-----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, UdLf+rwKN5NdNFJw5U5saELx2vKviA3vQqH/7M2/Y4a/Aib86yzyquE848v4E3Kl 7pqXBE5rlL52lT37MIDrxg== 0000790498-97-000002.txt : 19970329 0000790498-97-000002.hdr.sgml : 19970329 ACCESSION NUMBER: 0000790498-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 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: 97566215 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 1996 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996. OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-15405. DATA TRANSMISSION NETWORK CORPORATION ------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 47-0669375 ------------------------ ------------------------------ (State of Incorporation) (I.R.S. Employer ID Number) 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114 ------------------------------------------------ --------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (402) 390-2328 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value ----------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of voting stock (based upon the "bid" price as quoted on NASDAQ) of the registrant held by non-affiliates on March 1, 1997 was approximately $203,000.000. At March 1, 1997, the registrant had outstanding 11,063,020 shares of its common stock. - Continued to Page 2 - 1 DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1996 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 23, 1997, are incorporated by reference into Part III. PART I ITEM 1. BUSINESS. (a) General Development of Business: Data Transmission Network Corporation (the "company", "DTN") was incorporated on September 17, 1987 to change the name and state of incorporation of its predecessor company, Dataline, Inc. from Nebraska to Delaware pursuant to an Agreement and Plan of Merger dated October 8, 1987. The company was originally incorporated in Nebraska on April 9, 1984, as Scoular Information Services, Inc., a subsidiary of a regional grain company, later changing its name to Dataline, Inc. On December 19, 1985 and January 31, 1986, in related transactions, certain employees of the company purchased all of the outstanding stock of the company from the regional grain company. In January, 1987, the company completed an initial public offering of common stock selling 698,085 shares at $5.40 per share (pre-stock split). (b) Financial Information About Industry Segments: Not Applicable (c) Narrative Description of Business: Data Transmission Network Corporation (DTN) began operations in April 1984. The Company is in the business of providing information and communication services. During 1996, DTN added several new services in the agriculture, weather and financial service lines. All of these services are discussed in this report. DTN services reach 145,900 subscribers throughout the U.S. and Canada. 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 communications industry. The Company continues to make large investments to develop and enhance its information distribution technology. These investments have allowed the Company to take advantage of many engineering and software advancements in an exciting and growing industry. 2 INFORMATION DISTRIBUTION TECHNOLOGY The Company is committed to research and develop information distribution technologies that cost effectively deliver the timely (NEWS...NOT HISTORY) information that the Company's subscribers demand. DTN supports several information distribution technologies allowing the distribution (transmission) and receiving (capture, manipulation and display) of information. These technologies include FM radio side-band channels (FM), small dish Ku-band satellite (Ku), Fax, Cable TV (by using the vertical blanking interval, or VBI), E-Mail and the Internet. The first technology used by the Company was FM radio side band. The Ku technology was added in 1989, providing the ability to reach customers outside the geographic territory of the signal of the FM stations. Fax, 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 and VBI. This equipment includes a receiver, specifically built for the Company, a video monitor, a 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 Engine (ACE) receiver, a color graphics receiver system, that expanded the ability to provide information and communication 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 which are used when a futures contract reaches a pre-set price. In addition, this processor may send and retrieve information by using an internal modem connected to a phone line. The ACE receiver also has the capability 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 displayed. The receivers built-in control panel, keyboard or mouse allows the subscribers to conveniently view this information. One of the unique aspects of the Company's information distribution technology is the computer software developed by the Company 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 or group of subscribers. The Company leases FM radio side-band channels, satellite channels and VBI space to deliver the information to the Company's receivers used by its subscribers. All information is up-linked from Omaha to satellite (except Internet, Fax and other telephone delivery technology) and down-linked from the satellite to the subscriber based on the distribution technology. The FM monochrome subscribers receive their information using an FM antenna that receives the information via the side-band signal transmitted from radio stations. 3 On December 31, 1996, 15,600 subscribers were receiving the Company's services via FM distribution technology. The Ku subscribers utilize a 30" satellite dish, a direct down-link, to receive their information. On December 31, 1996, 128,000 subscribers were receiving the Company's services via Ku distribution technology. Early in 1994, the Company began using a new cable TV distribution technology involving vertical blanking intervals (VBI). The Company 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, 1996, 2,300 subscribers were receiving the Company's services by VBI distribution technology. The Company has approximately 10,500 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 500 E-Mail sources delivering over 1,500 pages of information to subscribers daily. The Company began to deliver services on the Internet in 1995. The Company is currently offering services in the agriculture, produce and finance service lines 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 services, (3) communication services, (4) advertising and (5) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was:
1996 1995 1994 ---- ---- ---- Subscriptions 76% 74% 73% Optional services 6% 6% 8% Communication services 9% 11% 10% Advertising 3% 3% 5% Service Initiation Fees 6% 6% 4%
The subscription revenue is generated from monthly, quarterly or annual subscription fees for one of the Company's services. The Company offers a discount to subscribers who pre-pay their subscriptions annually. A more detailed review of each service is found later in this report. Optional services are offered to subscribers on an "a la carte basis", similar to premium channels on cable TV. 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 in total dollars and has maintained the level achieved in 1996 as a percentage of total revenue during this period of rapid subscriber and subscription revenue growth. The Company sells communication services that allow companies to cost- effectively communicate a large amount of timely (NEWS...NOT HISTORY) information to their customers or field offices. This category includes revenue generated from FAX and E-Mail services. Communication revenue has continued to grow in total dollars and management believes this area offers opportunities for future growth. The Company sells advertising space interspersed among the pages of news and information, similar to a newspaper or magazine. The advantage of an 4 electronic advertisement over typical print media is the timely (NEWS...NOT HISTORY) delivery of the ad, as well as the ability to change the advertising message quickly and as frequently as market conditions dictate. Advertising revenue continues to grow in total dollars and has maintained the level achieved in 1996 as a percentage of total revenue during this period of rapid subscriber and subscription revenue growth. Service initiation fees are one-time charges for new subscriptions depending on the service and the information distribution technology. DTN also charges an initiation fee for those subscribers who convert to another service (ie: from a monochrome FM to a Ku color service). DTN Agricultural Services The DTN Agricultural Services include DTN AgDaily, DTN ProSeries, DTN FarmDayta, DTNstant, DTNiron and DTN PROduce.
1996 1995 1994 ----------- ----------- ----------- Revenues $69,700,000 $45,000,000 $33,700,000 Subscribers at year end 116,200 77,400 67,100
New subscription are primarily sold by the Company's national sales force of employee district sales representatives, in-house sales staff, and independent, commission-only sales representatives. The Company obtains leads for the sales force through telemarketing, direct mail, print media advertising and customer referrals. The Company's management continues to analyze the markets in the U.S. and Canada to determine the optimum sales force necessary to cost-effectively maximize sales. The biggest competition to these services is the combination of printed advisory services, radio, television, telephone, other satellite information services, on-line services and the changing of old information gathering habits. DTN's agricultural subscribers have more than 150 optional services available to them. These services consist of advisory, informational and educational products. Additional services include newswire, association and free services. DTN subscribers are given the opportunity to tailor their DTN unit to their specific needs by choosing from a broad mix of "a la carte" services. DTN continues to develop new optional services to meet customer demands by listening closely to the marketplace. The Company markets these services through a combination of individual free trials, system-wide trials, on-screen advertising, direct mail, invoice stuffers, equipment stuffers and telemarketing. The total number of monthly subscriptions increased over 27% primarily due to these marketing campaigns. The increase in subscriptions fueled the impressive increase in optional services revenue. Optional service subscription prices range from $6 to $1,200 per quarter with the average subscription price of $60/quarter. In 1996, the agricultural related services sold over three million dollars 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 1996 confirmed that DTN is an important player in the agriculture media field. DTN AGDAILY SERVICES The DTN AgDaily Services are DTN AgDaily, DTN Pro Series and DTN FarmDayta. 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, Pro Series and FarmDayta subscribers farm nearly one third of the nation's total cropland and market more than 50% of the nation's cattle and hogs. Subscribers can be found throughout the U.S and Canada. 5 DTN AgDaily management believes the trend toward consolidation into larger farms is expanding the market for agricultural information services. Also, the government's move toward fewer agricultural price supports and an open market system will support expansion of agricultural information services. This expansion should provide steady growth for DTN AgDaily, DTN Pro Series and DTN FarmDayta. DTN AgDaily SERVICE REVIEW The Company's first service, DTN AgDaily, is an agricultural market information, quote and weather 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 affect grain and livestock prices. The DTN AgDaily color graphics system includes an advanced weather segment with national and regional radar maps (updated every 15 minutes), infrared satellite cloud cover maps, precipitation, temperature, jet stream, surface wind and snow cover maps, and much more. The subscriber can custom design high resolution charts and/or select from a library that holds over 1,000 charts. 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 as well as general, business, sports and entertainment news. DTN AgDaily color service offers 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 allows subscribers to search an extensive seed catalog. The price of the monochrome FM service is currently $29 per month, $35 per month for monochrome Ku service and $52 per month for color Ku service. DTN offers services with advanced features bundled with DTN AgDaily called the DTN Pro Series. The DTN Pro Series services are also managed as a service within DTN AgDaily. DTN Pro Series 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. News Pro subscribers receive AP Online, a service of the Associated Press, as a news source. 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. 6 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 Pro Series' enhanced functionality includes a high interest window that allows a user to view future or options quotes on any page, key word search that automatically searches the news story database for articles affecting the user's operation, a user custom segment that creates a customized segment with up to five of the user's favorite pages, and a personal library that serves as a customized archive segment. Each individual Pro Series service is currently priced at $62 per month except the Stock Pro which is currently priced at $66 a month. DTN Premier is the package of Weather Pro, News Pro, Chart Pro and Intraday Pro, currently priced at $79 per month. DTN Premier Plus is the package of DTN Premier and Stock Pro, currently priced at $82 a month. This service is available by color Ku-band satellite transmission. DTN FarmDayta SERVICE REVIEW DTN FarmDayta was the principle asset acquired from the Broadcast Partners acquisition in May 1996. The content of this service is very similar to DTN AgDaily. In fact, since its start in 1990, DTN FarmDayta was the primary competition for DTN AgDaily services. DTN FarmDayta is an agricultural market information, quote and weather service delivering delayed commodity futures and options quotes; local cash grain and livestock prices; selected regional and world weather updates; and a variety of daily analysis, commentary and news that affect grain and livestock prices. DTN FarmDayta Elite service is an advanced version of DTN FarmDayta and is similar in content to the DTN AgDaily service. Additional features include additional options quotes, charting, weather maps and a hard drive to store data in the receiver which is critical to maintaining storage of information during a power outage. DTN FarmDayta Elite Plus is an advanced service that includes the DTN FarmDayta Elite features and is similar in content to the DTN Pro Series. This service includes more advanced news (Reuters Headline News), quotes, weather (including motion and zoom capabilities) and programmable charts. DTN FarmDayta, and its enhanced versions DTN FarmDayta Elite and Elite Plus, are currently priced at $44, $52, and $62 a month, respectively. All these services are available by color Ku-band satellite transmission. The addition of DTN FarmDayta gives the Company a fully integrated agricultural service line with price entry points across a wide spectrum, expanding the marketing horizons for all DTN agricultural services. At the time of the acquisition, DTN FarmDayta had 39,000 agricultural subscribers. The Company does not plan to convert DTN FarmDayta equipment to DTN AgDaily equipment and currently maintains the DTN FarmDayta facilities, with nearly 100 employees, in Des Moines, Iowa. DTNstant SERVICE REVIEW DTNstant is a color service that provides a selection of real-time futures and options quotes from the major commodity exchanges and headline commodity news from multiple sources such as the Associated Press, Futures World News and Knight Ridder. The service also provides market leading cash information, in-depth charting capabilities, plus all the information available on the DTN AgDaily color service. In addition, this service 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 service. 7 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 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 Company's national sales force which is supported by telemarketing and direct mail campaigns. This service is available by color Ku-band satellite transmission and is currently priced at $170 a month. DTNiron 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 implements and 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 implements and equipment for sale or needed by dealers. A listing stays on the system for a minimum of 30 days, renewable at the dealer's request. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily color service. The DTNiron service also includes listings of construction equipment, trucks, trailers and other equipment that is found in the agriculture industry. The service provides listings for implement and equipment parts, especially hard to find parts. In addition, the service sorts the listings by regions and provides hourly updates to keep the information as timely (NEWS...NOT HISTORY) as possible. This service is available by color Ku-band satellite transmission and is currently priced at $98 a month. DTN PROduce SERVICE REVIEW DTN PROduce is the authority in providing the produce industry with the most timely weather, produce prices, transportation data 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 news including AP Online. DTN PROduce maintains a price discovery network, the DTNdex, that is the industry standard. Competition in this industry continues to focus on older technology, such as Fax machines. The market for this service is the entire produce food chain of growers, shippers, packers, brokers, retailers and institutions. This service is available via color Ku-band satellite and currently is priced at $88 per month. DTN Weather Services The DTN Weather Center Services have expanded from DTN Weather Center into specific industry-related services including DTN Weather Center - Turf Manager, DTN Aviation Center and DTN Weather Center - Contractor Dayta. 8
1996 1995 1994 ---------- ---------- ---- Revenues $5,600,000 $1,000,000 -- Subscribers at year end 7,900 2,600 --
DTN WEATHER CENTER SERVICE REVIEW DTN Weather Center is a comprehensive weather information system designed to meet the weather information needs of many industries. Markets specifically targeted by DTN Weather Center are golf courses, turf management, emergency management, state transportation departments, construction and aviation. DTN Weather Center has found a home in numerous other industries where timely (NEWS...NOT HISTORY), accurate and easily accessible weather information is a critical ingredient in operational planning and staffing decisions. DTN Weather Center services provide over 100 weather maps, 20 regional radar maps including NEXRAD radar and infrared satellite photos and six satellite maps. The services provide short-range (12-48 hours) forecasts, long-range (3-90 day) outlooks, and 10 day city forecasts for over 550 different cities in the U.S. and Canada. The services include a personal programmable segment, storing of maps in an "Archive Segment" and AP Online News is provided as an optional service. This DTN Weather Center service is available via color Ku-band satellite transmission and is currently priced at $72 per month. DTN WEATHER CENTER TURF MANAGER SERVICE REVIEW Turf Manager is available to those individuals and businesses involved in turf-related operations such as golf course, lawn maintenance, landscaping and sod farm. This service provides the news, weather and chemical information designed for turf management. Chemical and Pesticide Press Turf Index is a unique feature providing an information database of over 275 turf pesticides. Lightning Indicator Maps are updated hourly including the latest information on where lightning is striking. Evapotranspiration Tables provide regional evaporation rates for planning watering and chemical applications. ESPN Sports Ticker provides the current golf related stories and results from ESPN. AP ONLINE provides over 300 current news stories in four chapters: General, Business, Sports and Entertainment. The National Golf Course Directory is a database of the location, phone number, course pro, and course superintendent of any member course. This combination of features along with the weather information makes the Turf Manager a complete package. DTN Weather Center - Turf Manager is available via color Ku-band satellite transmission and is currently priced at $72 a month. DTN AVIATION CENTER SERVICE REVIEW DTN Aviation Center is a comprehensive aviation weather package specially designed for pilots, airports and Fixed Base Operators (FBO's). DTN Aviation Center supplies airports, pilots and FBO's with the comprehensive flight-plan information found on many premier "on-line" systems. This package includes U.S. and regional depiction maps, 24 hour low level significant weather prognosis, and U.S. region winds and temperatures aloft. Subscribers of DTN Aviation Center use it while speaking to flight services to help visualize the current weather conditions while they are making their flight plan. This service can also help determine alternate route destinations. Subscribers can choose the Level I service, which is designed for the local/regional flyers up to 18,000 feet, or the Level II service which is designed for pilots and airports flying nationally up to 45,000 feet. The Level II service also provides European flight information. 9 DTN Aviation Center is available via color Ku-band satellite transmission and is currently priced at $103/month for Level I and $152/month for Level II. DTN WEATHER CENTER Contractor Dayta SERVICE REVIEW The DTN Contractor Dayta service is designed to keep subscribers informed of all construction related news and industry information to assist them in maintaining a competitive advantage. This service provides all of the valuable weather information that comes with the DTN Weather Center and is necessary for making those important day-to-day business decisions. Industry specific information includes general information, association and industry information, construction news, bids and resources and the contractors exchange. In addition, subscribers receive sports scores and highlights and financial indicators. The DTN Contractor Dayta service in available via color Ku-band satellite transmission and is currently priced at $82 a month. DTN Financial Services DTN Financial Services offers five services, DTN Wall Street, DTN SPECTRUM, DTN FirstRate, DTN GovRate and DTN Broker+. Subscribers to all DTN Financial Services have a variety of optional services from which to choose providing stock selection and timing advice, earnings estimates, fundamental stock market data, U.S. Treasury quotes and other financial market related services. DTN Financial Services revenue grew 41% during 1996, adding to its bullish 35% compounded revenue growth for the past 5 years. DTN Financial Services' objective is to provide a comprehensive in-depth service at an affordable cost to its subscribers. This objective will remain very important due to the highly competitive nature of this business. The "a la carte" optional services offered to subscribers give them an even larger variety of information. Contents of all DTN Financial Services are broader in scope and cost less than competitive services. This combination allows the services to continue maintaining a competitive advantage in its market niches.
