Interest shall be calculated on the basis of the actual number of days outstanding and a 360-day year. Interest shall be due each month concurrently with the Borrower's principal payment. Interest shall continue to accrue on the full unpaid balance hereunder notwithstanding any permitted or unpermitted failure of the Borrower to make a scheduled payment or the fact that a scheduled payment day falls on a day other than a Business Day. If the Borrower's most recent Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was in excess of 250% of Net Worth, the current quarter shall be deemed a "Restricted Quarter." If, any time during a Restricted Quarter (including, without limitation, during any period in such quarter prior to delivery of the Quarterly Compliance Certificate), the interest rate accruing on any Existing Term Note or term loan hereinafter created under this Agreement is less than seven and one-half percent (7.50%), a "Trigger Event" shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the Borrower shall be obligated to pay the following fees: (i) three-eighths of one percent (.375%) of the outstanding principal balance of such Note or term loan as of the date preceding the Trigger Event, which amount shall be payable promptly upon invoicing by the Banks; (ii) the same amount as computed in clause (i), payable on the six-month anniversary of the Trigger Event; and 83 (iii) the same amount as computed in clause (i), payable on the twelve-month anniversary of the Trigger Event. 2.5 Payment. The Borrower's obligation to make payments of principal and interest hereunder shall be further evidenced by the Notes. All obligations of the Borrower under the Notes and the other Operative Documents shall be payable in immediately available funds in lawful money of the United States of America at the principal office of FNB-O in Omaha, Nebraska or at such other address as may be designated by FNB-O in writing. 2.6 Prepayment. The Borrower may at any time prepay the Principal Loan Amount outstanding under the Revolving Credit facility or any term loan. Any such prepayment may be made without penalty except after Conversion when interest is accruing on a fixed rate basis under Section 2.4(a), 2.4(b) or 2.4(c), in which event a prepayment fee shall be due as follows: (i) if interest is accruing at the rate set forth in Section 2.4(a), the fee shall be one and one-half percent (1.50%) of the amount of such prepayment; (ii) if interest is accruing at the rate set forth in Section 2.4(b), the fee shall be three-fourths of one percent (.75%) of the amount of such prepayment; (iii) if interest is accruing at the rate set forth in Section 2.4(c), the fee shall be three-tenths of one percent (.30%) of the amount of such prepayment. 2.7 Security. All obligations of the Borrower hereunder and under the Operative Documents, including, without limitation, the Borrower's obligations to make payments of principal and interest shall be secured by a first security interest in the Collateral, as more specifically described in the Security Agreement. 2.8 Existing Term Notes. The Borrower's obligations under the Existing Term Notes shall continue in full force and effect in accordance with the terms thereof. Such notes shall be deemed amended to include this 1995 Restated Loan Agreement within the definition of Obligations in such notes, it being understood that this 1995 Restated Loan Agreement, rather than the 1993 Restated Loan Agreement of November 8, 1993, shall be controlling with respect to defaults, covenants and all other relevant matters arising under the Existing Term Notes and the Notes executed and delivered in connection with this 1995 Restated Loan Agreement. The Existing Term Notes shall continue to be secured by the security interest provided in the Security Agreement. 2.9 Related Loan Agreement. Nothing herein shall be deemed to alter or amend the Borrower's obligations under the Related Loan Agreement and the Related Bank Debt shall continue in full force and effect in accordance with the terms thereof. 84 III. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that as of the date hereof and as of the date of each and every request for an Advance hereunder, the following are and shall be true and correct: 3.1 Corporate Existence. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and duly qualified and in good standing in all jurisdictions in which it is doing business and in which failure to qualify would have a material adverse effect, including without limitation the States of Nebraska, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio, South Dakota and Wisconsin and it has full power and authority to own and operate its properties and to carry on its business. 3.2 Corporate Authority. It has full corporate power, authority and legal right to execute, deliver and perform the Operative Documents to which it is a party, and all other instruments and agreements contemplated hereby and thereby, and to perform its obligations hereunder and thereunder; and such actions have been duly authorized by all necessary corporate action, and are not in conflict with any applicable law or regulation, or any order, judgment or decree of any Court or other governmental agency or instrumentality or its articles of incorporation or bylaws, or with any provisions of any indenture, contract or agreement to which it is a party or by which it or any of its property may be bound. 3.3 Validity of Agreements. Its Operative Documents have been duly authorized, executed and delivered and constitute its legal, valid and binding agreements, enforceable against the Borrower in accordance with their respective terms (except to the extent that enforcement thereof may be limited by any applicable bankruptcy, reorganization, moratorium or similar laws now or hereafter in effect, or by principles of equity). 3.4 Litigation. It is not a party to any pending lawsuit or proceeding before or by any court or governmental body or agency, which is likely to have a materially adverse effect on the Borrower's ability to perform its obligations under its Operative Documents; nor is the Borrower aware of any threatened lawsuit or proceeding, to which it may become a party or of any investigation of any Court or governmental body or agency into its affairs, which if instituted would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.5 Governmental Approvals. The execution, delivery and performance by the Borrower of the Operative Documents do not 85 require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any federal, state or other governmental authority or agency other than as contemplated herein and therein. 3.6 Defaults Under Other Documents. The Borrower is not in default or in violation (nor has any event occurred which, with notice or lapse of time or both, would constitute a default or violation) under any document or any agreement or instrument to which it may be a party or under which it or any of its properties may be bound and the result of which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.7 Judgments. There are no outstanding or unpaid judgments (which are not adequately bonded) of the Borrower which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.8 Compliance with Laws. It is not in violation of any laws, regulations or judicial or governmental decrees in any respect which could have any material adverse effect upon the validity or enforceability of any of the terms of its Operative Documents or which could have a material adverse effect upon its ability to perform its obligations under its Operative Documents. 3.9 Taxes. All its tax returns for material taxes required to be filed have been filed or extensions permitted by law have been obtained; all taxes of a material nature and which are due and payable as reflected on such returns have been paid, other than taxes which are due but for which only a nominal late payment penalty is payable and for which the taxing authority is not yet entitled to enforce its remedies for payment thereof and other than taxes being contested in good faith and with respect to which adequate reserves have been established; and no material amounts of taxes not reflected on such returns are payable. 3.10 Collateral. The Borrower has good and marketable title to the Collateral and the Collateral is free from all liens, encumbrances or security interests, except as disclosed on Schedule B attached hereto. The Borrower's principal place of business, chief executive office, and the place where it keeps its records concerning the Collateral is Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114. 3.11 Pension Benefits. The Borrower does not maintain a "Plan" as defined in Section 3 of the Employees Retirement Income Security Act of 1974 ("ERISA") or is in compliance with the minimum funding requirements with respect to any such 86 "Plan" maintained by the Borrower and the Borrower has not incurred any material liability to the Pension Benefit Guaranty Corporation ("PBGC") or otherwise under ERISA in connection with any such Plan. 3.12 Margin Regulations. No part of the proceeds of any Advance shall be used to purchase or carry any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or any "margin security" (within the meaning of Regulation G of said Board of Governors), or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security. No part of the proceeds of any Advance shall be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation G, T, U or X of said Board of Governors. 3.13 Financial Condition. The financial condition of the Borrower is truly and accurately set forth in the most recent financial statement which has been provided to the Banks and no material adverse change has occurred which would make such financial statement inaccurate or misleading. IV. COVENANTS The Borrower hereby covenants that: 4.1 Financial Reports. (a) Within forty-five (45) days after the end of each month, the Borrower, at its sole expense, shall furnish the Banks a balance sheet and statement of earnings of the Borrower, prepared in accordance with generally accepted accounting principles consistently applied and certified as completed and correct, subject to normal changes resulting from year-end audit adjustments, by the chief financial officer of the Borrower. (b) Within ninety (90) days after the close of the Borrower's fiscal year, the Borrower, at its sole expense, shall furnish the Banks: (i) a balance sheet and statement of earnings of the Borrower, certified by Deloitte & Touche, or other independent certified public accountants acceptable to the Banks, that such financial reports fairly present the financial condition of the Borrower and have been prepared in accordance with generally accepted accounting principles consistently applied; and (ii) a certificate from such accountants certifying that in making the requisite audit for certification of the Borrower's financial statements, the auditors either (1) have obtained no knowledge, and are not otherwise aware of, any condition 87 or event which constitutes an event of default or which with the passage of time or the giving of notice would constitute an event of default under Sections 4.3, 4.4, 4.7, 4.9(b), 4.9(d) or 4.11; or (2) have discovered such condition or event, as specifically set forth in such certificate, which constitutes an event of default or which with the passage of time or the giving of notice would constitute an event of default under such Sections. The auditors shall not be liable to the Banks by reason of the auditors' failure to obtain knowledge of such event or condition in the ordinary course of their audit unless such failure is the result of negligence or willful misconduct in the performance of the audit. (c) Within 30 days after submission to the Securities and Exchange Commission, the Borrower shall provide to the Banks copies of its Forms 10K and 10Q, as submitted to the Securities and Exchange Commission during the term of this Agreement. (d) Within twenty (20) days after the end of each quarter, the Borrower, at its expense, shall furnish the Banks a certificate of the chief financial officer of the Borrower in the form of Exhibit B, setting forth such information (including detailed calculations) sufficient to verify the conclusions of such officer after due inquiry and review, that: (i) The Borrower, either (y) is in compliance with the requirements set forth in this Agreement or (z) is NOT in compliance with the foregoing for reasons specifically set forth therein; and (ii) The chief financial officer of the Borrower has reviewed or caused to be reviewed all of the terms of the Operative Documents of the Borrower and that such review either (1) has NOT disclosed the existence of any condition or event which constitutes an event of default or any condition or event which with the passage of time or the giving of notice would constitute an event of default under the Operative Documents or (2) has disclosed the existence of a condition or event which constitutes an event of default, or a condition or event which with the passage of time or the giving of notice would constitute an event of default, under the aforesaid instrument or instruments and the specific condition or event is specifically set forth. (e) The Borrower shall provide the Banks with such other financial reports and statements as the Banks may reasonably request. 88 4.2 Corporate Structure and Assets. The Borrower shall not merge or consolidate with any other corporation or entity unless the Borrower shall be the surviving entity, nor sell any assets except items that are obsolete or no longer necessary for operation of the business, other than in the ordinary course of business without the prior written consent of the Banks. The Banks shall be entitled to receive as a prepayment on the Notes the proceeds of any sale of assets of the Borrower which are prohibited by the preceding sentence. Notwithstanding the foregoing prepayment requirements, any such prohibited sale shall remain a violation of this Agreement. In addition, the Borrower shall not engage in any business materially different from that in which it is presently engaged without the prior written consent of the Banks, which consent shall not be unreasonably withheld. The foregoing restrictions on mergers and consolidations shall not apply if: (i) in the case of a merger, the Borrower is the surviving entity and expressly reaffirms its obligations hereunder; (ii) in the case of a consolidation, the resulting corporation expressly assumes the obligations of the Borrower hereunder; (iii) the surviving or resulting corporation is organized under the laws of the United States or a jurisdiction thereof; (iv) after giving effect to such merger or consolidation, the surviving or resulting corporation will be engaged in substantially the same lines of business as are now engaged in by the Borrower; and (v) immediately after giving effect to such merger or consolidation, no event of default will exist hereunder. 4.3 Net Worth. The Borrower shall maintain a minimum Net Worth during the term of this Agreement of at least $11,000,000; provided, however, solely for purposes of determining compliance with the provisions of this Section 4.3, "Net Worth" shall not include any subordinated debt. 4.4 Indebtedness. (a) The Borrower shall not at any time permit the sum of the Total Indebtedness to the Banks to exceed forty-eight times Operating Cash Flow. (b) The Borrower shall not at any time permit Total Indebtedness to exceed 350% of Net Worth. (c) On the day the Borrower becomes liable with respect to any debt and immediately after giving effect thereto and to the concurrent retirement of any other debt, the sum of Total Indebtedness, plus the amount of any outstanding subordinated debt, plus the Borrower's contingent obligations under any guaranty of the debt of any other person or entity (other than unsecured debt of a subsidiary incurred in the ordinary course of business for other than borrowed money or to finance the purchase price 89 of any property or business) shall not exceed an amount equal to sixty times Operating Cash Flow at such date. 4.5 Use of Proceeds. The Borrower shall not use the proceeds of the Advances hereunder to purchase or carry any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or any "margin security" (within the meaning of Regulation G of said Board of Governors), or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security. No part of such proceeds shall be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation G, T, U or X of said Board of Governors. This section shall not preclude the Borrower from repurchasing any of its own issued and outstanding common stock; provided however, that such repurchase does not result in the occurrence of any other Event of Default hereunder. 4.6 Notice of Default. The Borrower shall give to the Banks prompt written notification of the existence or occurrence of: (a) any fact or event which results, or which with notice or the passage of time, or both, would result in an Event of Default hereunder; (b) any proceedings instituted by or against the Borrower in any federal, state or local court or before any governmental body or agency, or before any arbitration board, or any such proceedings threatened against the Borrower by any governmental agency, which is likely to have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents; (c) any default or event of default involving the payment of money under any agreement or instrument which is material to the Borrower to which the Borrower is a party or by which it or any of its property may be bound, and which default or event of default would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents; and (d) the Borrower shall give immediate notice of the commencement of any proceeding under the Federal Bankruptcy Code by or against the Borrower. 4.7 Distributions. (a) The Borrower shall not declare any dividends or make any cash distribution in respect of any shares of its capital stock or warrants of its capital stock, without the 90 prior written consent of the Banks; provided, however, that the Borrower may declare stock dividends; provided, further, that the Borrower need not obtain the Banks' consent with respect to dividends in any one year which are, in aggregate, less than 25% of the Borrower's net operating profit after taxes in the previous four quarters, as reported to the Banks pursuant to Section 4.1. (b) The Borrower shall not purchase, redeem, or otherwise retire any shares of its capital stock or warrants of its capital stock if, immediately after the making of such purchase or redemption, the Borrower will be in default of any other covenant or provision of this Agreement (including, without limitation, the covenants and provisions pertaining to minimum net worth and limitations on indebtedness). 4.8 Compliance with Law and Regulations. The Borrower shall comply in all material respects with all applicable federal and state laws and regulations. 4.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance. (a) The Borrower shall maintain its property in good condition in all material respects, ordinary wear and tear excepted, and make all renewals, replacements, additions, betterments and improvements thereto necessary for the efficient operation of its business. (b) The Borrower shall keep true books of record and accounts in which full and correct entries shall be made of all its business transactions, all in accordance with generally accepted accounting principles consistently applied. (c) The Borrower shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate form of existence as is necessary for the continuation of its business in substantially the same form. (d) The Borrower shall pay all taxes, assessments and governmental charges or levies imposed upon it or its property; provided, however, that the Borrower shall not be required to pay any of the foregoing taxes which are being diligently contested in good faith by appropriate legal proceedings and with respect to which adequate reserves have been established. (e) The Borrower shall maintain liability insurance and casualty insurance upon the Collateral (excluding 91 equipment or inventory provided to Subscribers in the ordinary course of business) tangible assets. The Borrower shall name the Banks as the loss payee on all such casualty insurance, and as an additional insured on all such liability insurance and shall provide the Banks with evidence of such insurance upon request. 4.10 Inspection of Properties and Books. The Borrower shall recognize and honor the right of the Banks, upon request to an officer of the Borrower, to visit and inspect any of the properties of, to examine the books, accounts, and other records of, and to take extracts therefrom and to discuss the affairs, finances, loans and accounts of, and to be advised as to the same by the officers of, the Borrower at all such times, in such detail and through such agents and representatives as the Banks may reasonably desire. 4.11 Guaranties. The Borrower shall not guaranty or become responsible for the indebtedness of any other person or entity. 4.12 Collateral. The Borrower shall not incur or permit to exist any mortgage, pledge, lien, security interest or other encumbrance on the Collateral, except as permitted in the Security Agreement. Subject to Section 4.4(b), the foregoing shall not be construed to prohibit the Borrower from acquiring leased equipment in the ordinary course of business. 4.13 Name; Location. The Borrower shall give the Banks fifteen days notice prior to changing its name, identity or corporate structure, moving its principal place of business, chief executive office or place where it keeps its records concerning the Collateral. 4.14 Notice of Change in Ownership or Management. During the term of this Agreement, the Borrower shall give the Banks notice of the occurrence of any of the following described events, which notice shall be given as soon as the Borrower obtains notice or knowledge thereof: (a) any change, directly or indirectly, in the existing controlling interest in the Borrower; or (b) any material adverse change in its management personnel. A material adverse change in the Borrower's management personnel shall be deemed to have occurred if any one of the following has occurred with respect to three individuals who are both officers and members of the Board of Directors of the Borrower: (i) the resignation, retirement, or voluntary or involuntary termination of employment and/or status of such person as an officer and director of the Borrower; (ii) any announcement, notice of 92 intent, resolution or similar advance notice with respect to the matters referenced in the foregoing clause; or (iii) the death, disability or legal incompetence of such person. 4.15. Interest Coverage. The ratio of Operating Cash Flow to interest expense (as determined in accordance with generally accepted accounting principles but excluding amortization of deferred offering costs and any fees related to the Trigger Event in Section 2.4 of this Agreement) at the end of each quarter during the term of this Agreement, as shown on the Quarterly Compliance Report, shall not be less than 2.25 to 1.0. 4.16 Subordinated Debt. The Borrower shall not incur any subordinated debt or issue any preferred stock or warrants for preferred stock except upon the prior written consent of the Banks. The Borrower shall not make any voluntary or optional prepayment on any subordinated debt without the prior written consent of the Banks. Similarly, the Borrower shall not amend its articles of incorporation or any other documents or agreements relating to the issuance of subordinated debt, preferred stock or warrants for preferred stock without the prior written consent of the Banks. V. CONDITIONS PRECEDENT Any and all obligations of the Banks hereunder are subject to satisfaction of the following conditions precedent: (a) the Revolving Lenders shall have received an opinion of counsel to the Borrower covering such matters referred to in Article III as the Revolving Lenders may request, satisfactory in form and substance to counsel to the Revolving Lenders; (b) the Revolving Lenders shall have received such certificates and documents as the Revolving Lenders may reasonably request from the Borrower, including articles of incorporation and bylaws, certificates regarding good standing, incumbency, copies of other corporate documents, and appropriate authorizing resolutions; and (c) the Operative Documents shall have been duly authorized and executed and shall be in full force and effect, and such UCC financing statements shall have been executed and filed in such offices as may be appropriate to perfect the security interest of FNB-O, as agent for the Banks, in the Collateral. 93 VI. DEFAULTS AND REMEDIES 6.1 Events of Default. Any of the following shall be deemed an event of default under this Agreement (an "Event of Default"): (a) Any payment of principal required by any of the Operative Documents shall not be paid when due. (b) Any payment of interest or other fees due hereunder or under any of the Operative Documents shall not be paid within 15 calendar days after the date on which such payment was invoiced or due. (c) Any representation or warranty of the Borrower under any of the Operative Documents, or any financial reports or statements or certificates submitted pursuant to this Agreement, shall prove to have been false in any material respect when made. (d) A failure of the Borrower to comply with any requirement or restriction contained in Sections 4.1, 4.2, 4.3, 4.4, 4.7, 4.11, 4.12, 4.13, 4.14, 4.15 or 4.16 of this Agreement. (e) A failure of the Borrower to comply with any requirement or restriction contained in any provision of the Operative Documents not otherwise specified in this Article VI, which failure remains unremedied for ten days following receipt of notice from the Banks. (f) The occurrence of a default or a breach of any of the Borrower's obligations under any note, loan agreement, preferred stock, subordinated debt instrument or agreement, or any other agreement evidencing an obligation to repay borrowed money. (g) The entry of a final judgment against the Borrower for the payment of money, which is not covered by insurance, and the expiration of 30 days from the date of such entry during which the judgment is not discharged in full or stayed. (h) The occurrence of any one or more of the following: (1) The Borrower shall file a voluntary petition in bankruptcy or an order for relief shall be entered in a bankruptcy case as to such entity or shall file any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar 94 relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors; or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Borrower or of all or any part of its property, or of any or all of the royalties, revenues, rents, issues or profits thereof, or shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts or shall generally not pay its debts as they become due; or (2) A court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against the Borrower seeking any reorganization, dissolution or similar relief under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, and such order, judgment or decree shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive) from the first date of entry thereof; or any trustee, receiver or liquidator of the Borrower or of all or any part of its property, or of any or all of the royalties, revenues, rents, issues or profits thereof, shall be appointed without the consent or acquiescence of the Borrower and such appointments shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive); or (3) A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in the Collateral, or any judgment involving monetary damages shall be entered against the Borrower which shall become a lien on the Collateral or any portion thereof or interest therein and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within thirty (30) days after its entry or levy. (i) Any event of default shall occur under any Operative Document. (j) A change shall occur after November 8, 1993, directly or indirectly, in the ownership or control of the Borrower; provided, however, that changes in the ownership or control of, or new issuances of, voting common stock which do not exceed, cumulatively, 50% of the total issued and outstanding shares of the Borrower as of September 30, 1993 shall not be deemed an Event of Default under this 95 Section 6.1(j); provided further, that acquisitions of additional shares by members of the existing executive management group of the Borrower shall not be counted as changes in the ownership or control of the Borrower under this Section 6.1(j). For purposes of computing the total issued and outstanding shares as of September 30, 1993, warrants and options for such shares shall be included. (k) An Event of Default shall occur under the Related Loan Agreement and the expiration of any applicable cure period thereunder. (l) The Borrower shall be obligated to prepay all or any portion of its subordinated debt as a result of a Change of Control. 6.2 Remedies. If an Event of Default occurs and is continuing, upon the election of the Banks holding two-thirds of the then outstanding Total Indebtedness of the Borrower to the Banks the entire unpaid principal amount under the Notes and the Existing Term Notes and all Related Bank Debt, together with interest accrued thereon, shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Banks may exercise their rights under the other Operative Documents and the Related Loan Agreement, including, without limitation, under the Security Agreement. In addition, the Banks shall have such other remedies as are available at law and in equity. Remedies under this Agreement and the other Operative Documents are cumulative. Any waiver must be in writing by the Banks and no waiver shall constitute a waiver as to any other occurrence which constitutes an Event of Default or as to any party not specifically included in such written waiver. ARTICLE VII. INTER-BANK AGREEMENTS 7.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans made to the Borrower hereunder (including, without limitation, the loans made under the Existing Term Notes). FNB-O will enforce, administer and otherwise deal with the loans made by FirsTier, FNB-W, NBD, Norwest, Boatmen's and AgAmerica in accordance with safe and prudent banking standards employed by FNB-O in the case of the loan made by FNB-O. Without limiting the generality of the foregoing, FNB-O will, on its own behalf and on behalf of the Banks: (i) maintain originals of the Operative Documents; (ii) receive requests for Advances from the Borrower and make such Advances on behalf of the Revolving Lenders (provided that FNB-O is assured of reimbursement therefor by the other Revolving Lenders for their pro rata shares); (iii) receive payments and prepayments from the Borrower and apply such payments as provided in Section 96 7.2; (iv) receive notices from the Borrower and send copies thereof to FirsTier, FNB-W, NBD, Norwest, Boatmen's and AgAmerica if FNB-O has reasonable cause to believe that such banks have not received such notice from another source; and (v) advise FirsTier, FNB-W, NBD, Norwest, Boatmen's and AgAmerica of the occurrence of any material Event of Default which FNB-O obtains actual knowledge of. FirsTier, FNB-W, NBD, Norwest, Boatmen's and AgAmerica agree not to attempt to take any action against the Borrower without FNB-O's consent unless holders of two-thirds of the then outstanding Total Indebtedness of the Borrower to the Banks shall have requested FNB-O to take specific action against the Borrower and FNB-O shall have failed to do so within a reasonable period after receipt of such request. All actions, consents, waivers and approvals by the Banks shall be deemed taken or given and amendments hereto deemed agreed to if the holders of more than two-thirds of the outstanding Total Indebtedness of the Borrower to the Banks shall have indicated their consent thereto. Notwithstanding the foregoing, any reduction or compromise of the Principal Loan Amount or the Existing Term Notes or the amount or rate of interest accrued or accruing thereon or extension of the date of any scheduled payment shall require the unanimous approval of the Banks. 7.2 Application of Payments. Until the earlier of the occurrence of an Event of Default or any Bank's giving of notice to the others that it deems itself insecure, payments or prepayments made by the Borrower may be applied to the indebtedness designated by the Borrower or otherwise applied as follows: (a) first, to pay interest to date on the Revolving Credit; (b) second, to make payments due but unpaid under any of the Term Notes, Existing Term Notes and Related Bank Debt; and (c) third, pro rata to the Banks, such pro rata share to be determined as set forth below in subsection (bb) of this Section 7.2. After the occurrence of an Event of Default or any Bank's giving of notice that it deems itself insecure, payments or prepayments on the Notes, the Existing Term Notes or the Related Bank Debt received by FNB-O or any of the Banks and funds realized upon the disposition of any of the Collateral shall be applied as follows: (aa) first, to reimburse FNB-O for any costs, expenses, and disbursements (including attorneys' fees) which may be incurred or made by FNB-0: (i) in connection 97 with its servicing obligations; (ii) in the process of collecting such payments or funds; or (iii) as advances made by FNB-O to protect the Collateral (provided, however, that FNB-O shall have no obligation to make such protective advances); and (bb) second, pari passu among FNB-O, FirsTier, FNB-W, NBD, Norwest, Boatmen's and AgAmerica based on their respective pro rata shares of the funds to be applied. Each Bank's pro rata share shall be equal to a fraction, (x) the numerator of which shall be the portion of the Principal Loan Amount then outstanding which has been actually advanced by each such Bank along with the amount owing to each such Bank under its Existing Term Note and under the Related Bank Debt, and (y) the denominator of which shall be the total Principal Loan Amount then outstanding along with the total amount owing to the Banks under the Existing Term Notes and the Related Bank Debt. Except as specifically provided in this Section 7.2, FNB-O shall have no obligation to repay or prepay any amount due from the Borrower to either of the other Banks nor shall FNB-O have any obligation to purchase all or a part of Note B, Note C, Note D, Note E, Note F, the Existing Term Notes or any Advance made by such Banks, nor shall such Banks have any recourse whatsoever against FNB-O with respect to any failure of the Borrower to repay the indebtedness described herein. 7.3 Liability of FNB-O. FNB-O shall not be liable to the Banks for any error of judgment or for any action taken or omitted to be taken by it hereunder, except for gross negligence or willful misconduct. Without limiting the generality of the foregoing, FNB-O, except as expressly set forth herein, (a) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no representation or warranty with respect to, and shall not be responsible for, the accuracy, completeness, execution, legality, validity, legal effect or enforceability of this 1995 Restated Loan Agreement, the Notes, the Existing Term Notes or the other Operative Documents or the value or sufficiency of any collateral given by the Borrower or the priority of the Banks' security interest therein or the financial condition of the Borrower; and (c) shall not be responsible for the performance or observance of any of the terms, covenants or conditions of the Operative Documents on the part of the Borrower and shall not have any duty to inspect the property (including, without limitation, the books and records) of the Borrower. 98 7.4 Transfers. FirsTier, FNB-W, NBD, Norwest, Boatmen's and AgAmerica shall not subdivide, transfer or grant a participation in their respective Notes, the Existing Term Notes or in any Advance, without the prior written consent of FNB-O which consent shall not be unreasonably withheld. 7.5 Reliance. The Banks acknowledge that they have been advised that none of the Notes, the Existing Term Notes nor any interest therein or related thereto has been (i) registered under the Securities Act of 1933, as amended, nor (ii) insured by the Federal Deposit Insurance Corporation. The Banks acknowledge that they have received from the Borrower all financial information and other data relevant to their decision to extend credit to the Borrower and that they have independently approved the credit quality of the Borrower. 7.6 Relationship of Banks. The Banks intend for the relationships created by this Agreement to be construed as concurrent direct loans from each Bank respectively to the Borrower. Nothing herein shall be construed as a loan from FirsTier, FNB-W, NBD, Norwest, Boatmen's or AgAmerica to FNB-O or as creating a partnership or joint venture relationship among them. ARTICLE VIII. MISCELLANEOUS 8.1 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and may not be effectively amended, changed, modified or altered, except in writing executed by all parties. 8.2 Governing Law. The Operative Documents shall be governed by and construed pursuant to the laws of the State of Nebraska. 8.3 Notices. Until changed by written notice from one party hereto to the other, all communications under the Operative Documents shall be in writing and shall be hand delivered or mailed by registered mail to the parties as follows: If to the Borrower: DATA TRANSMISSION NETWORK CORPORATION Suite 200 9110 West Dodge Road Omaha, Nebraska 68114 Attention: Chief Financial Officer 99 If to the Banks: FIRST NATIONAL BANK OF OMAHA One First National Center Omaha, Nebraska 68102 Attention: Mr. James P. Bonham Notices shall be deemed given when mailed, except that any notice by the Borrower under Section 2.3 or 2.4 shall not be deemed given until received by FNB-O. 8.4 Headings. The captions and headings herein are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement. 8.5 Counterparts. This Agreement may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. 8.6 Survival; Successors and Assigns. The covenants, agreements, representations and warranties made herein, and in the certificates delivered pursuant hereto, shall survive the execution and delivery to the Banks of this Agreement and shall continue in full force and effect so long as the Note or any obligation to the Banks under any of the Operative Documents is outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Borrower which are contained in this Agreement shall bind the successors and assigns of the Borrower and shall inure to the benefit of the successors and assigns of the Banks. 8.7 Severability. Should any one or more provisions of this Agreement be determined to be illegal or unenforceable, all other provisions shall nonetheless remain effective. 8.8 Assignment. The Borrower may not assign its rights or obligations hereunder and any assignment in contravention of the terms hereof shall be void. 8.9 Amendments. Any amendment, modification or supplement to this Agreement must be in writing and must be signed by the parties hereto. 100 IN WITNESS WHEREOF, the Borrower and the Banks have caused this 1995 Restated Loan Agreement to be executed by their duly authorized corporate officers as of the day and year first above written. DATA TRANSMISSION NETWORK CORPORATION By: /s/ Brian Larson --------------------------------- Title: Chief Financial Officer --------------------------------- FIRST NATIONAL BANK OF OMAHA By: /s/ J.P. Bonham -------------------------------- Title: Vice President -------------------------------- 101 FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA By: /s/ John Arrigo ---------------------------------- Title: Officer ---------------------------------- NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ---------- Borrower 4266J 102 FIRST NATIONAL BANK, WAHOO, NEBRASKA By: /s/ Elizabeth E. Rezac ------------------------------- Title: Loan Officer ------------------------------- NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL --------- Borrower 4266J 103 NBD BANK By: /s/ Thomas A. Levasseur --------------------------- Title: Vice President --------------------------- NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ---------- Borrower 4266J 104 NORWEST BANK NEBRASKA, N.A. By: /s/ Leslie A. Volk --------------------------- Title: Vice President -------------------------- NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ---------- Borrower 4266J 105 THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By: /s/ Joseph L. Scooter, Jr. --------------------------- Title: Vice President --------------------------- NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ----------- Borrower 4266J 106 AGAMERICA, FCB By: /s/ Kevin D. Munro --------------------------- Title: Vice President --------------------------- NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ----------- Borrower 4266J 107 EXHIBIT A TO 1995 RESTATED LOAN AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AGAMERICA, FCB AND DATA TRANSMISSION NETWORK CORPORATION DRAWING CERTIFICATE 108 DRAWING CERTIFICATE DATA TRANSMISSION NETWORK CORPORATION To induce the First National Bank of Omaha, FirsTier Bank, National Association, Lincoln, Nebraska, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A. and AgAmerica, FCB (the "Revolving Lenders") to make an advance under the 1995 Restated Loan Agreement dated as of June 30, 1995, between the undersigned (the "Borrower"), The Boatmen's National Bank of St. Louis ("Boatmen's") (as to Boatmen's and the Revolving Lenders together the "Banks") and the Revolving Lenders, the Borrower hereby certifies to the Banks that its Operating Cash Flow (as defined in the Loan Agreement) as represented below is true and correct and that there is no default under the aforementioned Loan Agreement, or on any other liability of the Borrower to the Banks. All information as of: Date --------------------------- a) Principal on Term Notes Outstanding $ --------------------------------- b) Principal on Revolving Credit $ --------------------------------- c) ADVANCE REQUEST $ --------------------------------- d) Total Proposed Bank Debt (line a + line b + line c) $ --------------------------------- e) Most recent month's operating cash flow $ --------------------------------- f) Prior month's operating cash flow $ --------------------------------- g) Operating Cash Flow (average of line e and line f) $ --------------------------------- h) 36 x Operating Cash Flow $ --------------------------------- i) Excess (line h - line d) $ --------------------------------- Name of Borrower: Data Transmission Network Corporation Signature: --------------------------------------- Title: --------------------------------------- 4266J 109 EXHIBIT B TO 1995 RESTATED LOAN AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AGAMERICA, FCB AND DATA TRANSMISSION NETWORK CORPORATION OFFICER'S CERTIFICATE 110 COMPLIANCE CERTIFICATE DATA TRANSMISSION NETWORK CORPORATION First National Bank of Omaha Date: Attn: James Bonham -------------------------- 16th & Dodge Streets Omaha, Nebraska 68102 I certify that Data Transmission Network Corporation is in compliance with the requirements set forth in the 1995 Restated Loan Agreement dated as of June 30, 1995, between First National Bank of Omaha, FirsTier Bank, National Association, Lincoln, Nebraska, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., The Boatmen's National Bank of St. Louis, AgAmerica, FCB and Data Transmission Network Corporation. The following calculations are as of (statement date) as required by section 4.1(d) of said Loan Agreement: Evaluations: Total Indebtedness/Net Worth = / = % ------- ------- ----- (for the purposes of this document this calculation will be abbreviated by TI/NW) Operating Cash Flow: most recent month previous month ending ending ---------- ----------- Net Income (loss) ----------------- ------------------ Interest Expense ----------------- ------------------ Depreciation ----------------- ------------------ Deferred Income Taxes ----------------- ------------------ Non-Ordinary Non-Cash Charges (Credits) ----------------- ------------------ Total a) b) ----------------- ------------------ Operating Cash Flow = OCF = (a+b)/2 = ------------------ Section 2.1 Advance Fee: If TI/NW equals or exceeds 250% then a 1/2% advance fee on new advances is due. Position: The advance fee does/does not apply. 111 Section 2.2 Pricing: If TI/NW is less than 200% then the margin is zero. If TI/NW is equal or greater than 200% but less than 250% then the margin is 1/4%. If TI/NW is equal or greater than 250% but less than 300% then the margin is 3/4%. If TI/NW is equal or greater than 300% then the margin is 1 1/4%. Position: The Revolving Credit Rate is the Base Rate plus zero or 1/4% or 3/4% or 1 1/4%. Section 2.4 Trigger Fee: If TI/NW exceeds 250%, then a one time fee, paid in three installments of 3/8% of the then outstanding principal balances, on any of the Existing Term Notes which have an interest rate less than 7.5% is due. Position: A Trigger Event has/has not occurred. Section 4.3 Net Worth: A minimum Net Worth (exclusive of subordinated debt) of $11,000,000 is required. Position: Net Worth (exclusive of subordinated debt)= $ . ----------------------- Section 4.4 Indebtedness: At no time will Total Indebtedness exceed 48 x OCF. Position: (48 x OCF) - Total Indebtedness = - = -------------- --------------- ---------------- Indebtedness: At no time will TI/NW exceed 350%. Position: TI/NW = % --------- 112 Total At no time will Adjusted Total Indebtedness Indebtedness exceed 60 x OCF plus subordinated debt plus guaranty contingencies (Adjusted Total Indebtedness or ATI): Position: Adjusted Total Indebtedness = $ --------------------- (60 x OCF) - (ATI) = $ ----------------------------- Section 4.15 Interest The ratio of OCF to Interest Expense ("IE") Coverage: at the end of each quarter will not be less than 2.25 to 1.0 (200%). Position: OCF = $ ------------------------ IE = $ ------------------------ OCF/IE = % ------------------------ Additional Representations: There have/have not been any sale(s) of assets which would require prepayment of the Notes under Section 4.2. There has/has not been: (i) a Change of Control as defined in Section 4 of the Agreement; or (ii) a default under Section 6.1(j) regarding a change in ownership or control of the Company. Name of Borrower: Data Transmission Network Corporation Signature: ------------------------------------- Title: ------------------------------------- 4266J/39-41 113 SCHEDULE A TO 1995 RESTATED LOAN AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AGAMERICA, FCB AND DATA TRANSMISSION NETWORK CORPORATION EXISTING TERM NOTES
Balance as of Maturity Bank Date June 30, 1995 Rate Date ---- ---- ---------------- ---- ------ FNB-O 01/15/92 $ 41,562.50 7.25% 12/30/95 02/04/92 190,000.00 7.25 01/30/96 03/03/92 106,875.00 7.25 02/29/96 05/06/92 65,312.50 7.25 04/30/96 07/07/92 154,375.00 6.75 06/30/96 10/01/92 190,000.00 6.75 09/30/96 10/12/92 95,000.00 6.75 09/30/96 10/13/92 356,250.00 7.50 10/12/97 10/19/92 95,000.00 6.75 09/30/96 11/03/92 100,937.50 6.75 10/30/96 12/07/92 356,250.00 8.14 12/06/97 01/04/93 102,916.57 6.75 12/30/96 02/09/93 108,333.24 6.75 01/30/97 04/16/93 227,500.09 6.75 03/30/97 07/08/93 281,666.74 6.75 06/30/97 08/30/94 4,431,750.00 8.00 07/30/98 11/29/94 1,328,229.12 8.50 10/30/98 02/27/95 641,437.48 9.25 01/30/99 NBD 01/04/93 $ 41,562.50 6.75 12/30/96 02/09/93 43,750.00 6.75 01/30/97 04/16/93 96,250.00 6.75 03/30/97 07/08/93 109,375.00 6.75 06/30/97 08/30/94 2,650,500.00 8.00 07/30/98 11/29/94 794,375.00 8.50 10/30/98 02/27/95 383,625.00 9.25 01/30/99 Norwest 08/30/94 $2,508,000.00 8.00 07/30/98 11/29/94 751,666.62 8.50 10/30/98 02/27/95 363,000.00 9.25 01/30/99
114
Balance as of Maturity Bank Date June 30, 1995 Rate Date ---- ---- ---------------- ---- ------ Boatmen's 08/30/94 $1,866,750.00 8.00 07/30/98 11/29/94 559,479.12 8.50 10/30/98 02/27/95 270,187.48 9.25 01/30/99 FirsTier Lincoln 01/15/92 $ 29,166.53 7.25 12/30/95 02/04/92 133,333.20 7.25 01/30/96 03/03/92 74,999.85 7.25 02/29/96 05/06/92 45,833.21 7.25 04/30/96 07/07/92 108,333.17 6.75 06/30/96 10/01/92 133,333.21 6.75 09/30/96 10/12/92 66,666.56 6.75 09/30/96 10/13/92 250,000.00 7.50 10/12/97 10/19/92 66,666.56 6.75 09/30/96 11/03/92 70,833.23 6.75 10/30/96 12/07/92 250,000.00 8.14 12/06/97 01/04/93 49,479.07 6.75 12/30/96 02/09/93 52,083.24 6.75 01/30/97 04/16/93 114,583.42 6.75 03/30/97 07/08/93 130,208.41 6.75 06/30/97 08/30/94 2,650,500.00 8.00 07/30/98 11/29/94 794,375.00 8.50 10/30/98 02/27/95 383,625.00 9.25 01/30/99 FNB-W 01/15/92 $ 2,187.50 7.25 12/30/95 02/04/92 10,000.00 7.25 01/30/96 03/03/92 5,625.00 7.25 02/29/96 05/06/92 3,437.50 7.25 04/30/96 07/07/92 8,125.00 6.75 06/30/96 10/01/92 10,000.00 6.75 09/30/96 10/12/92 5,000.00 6.75 09/30/96 10/13/92 18,750.00 7.50 10/12/97 10/19/92 5,000.00 6.75 09/30/96 11/03/92 5,312.50 6.75 10/30/96 12/07/92 18,750.00 8.14 12/06/97 01/04/93 3,958.43 6.75 12/30/96 02/09/93 4,166.76 6.75 01/30/97 04/16/93 9,166.58 6.75 03/30/97 07/08/93 10,416.59 6.75 06/30/97 08/30/94 142,500.00 8.00 07/30/98 11/29/94 42,708.31 8.50 10/30/98 02/27/95 20,625.00 9.25 01/30/99
Notwithstanding any definition of "Existing Term Notes" to the contrary in the 1995 Restated Loan Agreement, the Notes issued thereunder or the First Amendment to Restated Security Agreement, no "Existing Term Notes" were issued on December 31, 1992. 4266J/42-43 115 SCHEDULE B TO 1995 RESTATED LOAN AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRSTIER BANK, NATIONAL ASSOCIATION, LINCOLN, NEBRASKA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AGAMERICA, FCB AND DATA TRANSMISSION NETWORK CORPORATION PERMITTED ENCUMBRANCES
Secured Party Financing Statements NEBRASKA SECRETARY OF STATE First National Bank of Omaha 12/28/87 #401690 10/13/92 #564918 Amendment 11/13/92 #568176 Continued FirsTier, Lincoln 6/24/87 #384782 First National Bank of Omaha 2/03/88 #405477 Amendment First National Bank, Wahoo 5/28/92 #553205 Continued NBD, Detroit 10/13/92 #564919 Amendment 2/05/93 #576038 Amendment 11/10/93 #603168 Amendment FirsTier, Lincoln 2/10/88 #406144 First National Bank of Omaha 10/13/92 #564917 Amendment First National Bank, Wahoo 1/07/93 #572981 Continued NBD, Detroit 2/05/93 #576039 Amendment 11/10/93 #603169 Amendment First Bank of Minneapolis 11/25/91 #534665 (Norstan) 8/24/92 #561090 Assignment DOUGLAS COUNTY CLERK, NEBRASKA FirsTier, Lincoln 2/11/88 #000534 First National Bank of Omaha 10/15/92 #000534 Amendment First National Bank, Wahoo 1/08/93 #0000054 Continued NBD, Detroit 2/05/93 #000253 Amendment 11/17/93 #54 Amendment
116
Secured Party Financing Statements IOWA SECRETARY OF STATE FirsTier, Lincoln 2/10/88 H842023 First National Bank of Omaha 10/15/92 K395184 Amendment First National Bank, Wahoo 1/08/93 K424887 Continued NBD, Detroit 2/08/93 K434908 Amendment 11/15/93 K503145 Amendment KANSAS SECRETARY OF STATE FirsTier, Lincoln 2/10/88 #1286572 First National Bank of Omaha 10/15/92 #1842986 Amendment First National Bank, Wahoo 1/08/93 #1868482 Continued NBD, Detroit 2/11/93 #1879069 Amendment 11/12/93 #1964342 Amendment ILLINOIS SECRETARY OF STATE FirsTier, Lincoln 3/18/88 #2402370 First National Bank of Omaha 10/21/92 #3043202 Amendment First National Bank, Wahoo 2/11/93 #3084199 Amendment NBD, Detroit 2/25/93 #3089132 Continued 12/09/93 #3197498 Amendment MICHIGAN SECRETARY OF STATE FirsTier, Lincoln 2/12/88 #C034473 First National Bank of Omaha 10/16/92 #C646856 Amendment First National Bank, Wahoo 1/08/93 #C672590 Continued NBD, Detroit 3/01/93 #C689434 Amendment 11/15/93 #C778208 Amendment WISCONSIN SECRETARY OF STATE FirsTier, Lincoln 2/18/88 #968701 First National Bank of Omaha 10/21/92 #1309942 Amendment First National Bank, Wahoo 01/15/93 #1326550 Continued NBD, Detroit 2/08/93 #1331412 Amendment 11/23/93 #1393268 Amendment INDIANA SECRETARY OF STATE FirsTier, Lincoln 2/11/88 #1454192 First National Bank of Omaha 10/21/92 #1808780 Amendment First National Bank, Wahoo 1/11/93 #1822115 Continued NBD, Detroit 2/08/93 #187451 Amendment 11/12/93 #1878806 Amendment
117
Secured Party Financing Statements MINNESOTA SECRETARY OF STATE FirsTier, Lincoln 2/17/88 1#121648#00 First National Bank of Omaha 10/16/92 #1537269 Amendment First National Bank, Wahoo 01/19/93 #1557397 Continued NBD, Detroit 2/08/93 #1562125 Amendment 11/23/93 #1632156 Amendment SOUTH DAKOTA SECRETARY OF STATE FirsTier, Lincoln 2/10/88 880410802864 First National Bank of Omaha 10/16/92 #22901003596 Amend. First National Bank, Wahoo 1/08/93 #30081001734 Cont. NBD, Detroit 2/09/93 #30391203308 Amend. 11/22/93 #33261003899 Amend. MISSOURI SECRETARY OF STATE FirsTier, Lincoln 2/11/88 #1555991 First National Bank of Omaha 10/16/92 #2184193 Amendment First National Bank, Wahoo 1/08/93 #2212473 Continued NBD, Detroit 2/08/93 #2224113 Amendment 11/15/93 #2331876 Amendment OHIO SECRETARY OF STATE FirsTier, Lincoln 2/12/88 #Y00095612 First National Bank of Omaha 10/19/92 #01097336 Amendment First National Bank, Wahoo 1/11/93 #01119343901 Cont. NBD, Detroit 2/09/93 #02099338901 Amend. 11/12/93 #1129331801 Amendment KENTUCKY SECRETARY OF STATE First National Bank of Omaha 11/12/93 134318 PENNSYLVANIA DEPARTMENT OF STATE First National Bank of Omaha 11/12/93 22571277 OKLAHOMA SECRETARY OF STATE First National Bank of Omaha 11/12/93 059782
118 MISSISSIPPI SECRETARY OF STATE First National Bank of Omaha 11/12/93 0756092-- COLORADO SECRETARY OF STATE First National Bank of Omaha 11/12/93 932082461 CALIFORNIA SECRETARY OF STATE First National Bank of Omaha 11/12/93 93229491 WASHINGTON SECRETARY OF STATE First National Bank of Omaha 11/15/93 933190075 MONTANA SECRETARY OF STATE First National Bank of Omaha 11/15/93 419540 ARIZONA SECRETARY OF STATE First National Bank of Omaha 11/15/93 765359 NORTH CAROLINA SECRETARY OF STATE First National Bank of Omaha 11/15/93 050742 NORTH DAKOTA SECRETARY OF STATE First National Bank of Omaha 11/16/93 93-380331 FLORIDA SECRETARY OF STATE First National Bank of Omaha 11/17/93 930000236992 TEXAS SECRETARY OF STATE First National Bank of Omaha 11/29/93 227591-- 4266J/44-47