1996 1995 1994 ----------- ----------- ---------- Revenues $ 8,600,000 $6,100,000 $5,100,000 Subscribers at year end 11,300 9,600 8,800
DTN SPECTRUM SERVICE REVIEW DTN SPECTRUM was released in 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, news search and charting capabilities. DTN SPECTRUM is being very well received by new subscribers and existing subscribers who are electing to "switch-up" to gain use of the advanced features of the service. DTN SPECTRUM subscription sales accounted for 54% of DTN Financial Services new subscription sales during 1996. An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. DTN SPECTRUM R-T marked the entry by DTN Financial Services into the real-time commodity quotes market during 1996. This service provides a mix of exchange-delayed quotes along with the subscriber's choice of real-time futures quotes. By year-end 1996, this higher revenue and higher margin service was generating 21% of the total DTN SPECTRUM subscription sales. 10 DTN SPECTRUM and DTN SPECTRUM R-T are available on the color platform by Ku-band satellite transmission and are currently priced at $68 and $118 per month, respectively. DTN Wall Street SERVICE REVIEW DTN Wall Street provides exchange-delayed quotes on stocks, bonds, mutual and money market funds, futures, interest rates, currencies and real-time index quotes. This service also provides in-depth economic, financial and business news and other time-sensitive (NEWS...NOT HISTORY) financial market information such as company-specific news and earnings. This service allows subscribers to custom program the system to track their selection of financial quotes. The majority of subscribers to DTN Wall Street are individual investors, and the balance of subscribers are independent brokers, financial advisors and financial institutions. The primary competition for DTN Wall Street are satellite, TV cable (VBI), Internet and dial-up quote services. DTN Wall Street is available on the monochrome platform by Ku-band satellite and TV cable (VBI) transmission and is currently priced at $44 per month. DTN FirstRate SERVICE REVIEW DTN FirstRate is a service for the mortgage industry providing wholesale mortgage rates in an easy-to-use standard format and intra day interest rate information to indicate the direction of mortgage loan rates. This service also provides subscribers with snapshots of real-time rates from Fannie Mae and Freddie Mac plus other news, commentary and analysis for mortgage lenders. Sales for DTN FirstRate during 1996 remained slow. In October 1996, DTN FirstRate+ was made available on the ACE platform. This service, named DTN FirstRate+, provides many more useful features which are proving to be appreciated by new subscribers. Marketing for DTN FirstRate is now all being done by DTN Financial Services' institutional sales group which assists direct sales of this service by DTN's national sales force. We believe the availability of DTN FirstRate+ on the ACE platform and a more focused marketing effort will lead to higher sales in 1997. DTN FirstRate is available on the monochrome platform by Ku-band satellite or TV cable (VBI) transmission and is currently priced at $98 per month. DTN FirstRate+ is currently available on the ACE platform via Ku-band satellite transmission for $129 per month. DTN GovRate SERVICE REVIEW DTN GovRate provides executable U.S. government security quotes. These real-time prices are provided from a primary dealer, the former Discount Corporation of New York (DCNY), now operated as a division of Zions First National Bank. The Company views this service as an important development for financial institutions. DTN GovRate is providing opportunities for small to mid-size banks, public and corporate treasurers, and independent brokerage firms to participate in trading of U.S. government securities. Zions First National Bank facilitates this by offering odd lot trading and repurchase agreements. This service is currently available on the monochrome platform by Ku-band satellite or TV cable (VBI) transmission for $34.95 per month and is also currently available on the ACE platform by Ku-band satellite transmission for $68 per month. 11 DTN Broker+ SERVICE REVIEW DTN Broker+ is a modified version of DTN SPECTRUM with enhancements designed specifically to serve independent securities brokers and financial advisors. Marketing for DTN Broker+ is all done by DTN Financial Services' institutional sales group which assists direct sales of this service by DTN's national sales force. DTN Broker+ provides a comprehensive source of market data and time-sensitive, market moving news. It is a low cost alternative source of news and delayed market quotes in its targeted market niche. DTN Broker+ is available on the ACE platform by Ku-band satellite transmission and is currently priced at $73 per month. An extension of DTN Broker+, which provides real-time futures quotes, is currently offered for $123 per month on the ACE platform by Ku satellite transmission. DTN Energy Services The energy related services include DTNergy for the refined fuels, natural gas industries and electric industries.
1996 1995 1994 ----------- ----------- ---------- Revenues $12,200,000 $10,000,000 $7,200,000 Subscribers at year end 7,700 7,100 6,700
DTNERGY SERVICE REVIEW DTNergy is a service providing pricing information and communication 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 (distributors 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. Wholesalers currently pay a monthly subscription fee of $38.00 for the monochrome Ku-band satellite service. Refiners pay fees based on the number and length of communications sent to wholesalers. DTNergy also has an information service for the natural gas and electric industries. Subscribers receive instant or delayed NYMEX energy futures and options quotes, a comprehensive weather package and industry specific news and market information. This service is marketed to energy producers and generators, transporters, marketers, utilities and larger energy consumers. The service is available on color Ku-band satellite and is currently priced at $130 a month with 30-minute delayed quotes and $170 a month with real-time quotes. 12 DTN Auto Services DTN AUTO SERVICE REVIEW DTNauto is a communication and information service for the automobile industry. This service offers automobile dealers precision information to value trade-ins and 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 available by color Ku-band satellite transmission and is currently priced at $98 per month. Joint Venture Services DTN has joined forces with other companies to market their services using the Company's technology. The services are TracElectric and DAT Transportation Terminal. TracElectric 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 by monochrome Ku-band satellite and DTN receives a percentage of the revenue. DAT SERVICES SERVICE REVIEW The DAT (Dial-A-Truck) Transportation Terminal (DAT) service, located in Beaverton, OR, is an information communication system for the trucking industry. The service provides load and truck matching performed on a database of 30,000 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 available by color Ku-band satellite and DTN receives a monthly fee per receiver. 13 Employee Data At December 31, 1996 the company had approximately 840 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, Florida, Illinois and Utah. Approximately 79,000 square feet of office space is leased for these offices for various periods up through May 2005. On May 3, 1996, the Company added approximately 19,000 square feet of office space located in Urbandale, Iowa, through the Broadcast Partners acquisition. In addition, the company leases three distribution centers for the purpose of storing and distributing the electronic equipment needed by subscribers to receive the company's services. The main distribution center is located in Omaha, Nebraska and occupies approximately 28,000 square feet. The company also serves its Canadian subscribers with a 2,500 square foot distribution center located in Winnipeg, Manitoba. Approximately 7,000 square feet, located in Urbandale, Iowa, was added to the Company's distribution center by way of the 1996 acquisition. The leases related to these distribution centers are for various periods up through December, 2003. The information set forth in Footnote 10 "Leases" on page 32 of the company's 1996 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, 1996. 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 51 1984 Chief Executive Officer Greg T. Sloma President and Chief 45 1993 Operating Officer Robert S. Herman Senior Vice President 44 1984 Research and Technology Roger W. Wallace Senior Vice President and 40 1984 Co-President, Ag Services James J. Marquiss Senior Vice President and 52 1986 Co-President, Ag Services Charles R. Wood Senior Vice President and 56 1989 President, Financial Services Keith A. Cook Vice President and 58 1986 President, Auto Services H. Wade German Vice President, 55 1992 Business Research Brian L. Larson Vice President, Chief Financial 36 1993 Officer, Secretary and Treasurer Gordon R. Lundy Vice President and 58 1990 President, Energy Services Charles E. McQuinn Vice President and President, 56 1995 West Financial Services James G. Payne Vice President, Services Support 41 1990 and Special Projects
The executive officers serve annual terms, and are elected by the board of directors at their annual board of directors meeting in April of each year. 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 33 and 34 of the company's 1996 Annual Report to Stockholders and is incorporated herein by reference. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. The company's most restrictive loan covenant restricts cash dividend payments to 27% of net income after taxes. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for the company is on page 16 of the company's 1996 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 21 of the company's 1996 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 23 through 32 of the company's 1996 Annual Report to Stockholders and are incorporated herein by reference. Supplementary quarterly financial information is on page 33 of the company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS OF THE REGISTRANT. Information concerning the present directors of the company and all persons nominated to become directors at the Annual Meeting of Stockholders of the company to be held April 23, 1997, 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. 16 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, 1996, its executive 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. James J. Marquiss, an officer, filed one late Form 4 for the month of November 1996 with respect to a single transaction involving shares of the Company's Common Stock sold by him during such month. 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 11 of the Proxy Statement for the Annual Meeting of Stockholders of the company to be held April 23, 1997, 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 23, 1997, 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 14 of the Proxy Statement for the Annual Meeting of Stockholders of the company to be held April 23, 1997 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) 1. Financial Statements: The Registrant's financial statements, together with the Independent Auditors' Report, are incorporated herein by reference to the 1996 Annual Report to Stockholders, pages 23 through 32. 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, 1996, 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, 1996. 17 (A) 2. Financial Statement Schedule: Page Auditors' Report on Financial Statement Schedule 24 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. (B) Reports on Form 8-K: 1. The Registrant filed a report on 8-K dated May 16, 1996 related to the Asset Acquisition of Broadcast partners on May 3, 1996. The Asset Purchase and Sale Agreement was filed as Exhibit 2.1 of this filing. 2. The Registrant filed a report on 8-K/A dated June 20, 1996 which amends Item 7 of the Form 8-K filed on May 16, 1996. No reports on Form 8-K were filed by the Registrant during the fourth quarter of the year ended December 31, 1996. (C) Exhibits: (3) (a) Certificate of Incorporation of Registrant. (b) By-Laws of Registrant. (These documents are filed as exhibits to the Registrant's Registration Statement on Form S-1 as filed December 4, 1987.) (4) (a) Specimen certificate representing shares of Common Stock, $.001 par value, of Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed November 4, 1988.) (b) Certificate of Incorporation of Registrant. (This document is filed as an exhibit to the Registrant's Regis- tration Statement on Form S-1 as filed December 4, 1987.) (10) (a) Lease Agreement between the Registrant and Embassy Plaza Limited Partnership. (This document is filed as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) (b) Registrant's Stock Option Plan of 1989. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) (c) Registrant's Non-employee Directors Stock Option Plan. (This document is included as an exhibit to the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1989.) (d) Form of indemnification agreement between the Registrant and the Officers and Directors of the Registrant. (This document is filed as an exhibit to the Registrant's Registration Statement on Form S-1 as filed May 22, 1989.) (e) First Amendment to Registrant's Employee Stock Option Plan of 1989 (amends Exhibit 10(b)). 18 (f) First Amendment to Registrant's Non-employee Directors Stock Option Plan (amends Exhibit 10 (c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 27, 1990.) (g) Second Amendment to Registrant's Employee Stock Option Plan of 1989 (amends Exhibit 10 (b)). (h) Second Amendment to Registrant's Non-employee Directors Stock Option Plan (amends Exhibit 10 (c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on April 24, 1991.) (i) Loan Agreement dated October 9, 1992 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln and First National Bank of Wahoo. (j) First Amendment to Loan Agreement dated October 9, 1992 among the Registrant, First National Bank of Omaha, FirsTier Bank of Lincoln and First National Bank of Wahoo. (k) Independent Sales Representative Agreement dated March 28, 1990 between the Registrant and Phil Huston. (l) First Amendment dated March 1, 1991 to Inde- pendent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Huston. (m) Amendment to Independent Sales Representative Agreement dated March 28, 1990 between Registrant and Phil Huston. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 24, 1993). (n) Third Amendment to Registrant's Stock Option Plan of 1989 (amends Exhibit 10(b)). (o) Third Amendment to Registrant's Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (p) Fourth Amendment to Employee Stock Option Plan of 1989 (amends Exhibit 10(b)). (q) Fourth Amendment to Non-Employee Directors Stock Option Plan (amends Exhibit 10(c)). (These documents are included as exhibits to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 1994). (r) Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, FirsTier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (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). 19 (t) Restated and amended Non-Employee Directors Stock Option Plan. (This document is included as an exhibit to the Registrant's Proxy Statement for the annual meeting of stockholders to be held April 26, 1995). (u) First Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (v) Second Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (w) Third Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (x) Fourth Amendment to the Restated Loan Agreement dated November 8, 1993 among the Registrant, First National Bank of Omaha, Firstier Bank Lincoln, First National Bank of Wahoo, National Bank of Detroit, Norwest Bank Nebraska, NA and The Boatmen's Bank of St. Louis. (y) Lease agreement dated August 30, 1994 between Registrant and The Prudential Insurance Company of America. (z) First Amendment to lease agreement dated August 30, 1994 among the Registrant and The Prudential Insurance Company of America. (aa) Senior Subordinated Note dated June 30, 1994 between the Registrant and Equitable Capital Private Income 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. (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. 20 (ai) Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (aj) First Amendment to Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 between Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (These documents are included as exhibits to the Registrant's Annual Report on Form 10-K as filed March 22, 1996). (ak) Independent Sales Representative Agreement dated September 1, 1996, between Registrant, Huston, Inc., and Phil Huston. (al) Second Amendment to the lease agreement dated May 2, 1995, between the Registrant and The Prudential Insurance Company of America. (am) Third Amendment to the lease agreement dated May 2, 1995, between the Registrant and The Prudential Insurance Company of America. (an) Fourth Amendment to the lease agreement dated May 2, 1995, between the Registrant and LAFP-SF, Inc., successors in interest to The Prudential Insurance Company of America. (ao) Revolving Credit Agreement dated June 28, 1996, between the Registrant and a group of banks. (ap) First Amendment to the Revolving Credit Agreement dated June 28, 1996, between the Registrant and a group of banks. (aq) Second Amendment to the Revolving Credit Agreement dated June 28, 1996, between the Registrant and a group of banks. (ar) Term Credit Agreement dated May 3, 1996, between the Registrant and a group of banks. (as) First Amendment to the Term Credit Agreement dated May 3, 1996, between the Registrant and a group of banks. (at) Second Amendment to the Term Credit Agreement dated May 3, 1996, between the Registrant and a group of banks. (au) Third Amendment to the Term Credit Agreement dated May 3, 1996, between the Registrant and a group of banks. (av) Restated Security Agreement dated May 3, 1996, between the Registrant and a group of banks. (aw) First Amendment to the Restated Security Agreement dated May 3, 1996, between the Registrant and a group of banks. (ax) Second Amendment to the Restated Security Agreement dated May 3, 1996, between the Registrant and a group of banks. (ay) Third Amendment to the Restated Security Agreement dated May 3, 1996, between the Registrant and a group of banks. 21 (az) Second Amendment to the Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994, between the Registrant and Equitable Capital Private Income and Equity Partnership II, L.P. (11) Statement re computation of income per share. (12) Not applicable. (13) Registrant's 1996 Annual Report to Stockholders. (This document is hereby incorporated by reference.) (16) None. (18) None. (21) None. (22) None. (23) Consent of Deloitte & Touche LLP. (24) None. (27) Financial Data Schedule. (28) None. (99) Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held April 23, 1997. (This document is hereby incorporated by reference.) 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Data Transmission Network Corporation, a Delaware Corporation By: /s/ Roger R. Brodersen Roger R. Brodersen Chief Executive Officer Dated March 27, 1997. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Roger R. Brodersen March 27, 1997 ------------------------------ Roger R. Brodersen, Chairman of the Board, Chief Executive Officer and Director By: /s/ Greg T. Sloma March 27, 1997 ------------------------------ Greg T. Sloma, President and Chief Operating Officer and Director By: /s/ Roger W. Wallace March 27, 1997 ------------------------------ Roger W. Wallace, Senior Vice President, Co-President-Ag Services and Director By: /s/ Robert S. Herman March 27, 1997 ------------------------------ Robert S. Herman, Senior Vice President and Director By: /s/ Brian L. Larson March 27, 1997 ------------------------------ Brian L. Larson, Vice President, Chief Financial Officer, Secretary and Treasurer By: /s/ David K. Karnes March 27, 1997 ------------------------------ David K. Karnes, Director By: /s/ J. Michael Parks March 27, 1997 ------------------------------ J. Michael Parks, Director By: /s/ Jay E. Ricks March 27, 1997 ------------------------------ Jay E. Ricks, Director
23 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, 1996 and 1995, and for each of the three years in the period ended December 31, 1996 and have issued our report thereon dated January 31, 1997; such financial statements and report are included in the 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Data Transmission Network Corporation, listed in Item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Omaha, Nebraska January 31, 1997 24 Schedule II DATA TRANSMISSION NETWORK CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
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, 1996: $300,000 $672,000 - $452,000 $520,000 Year ended December 31, 1995: $220,000 $358,000 - $278,000 $300,000 Year ended December 31, 1994: $180,000 $283,000 - $243,000 $220,000
25
EXHIBIT 11 DATA TRANSMISSION NETWORK CORPORATION COMPUTATION OF INCOME(LOSS) PER SHARE Year Ended December 31, --------------------------------------- 1996 1995 1994 ------------ ------------ ----------- Primary Computation of income (loss) per common and common equivalent share: Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738) ============ ============ ============ Average shares outstanding 10,657,893 9,908,592 9,760,200 Add shares applicable to stock options and warrants (1) Add shares applicable to stock options & warrants prior to conversion, using average market price prior to conversion(1) ------------ ------------ ------------ Total shares 10,657,893 9,908,592 9,760,200 ============ ============ =========== Per common share: Net income (loss) ($0.09) ($0.03) $0.16) ============ ============ =========== - ------------------------------------------------------------------------------- (1) Shares applicable to warrants and stock options are antidilutive for the period ended December 31, 1996, 1995 and 1994, and thus, are excluded from the calculation of net loss per common share.