119 EX-10 7 KNIGHT RIDDER FINANCIAL INFORMATION LICENSE AND ASSET PURCHASE AGREEMENT This Information License and Asset Purchase Agreement ("Agreement") is executed and entered into as of July 13, 1995, by and between Data Transmission Network Corporation, a Delaware corporation ("DTN") and Knight-Ridder Financial, Inc., a Delaware corporation ("KRF"). RECITALS: DTN owns and operates an information transmission system that provides its subscribers with access via electronic transmission to various types of information services. DTN has approximately 2,400 customers who subscribe to its DTNstant(R) information service which provides instant futures and options quotations from the major commodity exchanges, commercial grain news, export basis information, weather information and general agricultural market information. DTN also offers other information services serving the agriculture industry as well as other industries. KRF owns and operates a satellite information transmission system and a phone-line based transmission system that provides its subscribers with access via electronic transmission to various types of information services. KRF has approximately 2,900 customers who subscribe to its CommodityCenter platform. KRF and DTN desire to enter into an agreement providing for (i) the purchase by DTN of certain assets of KRF relating to KRF Subscribers, (ii) the continuation of the provision of information services to the KRF Subscribers during transition, (iii) the conversion of the KRF Subscribers to information services provided over the DTN System, (iv) the delivery and non exclusive license of certain information by KRF to DTN for dissemination by DTN over the DTN System and (v) other related matters. NOW, THEREFORE, in consideration of the premises and mutual agreements and covenants contained herein, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein shall have the meanings ascribed to them elsewhere in this Agreement and as follows: "Affiliate" means a Person who directly or indirectly, through one or more intermediaries or otherwise, controls, is controlled by, or is under common control with another Person. Control means owning 20% or more of the voting interest. "Base Services" means collectively the DTNstant Service and KRF Services. "Base Service Fees" means the Fees Earned during the Service Period for Base Services; provided, however, such fees shall not include any Fees 120 Earned by DTN from subscribers to Base Services (i) for one-time installation fees to the extent such fees do not exceed a reasonable third party equivalent cost, (ii) for sales, use, privilege, excise, property or other taxes assessments or governmental charges or (iii) for the first $7,500 per month of Optional Service fees. For the avoidance of doubt any Optional Service fees in relation to Base Services in excess of $7,500 per month in relation to Base Services plus Limited Services will be included as part of Base Service Fees. "Closing" means the time at which the parties hereto consummate the sale of the Purchased Assets (as defined in Section 2) which Closing shall take place on the date KRF and DTN deliver to the other party the assets listed in Sections 4, 5(a) and 5(b) but shall be no later than July 31, 1995 or such later date as the parties hereto shall agree. "CommodityCenter" means the standalone, custom designed, low cost, computer system capable of receiving KRF Information. "CommodityCenter Digital Data Feed" means that part of the KRF System and KRF Land-Line System needed to service the CommodityCenter platform. "Conversion Period" means the period commencing on the Effective Date and ending on December 31, 1996. "Converted Subscribers" means those KRF Subscribers who have allowed DTN to replace some or all of the KRF Equipment with DTN's equipment and provide any DTN Service over the DTN System at any time during a period of 24 months from the Effective Date, irrespective of whether they are still a DTN subscriber at the end of that period. "Customer Contracts" means the contracts or agreements associated with the KRF Subscribers listed in Exhibit "A". "DTN Subscription Agreements" mean those written contracts entered into by DTN with subscribers to any DTNstant Service or any DTN service containing KRF Information. "DTNstant Service" means collectively the DTNstant(R) information service and those information services of DTN which provide Real-Time commodity information from the agricultural, energy, lumber, metals, softs or transport industries. The DTNstant Service does not include existing or future DTN information services which do not provide Real-Time commodity information from the agricultural, energy, lumber, metals, softs or transport industries or any information supplied by KRF, such as, by way of illustration only, the DTN Wall Street(R) and DTNergy(R) information services. DTNergy shall only be excluded if the product contains no KRF Information and no Real-Time information other than New York Mercantile Exchange ("NYMEX"). "DTN System" means the information transmission system related to various types of DTN information services. "Effective Date" means 12:01 a.m. on the day immediately after Closing. 122 "FAP Information Package" means KRF's complete or substantially complete existing information package known as the Full Agricultural Package which includes news and statistical information on the following categories: Agriculture, Economics, General, Grains, Livestock and Soya and Textiles; provided, however, KRF reserves the right to modify the content of the FAP Information Package as commercially reasonable so long as the benefit to DTN under this Agreement is not materially impaired thereby. "Fees Earned" means earned revenue of DTN as determined in accordance with accounting policies and procedures regularly followed by DTN in the preparation of its financial statements but in accordance with this Agreement. "KRF Equipment" means all of the equipment in the possession of the KRF Subscribers used to obtain and operate the KRF Services except for the equipment owned by KRF Subscribers. "KRF Information" means collectively all information and data included in the FAP Information Package to be transmitted as part of the KRF Services and any other information packages currently provided to KRF Subscribers as detailed in Exhibit G or any other information supplied by KRF at a later time but excluding all weather information and information unrelated to the agriculture, energy, lumber, metals, softs or transport industries. 121 "KRF Land-Line System" means the Land-Line (dedicated telephone line) transmission system related to the CommodityCenter platform. "KRF Optional Services" means those information services where all or a portion of the KRF Information is offered as an optional package and DTN has an obligation to charge a separate fee for such services and share such fees with KRF. "KRF Services" means all CommodityCenter platform services related to KRF Subscribers pursuant to Customer Contracts, including but not limited to information services and electronic mail services. "KRF Services Business" means the business of providing KRF Services as conducted by KRF prior to the date of this Agreement. "KRF Subscribers" means customers who subscribe to the CommodityCenter platform as listed in Exhibit A. "KRF System" means the KRF satellite transmission system related to the CommodityCenter platform. 123 "Limited Services" means those information services offered by DTN which do not provide Real-Time commodity information from the agriculture, energy, lumber, metals, softs or transport industries or any information supplied by KRF but do provide any Real-Time commodity quotations from the agriculture, energy, lumber, metals, softs or transport industries. "Limited Service Fees" means the Fees Earned during the Service Period for Limited Services; provided, however, such fees shall not include any Fees Earned by DTN from subscribers to Limited Services (i) for one time installation fees provided such fees do not exceed a reasonable third party equivalent cost , (ii) for sales, use, privilege, excise, property or other taxes, assessments or governmental charges or (iii) for the first $7,500 per month of Optional Service fees. For the avoidance of doubt any Optional Service fees in relation to Limited Services in excess of $7,500 per month in relation to Limited Services plus Base Services will be included as part of Limited Service Fees. "Optional Services" means those information services provided by Third Parties and offered as an optional package and DTN has a contractual obligation to charge a separate fee for such services and share such fees with the Third Parties. "Purchased Equipment" means those items of KRF Equipment consisting of satellite dish, antennae and mounts, cables, color monitors, keyboards, accessories and printers (specifically excluding LNB and data receivers) which are in the possession of Converted Subscribers and are compatible with and may be used in the DTN System without alteration or modification other than normal field adjustments. "Purchased Equipment Value" means KRF's net book value of the Purchased Equipment as of January 1, 1995, determined from the schedule of KRF's net book value of all KRF Equipment attached as Exhibit "D" to this Agreement, subject to adjustment as provided in Subsection 4(b). "Person" means any individual, business trust, corporation, joint stock company, limited liability company, association, partnership or other un-incorporated organization, trust or governmental authority. "Quote Information" means U.S. commodity exchange quotations from the agriculture, energy, lumber, metals, softs or transport industries . "Real-Time" means any KRF supplied information and/or continuously updating Quote Information which does not constitute delayed Quote Information under the relevant exchange contract terms and conditions. "Service Period" means the period commencing on the Effective Date and ending on the last day of the calendar year designated by either party in a written notice to the other party at least 180 days prior to such designated date; provided such designated date shall not be earlier than December 31, 2000 and may be extended as provided in Subsection 23(c). 124 "Territory" means collectively the United States of America and Canada. "Third Party" means any Person unrelated to either KRF or DTN. 2. Agreement to Purchase. Upon the terms and subject to the conditions contained herein, KRF shall sell and transfer to DTN and DTN shall purchase and acquire from KRF, at the Closing, certain assets of KRF used in the KRF Services Business as of the Closing (which assets are hereinafter collectively called the "Purchased Assets"), described as follows: (a) The Purchased Equipment; (b) All rights of KRF under the Customer Contracts; (c) All rights of KRF under contracts or agreements listed on Exhibit "B" attached hereto, relating to the KRF Services Business which DTN reasonably require to perform its obligations under the Agreement; provided that KRF shall not transfer those rights, if any, under such contracts and agreements relating to KRF activities other than KRF Services Business; (d) All warranties held by KRF with respect to the Purchased Assets to the extent that such warranties are assignable or KRF will provide the warrantee service; and (e) All of KRF's customer lists, records, engineering data, equipment lists, parts lists, data and telephone numbers relating to the KRF Services Business. To the extent that any of the above-listed items are not easily separable from similar items of KRF that are not related to the KRF Services Business, KRF shall retain possession of the originals of such items and DTN shall be permitted to copy the portions of such items which DTN deems necessary. Within thirty (30) days after Closing KRF shall execute a license agreement in favor of DTN in the form of Exhibit "C" attached hereto, granting to DTN the right to review, copy, use, disclose and sub-license all such items relating to the KRF Services Business which remain in the possession of KRF after the Closing. KRF shall retain the specific right to use any list, data or other information transferred to DTN as part of the Purchased Assets. 3. Liabilities. (a) DTN shall assume, agree to pay, and discharge when due the following debts, obligations and liabilities of KRF: (i) All obligations of KRF under the Customer Contracts related to the KRF Service or Subscribers set forth in Exhibit "A" with respect to the period from and after the Effective Date; 125 (ii) All obligations of KRF associated with the contracts and agreements listed on Exhibit "B" with respect to the period from and after the Effective Date; (iii) All obligations associated with any payments required to be made to third parties in relation to the Customer Contracts which shall include, but shall not be limited to, fees payable to exchanges and third party providers of Optional Services and any taxes and governmental charges, with respect to the period from and after the Effective Date; (iv) All obligations of KRF, excluding any outstanding lease commitments, associated with the Purchased Equipment from and after the Effective Date; and. (b) DTN and KRF agree that DTN is not assuming and shall have no responsibility for any of the debts, obligations or liabilities of KRF relating to the KRF Services Business arising prior to the Effective Date all of which shall remain the responsibility of KRF. KRF shall retain the right to deal with its obligations as it deems appropriate. 4. Purchase Price. (a) The purchase price (the "Purchase Price") for the Purchased Assets identified in Section 2 and the restrictive covenants contained in Section 10 shall be the sum of Three Million Dollars ($3,000,000) plus the Purchased Equipment Value. DTN and KRF will mutually agree upon the allocation of the Purchase Price among the Purchased Assets and such restrictive covenants at the Closing. DTN and KRF shall each prepare IRS Form 8594 in accordance with such allocation and timely file such form with the Internal Revenue Service in accordance with applicable IRS procedures and U.S. Treasury regulations. (b) At Closing, KRF shall compute an estimate of the Purchased Equipment Value using KRF's equipment records and based upon the assumptions that all KRF Subscribers on the date of Closing will be Converted Subscribers and that those items of KRF Equipment in their possession which are eligible to be Purchased Equipment qualify as Purchased Equipment. The actual Purchased Equipment Value will be determined at the end of the Conversion Period by reference to the total number of Converted Subscribers. (c) At Closing, DTN shall pay to KRF by wire transfer of immediately available funds the sum of One Million Five Hundred Thousand Dollars ($1,500,000) plus one-half of the estimated Purchased Equipment Value. DTN shall pay to KRF by wire transfer of immediately available funds on the one year anniversary of the Closing the sum of One Million Five Hundred Thousand Dollars ($1,500,000). The remainder of the Purchase Price which shall equal the actual Purchased Equipment Value 126 minus one-half the estimated Purchase Equipment Value which shall have been paid previously, shall be paid by DTN to KRF by wire transfer of immediately available funds on the last day of the Conversion Period. 5. Closing. (a) At Closing, in addition to any other documents specifically required to be delivered pursuant to this Agreement, KRF shall, in form and substance reasonably satisfactory to DTN and its counsel and to the extent reasonably practicable: (i) Deliver to DTN on magnetic media, if available, the billing and account receivable database associated with the KRF Services Business; and (ii) Deliver or provide access to DTN on magnetic media, if available, at the date of Closing, all drafts, microfiche, microfilm, records, data, input forms, computer transaction sheets and all other similar information or materials relating to the servicing of Customer Contracts, provided that in lieu of delivering any of the foregoing items which are not easily separable from other assets of KRF, KRF may deliver to DTN a license agreement in favor of DTN in the form of Exhibit "C" granting to DTN the right to review, copy, use, disclose and sub-license such items. (b) At the Closing, in addition to any other documents specifically required to be delivered pursuant to this Agreement, DTN shall deliver to KRF such assumptions or undertakings as may be reasonably necessary to evidence DTN's agreement and obligation to pay, discharge and satisfy the liabilities and obligations of KRF to be assumed by DTN pursuant to Subsection 3(a) hereofin form and substance satisfactory to KRF and its counsel. (c) As soon as reasonably practical but no later than thirty (30) days after Closing or such later date mutually agreed between the parties on a case by case in addition to any other documents specifically required to be delivered pursuant to this Agreement, KRF shall, inform and substance satisfactory to DTN and its counsel: (i) Deliver to DTN such deeds, bills of sale, endorsements, assignments, other good and sufficient instruments of sale, assignment, conveyance and transfer as shall be required and where available to effectively vest in DTN all of KRF's right, title and interest in and to all of the Purchased Assets, free and clear of all liens, charges, claims, encumbrances and equities except as otherwise disclosed in this Agreement; 127 (ii) Deliver to DTN all KRF consents to the assignment to DTN of each contract, agreement, commitment, Customer Contract or other undertaking comprising a part of the Purchased Assets that requires such consent; (iii) Deliver to DTN executed originals of all of the Customer Contracts, all amendments thereto and all extensions and renewals thereof; (iv) Deliver or provide access to DTN all data, documents, information or materials, if any, theretofore delivered by customers to KRF which are required by Customer Contracts to be returned upon expiration or termination of such contracts; (v) Deliver or provide access to DTN on magnetic media, if available, at the date of Closing, all drafts, microfiche, microfilm, records, data, input forms, computer transaction sheets and all other similar information or materials relating to the Purchased Equipment and the maintenance thereof; and (vi) Deliver to DTN executed originals of all contracts and agreements set forth on Exhibit "B" together with all data, documents, information or materials in KRF's possession relating to such contracts and agreements. (d) As soon as reasonably practical but no later than thirty (30) days after Closing or such later date mutually agreed between the parties on a case by case in addition to any other documents specifically required to be delivered pursuant to this Agreement, DTN shall provide to KRF access to all DTN services to provide KRF with the ability to view the KRF Information provided in DTN services in a form and substance satisfactory to KRF and its counsel. 6. Other Documentation. (a) From time to time after the Closing, without further consideration, KRF shall execute and deliver all such other instruments of sale, assignments, conveyances and transfers and shall take all such other actions as are reasonable to more effectively transfer to and vest in DTN and to put DTN in possession of, any of the Purchased Assets. (b) From time to time after the Closing, without further consideration, DTN shall execute and deliver all such other instruments of assumption and shall take all such other actions as are reasonable to more effectively assume the obligations to pay, discharge and satisfy the liabilities and obligations assumed by DTN pursuant to Subsection 3(a) hereof. 128 (c) From time to time after the Closing, without further consideration, KRF shall deliver or provide access to DTN customer service files of KRF relating to the Customer Contracts, all notices, claims, correspondence, performance standard reports and other documents, data, information and materials relating to the Customer Contracts, which are in KRF's possession, provided that in lieu of delivering any of the foregoing items which are not easily separable from other assets of KRF, KRF may deliver to DTN a license agreement in favor of DTN in the form of Exhibit "C" granting to DTN the right to review, copy, use, disclose and sub-license such items; 7. Representations and Warranties of KRF. Subject to and except for the information which is set forth in a list of exceptions, identified by the section to which they pertain and contained in a schedule attached hereto as Exhibit "E" and signed for identification on behalf of DTN and KRF, KRF represents and warrants to DTN that: (a) KRF is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) KRF has all requisite corporate power and authority to own, lease and operate its assets and to carry on the KRF Services Business as now being conducted; (c) This Agreement constitutes a valid and legally binding agreement, enforceable against KRF in accordance with its terms and the execution and delivery of this Agreement by KRF and the consummation of the transactions contemplated hereby have been duly authorized by a duly appointed representative; (d) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate or breach or conflict with or constitute a default under, any of the terms or provisions of KRF 's Certificate of Incorporation or By-Laws or, to KRF 's knowledge, any contract or agreement to which KRF is a party or by which it is bound (and will not be an event which, after notice or lapse of time or both, will result in any such violation, breach, conflict, or default) or any law, judgment, decree, order, rule or regulation of any governmental authority or court, whether federal, state or local, at law or in equity, or any arbitration decision, applicable to DTN or to any of its properties or assets, (ii) knowingly result in the creation of any security interest, claim, lien, charge or encumbrance upon any of the property of KRF, (iii) knowingly terminate or result in the termination of any agreement to which KRF is a party or (iv) knowingly in any way affect or violate the terms or conditions of or result in the cancellation, modification, revocation or suspension of any of the licenses, approvals, permits or authorizations required by KRF for the conduct of the KRF Services Business; 129 (e) KRF has, to the best of KRF's knowledge, performed all of the obligations required to be performed by it under any lease, contract, commitment, distributor agreement or arrangement of any kind relating to the KRF Services Business; and neither KRF nor, to the knowledge of KRF, any other party, is in default under any lease, contract, commitment, distributor agreement or arrangement of any kind relating to the KRF Services Business. To the best of knowledge of KRF, no event has occurred which, after the giving of notice or the lapse of time or otherwise, would constitute a default under, or result in a breach of, any lease, contract, commitment, distributor agreement or arrangement to which KRF is a party or by which KRF is bound and which relates to the KRF Services Business; (f) KRF has good and marketable title to all of the Purchased Assets free and clear of any security interests, claims, liens, charges or encumbrances whatsoever; (g) KRF has maintained and will continue to maintain until the Closing insurance on its assets and business operations, including but not limited to public liability insurance, of the kinds and in the amounts customarily carried by responsible companies of the size of KRF engaged in a business similar to that of KRF; (h) With respect to the Customer Contracts, KRF represents and warrants to DTN that: (i) KRF is the contracting party that provides the services under each of the contracts, KRF has full right and power and is not restricted in assigning to DTN all of the rights of the service provider set forth in the contracts and such contracts are not subject to termination or re-negotiation as a result of their assignment to DTN; (ii) The contracts and amendments constitute all of the current agreements of KRF relating to the performance of services offered by the KRF Services Business; (iii) KRF has delivered to DTN correct and complete copies of all of the contracts and all amendments thereto and all extensions and renewals thereof; (iv) KRF has, to the best of KRF's knowledge, received no written notices of any warranty, indemnity or other claims by customers under the contracts which have not been settled to the satisfaction of the customer claimant, except of an insignificant nature; (v) No enhancements to services have been promised by KRF to its customers; 130 (vi) KRF has, to the best of KRF's knowledge, received no written notice of default from any customer under any of the contracts, except of an insignificant nature; and (vii) KRF has, to the best of KRF's knowledge, received no notice of the filing by any customer of a petition in bankruptcy, assignment for the benefit of creditors, a petition seeking reorganization, composition, liquidation, dissolution or similar arrangement or the appointment of a trustee, conservator, receiver or similar fiduciary for any customer or for substantially all of a customer's assets, except as disclosed on Exhibit "A", except of an insignificant nature. (i) No consent, approval, or authorization of, or filing with, any governmental authority on the part of KRF is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, except as provided in this Agreement; and (j) KRF, to the best of KRF's knowledge, is not a party to any contract, lease or agreement, which would prevent DTN's or KRF's performance under this Agreement except the Customer Contracts and those contracts and agreements listed on Exhibit "B" attached hereto. 8. Representations of DTN. DTN represents and warrants to KRF that: (a) DTN is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) DTN has all requisite corporate power and authority to enter into this Agreement, to consummate the transactions contemplated by this Agreement and to fulfill its obligations under this Agreement; (c) This Agreement has been duly executed and delivered by DTN and constitutes a valid and legally binding agreement enforceable against DTN in accordance with its terms; (d) The execution and delivery of this Agreement by DTN and the performance of its obligations hereunder are not in violation or breach of, and do not conflict with or constitute a default under, any of the terms or provisions of DTN's Certificate of Incorporation or By-Laws or, to DTN's knowledge, any contract or agreement to which DTN is a party or by which it is bound (and will not be an event which, after notice or lapse of time or both, will result in any such violation, breach, conflict, or default) or any law, judgment, decree, order, rule or regulation of any governmental authority or court, whether federal, state or local, at law or in equity, or any arbitration decision, applicable to DTN or to any of its properties or assets; and 131 (e) No consent, approval or authorization of, or filing with, any governmental authority on the part of DTN is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, except as provided in this Agreement. (f) Any customer information provided by KRF to DTN as part of this Agreement will be held in confidence by DTN where such information may be considered by the customer or by law as confidential information. 9. Absence of Brokers. Each of the parties hereto represents to the other that it has not retained or incurred any liability to any other Person, for a broker's, finder's or agent's fee for services rendered in connection with the transactions contemplated by this Agreement; and each of the parties hereto agrees to indemnify the other against and to hold the other harmless from any claim made by any Person, claiming to have been employed by such party as a broker, finder or agent in connection with the transactions contemplated by this Agreement. 10. Restrictive Covenants. (a) KRF agrees that during the Service Period KRF shall not directly or indirectly in the United States of America permit the distribution or transmission of the FAP Information Package via any electronic platform delivering Real-Time commodity quotations; provided, however, that nothing in this Agreement shall preclude KRF from: (i) Offering the FAP Information Package or any information service where the customer pays a total fee or charge in excess of a monthly equivalent of $800 (excluding exchange fees) per customer; (ii) Offering the FAP Information Package or any information service where the customer pays a total fee or charge in excess of a monthly equivalent of $250 (excluding exchange fees) per monitor receiving the service; (iii) Offering the FAP Information Package or any information service to customers of KRF who receive the information service using their own computer hardware or software, until such time as DTN's datafeed is compatible with such customer's computer hardware and software and the customers agree to convert to DTN's datafeed. The terms and conditions for DTN to serve certain KRF datafeed customers will be included in a separate addendum to this Agreement; (iv) Offering the FAP Information Package or any information service of a dial-up, non- real-time, print or other intermittent nature; or (v) Providing KRF Services in accordance with the provisions of this Agreement. 132 KRF shall be deemed to be engaged in a restricted activity if any of its officers, directors, employees or Affiliates shall engage in any restricted activity either directly or indirectly, whether for their own account or for that of any other Person and whether as a shareholder, partner or investor possessing any ownership interest in any such Person, or as principal, agent, proprietor, consultant or in any other capacity. (b) KRF agrees that during the Service Period neither KRF nor its Affiliates shall, directly or indirectly, solicit any of DTN's subscribers to the DTNstant Service existing as of the Effective Date or any of the KRF Subscribers for the purpose of obtaining their trade in the business of providing any of the KRF Services except where DTN is not able to provide the subscriber with the delivery platform or information it requires. (c) 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 if 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 Section 10 shall be unenforceable, then such clause or provision shall be deemed to be deleted from this Section 10, but every other clause and provision shall continue in full force and effect. These covenants are an integral part of the transactions contemplated by this Agreement and DTN would not have entered into this Agreement in the absence of such covenants. DTN and KRF agree that although a portion of the Purchase Price provided for in this Agreement is allocated to such restrictive covenants, such allocation does not in any way reflect the damages which would accrue to DTN in the event of any breach of such restrictive covenants. (d) KRF acknowledges that the agreements contained in this Section 10 are reasonable and necessary in order for DTN to receive the benefits which are intended to accrue to DTN from the transactions contemplated by this Agreement and that any breach thereof will result in irreparable injury to DTN for which DTN has no adequate remedy at law. KRF therefore agrees that, in the event KRF breaches any of the agreements contained in this Section 10, DTN 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 arising from such 133 breach. Such rights or remedies shall be cumulative and in addition to any other rights or remedies to which DTN may be entitled. 11. KRF's Employees. Unless DTN so desires, which determination shall be made within thirty (30) days after Closing, DTN shall have no obligation to hire any employees of KRF and KRF shall be responsible for any and all obligations to any and all of its employees, including but not limited to any salaries, bonuses, vacation pay, retirement benefits, sick pay, insurance premiums, severance pay and other fringe benefits. 12. Indemnification by KRF. (a) Except for those debts, obligations and liabilities expressly assumed by DTN pursuant to Subsection 3(a) hereof, DTN is not assuming and shall have no responsibility for any of the debts, obligations or liabilities of KRF, all of which shall remain the responsibility of KRF and KRF hereby agrees to indemnify and hold DTN harmless from any loss, liability, damage, cost or expense (including but not limited to reasonable attorneys' fees) ("Damages") arising by reason of KRF's nonpayment or nonperformance of any such debts, obligations or liabilities not expressly assumed by DTN. (b) KRF agrees that all claims received by DTN relating to the KRF Services Business which are received by DTN after the Closing, but which relate to the time period prior to the Closing, including any fees or penalties which must be paid, shall be the responsibility of KRF and that KRF, but not DTN, can make any adjustments KRF deems appropriate to adjust such claims. (c) KRF shall indemnify and hold DTN harmless from any Damages arising by reason of any claim of any customer of KRF based upon any action or omission to act by KRF prior to the Closing. (d) KRF agrees to indemnify DTN against any Damages incurred or sustained by DTN as a result of (i) any breach of this Agreement by KRF, (ii) any material inaccuracy in any of the representations or warranties made by KRF in this Agreement or (iii) any material inaccuracy or misrepresentation in any certificate or other document or instrument delivered by KRF in accordance with the provisions of this Agreement. (e) KRF agrees to indemnify DTN against any Damages arising by reason of non-compliance by KRF with the Bulk Sales provisions of the Uniform Commercial Code or any equivalent statute of any state or other jurisdiction, as they relate to the sale of the Purchased Assets. 13. Indemnification by DTN. (a) DTN hereby agrees to indemnify and hold KRF harmless from any Damages arising from the liabilities assumed by DTN pursuant to section 3(a). 134 (b) DTN agrees that all claims relating to the KRF Services Business which are received by DTN or KRF after the Closing, and which relate to the time period after the Closing, including any fees or penalties which must be paid, shall be the responsibility of DTN and that DTN, but not KRF, can make any adjustments DTN deems appropriate to adjust such claims. (c) DTN shall indemnify and hold KRF harmless from any damages arising by reason of any claim of any customer of DTN or any information provider or any other third party provider of equipment, software or services which relate to the time period after the Closing, except that such indemnity shall not relate to any loss, damage, cost, claim or expense arising solely from content or information created solely by KRF or arising solely from the negligence or willful misconduct of KRF or its appointed gents or representatives. (d) DTN agrees to indemnify KRF against any damages incurred or sustained by KRF as a result of (i) any breach of this Agreement by DTN, (ii) any material inaccuracy in any of the representations or warranties made by DTN in this Agreement or (iii) any material inaccuracy or misrepresentation in any certificate or other document or instrument delivered by DTN in accordance with the provisions of this Agreement. 14. Taxes; Prorating. (a) The parties agree that all sales and other similar taxes (not including state or federal income taxes) payable in connection with the transfer of the Purchased Assets shall be paid by DTN. (b) The parties agree that all property taxes, annual license fees and any other similar annual levies or assessments due, whenever assessed, as a result of the ownership or operation of any of the Purchased Assets shall be prorated between DTN and KRF, with KRF to have the liability for said taxes, fees and assessments before the Effective Date and DTN to have the liability for said taxes, fees and assessments from and after the Effective Date. Within thirty (30) days after Closing, KRF will provide to DTN an estimate of all such taxes, fees and assessments payable for the period beginning on the Effective Date and ending as of the end of the current fiscal period for each collecting authority and shall make available to DTN copies of all assessments, notices and related documents. (c) KRF agrees to pay to DTN within thirty (30) days after Closing (i) all prepaid fees of any kind received by KRF pursuant to the Customer Contracts which accrue on or after the Effective Date and (ii) all deposits of money held by or on behalf of KRF pursuant to the Customer Contracts. 15. NON-ASSIGNABLE RIGHTS. Despite anything contained herein to the contrary, this Agreement shall not constitute an agreement to assign 135 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 KRF 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 KRF's rights thereunder, so that DTN would not in fact receive all such rights, the parties agree to cooperate in any reasonable arrangement designed to assure that DTN shall have all the benefits, rights, obligations and duties under such contracts, orders, commitments, licenses and rights. 16. CONFIDENTIAL AGREEMENT OF THE PARTIES. The terms and conditions of this Agreement are and shall remain and be kept completely confidential by the parties hereto, their employees, agents and legal counsel. Except as required by law, regulations or auditing requirements, the terms of this Agreement shall not be disclosed to any third person by either party without the prior written consent of the other. There should be discussion or disclosure of the existence or details of this Agreement except as absolutely required in preparation for Closing, prior to Closing. In addition, no press release shall be issued by either party without the prior written consent of the other party , which consent shall not be unreasonably withheld. 17. CONDUCT AND TRANSACTIONS OF KRF PRIOR TO CLOSING. From the date of this Agreement until the Closing, except to the extent expressly permitted by this Agreement or otherwise consented to by an instrument in writing signed by DTN: (a) KRF will keep the KRF Services Business and organization intact and will not take or permit to be taken or do or suffer to be done anything other than in the ordinary course of its business as the same is presently being conducted and KRF will use its best efforts to keep available the services of its officers, employees and agents and to maintain the goodwill and reputation associated with the KRF Services Business; (b) KRF will not make any change in its articles of incorporation or By-Laws, which would preclude, hinder, interfere with or otherwise impair the ability of KRF to perform its obligations pursuant to this Agreement and consummate the transactions contemplated hereby; (c) KRF will exercise its best efforts to maintain the Purchased Assets, tangible or intangible, in good operating condition and repair and take all steps necessary to keep its operations functioning as they presently are; (d) KRF will not sell, lease or dispose of, or make any contract for the sale, lease or disposition of, any of the Purchased Assets other than in the ordinary and usual course of its business consistent with the representations and warranties of KRF contained herein and not in breach of any of the provisions of this Section 17; (e) KRF shall not encumber or permit to be encumbered any of the Purchased Assets; and 136 (f) KRF shall not do, or cause to be done, any act or suffer, or cause to be suffered, any omission which would cause to be breached, or might result in a breach of, any of the representations, warranties or covenants of KRF contained herein if the same were made anew immediately after any such act or omission. 18. Conditions Precedent to DTN's Obligations. Each of the agreements of DTN to be performed by it at the Closing pursuant to this Agreement shall be subject to the fulfillment of each of the following conditions, any one or more of which may be waived, in whole or in part, in writing, by DTN: (a) Each of the representations and warranties of KRF set forth in Section 7 hereof shall be true and correct both on the date hereof and on the date of the Closing as if made at that time, except insofar as changes contemplated by this Agreement have occurred after the date hereof; (b) KRF shall have performed and complied with all agreements, undertakings and obligations which are required to be performed or complied with by it at or prior to the Closing; and (c) At the Closing, KRF shall have delivered to DTN all of the items required to be delivered under Subsection 5(a) of this Agreement. 19. Conditions Precedent to KRF's Obligations. Each of the agreements of KRF to be performed by it at the Closing pursuant to this Agreement shall be subject to the fulfillment of each of the following conditions, any one or more of which may be waived, in whole or in part, in writing, by KRF: (a) The representations and warranties of DTN set forth in Section 8 of this Agreement shall be true and correct both on the date hereof and on the date of the as if made at that time, except insofar as changes contemplated by this Agreement have occurred after the date hereof; (b) DTN shall have performed and complied with all agreements, undertakings and obligations as are required to be performed or complied with by it at or prior to the Closing; and (c) At the Closing, DTN shall have delivered to KRF all of the items required to be delivered under Subsection 5(b) of this Agreement. 20. Risk of Loss. KRF shall bear all risk of loss prior to the Closing and DTN shall bear all risk of loss after the Closing with respect to the tangible personal property being sold by KRF to DTN pursuant to this Agreement. In the event of significant loss in the Purchased Equipment between Execution and prior to Closing, DTN and KRF may agree to an 137 equitable adjustment in the Purchase Price or if there is a loss of a material portion of the Purchased Equipment being purchased by DTN between Execution and prior to Closing, either DTN or KRF may elect to terminate this Agreement. 21. Conversion of KRF Subscribers. No conversion or other contact of KRF customers may be made prior to the beginning of the Conversion Period. (a) KRF Subscribers presently receive KRF Services via both the KRF System and the KRF Land-Line System. During the Conversion Period, KRF shall continue to transmit the applicable KRF Information to those KRF Subscribers receiving services on the KRF Land-Line System in compliance with their Customer Contracts and DTN will reimburse KRF for the cost of the land-lines and any other clearly identifiable and documented costs that KRF would otherwise not incur if the KRF Subscribers had been converted to the DTN System. (b) Prior to March 31, 1996, DTN will install at DTN's expense, in the KRF Equipment of each KRF Subscriber using the KRF System replacement parts and other equipment necessary to enable such subscribers to receive the applicable KRF Information using the KRF Equipment via a datafeed transmitted over the DTN System (the "Installation"). Prior to the Installation for each such subscriber, KRF shall continue to transmit over the KRF System the applicable KRF Information to such subscriber in compliance with its Customer Contract. DTN will reimburse KRF for any clearly identifiable and documented costs associated with this continued support that KRF would otherwise not incur if the KRF Subscriber had been converted to the DTN System. After the Installation but before the Conversion (as defined in Subsection 21(c)) for each such subscriber, such subscriber shall receive the applicable KRF Information using the KRF Equipment and DTN's satellite transmission of the KRF Information furnished to DTN pursuant to Section 22. Notwithstanding the foregoing provisions of this subsection (b), DTN may forego the Installation for any KRF Subscriber if the Conversion of such subscriber is completed prior to March 31, 1996. (c) During the Conversion Period, DTN will replace some or all of the KRF Equipment with equipment necessary to enable each KRF Subscriber to obtain the applicable KRF Information via the DTN System without use of any KRF Equipment other than Purchased Equipment (the "Conversion"). Upon completion of each Conversion, DTN will cause to be delivered to KRF, in proper packaging to be furnished by the Converted Subscriber or KRF, the KRF Equipment known by DTN to be in the possession of the Converted Subscriber other than Purchased Equipment. DTN will complete the Conversion of all KRF Subscribers by the end of the Conversion Period. (d) Prior to the Effective Date, KRF shall at its expense maintain and replace the KRF Equipment as required by the Customer Contracts. After the Effective Date, DTN shall at its expense 138 maintain and replace the Purchased Equipment as required by the Customer Contracts. In addition, during the Conversion Period, until returned to KRF as provided in Subsection 21(c), DTN shall at its expense maintain and replace the KRF Equipment that is not Purchased Equipment; provided, however, without further consideration, KRF shall from time to time at DTN's expense as requested by DTN during the Conversion Period furnish to DTN the tools, parts, supplies and replacements necessary to service and maintain such equipment in proper working order. In addition, KRF shall allow DTN reasonable access to qualified personnel of KRF for the purpose of assisting DTN's customer service representatives, field technicians and engineers in maintaining uninterrupted service to KRF Subscribers as provided in this Agreement. KRF also shall make available to DTN prior to the Effective Date, up to two hundred and fifty (250) or such other lower number based on KRF current inventory levels as KRF shall determine, Valley Receivers of the type included in the KRF Equipment to which DTN will at its expense install replacement parts necessary for such receivers to receive the KRF Information to be transmitted over the DTN System. These supplemental Valley Receivers will be used by DTN to facilitate the Installations referred to in Subsection 21(b). KRF authorizes DTN to install such replacement parts in the Valley Receivers and DTN further agrees to return such Valley Receivers in the same condition as delivered to DTN, fair wear and tear accepted. Any such KRF receivers not returned to KRF by 01 April 1996 will be charged to DTN at their net book value as of 01 January 1996. As of the Effective Date, without further consideration, KRF agrees to provide at a time mutually convenient to both parties at DTN's facility in Omaha, Nebraska, up to seventy (70) hours of in-house customer service and field technician training on how to handle inquiries from KRF Subscribers, troubleshoot and service and maintain the KRF Equipment. Any training requirements above and beyond the initial seventy (70) hours will be charged to DTN at full cost. (e) During the Conversion Period, without further consideration, KRF agrees to cooperate with DTN to convert all KRF Subscribers from the KRF System or KRF Land-Line System, as applicable, to the DTN System; provided, however, KRF shall not be required to incur significant out-of-pocket expenses, except as specifically provided in this Agreement. Prior to the Effective Date, DTN and KRF will prepare a letter to be sent from KRF to all KRF Subscribers explaining the conversion to the DTN System and informing the KRF Subscribers that your KRF Information will now be provided on the DTN System. Such letter is to be accompanied by promotional materials furnished by DTN and delivered at times designated by DTN. The content of such letter shall be mutually agreeable to DTN and KRF. DTN will be responsible for assembly of such mailing and will pay the postage charges. (f) As an accommodation to DTN, without further consideration, KRF will bill KRF Subscribers for all services which are to be billed for the first full month following the Effective Date pursuant to the Customer Contracts and receive on behalf of 139 DTN all payments relating to the accounts receivable of DTN generated from such billings. DTN will offset against the payments next becoming due to KRF pursuant to Section 23, the amounts of the payments received from time to time by KRF with respect to such accounts receivable of DTN. KRF shall not have any obligations with respect to such receivable, except to have the amounts received credited to DTN as mentioned above and KRF does not to any extent whatsoever guarantee the collection or collectibility of such receivable, which shall remain the exclusive property of DTN. DTN shall remit to KRF, upon receipt, any payments received by DTN from KRF Subscribers which represent payment for KRF Services rendered prior to the Effective Date; provided, however, DTN shall not have any obligations with respect to KRF's accounts receivable, except to remit the amounts received as mentioned in this sentence and DTN does not to any extent whatsoever guarantee the collection or collectibility of such receivable, which shall remain the exclusive property of KRF. DTN shall be responsible for billing and collecting all fees due from KRF Subscribers for all periods after the first month following the Effective Date. (g) KRF shall permit DTN to keep and maintain, at DTN's expense, for a period no longer than six months from the Closing and involving no more than three employees at any one time, employees (to be designated by DTN) at KRF's principal place of business for the purpose of familiarizing themselves with the KRF Services Business. 22. KRF Information; License. (a) KRF agrees to provide all of the KRF Information to DTN during the Service Period as provided in this Agreement. The KRF Information shall be furnished to DTN, to enable DTN to broadcast the KRF Information over the DTN System to the KRF Subscribers in compliance with their Customer Contracts and to DTNstant subscribers and DTN shall reimburse KRF for any clearly identifiable costs. Such costs to be mutually agreed between the parties. (b) KRF will provide the equipment described on Exhibit "F" which is necessary for KRF to provide to DTN by telecommunications lines and support equipment, the DTN Information so that DTN can directly input the KRF Information onto the DTN System. KRF will provide the KRF Information to DTN in the format described on Exhibit "F". (c) KRF hereby grants to DTN a license to sell and broadcast the KRF Information to the KRF Subscribers and all present and future subscribers to the DTNstant Service within the Territory during the Service Period upon the terms and conditions described in this Agreement KRF further grants to DTN a license to make available to subscribers of DTN services, other than the DTNstant service, the KRF Information as a KRF Optional Service at a fee to be mutually agreed between the parties. 140 (d) KRF assumes full responsibility for the content of the KRF Information delivered to DTN or KRF Subscribers pursuant to the terms of this Agreement. KRF represents and warrants to DTN that KRF has and will continue to have the full power, right and authority to obtain, transmit and distribute the KRF Information to DTN for distribution by DTN as contemplated by this Agreement. KRF further represents and warrants to DTN that DTN's broadcast of the KRF Information to its subscribers as contemplated by this Agreement will not infringe upon the rights of any third party respecting copyright, trade secret or any privacy interest in the Territory subject to receiving all consent that may be required. DTN acknowledges that information contained in the KRF Information is obtained from various sources which KRF believes to be reliable. Subject to the indemnification obligations of KRF set forth in this Agreement KRF does not guarantee and makes no warranties or representations with respect to the sequence, accuracy, completeness or timeliness of any information furnished hereunder; nor does it represent that the information disseminated may be relied upon for trading purposes. (e) DTN agrees that prior to the broadcast of any KRF Information to a DTN subscriber on the DTN System, DTN will obtain a DTN Subscription Agreement substantially in the form of Exhibit H subject to the normal customer renewal or new subscription activity. Any substantial changes to these terms and conditions, which shall include but shall not be limited to changes to any indemnity, warranty, limited liability and use provisions will require the prior written consent of KRF which shall not be unreasonably withheld. (f) DTN agrees where not otherwise obvious to DTN users of the KRF Information, to attribute the KRF Information as "Source KRF" or similar attribution and to clearly indicate on any marketing or advertising material that KRF is the source of the KRF Information. (g) DTN agrees to title and market any DTN service which includes a significant amount of KRF Information as a standard component as "DTNstant / Knight-Ridder Financial" unless otherwise agreed between the parties. (h) KRF shall retain all rights to, title to, ownership of, copyright to and any other interest in any information supplied to DTN. DTN acknowledges and agrees that all of the information provided by KRF as part of this agreement is the sole and exclusive property of KRF. DTN agrees to not modify, archive (for other than operational and maintenance purposes), create derivatives or use the information provided by KRF in any way other than contemplated by this agreement and shall be permitted to only utilize the information provided by KRF for the sole purpose of permitting subscribers in the territory to receive the information only for their internal use. 136 23. Revenue Sharing. (a) In consideration for the rights granted and the KRF Information provided by KRF pursuant to Section 22, DTN agrees to share with KRF the Base Service Fees, Limited Service Fees and Optional Service fees as provided in this section. DTN agrees to pay to KRF that percentage of the Base Service Fees set forth below opposite the period with respect to which such Base Service Fees were earned by DTN: Period Percentage ----------------------------------- ---------- From the Effective Date to Month 12 30% From Month 13 to Month 24 20% From Month 25 to December 31, 1997 15% From January 1, 1998 to December 31, 1998 14% From January 1, 1999 to December 31, 1999 13% From January 1, 2000 to December 31, 2000 13% From January 1, 2001 to December 31, 2001 [1] 12% From and after January 1, 2002 [1] 11% From and after January 01, 2003 [1] 10% Notwithstanding the foregoing percentages, if over the period of twenty-four (24) months from the Effective Date there are less than 1,000 Converted Subscribers plus KRF Subscribers, then, after written claim has been received from DTN and verification of that claim has been independently audited and substantiated, the percentage of Base Service Fees to be paid to KRF during the remainder of the Service Period shall be ten percent (10%). DTN agrees to pay to KRF a percentage share, to be mutually agreed between the Parties, of any KRF Optional Service revenue where the KRF Information is offered as a KRF Optional Service as described in Section 22(c). DTN agrees to pay to KRF five percent (5%) of Limited Service Fees to the extent that such Limited Service Fees exceed $35,000 per month or the amount of Limited Service Fees at the Effective Date of the agreement whichever is lower. DTN shall pay the applicable percentages of the KRF Optional Service fees, the Base Service Fees and Limited Service Fees to KRF within fifteen (15) days after the end of each calendar quarter based upon the Base Service Fees and Limited Service Fees for such calendar quarter. DTN shall have the right to offset against the payments due KRF pursuant to this subsection, any moneys due to DTN from KRF pursuant to this Agreement. Each payment by DTN to KRF pursuant to this subsection shall be accompanied by a statement detailing the customers subscribing to any Base Services, Limited Services or any Optional Services together with a written summary of how such amount was computed. (a) KRF shall have the right, at its expense, upon at least ten (10) days prior written notice to DTN and during normal business hours, to have access to DTN's books and records in 141 order to perform an audit to determine DTN's compliance with the revenue sharing provisions of this Section 23. DTN shall be obligated to pay any underpayment of fees revealed by such audits plus interest at the then prime rate. In addition if such underpayment represents more than 5% of the total fees due for the relevant period, DTN shall be obligated to reimburse KRF for the cost of the audit plus a penalty of 10% of the underpayment amount. (b) Except in the case of default under section 25, notwithstanding any other contrary provision contained in this Agreement, if KRF elects to terminate the Service Period prior to December 31, 2000, then DTN has the option, exercisable in its sole discretion, to unilaterally extend the Service Period for an additional two (2) years after the date at which the Service Period otherwise would end. Only sections 1 - 9, 12 - 16, 20, 22 - 30 of this Agreement shall still apply during such additional two year period, except that in lieu of the revenue sharing arrangements provided in this Section 23, DTN shall pay to KRF on the last day of each calendar quarter during such additional two year period an amount equal to the aggregate payment due to KRF pursuant to Subsection 23(a) for the last calendar quarter preceding such additional two year period. 