26
EXHIBIT 11 - Pg 2 DATA TRANSMISSION NETWORK CORPORATION COMPUTATION OF INCOME(LOSS) PER SHARE Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ----------- Fully Dilutive Computation of income (loss) per common and common equivalent share: Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738) ============ ============ ============ Average shares outstanding 10,657,893 9,908,592 9,760,200 Add shares applicable to stock options and warrants (1) Add shares applicable to stock options & warrants prior to conversion, using average market price prior to conversion(1) ------------ ------------ ------------ Total shares 10,657,893 9,908,592 9,760,200 ============ ============ =========== Per common share: Net income (loss) ($0.09) ($0.03) ($0.16) ============ ============ =========== - ------------------------------------------------------------------------------ (1) Shares applicable to warrants and stock options are antidilutive for the period ended December 31, 1996, 1995 and 1994, and thus, are excluded from the calculation of net loss per common share.
27 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33- 50406 and No. 33-50412 of Data Transmission Network Corporation on Forms S-8 of our reports dated January 31, 1997, appearing in this Annual Report on Form 10-K of Data Transmission Network Corporation for the year ended December 31, 1996. DELOITTE & TOUCHE LLP Omaha, Nebraska January 31, 1997 28
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 * 10.(ac) Sixth Amendment to the Restated Loan Agreement dated November 8, 1993 * 10.(ad) Lease agreement with The Prudential Insuance Company of America * dated May 2, 1995
29 10.(ae) First Amendment to Lease Agreeement dated May 2, 1995 * 10.(af) Restated Loan Agreement dated June 29, 1995 * 10.(ag) Purchase Agreement with Knight-Ridder Financial dated July 13, 1995 * 10.(ah) Adjustment to Indenpendent Sales Representative Agreement dated March 28, 1995 * with Phil Huston 10.(ai) Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 * 10.(aj) First Amendment to Senior Subordinated Notes and Warrant Purchase Agreement dated * June 30, 1994 10.(ak) Independent Sales Representative Agreement dated September 1, 1996 1 10.(al) Second Amendment to Lease Agreement dated May 2, 1995 13 10.(am) Third Amendment to Lease Agreement dated May 2, 1995 19 10.(an) Fourth Amendment to Lease Agreement dated May 2, 1995 21 10.(ao) Revolving Credit Agreement dated June 28, 1996 25 10.(ap) First Amendment to the Revolving Credit Agreement dated June 28, 1996 76 10.(aq) Second Amendment to the Revolving Credit Agreement dated June 28, 1996 89 10.(ar) Term Credit Agreement dated May 3, 1996 105 10.(as) First Amendement to the Term Credit Agreement dated May 3, 1996 153 10.(at) Second Amendment to the Term Credit Agreement dated May 3, 1996 177 10.(au) Third Amendment to the Term Credit Agreement dated May 3, 1996 190 10.(av) Restated Security Agreement dated May 3, 1996 202 10.(aw) First Amendment to the Restated Security Agreement dated May 3, 1996 220 10.(ax) Second Amendment to the Restated Security Agreement dated May 3, 1996 224 10.(ay) Third Amendment to the Restated Security Agreement dated May 3, 1996 226 10.(az) Second Amendment to the Senior Subordinated Notes and Warranct Purchase Agreement dated 230 June 30, 1994 11. Statement re computation of income per share 233 13. Registrant's 1995 Annual Report to Stockholders 235 23. Consent of Deloitte & Touche LLP 279 27. Financial Data Schedule for year ended 12/31/96 280 99. Proxy Statement for the Annual Meeting of Stockholders 281 of the Registrant to be held April 23, 1997 * - These documents have been incorporated by reference as indicated in Item 14(a) (3).
EX-10 2 INDEPENDENT CONTRACTOR AGREEMENT INDEPENDENT CONTRACTOR AGREEMENT This Agreement ("Agreement") is entered into as of the 1st day of September, 1996, by and among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation ("DTN"), HUSTON, INC., a South Dakota corporation (the "Contractor"), and PHIL HUSTON ("Huston"), the Contractor's principal, on the following terms and conditions: ARTICLE 1 SUPERSEDES PRIOR AGREEMENT This Agreement supersedes in its entirety that certain Independent Sales Representative Agreement dated March 28, 1990, between DTN and Huston, as previously assigned to Contractor, amended and supplemented. As of the date of this Agreement, such prior agreement is void and of no further force or effect and, regardless of any provisions in such prior agreement providing for commissions to be paid after the expiration or termination of such agreement, no further commissions are due thereunder except any due for the period prior to the date of this Agreement. ARTICLE 2 WORK TO BE PERFORMED BY CONTRACTOR Section 2.01 Work to be Performed Among other services offered by DTN, DTN provides pricing information and communications services under the name of DTNergy(R) for the petroleum, natural gas and electric power industries. For purposes of this Agreement, all of such DTNergy(R) services and all future DTNergy(R) services offered by DTN for the energy industries, if any, are hereinafter called the "Services". During the term of this Agreement, Contractor agrees to use its best efforts to (i) solicit and retain customers and potential customers of the Services and (ii) undertake, for and on behalf of and to the extent requested by DTN, to develop, implement, supervise and control all of the sales and marketing functions of DTNergy(R), including but not limited to recruitment and supervision of the sales force to market the Services and the development and implementation of the forms of promotion and marketing of the Services. Section 2.02 Solicitation of Proposals Contractor, its agents and employees shall use their best efforts to solicit proposals for DTN from customers and potential customers of the Services. All proposals obtained by Contractor for Services to be performed by DTN promptly shall be submitted by RCF\97964.3 1 - 1 - Contractor to DTN in such format as DTN may reasonably specify and shall be subject to acceptance by DTN at its office in Omaha, Nebraska, by an authorized employee of DTN. The parties hereto contemplate that proposals will generally be submitted orally to DTN in a manner generally consistent with past practice. DTN will inform Contractor from time to time of those employees of DTN who are authorized to accept proposals for Services submitted by Contractor. Contractor shall have no authority to accept any proposal for Services on behalf of DTN, and DTN reserves the right to reject any proposal for Services in whole or in part for any reason. All correspondence, documents and other materials relating to a proposal for Services submitted by Contractor to DTN and accepted by DTN shall be the sole and exclusive property of DTN. From time to time DTN shall advise Contractor in writing of its then current sales policies; and promptly after any change in any of the sales policies, DTN shall notify Contractor in writing of such changes. Contractor shall have no authority to alter any of the policies relating to the terms and conditions of sales and shall not solicit proposals for Services on a basis which is inconsistent with the sales policies. DTN shall periodically consult with and seek the input of Contractor regarding the sales policies of DTN. Section 2.03 Control of Work Contractor and DTN expressly agree that neither Contractor nor any of Contractor's employees are to be considered employees of DTN, either directly or indirectly. Subject to the terms and conditions set forth in this Agreement, Contractor has the sole right to determine the methods, details and means of performing the above-described work, subject to the control of DTN as to the results of such work. Contractor has the sole right to hire and exclusively exercise appropriate management control of its employees, including setting the wages, hours and working conditions of its employees. Section 2.04 Contractor's Commitment of Time Contractor retains the right to perform work for other clients, persons or companies as Contractor sees fit consistent with Contractor's obligations to DTN under this Agreement. Section 2.05 Time and Place of Performance The Contractor shall be permitted to maintain its office and to perform its duties and responsibilities pursuant to this Agreement in such reasonable geographical location as the Contractor may select. Contractor shall have exclusive control over the hours and other working conditions of its employees. RCF\97964.3 2 - 2 - Section 2.06 Materials and Equipment Contractor agrees to provide all special materials and equipment that are needed by it to perform the work under this Agreement. Section 2.07 Licensing Contractor agrees to obtain, and to keep valid and in force at all times after the date of this Agreement, all licenses or permits required by law to perform the work contemplated by this Agreement. Contractor agrees to notify DTN immediately if any required license expires or is withdrawn for any reason by the licensing authority. Upon request from DTN, Contractor agrees to promptly provide proof that its licenses and/or permits remain valid. Section 2.08 Legal Compliance Contractor agrees to perform all work in compliance with all applicable federal, state and local laws and regulations, including those governing the health and safety of Contractor's employees. Section 2.09 Insurance Contractor shall purchase and maintain, at its sole cost and expense, during the term of this Agreement, the following insurance: A) Worker's Compensation Insurance in accordance with law. Such policy must contain a waiver of the insurer's subrogation rights against DTN, where permitted by law. B) Commercial General Liability Insurance coverage with the following minimums: 1) Per occurrence - minimum $1,000,000; 2) Personal injury limit - minimum $1,000,000; 3) Products and completed operations aggregate limit - minimum $1,000,000; and 4) General aggregate limit - minimum $1,000,000. This insurance shall name DTN, its officers, employees and agents, as additional insureds and provide that such insurance is primary coverage as respects all insureds. C) Contractor shall, before commencing the work, provide DTN with certificates or other documentary evidence of the above insurance, satisfactory to DTN. Certificates must be signed by an authorized representative of Contractor's insurance carrier and RCF\97964.3 3 - 3 - state that no cancellation of insurance will be effective without 10 days advance written notice to DTN. Contractor shall immediately notify DTN of any material change affecting coverages or limits afforded DTN under the insurance requirements. Section 2.10 Taxes Contractor is responsible for payment and/or withholding of any taxes (including all federal, state and local employment taxes applicable to Contractor's employees), now or hereafter enacted, applicable to any services provided under this Agreement, or to any transactions contemplated hereby. In no event shall DTN be responsible for payment of any taxes relating to Contractor or Contractor's employees. Section 2.11 Activities Report At the request of DTN from time to time, Contractor shall report to DTN, in such form and reasonable detail as DTN shall request, on Contractor's activities undertaken pursuant to this Agreement. Section 2.12 Sales and Other Materials DTN shall furnish to Contractor from time to time such promotional and other sales material, reporting and other forms, price lists, and other documents and materials as DTN may consider necessary or appropriate for Contractor's use in performing its duties pursuant to this Agreement. All of such items shall remain the sole and exclusive property of DTN and, except to the extent consumed in the course of Contractor's proper performance of its duties pursuant to this Agreement, promptly shall be returned to DTN by Contractor upon the termination of this Agreement. Upon the termination of this Agreement, DTN shall have the right to withhold any commission payments then or thereafter due Contractor until Contractor has complied with the requirements of the preceding sentence. ARTICLE 3 FEE OR PAYMENT FOR WORK Section 3.01 General In consideration for the work performed and services provided by Contractor pursuant to this Agreement, DTN agrees to pay Contractor forty percent (40%) of the Adjusted Net Earnings (as hereinafter defined) for each month during the term of this Agreement; provided, however, that each of the first twenty-four (24) monthly payments shall be reduced by Fifty Thousand Dollars ($50,000.00). For purposes of such computations, the "Adjusted Net RCF\97964.3 4 - 4 - Earnings" for each such month shall be determined as follows. The total revenues for the Services for such month, determined on the accrual method, shall be reduced by (i) all operating expenses of DTN resulting from or relating to the business of providing the Services (the "DTNergy Business") for such month, determined on the accrual method, but excluding the Sales Expenses (as hereinafter defined), (ii) all depreciation, amortization and interest expenses allocated by DTN to the DTNergy Business for such month, (iii) twelve and one-half percent (12.5%) of the sum of the amounts computed under clauses (i) and (ii) above for such month (provided that in the event the accounting rules require an expense associated with the issuance of stock options to DTN employees, such expense shall be deleted from the sum before being multiplied by 12.5%), and (iv) the sum of $40,000. For purposes of this Agreement, the "Sales Expenses" shall be all expenses incurred by DTN in connection with or relating to the sales, marketing or promotion of the DTNergy Business, including but not limited to the compensation, office expenses, and travel expenses with respect to those employees of DTN whose duties involve or relate to the sales, marketing or promotion of the DTNergy Business, the commissions, sales costs and other expenses relating to the sales force to the extent incurred by DTN with respect to the DTNergy Business, and the expenses of DTN in connection with the tradeshows and conventions relating to the marketing or promotion of the DTNergy Business. Notwithstanding any provision to the contrary contained in this Agreement, Contractor agrees to reimburse DTN from time to time for all Sales Expenses incurred by DTN during the term of this Agreement upon presentation to Contractor of a reasonably detailed itemization of such expenses with supporting data. DTN may from time to time deduct the amount of the unreimbursed Sales Expenses from the payments due Contractor from DTN pursuant to this Agreement. DTN agrees not to implement a sales program that will incur significant expenses for Contractor under the terms of this Section without the approval of Contractor. For illustration purposes only, attached to this Agreement as Exhibit A is an example of the Sales Expenses. It is understood that the Adjusted Net Earnings shall be computed in accordance with accounting practices regularly followed by DTN for the purposes of allocating indirect expenses (including, but not limited to, corporate overhead and interest expense) and capital expenditures to the various business segments or industries into which DTN divides its services. For illustration purposes only, attached to this Agreement as Exhibit B is an example of the computation of the payment which would have applied using the Adjusted Net Earnings for the month of August of 1996. The payments by DTN referred to above shall cease upon the termination or expiration of this Agreement for any reason whatsoever. Section 3.02 Timing of Payments The monthly payments referred to in Section 3.01 will be made in arrears by DTN to Contractor on or before the last day of the RCF\97964.3 5 - 5 - month following the month for which the payment relates. Such payments shall be accompanied by a written summary of DTN's computation of such payment. Contractor may audit DTN's records for the sole purpose of verifying the accuracy of DTN's payments. DTN will make such records available to Contractor for inspection during normal working hours upon one week's prior written notice. Contractor agrees that all of DTN's records will be treated as confidential and will not be used for any purpose other than the audit. Section 3.03. Expenses Contractor agrees to bear full responsibility for all costs and expenses incurred for performance of its work under this Agreement. In addition, Contractor agrees to reimburse DTN for all Sales Expenses as provided in Section 3.01 above. ARTICLE 4 INTELLECTUAL PROPERTY Section 4.01 Proprietary Information Contractor and Huston, recognizing that the work in which they will be engaged under this Agreement may be of a proprietary nature, hereby agree as follows: A) That Contractor and Huston will not, during or after the term of this Agreement, use, publish, disclose or utilize in any manner any trade secrets information marked "proprietary", "confidential", "private", "company private", or which may be proprietary to or a trade secret of DTN obtained by Contractor or Huston while rendering services hereunder to DTN, except such information that is otherwise properly published or in the public domain; provided, however, that information which is published by or with the aid of Contractor or Huston contrary to this paragraph is not considered to have been properly published nor to be in the public domain for purposes hereof. B) At the request of DTN, Contractor agrees to require its employees to execute suitable non-disclosure agreements to support the foregoing provisions. C) Upon termination or expiration of this Agreement, Contractor and Huston will return to DTN all material supplied by, or obtained from DTN (including but not limited to financial and pricing information, personnel records, customer information, customer lists, product and service information, data processing and communications information, technical data, drawings, specifications and descriptions) along with any copies made thereof. RCF\97964.3 6 - 6 - Section 4.02 Safeguarding DTN's Trade Secrets and Data Contractor and Huston each agrees that it shall not use or divulge to anyone either during the term of this Agreement or thereafter any of DTN's trade secrets or other proprietary information of any kind whatsoever acquired by Contractor or Huston in carrying out the terms of this Agreement. Contractor and Huston each further agrees that upon completion or termination of this Agreement, it will turn over to DTN or make such disposition thereof as may be directed or approved by DTN, any notebook, data, information or other material acquired or compiled by Contractor or Huston in carrying out the terms of this Agreement and which contains trade secrets or other proprietary information of DTN. ARTICLE 5 RESTRICTIVE COVENANTS Section 5.01 Solicitation of Employees Contractor and Huston (being together considered as one party) and DTN each agrees that, during the term of this Agreement and for a period of one (1) year after the termination of this Agreement, it will not directly or indirectly employ, solicit for employment, or advise or recommend to any other person or entity that such other person or entity employ or solicit for employment any person then employed by the other party to this Agreement. Section 5.02 Diversion of Business Contractor and Huston each agrees that, during the term of this Agreement and for a period of one (1) year after the termination of this Agreement, neither of them will cause, encourage, induce, or attempt to induce, and neither of them will aid, assist, or abet any other party or person in inducing or attempting to induce, directly or indirectly, any customer of DTN with which they have actually done business and had personal contact during the term of this Agreement to terminate or change in a manner adverse to DTN any existing relationship with DTN. Section 5.03 Injunctive and Other Relief Contractor and Huston (being together considered as one party) and DTN each acknowledges that its agreements contained in Articles 4 and 5 hereto are reasonable and necessary to protect the business of the other party hereto and that any breach thereof will result in an irreparable injury for which there is no adequate remedy at law. Each party therefore agrees that, in the event of its breach of any of its agreements contained in Articles 4 and 5 hereto, the other party shall be authorized and entitled to seek from any court RCF\97964.3 7 - 7 - 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 breach. Such rights and remedies shall be cumulative and in addition to any other rights or remedies to which the non-breaching party may be entitled. ARTICLE 6 INDEPENDENT CONTRACTOR STATUS It is the parties' express intention that Contractor is an independent contractor and not an employee, agent, joint venturer or partner of DTN. Subject to the provisions of this Agreement, Contractor shall have complete control over the manner in which Contractor performs its responsibilities under this Agreement; however, Contractor at all times shall represent DTN in an ethical and professional manner consistent with the highest industry standards and shall maintain adequate facilities and personnel to enable Contractor to carry out such responsibilities competently and professionally. Contractor does not have, and shall not hold himself out as having, any authority to enter into any contract or create any obligation or liability on behalf of, in the name of, or binding upon DTN; and Contractor shall hold DTN harmless from any claims resulting from any action taken by Contractor which is inconsistent with the provisions of this sentence. Nothing contained in this Agreement, including but not limited to the method of compensating Contractor, shall be deemed or construed by anyone to create the relationship of principal and agent, partnership, or joint venture between DTN and Contractor. ARTICLE 7 TERM AND TERMINATION Section 7.01 General The term of this Agreement shall commence on September 1, 1996, regardless of when signed by the parties, and shall continue until the first to occur of any of the following events: (i) notice from DTN if Huston for any reason, including but not limited to death, disability or retirement, fails to personally provide and perform to the best of his abilities the primary responsibilities and obligations of Contractor under this Agreement; provided, however, if Huston is incapable of doing so by reason of physical injury, disease, or mental illness, then DTN may elect to terminate this Agreement only if such condition continues for a period of 120 consecutive days or more; RCF\97964.3 8 - 8 - (ii) the mutual written agreement of the parties hereto to terminate this Agreement; or (iii) notice from the non-defaulting party upon the failure of a party to cure a default as provided in Section 7.02. Section 7.02 Termination for Default If a party defaults in the performance of its obligations hereunder, and such default is not cured within thirty (30) days after written notice of such default is provided by the non-defaulting party to the defaulting party, then the non-defaulting party may, at its option, declare this Agreement terminated and the term of this Agreement ended forthwith. The failure of a party to give notice of a default shall not be a waiver thereof nor consent to the continuation thereof. ARTICLE 8 COVENANTS OF DTN Section 8.01 Exclusivity of Contractor DTN acknowledges and agrees that Contractor shall be the exclusive representative for DTN for purposes of marketing the Services during the term of this Agreement, except to the extent otherwise consented or agreed to by Contractor. Section 8.02 Licensing and Legal Compliance DTN currently has and agrees to use its best efforts to keep in force at all times during the term of this Agreement, all licenses or permits required by law to allow DTN to fulfill its obligations under this Agreement, including, but not limited to, the delivery of the Services. DTN agrees to perform its obligations hereunder, operate the DTNergy(R) system and deliver the Services to customers in compliance with all applicable federal, state and local laws and regulations. Section 8.03 Taxes Subject to the provisions of Section 3.01, DTN is responsible for payment and/or withholding of any taxes (including all federal, state and local employment taxes applicable to DTN's employees), now or hereafter enacted, applicable to the delivery of the Services to customers or the performance of DTN's obligations under this Agreement. In no event shall Contractor be responsible for payment of any taxes relating to DTN or DTN's employees, except as provided in Section 3.01. RCF\97964.3 9 - 9 - ARTICLE 9 MISCELLANEOUS Section 9.01 Entire Agreement This Agreement constitutes the entire agreement between the parties hereto, superseding all prior understandings, arrangements, and agreements, whether oral or written, with respect to the engagement of Contractor or Huston as a sales representative for DTN. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party that are not expressly set forth in this document. Huston executes this Agreement individually for the purpose of agreeing to be bound by the terms and provisions of Articles 4 and 5 of this Agreement. Section 9.02 Amendment No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is in writing and has been signed by a duly authorized officer of DTN. No waiver by either party to this Agreement at any time of any breach by the other party to this Agreement of, or of such other party's compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed to be a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. The failure of DTN to exercise any right under this Agreement in the event of a breach by Contractor of any provision of this Agreement shall not be construed as a waiver of such breach or prevent DTN from thereafter enforcing strict compliance by Contractor with any and all provisions of this Agreement. Section 9.03 Headings The headings of the several paragraphs of this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Section 9.04 Number and Gender Unless the context otherwise retires, for all purposes of this Agreement words in the singular include their plural, words in the plural include their singular, and words of one gender include the other genders. RCF\97964.3 10 - 10 - Section 9.05 Notices Any notice required or permitted under this Agreement shall be in writing and shall be deemed to have been given on the date of its deposit in the United States mail, registered or certified and postage prepaid, addressed to such party at the address set forth below opposite its name. A party may change its address for purposes of this Agreement at any time by giving written notice of such change in accordance with this paragraph. DTN agrees to send a written notice to Contractor within ten (10) days after DTN receives a letter of intent or proposed acquisition agreement providing for a merger, consolidation or other business combination pursuant to which DTN is not the surviving entity or an acquisition pursuant to which a third party is to acquire substantially all of the assets of the DTNergy Business. Notwithstanding the preceding sentence, DTN has no obligation to continue to operate the DTNergy Business. Section 9.06 Governing Law This Agreement shall be governed by and construed in accordance with the internal substantive laws of Nebraska. Any action brought to interpret or enforce any provision of this Agreement shall be brought in the federal or state courts situated in Douglas County, Nebraska, and all parties hereby consent to venue and jurisdiction before such courts. Section 9.07 Assignment This Agreement is personal to Contractor, and Contractor may neither assign this Agreement or any of Contractor's commission or other rights under this Agreement nor delegate to anyone else (other than persons for whom Contractor is responsible in the ordinary course of its business) the performance of Contractor's duties under this Agreement. Section 9.08 Binding Agreement This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns; however, nothing contained in this paragraph shall permit any assignment which otherwise is prohibited by this Agreement. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions will nevertheless continue in full force without being impaired or invalidated in any way. RCF\97964.3 11 - 11 - IN WITNESS WHEREOF, DTN and Contractor have signed this Agreement as of the date first set forth above. Address of DTN for DATA TRANSMISSION NETWORK notices: CORPORATION, a Delaware corporation Data Transmission Network By:________________________________ Corporation Title:_____________________________ 9110 West Dodge Road Suite 200 Omaha, NE 68114 Attention: President Address for Contractor HUSTON, INC. and Huston for notices: Mr. Phil Huston By:________________________________ 260 Courtyard Drive, #316 Phil Huston, President Dakota Dunes, SD 57049 ------------------------------------ Phil Huston, principal of Huston,Inc RCF\97964.3 - 12 - EX-10 3 2ND AMENDMENT TO LEASE SECOND AMENDMENT TO LEASE THIS SECOND AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of , 1996, 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, 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. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995. C. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. PREMISES. The Premises shall be expanded to include: Suite 350, effective October 20, 1995, measuring 472 RSF; and Suite 101, effective December 1, 1995, measuring 291 RSF (the "Additional Premises"). Both Suite 350 and Suite 101 are shown on the floor plans attached hereto, marked as Exhibit "A-1" and "A-2", and by this reference made a part hereof. Paragraph 1 of the "First Amendment To Lease" shall be revised to reflect the following: As of October 20, 1995, the Premises shall consist of 69,947 RSF; as of December 1, 1995, the Premises shall consist of 70,238 RSF; as of July 1, 1996, the Premises shall consist of 73,140 RSF; and as of January 1, 1998, the Premises shall consist of 83,284 RSF (the "Revised Premises"). 2. Term. The term of the Lease with respect to Suite 350 and Suite 101 shall be that period of time commencing October 20, 1995, for Suite 350, and December 1, 1995, for Suite 101 and ending on May 31, 2005, (the "Expiration Date"). 3. Base Rent. Tenant shall pay as Base Rent for the Additional Premises covered under this Amendment during the Term, the sum of One Hundred and Seven Thousand, Seven Hundred and Nineteen Dollars and Sixty-Five Cents ($107,719.65) payable monthly as follows: October 20, 1995 - October 31, 1995 $224.58 November 1, 1995 - November 30, 1995 $580.17 December 1, 1995 - May 31, 2005 $937.85 / Month - 13 - 4. Tenant Improvements. Landlord shall provide a tenant improvement allowance of up to $4,729.44 for Suite 350, and up to $3,291.21 for Suite 101, 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 - October 19, 1995 53.05% (69,475 RSF / 130,950 RSF) October 20, 1995 - November 30,1995 53.42% (69,947 RSF / 130,950 RSF) December 1, 1996 - June 30, 1996 53.64% (70,238 RSF / 130,950 RSF) July 1, 1996 - December 31, 1997 55.79% (73,140 RSF / 131,094 RSF) January 1, 1998 - May 31, 2005 63.53% (83,284 RSF / 131,094 RSF) 6. Adjustment Rent. Effective with commencement of the Term for Suites 350 and 101, 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. 8. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 9. The parties hereto hereby reaffirm and ratify all covenants, 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: Pacific Realty Group, Inc., By: its Managing Agent Its: By: Its: - 14 - EXHIBIT "B" to be made a part of a Second Amendment To Lease between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 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 Seven Thousand, Nine Hundred and Ninety-One Dollars and Seventy-Eight Cents ($7,991.78) 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 20, 1995 - February 28, 1996 Up To $7,991.78 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): - 15 - (a) conduct its work in such a manner so as not to unreasonably interfere with other tenants in the Building, Building operations, or any other construction occurring on or in the Building or the Premises; (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); EXHIBIT "B" to be made a part of a Second Amendment To Lease between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1995. (Page 2 of 2) (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall promptly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. - 16 - 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's materialmen's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. - 18 - EX-10 4 3RD AMENDMENT TO LEASE THIRD AMENDMENT TO LEASE THIS THIRD AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of , 1996, 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, 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. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995, and a Second Amendment To Lease dated November 30, 1995. The combined terms of the Lease and subsequent Amendments shall herein be referred to as the "Lease". C. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Term. The Commencement Date of the Lease, with respect to Space "B", shall be revised to be that period of time commencing February 5, 1996 and ending on May 31, 2005, (the "Expiration Date"). 2. Base Rent. Paragraph 3 of the First Amendment To Lease shall be revised to read: Tenant shall pay as Base Rent with respect to Space "A" and Space "B", the sum of Nine Hundred Twenty-Six Thousand, Forty Dollars and Four Cents ($926,040.04) payable monthly as follows: October 1, 1995 - January 31, 1996 $4,533.17 / Month Feburary 1, 1996 - February 29, 1996 $7,816.69 / Month March 1, 1996 - June 30, 1996 $8,342.05 / Month July 1, 1996 - May 31, 2005 $8,100.21 / Month 3. Adjustment Rent. With respect to the Space "B", Effective July 1, 1996, Tenant shall pay Adjustment Rent in accordance with the terms and conditions contained in Paragraph 2 of the Lease. 4. Effect of Agreement. Except as herein specifically provided, the terms and conditions of the Lease shall continue in full force and effect. - 19 - 5. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 6. 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 of a Delaware corporation America, a New Jersey corporation By: Pacific Realty Group, Inc., By: its Managing Agent Its: By: Its: - 20 - EX-10 5 4TH AMENDMENT TO LEASE FOURTH AMENDMENT TO LEASE THIS FOURTH AMENDMENT TO LEASE (the "Amendment") is made and entered into this ______ day of , 1996, by and between LAFP-SF, Inc., successor in interest to The Prudential Insurance Company Of America ("Landlord"), having an office c/o Lowe Enterprises Colorado, Inc., 1475 Lawrence Street, Suite 210, Denver, Colorado 80202, and Data Transmission Network Corporation ("Tenant"), having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. RECITALS A. The Prudential Insurance Company of America and Data Transmission Network Corporation entered into that certain Lease dated as of May 2, 1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340, #360, and #362 containing 75,931 rentable square feet in the Building known as Embassy Plaza, located at 9110 West Dodge Road, Omaha, Nebraska ("the Premises"). B. Subsequently, The Prudential Insurance Company Of America and Data Transmission Network Corporation executed a First Amendment To Lease dated September 29, 1995, a Second Amendment To Lease dated November 30, 1995, and a Third Amendment To Lease dated January 5, 1996. The combined terms of the Lease and subsequent Amendments shall herein be referred to as the "Lease". Under the Lease the Premises consists of a total of 83,284 RSF. C. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Premises. Effective January 1, 1997, the Premises shall be expanded to include Suite 350A, measuring 3,348 RSF; Suite 350B, measuring 710 RSF; and the contiguous corridor area, measuring 794 RSF; for a total of 4,852 RSF as shown on the floor plan attached hereto, marked Exhibit "A" (the "Additional Space") and by this reference made a part hereof. Notwithstanding the above, both Tenant and Landlord understand that Travelers Insurance Company currently leases Suite 350A and Suite 350B, with such lease expiring December 31, 1996. Should Travelers holdover and not vacate Suites 350A and/or 350B by January 1, 1997, Landlord will make reasonable efforts to pursue its legal remedies to have Travelers removed from the space. If the Additional Space is delivered to Tenant after January 1, 1997, Landlord and Tenant shall execute a Commencement Date Certificate in the form attached hereto as Exhibit "C", confirming Landlord's delivery of the Additional Space and commencement of the Lease with respect to the Additional Space. 2. Term. The term of the Lease with respect to the Additional Space identified in Paragraph 1 above shall commence January 1, 1997, and terminate upon termination of the Lease. - 21 - 3. Base Rent. Tenant shall pay as Base Rent for the Additional Space during the Term the sum of Six Hundred and Two Thousand, Three Hundred Fifty-five Dollars and Ninety-Two Cents ($602,355.92) payable monthly as follows: January 1, 1997 - May 31, 2005 $5,963.92 / Month 4. Adjustment Rent. Effective upon commencement of the Term for the Additional Space, Tenant shall pay Adjustment Rent with respect to the Additional Space in accordance with the terms and conditions contained in Paragraph 2 of the Lease. 5. Tenant Improvements. Landlord shall provide a tenant improvement allowance of up to $48,600.19 to be applied toward the cost of Tenant's required building improvements. All improvements shall be performed in accordance with the Tenant Improvement Work Schedule attached hereto, marked as Exhibit "B", and by this reference made a part hereof. 