24. PROVISION OF EXCHANGE QUOTE INFORMATION. For the convenience of DTN, KRF agrees to include in the datafeed provided as part of this Agreement, the normal quote information from the Winnipeg Futures and London Metals Exchanges. DTN agrees that it must first arrange to gain full and proper rights to distribute this information from those corresponding exchanges prior to distributing this information. DTN will hold KRF harmless for any exchange fees or other costs related to DTN's use of this exchange information. 25. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of DTN and KRF, respectively, as set forth in this Agreement, shall survive the Closing and the expiration or termination of this Agreement. 26. DEFAULT. This Agreement may be terminated by either party upon thirty (30) days prior written notice that the other party has breached the provisions of this Agreement and has not cured such breach within such notice period. Upon the occurrence of any event of default, the non-defaulting party may exercise any right or remedy which may be available to it under applicable law including, but not limited to, the right to pursue the specific performance of any agreement contained herein. In addition, the defaulting party shall be liable for, and reimburse the non- defaulting party for, all reasonable and necessary legal fees and other costs and expenses incurred by the non-defaulting party as a result of such defaults or the exercise of the non-defaulting party's remedies. No right, power or remedy conferred by this Agreement shall be exclusive of any other right, power or remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 27. NO ASSIGNMENT. Neither party may assign or subcontract its rights, duties or obligations under this Agreement to any Person, except with the prior written consent of the other party, which consent may be 142 withheld for any reason whatsoever, provided however, that nothing herein shall prevent any change in ownership of KRF or the assignment of such rights and obligations to any entity in the Knight-Ridder group of companies.. 28. EXPENSES OF TRANSACTION. Except as specifically provided in this Agreement, the parties hereto each shall bear all of the expenses respectively incurred by them in connection with this Agreement and the consummation of the transactions contemplated hereby. 29. ENTIRE AGREEMENT. This document, including the Exhibits hereto, contains the entire agreement between the parties hereto with respect to the subject matter of this Agreement; and there are no other agreements, representations, warranties, or covenants, written or oral, with respect to the transactions contemplated by this Agreement which are not expressly set forth in this document. 30. AMENDMENTS. This Agreement may be amended by letter or other document which by its terms specifically states that it is an amendment to this Agreement; provided, that such letter or other document shall be signed by all of the parties hereto. 31. NOTICES. Any notice which may be permitted or required to be given pursuant to this Agreement shall be delivered personally or shall be sent by a nationally recognized overnight courier or by United States registered or certified mail, postage prepaid, addressed as set forth below: If to KRF: Knight-Ridder Financial, Inc. 75 Wall St. 23rd Floor New York, NY 10006 Attn.: Managing Director / Americas With a copy to: Knight-Ridder Financial, Inc. 2020 West 89th St. Leawood, KS 66206 Attn.: Vice President / Finance If to DTN: Data Transmission Network Corporation 9110 West Dodge Road Suite 200 Omaha, Nebraska 68114 Attn.: President With a copy to: R. Craig Fry, Esq. Abrahams, Kaslow & Cassman 8712 West Dodge Road Suite 300 Omaha, Nebraska 68114 or to any other address as any party may by written notice to the other party in accordance with this Section designate. 143 1 BINDING EFFECT. The terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. 1 SECTION HEADINGS. The headings of the sections in this Agreement are for the purpose of reference only and shall not limit or otherwise affect the meaning of any of the provisions of this Agreement. 2 INCORPORATION OF EXHIBITS. Each of the Exhibits referred to herein and attached hereto are incorporated herein and shall be deemed to be a part of this Agreement. 3 ATTORNEYS' FEES. In the event of any action or proceeding brought in connection with this Agreement, the prevailing party therein shall be entitled to recover its costs and reasonable attorneys' fees. 4 PAYMENT LOCATION. All payments due under this Agreement from DTN to KRF will be made by wire transfer to: Knight-Ridder Financial, Chase Manhattan Bank, New York, NY , Account No: 5 APPLICABLE LAW. This Agreement shall be governed in all respects by the laws of the State of Nebraska. IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement to be duly executed on their respective behalves by their respective duly authorized officers, all as of the day and year first above written. FOR: KNIGHT-RIDDER FINANCIAL, INC., a Delaware corporation By: /s/ Patrice M. O'Grady ---------------------------------------------------------------- Name: Patrice O'Grady ---------------------------------------------------------------- Title: Managing Director ---------------------------------------------------------------- Date: 13 July 1995 ---------------------------------------------------------------- FOR: DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation By: /s/ Greg T. Sloma ---------------------------------------------------------------- Name: Greg T. Sloma ---------------------------------------------------------------- Title: Executive Vice President and Chief Operating Officer ---------------------------------------------------------------- Date: 7/13/95 ---------------------------------------------------------------- 144 EXHIBIT "A" Schedule of KRF Subscribers (To be delivered after Closing) EXHIBIT "B" Contracts and Agreements other than Customer Contracts (To be delivered after Closing) EXHIBIT "C" License Agreement (To be delivered after Closing) 145 EXHIBIT "D" Values Assigned to Purchased Equipment (estimate pr Section 4(b) delivered after Closing details to be delivered after Closing) EXHIBIT "E" Schedule of Exceptions (1) In some situations, by special agreement, certain subscribers have in their Service Agreement a requirement to obtain written consent from the Subscriber prior to assignment of their Service Agreement. DTN/KRF will work together to obtain the consent of the Subscriber to assignment. (2) Certain information relating to optional services and private customer E Mail may or may not be deliverable to DTN without specific agreement of the source. 146 EXHIBIT "F" Description of Input Equipment and Format / Specifications for KRF Information Datafeed 147 EXHIBIT "G" Description of KRF Information 148 EXHIBIT "H" DTN Subscription Agreement (To be delivered after Closing) 149 EXHIBIT "I" ALLOCATION OF PURCHASE PRICE Purchased Equipment* $1,000,000 Subscription Lists/Contracts** 4,970,000 ----------- Total Purchase Price $5,970,000 =========== * This number represents the estimated value of those items of KRF Equipment which are in the possession of Converted Subscribers and are compatible with and may be used in the DTN System without alteration or modification other than normal field adjustments. This estimation may be adjusted when full conversion is complete. ** This number includes an estimation of the revenue sharing agreement that exceeds 15% in years one and two. The 15% represents the amount that DTN would pay for news services that KRF provides to the subscribers. Above the 15% constitutes additional monies that will be paid by DTN to KRF for the subscription lists/contracts. This estimation may be adjusted at the end of year one and/or year two. 150 EX-10 8 ADJUSTMENT TO PHIL HUSTON AGREEMENT TO: PHIL HUSTON DECEMBER 30, 1994 FROM: ROBERT S. HERMAN REF: INDEPENDENT SALES REPRESENTATIVE AGREEMENT dated 28 MARCH 1990 FIRST AMENDMENT to the above document dated MARCH 1, 1991 specifically: AMENDMENT "A", II. B. RE: ADJUSTMENT OF THE SPECIFIED MINIMUM MONTHLY PETROLEUM FEE and the implementation of shared revenue from ALTERNET delivery of message traffic. 1) Effective March 1, 1995, the MINIMUM MONTHLY PETROLEUM FEE will be increased from the current figure of $44.00 per unit per month to $50.00 per unit per month. This amount will remain in place until the next adjustment date of March 1, 1997. 2) Effective April 1, 1995 DTN is projected to have recovered initial developmental, implementation, overhead, and operational costs for the telephone-based system known as ALTERNET. With the understanding that DTN retains full rights to recover further expansion, development, overhead, and operational costs as they may occur in the future, DTN will undertake the inclusion of Revenues, less the above-referenced expenses and less direct phone line or VAN expenses, into the general pool of funds subject to our revenue sharing agreement. Under this agreement, Mr. Huston will receive 40% of these revenues. The determination of all amounts and all appropriateness of allocations for recoverable expenses relating to Alternet operations is solely at the discretion of DTN, and my be changed at any time by DTN, and my be changed at any time by DTN according to the then-existing situation. Changes to the expense withholding amount from Alternet gross revenues are not tied to the two-year cycle as is item #1 above. By way of reference, DTN's budgeting projections would indicate that the ongoing expense level on a month-to-month basis will be in the range of $5,000 per month. This includes operations, implementation of upgrades, and overhead allocations. It does not include further hardware for additional expansion of the system beyond that which will be paid for by April 1, 1995. 3) All other terms, including various letters of understanding, remain unchanged other than as amended herein. ACKNOWLEDGED ON THIS DATE /s/ Robert S. Herman /s/ Phil Huston - ------------------------------- -------------------------------- Robert S. Herman Phil Huston Senior Vice President Independent Sales Representative Data Transmission Network Corp. DTNergy Date Date ------------------------- --------------------------- 151 EX-10 9 SENIOR SUB NOTE AND WARRANT PURCHASE AGREE EXECUTION COPY - -------------------------------------------------------------------------------- DATA TRANSMISSION NETWORK CORPORATION 11.25% Senior Subordinated Notes due 2004 Warrants to Purchase Common Stock NOTE AND WARRANT PURCHASE AGREEMENT Dated as of June 30, 1994 - -------------------------------------------------------------------------------- 152 TABLE OF CONTENTS 1. Authorization of Notes and Warrants........................................1 2. Sale and Purchase of Notes and Warrants....................................2 3. Closing; Fees..............................................................2 3.1. Closing..........................................................2 3.2. Legal Fees.......................................................3 4. Conditions to Closing......................................................3 4.1. Representations and Warranties...................................3 4.2. Performance; No Default..........................................3 4.3. Compliance Certificate...........................................3 4.4. Opinions of Counsel..............................................4 4.5. Bank Loan Agreement..............................................4 4.6. Purchase Permitted By Applicable Law, etc........................4 4.7. Proceedings and Documents........................................5 4.8. Fees.............................................................5 5. Representations and Warranties, etc........................................5 5.1. Organization, Standing, etc......................................5 5.2. Subsidiaries.....................................................5 5.3. Qualification....................................................5 5.4. Business; Financial Statements...................................5 5.5. Changes, etc.....................................................6 5.6. Tax Returns and Payments.........................................7 5.7. Debt.............................................................7 5.8. Title to Properties; Liens.......................................8 5.9. Litigation, etc..................................................8 5.10. Compliance with Other Instruments, etc...........................9 5.11. Governmental Consent.............................................9 5.12. Patents, Trademarks, Authorizations, etc.........................9 5.13. Offer of Notes..................................................10 5.14 Use of Proceeds.................................................10 5.15. Federal Reserve Regulations.....................................10 5.16. Environmental Matters...........................................11 5.17. Status Under Certain Federal Statutes...........................11 5.18. Foreign Assets Control Regulations, etc.........................11 5.19. Compliance with ERISA...........................................12 5.20. Disclosure......................................................14 6. Purchase Intent; Source of Funds..........................................14 6.1. Purchase Intent.................................................14 6.2. Source of Funds.................................................15 7. Furnishing of Information.................................................15 i 153 7.1. Accounting; Financial Statements and Other Information.....................................................15 7.2. Rule 144A.......................................................20 8. Inspection; Confidentiality...............................................20 8.1. Inspection......................................................20 8.2. Confidentiality.................................................21 9. Prepayment of Notes.......................................................21 9.1. Required Prepayments............................................21 9.2. Optional Prepayments with Premium...............................22 9.3. Contingent Prepayments Upon Change of Control ................................................................22 9.4. Contingent Prepayment Upon Sale of Certain Assets ................................................................23 9.5. Master Premium Table............................................24 9.6. Notice of Optional Prepayments; Officers' Certificate.....................................................24 9.7. Allocation of Partial Prepayments...............................25 9.8. Maturity; Surrender, etc........................................25 9.9. Acquisition of Notes............................................25 10. Business and Financial Covenants..........................................26 10.1. Debt............................................................26 10.2. Liens, etc......................................................27 10.3. Investments, Guaranties, etc....................................28 10.4. Restricted Payments and Restricted Investments ................................................................31 10.5. Minimum Net Worth...............................................32 10.6. Transactions with Affiliates....................................32 10.7. Consolidation, Merger, Sale of Assets, etc......................33 10.8. Corporate Existence, etc.; Business.............................36 10.9. Payment of Taxes and Claims.....................................36 10.10. Compliance with ERISA...........................................37 10.11. Maintenance of Properties; Insurance............................39 10.12. Senior Loan Agreements..........................................39 11. Events of Default; Acceleration..........................................39 12. Remedies on Default, etc.................................................43 13. Subordination of Subordinated Notes......................................44 13.1. General.........................................................44 13.2. Superior Debt...................................................44 13.3. Default in Respect of Superior Debt.............................45 13.4. Insolvency, etc.................................................46 13.5. Payments and Distributions Received.............................47 13.6 No Prejudice or Impairment......................................48 13.7. Payment of Superior Debt, Subrogation, etc......................48 ii 154 14. Definitions..............................................................49 15. Registration, Transfer and Substitution of Notes; Action by Noteholders....................................................61 15.1. Note Register; Ownership of Notes...............................61 15.2. Transfer and Exchange of Notes..................................61 15.3. Replacement of Notes............................................61 15.4. Notes held by Company, etc., Deemed Not Outstanding.....................................................62 16. Payments on Notes........................................................62 16.1. Place of Payment................................................62 16.2. Home Office Payment.............................................62 17. Expenses, etc............................................................63 18. Survival of Representations and Warranties...............................64 19. Amendments and Waivers...................................................64 20. Notices, etc.............................................................65 21. Miscellaneous............................................................66 SCHEDULE A Schedule of Purchasers EXHIBIT A Form of Senior Subordinated Note EXHIBIT B Form of Warrant EXHIBIT C-1 Form of Opinion of Counsel to Company EXHIBIT C-2 Form of Opinion of Counsel to Purchaser EXHIBIT D Debt and Liens of Company iii 155 Data Transmission Network Corporation 9110 West Dodge Road Suite 200 Omaha, Nebraska 68114 11.25% Senior Subordinated Notes due June 30, 2004 Warrants to Purchase Common Stock Dated as of June 30, 1994 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A Ladies and Gentlemen: Data Transmission Network Corporation, a Delaware corporation (the "Company"), agrees with you as follows: 1. AUTHORIZATION OF NOTES AND WARRANTS. The Company will authorize the issue and sale of (a) $15,000,000 aggregate principal amount of its 11.25% Senior Subordinated Notes due June 30, 2004 (the "Notes", such term to include any such notes issued in substitution therefor pursuant to section 15), to be substantially in the form of the Note set out in Exhibit A, with such changes therefrom, if any, as may be approved by you and the Company, and (b) warrants (the "Warrants", such term to include any warrants issued in substitution therefor pursuant to section 15) to purchase 25,000 shares of the Common Stock, par value $.001 per share (the "Common Stock"), of the Company at an initial exercise price per share equal to the average daily Market Price (as defined in the form of Warrant set out in Exhibit A) of the Common Stock during the period of the most recent five consecutive Business Days ending on the second day preceding the Closing Date, to be substantially in the form of the Warrant set out in Exhibit B, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in section 14; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES AND WARRANTS. In reliance upon the representations and warranties made by you in section 6, the Company will issue and sell to you and, in reliance upon the representations and warranties made by the Company in section 5, and subject to the terms and conditions of this Agreement, you will purchase from the Company, at the Closing provided for in section 3, (a) Notes 1 156 in the principal amount specified opposite your name in Schedule A and (b) Warrants for the number of shares of Common Stock specified opposite your name in Schedule A; at the purchase price of 100% of the principal amount of such Notes. 3. CLOSING; FEES. 3.1. CLOSING. The sales of the Notes and the Warrants to be purchased by you shall take place at the offices of Bruce A. Rich, Esq., at 10:00 a.m., New York City time, at a closing (the "Closing") on June 30, 1994 or on such other Business Day thereafter on or prior to July 28, 157 1994 as may be agreed upon by the Company and you. At the Closing the Company will deliver to you (a) the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as shall be set forth in Schedule A or as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), and (b) the Warrants to be purchased by you in the form of a single warrant certificate (or such greater number of warrant certificates as shall be set forth in Schedule A or as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee); against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor. If at the Closing the Company shall fail to tender such Notes or such Warrants to you as provided above in this section 3, or any of the conditions specified in section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights you may have by reason of such failure or such nonfulfillment. 3.2. LEGAL FEES. On the date of the Closing, the Company will pay the reasonable fees and disbursements of your special counsel incurred in connection with the transactions contemplated by this Agreement and set forth in a statement delivered to the Company on or prior to the date of the Closing, and thereafter the Company will pay, promptly upon receipt of a supplemental statement therefor, additional reasonable fees and disbursements of your special counsel, if any, incurred in connection with such transactions. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes and Warrants to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 2 158 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in this Agreement and those otherwise made in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement shall be correct when made and at the time of the Closing, except as affected by the consummation of such transactions. 4.2. PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and at the time of the Closing no Event of Default or Potential Event of Default shall have occurred and be continuing. 4.3. COMPLIANCE CERTIFICATE. The Company shall have delivered to you an Officers' Certificate, dated the date of the Closing, certifying that the conditions specified in sections 4.1 and 4.2 have been fulfilled and demonstrating that, after giving effect to the issuance of all of the Notes and Warrants, the Company will be in compliance in all material respects with the most stringent limitations on the incurrence or maintenance of Debt contained in any instrument or agreement applicable to or binding on the Company or certifying that a complete and correct copy of a waiver or waivers of compliance with such limitations is attached to such Officers' Certificate. 4.4. OPINIONS OF COUNSEL. You shall have received (a) from Abrahams, Kaslow & Cassman, counsel for the Company, and (b) from Bruce A. Rich, Esq., your special counsel in connection with the transactions contemplated by this Agreement, favorable opinions substantially in the forms set forth in Exhibits C-1 and C-2, respectively, and covering such other matters incident to such transactions as you may reasonably request, each addressed to you, dated the date of the Closing and otherwise satisfactory in substance and form to you. 4.5. BANK LOAN AGREEMENT. The Bank Loan Agreement shall have been amended, and as amended shall have been executed and delivered by the Company and the Banks, and shall be satisfactory in form and substance to you. You shall have received a copy of the Bank Loan Agreement as so amended, certified as a true and complete copy thereof by an officer of the Company. 3 159 4.6. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes and Warrants (a) shall be permitted by the laws and regulations of each jurisdiction to which you are subject and (b) shall not subject you to any tax, penalty or, in your reasonable judgment, other onerous condition by reason of any change after the date of this Agreement in any applicable law or governmental regulation. If requested by you, you shall have received, at least five Business Days prior to the Closing, an Officers' Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.7. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 4.8. FEES. The fees required to be paid by section 3.2 shall have been paid as therein provided. 5. REPRESENTATIONS AND WARRANTIES, ETC. The Company represents and warrants that: 5.1. ORGANIZATION, STANDING, ETC. 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 and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement, to issue and sell the Notes and the Warrants and to carry out the terms of this Agreement, the Notes and the Warrants. 5.2. SUBSIDIARIES. As of the date of this Agreement, the Company has no Subsidiaries. 5.3. QUALIFICATION. The Company is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction (other than the jurisdiction of its incorporation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary and in which the failure so to qualify would have a materially adverse effect on the Company. 4 160 5.4. BUSINESS; FINANCIAL STATEMENTS. The Company has delivered to you complete and correct copies of (a) its annual reports to stockholders for the fiscal years ended December 31, 1991 through 1993 (the "Annual Reports"), (b) its annual reports on Form 10-K for such fiscal years as filed with the Securities and Exchange Commission (the "Forms 10-K") and (c) a memorandum dated May, 1994 prepared by Furman Selz Incorporated for use in connection with the Company's private placement of the Notes and Warrants (the "Memorandum"). The Annual Reports, the Forms 10-K and the Memorandum correctly describe, in all material respects, as of their respective dates, the business then conducted and proposed to be conducted by the Company, PROVIDED, however, with respect to projections contained in the Memorandum, that such projections are based upon the good faith estimates and assumptions of management of the Company and are subject to the uncertainty and approximation inherent in any projections. There are included in the Forms 10-K financial statements of the Company for each of the fiscal years ended December 31, 1991 through 1993, accompanied in each case by the opinion thereon of Deloitte and Touche (or one of its predecessor firms), independent public accountants. The Company has also delivered to you complete and correct copies of its quarterly reports to stockholders sent or made available to stockholders, and its quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, in each case for fiscal periods subsequent to December 31, 1993, and current reports on Form 8-K, proxy statements, registration statements and prospectuses, if any, filed by the Company with the Securities and Exchange Commission since such date. All financial statements included in the foregoing materials delivered to you (except as otherwise specified therein) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods specified and present fairly the financial position of the Company as of the respective dates specified and the results of its operations and its cash flows for the respective periods specified. 5.5. Changes, etc. Since December 31, 1993, (a) there has been no change in the assets, liabilities or financial condition of the Company, other than changes in the ordinary course of business which have not been, either in any case or in the aggregate, materially adverse to the Company, (b) neither the business, operations or affairs nor any of the properties or assets of the Company have been affected by any occurrence or development (whether or not insured against) which has been, either in any case or in 5 161 the aggregate, materially adverse to the Company and (c) the Company has not as of the date of this Agreement directly or indirectly declared, ordered, paid, made or set apart any sum or property for any Restricted Payment or agreed to do so. 5.6. TAX RETURNS AND PAYMENTS. The Company has filed all tax returns required by law to be filed by it and has paid all taxes, assessments and other governmental charges levied upon the Company and any of its properties, assets, income or franchises which are due and payable, other than those presently payable without penalty or interest and those presently being contested in good faith by appropriate proceedings diligently conducted for which such reserves or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made, and other than those, the failure to file or pay which would not, in any case or in the aggregate, have a material adverse effect on the Company. The Federal income tax liabilities of the Company have been finally determined by the Internal Revenue Service and satisfied, or the time for audit has expired, for all fiscal periods through December 31, 1990. The charges, accruals and reserves on the books of the Company in respect of Federal, state and foreign income taxes for all fiscal periods are adequate in the opinion of the Company, and the Company knows of no unpaid assessment for additional Federal, state or foreign income taxes for any period or any basis for any such assessment. 5.7. DEBT. Exhibit D correctly describes all secured and unsecured Debt of the Company outstanding, or for which the Company has commitments, on the date of this Agreement, and identifies the collateral securing any secured Debt. The Company is not in default with respect to any Debt or any instrument or agreement relating thereto, and no instrument or agreement applicable to or binding on the Company (other than the Bank Loan Agreement) contains any restrictions on the incurrence by the Company of additional Debt. 5.8. TITLE TO PROPERTIES; LIENS. The Company has good and sufficient title to its properties and assets, including the properties and assets reflected in the financial statements as of December 31, 1993 referred to in section 5.4 (except properties and assets disposed of since such date in the ordinary course of business and properties and assets held under Capital Leases referred to in Exhibit D), and none of such properties or assets is subject to any 6 162 Liens except such as are of the character permitted by section 10.2. The Company enjoys peaceful and undisturbed possession under all leases necessary in any material respect for the operation of its properties and assets, and all such leases are valid and subsisting and are in full force and effect. Except to perfect and protect security interests of the character permitted by section 10.2, and except for precautionary financing statements filed in respect of operating leases, no presently effective financing statement under the Uniform Commercial Code which names the Company as debtor is on file in any jurisdiction and the Company has not signed any presently effective financing statement or any presently effective security agreement authorizing any secured party thereunder to file any such financing statement. 5.9. LITIGATION, ETC. There is no action, proceeding or investigation pending or threatened (or any basis therefor known to the Company) which questions the validity of this Agreement, the Notes or the Warrants or any action taken or to be taken pursuant to this Agreement, the Notes or the Warrants, or which might result, either in any case or in the aggregate, in any adverse change in the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company or in any liability on the part of the Company, which would be material to the Company. 5.10. COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The Company is not in violation of any term of its certificate of incorporation or by-laws, and is not in violation of any term of any agreement or instrument to which it is a party or by which it is bound or any term of any applicable law, ordinance, rule or regulation of any governmental authority or any term of any applicable order, judgment or decree of any court, arbitrator or governmental authority, the consequences of which violation might have a materially adverse effect on the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company; the execution, delivery and performance of this Agreement, the Notes and the Warrants will not result in any violation of or be in conflict with or constitute a default under any such term or result in the creation of (or impose any obligation on the Company to create) any Lien upon any of the properties or assets of the Company pursuant to any such term; and there is no such term which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company. 7 163 5.11. GOVERNMENTAL CONSENT. No consent, approval or authorization of, or declaration or filing with, any governmental authority on the part of the Company is required for the valid execution and delivery of this Agreement or the valid offer, issue, sale and delivery of the Notes or the Warrants pursuant to this Agreement. 5.12. PATENTS, TRADEMARKS, AUTHORIZATIONS, ETC. The Company owns or possesses all patents, trademarks, service marks, trade names, copyrights, licenses and authorizations, and all rights with respect to the foregoing, necessary for the conduct of its businesses as now conducted, without any known material conflict with the rights of others. 5.13. OFFER OF NOTES. Neither the Company nor Furman Selz Incorporated (the only Person authorized or employed by the Company as financial adviser or otherwise as agent in connection with the offering or sale of the Notes or Warrants or any similar securities of the Company) has directly or indirectly offered the Notes or the Warrants or any part thereof or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, anyone other than you and not more than 42 other institutional investors. Neither the Company nor anyone acting on its behalf has taken or will take any action which would subject the issuance and sale of the Notes or the Warrants to the registration and prospectus delivery provisions of the Securities Act. 5.14. USE OF PROCEEDS. The Company will apply the proceeds of the sale of the Notes and Warrants, simultaneously with the Closing, to the repayment of approximately $14,000,000 principal amount of Debt outstanding under the Bank Loan Agreement and the balance of such proceeds will be used to augment working capital. 5.15. FEDERAL RESERVE REGULATIONS. The Company will not, directly or indirectly, use any of the proceeds of the sale of the Notes and Warrants for the purpose, whether immediate, incidental or ultimate, of buying a "margin stock" or of maintaining, reducing or retiring any indebtedness originally incurred to purchase a stock that is currently a "margin stock", or for any other purpose which might constitute this transaction a "purpose credit", in each case within the meaning of Regulation G of the Board of 8 164 Governors of the Federal Reserve System (12 C.F.R. 207, as amended) or Regulation U of such Board (12 C.F.R. 221, as amended), or otherwise take or permit to be taken any action which would involve a violation of such Regulation G or Regulation U or of Regulation T (12 C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any other regulation of such Board. No Debt being reduced or retired out of the proceeds of the sale of the Notes and Warrants was incurred for the purpose of purchasing or carrying any such "margin stock", and the Company neither own nor has any present intention of acquiring any such "margin stock". 5.16. ENVIRONMENTAL MATTERS. The Company (a) has obtained all permits, licenses and other authorizations which are required to be obtained under Environmental Laws, (b) is in full compliance with all Environmental Laws, except where the failure to comply would not have a material adverse effect on the business, operations, condition (financial or otherwise), assets or properties of the Company, (c) has not received any notice of any violation of an Environmental Law and no actions, suits or proceedings have been commenced or, to the knowledge of the Company, threatened by any party with respect to Environmental Laws, and (d) the Company is not aware of any prior use of any of its owned or leased properties, by any tenant, subtenant, prior tenant or prior subtenant of any of such properties, that constitutes a material violation of any provision of any Environmental Laws. 5.17. STATUS UNDER CERTAIN FEDERAL STATUTES. The Company is not (a) an "investment company", or a company - "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended; (c) a "public utility" as such term is defined in the Federal Power Act, as amended; or (d) a "rail carrier or a person controlled by or affiliated with a rail carrier", within the meaning of Title 49, U.S.C., or a "carrier" to which 49 U.S.C.ss. 11301(b)(1) is applicable. 5.18. Foreign Assets Control Regulations, etc. Neither the issue and sale of the Notes and Warrants by the Company nor its use of the proceeds thereof as contemplated by this Agreement will violate the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban 9 165 Assets Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Iranian Transactions Regulations, the Iraqi Sanctions Regulations, the Haitian Transactions Regulations, the Libyan Sanctions Regulations, or the Soviet Gold Coin Regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V as amended) or the restrictions set forth in Executive Orders No. 8389, 9193, 12543 (Libya), 12544 (Libya), 12801 (Libya), 12722 (Iraq), 12724 (Iraq), 12775 (Haiti) or 12779 (Haiti), as amended, of the President of the United States of America or of any rules or regulations issued thereunder. 5.19. COMPLIANCE WITH ERISA. (a) The Company has not breached the fiduciary rules of ERISA or engaged in any prohibited transaction in connection with which the Company could be subjected to (in the case of any such breach) a suit for damages or (in the case of any such prohibited transaction) either a civil penalty assessed under section 502(i) of ERISA or a tax imposed by section 4975 of the Code, which suit, penalty or tax, in any case, would be materially adverse to the Company. (b) No Plan (other than a Multiemployer Plan) or any trust created under any such Plan has been terminated since September 2, 1974. Neither the Company nor any Related Person has within the past six years contributed to a single employer plan which has at least two contributing sponsors not under common control or ceased operations at a facility in a manner which could result in liability under section 4062(f) of ERISA. No liability to the PBGC has been or is expected by the Company to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company which is or would be materially adverse to the Company. There has been no reportable event (within the meaning of section 4043(b) of ERISA) or any other event or condition with respect to any Plan (other than a Multiemployer Plan) which presents a risk of termination of any such Plan by the PBGC under circumstances which in any case could result in liability which would be materially adverse to the Company. (c) Full payment has been made of all amounts which the Company or any Related Person is required under the terms of each Plan to have paid as contributions to such Plan as of the last day of the most recent fiscal year of such Plan ended prior to the date hereof, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists 10 166 with respect to any Plan (other than a Multiemployer Plan). (d) The present value of all vested accrued benefits under all Plans (other than Multiemployer Plans), determined as of the end of the Company's most recently ended fiscal year on the basis of reasonable actuarial assumptions, did not exceed the current value of the assets of such Plans allocable to such vested accrued benefits. The terms "present value", "current value", and "accrued benefit" have the meanings specified in section 3 of ERISA. (e) The Company is not and has never been obligated to contribute to any "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). (f) The execution and delivery of this Agreement and the issue and sale of the Notes hereunder will not involve any transaction which is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the preceding sentence is made in reliance upon and subject to the accuracy of your representation in section 6.2 of this Agreement as to the source of the funds used to pay the purchase price of the Notes purchased by you. The Company has delivered to you, if requested by you, a complete and correct list of all employee benefit plans with respect to which the Company is a party in interest and with respect to which its securities are employer securities. As used in this section 5.19(f), the terms "employee benefit plans" and "party in interest" have the respective meanings specified in section 3 of ERISA and the term "employer securities" has the meaning specified in section 407(d)(1) of ERISA. 5.20. DISCLOSURE. Neither this Agreement, the Memorandum, the Annual Reports, the Forms 10-K nor any other document, certificate or instrument delivered to you by or on behalf of the Company in connection with the transactions contemplated by this Agreement contains (in each case, as of its date) any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in this Agreement and in such other documents, certificates or instruments not misleading. There is no fact (other than matters of a general economic or political nature which do not affect the Company uniquely) known to the Company which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, 11 167 operations, affairs, condition (financial or otherwise), properties or assets of the Company which has not been set forth in this Agreement or in the other documents, certificates and instruments delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated by this Agreement. 6. PURCHASE INTENT; SOURCE OF FUNDS. 6.1. PURCHASE INTENT. You represent that you are purchasing the Notes and Warrants hereunder for your own account, not with a view to the distribution thereof or with any present intention of distributing or selling any of such Notes or Warrants except in compliance with the Securities Act and any applicable state securities laws, PROVIDED that the disposition of your property shall at all times be within your control. You represent that you are an "accredited investor", as such term is defined in Rule 501 under the Securities Act. You acknowledge that the Notes and Warrants have not been registered under the Securities Act and you understand that the Notes and Warrants may not be transferred unless they are registered under the Securities Act or an exemption from registration is available. 6.2. SOURCE OF FUNDS. You represent that all or a portion of the funds to be used by you to pay the purchase price of the Notes and Warrants consists of funds which do not constitute assets of any employee benefit plan (other than a governmental plan exempt from the coverage of ERISA) and the remaining portion, if any, of such funds consists of funds which may be deemed to constitute assets of one or more specific employee benefit plans, complete and accurate information as to the identity of each of which you have delivered to the Company. As used in this section 6.2, the terms "employee benefit plan" and "government plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. 7. FURNISHING OF INFORMATION. 7.1. ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company will maintain, and will cause each of its Subsidiaries, if any, to maintain, a system of accounting established and administered in accordance with generally accepted accounting principles, and will accrue, and will cause each of its Subsidiaries to accrue, all such liabilities as shall be required by generally accepted accounting principles. The Company will deliver (in duplicate) to you, so long as you shall be entitled to purchase Notes under this Agreement or you or your nominee shall be the holder of any Notes, and to each other institutional holder of any Notes: 12 168 (a) not later than the earlier to occur of (i) the forty-fifth day after the end of each of the first three quarterly fiscal periods in each fiscal year of the Company and (ii) the date of the filing thereof with the Securities and Exchange Commission, consolidated balance sheets of the Company and its Subsidiaries as at the end of such period and the related consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such period and (in the case of the second and third quarterly periods) for the period from the beginning of the current fiscal year to the end of such quarterly period, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous fiscal year, all in reasonable detail and certified by a principal financial officer of the Company as presenting fairly, in accordance with generally accepted accounting principles (except for the absence of notes thereto) applied (except as specifically set forth therein) on a basis consistent with such prior fiscal periods, the information contained therein, subject to changes resulting from normal year-end audit adjustments; PROVIDED that so long as the Company is subject to the reporting provisions of the Exchange Act, delivery of copies of the Company's quarterly report on Form 10-Q for such period will satisfy the requirements of this paragraph (a); (b) not later than the earlier to occur of (i) the ninetieth day after the end of each fiscal year of the Company and (ii) the date of the filing thereof with the Securities and Exchange Commission, consolidated balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the consolidated figures for the previous fiscal year, all in reasonable detail and accompanied by a report thereon of Deloitte and Touche or other independent public accountants of recognized national standing selected by the Company (and reasonably satisfactory to you, so long as you shall be entitled to purchase Notes under this Agreement or you or your nominee shall be the holder of any of the Notes, and to the holder or holders of more than 50% in principal amount of the Notes then outstanding) (subject to section 15.4), which report shall state 13 169 that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior years (except as otherwise specified in such report) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; provided that so long as the Company is subject to the reporting provisions of the Exchange Act, delivery of copies of the Company's annual report on Form 10-K for such period will satisfy the requirements of this paragraph (b); (c) not later than the tenth day following each delivery of financial statements pursuant to subdivisions (a) and (b) of this section 7 (or, if earlier, not later than the date a similar Officers' Certificate or compliance certificate is delivered to the Banks pursuant to section 4.1 of the Bank Loan Agreement as in effect on the date hereof or similar provision as from time to time in effect), an Officers' Certificate (i) stating that the signers have reviewed the terms of this Agreement and of the Notes and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial state- ments and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of the Officers' Certif- icate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken or is taking or proposes to take with respect thereto, (ii) specifying the amount available at the end of such accounting period for Restricted Payments in compliance with section 10.4 and showing in reasonable detail all calculations required in arriving at such amount, and (iii) demonstrating in reasonable detail compliance during and at the end of such accounting period with the restrictions contained in sections 10.1, 10.3, 10.5 and 10.7; 14 170 (d) together with each delivery of financial statements pursuant to subdivision (b) of this section 7, a written statement by the independent public accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement and of the Notes as they relate to accounting matters and that such review is sufficient to enable them to make the statement referred to in clause (iii) of this subdivision (d) (it being understood that no special audit procedures, other than those required by generally accepted auditing standards, shall be required), (ii) stating whether, in the course of their audit examination, they obtained knowledge (and whether, as of the date of such written statement, they have knowledge) of the existence of any condition or event which constitutes an Event of Default or Potential Event of Default, and, if so, specifying the nature and period of existence thereof, and (iii) stating that they have examined the Officers' Certificate delivered in connection therewith pursuant to subdivision (c) of this section 7 and that the matters set forth in such Officers' Certificate pursuant to clauses (ii) and (iii) of such subdivision (c) have been properly stated in accordance with the terms of this Agreement; (e) promptly upon receipt thereof, copies of all final reports submitted to the Company by independent public accountants in connection with each annual, interim or special audit of the books of the Company or any Subsidiary made by such accountants, including, without limitation, the final comment letter submitted by such accountants to management in connection with their annual audit; (f) promptly upon, but in no event later than ten days after, their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its public security holders, of all regular and periodic reports and all registration statements and prospectuses filed by the Company or any Subsidiary with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any of its functions, and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning material developments in the business of the Company or its Subsidiaries; 15 171 (g) immediately upon any principal officer of the Company or any other officer of the Company involved in its financial administration obtaining knowledge of any condition or event which constitutes an Event of Default or Potential Event of Default, or that the holder of any Note has given any notice or taken any other action with respect to a claimed Event of Default or Potential Event of Default under this Agreement or that any Person has given any notice to the Company or any Subsidiary or taken any other action with respect to a claimed default or event or condition of the type referred to in section 11(f), an Officers' Certificate describing the same and the period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto; (h) immediately upon any principal officer of the Company or any other officer of the Company involved in its financial administration obtaining knowledge of the occurrence of any (i) "reportable event", as such term is defined in section 4043 of ERISA, or (ii) "prohibited transaction", as such term is defined in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice specifying the nature thereof, what action the Company has taken, is taking and proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto, provided that, with respect to the occurrence of any "reportable event" as to which the PBGC has waived the 30-day reporting requirement, such written notice need be given only at the time notice is given to the PBGC; and (i) with reasonable promptness, such other financial reports and information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested. 7.2. RULE 144A. The Company agrees that, if at any time it is not subject either to Section 13 or to Section 15(d) of the Exchange Act, it will furnish to any holder of Notes or Warrants or to a prospective purchaser of any Note or Warrant designated by such a holder, upon the request of such holder or such prospective purchaser, on or prior to the date such Note or Warrant is to be sold to such prospective purchaser, subject to a confidentiality undertaking by such prospective purchaser, the following information (which shall be reasonably current in relation 16 172 to the date of such sale under this paragraph): a very brief statement of the nature of the business of the Company and the products and services it offers; and the Company's most recent audited consolidated balance sheets and profit and loss and retained earnings statement, and similar financial statements for the two preceding fiscal years. 8. INSPECTION; CONFIDENTIALITY. 8.1. Inspection. The Company will permit any authorized representatives designated by you, so long as you shall be entitled to purchase Notes under this Agreement or you or your nominee shall be the holder of any Notes, or by any other institutional holder of any Notes, without expense to the Company, to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their books of account, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all at such reasonable times and as often as may be reasonably requested. 8.2. CONFIDENTIALITY. You agree that you will not disclose without the prior consent of the Company (other than to your employees, auditors or counsel or to another holder of the Notes) any information with respect to the Company or any Subsidiary which is furnished pursuant to section 7 or this section 8 and which is designated by the Company to you in writing as confidential, provided that you may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over you or to the National Association of Insurance Commissioners or similar organizations or their successors, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (d) to the extent that you believe it appropriate in order to protect your investment in the Notes or in order to comply with any law, order, regulation or ruling applicable to you or (e) to the prospective transferee in connection with any contemplated transfer of any of the Notes by you. 9. Prepayment of Notes. 9.1. Required Prepayments. On June 30, 2000 and on each June 30 thereafter to and including June 30, 2003, the Company will prepay $3,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes, at the principal amount of the Notes so prepaid, without premium, provided 17 173 that, upon any partial prepayment of the Notes pursuant to section 9.2, 9.3 or 9.4 or any prepayment pursuant to section 9.3 or 9.4 of the Notes held by some but not all holders, the principal amount of each required prepayment of the Notes becoming due under this section 9.1 on and after the date of such prepayment under section 9.2, 9.3 or 9.4, as the case may be, shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment under section 9.2, 9.3 or 9.4. 9.2. OPTIONAL PREPAYMENTS WITH PREMIUM. The Company may, at its option, upon notice as provided in section 9.6, prepay at any time after June 30, 1997 all, or from time to time after such date any part (an integral multiple of $1,000) of, the Notes at the principal amount so prepaid, plus a premium (a percentage of such principal amount) applicable in accordance with the premium table set forth in section 9.5, depending upon the 12-month period in which the date fixed for such prepayment occurs. 9.3. CONTINGENT PREPAYMENTS UPON CHANGE OF CONTROL. In the event of the occurrence of a Change of Control, then the Company shall give prompt written notice thereof to each holder of the Notes, by registered mail (and shall confirm such notice by prompt telephonic advice to an investment officer of each such holder), which notice shall contain a written, irrevocable offer by the Company to prepay, on a date specified in such notice (which date shall be not less than 30 days and not more than 60 days after the date of such notice), the Notes held by such holder in full (and not in part). Upon the acceptance of such offer by such holder mailed to the Company at least 10 days prior to the date of prepayment specified in the Company's offer, such prepayment shall be made at the principal amount of the Notes so prepaid, plus a premium (a percentage of such principal amount) applicable in accordance with the premium table set forth in section 9.5, depending upon the 12-month period in which the date fixed for such prepayment occurs. Any offer by the Company to prepay the Notes pursuant to this section 9.3 shall be accompanied by an Officers' Certificate certifying that the conditions of this section 9.3 have been fulfilled and specifying the particulars of such fulfillment. If the holder of any Notes shall accept such offer, the principal amount of such Notes shall become due and payable on the date specified in such offer. In the event that there shall have been a partial prepayment of the Notes under this section 9.3, the Company shall promptly give notice to the holders of the Notes, accompanied by an 18 174 Officers' Certificate setting forth the principal amount of each of the Notes that was prepaid and specifying how each such amount was determined, and if some but not all of the Notes were prepaid, setting forth the reduced amount of each required prepayment thereafter becoming due with respect to the Notes under section 9.1 and certifying that such reduction has been computed in accordance with section 9.1. 9.4. CONTINGENT PREPAYMENT UPON SALE OF CERTAIN ASSETS. In the event that at any time there shall be Excess Sale Proceeds, then the Company shall give prompt written notice thereof to each holder of the Notes, by registered mail (and shall confirm such notice by prompt telephonic advice to an investment officer of each such holder), which notice shall contain a written, irrevocable offer by the Company to prepay, on a date specified in such notice (which date shall be not less than 30 days and not more than 60 days after the date of such notice), the Notes in an aggregate principal amount equal to the amount of Excess Sale Proceeds. Upon the acceptance of such offer by such holder mailed to the Company at least 10 days prior to the date of prepayment specified in the Company's offer, such prepayment shall be made at the principal amount of the Notes so prepaid, plus a premium (a percentage of such principal amount) applicable in accordance with the premium table set forth in section 9.5, depending upon the 12-month period in which the date fixed for such prepayment occurs. Any offer by the Company to prepay the Notes pursuant to this section 9.4 shall be accompanied by an Officers' Certificate certifying that the conditions of this section 9.4 have been fulfilled and specifying the particulars of such fulfillment. If the holder of any Notes shall accept such offer, the principal amount of such Notes to be prepaid shall become due and payable on the date specified in such offer. In the event that there shall have been a partial prepayment of the Notes under this section 9.4, the Company shall promptly give notice to the holders of the Notes, accompanied by an Officers' Certificate setting forth the principal amount of each of the Notes that was prepaid and specifying how each such amount was determined, and if some but not all of the Notes were prepaid, setting forth the reduced amount of each required prepayment thereafter becoming due with respect to the Notes under section 9.1 and certifying that such reduction has been computed in accordance with section 9.1. 9.5. MASTER PREMIUM TABLE. For the purposes of sections 9.2, 9.3, 9.4 and 13, whenever a premium is required to be paid upon prepayment, or acceleration as 19 175 provided in Section 13, of any Note, the applicable premium shall be determined in accordance with the following table, depending upon the period in which the date fixed for such prepayment or acceleration occurs:
12-Month Period Commencing June 30, Premium ------------------- ------- 1994 12.00% 1995 10.50% 1996 9.00% 1997 7.50% 1998 6.00% 1999 4.50% 2000 3.00% 2001 1.50% 2002 0.00% 2003 0.00%
9.6. NOTICE OF OPTIONAL PREPAYMENTS; OFFICERS' CERTIFICATE. The Company will give each holder of any Notes written notice of each optional prepayment under section 9.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment, in each case specifying such date, the aggregate principal amount of the Notes to be prepaid, the principal amount of each Note held by such holder to be prepaid, and the premium, if any, applicable to such prepayment. Such notice shall be accompanied by an Officers' Certificate certifying that the conditions of such section have been fulfilled and specifying the particulars of such fulfillment. 9.7. ALLOCATION OF PARTIAL PREPAYMENTs. In the case of each partial prepayment paid or to be prepaid (except a prepayment pursuant to section 9.3 or 9.4 of the Notes held by some but not all holders), the principal amount of the Notes to be prepaid shall be allocated (in integral multiples of $1,000) among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment, with adjustments, to the extent practicable, to compensate for any prior prepayments not made exactly in such proportion. 9.8. MATURITY; SURRENDER, ETC. In the case of each prepayment, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such 20 176 principal amount accrued to such date and the applicable premium, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and premium, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 9.9. ACQUISITION OF NOTES. The Company will not, and will not permit any Subsidiary or Affiliate to, purchase, redeem or otherwise acquire any Note except upon the payment or prepayment thereof in accordance with the terms of this Agreement and such Note. 10. BUSINESS AND FINANCIAL COVENANTS. The Company covenants that from the date of this Agreement through the Closing and thereafter so long as any of the Notes are outstanding: 10.1. DEBT. The Company will not, and will not permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become or remain directly or indirectly liable with respect to, any Debt, except that: (a) the Company may become and remain liable with respect to the Debt evidenced by the Notes; (b) the Company may remain liable with respect to Debt outstanding on the date of this Agreement and referred to in Exhibit D, but may not extend, renew or refund any thereof except as otherwise permitted by this section 10.1; and (c) the Company may become and remain liable with respect to Debt in addition to that otherwise permitted by the foregoing provisions of this section 10.1, provided that: (i) on the date the Company becomes liable with respect to any such additional Debt and immediately after giving effect thereto and to the concurrent retirement of any other Debt, total Debt of the Company shall not exceed an amount equal to sixty times Monthly Operating Cash Flow; and 21 177 (ii) in the case of any such additional Debt that is subordinate and junior in right of payment to any other Debt of the Company, such Debt shall be Permitted Subordinated Debt. For the purposes of this section 10.1, any Person extending, renewing or refunding any Debt shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. The Company shall not permit any Person having outstanding Debt to become a Subsidiary of the Company after the date of this Agreement unless the Company shall concurrently have assumed such Debt (and caused such Person to be discharged therefrom) in compliance with this section 10.1. 10.2. LIENS, ETC. The Company will not, and will not permit any Subsidiary to, directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any property or asset (including any document or instrument in respect of goods or accounts receivable) of the Company or any Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, except: (a) Liens for taxes, assessments or other governmental charges the payment of which is not at the time required by section 10.9; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due or the payment of which is not at the time required by section 10.9; (c) Liens (other than any Lien imposed by ERISA or the Code in connection with a Plan) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; 22 178 (d) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (e) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any Subsidiary; and (f) Liens incurred to secure the Debt (other than subordinated Debt) of the Company outstanding in compliance with section 10.1(b) or (c). For the purposes of this section 10.2, any Person becoming a Subsidiary after the date of this Agreement shall be deemed to have incurred all of its then outstanding Liens at the time it becomes a Subsidiary, and any Person extending, renewing or refunding any Debt secured by any Lien shall be deemed to have incurred such Lien at the time of such extension, renewal or refunding. 10.3. INVESTMENTS, GUARANTIES, ETC. The Company will not, and will not permit any Subsidiary to, directly or indirectly (a) make or own any Investment in any Person, or (b) create or become or be liable with respect to any Guaranty, except: (i) the Company and its Subsidiaries may make and own Investments in (t) marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any agency thereof maturing within one year from the date of acquisition thereof, (u) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and having as at any date of determination the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., 23 179 (v) commercial paper maturing no more than 270 days from the date of creation thereof and having as at any date of determination the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (w) certificates of deposit maturing within one year from the date of acquisition thereof issued by commercial banks incorporated under the laws of the United States of America or any state thereof or the District of Columbia, each having as at any date of determination combined capital and surplus of not less than $100,000,000 ("Permitted Banks") or a foreign branch thereof, (x) bankers' acceptances eligible for rediscount under requirements of The Board of Governors of the Federal Reserve System and accepted by Permitted Banks, (y) obligations of the type described in clauses (t) through (w) above purchased from a securities dealer designated as a "primary dealer" by the Federal Reserve Bank of New York or a Permitted Bank as counterparty pursuant to a repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subject thereof are held for the benefit of the Company and its Subsidiaries by a custodian which is a Permitted Bank and which is not the counterparty to the repurchase agreement in question, and (z) the securities of any investment company registered under the Investment Company Act of 1940 which is a "money market fund" within the meaning of regulations of the Securities and Exchange Commission, or an interest in a pooled fund maintained by a Permitted Bank having comparable investment restrictions; (ii) the Company and its Subsidiaries may make and own Investments in any Subsidiary or any Person which simultaneously therewith becomes a Subsidiary, if such Subsidiary or such Person is a corporation organized under the laws of the United States or any state thereof or the District of Columbia or Canada and substantially all of whose assets are located and 24 180 substantially all of whose business is conducted within the United States and Canada; (iii) any Wholly-Owned Subsidiary may make and permit to be outstanding loans and advances to the Company; (iv) the Company may become and remain liable with respect to Guaranties of the obligations of Subsidiaries incurred in the ordinary course of the business of such Subsidiaries; and (v) the Company and its Subsidiaries may, in addition to the Investments and Guaranties permitted by the foregoing subdivisions of this section 10.3, make and continue to own Investments in, and become and remain liable with respect to Guaranties of the obligations of, any Person (other than a Wholly-Owned Subsidiary or any Person which would simultaneously therewith become a Wholly-Owned Subsidiary) if the Company would be permitted to make such Investment or Guaranty pursuant to, and within the limitations specified in, section 10.4 (any such Investment or Guaranty made pursuant to this subdivision (vi) being referred to as a "Restricted Investment"). Notwithstanding the foregoing, no Guaranty shall be permitted by this section 10.3 unless either the maximum dollar amount of the obligation being guaranteed is readily ascertainable by the terms of such obligation or the agreement or instrument evidencing such Guaranty specifically limits the dollar amount of the maximum exposure of the guarantor thereunder. 10.4. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. (a) The Company will not directly or indirectly declare, order, pay, make or set apart any sum or property for any Restricted Payment, and the Company will not and will not permit any Subsidiary to make or become obligated to make any Restricted Investment, unless, immediately after giving effect to any such proposed action: (i) no condition or event shall exist which constitutes an Event of Default or Potential Event of Default; (ii) the Company could incur at least $1 of additional Debt in compliance with section 10.1(c); and 25 181 (iii) the sum of (x) the aggregate amount of all sums and property included in all Restricted Payments directly or indirectly declared, ordered, paid, made or set apart by the Company during the period after the date of the Closing to and including the date of such proposed action plus (y) the aggregate amount of all Restricted Investments directly or indirectly made by the Company and its Subsidiaries, or which they have become obligated to make, during such period in any Person (but disregarding any Investment or Guaranty which was a Restricted Investment when made but which on the date of determination could have been made pursuant to one of the subdivisions of section 10.3 other than subdivision (vi)) shall not exceed the sum of: (x) $1,000,000; plus (y) 50% (but, in the case of a deficit, 100%) of Consolidated Net Income for such period; plus (z) the aggregate amount of the net cash proceeds received by the Company during such period from the sale of its Common Stock or its nonredeemable preferred stock during such period; provided that any dividend which could be paid in compliance with this section 10.4 at the date of its declaration may continue to be paid notwithstanding any subsequent change. (b) For the purposes of this section 10.4, the amount involved in any Restricted Payment directly or indirectly declared, ordered, paid, made or set apart in property shall be the greater of the fair market value of such property (as determined in good faith by the Board) and the net book value thereof on the books of the Company (determined in accordance with generally accepted accounting principles) on the date such Restricted Payment is declared, ordered, paid, made or set apart. The Company will not declare any dividend (other than a dividend payable solely in shares of its own stock) on any shares of any class of its stock which is payable more than 60 days after the date of declaration thereof. The Company will not permit any Subsidiary, directly or indirectly, to declare, order, pay or make any Restricted Payment or to set apart any sum or property for any such purpose. 26 182 10.5. MINIMUM NET WORTH. The Company will not at any time permit Consolidated Tangible Net Worth to be less than $9,000,000. 10.6. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Subsidiary to, directly or indirectly, engage in any transaction material to the Company or any of its Subsidiaries (including, without limitation, the purchase, sale or exchange of assets or the rendering of any service) with any Affiliate of the Company, except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those which might be obtained, in the good faith judgment of the Company, in an arm's length transaction at the time from Persons which are not such an Affiliate, provided that the foregoing restrictions shall not apply to any transaction between the Company and a Wholly-Owned Subsidiary or between one Wholly- Owned Subsidiary and another Wholly-Owned Subsidiary. 10.7. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Company will not, and will not permit any Subsidiary to, directly or indirectly, (a) consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, except that: (i) any Subsidiary may consolidate with or merge into the Company or a Wholly-Owned Subsidiary if the Company or such Wholly-Owned Subsidiary, as the case may be, shall be the surviving corporation and if, immediately after giving effect to such transaction, no condition or event shall exist which constitutes an Event of Default or Potential Event of Default; (ii) any corporation (other than a Subsidiary) may consolidate with or merge into the Company if the Company shall be the surviving corporation and if, immediately after giving effect to such transaction, (x) no condition or event shall exist which constitutes an Event of Default or Potential Event of Default, (y) substantially all of the assets of the Company shall be located and substantially all of its business shall be conducted within the United 27 183 States and Canada, and (z) the Company could incur at least $1 of additional Debt in compliance with section 10.1(c); and (iii) the Company may consolidate with or merge into any other corporation if (w) the surviving corporation is a corporation organized and existing under the laws of the United States of America or a state thereof or Canada, with substantially all of its assets located and substantially all of its business conducted within the United States and Canada, (x) such corporation expressly assumes, by an agreement satisfactory in substance and form to the holders of more than 50% of the Notes outstanding (subject to section 15.4) (which agreement may require the delivery in connection with such assumption of such opinions of counsel as such holders may reasonably require), the obligations of the Company under this Agreement and under the Notes, (y) immediately after giving effect to such transaction, such corporation shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement on the date of such transaction, and (z) immediately after giving effect to such transaction (and such assumption), such corporation could incur at least $1 of additional Debt in compliance with section 10.1(c) and no condition or event shall exist which constitutes an Event of Default or a Potential Event of Default; or (b) sell, lease, abandon or otherwise dispose of all or substantially all its assets, except that: 184 (i) any Subsidiary may sell, lease or otherwise dispose of all or substantially all its assets to the Company or a Wholly-Owned Subsidiary; (ii) the Company may sell, lease or otherwise dispose of all or substantially all its assets to any corporation into which the Company could be consolidated or merged in compliance with subdivision (a)(iii) of this section 10.7, provided that (x) each of the conditions set forth in such subdivision (a)(iii) shall have been fulfilled, and (y) no such disposition shall relieve the Company from its obligations under this Agreement or the Notes; or (c) sell, lease, abandon or otherwise dispose of any of its assets (except in the ordinary course of business or in a transaction permitted by subdivision (b)(ii) of this section 10.7), except that the Company or its Subsidiaries (A) may sell obsolete equipment and other assets in an aggregate amount not to exceed $100,000 in any fiscal year, and (B) in addition to the asset sales permitted by the foregoing paragraph (A) may sell assets for a cash consideration at least equal to the fair value thereof (as determined in good faith by the Board) at the time of such sale, if the proceeds thereof shall, on or prior to the 180th day following such sale, be applied either (x) to the acquisition of like assets or other assets useful in the businesses of the Company or such Subsidiary; or (y) to the prepayment of Debt of the 185 Company, first to senior Debt of the Company and second to the Notes in the manner contemplated by section 9.4; it being agreed that if the Company shall not prior to such 180th day have performed or given notice to the holders of the Notes of its election to perform under one of the foregoing clauses (x) or (y), it shall be deemed to have elected to perform the obligation set forth in the foregoing clause (y), and the provisions of section 9.4 shall be applicable. 10.8. CORPORATE EXISTENCE, ETC.; BUSINESS. The Company will at all times preserve and keep in full force and effect its corporate existence, and rights and franchises deemed material to its business, and those of each of its Subsidiaries, except as otherwise specifically permitted by section 10.7 and except that the corporate existence of any Subsidiary may be terminated if, in the good faith judgment of the Board, such termination is in the best interest of the Company and is not disadvantageous to 29 186 the holders of the Notes. The Company will not, and will not permit any Subsidiary to, engage in any business other than the business of delivering electronic information services and other activities incidental or related to such business. 10.9. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each Subsidiary to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a Lien upon any of its properties or assets, PROVIDED that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and if such reserves or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor. 10.10. COMPLIANCE WITH ERISA. The Company will not, and will not permit any Subsidiary to, (a) engage in any transaction in connection with which the Company or any Subsidiary could be subject to either a civil penalty assessed pursuant to section 502(i) of ERISA or a tax imposed by section 4975 of the Code, terminate or withdraw from any Plan (other than a Multiemployer Plan) in a manner, or take any other action with respect to any such Plan (including, without limitation, a substantial cessation of operations within the meaning of section 4062(f) of ERISA), which could result in any liability of the Company or any Subsidiary to the PBGC, to a trust established pursuant to section 4041(c)(3)(B)(ii) or (iii) or 4042(i) of ERISA, or to a trustee appointed under section 4042(b) or (c) of ERISA, incur any liability to the PBGC on account of a termination of a Plan under section 4064 of ERISA, fail to make full payment when due of all amounts which, under the provisions of any Plan, the Company or any Subsidiary is required to pay as contributions thereto, or permit to exist any accumulated funding deficiency, whether or not waived, with respect to any Plan (other than a Multiemployer Plan), if, in any such case, such penalty or tax or such liability, or the failure to make such 30 187 payment, or the existence of such deficiency, as the case may be, could have a material adverse effect on the Company or any of its Subsidiaries; (b) permit the present value of all vested accrued benefits under all Plans maintained at such time by the Company and any Subsidiary (other than Multiemployer Plans) guaranteed under Title IV of ERISA to exceed the current value of the assets of such Plans allocable to such vested accrued benefits by more than $1,000,000; (c) permit the aggregate complete or partial withdrawal liability under Title IV of ERISA with respect to Multiemployer Plans incurred by the Company and its Subsidiaries to exceed $1,000,000; or (d) permit the sum of (i) the amount by which the current value of all vested accrued benefits referred to in subdivision (b) of this section 10.10 exceeds the current value of the assets referred to in such subdivision (b) and (ii) the amount of the aggregate incurred withdrawal liability referred to in subdivision (c) of this section 10.10 to exceed $1,000,000. For the purposes of subdivisions (c) and (d) of this section 10.10, the amount of the withdrawal liability of the Company and its Subsidiaries at any date shall be the aggregate present value of the amount claimed to have been incurred less any portion thereof as to which the Company reasonably believes, after appropriate consideration of possible adjustments arising under sections 4219 and 4221 of ERISA, it and its Subsidiaries will have no liability, provided that the Company shall obtain prompt written advice from independent actuarial consultants supporting such determination. The Company agrees (i) once in each calendar year to request and obtain a current statement of withdrawal liability from each Multiemployer Plan and (ii) to transmit a copy of such statement to you, so long as you or your nominee shall be the holder of any Notes, and to each other institutional holder of any Notes, within 15 days after the Company receives the same. As used in this section 10.10, the term "accumulated funding deficiency" has the meaning specified in section 302 of ERISA and section 412 of the Code, and the terms "present value", "current value" and "accrued benefit" have the meanings specified in section 3 of ERISA. 31 188 10.11. MAINTENANCE OF PROPERTIES; INSURANCE. The Company will maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations. Such insurance may be subject to co-insurance, deductibility or similar clauses which, in effect, result in self-insurance of certain losses, PROVIDED that such self-insurance is in accord with the approved practices of corporations similarly situated and adequate insurance reserves are maintained in connection with such self-insurance. 10.12. Senior Loan Agreements. The Company will promptly deliver to each holder of the Notes a copy of each amendment to the Bank Loan Agreement and each agreement or instrument evidencing any other Debt of the Company entered into after the date of the Closing. 11. Events of Default; Acceleration. If any of the following conditions or events ("Events of Default") shall occur and be continuing: (a) if the Company shall default in the payment of any principal of or premium, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) if the Company shall default in the payment of any interest on any Note for more than 15 days after the same becomes due and payable; or (c) if the Company shall default in the performance of or compliance with section 10.1 through 10.7, inclusive and such default shall not have been remedied within 15 days after such failure shall first have become known to any officer of the Company or written notice thereof shall have been received by the Company from any holder of any Note; or 32 189 (d) if the Company shall default in the performance of or compliance with any term contained in this Agreement other than those referred to above in this section 11 and such default shall not have been remedied within 30 days after such failure shall first have become known to any officer of the Company or written notice thereof shall have been received by the Company from any holder of any Note; or (e) if any representation or warranty made in writing by or on behalf of the Company in this Agreement or in any instrument furnished in compliance with or in reference to this Agreement or otherwise in connection with the transactions contemplated by this Agreement shall prove to have been false or incorrect in any material respect on the date as of which made; or (f) if the Company or any Subsidiary shall default in the payment of any principal of or premium or interest on any Debt which is outstanding under the Bank Loan Agreement, or if any event shall occur or condition shall exist in respect of the Bank Loan Agreement, the effect of which default, event or condition is to cause the acceleration of the payment of such Debt before its stated maturity or before its regularly scheduled dates of payment; or (g) if the Company or any Subsidiary shall default (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least $1,000,000 (other than the Notes or the Bank Loan Agreement), or if any event shall occur or condition shall exist in respect of any such Debt which is outstanding in a principal amount of at least $1,000,000 or under any evidence of any such Debt or of any mortgage, indenture or other agreement relating thereto, the effect of which default, event or condition is to cause, or to permit the holders of such Debt to cause, the acceleration of the payment of such Debt before its stated maturity or before its regularly scheduled dates of payment; or (h) if a final judgment or judgments shall be rendered against the Company or any Subsidiary for the payment of money in excess of $1,000,000 in the aggregate and any one of such judgments shall not be 33 190 discharged or execution thereon stayed pending appeal, within 60 days after entry thereof, or, in the event of such a stay, such judgment shall not be discharged within 60 days after such stay expires; or (i) if the Company or any Subsidiary shall (i) be generally not paying its debts as they become due, (ii) file, or consent by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment for the benefit of its creditors, (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) be adjudicated insolvent or (vi) take corporate action for the purpose of any of the foregoing; or (j) if a court or governmental authority of competent jurisdiction shall enter an order appointing, without consent by the Company or any Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Subsidiary, or if any petition for any such relief shall be filed against the Company or a Subsidiary and such petition shall not be dismissed within 30 days; then, (x) upon the occurrence of any Event of Default described in subdivision (i) or (j) of this section 11 with respect to the Company (other than such an Event of Default described in clause (i) of subdivision (i) or described in clause (vi) of subdivision (i) by virtue of the reference in such clause (vi) to such clause (i)), the unpaid principal amount of and accrued interest on the Notes shall automatically become due and payable or (y) upon the occurrence of any other Event of Default, any holder or holders of 25% or more in principal amount of the Notes at the time outstanding (subject to section 15.4) may at any time (unless all defaults shall theretofore have been remedied) at its or their option, by written notice or 34 191 notices to the Company, declare all the Notes to be due and payable, whereupon the same shall forthwith mature and become due and payable, together with interest accrued thereon, and there shall also be due and payable, to the extent permitted by applicable law, a premium determined in accordance with the premium table set forth in section 9.5, all without presentment, demand, protest or notice, which are hereby waived, provided that during the existence of an Event of Default described in subdivision (a) or (b) of this section 11, then, irrespective of whether the holder or holders of 25% or more in principal amount of Notes then outstanding shall have declared all the Notes to be due and payable pursuant to this section 11, any holder of the Notes (other than the Company or any of its Subsidiaries or Affiliates) may, at its option, by notice in writing to the Company, declare the Notes then held by such holder to be due and payable, whereupon the Notes then held by such holder shall forthwith mature and become due and payable, together with interest accrued thereon and, to the extent permitted by applicable law, a premium determined in accordance with the premium table set forth in section 9.5, without presentment, demand, protest or notice, all of which are hereby waived. At any time after the principal of, and interest accrued on, any or all of the Notes are declared due and payable, the holders of not less than 75% in aggregate principal amount of the Notes then outstanding (subject to section 15.4), by written notice to the Company may rescind and annul any such declaration and its consequences if (x) the Company has paid all overdue interest on the Notes, the principal of and premium, if any, on any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue principal and premium and (to the extent permitted by applicable law) any overdue interest in respect of the Notes at the rate of 13.25% per annum, (y) all Events of Default, other than non-payment of amounts which have become due solely by reason of such declaration, and all conditions and events which constitute Events of Default or Potential Events of Default have been cured or waived pursuant to section 19, and (z) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; but no such rescission and annulment shall extend to or affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. 12. Remedies on Default, etc. In case any one or more Events of Default or Potential Events of Default shall 35 192 occur and be continuing, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in such Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. In case of a default in the payment of any principal of or premium, if any, or interest on any Note, the Company will pay to the holder thereof such further amount as shall be sufficient to cover the cost and expenses of collection, including, without limitation, reasonable attorneys' fees, expenses and disbursements. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. 13. SUBORDINATION OF SUBORDINATED NOTES. 13.1. GENERAL. The Notes (the "Subordinated Debt") shall be subordinate and junior in right of payment to all Superior Debt (as defined in section 13.2) to the extent and in the manner provided in this section 13. 13.2. SUPERIOR DEBT. As used in this section 13, the term "Superior Debt" shall mean (a) all principal of and premium, if any, and interest on Debt of the Company outstanding from time to time under the Bank Loan Agreement and (b) other Debt of the Company outstanding in compliance with section 10.1(c) other than (i) Debt which by its terms is subordinated to any other Debt of the Company and (ii) Debt outstanding between the Company and any Affiliate of the Company or between any Subsidiary and another Subsidiary or Affiliate of the Company). The Superior Debt shall continue to be Superior Debt and entitled to the benefits of these subordination provisions irrespective of any amendment, modification or waiver of any term of the Superior Debt or extension or renewal of the Superior Debt. 13.3. DEFAULT IN RESPECT OF SUPERIOR DEBT. (a) In the event the Company shall default in the payment of any principal of, or premium, if any, or interest on any Superior Debt when the same becomes due and payable, whether at maturity or at a date fixed for payment or prepayment 36 193 thereof or by declaration or otherwise, then, unless and until such default shall have been remedied or waived in writing or shall have ceased to exist, no direct or indirect payment (in cash, property or securities or by set-off or otherwise, except securities which are subordinate and junior in right of payment to the payment of Superior Debt at least to the extent provided in this section 13) shall be made on account of the principal of, or premium, if any, or interest on any Subordinated Debt, or as a sinking fund for Subordinated Debt, or in respect of any redemption, retirement, purchase or other acquisition of any Subordinated Debt. (b) Upon the happening of an event of default with respect to any Superior Debt, as defined therein or in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof (other than under circumstances when the terms of section 13.3(a) are applicable), then, unless and until such event of default shall have been remedied or waived in writing or shall have ceased to exist, no direct or indirect payment (in cash, property or securities or by set-off or otherwise, except securities which are subordinate and junior in right of payment to the payment of Superior Debt at least to the extent provided in this section 13) shall be made on account of the principal of or premium, if any, or interest on any Subordinated Debt or as a sinking fund for the Subordinated Debt, or in respect of any redemption, retirement, purchase or other acquisition of any Subordinated Debt, during any period: (i) of up to 180 days (a "Suspension Period") after written notice of such default specifying an election to effect such 180-day prohibition shall have been given to the Company (and the Company shall forward a copy to each holder of Subordinated Debt) by the holders of a majority in principal amount of the Superior Debt, provided that (x) following the commencement of any Suspension Period as a result of any such default the duration of such Suspension Period shall not be extended as a result of the occurrence of any additional or subsequent default, (y) a Suspension Period shall terminate upon the earlier to occur of (A) cure or waiver of the event of default giving rise to such Suspension Period and (B) the expiration of such Suspension Period, and (z) following the termination of any Suspension Period as 37 194 contemplated by the foregoing clause (y), no new Suspension Period may be commenced until at least ninety days shall have elapsed during which payments in respect of the Subordinated Debt may be made; or (ii) in which any judicial proceeding shall be pending in respect of such default or an effective notice of acceleration of the maturity of the Superior Debt shall have been transmitted to the Company in respect of such default. 13.4. Insolvency, etc. In the event of: (a) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company, its creditors as such or its property, (b) any proceeding for the liquidation, dissolution or other winding-up of the Company, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) any assignment by the Company for the benefit of creditors, or (d) any other marshalling of the assets of the Company, all Superior Debt shall first be paid in full in cash or cash equivalents (or with other assets acceptable to the holders of the Superior Debt) before payment or distribution, whether in cash, securities or other property, shall be made to any holder of any Subordinated Debt on account of any Subordinated Debt. Any payment or distribution, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in this section 13 with respect to the Subordinated Debt, to the payment of all Superior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for these subordination provisions) be payable or deliverable in respect of Subordinated Debt shall be paid or delivered directly to the holders of Superior Debt in accordance with the priorities then existing among such holders until all Superior Debt 38 195 shall have been paid in full in cash or cash equivalents (or with other assets acceptable to the holders of the Superior Debt). 13.5. Payments and Distributions Received. If any payment or distribution of any character or any security, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in this section 13 with respect to Subordinated Debt, to the payment of all Superior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), shall be received by any holder of any Subordinated Debt in contravention of any of the terms hereof and before all the Superior Debt shall have been paid in full in cash or cash equivalents (or with other assets acceptable to the holders of the Superior Debt), such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Superior Debt at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Superior Debt remaining unpaid, to the extent necessary to pay all such Superior Debt in full in cash (or with other assets acceptable to the holders of the Superior Debt). 13.6. No Prejudice or Impairment. No present or future holder of any Superior Debt shall be prejudiced in the right to enforce subordination of the Subordinated Debt by any act or failure to act on the part of the Company or the holders of the Subordinated Debt. Nothing contained herein shall impair, as between the Company and the holder of any Subordinated Debt, the obligation of the Company to pay to the holder thereof the principal thereof and interest thereon as and when the same shall become due and payable in accordance with the terms thereof and of this Agreement, or prevent the holder of any Subordinated Debt from exercising all rights, powers and remedies otherwise permitted by applicable law or hereunder upon a Potential Event of Default or Event of Default hereunder, all subject to the terms of this section 13 and the rights of the holders of the Superior Debt to receive cash, securities or other property otherwise payable or deliverable to the holders of Subordinated Debt. 13.7. Payment of Superior Debt, Subrogation, etc. Upon the payment in full of all Superior Debt in cash (or 39 196 with other assets acceptable to the holders of the Superior Debt), the holders of Subordinated Debt shall be subrogated to all rights of any holders of Superior Debt to receive any further payments or distributions applicable to the Superior Debt until the Subordinated Debt shall have been paid in full, and, for the purposes of such subrogation, no payment or distribution received by the holders of Superior Debt of cash, securities, or other property to which the holders of Subordinated Debt would have been entitled except for this section 13 shall, as between the Company and its creditors other than the holders of Superior Debt, on the one hand, and the holders of Subordinated Debt, on the other, be deemed to be a payment or distribution by the Company on account of Superior Debt. Nothing in this section 13.7 shall be deemed to confer upon the holders of the Subordinated Debt any rights with respect to any security agreement securing any Superior Debt, or to impose upon the holders of the Superior Debt any liability to the holders of the Subordinated Debt with respect to any further payments or distributions applicable to the Superior Debt. 14. DEFINITIONS. As used herein the following terms have the following respective meanings: AFFILIATE: any Person directly or indirectly controlling or controlled by or under common control with the Company or any Subsidiary, including (without limitation) any Person beneficially owning or holding 5% or more of any class of voting securities of the Company or any Subsidiary or any other corporation of which the Company or any Subsidiary owns or holds 5% or more of any class of voting securities, PROVIDED that, for purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean 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, and PROVIDED FURTHER that neither you nor any other Person which is an institution shall be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by reason of ownership of the Notes or other securities issued in exchange for the Notes or by reason of having the benefits of any agreements or covenants of the Company contained in this Agreement. BANK LOAN AGREEMENT: the 1993 Restated Loan Agreement, dated as of November 8, 1993, among the Company 40 197 and the Banks (including any successor, assignee or replacement Bank thereunder), as amended by First Amendment to Restated Loan Agreement, dated as of April 11, 1994, and by Second Amendment to Restated Loan Agreement, dated as of June 29, 1994, and as further amended from time to time; and the "Related Loan Agreement" referred to in such Agreement. BANKS: First National Bank of Omaha; Firstier Bank, National Association, Lincoln, Nebraska; First National Bank, Wahoo, Nebraska; NBD Bank, N.A.; Norwest Bank Nebraska, N.A.; and The Boatmen's National Bank of St. Louis. BOARD: the Board of Directors of the Company or a committee of three or more directors lawfully exercising the relevant powers of the Board. BUSINESS DAY: any day except a Saturday, a Sunday or other day on which commercial banks in New York City are required or authorized by law to be closed. CAPITAL LEASE: as applied to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee which would, in accordance with generally accepted accounting principles, be required to be classified and accounted for as a capital lease on a balance sheet of such Person, other than, in the case of the Company or a Subsidiary, any such lease under which the Company or a Wholly-Owned Subsidiary is the lessor. CAPITAL LEASE OBLIGATION: with respect to any Capital Lease, the amount of the obligation of the lessee thereunder which would, in accordance with generally accepted accounting principles, appear on a balance sheet of such lessee in respect of such Capital Lease. CHANGE OF CONTROL: (a) at any time when any of the equity securities of the Company shall be registered under Section 12 of the Exchange Act, (i) any Person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) (other than any Person which is a management employee, or any such "group" which consists entirely of management employees, of the Company) being or becoming the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of the Company or (ii) a majority of the members of the Board consisting of persons other than Continuing Directors (as hereinafter defined); and (b) at any other time, less than 50% of the Voting Stock of the Company being owned beneficially, directly or indirectly, by 41 198 employees of the Company or its Subsidiaries. As used herein, the term "Continuing Director" means any member of the Board on the date hereof and any other member of the Board who shall be recommended or elected to succeed a Continuing Director by a majority of Continuing Directors who are the members of the Board. CODE: the Internal Revenue Code of 1986, as amended from time to time. COMMON STOCK: the meaning specified in section 1. CONSOLIDATED OPERATING CASH FLOW: with respect to any fiscal period, Consolidated Net Income for such period, adjusted by adding thereto all interest expense and all provisions for depreciation and taxes (other than current tax expense) that were deducted in arriving at Consolidated Net Income for such period, and further adjusted by adding or subtracting all non-recurring non-cash losses and gains that were deducted or added, respectively, in arriving at Consolidated Net Income for such period. For purposes of calculating Consolidated Operating Cash Flow, the Company shall not permit deferred commission expenses to be capitalized over any period in excess of twelve months. CONSOLIDATED NET INCOME: with reference to any period, the net income (or deficit) of the Company and its Subsidiaries for such period (taken as a cumulative whole), after deducting all operating expenses, provisions for all taxes and reserves and all other proper deductions, all determined in accordance with generally accepted accounting principles on a consolidated basis, after eliminating all intercompany transactions and after deducting portions of income properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Company or a Subsidiary, (b) the income (or deficit) of any Person (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Company or such Subsidiary in the form of dividends or similar distributions, (c) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such 42 199 Subsidiary, (d) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary, and (e) in the case of a successor to the Company by consolidation or merger or as a transferee of its assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. In addition, in calculating Consolidated Net Income for purposes of determining compliance with section 10.4, there shall also be excluded, with reference to any period, (i) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period, (ii) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets (such term to include all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets, and all securities), (iii) any write-up of any asset, (iv) any net gain from the collection of the proceeds of life insurance policies, (v) any gain arising from the acquisition of any securities, or the extinguishment, under generally accepted accounting principles, of any Debt, of the Company or any Subsidiary, and (vi) any net income or gain (but not any net loss) during such period from any change in accounting, from any discontinued operations or the disposition thereof, from any extraordinary events or from any prior period adjustments. CONSOLIDATED NET WORTH: the sum of the capital stock (but excluding treasury stock and capital stock subscribed and unissued) and surplus (including earned surplus, capital surplus and the balance of the current profit and loss account not transferred to surplus) accounts of the Company and its Subsidiaries appearing on a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with generally accepted accounting principles as of the date of determination, after eliminating all intercompany transactions and all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. CONSOLIDATED TANGIBLE NET WORTH: Consolidated Net Worth, after deducting therefrom (without duplication of deductions): (a) the net book amount of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under generally accepted accounting principles, including, without limitation, 43 200 such items as good will, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing, unamortized debt discount and expense, organizational expenses and the excess of cost of purchased Subsidiaries over equity in the net assets thereof at the date of acquisition; (b) any write-up in the book value of any asset on the books of the Company or any Subsidiary resulting from a revaluation thereof subsequent to December 31, 1993 (other than the write-up of the book value of an asset made in accordance with generally accepted accounting principles in connection with the purchase of such asset); (c) the amounts, if any, at which any shares of stock of the Company or any Subsidiary appear on the asset side of the balance sheet from which Consolidated Net Worth is determined for the purposes of this definition; (d) all deferred charges (other than prepaid expenses); and (e) the amounts at which any Investment in any Person (other than Investments which are permitted by clauses (t) through (z) of section 10.3) appear on the asset side of such balance sheet. DEBT: as applied to any Person (without duplication): (a) any indebtedness for borrowed money which such Person has directly or indirectly created, incurred or assumed; and (b) any indebtedness secured by any Lien in respect of property owned by such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness (not here referring to any Lien described in paragraphs (a) through (e) of section 10.2); and (c) any indebtedness with respect to which such Person has become directly or indirectly liable and which represents or has been incurred to finance the purchase price (or a portion thereof) of any property or services or business acquired by such Person, 44 201 whether by purchase, consolidation, merger or otherwise; and (d) any indebtedness of any other Person of the character referred to in subdivision (a), (b) or (c) of this definition with respect to which the Person whose Debt is being determined has become liable by way of a Guaranty. ENVIRONMENTAL LAWS: Federal, state, provincial, local and foreign laws, rules and regulations relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes. ERISA: the Employee Retirement Income Security Act of 1974, as amended from time to time. EXCHANGE ACT: the Securities Exchange Act of 1934, as amended from time to time. EXCESS SALE PROCEEDS: as of any date of determination, the excess of (a) the proceeds of sales of assets of the Company and its Subsidiaries which are required to be applied to the prepayment of Debt of the Company pursuant to section 10.7(c)(y), over (b) the amount of senior Debt of the Company outstanding as of such date and required to be prepaid pursuant to a provision of the agreement or instrument evidencing such senior Debt similar in effect to section 10.7 hereof. EVENT OF DEFAULT: the meaning specified in section 11. GUARANTY: as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such 45 202 Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or nonfurnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. The amount of any Guaranty shall be equal to the outstanding principal amount of the obligation guaranteed. For the purposes of section 10.4, the amount involved in any Guaranty which constitutes a Restricted Investment made during any period shall be the aggregate amount of the obligation guaranteed, less any amount by which the guarantor may have been discharged with respect thereto (including any discharge by way of a reduction in the amount of the obligation guaranteed), PROVIDED that the guarantor shall not be deemed to have been discharged with respect to any Guaranty to the extent the guarantor shall have been required to perform such Guaranty (except to the extent that any loss on such Guaranty has been recognized in reducing Consolidated Net Income). INVESTMENT: as applied to any Person, any direct or indirect purchase or other acquisition by such Person of stock or other securities of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by such Person to any other Person, including all Debt and accounts receivable from such other Person which are not current assets or did not arise from sales to such other Person in the ordinary course of business. In computing the amount involved in any Investment at the time outstanding, (a) undistributed earnings of, and interest accrued in respect of Debt owing by, such other Person accrued after the date of such Investment shall not be included, (b) there shall not be deducted from the amounts invested in such other Person any amounts received as earnings (in the form of dividends, interest or otherwise) on such Investment or as loans from such other Person, and (c) unrealized increases or decreases in value, or 46 203 write-ups, write-downs or write-offs, of Investments in such other Person shall be disregarded. For the purposes of section 10.4, the amount involved in Investments which constitute Restricted Investments made during any period shall be the aggregate cost to the Company and its Subsidiaries of all such Investments made, or which they became obligated to make, during such period, determined in accordance with generally accepted accounting principles, but without regard to unrealized increases or decreases in value, or write-ups, write-downs or write-offs, of such Investments (except to the extent that Consolidated Net Income has been increased or reduced as the result thereof) and without regard to the existence of any undistributed earnings or accrued interest with respect thereto accrued after the respective dates on which such Investments were made, less any net return of capital realized during such period upon the sale, repayment or other liquidation of such Investments (determined in accordance with generally accepted accounting principles, but without regard to any amounts received during such period as earnings (in the form of dividends, interest or otherwise) on such Investments or as loans from any Persons in whom such Investments have been made). LIEN: as to any Person, any mortgage, lien, pledge, adverse claim, charge, security interest or other encumbrance in or on, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease with respect to, any property or asset owned or held by such Person, or the signing or filing of a financing statement which names such Person as debtor, or the signing of any security agreement authorizing any other party as the secured party thereunder to file any financing statement. MONTHLY OPERATING CASH FLOW: as of any date of determination, the monthly average of Consolidated Operating Cash Flow for the two calendar months ending immediately prior to such date of determination. MULTIEMPLOYER PLAN: any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). OFFICERS' CERTIFICATE: a certificate executed on behalf of the Company by the Chairman of the Board of Directors (if an officer) or its President or one of its 47 204 Vice Presidents and its Treasurer or one of its Assistant Treasurers. PBGC: the Pension Benefit Guaranty Corporation or any governmental authority succeeding to any of its functions. PERMITTED SUBORDINATED DEBT: unsecured Debt of the Company which (a) has a final maturity on or subsequent to June 30, 2004 (or, if the Company shall have made any prepayment of Notes pursuant to section 9.2, the last date on which a payment or prepayment of principal of the Notes is, on the date the Company becomes liable with respect to such subordinated Debt, scheduled to be made under this Agreement and the Notes); (b) does not provide for any required prepayments, fixed sinking fund payments, serial maturities or similar payments in respect of the principal of such subordinated Debt prior to June 30, 1997 or which would, in any case, amortize in any calendar year an amount in excess of 20% of the original principal amount of such subordinated Debt; (c) does not permit any holder of such Debt to declare all or any part of such Debt to be due and payable, or to require (upon the occurrence of any contingency or otherwise) all or any part of such Debt to be paid, before its expressed maturity for any reason other than the occurrence of a default in respect thereof; and (d) is created under or evidenced by an instrument containing provisions for the subordination of such Debt to senior Debt of the Company on a basis either on a parity with or junior and subordinate to the Notes. PERSON: a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. PLAN: an "employee pension benefit plan" (as defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any of its Related Persons, or an employee pension benefit plan as to which the Company or any of its Related Persons would be treated as a contributory sponsor under section 4069 of ERISA if it were to be terminated. POTENTIAL EVENT OF DEFAULT: any condition or event which, with notice or lapse of time or both, would become an Event of Default. 