6. Tenant's Proportionate Share. The schedule of Tenant's Proportionate Share contained in Item D of the Basic Terms of the Lease shall be replaced with the following schedule: January 1, 1997 - December 31, 1997 59.13% (77,990 RSF / 131,888 RSF) January 1, 1998 - May 31, 2005 66.83% (88,136 RSF / 131,888 RSF) 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, LAFP-SF, Inc. a Delaware corporation By: Lowe Enterprises Investment Management, Inc. By: Its: Authorized Agent Its: By: Its: - 22 - EXHIBIT "B" to be made a part of a Fourth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1996. (Page 1 of 2) TENANT IMPROVEMENTS WORK SCHEDULE ARTICLE I Landlord's Construction Obligations Landlord shall have no construction obligations under this Amendment. Tenant accepts the Additional Premises in an "as is" condition, with all faults and with the understanding that it shall be responsible for any and all improvements required for its occupancy and use in accordance with Article II of this Exhibit "B". ARTICLE II Construction of Tenant Improvements Tenant shall have the right to place partitions and fixtures and make improvements or other alterations in the Additional Space in accordance with the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant finish allowance of up to Forty Eight Thousand, Six Hundred Dollars and Nineteen Cents ($48,600.19) to be applied toward the cost of any such tenant-provided improvements as follows: 1. The tenant finish allowance shall be paid in periodic installments, not more frequently than once per month, equal to the total of the contractor's or consultant's invoice amounts for improvements made to the Additional Space, excluding any furnishings or business equipment (such as computers, satellite/microwave dish, office equipment, etc.), as submitted by Tenant and verified to Landlord's reasonable satisfaction; provided, however, that such payments will be made only if Tenant is not then in Default under the terms of this Lease and invoices are accompanied by lien waivers in the amount equal to that of the invoices. The tenant finish allowance shall be allocated and distributed subject to the provisions of this Exhibit "B" as follows: January 1, 1997 - December 31, 1997 Up To $48,600.19 2. Upon the earlier of the end date identified in the allocation schedule specified in Paragraph 1 above, or the satisfaction of all obligations associated with the tenant improvements covered under this Article II and receipt of the associated lien waivers for the work, the Tenant shall forfeit any unused portion of the allowance. Any requests for payment received by the Landlord after the above specified end dates, will be returned to the Tenant and will be the obligation and sole responsibility of the Tenant. 3. In addition to the provisions set forth in Paragraph 9 of the Lease, Tenant's contractor shall (and its contract shall so provide): (a) conduct its work in such a manner so as not to unreasonably interfere with other tenants in the Building, Building operations, or any other construction occurring on or in the Building or the Premises; (b) execute a set of and comply with all rules and regulations relating to the construction activities in or on the Building as may be reasonably promulgated from time to time by Landlord or its agents; (c) maintain such insurance (such as general liability and workman's compensation) and bonds (such as performance and completion) in force and effect as may be reasonably requested by Landlord or as required by applicable law (but in any event said bonds shall be in amounts equal to the full value or cost of the work being done by the Tenant contractor); - 23 - EXHIBIT "B" to be made a part of a Fourth Amendment To Lease between LAFP-SF, INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated , 1996. (Page 2 of 2) (d) be responsible for reaching an agreement with Landlord and its agents as to the terms and conditions for all contractor items relating to the conducting of its work, including but not limited to, those matters relating to hoisting, systems interfacing, use of temporary utilities, storage of materials, placement of dumpsters, access to the Premises and the Building, and the purchase and return of Building standard materials. (e) Upon completion of any tenant improvements, Tenant shall promptly furnish Landlord with sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such improvements. Tenant shall not permit any mechanic's lien to be filed against the Building, or any part thereof, arising out of any improvement performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) days thereafter have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorney's fees. 4. Landlord shall have the right to approve all subcontractors to be used by the Tenant's contractor, which approval shall not be unreasonably withheld as long as such subcontractors satisfy the requirements of this Article II. 5. Tenant shall indemnify and hold harmless Landlord, its agents, contractors (including Building Contractor), and any mortgagee of Landlord, from and against any and all losses, damages, costs (including costs of suit and attorneys' fees), liabilities, or causes of action for injury to or death of any person, for damage to any property, and for mechanic's materialmen's or other liens or claims arising out of or in connection with the work done by the Tenant's contractor (and Tenant's contractor's subcontractors and sub-subcontractors) under its contract with Tenant. 6. The failure by Tenant, after receiving written notice, to materially comply with any of the provisions of Article II of this Exhibit shall constitute a Default by Tenant under the terms of the Lease and Landlord shall have the benefit of all remedies provided for in the Lease, except Tenant shall have a thirty (30) day right to cure Default upon receipt of written notice . 7. Upon completion of the Tenant Improvements, Tenant shall deliver to Landlord two (2) copies of the "as built" plans and specifications for the Tenant Improvements completed under Article II of this Exhibit within thirty (30) days of completing the same. - 24 - EX-10 6 1996 REVOLVING CREDIT AGREEMENT 1996 REVOLVING CREDIT AGREEMENT This 1996 Revolving Credit Agreement (the "Agreement") is entered into as of the 28th day of June, 1996, among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the "Borrower"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 ("FNB-O"), FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FARM CREDIT SERVICES OF THE MIDLANDS, PCA, a production credit association ("Farm Credit") in care of AGAMERICA, FCB, a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska 68102-1745, THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101 ("Mercantile"), FIRST BANK, NATIONAL ASSOCIATION (successor in interest to FirsTier Bank, National Association), a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank") and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236 ("Boatmen's"). WITNESSETH: WHEREAS, the Borrower and certain of the Lenders (as such term is hereinafter defined) are parties to a 1996 Term Credit Agreement dated as of May 3, 1996 (the "1996 Term Credit Agreement"), the proceeds of which were used to acquire substantially all of the assets of Broadcast Partners, a general partnership having its principal place of business in Des Moines, Iowa; WHEREAS, the Borrower and certain of the Lenders are parties to a 1995 Restated Loan Agreement dated as of June 29, 1995, which 1995 Restated Loan Agreement provided a revolving credit facility for general corporate purposes; WHEREAS, the Borrower desires to increase and renew the revolving credit facility which was the subject of the 1995 Restated Loan Agreement, and to add certain additional Lenders as Lenders thereunder; and 1 - 25 - WHEREAS, the parties do not intend for this 1996 Revolving Credit Agreement to be deemed to extinguish any existing indebtedness of the Borrower or to release, terminate or affect the priority of any security therefor, but the parties do intend that this 1996 Revolving Credit Agreement shall supersede and replace the terms of the above-referenced 1995 Restated Loan Agreement; NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows: I. DEFINITIONS For purposes of this Agreement, the following definitions shall apply: Acquisition Notes: The Notes issued by the Borrower to the Term Lenders under the Term Agreement, and all extensions, renewals and substitutions, if any, of or for the same. Advance: Any advance of funds to the Borrower by the Revolving Lenders or any of them under the revolving credit facility provided in this Agreement. Agreement: This 1996 Revolving Credit Agreement dated as of June 28, 1996, between the Borrower and certain Lenders. Base Rate: The floating interest rate announced from time to time by FNB-O as its "National Base Rate," minus .75%. The National Base Rate is set by FNB-O, solely in its discretion, to reflect generally the rates charged by national money center banks as their reference rates. (Previously, the rate was announced by FNB-O as its "New York Base Rate.") Rates charged by FNB-O may be at, above or below the National Base Rate, as determined by FNB-O as to each respective customer. Boatmen's: The Boatmen's National Bank of St. Louis, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63166- 0236, and its successors and assigns. Borrower: Data Transmission Network Corporation, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114. Broadcast Partners: Broadcast Partners, a general partnership having its current principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 50322. 2 - 26 - Business Day: Any day other than a Saturday, Sunday or a legal holiday on which banks in the State of Nebraska are not open for business. Change of Control: (a) At any time when any of the equity securities of the Borrower shall be registered under Section 12 of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), (i) any person, entity or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) (other than any person which is a management employee, or any such "group" which consists entirely of management employees, of the Borrower) being or becoming the beneficial owner, directly or indirectly, of more than 50% of the voting stock of the Borrower, or (ii) a majority of the members of the Borrower's board of directors (the "Board") consisting of persons other than Continuing Directors (as hereinafter defined); and (b) at any other time, less than 50% of the voting stock of the Borrower being owned beneficially, directly or indirectly, by employees of the Borrower or its subsidiaries. As used herein, the term "Continuing Director" means any member of the Board on June 29, 1995 and any other member of the Board who shall be recommended or elected to succeed a Continuing Director by a majority of Continuing Directors who are the members of the Board. Collateral: All personal property of the Borrower described in the Security Agreement, whether now owned or hereafter acquired, including, without limitation: (a) all of the Borrower's accounts, accounts receivable, Subscriber contract rights, chattel paper, documents, instruments, goods, inventory, equipment, general intangibles; and (b) all proceeds and products of the foregoing. Conversion: This term shall have the meaning set forth in Section 2.4. Converted Notes: Any note evidencing Conversion under or of all or a portion of the Revolving Credit Notes (or any such similar notes issued to any additional Revolving Lenders hereinafter added to this Agreement), and all extensions, renewals and substitutions of or for the foregoing. Default Rate: The floating interest rate announced from time to time by FNB-O as its "National Base Rate" plus 4.0%. The National Base Rate is set by FNB-O, solely in its discretion, to reflect generally the rates charged by national money center banks as their reference rates. (Previously, the rate was announced by FNB-O as its "New York Base Rate.") Rates charged by FNB-O may be at, above or below the National Base Rate, as determined by FNB-O as to each respective customer. 3 - 27 - Existing Term Notes: Those certain promissory notes from the Borrower to FNB-0, FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of July 7, 1992, October 1, 1992, October 12, 1992, October 19, 1992, November 3, 1992, January 4, 1993, February 9, 1993, April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994, and February 27, 1995, and all extensions, renewals, and substitutions of or for the foregoing. Farm Credit: Farm Credit Services of the Midlands, PCA, a production credit association organized under the laws of United States, and having its principal place of business at 206 South 19th Street, Omaha, Nebraska 68102. First Bank: First Bank, National Association, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508, and its successors and assigns (it being acknowledged that First Bank is the successor in interest to FirsTier). FNB-O: First National Bank of Omaha, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102, and its successors and assigns. FNB-W: First National Bank, Wahoo, Nebraska, a national banking association having its principal place of business at Wahoo, Nebraska 68066, and its successors and assigns. Fixed Rate Notice: This term shall have the meaning set forth in Section 2.5. Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo, Mercantile and First Bank, in their capacity as Revolving Lenders under this Agreement, the Term Lenders, lenders of the Related Bank Debt, Boatmen's (as to Articles VI and VII and as to Section 8.6 only), and such additional lenders as may be added hereto or thereto from time to time. Make-Whole Premium: An amount which shall be sufficient as determined by the relevant Lender in good faith and on a reasonable basis and certified to the Borrower in writing, to compensate the Lender for any loss (including any lost yield), cost or expense incurred by the Lender (i) in liquidating or redeploying deposits or other funds acquired by the Lender to fund or maintain the loan prepaid and (ii) in unwinding, amending, cancelling or otherwise modifying or terminating any match funding, swap or other arrangement entered into by the Lender in connection with acquiring or maintaining the funding for the loan prepaid. 4 - 28 - Mercantile: Mercantile Bank of St. Louis, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101, and its successors and assigns. NBD: NBD Bank, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226, and its successors and assigns. Net Worth: The Borrower's consolidated net worth as determined in accordance with generally accepted accounting principles plus subordinated debt. For purposes of this definition, "subordinated debt" means indebtedness of the Borrower which is subordinate, in a manner satisfactory to the Lenders, to the indebtedness due to the Lenders, and the repayment of which is forbidden during the existence of any Event of Default hereunder; provided however, that any such indebtedness shall not be deemed subordinated debt to the extent of the amount of principal payments that are due thereon within one (1) year from the date of determination. Norwest: Norwest Bank Nebraska, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102, and its successors and assigns. Notes: The Revolving Credit Notes, the Converted Notes, the Existing Term Notes, the Acquisition Notes, and such additional similar notes as may be issued to certain additional Lenders, and all extensions, renewals, and substitutions of or for the foregoing. Operating Cash Flow: The Borrower's consolidated average monthly earnings or loss before interest, depreciation, amortization and taxes, less current tax expense and plus or minus any non-ordinary non-cash charges or credits to earnings, which average shall be based on the Borrower's actual financial results in the two (2) full calendar months preceding the date of determination. For purposes of calculating Operating Cash Flow for this Agreement, the Borrower shall not permit deferred commission expenses to be capitalized for any period in excess of twelve (12) months. Operative Documents: This Agreement, the Notes, the Security Agreement, the financing statements regarding the Collateral and the documents and certificates delivered pursuant to Section 5.1. Principal Loan Amount: As to the Revolving Credit Notes, the aggregate principal amount of all unpaid Advances outstanding at any time (not including the unpaid balance under the Existing Term Notes or 5 - 29 - any Acquisition Notes, or any amounts converted to a term loan hereunder), and as to Converted Notes hereunder, the unpaid principal amount thereof. Purchase Agreement: The Asset Purchase and Sale Agreement dated as of May 3, 1996, between the Borrower and Broadcast Partners, as amended from time to time. Quarterly Compliance Certificate: The certificate delivered to the Lenders by the Borrower pursuant to Section 4.1(d). Related Bank Debt: The aggregate unpaid balance of all indebtedness, now or here- after 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, and all extensions, renewals, and substitutions of or for the foregoing. Related Loan Agreement: The Loan Agreement dated as of October 9, 1992, between the Borrower and FNB-O, FirsTier and FNB-W and any loan agreements issued in extension, renewal, replacement, or restatement of the foregoing. Release: The Federal Reserve Statistical Release. Restricted Quarter: Has the meaning set forth in Section 2.5 hereof. Revolving Credit Notes: The Notes issued to the Revolving Lenders pursuant to Section 2.1, and such additional similar notes as may be issued to Revolving Lenders hereinafter added to this Agreement by mutual written agreement of the parties, and all extensions, renewals, and substitutions of or for the same. Such notes shall be in the form of Exhibit A hereto. Revolving Credit Rate: The Base Rate plus the applicable margin as determined pursuant to Section 2.3. Revolving Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo, Mercantile and First Bank and such additional Revolving Lenders as may be added as Revolving Lenders under Section 2.1 hereto from time to time by mutual written agreement of the parties. 6 - 30 - Security Agreement: The 1996 Restated Security Agreement dated as of May 3, 1996 between the Borrower and FNB-O, as agent for the Lenders, 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 "Farm Dayta Service" and/or other similar services and who are not in default of their payment or other obligations with respect thereto. Subsidiary: Any corporation business association, partnership, joint venture, limited liability company or other business entity in which the Borrower, or one or more of its Subsidiaries, or the Borrower and one or more of its Subsidiaries has either (i) more than 50% of the equity ownership thereof, or (ii) the power to elect a majority of the directors or to control the identification of the managing or general partners or similar governing persons thereof. Sumitomo: The Sumitomo Bank, Limited, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102, and acting through its Chicago branch, and its successors and assigns. Term Agreement: The 1996 Term Credit Agreement dated May 3, 1996, among the Borrower and certain Lenders specified therein, as amended from time to time. Term Lenders: "Lenders" to the Borrower as such term is defined in the Term Agreement. Total Indebtedness: All loans and other obligations of the Borrower and its Subsidiaries, without duplication, for borrowed money (including, without limitation, the indebtedness due to the Lenders) regardless of the maturity thereof but such term shall not include subordinated debt of the Borrower, as such term is defined in the definition of Net Worth up to $15,000,000 if such subordinated debt is existing on May 3, 1996. Triggering Event: Has the meaning set forth in Section 2.5 hereof. All accounting terms not otherwise defined herein shall have the meaning ordinarily applied under generally accepted accounting principles. 