48 205 RELATED PERSON: any trade or business, whether or not incorporated, which, together with the Company, is under common control, as described in section 414(b) or (c) of the Code. RESTRICTED INVESTMENT: the meaning specified in section 10.3(vi). RESTRICTED PAYMENT: (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Company now or hereafter outstanding, except a dividend payable solely in shares of Common Stock or nonredeemable preferred stock of the Company; and (b) any redemption, retirement, purchase or other acquisition, direct or indirect, of any shares of any class of stock of the Company now or hereafter outstanding, or of any warrants, rights or options to acquire any such shares, except to the extent that the consideration therefor consists of shares of stock of the Company. SECURITIES ACT: the Securities Act of 1933, as amended from time to time. SUBSIDIARY: any corporation at least 50% (by number of votes) of the Voting 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. VOTING STOCK: with reference to any corporation, stock of any class or classes (or equivalent interests), 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 the directors (or Persons performing similar functions) of such corporation, even though the right so to vote has been suspended by the happening of such a contingency. WARRANTS: the meaning specified in section 1. WHOLLY-OWNED: as applied to any Subsidiary, a Subsidiary all the outstanding shares (other than directors' qualifying shares, if required by law) of every class of stock of which are at the time owned by the Company or by one or more Wholly-Owned Subsidiaries or by the Company and one or more Wholly-Owned Subsidiaries. 49 206 15. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES; ACTION BY NOTEHOLDERS. 15.1. NOTE REGISTER; OWNERSHIP OF NOTES. The Company will keep at its principal office a register in which the Company will provide for the registration of Notes and the registration of transfers of Notes. The Company may treat the Person in whose name any Note is registered on such register as the owner thereof for the purpose of receiving payment of the principal of and the premium, if any, and interest on such Note and for all other purposes, whether or not such Note shall be overdue, and the Company shall not be affected by any notice to the contrary. All references in this Agreement to a "holder" of any Note shall mean the Person in whose name such Note is at the time registered on such register. 15.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note for registration of transfer or for exchange to the Company at its principal office, the Company at its expense will execute and deliver in exchange therefor a new Note or Notes in denominations of at least $1,000,000 (except one Note may be issued in a lesser principal amount if the unpaid principal amount of the surrendered Note is not evenly divisible by, or is less than $1,000,000), as requested by the holder or transferee, which aggregate the unpaid principal amount of such surrendered Note, registered as such holder or transferee may request, dated so that there will be no loss of interest on such surrendered Note and otherwise of like tenor. 15.3. REPLACEMENT OF NOTES. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction of any Note, upon delivery of an indemnity bond in such reasonable amount as the Company may determine (or, in the case of any Note held by you or another institutional holder or your or its nominee, of an indemnity agreement from you or such other holder) or, in the case of any such mutilation, upon the surrender of such Note for cancellation to the Company at its principal office, the Company at its expense will execute and deliver, in lieu thereof, a new Note in the unpaid principal amount of such lost, stolen, destroyed or mutilated Note, dated so that there will be no loss of interest on such Note and otherwise of like tenor. Any Note in lieu of which any such new Note has been so executed and delivered by the Company shall not be deemed to be an outstanding Note for any purpose of this Agreement. 50 207 15.4. NOTES HELD BY COMPANY, ETC., DEEMED NOT OUTSTANDING. For the purposes of determining whether the holders of the Notes of the requisite principal amount at the time outstanding have taken any action authorized by this Agreement with respect to the giving of consents or approvals or with respect to acceleration upon an Event of Default, any Notes directly or indirectly owned by the Company or any of its Subsidiaries or Affiliates shall be disregarded and deemed not to be outstanding. 16. PAYMENTS ON NOTES. 16.1. PLACE OF PAYMENT. Payments of principal, premium, if any, and interest becoming due and payable on the Notes shall be made at the principal office of The Chase Manhattan Bank, N.A., in the Borough of Manhattan, the City and State of New York, unless the Company, by written notice to each holder of any Notes, shall designate the principal office of another bank or trust company in such Borough as such place of payment, in which case the principal office of such other bank or trust company shall thereafter be such place of payment. 16.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in section 16.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, premium, if any, and interest by the method and at the address specified for such purpose in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that any Note paid or prepaid in full shall be surrendered to the Company at its principal office or at the place of payment maintained by the Company pursuant to section 16.1 for cancellation. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to section 15.2. The Company will afford the benefits of this section 16.2 to any institutional investor which is the direct or indirect transferee of any Note purchased by you under this Agreement and which has made the same agreement relating to such Note as you have made in this section 16.2. 17. EXPENSES, ETC. Whether or not the transactions contemplated by this Agreement shall be consummated, the Company will pay all expenses in connection with such 51 208 transactions and in connection with any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement or the Notes, including, without limitation: (a) the cost and expenses of preparing and reproducing this Agreement and the Notes, of furnishing all opinions by counsel for the Company (including any opinions requested by your special counsel as to any legal matter arising hereunder) and all certificates on behalf of the Company, and of the Company's performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with; (b) the cost of delivering to your principal office, insured to your satisfaction, the Notes sold to you hereunder and any Notes delivered to you upon any substitution of Notes pursuant to section 15 and of your delivering any Notes, insured to your satisfaction, upon any such substitution; (c) the reasonable fees, expenses and disbursements of one special counsel for the holders of the Notes (and, in addition, any local counsel determined by the holders of the Notes to be necessary in the circumstances) in connection with such transactions and any such amendments or waivers; and (d) the reasonable out-of-pocket expenses incurred by you in connection with such transactions and any such amendments or waivers. The Company also will pay, and will save you and each holder of any Notes harmless from, all claims in respect of the fees, if any, of brokers and finders and any and all liabilities with respect to any taxes (including interest and penalties) which may be payable in respect of the execution and delivery of this Agreement, the issue of the Notes and any amendment or waiver under or in respect of this Agreement or the Notes. The obligation of the Company under this section 17 shall survive any disposition or payment of the Notes and the termination of this Agreement. 18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement shall survive the execution and delivery of this Agreement, any investigation at any time made by you or on your behalf, the purchase of the Notes by you under this Agreement and any disposition or payment of the Notes. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement or in connection with the transactions contemplated by this Agreement shall be deemed representations and warranties of the Company under this Agreement. 52 209 19. AMENDMENTS AND WAIVERS. Any term of this Agreement or of the Notes may be amended and the observance of any term of this Agreement or of the Notes may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of more than 50% in principal amount of the Notes at the time outstanding (subject to section 15.4), PROVIDED that, without the prior written consent of the holders of all the Notes at the time outstanding (subject to section 15.4), no such amendment or waiver shall (a) change the maturity or the principal amount of, or reduce the rate or change the time of payment of interest on, or change the amount or the time of payment of any principal or premium payable on any prepayment of, any Note, (b) reduce the aforesaid percentages of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, (c) change the percentage of the principal amount of the Notes the holders of which may declare the Notes to be due and payable as provided in section 11, (d) modify the proviso to the first sentence of section 11, or (e) decrease the percentage of the principal amount of the Notes the holders of which may rescind and annul any such declaration as provided in section 11. Any amendment or waiver effected in accordance with this section 19 shall be binding upon each holder of any Note at the time outstanding, each future holder of any Note and the Company. 20. Notices, etc. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered by hand or courier service, or mailed by registered or certified mail, return receipt requested, addressed, (a) if to you, at the address set forth in Schedule A or at such other address as you shall have furnished to the Company in writing, except as otherwise provided in section 16.2 with respect to payments on Notes held by you or your nominee, or (b) if to any other holder of any Note, at such address as such other holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Note who has furnished an address to the Company, or (c) if to the Company, at its address set forth at the beginning of this Agreement, to the attention of Chief Financial Officer, or at such other address, or to the attention of such other officer, as the Company shall have furnished to you and each such other holder in writing. Any notice so addressed and delivered by hand or courier shall be deemed to be given when received, and any notice so 53 210 addressed and mailed by registered or certified mail shall be deemed to be given three business days after being so mailed. 21. MISCELLANEOUS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable by any holder or holders at the time of the Notes or any part thereof. Except as stated in section 18, this Agreement embodies the entire agreement and understanding between you and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement and the Notes shall be construed and enforced in accordance with and governed by the law of the State of New York. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 54 211 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterparts of this letter and return one of the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, DATA TRANSMISSION NETWORK CORPORATION By: /s/ Steve C. Ball -------------------------- Title: Secretary/Treasurer and Chief Financial Officer The foregoing Agreement is hereby agreed to as of the date thereof. EQUITABLE CAPITAL PRIVATE INCOME AND EQUITY PARTNERSHIP II, L.P. By: EQUITABLE CAPITAL MANAGEMENT CORPORATION Its General Partner By: /s/ U. Peter C. Gummeson ------------------------- Title: Investment Officer 55 212 SCHEDULE A SCHEDULE OF PURCHASERS Name and Address Principal Amount of of Purchaser Notes; Number of Shares EQUITABLE CAPITAL PRIVATE INCOME AND EQUITY PARTNERSHIP II, L.P. Principal Amount of Subordinated Note (1) All payments by wire transfer of immediately available funds to: $15,000,000 The Chase Manhattan Bank, N.A. 110 West 52nd Street Number of Warrants New York, New York 10019 25,000 Shares A/C Equitable Capital Private Income and Equity Partnership L.P. Operating Account Account No. 037-2-415703 Each such wire transfer shall set forth the name of the Company and the CUSIP number, if applicable, and the due date of the payment being made. (2) All notices of payment and written confirmation of such wire transfers to be sent to: Equitable Capital Private Income and Equity Partnership II, L.P. c/o Alliance Corporate Finance Group Incorporated 1285 Avenue of the Americas 19th Floor New York, New York 10019 (3) All other communications to be sent to: Equitable Capital Private Income and Equity Partnership II, L.P. c/o Alliance Corporate Finance Group Incorporated 1285 Avenue of the Americas 19th Floor New York, New York 10019 Attention: Corporate Finance Department (4) Securities to be delivered to: Alliance Corporate Finance Group Incorporated 135 West 50th Street 5th Floor New York, New York 10128 Attention: Susan Tomaselli 213 EXHIBIT A DATA TRANSMISSION NETWORK CORPORATION 11.25% SENIOR SUBORDINATED NOTE DUE JUNE 30, 2004 PPN# 238017 A* 8 R-1 New York, New York $15,000,000 June 30, 1994 DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation (the "Company"), for value received, hereby promises to pay to , or registered assigns, the principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) on June 30, 2004, with interest (computed on the basis of twelve 30-day months) on the unpaid balance of such principal amount at the rate of 11.25% per annum from the date hereof, payable quarterly on each September 30, December 30, March 30 and June 30 after the date hereof, commencing September 30, 1994, until such unpaid balance shall become due and payable (whether at maturity or at a date fixed for prepayment or by declaration or otherwise), and with interest on any overdue principal (including any overdue prepayment of principal) and (to the extent permitted by applicable law) on any overdue interest, at the rate of 13.25% per annum until paid, payable quarterly as aforesaid or, at the option of the holder hereof, on demand. Payments of principal and interest on this Note shall be made in lawful money of the United States of America at the principal office of Chase Manhattan Bank, N.A., in the Borough of Manhattan, the City and State of New York, or at such other office or agency in such Borough as the Company shall have designated by written notice to the holder of this Note as provided in the Note and Warrant Purchase Agreement referred to below. This Note is one of the Company's 11.25% Senior Subordinated Notes due June 30, 2004 (the "Notes"), originally issued in the aggregate amount of $15,000,000 pursuant to Note and Warrant Purchase Agreement, dated as of June 30, 1994, as from time to time amended, among the Company and the institutional investor named therein. The holder of this Note is entitled to the benefits of such Note and Warrant Purchase Agreement, as from time to time amended, and may enforce the agreements of the Company contained therein and exercise the remedies provided for thereby or otherwise available in respect thereof. Payments of principal and interest in respect of the Notes are subordinate, to the extent specified in such Note and Warrant Purchase Agreement, to all Superior Debt of the Company as such term is defined in such Note and Warrant Purchase Agreement. 214 This Note is a registered Note and is transferable only upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the holder hereof or such holder's attorney duly authorized in writing. Reference in this Note to a "holder" shall mean the person in whose name this Note is at the time registered on the register kept by the Company as provided in such Note and Warrant Purchase Agreement and the Company may treat such person as the owner of this Note for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. The Notes are under certain circumstances subject to prepayment at the option of the company or at the option of the holders, in whole or in part, as specified in such Note and Warrant Purchase Agreement. In case an Event of Default, as defined in such Note and Warrant Purchase Agreement, shall occur and be continuing, the unpaid balance of the principal of this Note may become due and payable in the manner and with the effect provided in such Note and Warrant Purchase Agreement. 2 215 This Note is made and delivered in New York, NewYork, and shall be governed by the laws of the State of New York. DATA TRANSMISSION NETWORK CORPORATION By: /s/ Steve C. Ball ----------------------------- Title: Secretary/Treasurer Chief Financial Officer 3 216 EXECUTION COPY - -------------------------------------------------------------------------------- DATA TRANSMISSION NETWORK CORPORATION COMMON STOCK PURCHASE WARRANT Expiring June 30, 2004 - -------------------------------------------------------------------------------- 217 TABLE OF CONTENTS 1. Exercise of Warrant........................................................1 1.1. Manner of Exercise.................................................1 1.2. When Exercise Deemed Effected......................................2 1.3. Delivery of Stock Certificates, etc................................2 1.4. Company to Reaffirm Obligations....................................3 1.5. Payment by Application of the Notes................................3 2. Adjustments; Dividends.....................................................4 2.1. Number of Shares; Warrant Price....................................4 2.2. Adjustment of Warrant Price; Payment of Regular Dividends..........................................................4 2.2.1. Issuance of Additional Shares of Common Stock ...................................................................4 2.2.2. Extraordinary Dividends and Distributions..........................5 2.2.3. Payment of Regular Dividends.......................................6 2.3. Treatment of Options and Convertible Securities....................6 2.4. Treatment of Stock Dividends, Stock Splits, etc...................10 2.5. Computation of Consideration......................................10 2.6 Adjustments for Combinations, etc.................................12 2.7. Dilution in Case of Other Securities..............................12 2.8. Minimum Adjustment of Warrant Price...............................13 3. Consolidation, Merger, Sale of Assets, Reorganization, etc ..........................................................................13 3.1. General Provisions.................................................13 3.2. Assumption of Obligations..........................................16 4. Other Dilutive Events.....................................................17 5. No Dilution or Impairment.................................................17 6. Accountants' Report as to Adjustments.....................................18 7. Notices of Corporate Action...............................................19 8. Restrictions on Transfer..................................................20 8.1. Restrictive Legends................................................20 8.2. Notice of Proposed Transfer; Opinions of Counsel...................20 8.3. Termination of Restrictions........................................22 9. Registration under Securities Act, etc....................................22 9.1. Registration on Request.............................................22 9.2. Incidental Registration.............................................26 9.3. Registration Procedures.............................................28 9.4. Underwritten Offerings..............................................34 i 218 9.5. Preparation; Reasonable Investigation...............................36 9.6. Rights of Requesting Holders........................................37 9.7. Indemnification.....................................................37 9.8. Adjustments Affecting Registrable Securities........................41 9.9. Registration Rights to Others.......................................42 9.10. Other Registration of Common Stock..................................42 9.11. Nominees for Beneficial Owners......................................42 9.12. Rule 144 and Rule 144A..............................................43 10. Availability of Information...............................................43 11. Reservation of Stock, etc.................................................43 12. Listing on Securities Exchange............................................43 13. Ownership, Transfer and Substitution of Warrants..........................44 13.1. Ownership of Warrants..............................................44 13.2. Transfer and Exchange of Warrants..................................44 13.3. Replacement of Warrants............................................44 14. Definitions..............................................................45 15. Remedies.................................................................53 16. No Rights or Liabilities as Stockholder..................................53 17. Notices..................................................................53 18. Expiration; Notice.......................................................54 19. Miscellaneous............................................................54 ii 219 Common Stock Purchase Warrant Expiring June 30, 2004 New York, New York June 30, 1994 PPN #238017 2* 7 No. W-1 DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation (the "Company"), for value received, hereby certifies that EQUITABLE CAPITAL PRINVATE INCOME AND EQUITY PARTNERSHIP II, or registered assigns, is entitled to purchase from the Company TWENTY-FIVE THOUSAND duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, par value $.001 per share, of the Company (the "Common Stock") at the purchase price per share of $22.17, at any time or from time to time prior to 3 P.M., New York City time, on June 30, 2004, all subject to the terms, conditions and adjustments set forth below in this Warrant. This Warrant is one of the Common Stock Purchase Warrants (the "Warrants", such term to include all Warrants issued in substitution therefor) originally issued in connection with the issue and sale by the Company of $15,000,000 aggregate principal amount of its 11.25% Senior Subordinated Notes due June 30, 2004 (together with all notes issued in substitution therefor, the "Notes"), pursuant to the Note and Warrant Purchase Agreement (the "Purchase Agreement"), dated as of June 30, 1994, between the Company and the institutional investor named therein (the "Purchaser"). The Warrants originally so issued evidence rights to purchase an aggregate of 25,000 shares of Common Stock, subject to adjustment as provided herein. Certain capitalized terms used in this Warrant are defined in section 14. 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 reasonable facsimile thereof) duly executed by such holder, to the Company at its principal office (or, if such exercise shall be in connection with an underwritten Public Offering of shares of Common Stock (or Other Securities) subject to this Warrant, at the location at which the Company shall have agreed to deliver the shares of Common Stock (or Other Securities) subject to such offering), accompanied by payment, in cash or by certified or official bank check payable to the order of the Company or by application of Notes in the manner provided in section 1.5 (or by a combination of such methods), in the amount obtained by 220 multiplying (a) the number of shares of Common Stock (without giving effect to any adjustment therein) designated in such form of subscription by (b) the Warrant Price, and such holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in sections 2 through 4. 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 Business Days thereafter (unless such exercise shall be in connection with an underwritten Public Offering of shares of Common Stock (or Other Securities) subject to this Warrant, in which event concurrently with such exercise), the Company at its expense (including the payment by it of any taxes (other than transfer taxes) applicable to the Company) will cause to be issued in the name 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 or Warrants of like tenor, calling in the aggregate on the face or faces 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. 2 221 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. 1.5. PAYMENT BY APPLICATION OF THE NOTES. Upon any exercise of this Warrant, the holder hereof may, at its option, instruct the Company, by so specifying in the form of subscription submitted therewith as provided in section 1.1, to apply to the payment required by section 1.1 all or any part of the principal amount then unpaid and of the interest on such principal amount then accrued on any one or more Notes at the time held by such holder, in which case the Company will accept the aggregate amount of principal and accrued interest on such principal specified in such form of subscription in satisfaction of a like amount of such payment. In case less than the entire unpaid principal amount of any Note shall be so specified, the principal amount so specified shall be credited, as of the date of such exercise, against the installments of principal then remaining unpaid on such Note pro rata to all such remaining installments. Within ten days after receipt of any such notice, the Company will pay to the holder of the Notes submitting such form of subscription, in the manner provided in such Notes and the Purchase Agreement, all unpaid interest accrued to the date of exercise of such Warrant on the principal amount so specified in such form of subscription that is not applied to the payment required by section 1.1 under this section 1.5. In the event that the entire unpaid principal amount of any Note is applied to the payment required by section 1.1 under this section 1.5, such Note shall be promptly surrendered and cancelled in accordance with the Purchase Agreement. It is understood that no prepayment premium will be payable in respect of any principal amount of the Notes applied to the payment required by section 1.1 as contemplated by this section 1.5. 2. ADJUSTMENTS; DIVIDENDS. 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 3 222 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 $[insert initial Warrant Price] and (ii) the denominator is the Warrant Price in effect on the date of such exercise. The "Warrant Price" shall initially be $______ per share, 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; PAYMENT OF REGULAR DIVIDENDS. 2.2.1. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case the Company, at any time or from time to time after June 30, 1994 (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, 4 223 reclassification, recapitalization or similar corporate rearrangement) on any Common Stock, other than (a) a dividend payable in Additional Shares of Common Stock or in Options for Common Stock or (b) a dividend payable in cash and declared out of the earned surplus of the Company, then, and in each such case, subject to section 2.8, the Warrant Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of any class of securities entitled to receive such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Price by a fraction, (x) the numerator of which shall be the Current Market Price in effect on such record date or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading, less the value of such dividend or distribution (as determined in good faith by the Board of Directors of the Company) applicable to one share of Common Stock, and (y) the denominator of which shall be such Current Market Price. 2.2.3. PAYMENT OF REGULAR DIVIDENDs. In case the Company at any time or from time to time after the Initial Date shall declare, order, pay or make a dividend on its Common Stock payable in cash and declared out of the earned surplus of the Company, then, and in each such case, the holder of this Warrant shall be entitled to receive the amount in cash to which such holder would actually have been entitled as a shareholder upon the payment thereof by the Company if such holder had exercised this Warrant immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive such dividend. 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 5 224 purposes of section 2.1 as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), PROVIDED that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to section 2.5) of such shares would be less than the Base Price in effect, in each case, on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be, and PROVIDED, FURTHER, that in any such case in which Additional Shares of Common Stock are deemed to be issued, (a) no further adjustment of the Warrant Price shall be made upon the subsequent issue or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration of any such Options or of the rights of conversion or exchange under any such Convertible Securities which shall not have been exercised (or upon purchase by the Company and cancellation or retirement of any such Options which shall not have been exercised or of any such Convertible Securities the rights of conversion or exchange under which shall not have been exercised), the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any 6 225 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 2.5) upon the issue or sale of the Convertible Securities with respect to which such options were actually exercised, minus (iii) the consideration paid by the Company for any purchase of such Options which were not exercised; (d) no readjustment pursuant to subdivision (b) or (c) above shall have the effect of increasing the Warrant Price by an amount in excess of the amount of the adjustment 7 226 thereof originally made in respect of the issue, sale, grant or assumption of such options or Convertible Securities; and (e) in the case of any such Options which expire by their terms not more than 30 days after the date of issue, sale, grant or assumption thereof, no adjustment of the Warrant Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in subdivision (c) above. In case at any time after the Initial Date the Company shall be required to increase the number of Additional Shares of Common Stock subject to any Option or into which any Convertible Securities (other than the Warrants) are convertible or exchangeable pursuant to the operation of anti-dilution provisions applicable thereto, such Additional Shares shall be deemed to be issued for purposes of section 2.1 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 8 227 performing similar services and any accrued interest or dividends in connection with such issue or sale, (y) insofar as it consists of consideration (including securities) other than cash, be computed at the fair value thereof at the time of such issue or sale, as determined in good faith by the Board of Directors of the Company, without deducting any expenses paid or incurred by the Company for any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, and (z) in case Additional Shares of Common Stock are issued or sold or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, be the proportion of such consideration so received, computed as provided in subdivisions (x) and (y) above, allocable to such Additional Shares of Common Stock or Convertible Securities, as the case may be, all as determined in good faith by the Board of Directors of the Company. (b) All options issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, all Additional Shares of Common Stock, Options or 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 9 228 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 sub- division (a), by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (d) Additional Shares of Common Stock issued or deemed to have been issued pursuant to the operation of anti-dilution provisions applicable to Convertible Securities (other than the Warrants), Options or other securities of the Company (either as a result of the adjustments provided for by the Warrants or otherwise) shall be deemed to have been issued without consideration. 2.6. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Warrant Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 2.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other Securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any 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 10 229 Other Securities from time to time receivable upon the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 2.8. MINIMUM ADJUSTMENT OF WARRANT PRICE. If the amount of any adjustment of the Warrant Price required pursuant to this section 2 would be less than one-tenth of one percent of the Warrant Price in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one-tenth of one percent of such Warrant Price; PROVIDED that, upon the exercise of this Warrant, all adjustments carried forward and not theretofore made up to and including the date of such exercise shall be made to the nearest one one-hundredth of a cent. 3. CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC. 3.1. GENERAL PROVISIONS. In case the Company, after the Initial Date, (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, Common Stock or Other Securities shall be changed into or exchanged for cash, stock or other securities of any other Person or any other property, or (c) shall transfer all or substantially all of its properties and assets to any other Person, or (d) shall effect a capital reorganization or reclassification of Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the Warrant Price is provided in section 2.2.1 or 2.2.2), then, and in the case of each such transaction, the Company shall give written notice thereof to each holder of any Warrant not less than 30 days prior to the consummation thereof and proper provision shall be made so that, upon the basis and the terms and in the manner provided in this section 3, the holder of this Warrant, upon the exercise hereof at any time after the consummation of such transaction, shall be entitled to receive, at the aggregate Warrant Price in effect at the time of such consummation for all Common Stock (or other Securities) issuable upon such exercise immediately prior to such consummation, in lieu of the Common Stock (or Other Securities) issuable upon such exercise prior to such consummation, either of the following, as such holder shall elect by written notice to the Company on or before the date immediately preceding the date of the consumma- 11 230 tion of such transaction (and, in the absence of such notice, the provisions of subdivision (y) below shall be deemed to have been elected by such holder): (x) the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder upon such consummation if such holder had exercised this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in section 2 and this section 3, PROVIDED that if a purchase, tender or exchange offer shall have been made to and accepted by the holders of Common Stock under circumstances in which, upon completion of such purchase, tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Section 13(d)(3) of the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of Common Stock, and if the holder of this Warrant so designates in such notice given to the Company, the holder of this Warrant shall be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder if the holder of this Warrant had exercised this Warrant prior to the expiration of such purchase, tender or exchange offer, accepted such offer and all of the Common Stock held by such holder had been purchased pursuant to such purchase, tender or exchange offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in section 2 and this section 3; or (y) the number of shares of Voting Common Stock (or equivalent equity interests) of the Acquiring Person or, if the Acquiring Person fails to meet, but its Parent meets, the requirements set forth in the proviso below, of its Parent, subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in section 2 and this section 3, determined by dividing (i) the product obtained by multiplying (A) the number of shares of Common Stock (or Other Securities) to which the holder of this Warrant would have been entitled had such holder exercised this Warrant immediately prior to the consummation of such transaction, times (B) the greater 12 231 of the Acquisition Price and the Warrant Price in effect on the date immediately preceding the date of such consummation, by (ii) the Current Market Price per share of the Voting Common Stock (or equivalent equity interests) of the Acquiring Person or its Parent, as the case may be, on the date immediately preceding the date of such consummation; PROVIDED that the Company shall not effect any of the transactions described in subdivisions (a) through (d) above unless, immediately after the date of the consummation of such transaction, the Acquiring Person or its Parent is required to file, by virtue of having an outstanding class of Voting Common Stock (or equivalent equity interests), reports with the Commission pursuant to section 13 or section 15(d) of the Exchange Act, and such Voting Stock (or equivalent equity interest) is listed or admitted to trading on a national securities exchange or is quoted in the NASD automated quotation system. In the event that the Acquiring Person fulfills the requirements contained in the immediately preceding proviso, then, if the holder of this Warrant shall elect (or shall be deemed to elect) to receive Voting Common Stock (or equivalent equity interests) pursuant to subdivision (y) above, such holder shall be entitled to receive, upon the basis stated in such subdivision (y), only the Voting Common Stock (or equivalent equity interests) of the Acquiring Person. 3.2. ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained in this Warrant or the Purchase Agreement to the contrary, the Company will not effect any of the transactions described in subdivisions (a) through (d) of section 3.1 unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any cash, stock or other securities or other property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the holder of this Warrant, (a) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant) and (b) the obligation to deliver to such holder such cash, stock or other securities or other property as, in accordance with the foregoing provisions of this section 3, such holder may be entitled to receive, and such Person shall have similarly delivered to such holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such holder, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of section 13 232 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. Nothing in this section 3 or in section 7 shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by the Purchase Agreement. 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 of the Warrants from time to time outstanding, 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 of the Warrants 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. 14 233 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 the Warrants, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of the Warrants, 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 any holder of a Warrant, furnish to such holder a like certificate setting forth the Warrant Price at the time in effect and showing in reasonable detail how it was calculated. In addition, with respect to any fiscal year of the Company during which any such adjustment or readjustment shall have been made, the Company will cause the independent public accountants reporting upon the Company's financial statements for such fiscal year to verify, concurrently with their annual audit of the Company's financial statements, the computations made by the Company during such fiscal year and to prepare and to deliver to each holder of a 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 any holder of a Warrant or any prospective purchaser of a 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 15 234 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 each holder of a 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 Warrant originally issued pursuant to the Purchase Agreement and each Warrant issued upon direct or indirect Transfer or in substitution for any Warrant pursuant to section 13 shall be stamped or otherwise imprinted with a legend in substantially the following form: "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 imposed by Common Stock Purchase Warrants expiring June 30, 2004, a copy of which is on file at the offices of the Company." Except as otherwise permitted by this section 8, each certificate for Common Stock (or Other Securities) issued upon the exercise of any Warrant and each certificate issued upon the direct or indirect Transfer of any such Common Stock (or Other Securities) 16 235 shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be transferred except in compliance with such Act and applicable state securities laws. Such shares are also subject to certain restrictions on transferability imposed by Common Stock Purchase Warrants expiring June 30, 2004, 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 insure compliance with the Securities Act. (y) If the opinion of such counsel for the holder is not to the effect that the proposed Transfer may legally be effected without registration of such Restricted Securities under the Securities Act, such holder shall not be entitled to Transfer such Restricted Securities (other than in a Transfer pursuant to Rule 144 or any comparable rule under the Securities Act) until the conditions specified in 17 236 subdivision (x) above shall be satisfied or until registration of such Restricted Securities under the Securities Act has become effective. Notwithstanding the foregoing provisions of this section 8.2, the holder of any Restricted Securities shall be permitted to Transfer any such Restricted Securities pursuant to Rule 144A under the Securities Act, PROVIDED that each transferee agrees in writing to be bound by all the restrictions on transfer of such Restricted Securities contained in this section 8.2. 8.3. TERMINATION OF RESTRICTIONS. The restrictions imposed by this section 8 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities (a) when such securities shall have been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering such Restricted Securities, (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 insure compliance with the Securities Act, or (c) when such securities have been beneficially owned, by a person who has not been an affiliate of the Company for at least three months, for a period of at least three years, all as determined under Rule 144 under the Securities Act. Whenever such restrictions shall terminate as to any Restricted Securities, as soon as practicable thereafter and in any event within ten Business Days, the holder thereof shall be entitled to receive from the Company, without expense (other than transfer taxes, if any), new securities of like tenor not bearing the applicable legend set forth in section 8.1 hereof. 9. REGISTRATION UNDER SECURITIES ACT, ETC. 9.1. REGISTRATION ON REQUEST. (a) REQUEST. At any time and from time to time after December 30, 1994, upon the written request of one or more Initiating Holders, requesting that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities and specifying the intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all holders of outstanding Registrable Securities, and thereupon 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 (x) the Registrable Securities which the Company has been so requested to register by such Initiating Holder or 18 237 Holders for disposition in accordance with the intended method of disposition stated in such request, and (y) all other Registrable Securities the Holders of which have made written requests to the Company for registration thereof within 20 Business Days after the giving of such written notice by the Company (which request shall specify the intended method of disposition thereof), 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 any holder of Registrable Securities to be included in any such registration, 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 holders comprising the Requisite Holders, 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 which the Company has been so requested to register, 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 additional registrations pursuant to this section 9.1 until they have permitted the disposition of at least 80% of such Registrable Securities. (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 the holders holding at least a majority (by number of shares) of the Registrable Securities as to which such registration relates (and, 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 holders (and, if 19 238 applicable, 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 the holders of a majority (by number of shares) of the Registrable Securities, 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 such holders and shall be acceptable to the Company, which shall not unreasonably withhold its acceptance of such underwriter or underwriters. (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 the Initiating Holders shall be deemed to have been effected by the Company at the request of such Initiating Holders, unless such Initiating Holders 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, or (z) if the conditions to closing specified in the purchase agreement or 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 9.1 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to each holder of Registrable Securities requesting registration) that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) 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 the holder or 20 239 holders of Registrable Securities pro rata among such holders on the basis of the number of Registrable Securities requested to be included by such holders, and (y) second, 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 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 the holders of Registrable Securities requesting registration thereof pursuant to this section 9.1 written notice of such determination, containing a general statement of the reasons for such postponement and approximation of the anticipated delay. The Company may not postpone a filing under this section 9.1(h) more than once in any twelve-month period. If the Company shall so postpone the filing of a registration statement, holders of Registrable Securities requesting registration thereof pursuant to section 9.1, representing not less than 15% of the Registrable Securities with respect to which registration has been requested, and constituting not less than 50% of the Initiating Holders, 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 Initiating Holders 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. 21 240 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 June 30, 2004 proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4 or S-8 or any successor or similar forms), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will each such time give prompt written notice to all holders of Registrable Securities of its intention to do so and of such holders' rights under this section 9.2. Upon the written request of any such holder made within 20 days after receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, PROVIDED that (x) the Company shall not be required to effect the registration pursuant to this section 9.2 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 each holder of Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so 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 22 241 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, pro rata among the holders thereof requesting such registration on the basis of the number of shares of such securities requested to be included by such holders, 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 holders of Registrable Securities, pursuant to demand registration rights, (i) first, 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, (ii) second, any Registrable Securities requested to be included in such registration, pro rata among the holders thereof requesting such registration on the basis of the number of shares of such securities requested to be included by such holders 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. 9.3. Registration Procedures. If and whenever (x) the Company is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in sections 9.1 and 9.2 or (y) there is a Requesting Holder in connection with any other proposed 23 242 registration by the Company under the Securities Act, the Company will as expeditiously as possible: (a) prepare and file with the Commission the requisite registration statement (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) to effect such registration and use its best efforts to cause such registration statement to become effective, PROVIDED that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities whose Registrable Securities are to be included in such registration copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel, and PROVIDED, FURTHER, that the Company may discontinue any registration of its securities which are not Registrable Securities at any time prior to the effective date of the registration statement relating thereto; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement and the expiration of 90 days after such registration statement becomes effective, except with respect to any such registration statement filed pursuant to Rule 415 (or any successor Rule) under the Securities Act, in which case such period shall be 2 years; (c) furnish to each seller of Registrable Securities covered by such registration statement and each Requesting Holder such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request; 24 243 (d) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each seller thereof and each Requesting Holder shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (f) furnish to each seller of Registrable Securities and each Requesting Holder a signed counterpart, addressed to such seller (and the underwriters, if any), of (x) an opinion of counsel for the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten Public Offering, dated the date of any closing under the underwriting agreement), reasonably satisfactory in form and substance to such seller, and (y) a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten Public Offering, dated the date of any closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement (it being understood that such letter, if the cost thereof does not constitute a "Registration Expense", is to be delivered only at the request of, and at the expense of, any seller of Registrable Securities or Requesting Holder), 25 244 covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities and, in the case of the accountants' letter, such other financial matters, as such seller (or the underwriters, if any) may reasonably request; (g) immediately notify each seller of such Registrable Securities, and (if requested by any such seller) confirm such advice in writing, (w) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective, (x) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information, (y) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and (z) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (h) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible time; (i) immediately notify each holder of Registrable Securities covered by such registration statement and each Requesting Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such holder promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to 26 245 be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and not file any amendment or supplement to such registration statement or prospectus to which any such seller or any Requesting Holder shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder, having been furnished with a copy thereof at least five business days prior to the filing thereof; (k) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (l) cooperate with the sellers of such Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which securities shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Securities to be in such denominations and registered in such names as such sellers may request at least two business days prior to any sale of Registrable Securities; (m) use its best efforts (x) to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange (if such Registrable Securities are not already so listed) and on each additional national securities exchange on which similar securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (y) to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule llAa2-1 of the Commission or, failing that, secure NASDAQ authorization for 27 246 such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; (n) provide a CUSIP number for all Registrable Securities, not later than the effective date of the applicable registration statement; and (o) enter into such agreements and take such other actions as the Requisite Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities. The Company may require each holder of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such holder and the distribution of such securities as the Company may from time to time reasonably request in writing. 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 each such holder 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 9.7. The holders of Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such holders of Registrable Securities. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and such holder's intended method of distribution and any other representation required by law. (b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time proposes to register any of its securities under the 28 247 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), use its best efforts, if requested by any holder of Registrable Securities, to arrange for such underwriters to include the Registrable Securities to be offered and sold by such holder among the securities to be distributed by such underwriters. The holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such holders of Registrable Securities. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and such holder's intended method of distribution and any other representation required by law. (c) HOLDBACK AGREEMENTS. (x) Each holder of Registrable Securities agrees, if so required by the managing underwriter, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such Registration Statement, during the seven days prior to the date on which any underwritten registration pursuant to section 9.1 or 9.2 has become effective and the 90 days thereafter, except as part of such underwritten registration or to the extent that such holder is prohibited by applicable law from agreeing to withhold Registrable Securities from sale or is acting in its capacity as a fiduciary or an investment adviser. Without limiting the scope of the term "fiduciary," a holder shall be deemed to be acting as a fiduciary or an investment adviser if its actions or the Registrable Securities proposed to be sold are subject to ERISA, the Investment Company Act of 1940 or the Investment Advisers Act of 1940 or if such Registrable Securities are held in a separate account under applicable insurance law or regulation. (y) The Company agrees (i) not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the seven 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, except as part of 29 248 such underwritten registration and except pursuant to registrations on Form S-4 or S-8 or any successor or similar forms thereto, and (ii) to cause each holder of its equity securities or of any securities convertible into or exchangeable or exercisable for any of such securities, in each case purchased from the Company at any time after the date of this Agreement (other than in a Public Offering), to agree not to effect any such public sale or distribution of such securities, during such period, except as part of such underwritten registration. 9.5. PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement under the Securities Act, the Company will give the holders of Registrable Securities registered under such registration statement, their underwriters, if any, each Requesting Holder and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 9.6. RIGHTS OF REQUESTING HOLDERS. The Company will not file any registration statement under the Securities Act, whether or not pursuant to registration rights granted to other holders of its securities and whether or not for sale for its own account (other than by a registration on Form S-4, S-8 or any successor form thereto), unless it shall first have given to each Person which holds any Registrable Securities issued by the Company at least 30 days' prior written notice thereof. Any such holder who shall so request within 30 days after such notice (a "Requesting Holder") shall have the rights of a Requesting Holder provided in sections 9.3, 9.5 and 9.7. In addition, if any registration statement refers to any Requesting Holder by name or otherwise as the holder of any securities of the Company, then such holder shall have the right to require (a) the insertion therein of language, in form and substance reasonably satisfactory to such holder, to the effect that, if true, the holding by such holder of such securities does not necessarily make such holder a "controlling person" of the Company within the meaning of the Securities Act and is not to be construed as a recommendation by such holder of the investment quality of the Company's debt or equity securities covered thereby and that such holding does not imply that such holder will assist in meeting 30 249 any future financial requirements of the Company, or (b) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any rules and regulations promulgated thereunder, the deletion of the reference to such holder. 9.7. INDEMNIFICATION. (a) The Company will, and hereby does, indemnify, to the extent permitted by applicable law, each holder of Registrable Securities and its Affiliates and their respective officers and directors, if any, and each Person, if any, who controls such holder within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities Act or common law or otherwise), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (and as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information furnished in writing to the Company by such holder expressly for use therein. If the offering pursuant to any registration statement provided for under this Agreement is made through underwriters, no action or failure to act on the part of such underwriters (whether or not any such underwriter is an Affiliate of any holder of Registrable Securities) shall affect the obligations of the Company to indemnify any holder of Registrable Securities or any other Person pursuant to the preceding sentence. If the offering pursuant to any registration statement provided for under this Agreement is made through underwriters, the Company agrees to enter into an underwriting agreement in customary form with such underwriters and the Company agrees to indemnify such underwriters, their officers and directors, if any, and each Person, if any, who controls such underwriters within the meaning of Section 15 of the Securities Act to the same extent as hereinbefore provided with respect to the indemnification of the holders of Registrable Securities; PROVIDED that the Company shall not be required to indemnify any such underwriter, or any officer or director of such underwriter or any Person who controls such underwriter within the meaning of Section 15 of the Securities Act, to the extent that the loss, claim, damage, liability (or proceedings in respect thereof) or expense for which indemnification is claimed results from such underwriter's failure to send or give a copy of the amended or 31 250 supplemented final prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such amended or supplemented final prospectus prior to such written confirmation and the underwriter was given notice of the availability of such amended or supplemented final prospectus. (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will indemnify, to the extent permitted by applicable law, the Company, its officers and directors and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses resulting from any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or preliminary prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue statement is contained in or such omission is from information so furnished in writing by such holder expressly for use therein, PROVIDED that such holder's obligations hereunder shall be limited to an amount equal to the proceeds to such holder of the Registrable Securities sold pursuant to such registration statement. (c) Any Person entitled to indemnification under the provisions of this section 9.7 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 9.7, except to the extent that the indemnifying party is actually prejudiced by such failure) and (y) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, permit such indemnifying party to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified party; and if such defense is so assumed, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party and such indemnifying party shall not be subject to any liability for any settlement made without its consent (which shall not be unreasonably withheld); and any underwriting agreement entered into with respect to any registration statement provided for under this Agreement shall so provide. In the event 32 251 an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim, unless in the reasonable judgment of any such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect to such claim. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of a participating holder of Registrable Securities, its officers, directors or any Person, if any, who controls such holder as aforesaid, and shall survive the transfer of such securities by such holder. (d) If the indemnification provided for in this section 9.7 shall for any reason be held by a court to be unavailable to an indemnified party under section 9.7(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 9.7(a) or (b), the indemnified party and the indemnifying party under section 9.7(a) or (b) shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (x) in such proportion as is appropriate to reflect the relative fault of the Company and the prospective sellers of Registrable Securities covered by the registration statement which resulted in such loss, claim, damage or liability, or action or proceeding in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action or proceeding in respect thereof, as well as any other relevant equitable considerations or (y) if the allocation provided by clause (x) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company and such prospective sellers from the offering of the securities covered by such registration statement, PROVIDED, that for purposes of clauses (x) or (y), the relative benefits received by the prospective sellers shall be deemed not to exceed the amount of proceeds received by such prospective sellers and no holder of Registrable Securities shall be required to contribute any amount in excess of the amount such holder could have been required to pay to an indemnified party if the indemnity under subsection (a) of this section 9.7 was available. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Such sellers' obligations to contribute as provided in this section 9.7(d) are several in proportion to the relative value of their 33 252 respective Registrable Securities covered by such registration statement and not joint. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. (e) Indemnification and contribution similar to that specified in the preceding subdivisions of this section 9.7 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation of any governmental authority other than the Securities Act. (f) An indemnifying party shall make payments of all amounts required to be made pursuant to the foregoing provisions of this section 9.7 to or for the account of the indemnified party from time to time promptly upon receipt of bills or invoices relating thereto or when otherwise due or payable. 9.8. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not effect or permit to occur any combination or subdivision of shares which would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in any registration of its securities contemplated by this section 9 or the marketability of such Registrable Securities under any such registration. 9.9. REGISTRATION RIGHTS TO OTHERS. If the Company shall at any time after the Initial Date provide to any holder of any securities of the Company rights with respect to the registration of such securities under the Securities Act, (a) such rights shall not be in conflict with any of the rights provided in this section 9 to the holders of Registrable Securities and (b) if such rights are provided on terms or conditions more favorable to such holder than the terms and conditions provided in this section 9 the Company will provide (by way of amendment to this Warrant or otherwise) such more favorable terms or conditions to the holders of Registrable Securities. The Company shall provide to the holders of Registrable Securities copies of any agreements which purport to grant rights with respect to the registration of any of the Company's securities to any holder or prospective holder thereof promptly upon executing the same. 9.10. Other Registration of Common Stock. If any shares of the Common Stock required to be reserved for purposes of issuance upon exercise of this Warrant in connection with their sale in a registration pursuant to section 9.1 or 9.2 34 253 require registration with or approval of any governmental authority under any federal or state law (other than the Securities Act) before such shares may be issued upon such exercise, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. 9.11. NOMINEES FOR BENEFICIAL OWNERS. For purposes of this section 9, in the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this section 9 or any determination of any number or percentage of shares of Registrable Securities held by any holder or holders of Registrable Securities contemplated by this section 9. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 9.12. RULE 144 AND RULE 144A. The Company shall take all actions reasonably necessary to enable holders of Registrable Securities to sell such securities without registration under the Securities Act within the limitation of the provisions of Rule 144 and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or any similar rules or regulations hereafter adopted by the Commission, including, without limitation, filing on a timely basis all reports required to be filed pursuant to the Exchange Act. 10. AVAILABILITY OF INFORMATION. The Company will cooperate with each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will furnish to each holder of any Warrants, 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 the Warrants, the number of shares of Common Stock (or Other Securities) from time to time issuable 35 254 upon exercise of all Warrants at the time outstanding. All shares of Common Stock (or Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable, with no liability on the part of the holders thereof. 12. LISTING ON SECURITIES EXCHANGE. The Company will (a) list on each national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon exercise of the Warrants, and will maintain such listing of, all shares of Common Stock from time to time issuable upon exercise of the Warrants or (b) secure and maintain designation of all shares of Common Stock from time to time issuable upon exercise of the Warrants 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 any 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 1,666 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 36 255 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 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 consolidating with or merging into the Company in a consolidation or merger in connection with which the Common Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, or, in the case of a capital reorganization or reclassification, the Company. ACQUISITION PRICE: as applied to the Common Stock, with respect to any transaction to which section 3 applies, (a) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the date of consummation of such transaction: (x) the Market Price of the Common Stock and (y) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which the holder of this Warrant would have been entitled as a shareholder to receive upon such consummation if such holder had exercised this Warrant immediately prior thereto, or (b) if a purchase, tender or an exchange offer is made by the Acquiring Person (or by any of its affiliates) to the holders of the Common Stock and such offer is accepted by the holders of more than 50% of the outstanding shares of Common Stock, the greater of (i) the price determined in accordance with the foregoing, subdivision (a) and (ii) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the acceptance of such offer by the holders of more than 50% of the outstanding shares of Common Stock: (A) the Market Price of the Common Stock and (B) the highest amount of 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 hereof, whether or not 37 256 subsequently reacquired or retired by the Company, other than (a) shares of Common Stock issued upon the exercise of Warrants and (b) not more than 730,000 shares of Common Stock issued upon the exercise of stock options granted to directors, officers and other employees of the Company pursuant to the DTN Stock Option Plan of 1989, as amended, and the DTN Non-Employee Director Option Plan and (c) 66,550 shares of Common Stock issuable upon the exercise of existing warrants. BASE PRICE: on any date specified herein, the lesser of (a) the Current Market Price and (b) the Warrant Price. BUSINESS DAY: any day other than a Saturday or a Sunday or a day on which commercial banking institutions in the City of New York are authorized by law to be closed, provided that, in determining the period within which certificates or Warrants are to be issued and delivered pursuant to section 1.3 at a time when shares of Common Stock (or Other Securities) are listed or admitted to trading on any national securities exchange or in the over-the-counter market and in determining the Market Price of any securities listed or admitted to trading on any national securities exchange or in the over-the-counter market, "Business Day" shall mean any day when the principal exchange in which securities are then listed or admitted to trading is open for trading or, if such securities are traded in the over-the-counter market in the United States, such system is open for trading, and provided, further, that any reference to "days" (unless Business Days are specified) shall mean calendar days. COMMISSION: the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose. COMMON STOCK: the Company's common stock, par value $.001 per share, as constituted on the date hereof, any stock into which such common stock shall have been changed or any stock resulting from any reclassification of such common stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. COMPANY: Data Transmission Network Corporation, a Delaware corporation. CONVERTIBLE SECURITIES: any evidences of indebtedness, shares of stock (other than Common Stock) or other securities 38 257 directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. CURRENT MARKET PRICE: on any date specified herein, (a) with respect to Common Stock or to Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, (x) the average daily Market Price during the period of the most recent 20 consecutive Business Days ending on such date, or (y) if shares of Common Stock or such Voting Common Stock (or equivalent equity interests), as the case may be, are not then listed or admitted to trading on any national securities exchange and if the closing bid and asked prices thereof are not then quoted or published in the over-the-counter market, the Market Price on such date; and (b) with respect to any other securities, the Market Price on such date. EXCHANGE ACT: the Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the commission thereunder, all as the same shall be in effect at the time of determination. FAIR VALUE: with respect to any securities or other property, the fair value thereof as of a date which is within 15 days of the date as of which the determination is to be made (a) determined by an agreement between the Company and the Requisite Holders or (b) if the Company and the Requisite Holders fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by the Requisite Holders, either of which firms may be an independent investment banking firm regularly retained by the Company or any such holder or (c) if the Company or such holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by such holders or the Company, as the case may be, determined solely by the firm so retained or (d) if the firms so retained by the Company and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm which is not a regular investment banking firm of the Company or any such holder chosen by the first two such firms. Each of the Company and the holders of the Warrants shall be responsible for the fees and expenses of the investment banking firm retained by them under the foregoing clause (b) and shall share equally the fees and expenses of any investment banking firm retained under the foregoing clause (d). INITIAL DATE: the meaning specified in section 2.2. 39 258 INITIATING HOLDERS: any holder or holders of at least 50% of all outstanding Registrable Securities making a written request pursuant to section 9.1 for the registration of all or part of the Registrable Securities (but not less than 50% of all outstanding Registrable Securities) held by such holder or holders. 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 (x) the book value thereof as determined by agreement between the Company and the Requisite Holders, or if the Company and the Requisite Holders fail to agree, by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Company, as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made and (y) the fair value thereof determined in good faith by the Board of Directors of the issuer 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. NASDAQ: the Automated Quotation System of the NASD. 40 259 NOTES: the meaning specified in the opening paragraphs of this Warrant. OPTIONS: rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. OTHER SECURITIES: any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants 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 section 3 or otherwise. PARENT: as to any Acquiring Person, any corporation 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, 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. PURCHASE AGREEMENT: the meaning specified in the opening paragraphs of this Warrant. PURCHASER: the meaning specified in the opening paragraphs of this Warrant. 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 Registrable Securities, once issued such securities shall cease to be Registrable Securities when (x) a registration statement with respect to the sale of 41 260 such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (y) they shall have been sold as permitted under Rule 144 (or any successor provision) under the Securities Act, or (z) they shall have ceased to be outstanding. REGISTRATION EXPENSES: all expenses incident to the Company's performance of or compliance with section 9, including, without limitation, all registration, filing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance (provided that "Registration Expenses" will not include any "cold comfort" letter requested solely by the holders of Registrable Securities in connection with any registration if the Company shall not have elected or been required by the underwriters with respect to such registration to cause such a letter to be delivered), the reasonable fees and disbursements of a single counsel and single firm of accountants retained by the holders of the Registrable Securities being registered, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company, or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. REQUESTING HOLDER: the meaning specified in section 9.6. REQUISITE HOLDERS: the holders of more than 50% of all the Warrants at the time outstanding determined on the basis of the number of shares of Common Stock or Other Securities deliverable upon exercise thereof. RESTRICTED SECURITIES: (a) any Warrants bearing the applicable legend set forth in section 8.1, (b) any shares of 42 261 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, and (c) unless the context otherwise requires, any shares of Common Stock (or Other Securities) which are at the time issuable upon the exercise of Warrants and which, when so issued, will be evidenced by a certificate or certificates bearing the applicable legend set forth in such section. SECURITIES ACT: the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time of determination. SUBSIDIARY: any corporation, association or other business entity a majority (by number of votes) of the Voting Common Stock of which is at the time owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. TRANSFER: unless the context otherwise requires, any sale, assignment, pledge or other disposition of any security, or of any interest therein, which could constitute a "sale" as that term is defined in section 2(3) of the Securities Act. VOTING COMMON STOCK: with respect to any corporation, association or other business entity, stock of any class or classes (or equivalent interest) , if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or persons performing similar functions) of such corporation, association or business entity, even if the right so to vote has been suspended by the happening of such a contingency. WARRANT PRICE: the meaning specified in section 2.1. WARRANTS: the meaning specified in the opening paragraphs of this Warrant. 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. 43 262 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 any holder of any Warrant or any holder of any Common Stock (or Other Securities), at the registered address of such holder as set forth in the register kept at the principal office of the Company, or (b) if to the Company, to the attention of its Chief Financial Officer at its principal office, provided that the exercise of any Warrant shall be effected in the manner provided in section 1. 18. EXPIRATION; NOTICE. The Company will give the holder of this Warrant no less than 45 days' nor more than 90 days" notice of the expiration of the right to exercise this Warrant. The right to exercise this Warrant shall expire at 3 P.M., New York City time, June 30, 2004. The registration rights provided in section 9 shall expire at 3 P.M., New York City time, June 30, 2004 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 44 263 of New York. The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof. DATA TRANSMISSION NETWORK CORPORATION By:______________________ Title: 45 264 FORM OF SUBSCRIPTION (To be executed only upon exercise of Warrant) To _________________ The undersigned registered holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder, __________ shares of Common Stock of Data Transmission Network Corporation, a Delaware corporation, and herewith makes payment of $_________ therefor [by application pursuant to section 1.5 of such Warrant of $ ________ aggregate principal amount of Notes (as defined in such Warrant) plus $ _______ accrued interest thereon], and requests that the certificates for such shares be issued in the name of, and delivered to ______________, whose address is ______________. Dated: ________________ ---------------------- (Signature must conform in all respects to name of holder as specified on the face of this Warrant) [insert address] 46 265 FORM OF ASSIGNMENT (To be executed only upon transfer of Warrant) For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto _____________________ the right represented by such Warrant to purchase __________ shares of Common Stock of Data Transmission Network Corporation, a Delaware corporation, to which such Warrant relates, and appoints ______________ Attorney to make such transfer on the books of _____________ maintained for such purpose, with full power of substitution in the premises. Dated: ________________ ---------------------- (Signature must conform in all respects to name of holder as specified on the face of this Warrant) [insert address] Signed in the presence of: - ------------------------- 47 266 EX-10 10 1ST AMEND TO NOTE AND WARRANT PURCHASE AGREEMENT NOTE AND WARRANT PURCHASE AGREEMENT This First Amendment to Note and Warrant Purchase Agreement (this "First Amendment") is dated as of April 13, 1995, and entered into by and among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation ("Company"), and THE NOTEHOLDERS LISTED ON THE SIGNATURE PAGES HEREOF (collectively the "Noteholders"). RECITALS: WHEREAS, Company and the initial purchaser of the Notes entered into that certain Note and Warrant Purchase Agreement dated as of June 30, 1994 (the "Purchase Agreement"), the terms defined therein being used herein as therein defined; and WHEREAS, Company and Noteholders desire to amend the Purchase Agreement as hereinafter set forth to modify certain financial covenants contained therein; NOW, THEREFORE, subject to the terms and conditions herein contained, the parties hereto hereby agree as follows: Section 1. AMENDMENTS TO THE PURCHASE AGREEMENT. 1.1 Subsection 10.5 of the Purchase Agreement hereby is amended and restated in its entirety to read as follows: "10.5. Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio to be less than 2.0 to 1.0." 1.2 Section 14 of the Purchase Agreement hereby is amended by adding in its proper alphabetical order the following definition: "Interest Coverage Ratio: For any calendar quarter, the ratio of (i) Consolidated Operating Cash Flow for such calendar quarter to (ii) consolidated interest expense for the Company and its Subsidiaries for such calendar quarter determined in accordance with generally accepted accounting principles; provided, however, such interest expense shall not include amortization of deferred offering costs nor any fees the Company is obligated to pay upon the occurrence of a "Trigger Event" as defined in Section 2.4 of the Bank Loan Agreement." 1.3 Section 14 of the Purchase Agreement hereby is amended by deleting in its entirety the definition of Consolidated Tangible Net Worth. RCF\64596.1 267 Section 2. COMPANY'S REPRESENTATIONS AND WARRANTIES. In order to induce the Noteholders to enter into this First Amendment and to amend the Purchase Agreement in the manner provided herein, Company represents and warrants to the Noteholders that the following statements are true, correct and complete: 2.1 Organization and Powers. Company has all requisite corporate power and authority to enter into this First Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Purchase Agreement as amended by this First Amendment (the "Amended Agreement"). 2.2 Authorization of Agreements. The execution and delivery of this First Amendment have been duly authorized by all necessary corporate action by Company. 2.3 Binding Obligation. This First Amendment and the Amended Agreement are the legally valid and binding obligations of Company enforceable against Company in accordance with their respective terms, except as enforcement may be limited to bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. Section 3. NOTEHOLDERS' REPRESENTATIONS AND WARRANTIES. In order to induce Company to enter into this First Amendment and to amend the Purchase Agreement in the manner provided herein, the Noteholders represent and warrant to Company that collectively the Noteholders are the holders of more than 50% in principal amount of the Notes outstanding on the date of this First Amendment. Section 4. MISCELLANEOUS. 4.1 Reference to and Effect on the Purchase Agreement. From and after the date of this First Amendment, each reference in the Purchase Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in any other documents relating to the Purchase Agreement, shall mean and be a reference to the Purchase Agreement as amended by this First Amendment. Except as specifically amended by this First Amendment, the Purchase Agreement and the other documents relating to the Purchase Agreement shall remain in full force and effect and are hereby ratified and confirmed. 4.2 Execution in Counterparts; Effectiveness. This First Amendment may be executed in any number of counterparts and by the different parties herein in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the RCF\64596.1 268 same instrument. This First Amendment shall become effective upon the execution of a counterpart hereof by each of the parties hereto. 4.3 Governing Law. This First Amendment shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York. 4.4 Headings. Section and subsections headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose or be given any substantive effect. WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first above written. COMPANY: DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation By: /s/ Greg T. Sloma ------------------------------ Title: Executive Vice President and Chief Operating Officer ------------------------------ NOTEHOLDERS: EQUITABLE CAPITAL PRIVATE INCOME AND EQUITY PARTNERSHIP II, L.P. By: EQUITABLE CAPITAL MANAGEMENT CORPORATION, its General Partner By: /s/ U. Peter C. Gummeson ------------------------------- Title: Investment Officer RCF\64596.1 269 EX-11 11 INCOME PER SHARE
EXHIBIT 11 DATA TRANSMISSION NETWORK CORPORATION - -------------------------------------------------------------------------------------------- COMPUTATION OF NET INCOME (LOSS) PER SHARE - -------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------------- 1995 1994 1993 ------------ ------------ --------- Primary Computation of income per common and common equivalent share: Net income (loss) ($ 283,076) ($1,602,738) $ 663,831 ============ ============ ========== Average shares outstanding 3,302,864 3,253,400 3,195,534 Add shares applicable to stock options & warrants (1) - - 91,040 Add shares applicable to stock options & warrants prior to conversion, using average market price prior to conversion (1) - - 276 ---------- ------------ ---------- Total shares 3,302,864 3,253,400 3,286,850 ========== ============ ========== Per common share: Net income (loss)(1) ($0.09) ($0.49) $0.20 ========== ======= ========== - ------------------------------------------------------------------------------------------- (1) Shares applicable to warrants and stock options are antidilutive for the period ended December 31, 1995 and 1994, and thus, are excluded from the calculation of net loss per common share.
270
EXHIBIT 11-Pg 2 DATA TRANSMISSION NETWORK CORPORATION - ------------------------------------------------------------------------------------------ COMPUTATION OF NET INCOME (LOSS) PER SHARE - ------------------------------------------------------------------------------------------ Year Ended December 31, 1995 1994 1993 ------------ ------------ ------- Fully Dilutive Computation of income per common and common equivalent share: Net income (loss) ($ 283,076) ($1,602,738) $ 663,831 ============ ============ ========== Average shares outstanding 3,302,864 3,253,400 3,195,534 Add shares applicable to stock options & warrants (1) - - 185,515 Add shares applicable to stock options & warrants prior to conversion, using average market price prior to conversion (1) - - 1,048 ------------ ------------ ---------- Total shares 3,302,864 3,253,400 3,382,097 ============ ============ ========== Per common share: Net income (loss) ($0.09) ($0.49) $0.20 ============ ============ ========== - ------------------------------------------------------------------------------------------ (1) Shares applicable to warrants and stock options are antidilutive for the period ended December 31, 1995 and 1994, and thus, are excluded from the calculation of net loss per common share.
271 EX-13 12 1995 ANNUAL REPORT Data Transmission Network Corporation (DTN), an electronic information and communication services company headquartered in Omaha, NE, is a leader in the electronic satellite delivery of time-sensitive information (NEWS...NOT HISTORY). DTN is committed to providing our customers with the best information and analysis available, as quickly as possible, at an affordable cost. DTNs services are tailored to meet our subscribers needs and are valuable tools in managing business and personal affairs. The company began operations in 1984, went public in January, 1987, and has continued to evolve into a full-service information provider and communication network. DTN distributes information via FM radio side-band channels, small dish Ku-band satellite, TV cable (VBI-vertical blanking interval), FAX, E-Mail and the Internet. Most subscribers utilize a DTN receiver that captures information around the clock and converts it into text, graphics and audio available at the subscribers convenience. Prior to 1992, DTN supported only a monochrome receiver system with the capability to receive and display information. In 1992, the company introduced the Advanced Communications EngineSM (ACE) receiver that expanded the information and communications services provided by the company. This receiver has multiple processors that capture, manipulate and display high resolution color video pictures, graphics and text. In addition, these processors provide the ability to play audio clips and to utilize a phone modem. The ACE receiver is equipped with an internal hard drive that allows processed information to be stored, archived and then displayed by using the built-in control panel, a keyboard or a mouse at the subscribers convenience. DTNs services reach 95,900 subscribers in the U.S. and Canada. The company has services for the agriculture, automotive, energy, farm implement, financial, mortgage, produce and weather related industries. The services include DTN AgDaily, targeted for agribusinesses; DTN Pro SeriesSM, an advanced information service for agribusinesses; DTNstant/ Knight-Ridder, a real-time agriculture ticker service; DTNironSM for the farm implement dealer; DTN PROduceSM for the produce industry; DTN Weather CenterSM, for the golf, aviation and construction industries; DTN Wall Street for the financial industry; DTN SPECTRUMSM, an enhanced version of DTN Wall Street on the ACE technology; DTN FirstRateSM for the mortgage industry; DTN GovRateSM for U.S. government securities; DTNergy for the petroleum and natural gas industries; DTNautoSM linking auto auctions and auto dealers; and joint ventures in the electrical equipment and trucking industries. 272 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Financial Highlights ...................................................... 2 Five Years in Review ...................................................... 2 Letter to Stockholders .................................................... 4 Business Review ........................................................... 6 Selected Financial Data ................................................... 16 Management's Discussion and Analysis ...................................... 17 Management's Responsibilities ............................................. 21 Independent Auditor's Report .............................................. 21 Financial Statements ...................................................... 22 Notes to Financial Statements ............................................. 26 Quarterly Data ............................................................ 31 Trading Information ....................................................... 31 Investor Information ...................................................... 32 Directors and Officers .................................................... 32 Mission Statement ......................................................... 33 1 273
- --------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------------------------- 1995 1994 % Change For the Year: ------------ ------------ ---------- Revenues ................................ $ 62,287,989 $ 46,109,789 35 % Operating cash flow(1) .................. 23,154,402 15,750,727 47 % Income (loss) before income taxes ....... (397,076) (2,422,738) -- Net income (loss) ....................... (283,076) (1,602,738) -- Net income (loss) per share ............. $ (.09) $ (.49) -- At Year End: Total assets ............................ $ 92,672,050 $ 71,459,356 30 % Long-term debt and subordinated notes ... 47,020,527 33,982,814 38 % Stockholders equity ..................... 12,876,965 12,706,978 1 % Book value per share .................... $ 3.88 $ 3.86 1 % Key Indicators: Total subscribers at year-end ........... 95,900 82,000 17 % Subscriber retention rate ............... 91.0% 89.8 % 1 % Net development costs(2) ................ $ 3,733,530 $ 4,334,950 (14)% Operating cash flow from core services(3) $ 26,749,974 $ 20,035,025 34 % As a percent of revenue: Operating cash flow(1) .................. 37.2 % 34.2 % Operating cash flow from core services(3) 44.4 % 43.8 % Depreciation and amortization ........... 30.2 % 32.7 % Interest ................................ 7.7 % 6.8 % Net income (loss) before income taxes ... (.6)% (5.3)% (1) Operating income before depreciation and amortization expense. (2) Net Development Costs are defined as the sum of 1) market research activities, 2) hardware and software engineering, research and development and 3) the negative operating cash flow (prior to corporate allocations plus interest) of new services. (3) Core services are services no longer in the initial development process. Operating cash flow from core services as a percent of revenue is calculated on core services revenue.
274 - -------------------------------------------------------------------------------- FIVE YEARS IN REVIEW - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORM: 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Revenues ($ millions) 21.5 26.8 36.0 46.1 62.3 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Operating Cash Flow ($ millions) 8.2 9.9 12.9 15.8 23.2 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Operating Cash Flow (% of revenue) 38% 37% 36% 34% 37% 2 275 - -------------------------------------------------------------------------------- FIVE YEARS IN REVIEW - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORM: 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Subscribers at Year End (thousands) 63.3 67.6 74.1 82.0 95.9 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Subscriber Retention Rate (percent) 90.0 88.2 88.8 89.8 91.0 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Net Development Costs ($ millions) 0.4 1.1 2.7 4.3 3.7 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Primary Services at Year End 3 3 6 10 14 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Annual Revenue per Subscriber ($ based on average subscribers) 371 409 507 591 700 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Annual Operating Cash Flow per Subscriber ($ based on average subscribers) 141 151 183 202 260 3 276 - -------------------------------------------------------------------------------- LETTER TO STOCKHOLDERS - -------------------------------------------------------------------------------- Today is February 24th, 1996, it is Saturday and it is a beautiful day in Omaha, Nebraska (clear and about 70 degrees). A particularly inviting break in a very cold winter. So, if this communication becomes abbreviated you will know that temptation bested me. Your company experienced significant growth in 1995 and the following highlights speak for themselves. - Revenues rose 35% to $62,288,000. - Operating cash flow (operating income before depreciation and amortization expense) grew 47% to $23,154,000. - Operating cash flow before expenses and revenue associated with new services was 44.4% of revenue for 1995 vs. 43.8% for 1994. - Total subscribers increased 17% to 95,900. - Subscriber retention improved to 91.0% in 1995 vs. 89.8% in 1994 and 88.8% in 1993. One of the most important components of the above financial highlights is an increase in our per subscriber, per month subscription revenue. Average per subscriber, per month revenue has increased from $30.39 in 1993 to $36.14 for 1994 and $43.60 for 1995. The most influential factor in these incremental increases is that the average per subscriber, per month subscription revenue for new sales continues to increase. For 1995, this number was over $61.00. We strive to solve more complex information needs for the industries we serve and as such we are able to charge a little more. During 1995, the company introduced four new information services: DTN Weather Center, DTN Spectrum, DTN GovRate and DAT Transportation Terminal. (See Business Review section pages 8 thru 15 for service descriptions). The following is a chronological list of all current DTN services.
Year/Month Service ------------ ---------------------- 1984 Dataline/DTN AgDaily 1989 DTN Wall Street 1991 DTNergy 1993 DTNstant 1993 DTNauto 1993 DTNiron 1994/January TracElectric 1994/May DTN First Rate 1994/June DTN Pro Series 1994/October DTN PROduce 1995/April DTN Weather Center 1995/November DTN Spectrum 1995/November DTN GovRate 1995/December DAT Transportation Terminal
4 277 Our growth in new services offered is a result of our commitment to new product research and development. Consistent with our strategy to invest in the future, the company acquired 2,900 Knight Ridder Commodity News Service subscribers from Knight Ridder Financial. All 2,900 subscribers use instant (vs. delayed) futures and options quotes, and, coupled with our DTNstant subscribers make us the largest supplier of instant futures and options quotes to the agricultural segment Our growth in services offered influenced us to increase resources allocated to our distribution capabilities. As such, during 1995, we nearly doubled our field sales force, our telemarketing sales force, and our corresponding support staff. Growth in our distribution capability will continue to be a high priority in 1996. As is described in greater detail in the following Business Review section, your company uses a variety of technologies to deliver our information services. Our primary technologies include: FM radio side-band channels, KU-band satellite and TV cable (VBI-vertical blanking interval). Lessor used technologies by DTN are FAX and E-mail, and like virtually all the rest of planet Earth we are experimenting with use of the Internet. For 1995, all communication cost associated with the delivery of our information divided by our total subscriber days equal $.06 per subscriber per day. The math demonstrates the economics of broadcast technology for sending rapidly changing point to multi point information. When, or if, another medium/carrier/technology can deliver as much information, as timely and economically, 24 hours per day we will use it. Busy people are increasingly seeking comprehensive sources of timely, affordable, relevant information. We feel we are in the catbirds seat to play a major role in fulfilling this demand. Henry Ford is credited with saying enthusiasm is at the bottom of all progress. If such is the case, we are about to experience considerable progress. My hats off to our customers, employees, stockholders, financiers and suppliers for their loyalty, confidence and support. Very sincerely yours, /s/ Roger Brodersen ------------------------ Chairman and CEO 5 278 - -------------------------------------------------------------------------------- BUSINESS REVIEW - -------------------------------------------------------------------------------- Data Transmission Network Corporation (DTN) began operations in April, 1984. The company is in the business of providing information and communication services. During 1995, four new services were released: DTN Weather Center, DTN SPECTRUM, DTN GovRate and a joint venture DAT (Dial-a-Truck) Transportation Terminal. DTNs services reach 95,900 subscribers in the U.S. and Canada. All of these services are discussed in this report. The companys subscription services are targeted at niche business markets and designed to be timely (NEWS...NOT HISTORY), simple to use, and convenient. The companys information distribution technology provides an efficient means of sending data and information from point to multi-point. The development of a cost-effective electronic satellite delivery system, plus a total commitment to customer service and information quality, has enabled the company to become a major player in the communication industry. The company continues to make a large investment to develop and enhance its information distribution technology. This investment has allowed the company to take advantage of many engineering and software advancements in an exciting and growing industry. INFORMATION DISTRIBUTION TECHNOLOGY The company is committed to research and to develop information distribution technologies to cost effectively deliver the timely information (NEWS...NOT HISTORY) that the companys subscribers demand. DTN supports several information distribution technologies allowing the distribution (transmission) and receiving (capture, manipulation and display) of information. These technologies include, FM radio side-band channels (FM), small dish Ku-band satellite (Ku), FAX, E-Mail, TV cable (VBI) (VBI-vertical blanking interval) and the Internet. The first technology used by the company was FM. The Ku technology was added in 1989, providing the ability to reach customers outside the geographic territory of the signal of the FM stations. FAX, TV cable (VBI), E-Mail and the Internet have since been added to further expand our distribution network. The company provides all of the equipment necessary for subscribers to receive their service based on FM, Ku, TV cable (VBI) and E-Mail technologies. This equipment includes a receiver, specifically built for the company, a video 6 279 monitor, an FM antenna or a small 30 Ku-band satellite dish. A keyboard, mouse and printer may be provided depending on the service. DTN is responsible for the normal maintenance and repair of the subscriber equipment. Prior to 1992, the company utilized a page-based receiver and monochrome system. The monochrome system translates the companys data stream into text and has the capability, depending on capacity, to receive and display from 126 to 246 different pages of information. The monochrome receiver has the capability to download information to a printer or computer. In 1992, the company introduced the Advanced Communications Engine SM (ACE) receiver, a color graphics receiver system, that expanded the ability to provide information and communications services. This receiver has multiple processors that capture, manipulate and display high resolution color pictures, graphics and text. A separate processor provides the ability to play audio clips such as weather forecasts, voice advertisements or audio alarms used when a futures contract reaches a pre-set price. In addition, this processor may send and retrieve information by using an internal modem. The receiver has the ability to download information to a printer or computer. This receiver is equipped with an internal hard drive that allows processed information to be stored, archived (versus frequent rebroadcasting) and then displayed using the receivers built-in control panel, a keyboard or a mouse at the subscribers convenience. One of the unique aspects of the companys information distribution technology is the computer software developed by the company specifically for use with the DTN receivers. This software manages information from a wide array of input sources, runs routines, sets priorities and then initiates transmissions to the satellite. The software provides the capability to individually address each receiver unit placed with a subscriber, permitting the company to transmit specific information to a specific subscriber(s). The company leases FM radio side-band channels, satellite channels and TV cable (VBI) to deliver the information to the companys receivers used by its subscribers. All information is up-linked from Omaha to satellite (except FAX and other telephone delivery technology) and down-linked from the satellite to the subscriber based on the distribution technology. The FM monochrome subscribers receive their information using an FM antenna that receives the information via the side-band signal transmitted from the radio stations. On December 31, 1995, 19,000 subscribers were receiving the companies services via FM distribution technology. The Ku subscribers utilize a 30 satellite dish, a direct down-link, to receive their information. On December 31, 1995, 74,400 subscribers were receiving the companies services via Ku distribution technology. 280 Early in 1994, the company began using a new TV cable distribution technology involving vertical blanking intervals (VBI). The company has contracted with a major cable TV superstation to transmit information along with the stations TV signal. This technology eliminates the need for an FM antenna or satellite dish and is available to businesses or residences that are wired for cable TV and receive the superstations service. On December 31, 1995, 2,500 subscribers were receiving the companies services by VBI distribution technology. The company has approximately 8,000 FAX customers receiving information using FAX technology. The E-Mail business is primarily a subscriber (an E-Mail source) communicating specific messages to a group of subscribers. Currently, there are over 200 E-Mail sources delivering over 1,000 pages of information to subscribers. The company began to deliver services on the Internet in 1995 and plans to continue researching this information distribution technology. SERVICES OFFERED The companys revenue is derived mainly from five categories: (1) monthly, quarterly or annual subscriptions, (2) optional service subscriptions, (3) communication services, (4) advertising and (5) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was:
1995 1994 1993 ---- ---- ---- Subscriptions 74% 73% 72% Optional services 6% 8% 7% Communication services 11% 10% 9% Advertising 3% 5% 7% Service Initiation Fees 6% 4% 5%