7 - 31 - II. REVOLVING FACILITY 2.1 Revolving Credit. Until the earlier of June 28, 1997, or the date on which the loan hereunder is converted to a term loan in accordance with Section 2.4, the Revolving Lenders severally agree to advance funds for general corporate purposes not to exceed $43,895,500 to the Borrower on a revolving credit basis (amounts outstanding under the Acquisition Notes, Existing Term Notes and Related Bank Debt shall not be counted against such $43,895,500 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: (i) as to FNB-O, $9,966,000; (ii) as to FNB-W, $226,500; (iii) as to NBD, $5,753,100; (iv) as to Norwest, $3,533,400; (v) as to Farm Credit, $9,603,600; (vi) as to Sumitomo, $4,829,900; (vii) as to Mercantile, $4,983,000 and (viii) as to First Bank, $5,000,000. The Borrower shall not be entitled to any Advance hereunder if, after the making of such Advance, the Total Indebtedness would exceed thirty-six (36) times the Borrower's Operating Cash Flow, determined at the time of the Advance. Nor shall the Borrower be entitled to any further Advances hereunder after the occurrence of a material adverse change in its management personnel, as described in Section 4.14(b), or after the occurrence of any Event of Default with respect to the Borrower. Advances shall be made, on the terms and conditions of this Agreement, upon the Borrower's request. Requests shall be made by 12:00 noon Omaha time on the Business Day prior to the requested date of the Advance. Requests shall be made by presentation to FNB-O of a drawing certificate in the form of Exhibit B. The Borrower's obligation to make payments of principal and interest on the foregoing revolving credit indebtedness shall be further evidenced by the Revolving Credit Notes. 2.2 Revolving Credit Fees. The Borrower shall pay to the Revolving Lenders a commitment fee of one quarter of one percent (.25%) per annum of the unadvanced portion of the $43,895,500 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. In addition, 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 300% 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 (20) 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). Furthermore, the Borrower will pay to FNB-O an agenting fee equal to $18,000 annually, payable quarterly in arrears. 2.3 Interest on Revolving Credit. Until the earlier of June 28, 1997, or the date on which the revolving credit loan hereunder is converted to a term loan, interest shall accrue on the Principal Loan Amount outstanding from time to time at a variable rate, which shall fluctuate on a monthly basis, equal to the Base Rate plus a margin as determined below. The margin shall be adjusted 8 - 32 - 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 250% 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 250% of Net Worth but less than 300% 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 300% of Net Worth but not more than 350% of Net Worth, the margin for the current quarter shall be three quarters of one percent (.75%). The Base Rate plus the applicable margin as determined above is hereinafter referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be effective on the first day of each month, based on the Base Rate in effect on such day. Interest shall be due upon the rendering of each monthly invoice therefor by FNB-O. Notwithstanding anything to the contrary elsewhere herein, after an Event of Default has occurred interest shall accrue on the entire outstanding balance of principal and interest on all indebtedness hereunder at a fluctuating rate equal to the Default Rate. 2.4 Conversion. Upon the earlier of: (i) June 28, 1997; or (ii) the Borrower's giving notice of its election to convert the revolving credit loan hereunder, or any portion thereof, to a term loan, the revolving credit loan described above (or applicable portion thereof) shall be deemed converted to a term loan (hereinafter referred to as "Conversion"). Any such term loans shall be evidenced by notes (the "Converted Notes") separate from the initial Revolving Credit Notes. Upon 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 Converted Note shall become due and payable in forty-eight (48) equal installments of principal, with the first such installment due on the last day of the month following Conversion, or, if such day is not a Business Day, on the next succeeding Business Day, and subsequent installments due on the last day of each consecutive month thereafter. In any event, the total amount of all unpaid principal and accrued interest hereunder shall be due and payable no later than June 28, 2001. 2.5 Interest on Converted Notes. After Conversion, interest shall accrue on the Principal Loan Amount outstanding on the respective Converted Note from time to time at a variable rate, which shall fluctuate on a monthly basis, which is equal to the Revolving Credit Rate plus one quarter of one percent (.25%). For purposes of computing such variable rate, changes in the Base Rate shall be effective on the first day of each month based on the Base Rate in effect on such day. 9 - 33 - 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 (12) 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 percent (2.00%) above the average of the yields on constant maturity Treasury Bonds with maturities of three (3) years and five (5) years, as quoted in the immediately preceding monthly Release for the month preceding such Release; (b) if the Fixed Rate Notice is given after twelve (12) months but within twenty-four (24) 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 percent (2.00%) above the yield on constant maturity Treasury Bonds with a maturity of three (3) 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 (24) months of Conversion but within thirty-six (36) 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 percent (2.00%) above the yield on constant maturity Treasury Bonds with a maturity of two (2) 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 (36) months of Conversion but prior to the maturity of the Converted Note, 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. Interest shall be due each month concurrently with the Borrower's principal payment. Notwithstanding anything to the contrary elsewhere herein, after an 10 - 34 - Event of Default has occurred interest shall accrue on the entire outstanding balance of principal and interest on all indebtedness hereunder at a fluctuating rate equal to the Default Rate. All interest due under this Agreement shall be calculated on the basis of the actual number of days outstanding and a 360-day year. Interest shall continue to accrue on the full unpaid balance of all indebtedness hereunder notwithstanding any permitted or unpermitted failure of the Borrower to make a scheduled payment or the fact that a scheduled payment day falls on a day other than a Business Day. If the Borrower's most recent Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was in excess of 300% 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 Converted Note is less than seven and one-half percent (7.50%) per annum, a "Trigger Event" shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the Borrower shall be obligated to pay the following fees: (i) three-eighths of one percent (.375%) of the outstanding principal balance as of the date preceding the Trigger Event of each Existing Term Note or Converted Note which accrues interest at less than seven and one-half percent (7.50%) per annum, which amount shall be payable promptly upon invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable on the six (6) month anniversary of the Trigger Event; and (iii) the same amount as computed in clause (i), payable on the twelve (12) month anniversary of the Trigger Event. 2.6 Payments. All obligations of the Borrower under the Related Bank Debt, Revolving Credit Notes and Converted Notes and under the other Operative Documents shall be payable in immediately available funds in lawful money of the United States of America at the principal office of FNB-O in Omaha, Nebraska or at such other address as may be designated by FNB-O in writing. In the event that a payment day is not a Business Day, the payment shall be due on the next succeeding Business Day. 2.7 Prepayments. The Borrower may at any time prepay the Principal Loan Amount outstanding under the Revolving Credit Notes or any of the Converted Notes if the Borrower has given the Revolving Lenders at least two (2) Business Days prior written notice of its intention to make such prepayment. Any such prepayment may be made without penalty except for Converted Notes as to which interest is accruing at a fixed rate in accordance with Section 2.5(a), 2.5(b) or 2.5(c), in which event a prepayment penalty shall be due to each Revolving Lender, at each Revolving Lender's option, either: (1) the Make-Whole Premium due to such Revolving Lender in respect of such prepayment; or (2) such Revolving Lender's applicable prepayment fee as set forth below. The applicable prepayment fee for any Converted Note shall be: (i) if interest is accruing at the rate set forth in Section 2.5(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 2.5(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 2.5(c), the fee shall be three-tenths of one percent (.30%) of the amount of such prepayment. The applicable prepayment fee for any Existing Term Note shall be as specified in such Existing Term Note. 11 - 35 - 2.8 Security. All obligations of the Borrower hereunder and under the Operative Documents, including, without limitation, the Borrower's obligations to make payments of principal and interest on the Notes shall be secured by a first security interest in the Collateral, as more specifically described in the Security Agreement. 2.9 Existing Term Notes. The Borrower's obligations under the Existing Term Notes shall continue in full force and effect in accordance with the terms thereof. Such notes shall be deemed amended to include this 1996 Revolving Credit Agreement within the definition of Obligations in such notes, it being understood that this 1996 Revolving Credit Agreement, rather than the 1995 Restated Loan Agreement dated as of June 29, 1995, or the 1993 Restated Loan Agreement dated as 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 1996 Revolving Credit Agreement. The Existing Term Notes shall continue to be secured by the security interest provided in the Security Agreement. 2.10 Related Loan Agreement. Nothing herein shall be deemed to alter or amend the Borrower's obligations under the Related Loan Agreement, the Related Bank Debt or any collateral security therefor, all of which shall continue in full force and effect in accordance with the terms thereof. III. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that as of the date hereof and as of the date of each and every request for an Advance hereunder, the following are and shall be true and correct: 3.1 Corporate Existence. It and each of its Subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and duly qualified and in good standing in all states where it is doing business except where the failure to be so qualified would not have a material adverse effect on it and it has full power and authority to own and operate its properties and to carry on its business. As of June 28, 1996, the Borrower has no Subsidiaries. 3.2 Corporate Authority. It has full corporate power, authority and legal right to execute, deliver and perform the Operative Documents to which it is a party, and all other instruments and agreements contemplated hereby and thereby, and to perform its obligations hereunder and thereunder; and such actions have been duly authorized by all necessary corporate action, and are not in conflict with any applicable law or regulation, or any order, judgment or decree of any court or other governmental agency or instrumentality or its articles of incorporation or bylaws, or with any provisions of any indenture, contract or agreement to which it or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of its or their property may be bound. 3.3 Validity of Agreements. The Borrower's Operative Documents have been duly authorized, executed and delivered and constitute its legal, valid and binding agreements, enforceable against the Borrower in accordance with their respective terms (except to the extent 12 - 36 - that enforcement thereof may be limited by any applicable bankruptcy, reorganization, moratorium or similar laws now or hereafter in effect, or by principles of equity). 3.4 Litigation. Neither the Borrower nor any Subsidiary is a party to any pending lawsuit or proceeding before or by any court or governmental body or agency, which is likely to have a materially adverse effect on the Borrower's ability to perform its obligations under its Operative Documents; nor is the Borrower aware of any threatened lawsuit or proceeding, to which it or any Subsidiary may become a party or of any investigation of any Court or governmental body or agency into its affairs, which if instituted would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.5 Governmental Approvals. The execution, delivery and performance by the Borrower of the Operative Documents or the Purchase Agreement do not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any federal, state or other governmental authority or agency other than as contemplated herein and therein. 3.6 Defaults Under Other Documents. Neither the Borrower nor any Subsidiary is in default or in violation (nor has any event occurred which, with notice or lapse of time or both, would constitute a default or violation) under any document or any agreement or instrument to which it may be a party or under which it or any of its properties may be bound and the result of which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.7 Judgments. There are no outstanding or unpaid judgments (which are not adequately bonded) of the Borrower or any Subsidiary which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is in violation of any laws, regulations or judicial or governmental decrees in any respect which could have any material adverse effect upon the validity or enforceability of any of the terms of the Borrower's Operative Documents or which could have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 3.9 Taxes. All tax returns of the Borrower and its Subsidiaries for material taxes required to be filed have been filed or extensions permitted by law have been obtained; all taxes of the Borrower and its Subsidiaries of a material nature and which are due and payable as reflected on such returns have been paid, other than taxes which are due but for which only a nominal late payment penalty is payable and for which the taxing authority is not yet entitled to enforce its remedies for payment thereof and other than taxes being contested in good faith and with respect to which adequate reserves have been established; and no material amounts of taxes of the Borrower and its Subsidiaries not reflected on such returns are payable. 3.10 Collateral. The Borrower has good and marketable title to the Collateral and the Collateral is free from all liens, encumbrances or security interests, except as disclosed on Schedule A attached hereto. The Borrower's 13 - 37 - 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. Neither the Borrower nor any Subsidiary maintains a "Plan" as defined in Section 3 of the Employees Retirement Income Security Act of 1974 ("ERISA"), or each such entity is in compliance with the minimum funding requirements with respect to any such "Plan" maintained by it and it has not incurred any material liability to the Pension Benefit Guaranty Corporation ("PBGC") or otherwise under ERISA in connection with any such Plan. 3.12 Margin Regulations. No part of the proceeds of any Advance hereunder shall be used to purchase or carry any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or any "margin security" (within the meaning of Regulation G of said Board of Governors), or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security. No part of the proceeds of any Advance hereunder shall be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation G, T, U or X of said Board of Governors. 3.13 Financial Condition. The financial condition of the Borrower and its Subsidiaries is truly and accurately set forth in the most recent financial statement which has been provided to the Lenders and no material adverse change has occurred which would make such financial statement inaccurate or misleading. IV. COVENANTS The Borrower hereby covenants that: 4.1 Financial Reports. (a) Within forty-five (45) days after the end of each month, the Borrower, at its sole expense, shall furnish the Lenders a consolidated balance sheet and statement of earnings of the Borrower and its consolidated Subsidiaries, and such financial statements on a consolidating basis as to the Borrower, all such financial statements to be prepared in accordance with generally accepted accounting principles consistently applied and certified as completed and correct, subject to normal changes resulting from year-end audit adjustments, by the chief financial officer of the Borrower. (b) Within ninety (90) days after the close of the Borrower's fiscal year, the Borrower, at its sole expense, shall furnish the Lenders: (i) a consolidated balance sheet and statement of earnings of the Borrower and its consolidated Subsidiaries, certified by Deloitte & Touche, or other independent certified public accountants acceptable to the Lenders, that such financial reports fairly present the financial condition of the Borrower and its consolidated Subsidiaries and have been prepared in accordance with generally accepted accounting principles consistently applied; and (ii) a certificate from such 14 - 38 - accountants certifying that in making the requisite audit for certification of the Borrower's financial statements, the auditors either (1) have obtained no knowledge, and are not otherwise aware of, any condition or event which constitutes an Event of Default or which with the passage of time or the giving of notice would constitute an Event of Default under Sections 4.3, 4.4, 4.7, 4.9(b), 4.9(d) 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 Lenders by reason of the auditors' failure to obtain knowledge of such event or condition in the ordinary course of their audit unless such failure is the result of negligence or willful misconduct in the performance of the audit. (c) Within thirty (30) days after submission to the Securities and Exchange Commission, the Borrower shall provide to the Lenders copies of its Forms 10K and 10Q, as submitted to the Securities and Exchange Commission during the term of this Agreement. (d) Within twenty (20) days after the end of each quarter, the Borrower, at its expense, shall furnish the Lenders a certificate of the chief financial officer of the Borrower in the form of Exhibit C, setting forth such information (including detailed calculations) sufficient to verify the conclusions of such officer after due inquiry and review, that: (i) The Borrower and each Subsidiary, either (y) is in compliance with the requirements set forth in this Agreement or (z) is NOT in compliance with the foregoing for reasons specifically set forth therein; and (ii) The chief financial officer of the Borrower has reviewed or caused to be reviewed all of the terms of the Operative Documents of the Borrower and that such review either (1) has NOT disclosed the existence of any condition or event which constitutes an event of default or any condition or event which with the passage of time or the giving of notice would constitute an event of default under the Operative Documents or (2) has disclosed the existence of a condition or event which constitutes an event of default, or a condition or event which with the passage of time or the giving of notice would constitute an event of default, under the aforesaid instrument or instruments and the specific condition or event is specifically set forth. (e) The Borrower shall provide the Lenders with such other financial reports and statements as the Lenders may reasonably request. 