The subscription revenue is monthly, quarterly or annual subscription fees for one of the companys services. A more detailed review of each service is found later in this report. Optional services are offered to subscribers on an a la carte basis, similar to premium channels on cable TV. The information for these services is primarily provided by a third party with DTN receiving a share of the subscription revenue paid by the subscriber. Optional services revenue continues to grow but has decreased as a percentage of total revenue primarily due to the growth in subscriptions revenue. The company sells communication services that allow companies to cost-effectively communicate a large amount of time-sensitive information 7 281 (NEWS...NOT HISTORY) to their customers or field offices. This category includes revenue generated from FAX and E-Mail services. The company sells advertising space interspersed among the pages of news and information, similar to a newspaper or magazine. The advantage of an electronic advertisement over typical print media is the time-sensitive (NEWS...NOT HISTORY) delivery of the ad, as well as the ability to change the advertising message quickly and as frequent as market conditions dictate. Advertising revenue continues to grow but has decreased as a percentage of total revenue primarily due to the growth in subscriptions revenue. Service initiation fees are one-time charges to new subscribers depending on the service and the information distribution technology. DTN also charges an initiation fee for those subscribers who convert to another service (ie: from a monochrome FM to a Ku color service) DTN AGRICULTURAL SERVICES The DTN Agricultural related services include DTN AgDaily, DTNstant/Knight-Ridder, DTNironSM, DTN Pro Series, DTN PROduceSM and DTN Weather CenterSM. GRAPH IN TABULAR FORM: 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- DTN Ag Services Revenue ($ million) 18.8 20.6 27.0 33.7 45.0 DTN AGDAILY SERVICE SERVICE REVIEW The companys first service, DTN AgDaily, is an agricultural market information and quotes service. Monochrome (FM and Ku) DTN AgDaily subscribers receive delayed commodity futures and options quotes; local cash grain and livestock prices; selected regional and world weather updates; and a variety of daily analysis, commentary and news that affects grain and livestock prices. The DTN AgDaily color Ku graphics system includes an advanced weather segment with national and regional radar maps (updated every 15 minutes), satellite cloud cover maps, precipitation and temperature maps and much more. The subscriber can custom design high resolution charts and/or select from a library that holds over 1,000 charts. Subscribers can custom program the futures quotes pages to display only the quotes they desire. The service also includes information segments for specific crop and livestock enterprises. Subscribers can select from more than 100 different optional services. The majority of these services have information provided by third parties and range from more advanced weather information to advisory services for specific commodities. 282 Approximately 80% of the services subscribers are farmers or livestock producers with the balance consisting primarily of grain elevators, agribusinesses, and financial institutions. DTN AgDaily subscribers farm one quarter of the nations total cropland and market 50% of the nations cattle and hogs. This service has approximately 70% of the market for satellite-delivered agricultural news and information services. Subscribers can be found all across the U.S and Canada. The biggest competitors to this service are considered to be the combination of printed advisory services, radio, television, telephone, other satellite information services, on-line services and the changing of old information gathering habits. The company believes it provides a superior service compared to the services available by its leading competitors. New subscriptions are primarily sold by a sales force of employee district sales representatives as well as by independent, commission-only sales representatives. The company obtains leads for the sales force through telemarketing, direct mail, print media advertising and customer referrals. The price of the monochrome FM service is $25.99 per month, $32.99 per month for monochrome Ku service and $45.99 per month for color Ku service. The company offers a discount to subscribers who pre-pay their subscriptions annually. 1995 HIGHLIGHTS DTN AgDaily remains the companys largest service and its 1995 performance met managements expectations. Twenty percent operating revenue growth (total revenue less service initiation fees) and over six percent net subscriber growth demonstrated acceptance of higher-priced services and increased subscriptions to optional services. Subscribers continue to convert to the color system and represent 60% of the services total subscribers compared to 50% in 1994. The company doubled the number of the district sales representatives, positioning the company to cover more territory within the U.S. and Canada. The 8 283 number of subscribers in Canada increased 61% in 1995 compared to 1994. Management will continually analyze the markets in the U.S. and Canada to determine the optimum district sales representatives necessary to cost-effectively maximize sales. DTN AgDaily introduced a number of enhancements to the service during 1995. The service began offering crop liability insurance and livestock profitability calculators by using the inter-activity feature that allows a subscriber to search a comprehensive database. This feature also allowed subscribers to search a comprehensive seed catalog. Weather information advancements increased the sensitivity of radar maps, increased the number of weather reporting stations and added new maps for 30 and 90 day forecasts. In 1995, the ag related services sold over $1.9 million in advertising space. The companies purchasing advertising are considered major players in the agriculture, ag chemicals, seeds, equipment and finance businesses. The color system capabilities, such as inter-activity and animation, continue to entice new advertisers. Advertising research in 1995 confirmed that the company has become a major player in the farm media field. DTN AgDaily management believes the trend toward consolidation into larger farms is expanding the market for agricultural information services. This expansion should provide steady growth for DTN AgDaily as well the other agricultural related services; DTN Pro Series, DTNstant/Knight-Ridder, DTNiron, DTN PROduce, and DTN Weather Center. DTNSTANT/KNIGHT-RIDDER SERVICE SERVICE REVIEW DTNstant/Knight-Ridder(formerly DTNstant) is a color service that provides a selection of real-time futures and options quotes from the major commodity exchanges. The service also provides headline commodity news, market leading cash information, in-depth charting capabilities plus all the information available on the DTN AgDaily color service. The primary subscribers are commercial grain companies and elevators, feedlots, commodity brokers and commodity speculators. Due to the character of this industry, the company provides on-site service and installation by professional service technicians. DTNstant/Knight-Ridder operates in a very competitive market with numerous national and regional providers of instant commodity quotes. This service is the leader in the satellite delivery of instant futures and options quotes. New subscriptions are primarily sold by the district sales force which is supported by telemarketing and direct mail campaigns. This service is available only by color Ku-band satellite transmission and is priced at $160.00 a month. 1995 HIGHLIGHTS In July of 1995, the acquisition of 2,900 subscribers from Knight-Ridder Commodity Center made the DTNstant/Knight-Ridder service the leader in the instant commodity information industry. This acquisition more than doubled the subscriber base with revenue increasing 84% in 1995 compared to 1994. The transition of the acquired subscribers to the DTN ACE receiver is moving forward as planned. 284 As a result of the Knight-Ridder acquisition, subscribers have seen several notable enhancements to the service. The addition of the Associated Press, Futures World News, Knight-Ridder and DTN news services are among these enhancements. This service also provides information for the energy, metals, softs (ie: orange juice, coffee, cocoa), transportation and lumber industries. There are no other services in the industry offering a more comprehensive news and information source. DTNIRON SERVICE SERVICE REVIEW DTNiron is a color service providing a cost-effective communication resource for the farm implement industry. DTNiron is an equipment locator and inventory management service providing a communication tool for the farm implement dealers throughout the U.S and Canada. The service allows dealers of all makes of farm implement equipment to work together to manage their inventory resulting in increased sales and profitability. This service provides valuable information on the national outlook for farm equipment sales. 9 285 DTNiron provides detailed listings of farm implement equipment for sale by dealers as well as equipment needed by other dealers. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily color service. This service is only available by color Ku-band satellite transmission and costs $94.50 a month. 1995 HIGHLIGHTS The subscriber growth for 1995 was a 44% increase over 1994. Total implement and equipment listings on the service reached a record high of 11,000 at year end, and averaged 2,500-3,500 new listings each month. A listing stays on the system for a minimum of 30 days, renewable at the dealers request. The DTNiron service opened its listings to construction equipment, trucks, trailers and other equipment that is found in the agriculture industry. The service also started providing listings for implement and equipment parts, especially hard to find parts. In addition, the service regionalized the listings and started hourly updates to keep the information as current as possible. All of these new features have been well received. DTN PRO SERIES SERVICE SERVICE REVIEW The DTN Pro Series services are an advanced information source designed for agricultural subscribers who require more extensive information that can be customized for their specific needs and operations. The Pro Series includes five services: Weather Pro, News Pro, Chart Pro, Intraday Pro and Stock Pro. Weather Pro is the meteorological connection to the most complete array of current weather, forecast and satellite radar information. This service allows the subscriber to choose from over 70 new weather maps including detailed regional, state and zone forecasts. The Weather Pro service gives the subscriber 32 programmable pages to create their own unique weather information chapter. News Pro is the broadcast connection to the most timely (NEWS...NOT HISTORY) business, sports, entertainment, financial, and general news of the day. The service also provides an audio summary of the days agricultural news. News Pro subscribers receive AP Online, a service of the Associated Press, as a news source. 286 Chart Pro is the graphic connection bringing a variety of information to the screen in an organized format to allow the subscriber to analyze trends, patterns and cycles. This service includes 40 pages for programmable charts allowing the subscriber to create an extensive chart book. Intraday Pro is the trading connection to the first low-cost system with the ability to chart market sessions minute-by-minute during the trading day. This service allows the subscriber to choose the time intervals they desire to chart and keep them abreast of the markets. Stock Pro is the market connection providing access to prices for over 50,000 issues of stocks, bonds and funds. This service includes stock quotes using either the quick quote feature or the programmable quotes pages. Additional features are the personal library used to store news and information and the high interest windows that allows the subscriber to constantly monitor up to six futures, options, stock or bond quotes. The individual Pro Series services are bundled with DTN Ag Daily. Each individual Pro Series service is $58.99 per month except the Stock Pro which is $66.00 a month. DTN Premier is the package of Weather Pro, News Pro, Chart Pro and Intraday Pro, priced at $73.99 per month. DTN Premier Plus is the package DTN Premier and Stock Pro, priced at $78.00 a month. This service is only available by color Ku-band satellite transmission. 1995 HIGHLIGHTS The DTN Pro Series had a very successful 1995. The number of Pro Series subscribers more than doubled during the year due to excellent sales combined with upgrades from lower priced services, primarily color DTN AgDaily. The Stock Pro service was released late in the year, therefore, it is too soon to measure customer acceptance. 10 287 Our research shows that customer satisfaction for the Pro Series is very favorable. This research is confirmed by the fact that our subscriber retention rate for these services is very high. DTN PRODUCE SERVICE SERVICE REVIEW DTN PROduce is the authority in providing the produce industry with the most timely weather, prices, transportation and news information available. There are four major components to the DTN PROduce service. First is weather information, providing the single most important piece of information for anyone in the produce business. Second is pricing information, providing immediate updates upon release formatted by commodity, growing area and terminal market. Third is transportation information, providing freight rates and daily truck availability by the major growing areas. Finally, the service provides comprehensive industry specific and general news. The market for the service is the entire produce food chain of growers, shippers, packers, brokers, retailers and institutions. This service is only available via color Ku-band satellite and is priced at $84.50 per month. 1995 HIGHLIGHTS DTN PROduce has incurred better than expected acceptance relative to sales and marketing resources devoted to this service. This service has attracted a high percentage of the major players in this industry, yielding a very impressive subscriber list. 288 DTN PROduce developed a price discovery network, the DTNdex, that has been accepted as an industry standard. Competition in this industry is still focused on older technology, such as FAX machines. DTN WEATHER CENTER (NEW SERVICE) SERVICE REVIEW DTN Weather Center was unveiled at the corporations annual meeting held in April 1995. This service combines many of DTNs most popular weather features with several new features that allow the service to be marketed to a variety of industries, such as golf course management, construction, emergency management, aviation and public works. This service can be sold to virtually any industry where timely (NEWS...NOT HISTORY), accurate, accessible weather information would cause a decision to be made concerning the deployment of manpower. DTN Weather Center provides 80 weather maps, 20 regional radar maps and four satellite maps. The service provides short-range (24-48 hours) forecasts, long-range (3-10 day) outlooks, and five-day city forecasts in three hour intervals for 223 different cities in the U.S. and Canada. DTN Weather Center features the new Insta-Rad radar maps that allow the company to send this information within five minutes to the subscriber. This service is available only via color Ku-band satellite transmission and is priced at $68.00 per month. 1995 HIGHLIGHTS DTN Weather Center exceeded the sales goals for 1995. The progress in 1995 suggests that this could be a very successful service and led to the decision to double the size of the sales and marketing staff for this service, including the addition of sales coordinators for the turf and construction industries. DTN Weather Center has been well received by the aviation industry. These subscribers account for more than 25% of the services total subscribers. Government (public works, transportation and emergency management) offices are showing interest in this service and now rank second on the list of total subscribers to the service. A contract in the fourth quarter of 1995 placed over 100 units with the Iowa Department of Transportation. 11 289 OPTIONAL SERVICES SERVICE REVIEW Optional Services include advisory, educational and other informational services offered to DTN subscribers on an a la carte basis. Additional Services are marketed by advertising on DTN services, direct mail, invoice stuffers and free trials. An Additional Service is featured on a regular basis providing all subscribers a three-day free trial. Subscribers can request and receive a two-week free trial of any Additional Service. New Additional Services are developed and added to meet customer requests for information. Additional Services range in price from $6 to $300 per quarter depending on the service. 1995 HIGHLIGHTS The total number of additional services grew to over 100 compared to 80 in 1994. Subscription sales, revenue and the number of services offered all increased to make 1995 a positive year compared to 1994. 290 DTN FINANCIAL SERVICES DTN Financial Services has grown from a single service in 1989, DTN Wall Street, to four services, DTN Wall Street, DTN SPECTRUMSM, DTN FirstRateSM and DTN GovRateSM. DTN Financial Services also includes a variety of optional advisory and fundamental market information services. GRAPH IN TABULAR FORM: 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- DTN Financial Services Revenue ($ million) 1.9 3.3 4.1 5.1 6.1 The financial services compounded revenue growth for the past five years was a very bullish 41%. The financial services objective is to provide a comprehensive in-depth service at an affordable cost to the subscriber. This objective will remain very important due to the highly competitive nature of this business. The a la carte optional services are offered to the subscriber to give them an even larger variety of information. The contents of all DTN Financial Services are broader in scope and cost less per month than the services offered by competitors. This combination allows the services to maintain a competitive advantage. 1995 HIGHLIGHTS In November 1995, DTN Financial Services released the service DTN Spectrum, an extensive enhanced version of DTN Wall Street utilizing the ACE technology. This service was in development for three years to ensure that it was as comprehensive as subscribers have come to demand and at an affordable price. This service has been well received by the market during it brief time since release. DTN Financial Services expanded sales and marketing operations by opening an office in Salt Lake City, Utah. This expansion accompanied the establishment of a new business relationship with Zions First National Bank to offer executable U.S. government security quotes through a new service, DTN GovRate. DTN WALL STREET SERVICE SERVICE REVIEW DTN Wall Street provides exchange delayed quotes on stocks, bonds, mutual and money market funds, futures, interest rates, currencies and real-time index quotes. This service also provides in-depth economic, financial and business news and other time-sensitive (NEWS...NOT HISTORY) financial market information such as company-specific news and earnings. The service allows subscribers to custom program the system to track their selection of financial quotes. The subscribers to DTN Wall Street have a variety of optional services from which to choose providing stock selection and timing advice, U.S. Treasury, Agency, mortgage-backed securities quotes and other financial related services. The majority of subscribers are individual investors, independent brokers, financial advisors and financial institutions. The primary competition for DTN Wall Street are satellite, TV cable (VBI) and dial-up quote services. New subscribers to this service are obtained through direct response marketing, primarily print media, television advertising and telemarketing. This service is available by monochrome Ku-band satellite and TV cable (VBI) and is priced at $41.95 per month. 12 291 1995 HIGHLIGHTS During 1995, an effort was made to increase the subscriber retention rate through improved content and customer service resulting in an 11 % decline in the cancellation rate of the DTN Wall Street service. The content and customer service will continue to be a focus area in 1996. Total revenues for DTN Wall Street service grew nearly 20% in 1995 compared to 1994. Optional services revenue increased 18% in 1995 compared to 1994. In May, 1995, DTN Wall Street became available on the Internet. This information distribution technology will allow millions of on-line users access to 15 independent information segments priced from $12.00 to $40.00 per month. The company continues to research the Internet for additional applications. DTN SPECTRUM (New Service) SERVICE REVIEW DTN SPECTRUM was an important focus of the new service development team at DTN during 1995. This service was released during November, 1995, and is an enhanced version of DTN Wall Street utilizing the ACE technology. The service provides many additional features and functions that appeal to a wider market. This service provides advanced quote selection and custom programming along with alarms and charting capability. The service will continue to be enhanced during 1996. This service was well received in the short time it was available during 1995. All indications are that subscription sales will be strong in 1996. An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. This marks the entry by the DTN Financial Services into the real-time quotes market. The service will provide a mix of exchange-delayed quotes along with the subscribers choice of real-time commodities and futures quotes. This service is expected to be well received by the market in 1996. The DTN SPECTRUM and DTN SPECTRUM R-T services are only available by color Ku-band satellite and are priced at $68.00 and $118.00 per month, respectively. These services will become available by TV cable (VBI) during 1996. DTN FIRSTRATE SERVICE SERVICE REVIEW DTN FirstRate is a service for the mortgage industry providing wholesale price information in an easy-to-use standard format and intraday interest rate information to indicate the direction of wholesale prices. This 292 service also provides subscribers with business, economic and financial news, analysis, and commentary including leading economic indicators, employment rates and government economic reports and trend analysis. Sales for DTN FirstRate are slow. Company research suggests we should expect modest success with this service; however, the company is continuing the search for more cost effective sales and marketing programs. This service is available by monochrome Ku-band satellite or TV cable (VBI) and is priced at $111.95 per month. DTN GOVRATE (NEW SERVICE) SERVICE REVIEW DTN GovRate provides executable U.S. government security quotes from Zions First National Bank. The real-time prices are provided from a primary dealer, the former Discount Corporation of New York (DCNY), now operating as a division of Zions First National Bank. The company views this service as an important development for financial institutions. The service will provide the ability for more than just large, money-center banks and institutions to have access to competitive pricing of U.S. government securities. DTN GovRate will open opportunities for smaller to mid-sized banks, public and corporate treasurers, and independent brokerage firms to participate in the trading of U.S. government securities. Zions First National Bank will facilitate this by offering odd lot trading and repurchase agreements. This service is available by monochrome Ku-band satellite or TV cable (VBI) transmission for $34.95 per month. The service is also currently available on color Ku-band satellite for $68.00 per month. DTN ENERGY SERVICES GRAPH IN TABULAR FORM: 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- DTN Energy Services Revenue ($ million) 0.8 2.9 4.9 7.2 10.0 13 293 The energy related services include DTNergy for the refined fuels and natural gas industries. DTNERGY SERVICE SERVICE REVIEW DTNergy is a service providing pricing information and communications services for the petroleum industry. This service consists of several pages of delayed energy futures and options quotes plus selected news and financial information. DTNergy is designed to connect refiners (producers of refined fuels) to wholesalers (distributor of refined fuels). The refiner sends refined fuel prices to wholesalers they have authorized to receive this information. The refiner also has the capability to send terminal alerts, electronic funds transfer notifications, invoices, and other communications to the wholesaler. DTNergy subscribers can select from a variety of optional services to give them even more prices or news related to the petroleum industry. The strength of the DTNergy service is the ability to deliver, within seconds, accurate refiner terminal prices and other vital communications to the wholesalers. This service is more reliable, timely and less expensive than the competition, which utilize telephone delivered printer-only systems and FAX services. DTNergy generates revenue from two primary sources, the wholesaler and the refiner. The wholesaler pays a monthly subscription fee of $36.00 for the monochrome Ku-band satellite service. The refiner pays fees based upon the number and length of communications sent to wholesalers. DTNergy developed a service for the natural gas industry. Subscribers receive natural gas flow data, instant or delayed NYMEX energy options and futures quotes, weather and industry specific information. This service is marketed to natural gas producers, distributors and large consumers. The service is only available by color Ku-band satellite and is priced at $129 a month for 30-minute delayed quotes and $160 a month for real-time quotes. 1995 HIGHLIGHTS The DTNergy services had another very good year in 1995. This service reaches an estimated 90% of the major U.S. petroleum industry wholesalers. These wholesalers receive direct communication from 120 refiners, including nearly all the major U.S. oil refiners. The number of wholesalers showed modest growth but the number of other customers (FAX, Printer, E-Mail and the Internet) increased to 8,500 in 1995 compared to 7,500 in 1994. Total revenue grew 38% and communication revenue grew nearly 50% in 1995 compared to 1994. The company expects wholesaler/subscriber growth to decline but expects communications revenue to continue to grow in 1996. 294 DTNergy continued to develop the service targeted at the natural gas and electric power industries, which are dependent on current information to make daily operating decisions. This service showed only moderate growth during 1995. During 1995, DTNergy completed implementation of new FAX, Printer and E-Mail services. DTN AUTO SERVICES GRAPH IN TABULAR FORM: 1993 1994 1995 ---- ---- ---- DTN Auto Services Revenue ($ millions) 0.0 0.0 0.7 DTNAUTO SERVICE SERVICE REVIEW DTNauto (SM) is a communication and information service for the automobile industry. This service offers automobile dealers precision information to value trade-ins, locate used car inventory plus a host of other information and convenient features. Automobile auction companies and manufacturers are able to communicate directly with the dealers. DTNauto provides information on pre-auction automobile listings, results of past auctions, new and used car industry news, weather and other news. The service allows subscribers to perform searches of the auction listings, upcoming and past, for specific automobile information. The service offers a variety of optional services providing information on credit reporting (CREDCO), vehicle histories (CARFAX), warranty information (The Warranty Guide) and residual value of leased vehicles (Lease Guide). The CARFAX and CREDCO optional services extensively utilize the internal modem to send and receive information. These services create a more comprehensive information service that puts the subscriber in the drivers seat. 14 295 This service is being marketed by the DTNauto sales force to automobile dealers across the United States. This service is only available by color Ku-band satellite transmission and is priced at $98.00 per month. 1995 HIGHLIGHTS The driving force that fuels the DTNauto service remains the pre-auction listings of used cars at more than 125 auctions across the country and AuctionNet, a wholesale pricing service. In 1995, DTNauto established remarketing and communication networks giving the manufacturers the ability to communicate with the dealers. These networks included Lexus, Mazda, Chrysler, American Honda, Subaru and Kia (added January 1996), all major players in the auto industry. A remarketing segment was also established for Enterprise Rent-a-Car. Additionally, DTNauto added a damaged vehicle network serving the salvage auto industry. DTNauto expanded its optional services by adding the Warranty Guide and Lease Guide to help dealers establish accurate auto values. Also, by subscriber demand, the DTN SPECTRUM service was made available to automobile dealers. JOINT VENTURE SERVICES DTN has joined forces with other companies to market their services using the companys technology. These services are TracElectric, a service for the electric equipment industry, and DAT Transportation Terminal, a service for the trucking industry. TRACELECTRIC SERVICE SERVICE REVIEW TracElectric is an equipment locator service for the electrical equipment industry. This service provides over 100 pages of new, remanufactured, surplus and used electrical equipment listings. The service connects buyers and sellers throughout the U.S. and Canada. This service is available only by monochrome Ku-band satellite and DTN receives a percentage of the revenue. DAT TRANSPORTATION TERMINAL (NEW SERVICE) SERVICE REVIEW The DAT (Dial-A-Truck) Transportation Terminal (DAT) service was introduced in the fourth quarter of 1995 and is an information communication system for the trucking industry. This service is a joint venture with DAT in Beaverton, OR and DTN. The service provides load and truck matching performed on a database of 25,000 listings updated daily. DAT service allows subscribers to input their own listings into the ACE receiver and send this information to the database using the internal modem. This service provides the subscriber the ability to perform extensive searches to locate loads and trucks and set alarms to alert the user that a match has occurred. The service also provides regional radar maps of major highways and interstates, transportation news, diesel fuel prices and other financial information related to the trucking industry. The target market includes all freight brokers and carriers throughout U.S. and Canada. This service is only available by color Ku-band satellite and DTN receives a monthly fee per receiver. 15 296 - -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORM: % of Total Revenues: 1995 1994 1993 ---- ---- ---- DTN Ag Services 72% 73% 75% DTN Financial Services 10% 11% 11% DTN Energy Services 16% 16% 14% Other Services 2% 0% 0% % of Suscribers at Year End: 1995 1994 1993 ---- ---- ---- DTN Ag Services 89% 81% 82% DTN Financial Services 10% 10% 10% DTN Energy Services 7% 8% 8% Other Services 3% 1% 0%
1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------- For the Year: Revenues ........................ $ 62,287,989 $ 46,109,789 $ 35,992,754 $ 26,816,254 $ 21,464,580 Operating income ................ 4,343,252 694,560 2,408,868 2,995,319 2,658,280 Income (loss) before income taxes (397,076) (2,422,738) 1,020,831 2,051,352 1,476,398 Net income (loss) ............... (283,076) (1,602,738) 663,831 1,351,352 1,426,398 Net income (loss) per share ..... (.09) (.49) .20 .41 .43 Dividends per share ............. -- -- -- -- -- At Year End: Total assets .................... $ 92,672,050 $ 71,459,356 $ 57,242,313 $ 38,260,351 $ 30,549,390 Long-term debt and subordinated notes ........... 47,020,527 33,982,814 25,375,000 13,677,083 9,719,490 Stockholders equity ............. 12,876,965 12,706,978 12,780,477 12,167,584 12,007,741
16 297 - -------------------------------------------------------------------------------- MANAGEMENTS'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- FINANCIAL CONDITION The equipment used by subscribers is a large capital investment for the company. This equipment accounts for 75% of the companys total assets. The company does not have a large amount of current assets compared to capital equipment. Net cash provided by operating activities in 1995 was $16,623,300 compared to $14,376,300 in 1994. The increase was primarily due to an increase in operating income. The increase in operating income was partially offset by the increase in interest expense and the change in assets and liabilities. Net cash used by investing activities in 1995 was $29,427,900 compared to $29,961,200 in 1994. The investment in equipment used by subscribers declined due to a reduction in color equipment inventory that was built up in the later part of 1994. The expenditures on equipment used by subscribers are primarily for color receivers and related equipment. In addition, approximately 4,000 monochrome system (FM and Ku) subscribers upgraded to the color Ku-band system with over 90% of these conversions involving DTN AgDaily subscribers. DTN reduced its inventory of color receivers and components to build color receivers during 1995. At December 31, 1995, the company had approximately $5,000,000 of inventory compared to $10,000,000 in 1994. The reduction occurred in the first half of 1995 and reduced the companys borrowing requirements for the year. The company utilizes monochrome receiver equipment coming in from conversions for new DTN AgDaily, DTN Wall Street or DTNergy subscribers. DTN continues to research new markets for monochrome system services. The company had negative working capital of $10,471,900 at December 31, 1995, compared to $10,237,200 in 1994. Accounts payable at December 31, 1995, included $3,202,600 for the purchase of Knight Ridder Financial subscribers and $2,190,600 to vendors for equipment used by subscribers, compared to $0 and $1,106,000 at December 31, 1994, respectively. This combination increased the working capital deficiency from the prior year by $4,287,200. An increase of $3,178,800 in accounts receivable from December 31, 1994 to 1995 was primarily the offset for the negative working capital created by the increase in accounts payable. Accounts receivable increased due to general business expansion, the acquisition of Knight-Ridder Financial (KRF) subscribers and a changing subscriber base due to the expansion of the companys new services. 298 Effective July 26, 1995, the company entered into an agreement with KRF to acquire 2,900 Knight Ridder Commodity News Service subscribers. The company agreed to pay KRF approximately $4,970,000 over two years, made up of $3,000,000 for the subscribers and $1,970,000 for future revenue sharing. The $3,000,000 for the subscribers is to be paid one-half at the closing and the remaining one-half due one year from the closing. The $1,970,000 for future revenue sharing is based on a company estimate and is paid quarterly. The purchase price is being capitalized as an intangible asset and amortized using the straight line method over eight years. Net cash provided by financing activities of $12,864,300 was the result of an increase in total debt outstanding (current and long-term) of $12,531,300. The increase in debt outstanding was used to fund capital expenditures and the acquisition of subscribers. The company made principal payments of $8,718,800 on bank term debt during 1995. DTN anticipates that the internally generated cash flow and bank credit lines will be sufficient to fund operating activities, capital expenditures and principle payments on long-term debt. The company believes that inflationary trends have a limited affect on the business. However, since the majority of the companys subscribers and revenues are related to the ag industry, the general state of the agricultural economy may impact the companys business. RESULTS OF OPERATIONS In many respects, the financial dynamics of DTN are similar to the cable TV industry. The financial dynamics are similar due to the requirement of an initial investment of variable marketing costs to obtain new subscribers and capital expenditures to provide them with the necessary equipment to receive the companys services. In addition, DTN has a level of fixed costs, such as FM and KU satellite leases, news and quote providers, and administrative expenses, not directly affected by the number of subscribers receiving the companys services. GRAPH IN TABULAR FORM: 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Operating Cash Flow ($ million) 8.2 9.9 12.9 15.8 23.2 17 299 DTNs operating cash flow, a key indicator monitored by DTN management, has increased at a compounded growth rate of 28% from 1991 to 1995. This trend is primarily the result of a growing base of subscribers covering the companys fixed expenses. The company has operating leverage due to low variable costs per subscriber. This leverage is present when a growth in subscribers and related revenue has a direct impact on operating cash flow. This leverage appeared to be declining from 1992 through 1994 as operating cash flow as a percent of revenue was declining. The following graph details this trend. The declining trend was primarily due to the company spending an increasing amount on research and development activities. GRAPHS IN TABULAR FORM: 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Operating Cash Flow (percent of revenue) 38% 37% 36% 34% 37% DTN accumulates research and development activities as Net Development Costs. The company defines Net Development Costs as 1) market research activities, 2) hardware and software engineering, research and development, and 3) the negative operating cash flow (prior to corporate allocations plus interest) of new services. The company includes new services in the Net Development Costs classification until the service shows positive cash flow prior to corporate allocations plus interest for a full quarter. The service becomes a core service after reaching this level in the development process. During the 1992 through 1995 time period, the company was expanding development activities (see chart on page 3) therefore negatively impacting operating cash flow both on a total and percentage of revenue basis. During 1995, the success of subscription sales of the new developmental services decreased net development costs. While the overall development expenses increased, the growth rate of development related expenses declined in 1995 compared to 1994. The result, operating cash flow as a percent of revenue increased to 37% in 1995 compared to 34% in 1994. Another contributing factor for the rise was operating cash flow from core services as a percentage of core service revenue improved to 44.4% in 1995 compared to 43.8% in 1994. 1995 COMPARED TO 1994 The growth in subscribers, revenues and operating cash flow, three major indicators used by DTN management to monitor company performance, highlighted an outstanding year. Operating income improved dramatically but higher interest expense led to a net loss for the year. 300
(In thousands) 1995 1994 % Change -------- -------- -------- Subscribers 95.9 82.0 17% Revenues $62,288 $46,110 35% Operating cash flow 23,154 15,751 47% Operating income 4,334 695 524% Net loss (283) (1,603) 82%
Total revenue increased 35% in 1995 compared to 1994 due to growth in all operating revenue categories. Operating revenues consisting of subscriptions, additional services, communications and advertising increased to $55.70 per subscriber per month in 1995 compared to $46.74 in 1994. A 17% growth in total subscribers combined with subscribers upgrading to higher priced services led to a 36% growth in subscription revenue. In July 1995, the company acquired approximately 2,900 subscribers receiving real-time futures and option quotes from Knight Ridder Financial Commodity Center. At December 31, 1995, 77% of total subscribers were receiving service via Ku-band satellite transmission compared to 72% in 1994. Subscription revenue on a per subscriber per month basis increased to $43.60, compared to $36.14 in 1994. The price of Ku-band satellite delivered services ranged from $32.99 for monochrome DTN AgDaily to $159.99 for the color DTNstant service during 1995. The price of Ku-band satellite delivered services ranged from $30.99 for monochrome DTN AgDaily to $159.99 for the color DTNstant service during 1994. The price of the monochrome FM delivered DTN AgDaily (the only FM service) was $25.99 in 1995 and $23.99 in 1994. The subscribers converting to higher priced services primarily switched from the monochrome FM or Ku-band satellite DTN AgDaily service to the color Ku-band satellite DTN AgDaily, priced at $45.99 in 1995 and 1994 ($43.99 prior to August 15, 1994). Subscribers continued to convert from the color Ku-band satellite DTN AgDaily service to the color Ku-band satellite DTN Pro Series which ranged in price from $58.99, for one Pro Series services, to $73.99, for all four Pro Series services (DTN Premier), in 1995 and 1994. The DTN Premier and Stock Pro, DTN Premier Plus, was priced at $78.00 a month in 1995. 18 301 The company continued to increase the offering of information services through a la carte optional services (100 in 1995 versus 80 in 1994). The growth in services combined with the growth of total subscribers resulted in an 11% growth in additional services revenue to $3,917,600 in 1995 compared to $3,526,300 in 1994. The Ag, Wall Street and Energy services all contributed to this growth. The revenue decreased on a per subscriber per month basis to $3.70 in 1995 compared to $3.76 in 1994. The growth in communications revenue was primarily in the DTNergy service. The DTNergy service transmits refiner prices and communications to wholesalers/subscribers. The number of refiner communications continued to increase in 1995. The revenue increased on a company wide per subscriber per month basis to $6.49 in 1995, up from $4.99 in 1994. Advertising revenue grew 16% to $2,022,500 in 1995 compared to $1,738,800 in 1994. The growth was due to increased acceptance of the DTN color receiver system as a medium for advertising agricultural products and services. Other contributing factors were a positive agriculture economy and modest price increases for advertising on the color system. Service initiation fees, the companys up-front one-time charges to new subscribers ranged from $150 to $295 depending on the service and information distribution technology in 1994 and 1995. Initiation fees for subscribers that convert to another service or change delivery technology (FM to Ku) ranged from $50 to $100 depending on the service in 1994 and 1995. The total fees collected increased 51% in 1995 to $3,357,300 compared to $2,227,500 in 1994. The increase was primarily due to an increase in new subscription sales. The companys discounting of initiation fees to respond to competition or slower sales in the ag market during the seasonally slower summer months was consistent with 1994. Total operating expenses increased 28% in 1995 over 1994. This increase was due to a 27% increase in selling, general and administrative costs, a 46% increase in sales commissions and a 25% increase in depreciation. These expenses (excluding the sales commission costs) increased on a per subscriber per month basis to $49.75 in 1995 compared to $44.49 in 1994. Selling, general and administrative expenses on a per subscriber per month basis increased to $31.97, up from $28.45 in 1994. This increase was primarily the result of the increase in variable costs to support a 17% increase in subscribers, sales force expansion and teleservices support (telesales and customer service), internal administrative enhancements and net development costs related to new service development. All of these expenditures were important for the company to accomplish the aggressive sales growth planned in 1995 and beyond. Sales commissions are generated from increased subscribers and revenues in the DTNergy service. Sales commissions increased 46% during 1995 compared to 1994. This increase is due to higher subscription sales, continued incentive programs to the sales force and 39% higher revenues in DTNergy. DTNergy sales commissions are based on a combination of total subscribers and revenues. Depreciation and amortization expense primarily increased due to the purchase of over $23,700,000 of new equipment used by subscribers. The company began using a six year life for depreciation purposes in July of 1992 compared to an eight year life prior to the change. 302 Operating income increased significantly due to the companys growth in total revenues and a declining growth rate in the operating expenses discussed above. Operating cash flow grew 47% to $23,154,400, up from $15,750,700 in 1994. Interest expense increased 52% in 1995 over 1994. The rise was primarily due to borrowings necessary to finance the purchase of new subscriber equipment, an increase in the prime rate during 1994 and 1995 along with the addition of $15,000,000 of 11.25% subordinated debt in July of 1994. The companys federal and state effective tax rate was 29% for 1995 and 35% for 1994. 1994 COMPARED TO 1993 Growth in revenue, operating cash flows and total subscribers, which are three major indicators used to monitor the financial performance of DTN, highlighted a year of good performance. Due to the continued investment in new service development, enhancements in transmitting technology, administrative computer information systems, equipment used by our subscribers and higher interest expense, the companys operating and net taxable income were lower.
(In thousands) 1994 1993 % Change -------- -------- --------- Total subscribers 82.0 74.1 11 % Revenues $46,110 $35,993 28 % Operating cash flow 15,751 12,940 22 % Operating income 695 2,409 (71)% Net income (loss) (1,603) 664 (342)%
Total revenue increased 28% in 1994 over 1993 due to continued growth in all operating revenue categories. Operating revenues which consist of subscriptions, additional services, communications services and advertising, increased to $46.74 per subscriber per month in 1994 up from $39.06 in 1993. The 11% growth in total subscribers and subscribers upgrading to higher priced services resulted in a 31% growth in subscription revenue. At December 31, 1994, 72% of total subscribers were receiving service via Ku-band satellite transmission compared to 61% in 1993. Subscription revenue on a per subscriber per month basis increased to $36.14, up from $30.39 in 1993. 19 303 The price of the Ku-band satellite-delivered services ranged from $30.99 for monochrome DTN AgDaily to $159.99 for the color DTNstant service during 1994 and 1993. The price of the monochrome FM-delivered DTN AgDaily service was $23.99 during 1994 and 1993. The subscribers switching to higher-priced services primarily switched from the monochrome FM or Ku-band satellite DTN AgDaily service to the color Ku-band satellite DTN AgDaily, which was priced at $45.99 in 1994 ($43.99 prior to August 15, 1994) and $43.99 in 1993. The company continued to increase the offering of information services through a la carte additional services (80 in 1994 versus 55 in 1993). The growth of services combined with the growth of total subscribers provided a 42% growth in additional services revenue to $3,526,000 in 1994, up from $2,485,000 in 1993. The Ag, Wall Street and Energy services all contributed solid gains to achieve this outstanding growth. On a per subscriber per month basis, this revenue increased to $3.76, up from $2.91 in 1993. The 45% increase in communication services revenue was primarily due to the DTNergy service. DTNergy transmits refiner prices and other communications to wholesalers/subscribers. The refiner communication volume increased significantly and provided on a company wide basis a revenue increase to $4.99 per subscriber per month in 1994, up from $3.78 in 1993. Advertising revenue showed a marginal increase in 1994 over 1993. The company believes that competition from other communication companies affected the growth in advertising. The company also believes advertising revenues will grow as subscriptions to the color services increase. Service initiation fees, the companys up-front one-time charges to new subscribers ranged from $150 to $295 depending on the service and information distribution technology in 1994 and 1993. Initiation fees to subscribers who change their service or delivery technology (FM to Ku) ranged from $50 to $100 depending on the service in 1995 and 1994. The total fees collected declined in 1994 compared to 1993. The decline was primarily due to an increase in sales promotions reducing the fees to attract new subscribers. This strategy was used to keep new sales strong during the seasonally slow months of summer and to answer competitive pressures. Total operating expenses increased 35% over 1993. This increase was due to a 30% increase in selling, general and administrative costs, a 49% increase in sales commissions and a 43% increase in depreciation. On a per subscriber per month basis, these expenses (excluding the sales commission costs) increased to $44.49, up from $36.51 in 1993. Selling, general and administrative expenses on a per subscriber per month basis increased to $28.45, up from $24.16 in 1993. This increase was primarily due to the expenses related to new product development, internal administrative enhancements, fixed costs related to enhancing current services and variable costs to support the 11% increase in subscribers. These expenditures are important for the company to remain a leader in providing new communication and information services. 304 Sales commissions are a direct result of increased subscribers and revenues in the DTNergy service. DTNergy sales commissions are based on a mix of total subscribers and revenues. Total sales commissions rose 49% during 1994 from 1993. This increase is due to increased subscription sales along with incentive programs to the sales force to keep sales strong during the seasonally slower summer months and significant increases in DTNergy revenues. Depreciation expense increased due to the purchase of over $27,000,000 of new equipment used by subscribers. The company began using a six year life for depreciation purposes in July of 1992 compared to an eight year life prior to the change. Operating income declined by 71%, primarily due to the investments in new services, internal operations improvements and increased depreciation expense. Operating cash flow grew 22% over 1993. Interest expense rose 122% in 1994 over 1993. This significant increase was due to borrowings needed to finance the purchase of new subscriber equipment, a 42% increase in the prime rate during 1994 and the addition of $15,000,000 of 11.25% subordinated debt. The company federal and state effective tax rate for 1994 and 1993 was 35%. 20 305 - -------------------------------------------------------------------------------- RESPONSIBILITIES - -------------------------------------------------------------------------------- Managements Responsibility for Financial Statements To Our Stockholders: The management of Data Transmission Network Corporation is responsible for the preparation, integrity and objectivity of the accompanying financial statements and related notes. To meet these responsibilities, we maintain a system of internal controls to provide reasonable assurance that assets are safeguarded and transactions are properly authorized and recorded. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts based upon our estimates and judgments, as required. The financial statements have been audited by Deloitte & Touche LLP who have expressed their opinion, presented below, with respect to the fairness of the statements. Their audit included a review of the system of internal control and tests of transactions to the extent they considered necessary to render their opinion. The Audit Committee of the Board of Directors is composed solely of outside directors. The Audit Committee meets periodically with our independent auditors and management to review accounting, auditing, internal control and financial reporting matters. /s/ Roger R. Brodersen /s/ Brian L. Larson Chairman of the Board Vice President Chief Executive Officer Chief Financial Officer Secretary and Treasurer - -------------------------------------------------------------------------------- Independent Auditors' Report Board of Directors and Stockholders Data Transmission Network Corporation We have audited the accompanying balance sheets of Data Transmission Network Corporation as of December 31, 1995 and 1994, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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. 306 In our opinion, such financial statements present fairly, in all material respects, the financial position of Data Transmission Network Corporation as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. January 30, 1996 /s/ Deloitte and Touche LLP Deloitte and Touche LLP Omaha, Nebraska 21 307
Balance Sheets - --------------------------------------------------------------------------------------------- As of December 31, 1995 1994 - --------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash ................................................. $ 780,018 $ 720,343 Accounts receivable, net of allowance for doubtful accounts of $300,000 and $220,000 ... 6,476,576 3,297,773 Prepaid expenses ..................................... 474,135 189,332 Deferred commission expense .......................... 2,076,262 629,925 ------------ ------------ Total Current Assets ......................... 9,806,991 4,837,373 Equipment Used By Subscribers, net of accumulated depreciation of $60,622,532 and $43,710,079 ....................... 69,644,260 61,449,931 Equipment and Leasehold Improvements, net of accumulated depreciation of $7,286,887 and $4,729,831 ........... 6,665,286 4,666,742 Intangible Asset, net of accumulated amortization of $258,850 ......................................... 4,711,150 -- Other Assets ................................................. 1,844,363 505,310 ------------ ------------ $ 92,672,050 $ 71,459,356 LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts payable ..................................... $ 9,385,812 $ 4,493,796 Accrued expenses ..................................... 1,856,659 1,117,206 Current portion of long-term debt .................... 9,036,458 9,463,541 ------------ ------------ Total Current Liabilities .................... 20,278,929 15,074,543 Long-Term Debt ............................................... 32,536,457 19,578,124 Subordinated Long-Term Notes, net of unamortized discount of $515,930 and $595,310 .................... 14,484,070 14,404,690 Equipment Deposits ........................................... 541,720 542,102 Unearned Revenue ............................................. 11,953,909 9,152,919 Stockholders Equity: Common stock, par value $.001, authorized 20,000,000 shares, issued 3,375,408 .......... 3,375 3,375 Paid-in capital ...................................... 14,422,689 14,302,689 Retained earnings (deficit) .......................... (497,687) (217,501) Treasury stock, at cost, 60,315 and 83,723 shares .... (1,051,412) (1,381,585) ------------ ------------ Total Stockholders Equity .................... 12,876,965 12,706,978 ------------ ------------ $ 92,672,050 $ 71,459,356 The accompanying notes are an integral part of these financial statements.
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Statements of Operations Years Ended December 31, 1995 1994 1993 ------------- ------------- -------------- REVENUES: Subscriptions ..................... $ 46,126,332 $ 33,936,160 $ 25,924,520 Additional services ............... 3,917,631 3,526,295 2,484,675 Communication services ............ 6,864,275 4,680,987 3,227,881 Advertising ....................... 2,022,440 1,738,830 1,673,075 Service initiation fees ........... 3,357,311 2,227,517 2,682,603 ------------- ------------- -------------- 62,287,989 46,109,789 35,992,754 EXPENSES: Selling, general and administrative 33,827,282 26,715,251 20,602,329 Sales commissions ................. 5,306,305 3,643,811 2,450,718 Depreciation and amortization ..... 18,811,150 15,056,167 10,530,839 ------------- ------------- -------------- OPERATING INCOME .......................... 4,343,252 694,560 2,408,868 Interest expense .................. 4,798,112 3,158,106 1,421,299 Other income, net ................. 57,784 40,808 33,262 ------------- ------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES ......... (397,076) (2,422,738) 1,020,831 Income tax (benefit) provision .... (114,000) (820,000) 357,000 NET INCOME (LOSS) ......................... $ (283,076) $ (1,602,738) $ 663,831 EARNINGS (LOSS) PER SHARE ................. $ (0.09) $ (0.49) $ 0.20 Weighted Average Number of Shares Outstanding ....................... 3,302,864 3,253,400 3,286,850 The accompanying notes are an integral part of these financial statements.
23 309
Statements of Stockholders Equity - ----------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1995, 1994 and 1993 - ----------------------------------------------------------------------------------------------------------------------- Retained Total Common Paid -in Earnings Treasury Stockholders Stock Capital (Deficit) Stock Equity ------------ ------------- ----------- ------------ ------------- Balance, January 1, 1993 ............... $ 3,375 $ 13,493,689 $ 855,635 $ (2,185,115) $ 12,167,584 Treasury stock issued on exercise of employee stock options and warrants -- 12,195 -- 147,621 159,816 Tax benefit related to exercise of employee stock options and warrants -- 20,000 -- -- 20,000 Purchase of treasury stock ............. -- -- -- (230,754) (230,754) Net income ............................. -- -- 663,831 -- 663,831 ------------ ------------- ----------- ------------ ------------- Balance, December 31, 1993 ............. 3,375 13,525,884 1,519,466 (2,268,248) 12,780,477 Treasury stock issued on exercise of employee stock options and warrants -- (12,195) (134,229) 1,420,663 1,274,239 Tax benefit related to exercise of employee stock options and warrants -- 154,000 -- -- 154,000 Purchase of treasury stock ............. -- -- -- (534,000) (534,000) Issuance of warrants in connection with subordinated debt ............ -- 635,000 -- -- 635,000 Net loss ............................... -- -- (1,602,738) -- (1,602,738) ------------ ------------- ----------- ------------ ------------- Balance, December 31, 1994 ............. 3,375 14,302,689 (217,501) (1,381,585) 12,706,978 Treasury stock issued on exercise of employee stock options and warrants -- -- 2,890 330,173 333,063 Tax benefit related to exercise of employee stock options and warrants -- 120,000 -- -- 120,000 Net loss ............................... -- -- (283,076) -- (283,076) ------------ ------------- ----------- ------------ ------------- Balance, December 31, 1995 ............. $ 3,375 $ 14,422,689 $ (497,687) $ (1,051,412) $ 12,876,965 The accompanying notes are an integral part of these financial statements.