4.2 Corporate Structure and Assets. The Borrower shall not merge or consolidate with any other corporation or entity unless the Borrower shall be the surviving entity, nor sell any assets except items that are obsolete or no longer necessary for operation of the business, other than in the ordinary course of business without the prior written consent of the Lenders. The Lenders shall be 15 - 39 - entitled to receive as a prepayment on the Notes the proceeds of any sale of assets of the Borrower which are prohibited by the preceding sentence. Notwithstanding the foregoing prepayment requirements, any such prohibited sale shall remain a violation of this Agreement. In addition, the Borrower shall not engage in any business materially different from that in which it is presently engaged without the prior written consent of the Lenders, which consent shall not be unreasonably withheld. The foregoing restrictions on mergers and consolidations shall not apply if: (i) in the case of a merger, the Borrower is the surviving entity and expressly reaffirms its obligations hereunder; (ii) in the case of a consolidation, the resulting corporation expressly assumes the obligations of the Borrower hereunder; (iii) the surviving or resulting corporation is organized under the laws of the United States or a jurisdiction thereof; (iv) after giving effect to such merger or consolidation, the surviving or resulting corporation will be engaged in substantially the same lines of business as are now engaged in by the Borrower; and (v) immediately after giving effect to such merger or consolidation, no Event of Default will exist hereunder. 4.3 Net Worth. The Borrower shall maintain a minimum Net Worth during the term of this Agreement of at least $23,500,000; provided, however, solely for purposes of determining compliance with the provisions of this Section 5.3, "Net Worth" shall not include any subordinated debt. 4.4 Indebtedness. (a) The Borrower shall not at any time permit the sum of the Total Indebtedness to the Lenders to exceed forty-eight (48) times Operating Cash Flow. (b) The Borrower shall not at any time permit consolidated Total Indebtedness to exceed 350% of Net Worth. (c) On the day the Borrower or a Subsidiary becomes liable with respect to any debt and immediately after giving effect thereto and to the concurrent retirement of any other debt, the sum of Total Indebtedness, plus the amount of any outstanding subordinated debt of the Borrower and its Subsidiaries, plus the contingent obligations of the Borrower and its Subsidiaries under any guaranty of the debt of any other person or entity (other than unsecured debt of a Subsidiary incurred in the ordinary course of business for other than borrowed money or to finance the purchase price of any property or business) shall not exceed an amount equal to sixty (60) times Operating Cash Flow at such date. 4.5 Use of Proceeds. The Borrower shall not use the proceeds of the Advances hereunder to purchase or carry any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or any "margin security" (within the meaning of Regulation G of said Board of Governors), or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security. No part of such proceeds shall be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation G, T, U or X of said Board of Governors. This section shall not 16 - 40 - preclude the Borrower from repurchasing any of its own issued and outstanding common stock; provided, however, that such repurchase does not result in the occurrence of any other Event of Default hereunder. 4.6 Notice of Default. The Borrower shall give to the Lenders prompt written notification of the existence or occurrence of: (a) any fact or event which results, or which with notice or the passage of time, or both, would result in an Event of Default hereunder; (b) any proceedings instituted by or against the Borrower in any federal, state or local court or before any governmental body or agency, or before any arbitration board, or any such proceedings threatened against the Borrower by any governmental agency, which is likely to have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents; (c) any default or event of default involving the payment of money under any agreement or instrument which is material to the Borrower or any Subsidiary to which such entity is a party or by which it or any of its property may be bound, and which default or event of default would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents; and (d) the Borrower shall give immediate notice of the commencement of any proceeding under the Federal Bankruptcy Code by or against the Borrower or any Subsidiary. 4.7 Distributions. (a) Neither Borrower nor any Subsidiary shall declare any dividends or make any cash distribution in respect of any shares of its capital stock or warrants of its capital stock, without the prior written consent of the Lenders; provided, however, that the Borrower may declare stock dividends; provided, further, that the Borrower need not obtain the Lenders' consent with respect to (i) dividends in any one (1) year which are, in aggregate, less than 25% of the Borrower's net operating profit after taxes in the previous four (4) quarters, as reported to the Lenders pursuant to Section 4.1; or (ii) dividends or distributions from any consolidated Subsidiary. (b) Neither the Borrower nor any Subsidiary other than a Subsidiary which is wholly-owned by the Borrower shall purchase, redeem, or otherwise retire any shares of its capital stock or warrants of its capital stock if, immediately after the making of such purchase or redemption, the Borrower or any Subsidiary will be in default of any other covenant or provision of this Agreement (including, without limitation, the covenants and provisions pertaining to minimum net worth and limitations on indebtedness). 4.8 Compliance with Law and Regulations. The Borrower and each Subsidiary shall comply in all material respects with all applicable federal and state laws and regulations. 17 - 41 - 4.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance. (a) The Borrower and each Subsidiary shall maintain its property in good condition in all material respects, ordinary wear and tear excepted, and make all renewals, replacements, additions, betterments and improvements thereto necessary for the efficient operation of its business. (b) The Borrower and each Subsidiary shall keep true books of record and accounts in which full and correct entries shall be made of all its business transactions, all in accordance with generally accepted accounting principles consistently applied. (c) The Borrower and each Subsidiary shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate form of existence as is necessary for the continuation of its business in substantially the same form, except where such failure to do so with respect to any Subsidiary would not have a material adverse effect on the ability of the Borrower to perform its obligations under the Operative Documents. (d) The Borrower and each Subsidiary shall pay all taxes, assessments and governmental charges or levies imposed upon it or its property; provided, however, that the Borrower or any Subsidiary shall not be required to pay any of the foregoing taxes which are being diligently contested in good faith by appropriate legal proceedings and with respect to which adequate reserves have been established. (e) The Borrower shall maintain or cause to be maintained liability insurance and casualty insurance upon the Collateral (excluding equipment or inventory provided to Subscribers in the ordinary course of business) and other tangible assets owned by it and its Subsidiaries. The Borrower shall name FNB-O as agent for the Lenders as the loss payee on all such casualty insurance, and as an additional insured on all such liability insurance and shall provide the Lenders with evidence of such insurance upon request. 4.10 Inspection of Properties and Books. The Borrower shall recognize and honor the right of the Lenders, upon request to an officer of the Borrower, to visit and inspect any of the properties of, to examine the books, accounts, and other records of, and to take extracts therefrom and to discuss the affairs, finances, loans and accounts of, and to be advised as to the same by the officers of, the Borrower at all such times, in such detail and through such agents and representatives as the Lenders may reasonably desire. 4.11 Guaranties. Neither the Borrower nor any Subsidiary shall guaranty or become responsible for the indebtedness of any other person or entity; provided, however, that a Subsidiary may guaranty the obligation of the Borrower; provided further, that the Borrower may guaranty the obligations of a Subsidiary so long as no Event of Default (or no event or occurrence which with the passage of time or notice, or both, would become an Event of Default) has occurred or will occur hereunder, taking into account such guaranty and indebtedness. 18 - 42 - 4.12 Collateral. Neither the Borrower nor any Subsidiary shall incur or permit to exist any mortgage, pledge, lien, security interest or other encumbrance on the Collateral, except as permitted in the Security Agreement. Subject to Section 4.4(b), the foregoing shall not be construed to prohibit the Borrower or any Subsidiary from acquiring leased equipment in the ordinary course of business. Without limiting the generality of the foregoing, the Borrower covenants and agrees that it shall on request enforce for the benefit of the Lenders, but at the sole expense of the Borrower, any and all rights and remedies (including, without limitation, rights to indemnity), that it may have with respect to the existence of any liens, security interests or other encumbrances that may exist on the property of the Borrower acquired from Broadcast Partners under the Purchase Agreement. Notwithstanding anything else to the contrary herein or in the Operative Documents, Broadcast Partners shall have no right to share in the proceeds of any such recovery which constitutes the proceeds of any indemnity claim by the Borrower under the Purchase Agreement. 4.13 Name; Location. The Borrower shall give the Lenders ninety (90) days notice prior to changing its name, identity or corporate structure, moving its principal place of business, chief executive office or place where it keeps its records concerning the Collateral. 4.14 Notice of Change in Ownership or Management. During the term of this Agreement, the Borrower shall give the Lenders notice of the occurrence of any of the following described events, which notice shall be given as soon as the Borrower obtains notice or knowledge thereof: (a) any change, directly or indirectly, in the existing controlling interest in the Borrower; or (b) any material adverse change in its management personnel. A material adverse change in the Borrower's management personnel shall be deemed to have occurred if any one (1) of the following has occurred with respect to two of the four (4) individuals who are both officers and members of the Board of Directors of the Borrower: (i) the resignation, retirement, or voluntary or involuntary termination of employment and/or status of such persons as officers and directors of the Borrower; (ii) any announcement, notice of intent, resolution or similar advance notice with respect to the matters referenced in the foregoing clause; or (iii) the death, disability or legal incompetence of such persons. 4.15 Interest Coverage. The ratio of Operating Cash Flow to interest expense (as determined in accordance with generally accepted accounting principles but excluding amortization of deferred offering costs and any fees related to the Trigger Event in Section 2.5 of this Agreement) at the end of each quarter during the term of this Agreement, as shown on the Quarterly Compliance Report, shall not be less than 2.25 to 1.0. 19 4.16 Subordinated Debt. Neither the Borrower nor any Subsidiary shall incur any subordinated debt or issue any preferred stock or warrants for preferred stock except upon the prior written consent of the Lenders. Neither the Borrower nor any Subsidiary shall make any voluntary or optional prepayment on any subordinated debt without the prior written consent of the Lenders. Similarly, the Borrower shall not amend its articles of incorporation or any other documents or agreements relating to the issuance of subordinated debt, preferred stock or warrants for preferred stock without the prior written consent of the Lenders. The indebtedness to Broadcast Partners under the Notes shall not be considered subordinated debt. 4.17 Subsidiaries. The Borrower shall give prompt written notice to the Lenders of the Borrower's intent to acquire, or the Borrower's acquisition of, any Subsidiary. Prior to the creation or acquisition of such Subsidiary, the Borrower (i) shall cause a first security interest in the assets of such Subsidiary to be perfected in favor of FNBO, as agent for the Lenders, and (ii) shall cause the Subsidiary to enter into a security agreement, to execute and file such financing statements and to provide opinions all in form satisfactory to the Lenders as to compliance with this section. 4.18 Amendments to Purchase Agreement. The Borrower shall not amend the Purchase Agreement without the prior written consent of the Lenders. V. CONDITIONS PRECEDENT 5.1 Closing Conditions. Any and all obligations of the Lenders hereunder are subject to satisfaction of the following conditions precedent: (a) FNB-O, as agent, shall have received an opinion of counsel to the Borrower covering such matters as the Lenders may request (including, without limitation, corporate existence and good standing, corporate authority, due authorization, execution and delivery of the Operative Documents, the legal, valid, binding and enforceable nature of the Operative Documents, the perfection and priority of the security interest in the Collateral granted to the Lenders, and the Borrower's compliance with applicable state and federal laws in connection with the equity offering made in connection with the Purchase Agreement), such opinion to be satisfactory in form and substance to counsel to FNB-O; (b) FNB-O, as agent, shall have received such certificates and documents as the Lenders may reasonably request from the Borrower, including articles of incorporation and bylaws, certificates regarding good standing, incumbency, copies of other corporate documents, and appropriate authorizing resolutions; and (c) the Operative Documents shall have been duly authorized and executed and shall be in full force and effect, and such UCC financing statements shall have been executed and filed in such offices as may be appropriate to perfect the security interest of FNB-O, as agent for the Lenders, in the Collateral. 20 - 43 - VI. DEFAULTS AND REMEDIES 6.1 Events of Default. Any of the following shall be deemed an event of default under this Agreement (an "Event of Default"): (a) Any payment of principal required by any of the Operative Documents shall not be paid when due. (b) Any payment of interest or other fees due hereunder or under any of the Operative Documents shall not be paid within fifteen (15) calendar days after the date on which such payment was invoiced or due. (c) Any representation or warranty of the Borrower under any of the Operative Documents, or any financial reports or statements or certificates submitted pursuant to this Agreement, shall prove to have been false in any material respect when made. (d) A failure of the Borrower or any Subsidiary to comply with any requirement or restriction applicable to such entity and contained in Sections 4.1, 4.2, 4.3, 4.4, 4.7, 4.11, 4.12, 4.13, 4.14, 4.15 or 4.16 of this Agreement. (e) A failure of the Borrower or any Subsidiary to comply with any requirement or restriction contained in any provision of the Operative Documents not otherwise specified in this Article VI, which failure remains unremedied for ten (10) days following receipt of notice from FNB-O on behalf of the Lenders. (f) The occurrence of a default or a breach of any of the obligations of the Borrower or any Subsidiary (other than obligations of such Subsidiary to the Borrower) under any note, loan agreement, preferred stock, subordinated debt instrument or agreement, or any other agreement evidencing an obligation to repay borrowed money. (g) The entry of a final judgment against the Borrower or any Subsidiary for the payment of money, which is not covered by insurance, and the expiration of thirty (30) days from the date of such entry during which the judgment is not discharged in full or stayed. (h) The occurrence of any one or more of the following: (1) The Borrower or any Subsidiary shall file a voluntary petition in bankruptcy or an order for relief shall be entered in a bankruptcy case as to such entity or shall file any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors; or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of such entity or of all or any part of its property, or of any or all of the 21 - 44 - royalties, revenues, rents, issues or profits thereof, or shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts or shall generally not pay its debts as they become due; or (2) A court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against the Borrower or any Subsidiary seeking any reorganization, dissolution or similar relief under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, and such order, judgment or decree shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive) from the first date of entry thereof; or any trustee, receiver or liquidator of the Borrower or any Subsidiary or of all or any part of its property, or of any or all of the royalties, revenues, rents, issues or profits thereof, shall be appointed without the consent or acquiescence of such entity and such appointments shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive); or (3) A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in the Collateral, or any judgment involving monetary damages shall be entered against the Borrower or any Subsidiary which shall become a lien on the Collateral or any portion thereof or interest therein and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within thirty (30) days after its entry or levy. (i) Any event of default shall occur under any Operative Document. (j) A change shall occur after November 8, 1993, directly or indirectly, in the ownership or control of the Borrower; provided, however, that changes in the ownership or control of, or new issuances of, voting common stock which do not exceed, cumulatively, 50% of the total issued and outstanding shares of the Borrower as of September 30, 1993 shall not be deemed an Event of Default under this Section 6.1(j); provided further, that acquisitions of additional shares by members of the existing executive management group of the Borrower shall not be counted as changes in the ownership or control of the Borrower under this Section 6.1(j). For purposes of computing the total issued and outstanding shares as of September 30, 1993, warrants and options for such shares shall be included. (k) An Event of Default shall occur under any Existing Term Note or the Related Loan Agreement and the expiration of any applicable cure period thereunder. (l) The Borrower shall be obligated to prepay all or any portion of its subordinated debt as a result of a Change of Control. (m) The Borrower pays, or is determined to be obligated to pay, any indemnity to Broadcast Partners under the Purchase Agreement in excess of $1,000,000 in the aggregate. 