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Statements of Cash Flows - ------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income(loss) ................................................. $ (283,076) $ (1,602,738) $ 663,831 Adjustments to reconcile net income(loss) to net cash provided by operating activities: Depreciation and amortization .................................. 18,811,150 15,056,167 10,530,839 Amortization of debt issue costs and discount .................. 128,760 64,380 -- Deferred income taxes .......................................... (239,000) (802,000) 332,000 Change in assets and liabilities: Accounts receivable .......................................... (3,178,803) (1,003,263) (731,281) Prepaid expenses ............................................. (284,803) (58,262) (311,418) Deferred commission expense .................................. (1,446,337) (22,215) (119,593) Deferred debt issuance costs ................................. -- (395,000) -- Other assets ................................................. (1,029,433) -- -- Accounts payable ............................................. 604,791 1,183,434 668,794 Accrued expenses ............................................. 739,453 143,249 247,994 Equipment deposits ........................................... (382) (37,269) (60,618) Unearned revenue ............................................. 2,800,990 1,849,771 2,047,982 Net Cash Provided By Operating Activities ...................... 16,623,310 14,376,254 13,268,530 Cash Flows From Investing Activities: Capital expenditures: Equipment used by subscribers .................................. (23,746,086) (27,354,107) (24,175,363) Equipment and leasehold improvements ........................... (3,914,442) (2,607,100) (2,040,607) Acquisition of Subscribers ....................................... (1,767,420) -- -- Net Cash Used By Investing Activities .......................... (29,427,948) (29,961,207) (26,215,970) Cash Flows From Financing Activities: Proceeds from long-term debt ..................................... 21,250,000 20,250,000 16,000,000 Principal payments on long-term debt ............................. (8,718,750) (20,333,334) (3,052,083) Proceeds from subordinated long-term notes ....................... -- 15,000,000 -- Proceeds from the exercise of stock options and warrants ......... 333,063 1,274,239 159,816 Purchase of treasury stock ....................................... -- (534,000) (230,754) Net Cash Provided By Financing Activities ...................... 12,864,313 15,656,905 12,876,979 Net Increase (Decrease) in Cash .......................................... 59,675 71,952 (70,461) Cash at Beginning of Period .............................................. 720,343 648,391 718,852 Cash at End of Period ....................................................$ 780,018 $ 720,343 $ 648,391 The accompanying notes are an integral part of these financial statements
25 311 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION - The company provides its subscribers with equipment to receive information and communications services. DTN charges a recurring subscription fee and in most instances a one-time service initiation fee. The subscriptions are contracted for an initial period of one year and are generally billed quarterly in advance. Accounts receivable consists primarily of these advance billings. Payments received in advance for subscriptions, additional services and advertising are deferred and recognized as the services are provided to the subscribers. Service initiation fees in excess of the related marketing and set-up costs, excluding sales commissions, are deferred and recognized into income over the initial twelve-month subscription period. These revenues no longer exceed the costs and therefore beginning in 1995 are not being deferred. Communication services are generally billed monthly in arrears based on the number and length of communications to subscribers. DEFERRED COMMISSION EXPENSE - Commissions and bonuses which are paid at the time of the initial subscription to sales 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 service is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over a useful life of three to eight years for assets placed in service prior to July 1, 1992, and three to six years for assets placed in service subsequent to July 1, 1992. EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from two to seven years, or the related lease, which range from five to ten years. INTANGIBLE ASSETS - Intangible assets for acquisition of subscribers are stated at cost less accumulated amortization. These costs are amortized using the straight-line method over eight years. INCOME TAXES - Income taxes are computed in accordance with the provisions of Statement of Financial Accounting Standard 109, "Accounting for Income Taxes" (SFAS 109). The objective of the statement is to recognize the amount of taxes payable or refundable in the current year and to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. EARNINGS PER SHARE - Earnings per share is calculated on the basis of the weighted average outstanding common shares and, when applicable, those outstanding options and warrants that are dilutive. 312 STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows, the company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. During the periods ended December 31, 1995, 1994 and 1993, the company made interest payments of $4,386,000, $3,165,000 and $1,493,000, respectively. Capital expenditures for subscriber equipment included in accounts payable at year end totalled $2,191,000, $1,106,000 and $3,455,000 at December 31, 1995, 1994 and 1993, respectively. The company paid $1,146,000 of federal income taxes in 1995 relating to recoverable Alternative Minimum Taxes (AMT) for prior periods which is included in other assets. The company paid no federal income taxes during 1994 or 1993. At December 31, 1995, $3,202,580 of the purchase price for the subscribers acquired was not yet paid and is included in accounts payable. RESEARCH AND DEVELOPMENT - Research and development costs are charged to earnings as incurred and approximated $1,596,000, $1,493,000 and $899,000 for the periods ended December 31, 1995, 1994, and 1993. 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. ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 121, Accounting for the Impairment of Long Lived Assets. SFAS 121 required that long lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment. The Company will adopt SFAS 121 as required in 1996 but does not expect any adjustments to the value of long lived assets. 26 313 In October 1995, FASB issued SFAS 123, Accounting for Stock Based Compensation. Beginning in 1996, SFAS 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages, but does not require, the recognition of employee compensation expense related to stock compensation based on the fair value of the equity instrument granted. Companies that do not adopt the fair value recognition provisions of SFAS 123 and continue to follow the existing APB Opinion 25 rules to recognize and measure compensation, will be required to disclose the pro forma amounts of net income and earnings per share that would have been reported had the company elected to follow the fair value recognition of SFAS 123. Management has determined that the Company will not adopt the fair value recognition provisions of SFAS 123 so the impact of adopting this statement beginning in 1996 will only be the expanded disclosure requirements. 2. ACQUISITIONS Effective July 26, 1995, the Company entered into an agreement with Knight-Ridder Financial (KRF) to acquire 2,900 Knight-Ridder Commodity News Service Subscribers. The Company will pay KRF approximately $4,970,000 over two years, made up of $3,000,000 for the subscribers and $1,970,000 for future revenue sharing. The $3,000,000 for the subscribers is to be paid one-half at closing and the remaining one-half due one year from closing. The $1,970,000 for future revenue sharing is based upon a company estimate and is to be paid quarterly. 3. LONG-TERM DEBT AND LOAN AGREEMENTS
December 31, -------------------------------- 1995 1994 ------------ ----------- Bank operating line agreement $21,250,000 $ 2,250,000 Term notes, due in monthly installments thru October 1998 at 6.75% to 9.25% 19,322,915 25,291,665 Stock repurchase term notes, due in quarterly installments from January 1994 thru December 1997, 7.69% to 8.0% 1,000,000 1,500,000 ------------ ----------- 41,572,915 29,041,665 Less current portion 9,036,458 9,463,541 ------------ ----------- Total Long-Term Debt $32,536,457 $19,578,124 ============ ===========
314 The company has a senior loan agreement with a group of seven regional banks (the "senior loan agreement"). The senior loan agreement, which expires June 30, 1996 unless extended, provides for a total commitment of up to $34,500,000 in new borrowings. As of December 31, 1995, $21,250,000 of the total commitment had been borrowed, with the remaining $13,250,000 available to the company subject to certain restrictions as discussed below. Additional borrowings under the senior loan agreement are available to the company, as long as at the time of the advance, no default exists under the senior loan agreement or under the subordinated notes agreement (see Note 3), and total debt outstanding (including term notes outstanding but excluding long-term subordinated debt) does not exceed thirty-six times monthly operating cash flow as defined. As of December 31, 1995 based on current operating cash flow, the company would be able to borrow all of the $13,250,000 remaining commitment available. Substantially all of the company's assets are pledged as collateral under the senior loan agreement. In addition to the restrictions mentioned above with respect to advances, total debt outstanding (excluding long-term subordinated debt) is limited to forty-eight times monthly operating cash flow or three and one-half times stockholders' equity (defined to include long-term subordinated debt), whichever is less. Additionally, total debt outstanding (including subordinated debt) is limited to sixty times monthly operating cash flow. The company is also required to maintain total stockholders' equity of at least $11,000,000 through June 30, 1996 and, a ratio of quarterly operating cash flow to interest expense (as defined) of at least 2.25 to 1. The company is currently restricted to paying no cash dividends. Interest on the outstanding borrowings (prior to when the borrowings might be converted to term loans, as discussed below) is at a variable rate, depending on the ratio of the company's total borrowings (excluding long-term subordinated debt) to stockholders equity (including long-term subordinated debt) (the "Ratio"). So long as the Ratio is below 2.0 to 1, interest is at prime. When the Ratio is between 2.0 to 1 and 2.49 to 1, the interest rate is at prime plus 1/4%. When the Ratio is between 2.50 to 1 and 2.99 to 1, the interest rate is at prime plus 3/4%. When the Ratio is at or above 3.0 to 1, the interest rate is at prime plus 1 1/4%. The prime rate is adjusted monthly, with the interest rate adjustment (as defined above) changed quarterly. As of December 31, 1995, the variable rate borrowings outstanding are accruing interest at the prime rate of 8.75%. The company has the option to convert the outstanding borrowings to term loans at any time, payable in forty-eight equal principal installments, plus interest. Interest on the converted term loans is at a variable interest rate of 1/4% over the base rate (as determined in the preceding paragraph) or, at the company's option, may be at a fixed rate of 3/4% over the base rate, or, 2.50% over the average of the 3 and 5 year U. S. treasury securities, whichever is greater. As of December 31, 1995, $21,250,000 of the total borrowings outstanding had not been converted to term loans. The remainder of the borrowings were term loans with interest rates ranging from 6.75% to 9.25%. 27 315 The company pays a commitment fee of 1/4% on the unused portion of the total commitment. Additionally, once the Ratio (as described previously) reaches 2.50 to 1, the company will be required to pay a closing fee of 1/2% on all new borrowings made after that point in time. During 1992, the company entered into a loan agreement to be used solely for the repurchase of the company's outstanding common stock (the "Stock Repurchase" line). The company borrowed $2,000,000 of this Stock Repurchase commitment during 1992. For the first year after each Stock Repurchase advance, the company pays interest only. After the first year, each advance will be repaid in sixteen equal quarterly principal payments plus interest. Interest will accrue for the first three years of each advance at a fixed rate equal to the quoted Five-Year Treasury Note Rate on the date of the advance, plus 2%. For the last two years interest will accrue at either a floating rate of national prime plus 3/4% or a fixed rate of the then current Five-Year Treasury Note Rate plus 2%. The company has the option of determining which rate will apply. The $2,000,000 borrowed under this Stock Repurchase line, is accruing interest at 7.69% and 8.00%. The minimum principal maturities of long-term debt, excluding bank operating line agreement, are as follows: 1996 - $9,036,000;1997 - $7,010,000; 1998 - - $4,229,000; 1999 - $47,000. 4. SUBORDINATED LONG-TERM NOTES On June 30, 1994, the company sold to one investor $15,000,000 of its 11.25% subordinated long-term notes in a private placement transaction (the "subordinated debt"). The subordinated debt is subordinated in right of payment to all current and future senior debt. Interest on the subordinated debt is to be paid quarterly, with principal due in five equal annual installments beginning on June 30, 2000. The company has the option to prepay the subordinated debt on any date after June 30, 1997 at a premium beginning at 7.5% of the principal prepaid, and decreasing by 1.5% per year until June 30, 2002 when no premium is required. There are provisions for mandatory prepayment upon a change in ownership control (as defined), at a premium beginning at 12.0% of the principal prepaid during the period ended June 30, 1995 and decreasing by 1.5% per year until June 30, 2002 when no premium is required. The subordinated debt agreement contains a cross-acceleration clause, whereby the subordinated debt will become immediately due and payable upon a payment default on the senior debt outstanding Other subordinated debt financial covenants and restrictions are generally less restrictive than those of the senior loan agreement. The company also issued a warrant to the investor to purchase 25,000 shares of the company's $.001 par value common stock at $22.17 per share on or before June 30, 2004. In connection with the issuance of the warrant to purchase common stock, the company recorded a $635,000 credit to additional paid in capital and a related debt discount, which represents an estimate of the fair value of the warrant issued. Expenses of the subordinated debt offering of $395,000 have been capitalized as deferred debt issuance costs, and will be amortized, along with the debt discount, over the life of the subordinated debt using a level-yield method. The unamortized portion of the debt issue costs were $321,000 and $370,000 for 1995 and 1994, respectively. 316 5. INCOME TAXES Components of the income tax (benefit) provision are as follows:
1995 1994 1993 ------------ ------------- ------------ Current tax expense (benefit) $ 125,000 $ (18,000) $ 25,000 Deferred tax expense (benefit) (239,000) (802,000) 332,000 ------------ ------------- ------------ $ (114,000) $ (820,000) $ 357,000 ============ ============= ============
The income tax (benefit) provision differs from the (benefit) provision at federal statutory rates for the following reasons:
1995 1994 1993 ---------- ---------- --------- Tax expense (benefit) at federal statutory rate $(139,000) $(824,000) $ 347,000 State taxes 1,000 (24,000) 10,000 Other 24,000 28,000 -- ---------- ---------- --------- $(114,000) $(820,000) $ 357,000 ========== ========== =========
The components of deferred tax liability (asset) are as follows:
1995 1994 ------------ ------------ Depreciation $ 4,880,000 $ 2,958,000 Net operating loss carryforwards (5,383,000) (3,093,000) Other 9,000 -- ------------ ------------ Net Deferred Asset $ (494,000) $ (135,000) =========== ============
The Company had approximately $15,000,000 of unused net operating loss (NOL) carryforwards at December 31, 1995. The NOLs will expire in the years 2002 to 2010. In addition, the Company is reflecting in the Other Assets approximately $1,029,000 relating to pending IRS refund claims. 28 317 6. CAPITAL STOCK The company's articles of incorporation provide for the authorization of 1,000,000 shares of $.50 par value per share preferred stock. The preferred stock, none of which has been issued, presently has no voting rights or other features, although the articles of incorporation contain provisions to adopt various features or privileges at the discretion of the Board of Directors. In September 1992, the company's Board of Directors authorized the repurchase of up to 350,000 shares of the company's outstanding common stock. The purchases are to be made from time to time in the open market or in arranged transactions at such price or prices as company officers may deem advisable. The common stock repurchased may be used to provide shares for the company's existing stock options and warrants outstanding. During 1994, the company repurchased 24,000 shares of its common stock. 7. COMMON STOCK WARRANTS In conjunction with a private placement offering of Subordinated Long-Term Notes in 1988, the company granted warrants to purchase 80,325 shares of common stock at a price of $10.00 per share. These warrants were exercisable through September 30, 1994. During 1992, 7,500 of these warrants were exercised. During 1994, all of the remaining warrants granted were either exercised or expired. In conjunction with a private placement offering of subordinated Long-Term Notes in June 1994, the company granted warrants, to the single investor, to purchase 25,000 shares of common stock at a price of $22.17 per share. These warrants are exercisable through June 30, 2004. 8. STOCK OPTION PLANS The company has employee and director stock option plans with aggregate limits of 700,000 shares for the employee plan and 70,000 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 vest equally over a period of up to four years. 318 The following table summarizes the stock options as of December 31, 1995, 1994 and 1993:
Option Price Shares Per Share --------- -------------- Balance at Jan. 1, 1993 213,506 11.75 - 18.00 Granted 114,950 13.50 - 15.50 Exercised (11,818) 11.75 - 14.50 Cancelled (24,561) 11.75 - 18.00 Balance at Dec. 31, 1993 292,077 11.75 - 18.00 Granted 91,250 22.00 - 29.15 Exercised (43,142) 11.75 - 18.00 Cancelled (10,790) 12.00 - 26.50 Balance at Dec. 31, 1994 329,395 11.75 - 29.15 Granted 133,750 16.50 - 35.75 Exercised (23,408) 11.75 - 26.50 Cancelled (14,084) 12.00 - 26.50 Balance at Dec. 31, 1995 425,653 11.75 - 35.75 ========= Exercisable at Dec. 31, 1995 209,937 11.75 - 29.15 =========
At December 31, 1995, shares of the Companys authorized but unissued common stock were reserved for issuance as follows: Shares ----------- Employee stock option plan 217,936 Non-employee director plan 47,001 ----------- Total 264,937 =========== 9. 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. 29 319 The company also has various operating leases for office space, warehouse facilities and equipment. These leases expire on various dates through 2005 and generally provide for renewal options at the end of the lease. The company is generally obligated to pay the cost of property taxes, insurance, utilities and maintenance on the leases. Future minimum lease payments under all non-cancelable operating leases at December 31, 1995 are as follows: Year Ending December 31, Amount - ------------------------ ------------ 1996 $2,664,000 1997 2,319,000 1998 2,026,000 1999 1,703,000 2000 1,507,000 2001 and after 5,328,000 ------------ Total future minimum lease payments $15,547,000 ============ Total rent expense on all operating leases was $2,712,000, $2,369,000 and $1,856,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 10. BENEFIT PLAN The company has a defined contribution plan under provisions of Internal Revenue Code Section 401(k). All employees with at least one year of service may participate in the plan. The company matches the employee's contribution up to 4% of the employee's compensation, and may make additional discretionary contributions. During 1995, 1994 and 1993, the company contributed $482,000, $344,000 and $236,000, respectively, to the plan as matching contributions. - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 30 320
- ---------------------------------------------------------------------------------------------------------- QUARTERLY DATA (UNAUDITED) - ---------------------------------------------------------------------------------------------------------- Net Income (loss) Operating Pre-Tax -------------------- Total Revenues Cash Flow(1) Income (loss) Amount Per Share(2) Subscribers - ---------------------------------------------------------------------------------------------------------- Fiscal 1995 First $13,617,210 $ 4,967,889 $ (426,972) $ (272,972) $ (.08) 84,600 Second 14,739,450 5,591,904 51,802 32,802 .01 86,700 Third 16,168,251 6,173,867 150,556 96,556 .03 92,400 Fourth 17,763,078 6,420,742 (172,462) (139,462) (.04) 95,900 ----------- ----------- ------------ ------------ -------- ------ Year ......... $62,287,989 $23,154,402 $ (397,076) $ (283,076) $ (.09) 95,900 ----------- ----------- ------------ ------------ -------- ------ Fiscal 1994 First $10,548,771 $ 3,951,157 $ 56,485 $ 36,485 $ .01 76,500 Second 11,396,005 3,865,963 (430,472) (279,472) (.09) 78,300 Third 11,684,670 3,516,059 (1,295,675) (842,675) (.26) 80,200 Fourth 12,480,343 4,417,548 (753,076) (517,076) (.16) 82,000 ----------- ----------- ------------ ------------ -------- ------ Year ......... $46,109,789 $15,750,727 $(2,422,738) $(1,602,738) $ (.49) 82,000 ----------- ----------- ------------ ------------ -------- ------ (1) Operating income before depreciation and amortization expense. (2) Net income per share for each of the four quarters may not agree to net income per share for the year due to rounding.
- -------------------------------------------------------------------------------- TRADING INFORMATION Market Price 1995 Market Price 1994 ---------------------------- ------------------------------- Quarter Ended High Low Last High Low Last - ------------------------------------------------------------------------------------------ March 31....... 25 16 1/2 24 3/4 27 1/2 21 21 June 30........ 26 23 3/4 25 1/2 24 1/2 20 22 1/2 September 30... 36 3/4 25 1/2 35 3/4 22 1/2 18 1/2 18 1/2 December 31.... 50 1/4 33 1/8 49 1/4 18 3/4 16 1/8 17
The companys common stock trades on the Nasdaq National Market tier of the Nasdaq Stock MarketSM under the symbol: DTLN. On December 31, 1995, there were approximately 525 stockholders of record, not including beneficial holders whose shares are held in names other than their own. 31 321 - -------------------------------------------------------------------------------- INVESTOR INFORMATION - -------------------------------------------------------------------------------- CORPORATE HEADQUARTERS: 9110 West Dodge Road, Suite 200 Omaha, NE 68114 (402) 390-2328 INDEPENDENT AUDITORS: Deloitte & Touche LLP STOCK TRANSFER AGENT: First National Bank of Omaha Attn: Corporate Trust Services One First National Center Omaha, Nebraska 68102 ANNUAL STOCKHOLDERS MEETING: The annual stockholders meeting will be held on Wednesday, April 24, 1996 at 10:00 A.M., at the Holiday Inn-Old Mill, 655 N. 108th Avenue, Omaha, Nebraska. FORM 10-K: A COPY OF THE COMPANYS 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 companys earnings, financial condition and other relevant considerations. 322
- ---------------------------------------------------------------------------------------------------------------------------- DIRECTORS AND OFFICERS - ---------------------------------------------------------------------------------------------------------------------------- Board of Directors: Corporate Officers: - -------------------------------- --------------------------------------------------------------------------------- Roger R. Brodersen Roger R. Brodersen Keith A. Cook Chairman of the Board Chairman of the Board Vice President Chief Executive Officer Chief Executive Officer President, Auto Services Data Transmission Network Corp. Greg T. Sloma H. Wade German Robert S. Herman President Vice President Senior Vice President Chief Operating Officer Business Research Data Transmission Network Corp. Robert S. Herman Brian L. Larson David K. Karnes Senior Vice President Vice President President Research and Technology Chief Financial Officer Chief Executive Officer Secretary and Treasurer The Fairmont Group Inc. Roger W. Wallace Of Counsel, Kutak Rock law firm Senior Vice President Gordon R. Lundy Co-President, Ag Services Vice President J. Michael Parks President, Energy Services Former President James J. Marquiss Former Chief Operating Officer Senior Vice President Charles E. McQuinn First Data Resources, Inc. Co-President, Ag Services Vice President President, West Financial Services Jay E. Ricks Charles R. Wood Chairman of the Board Senior Vice President James G. Payne Douglas Communications Corp. President, Financial Services Vice President Administrative Operations Manager Greg T. Sloma President Chief Operating Officer Data Transmission Network Corp. Roger W. Wallace Senior Vice President Data Transmission Network Corp.
32 323 - -------------------------------------------------------------------------------- MISSION STATEMENT - -------------------------------------------------------------------------------- Led by customer suggestions and demands, Data Transmission Network Corporation has engineered growth and evolution from what we werethe first low-cost, electronically delivered agricultural commodities information serviceto what we are todaya multi-faceted information provider utilizing a full-service communication technology system to deliver that most valuable of all commodities, timely information (NEWS...NOT HISTORY). We are committed to providing the best information and analysis available, as quickly as possible, at an affordable cost to our customers. Among the many things that are critical to successfully meeting those commitments, the three most important are customer service, customer service, and customer service! As fellow shareholders of the company, DTN employees have as their number one goal the long-term enhancement of the value of our company. 33 324 EX-23 13 INDEPENDENT AUDITORS' CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-50406 and No. 33-50412 of Data Transmission Network Corporation on Forms S-8 of our report dated January 30, 1996, appearing in the 1995 Annual Report to the Stockholders of Data Transmission Network Corporation which is incorporated by reference in this Form 10-K of Data Transmission Network Corporation for the year ended December 31, 1995. /s/ Deloitte & Touche LLP - --------------------------- DELOITTE & TOUCHE LLP Omaha, Nebraska January 30, 1996 325 EX-27 14 ARTICLE 5 FDS FOR 1995 10-K
5 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 780,018 0 6,776,576 300,000 0 9,806,991 144,218,965 67,909,419 92,672,050 20,278,929 47,020,527 0 0 3,375 12,873,590 92,672,050 62,287,989 62,287,989 0 57,944,737 0 0 4,798,112 (397,076) (114,000) (283,076) 0 0 0 (283,076) (0.09) (0.09)
EX-99 15 1995 PROXY STATEMENT Securities and Exchange Commission Division of Corporation Finance 450 Fifth Street, N.W. Wachington, DC 20549 Re: Data Transmission Network Corporation Ladies and Gentlemen: Accompanying this letter are definitive copies of the proxy statement and form of proxy for the annual meeting of shareholders of Data Transmisisn Network Corporation to be held April 24, 1996. This registrant intends to release this material to its shareholders on or about March 15, 1996. The $125.00 filing fee payable to the Securities and Exchange Commission is being submitted to the lockbox depository as provided in the Commission's Rule 3a. Please file the proxy statement and form of proxy in accordance with the Securities and Exchange Act of 1934. DATA TRANSMISSION NETWORK CORPORATION By: Brian Larson, Secretary 327 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [ x ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ x ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12 [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) DATA TRANSMISSION NETWORK CORPORATION (Name of Registrant as Specified in its Charter) ----------------------------------------------- (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ x ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------- 5) Total fee paid: ---------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: --------------------------------- 2) Form, Schedule or Registration Statement No.: ----------- 3) Filing Party: ------------------------------------------ 4) Date Filed: ------------------------------------------ 328 DATA TRANSMISSION NETWORK CORPORATION 9110 West Dodge Road, Suite 200 Omaha, Nebraska 68114 (402) 390-2328 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 24, 1996 NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Data Transmission Network Corporation, a Delaware corporation (the Company), will be held at the Holiday Inn - Old Mill, 655 North 108th Avenue, Omaha, Nebraska on Wednesday, April 24, 1996 at 10:00 A.M. Omaha time for the following purposes, as more fully described in the accompanying Proxy Statement: 1. To elect seven directors to the Board of Directors. 2. To consider and vote upon a proposal to ratify the appointment of Deloitte & Touche LLP independent auditors for the Company for the 1996 fiscal year. 3. To transact such other business as may properly come before the meeting or any adjournments thereof. Any action may be taken on any one of the foregoing proposals at the meeting on the date specified above, or on any date or dates to which the meeting may be adjourned. The Board of Directors of the Company has fixed the close of business on March 1, 1996, as the record date for determination of the stockholders of the Company entitled to notice of and to vote at the meeting. All stockholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, please complete, date and sign the enclosed proxy card and mail it promptly in the self-addressed envelope provided. The giving of such proxy does not affect your right to vote in person in the event you attend the meeting. BY ORDER OF THE BOARD OF DIRECTORS Omaha, Nebraska Brian L. Larson March 11, 1996 Secretary IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. 329 DATA TRANSMISSION NETWORK CORPORATION Proxy Statement Index Page - ------------------------------------------------------------------------------- Proxy Statement ........................................................... 1 Proxies ................................................................... 1 Voting Securities ......................................................... 1 Election of Directors ..................................................... 2 Ownership By Certain Beneficial Owners and Management ..................... 4 Executive Compensation .................................................... 6 Compensaton Committee Report of Executive Compensation .................... 10 Transactions with Management .............................................. 11 Compensation Committee Interlocks and Insider Participation ............... 11 Approval of Appointment of Auditors ....................................... 11 Stockholder Proposals for 1997 Annual Meeting ............................. 11 Compliance With Section 16(a) of the Exchange Act ......................... 11 Other Matters ............................................................. 12 Miscellaneous ............................................................. 12 330 PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 24, 1996 - -------------------------------------------------------------------------------- This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Data Transmission Network Corporation, a Delaware corporation (the Company), to be used at the Annual Meeting of Stockholders (the Meeting) to be held at the Holiday Inn - Old Mill, 655 North 108th Avenue, Omaha, Nebraska on Wednesday, April 24, 1996, at 10:00 A.M. Omaha time. Stockholders of record at the close of business on March 1, 1996 are entitled to notice of and to vote at the Meeting. The Companys principal executive offices are located at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. PROXIES Proxies are being solicited by the Board of Directors of the Company with all costs of the solicitation to be paid by the Company. If the accompanying proxy is executed and returned, the shares represented by the proxy will be voted as specified therein. A stockholder may revoke any proxy given pursuant to this solicitation by delivering to the Company prior to the Annual Meeting a written notice of revocation or by attending the Meeting and voting in person. This notice of Annual Meeting of Stockholders, proxy statement and accompanying proxy card are first being mailed to stockholders on or about March 15, 1996. VOTING SECURITIES At March 1, 1996, the Company had issued and outstanding 3,327,530 shares of the Companys $.001 par value common stock. The Company has no other class of voting securities outstanding. Each stockholder voting in the election of directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are entitled, or may distribute such votes on the same principle among as many candidates as the stockholder chooses, provided that votes cannot be cast for more than the total number of directors to be elected at the Meeting. The seven nominees receiving the most votes at the Meeting will be elected as directors. Each share has one vote on all other matters. An affirmative vote of a majority of the shares present in person or by proxy at the meeting is required for approval of all items being submitted to the stockholders for their consideration. In accordance with Delaware law, a shareholder entitled to vote for the election of directors can withhold authority to vote for all nominees or for certain nominees for directors. Abstentions from voting on the proposal to ratify the appointment of auditors are treated as votes against such proposal. Broker non-votes on the proposal to ratify the appointment of auditors are treated as shares as to which voting power has been withheld by the beneficial holders of those shares and, therefore, as shares not entitled to vote on such proposal. 1 331 ELECTION OF DIRECTORS At the Meeting, the stockholders will elect a board of seven directors for a term extending until the 1997 annual meeting of stockholders of the Company and until their respective successors have been elected and qualify. The Board of Directors has nominated for election or re-election as directors: Roger R. Brodersen, Robert S. Herman, David K. Karnes, J. Michael Parks, Jay E. Ricks, Greg T. Sloma and Roger W. Wallace. All of the nominees presently are serving as directors of the Company. Proxies may be voted for seven directors. If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute as the Board of Directors may recommend or the Board of Directors may amend the By-Laws and reduce the size of the Board. At this time, the Board knows of no reason why any nominee might be unavailable to serve. Set forth below is certain information as of March 1, 1996, with respect to the nominees for election as directors of the Company. The information relating to their respective business experience was furnished to the Company by such persons.
Position and Office Director Nominee Age with the Company Since - ------------------ --- ------------------------------------ -------- Roger R. Brodersen 50 Chairman of the Board, 1984 Chief Executive Officer and Director Robert S. Herman 43 Senior Vice President and Director 1984 David K. Karnes 47 Director 1989 J. Michael Parks 45 Director 1990 Jay E. Ricks 63 Director 1995 Greg T. Sloma 44 President, Chief Operating Officer, 1993 and Director Roger W. Wallace 39 Senior Vice President and Director 1984
Mr. Brodersen has served as Chairman of the Board and Chief Executive Officer of the Company since 1984. Mr. Brodersen served as President of the Company from 1984 to 1995. Mr. Herman has served as Senior Vice President of the Company since 1989. He served as Vice President of the Company from 1984 to 1989. Mr. Karnes has served as President and Chief Executive Officer of The Fairmont Group, Inc., a financial services and consulting firm, since 1989. He also has served as Chairman of the Federal Home Loan Bank of Topeka since 1989. Mr. Karnes served as a United States Senator from 1987 to 1989. Mr. Parks served as President and Chief Operating Officer of First Data Resources Inc. from November 1993 to December 1994 and President of the Merchant Services Group of First Data Resources Inc. from December 1991 to November 1993. He also served as President and Chief Executive Officer of Call Interactive, an affiliate of First Data Resources Inc., from 1989 to 1991. From 1976 to 1989, Mr. Parks served as President or Senior Vice President of various American Express Information Services Companies or their subsidiaries. 2 332 Mr. Ricks has served as Chairman of Douglas Communications Corporation, an operator of cable television systems, since 1990. He was a partner in the law firm of Hogan & Hartson in Washington, D.C., from 1970 to 1990. Mr. Ricks is a director of Intelcom Group, Inc., a competitive access provider and operator of several satellite teleports, since 1992. Mr. Sloma was elected President of the Company in January 1996. He has served as Chief Operating Officer of the Company since January 1994. Mr. Sloma served as Executive Vice President of the Company from January 1994 to December 1995 and as Chief Financial Officer from April 1993 to December 1993. From 1983 to 1993, Mr. Sloma was a Tax Partner at Deloitte & Touche. Mr. Wallace has served as Senior Vice President of the Company since 1989. He served as Vice President of the Company from 1984 to 1989. BOARD MEETINGS AND COMMITTEES The Board of Directors met three times during the fiscal year ended December 31, 1995. During fiscal 1995, all directors attended all of the meetings of the Board of Directors and related committees on which they served. The Company does not have a Standing Nominating Committee. The Audit Committee recommends the selection of the independent auditors, reviews the scope of the audits performed by them and reviews their audit report and any recommendations made by them relating to internal financial controls and procedures. Members of the Audit Committee, which met twice during fiscal 1995, are David K. Karnes, J. Michael Parks and Jay E. Ricks. The Compensation Committee reviews and makes recommendations to the Board of Directors regarding officers compensation and the Companys employee benefit plans; provided, however, the Compensation Committee administers the Companys Stock Option Plan of 1989 through its Stock Option Plan Subcommittee, consisting of all members of the Compensation Committee other than Greg Sloma. Members of the Compensation Committee, which met once during fiscal 1995, are David K. Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma. DIRECTORS COMPENSATION During fiscal 1995, each member of the Board of Directors who was not an employee of the Company received $700 for each Board of Directors meeting attended and $400 for each Board committee meeting attended. In 1995, each director who was not an employee of the Company received options under the Non-Employee Directors Stock Option Plan to purchase 2,500 shares of the Companys common stock. On January 4, 1995 David K. Karnes and J. Michael Parks each received options to purchase 1,000 shares at an exercise price of $16.50 per share and on April 26, 1995 each received options to purchase 1,500 shares at an exercise price of $25.50 per share. On April 26, 1995, Jay E. Ricks received options to purchase 2,500 shares at an exercise price of $25.50 per share. 3 333 OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as to the beneficial ownership of the Companys common stock by each person or group who, as of March 1, 1996, to the knowledge of the Company, beneficially owned more than 5% of the Companys common stock:
Name and Address of Amount and Nature Percent of Beneficial Owner of Ownership Class - ------------------------- ------------------ ------------- Roger R. Brodersen 539,128 16.2% 16705 Ontario Plaza Omaha, NE 68130 Furman Selz Incorporated 360,170 10.8% 230 Park Avenue New York, NY 10169 Peter H. Kamin and Peak Investment 231,500 7.0% Limited Partnership as a group One Financial Center, Suite 1600 Boston, MA 02111 Wasatch Advisors, Inc. 168,270 5.1% 68 South Main Salt Lake City, UT 84101 (1) This includes 13,050 shares held in a trust for the benefit of Mr. Brodersens children, 9,100 shares beneficially owned by Mr. Brodersens spouse, and 5,955 shares allocated to Mr. Brodersen through his participation in the Companys 401(k) Savings Plan. (2) According to a Schedule 13G dated January 16, 1996, Furman Selz Incorporated has sole voting and sole dispositive power over such shares. (3) According to a Schedule 13D, amended through December 30, 1994, and a telephone conversation by the Secretary of the Company with Peter H. Kamin on February 1, 1996, Peak Investment Limited Partnership (Peak) is the beneficial owner of 213,500 of these shares for which it has sole voting and sole dispositive power. Peter H. Kamin is the sole general partner of Peak with sole voting and sole dispositive power over the shares owned by Peak and therefore also may be deemed to be the beneficial owner of such 213,500 shares. According to the Schedule 13D, as modified by such telephone conversation, Mr. Kamin also is the beneficial owner of an additional 18,000 shares for which he has sole voting and sole dispositive power. (4) According to a Schedule 13G dated February 12, 1996, Wasatch Advisors, Inc. has sole voting and sole dispositive power over such shares.
4 334 The following table sets forth information as to the shares of common stock of the Company beneficially owned as of March 1, 1996, by each director of the Company, by each nominee for election as a director of the Company, by each of the executive officers named in the Summary Compensation Table beginning on page 6, and by all directors and executive officers of the Company as a group:
Amount and Nature Percent of Beneficial Owner of Ownership (1) Class (2) - -------------------- ------------------ ------------ Roger R. Brodersen 539,128 ( 3) 16.2% Robert S. Herman 146,831 ( 4) 4.4% David K. Karnes 18,645 ( 5) * James J. Marquiss 47,766 ( 6) 1.4% J. Michael Parks 11,333 ( 7) * Jay E. Ricks 3,500 ( 8) * Greg T. Sloma 37,482 ( 9) 1.1% Roger W. Wallace 87,768 (10) 2.6% All directors and executive officers as a group (15 persons) 939,083 (11) 28.2% * Less than 1.0% ( 1) The number of shares in the table include interests of the named persons, or of members of the directors and executive officers as a group, in shares held by the trustee of the Companys 401(k) Savings Plan. The beneficial owners have sole investment power over these shares but do not have sole voting power. ( 2) Shares subject to options exercisable within 60 days of March 1, 1996 are deemed to be outstanding for the purpose of computing the percentage ownership of persons beneficially owning such options but have not been deemed to be outstanding for the purpose of computing the percentage ownership of any other person. ( 3) Includes 13,050 shares which are held in trust for Mr. Brodersens children, 9,100 shares beneficially owned by Mr. Brodersens spouse, and 5,955 shares allocated to Mr. Brodersen through his participation in the Companys 401(k) Savings Plan. ( 4) Includes 26,515 shares subject to options exercisable within 60 days of March 1, 1996, 9,600 shares beneficially owned by Mr. Hermans spouse, and 4,822 shares allocated to Mr. Herman through his participation in the Companys 401(k) Savings Plan. ( 5) Includes 8,833 shares subject to options exercisable within 60 days of March 1, 1996 ( 6) Includes 18,291 shares subject to options exercisable within 60 days of March 1, 1996 and 4,475 shares allocated to Mr. Marquiss through his participation in the Companys 401(k) Savings Plan. 5 335 ( 7) Includes 8,333 shares subject to options exercisable within 60 days of March 1, 1996. ( 8) Includes 2,500 shares subject to options exercisable within 60 days of March 1, 1996. ( 9) Includes 28,500 shares subject to options exercisable within 60 days of March 1, 1996, 940 shares beneficially owned by Mr. Slomas children and 5,942 shares allocated to Mr. Sloma through his participation in the Companys 401(k) Savings Plan. (10) Includes 26,517 shares subject to options exercisable within 60 days of March 1, 1996, 1,500 shares beneficially owned by Mr. Wallaces spouse, and 4,821 shares allocated to Mr. Wallace through his participation in the Companys 401(k) Savings Plan. (11) Includes 159,789 shares subject to options exercisable within 60 days of March 1, 1996, 13,050 shares held in trust for the children of executive officers and directors, 21,140 shares owned beneficially by spouses or children of executive officers and directors, and 31,900 shares allocated to executive officers through their participation in the Companys 401(k) Savings Plan.
EXECUTIVE COMPENSATION The following table sets forth information with respect to the Chief Executive Officer and the four remaining most highly compensated executive officers of the Company for the fiscal year ended December 31, 1995.
Summary Compensation Table - ---------------------------------------------------------------------------------------------------------------- Long Term Annual Compensation Compensation ------------------------ ------------- (a) (b) (c) (d) (e) (f) (g) - ------------------------- ------ --------- --------- ---------- -------------- ---------------- Other Securities Annual Underlying Name and Principal Compen- Options All Other Position Year Salary Bonus sation(1) (shares) Compensation (2) - ------------------------- ------ --------- --------- ---------- -------------- ---------------- Roger R. Brodersen 1995 $ 172,000 $ 147,897 $0 10,000 $ 9,240 Chairman, President 1994 165,000 80,217 0 10,000 9,240 & Chief Executive Officer 1993 157,500 79,497 0 6,000 8,994 Greg T. Sloma 1995 140,000 131,466 0 6,000 9,240 Chief Operating Officer & 1994 135,000 65,712 0 6,000 2,464 Executive Vice President 1993 93,462 35,360 0 30,000 0 Robert S. Herman 1995 115,000 131,466 0 5,000 9,240 Senior Vice President 1994 110,000 71,304 0 5,000 6,160 1993 104,000 70,922 0 4,500 6,165 Roger W. Wallace 1995 115,000 126,227 0 5,000 9,240 Senior Vice President 1994 110,000 70,108 0 5,000 7,204 1993 104,000 70,970 0 4,500 6,998 James J. Marquiss 1995 115,000 125,843 0 4,000 9,240 Vice President 1994 110,000 62,540 0 3,000 6,902 1993 80,000 87,889 0 3,000 7,027 6 336 (1) Excludes perquisites and other benefits because the aggregate of such compensation was less than either $50,000 or 10% of the total of annual salary and bonus reported for the named executive officer. (2) The amounts included in the All Other Compensation column represent 401(k) matching contributions made by the Company.
The following table shows, as to the Chief Executive Officer and the four remaining most highly compensated executive officers of the Company, information about stock option grants in fiscal 1995. The Company does not grant any Stock Appreciation Rights.
Option Grants In Last Fiscal Year - ----------------------------------------------------------------------------------------------- Individual Grants - ----------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) - ------------------- ------------ -------------- ----------- ---------- ---------- Number of Securities Percent of Underlying Total Options Options Granted to Exercise Grant Date Granted Employees In Price Expiration Present Name (shares) (1) Fiscal 1995 (Per share) Date Value (2) - ------------------- ------------ -------------- ----------- ---------- ---------- Roger R. Brodersen 10,000 7.9% $ 18.15 1-04-00 $66,900 Greg T. Sloma 6,000 4.8% 16.50 1-04-05 40,900 Robert S. Herman 5,000 4.0% 16.50 1-04-05 34,100 Roger W. Wallace 5,000 4.0% 16.50 1-04-05 34,100 James J. Marquiss 4,000 3.2% 16.50 1-04-05 27,300 (1) The options listed above were granted on January 4, 1995 under the Companys Stock Option Plan of 1989. (2) As permitted by the Securities and Exchange Commissions rules on disclosure of executive compensation, the Company has elected to use a valuation method other than the value at 5% and 10% annual appreciation or the Black-Scholes valuation method. The Company has on its staff Dr. H. Wade German, Vice President of Business Research, an experienced business economist with more than 25 years experience building industry price indexes and short term forecasting models. Dr. German holds the BA, MA and CAS Degrees in Economics and a Ph.D. in Sociology.
Dr. German has constructed a stock option valuation method (DTN-SOVM) which the Company believes provides a more realistic measure of stock option values. The DTN-SOVM is determined as follows: Using the well-known Census Bureau Seasonal Adjustment Program, an autoregressive integrated moving average technique (referred to as the X-11 program), the Company has: 7 337 Isolated the long term trend and the intermediate term cyclical effects impacting the Companys stock price. This is done on a monthly average basis. Isolated the seasonality and the irregular component of the monthly average stock price over the calendar years 1991 through 1995, inclusive . Quantified on a monthly basis the four major components of its stock price movement. These components are (1) long term trend (2) intermediate term cyclical component (3) short term seasonal component and (4) the irregular or exogenous element of the monthly average stock price. Since the Companys stock options will only have a positive value if the long term outlook for the stock is positive, it is necessary to estimate the long term underlying value of the stock, after removing any irregular effects from the data. The DTN-SOVM accomplishes this by: Regressing the trend-cycle component of the Companys monthly average stock price on alternative time trends, over alternative time periods, to determine which provides the most realistic assessment of the future trend-cycle estimate of the Companys stock. Since the trend-cycle data from the X-11 program is monthly, the regression analysis of the Companys trend-cycle on the time trend provides an equation that enables the Company to estimate future trend-cycle values on a monthly basis. This is conducted over a ten year time period; from January, 1996 through December, 2005. Once the appropriate future values of the Companys trend-cycle estimates are constructed, the next steps are to: Determine the weighted average exercise time period from historical data with respect to the Companys stock options over the seven year time period from January 1, 1989 to December 31, 1995. Assuming the historical experience regarding the exercise of the Companys stock options will be repeated in the future, the DTN-SOVM determines the estimated trend- cycle value. Subtract the exercise price of the option from the trend-cycle value of such option, and then discount to present value using a discount rate equal to the annual yield on a U.S. Treasury Note having a maturity date closest to the end of the exercise period of such option. 8 338 The following table provides information on option exercises in fiscal 1995 and the value of unexercised options at December 31, 1995 for the Chief Executive Officer and the four remaining most highly compensated executive officers.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year End Option Values - ---------------------------------------------------------------------------------------------------- Number of Securities Underlying Unexercised Value of Unexercised Shares Options at Fiscal In-the-Money Options Acquired Year End (shares) At Fiscal Year End(1) On Value -------------------------- --------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------- -------- --------- ----------- ------------- ----------- ------------- Roger R. Brodersen 2,769 $ 31,428 20,666 18,667 $ 668,400 $ 498,700 Greg T. Sloma -- 0 17,000 25,000 569,000 805,000 Robert S. Herman -- 0 21,683 9,833 748,500 285,100 Roger W. Wallace -- 0 21,683 9,833 748,500 285,100 James J. Marquiss -- 0 14,958 7,000 517,100 206,500 (1) The closing bid price of the Companys common stock as quoted by NASDAQ on December 31, 1995 was $48.50. The values shown are computed based upon the difference between this price and the exercise price of the underlying options.
PERFORMANCE GRAPH The following performance graph compares the performance of the Companys common stock to the Center for Research in Securities Prices (CRSP) Total Return Index for the NASDAQ Stock Market (U.S. Companies) and to the CRSP Total Return Industry Index for NASDAQ Telecommunications Stocks. The graph assumes that the value of the investment in the Companys Common Stock and each index was $100 at December 31, 1990.
Performance Graph in Tabular Form Comparison of Five Year Cumulative Return ----------------------------------------- 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- DTN Common Stock 100 100 118 218 142 410 NASDAQ Total Return Index 100 161 187 215 210 296 NASDAQ Telecommunication Industry Index 100 138 169 261 216 260
9 339 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION COMPENSATION PHILOSOPHY The Company strives to apply a consistent philosophy on compensation for all employees, including senior management. The goals of the compensation program are to directly link compensation with corporate profitability and the enhancement of the underlying value of the Companys business. The following objectives are used by the Company and the Compensation Committee as guidelines for compensation decisions: Provide a competitive total compensation package that allows the Company to attract and retain the best people possible. The Company pays for performance. Employees are rewarded based upon corporate performance, business unit performance and individual performance. Provide variable compensation programs that are linked with the performance of the Company and that align executive compensation with the interests of shareholders. COMPENSATION PROGRAM COMPONENTS The Committee annually reviews the Companys compensation program to ensure that pay levels and incentive opportunities are competitive and reflect the performance of the Company. The components of the compensation program for executive officers, which are comparable to those used for all employees, are outlined below. Base Salary - Base pay levels are determined by reviewing competitive positions in the market, including comparisons with companies of similar size, complexity and growth rates. Modest increases in base salary were recommended by senior management for fiscal 1995 for the Chief Executive Officer and the other executive officers named in the Summary Compensation Table, and the Committee acted in accordance with this recommendation. Annual Incentive Compensation - The large majority of the Companys employees, including the executive officers, participate in an annual bonus plan. For fiscal 1995, the bonus pool amounted to eight percent of the Companys income before income taxes and depreciation and amortization expenses. The five executive officers named in the Summary Compensation Table received approximately forty percent of this bonus pool. Stock Option Program - The purpose of this program, which is available to the large majority of employees, is to provide additional incentives to employees to work to maximize long-term shareholder value. It also uses vesting periods to encourage key employees to continue in the employ of the Company. The number of stock options granted to executive officers is based on competitive practices. COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS David K. Karnes J. Michael Parks Jay E. Ricks Greg T. Sloma 10 340 TRANSACTIONS WITH MANAGEMENT No reportable transactions occurred during fiscal 1995 between the Company and its officers and directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following directors served on the Compensation Committee of the Companys Board of Directors: David K. Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma. Mr. Sloma, because he is an officer and employee of the Company, abstains from all votes dealing with officer compensation. Also, only Mr. Karnes, Mr. Parks and Mr. Ricks are members of the Stock Option Plan Subcommittee of the Compensation Committee which administers the Companys Stock Option Plan of 1989. APPROVAL OF APPOINTMENT OF AUDITORS The Board of Directors has, upon the recommendation of the Audit Committee, appointed the firm of Deloitte & Touche LLP to audit the Companys financial statements for the fiscal year ending December 31, 1996, subject to ratification by the stockholders of the Company. Deloitte & Touche LLP served as the Companys auditors for the 1995 fiscal year. Ratification of the appointment of the independent auditors requires the affirmative vote of a majority of the shares of Common Stock present, in person or by proxy, and voting at the Meeting. If the stockholders should not ratify the appointment of Deloitte & Touche LLP, the Board of Directors will reconsider the appointment. A representative of Deloitte & Touche LLP is expected to be present at the Meeting, will have an opportunity to make a statement if desired, and will be available to respond to appropriate stockholder questions. The Board of Directors recommends a vote FOR the approval of the appointment of Deloitte & Touche LLP as independent auditors for the Company. STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING Proposals of stockholders for which consideration is desired at the 1997 Annual Meeting of Stockholders must be received by the Company no later than December 31, 1996, in order to be considered for inclusion in the Companys proxy statement and form of proxy relating to such meeting. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), requires the Companys directors, executive officers and holders of more than 10% of the Companys common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. The Company believes that during the fiscal year ended December 31, 1995, its executive officers, directors and holders of more than 10% of the Companys common stock complied with all Section 16(a) filing requirements, with the following exception. Jay E. Ricks, a director of the Company, filed late his initial report on Form 3 due upon his becoming a director of the Company. In making these statements, the Company has relied solely upon a review of Forms 3 and 4 furnished to the Company during its most recent fiscal year, Forms 5 furnished to the Company with respect to its most recent fiscal year, and written representations from reporting persons that no Form 5 was required. 11 341 OTHER MATTERS The Board of Directors is not aware of any business to come before the Meeting other than those matters described above in the Proxy Statement. However, if any other matters should properly come before the meeting, the persons named in the accompanying form of proxy will have discretionary authority to vote all proxies with respect thereto in accordance with their judgement. MISCELLANEOUS The cost of solicitation of proxies will be borne by the Company. The Company will, upon request, reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to the beneficial owners of Common Stock. In addition to solicitations by mail, directors, officers, and regular employees of the Company may solicit proxies personally or by telegram or telephone without additional compensation. The Company has retained First National Bank of Omaha, the Companys stock transfer agent, to assist in the distribution and solicitation of proxies at a cost of approximately $2,500, including the reimbursement of certain expenses. The Companys Annual Report to Stockholders, including financial statements, has been mailed to all stockholders of record as of the close of business on March 1, 1996. Any stockholder who has not received a copy of such Annual Report may obtain a copy by writing the Company. Such Annual Report is not to be treated as a part of this proxy solicitation material nor as having been incorporated herein by reference. Notwithstanding anything to the contrary set forth in any of the Companys previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the Compensation Committee Report on page 10 and the Performance Graph on page 9 shall not be incorporated by reference into any such filings. THE BOARD OF DIRECTORS Omaha, Nebraska March 11, 1996 A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, DATA TRANSMISSION NETWORK CORPORATION, 9110 WEST DODGE ROAD, SUITE 200, OMAHA, NEBRASKA 68114. 12 342 INTENTIONALLY LEFT BLANK 343 DATA TRANSMISSION NETWORK CORPORATION 9110 West Dodge Road, Suite 200 Omaha, NE 68114 344 DATA TRANSMISSION NETWORK CORPORATION PROXY Annual Meeting of Stockholders To Be Held April 24, 1996 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Roger R. Brodersen and Brian L. Larson, or either of them, as proxies of the undersigned, with full power of substitution to either of them, and hereby authorizes them to vote as designated below all shares of common stock of Data Transmission Network Corporation held of record by the undersigned on March 1, 1996 at the Annual Meeting of Stockholders to be held on April 24, 1996 and at any adjournments thereof (a) on the following matters and (b) on any other matters that properly may come before the meeting or any adjournments thereof: 1. ELECTION OF DIRECTORS FOR all nominees listed below (except as marked) ----- WITHHOLD AUTHORITY to vote for all nominees listed below ----- (INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), draw a line through the nominee's name below.) Roger R. Brodersen Robert S. Herman David K. Karnes J. Michael Parks Jay E. Ricks Greg T. Sloma Roger W. Wallace 2. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP as independent auditors of the Corporation for fiscal year ending December 31, 1996 AGAINST ABSTAIN ---- ---- This proxy will be voted as specified. IF NO SPECIFICATION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH ABOVE. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders of Data Transmission Network Corporation to be held on April 24, 1996 and the Proxy Statement for such meeting. Dated , 1996 --------------------------- ----------------------------------- ----------------------------------- (Signature of Stockholder) Note: Please sign exactly as name appears on stock certificate (as Indicated on reverse side). All joint owners should sign. When signing as personal representative, executor, administrator, attorney, trustee or guardian, please give full title as such. If a corporation, please sign in full corporation name by president or other authorized person. If a partnership, please sign in partnership name by a partner. 345 -----END PRIVACY-ENHANCED MESSAGE-----