22 - 45 - 6.2 Remedies. If an Event of Default occurs and is continuing, upon the election of the Lenders holding two-thirds of the then outstanding aggregate Total Indebtedness of the Borrower to the Lenders (including under the Revolving Credit Notes, the Existing Term Notes, the Related Bank Debt, the Acquisition Notes, and any similar indebtedness), the entire unpaid principal amount under the Notes, together with interest accrued thereon, shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Lenders may exercise their rights under the other Operative Documents, the Notes, the Term Agreement, and the Related Loan Agreement (and the operative documents with respect thereto), including, without limitation, under the Security Agreement. For purposes of this Article VI, the term Lenders includes Boatmen's. In addition, the Lenders shall have such other remedies as are available at law and in equity. Remedies under this Agreement, the Operative Documents, the Notes, the Term Agreement, the Related Loan Agreements (and the operative documents with respect thereto) are cumulative. Any waiver must be in writing by the Lenders and no waiver shall constitute a waiver as to any other occurrence which constitutes an Event of Default or as to any party not specifically included in such written waiver. VII. INTER-CREDITOR AGREEMENTS 7.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans evidenced by the Notes. For purposes of this Article VII, the term Lenders includes Boatmen's and the term Event of Default means any Event of Default hereunder, under any Note, or under the Term Agreement or the Related Loan Agreement. FNB-O will enforce, administer and otherwise deal with the loans made by the Lenders in accordance with safe and prudent banking standards employed by FNB-O in the case of the loan made by FNB-O. Without limiting the generality of the foregoing, FNB-O will, on its own behalf and on behalf of the Lenders: (i) maintain originals of the Operative Documents (excluding the Notes) and the operative documents in connection with the Term Agreement and the Related Loan Agreement; (ii) receive requests for Advances from the Borrower, promptly transmit the same to the Revolving Lenders and make such Advances on behalf of the Revolving Lenders (provided that FNB-O is assured of reimbursement therefor by the other Revolving Lenders for their pro rata shares); (iii) receive payments and prepayments from the Borrower and apply such payments as provided in Section 7.2; (iv) receive notices from the Borrower and send copies thereof to the Lenders if FNB-O has reasonable cause to believe that such Lenders have not received such notice from another source; and (v) advise the Lenders of the occurrence of any material Event of Default which FNB-O obtains actual knowledge of. The Lenders agree not to attempt to take any action against the Borrower under the Operative Documents, the Notes, the Term Agreement or the Related Bank Debt or with respect to the indebtedness evidenced thereby without FNB-O's consent unless holders of two-thirds of the then outstanding aggregate Total Indebtedness of the Borrower to the Lenders (including under the Notes and any similar indebtedness) shall have requested FNB-O to take specific action against the Borrower and FNB-O shall have failed to do so within a reasonable period after 23 - 46 - receipt of such request. All actions, consents, waivers and approvals by the Lenders shall be deemed taken or given and amendments hereto deemed agreed to if the holders of more than two-thirds of the outstanding aggregate Total Indebtedness of the Borrower to the Lenders shall have indicated their consent thereto. Notwithstanding the foregoing, unanimous approval shall be required for: (i) any reduction or compromise of the principal loan amount of the Notes, the amount or rate of interest accrued or accruing thereon or the fees due hereunder; (ii) extension of the date of any scheduled payment; (iii) permitting the sale of or releasing the security interest of the Lenders in Collateral which comprises more than ten percent (10%) of net book value of fixed assets of the Borrower; and (iv) any amendment of Sections 7.1 or 7.2 hereof. A Revolving Lender's commitment hereunder may not be increased without the consent of such Revolving Lender, it being understood, however, that increases in the total revolving credit facility hereunder may be made with the consent of the holders of more than two-thirds of the outstanding aggregate total outstanding obligation of the Borrower to the Revolving Lenders, so long as such increase does not result in the increase of any non-consenting Revolving Lender's commitment hereunder. 7.2 Application of Payments. Until the earlier of the occurrence of an Event of Default or any Lender's giving of notice to the others that it deems itself insecure, payments or prepayments made by the Borrower may be applied to the indebtedness designated by the Borrower or otherwise applied as follows: (a) first, to pay interest to date on the Revolving Credit Notes and fees due to the Lenders; (b) second, to make payments due but unpaid under any of the other Notes; and (c) third, pro rata to the Lenders, such pro rata share to be determined as set forth below in subsection (bb) of this Section 7.2. After the occurrence of an Event of Default or any Lender's giving of notice that it deems itself insecure, payments or prepayments on the Notes received by FNB-O or any of the Lenders and funds realized upon the disposition of any of the Collateral shall be applied as follows: (aa) first, to reimburse FNB-O for any costs, expenses, and disbursements (including attorneys' fees) which may be incurred or made by FNB-0: (i) in connection with its servicing obligations; (ii) in the process of collecting such payments or funds; or (iii) as advances made by FNB-O to protect the Collateral (provided, however, that FNB-O shall have no obligation to make such protective advances); and (bb) second, pari passu among the Lenders, based on their respective pro rata shares of the funds to be applied. Each Lender's pro rata share shall be equal to a fraction, (x) the numerator of which shall be total principal loan amount then outstanding which is owing to each such Lender under its Notes, and (y) the denominator of which shall be the total principal loan amount then outstanding which is owing to the Lenders under all Notes. 24 - 47 - Prepayments made pursuant to Section 2.6A of the Term Agreement and payments under the Purchase Agreement shall not be subject to this Section 7.2, it being understood, however, that prepayments under Section 2.6A of the Term Agreement shall not be permitted after the occurrence of an Event of Default without the prior written consent of the Lenders. Except as specifically provided in this Section 7.2, FNB-O shall have no obligation to repay or prepay any amount due from the Borrower to any of the other Lenders nor shall FNB-O have any obligation to purchase all or a part of any Note hereunder or any Advance made by any Lenders, nor shall the Lenders have any recourse whatsoever against FNB-O with respect to any failure of the Borrower to repay the indebtedness referenced herein. 7.3 Liability of FNB-O. FNB-O shall not be liable to the Lenders for any error of judgment or for any action taken or omitted to be taken by it hereunder, except for gross negligence or willful misconduct. Without limiting the generality of the foregoing, FNB-O, except as expressly set forth herein, (a) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no representation or warranty with respect to, and shall not be responsible for, the accuracy, completeness, execution, legality, validity, legal effect or enforceability of this 1996 Revolving Credit Agreement, the Notes, or the other Operative Documents or the operative documents under the Term Agreement or the Related Bank Debt, or the value or sufficiency of any Collateral given by the Borrower or the priority of the Lenders' security interest therein or the financial condition of the Borrower; and (c) shall not be responsible for the performance or observance of any of the terms, covenants or conditions of the Operative Documents, the Existing Term Notes, or the operative documents under any Related Bank Debt on the part of the Borrower and shall not have any duty to inspect the property (including, without limitation, the books and records) of the Borrower. 7.4 Transfers. No Lender shall subdivide, transfer or grant a participation in its respective Notes or in any Advance hereunder without the prior written consent of FNB-O which consent shall not be unreasonably withheld. 7.5 Reliance. The Lenders acknowledge that they have been advised that none of the Notes nor any interest therein or related thereto has been (i) registered under the Securities Act of 1933, as amended, nor (ii) insured by the Federal Deposit Insurance Corporation. The Lenders acknowledge that they have received from the Borrower all financial information and other data relevant to their decision to extend credit to the Borrower and that they have independently approved the credit quality of the Borrower. 7.6 Relationship of Lenders. The Lenders intend for the relationships created by this Agreement to be construed as concurrent direct loans from each Lender respectively to the Borrower. Nothing herein shall be construed as a loan from any Lender to FNB-O or as creating a partnership or joint venture relationship among them. 25 - 48 - 7.7 New Lenders. In the event that new Lenders are added to this Agreement, the Term Agreement or the Related Loan Agreement, such Lenders shall be required to agree to the inter-creditor provisions of this Article VII. VIII. MISCELLANEOUS 8.1 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and may not be effectively amended, changed, modified or altered, except in writing executed by all parties. 8.2 Governing Law. The Operative Documents shall be governed by and construed pursuant to the laws of the State of Nebraska. 8.3 Notices. Until changed by written notice from one party hereto to the other, all communications under the Operative Documents shall be in writing and shall be hand delivered or mailed by registered mail to the parties as follows: If to the Borrower: DATA TRANSMISSION NETWORK CORPORATION Suite 200 9110 West Dodge Road Omaha, Nebraska 68114 Attention: Chief Financial Officer If to the Lenders: FIRST NATIONAL BANK OF OMAHA One First National Center Omaha, Nebraska 68102 Attention: Mr. James P. Bonham Notices shall be deemed given when mailed, except that any notice by the Borrower under Sections 2.4 and 2.5 shall not be deemed given until received by FNB-O. 8.4 Headings. The captions and headings herein are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement. 8.5 Counterparts. This Agreement may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. 8.6 Survival; Successors and Assigns. The covenants, agreements, representations and warranties made herein, and in the certificates delivered pursuant hereto, shall survive the execution and delivery to the Lenders of this Agreement and shall continue in full force and effect so long as any Note or 26 - 49 - any obligation to the Lenders under any of the Operative Documents is outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Borrower which are contained in this Agreement shall bind the successors and assigns of the Borrower and shall inure to the benefit of the successors and assigns of the Lenders. 8.7 Severability. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 8.8 Assignment. The Borrower may not assign its rights or obligations hereunder and any assignment in contravention of the terms hereof shall be void. 8.9 Amendments. Any amendment, modification or supplement to this Agreement must be in writing and must be signed by the requisite parties hereto. 8.10 Consent to Amendments of Existing Documents. The parties hereto expressly consent and agree to the First Amendment to the 1996 Restated Security Agreement, dated as of June 28, 1996, between the Borrower and FNB-O as agent for the Lenders. IN WITNESS WHEREOF, the Borrower, Boatmen's and the Revolving Lenders have caused this 1996 Revolving Credit Agreement to be executed by their duly authorized corporate officers as of the day and year first above written. 27 - 50 - DATA TRANSMISSION NETWORK CORPORATION By /s/ Brian Larson ------------------------ Title: CFO, Secretary,Treasurer ------------------------ 28 - 51 - FIRST NATIONAL BANK OF OMAHA By /s/ James P. Bonham ------------------------ Title: Vice President ------------------------ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 29 - 52 - THE SUMITOMO BANK, LIMITED By /s/ Jayleen R.P. Hague ------------------------ Title: Vice President ------------------------ By /s/ Teresa A. Lekich ------------------------ Title: Vice President ------------------------ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 30 - 53 - FIRST NATIONAL BANK, WAHOO,NEBRASKA By /s/ Elizabeth E. Rezac ------------------------ Title: 2nd 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 31 - 54 - NBD BANK By /s/ D.J. Pienta ------------------------ Title: 2nd 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 32 - 55 - NORWEST BANK NEBRASKA, N.A. By Leslie J. 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 33 - 56 - FARM CREDIT SERVICES OF THE MIDLANDS, PCA By /s/ ------------------------ Title: Division President-Credit & Chief Credit 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 34 - 57 - MERCANTILE BANK OF ST. LOUIS, N.A. By /s/ Joseph L. Scooter ------------------------ 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 35 - 58 - FIRST BANK, NATIONAL ASSOCIATION By /s/ Joe Crimmins ------------------------ Title: Senior Vice President ------------------------ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 36 - 59 - THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By /s/ Robert D. Homes, 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 37 - 60 - EXHIBIT A TO 1996 REVOLVING CREDIT AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AND DATA TRANSMISSION NETWORK CORPORATION FORM OF NOTES 1 - 61 - SECURED BUSINESS PROMISSORY NOTE Omaha, Nebraska $ , 19 - ---------------------- (Note Date) (Maturity Date) REVOLVING NOTE TERMS On or before June 28, 1997, DATA TRANSMISSION NETWORK CORPORATION ("Maker") promises to pay to the order of [REVOLVING LENDER] ("Lender") the principal sum hereof, which shall be the lesser of Dollars, or so much thereof as may have been advanced by Lender, either directly under this Note or as an advance pursuant to the 1996 Revolving Credit Agreement dated as of June 28, 1996, as amended from time to time (the "Agreement") among Maker and Lender, First National Bank of Omaha, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., Farm Credit Services of the Midlands, PCA, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A. and First Bank, National Association (collectively, the "Lenders"). All capitalized terms not defined herein shall have their respective meanings as set forth in the Agreement. Interest shall accrue on the principal sum hereof from and including the Note Date above to the earlier of the Maturity Date or the date of Conversion (as such term is defined hereafter) at a variable rate, which shall fluctuate on a monthly basis, equal to the rate announced from time to time by FNB-O as its "National Base Rate" minus .75% (the "Base Rate") plus a margin as determined below. The margin shall be adjusted quarterly after receipt of Maker's Quarterly Compliance Certificate (as defined in the Agreement). Adjustments shall be retroactive to the beginning of the current quarter. (a) If the Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was less than 250% of Net Worth, the margin for the current quarter (meaning the quarter in which the certificate is required to be delivered) shall be zero. (b) 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 .25%. (c) 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 but less than 350% of Net Worth, the margin for the current quarter shall be .75%. The Base Rate plus the applicable margin as determined above is hereinafter referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be effective on the first day of each month, based on the Base Rate in effect on such day. Interest shall be due upon the rendering of each monthly invoice therefore by FNB-O. 2 - 62 - TERM NOTE TERMS Upon the earlier of: (i) June 28, 1997; or (ii) Maker's giving notice of its election to convert the revolving credit loan evidenced by this Note, or any portion thereof, to a term loan, the revolving loan referenced above (or applicable portion thereof) shall be deemed converted to a term loan (the "Conversion"). At the option of the parties, any such term loan may be evidenced by a separate note. Upon Conversion, the availability of principal under the revolving loan shall decrease by the amount of the Converted Debt and the then outstanding principal hereunder shall become due and payable in forty-eight equal installments of principal, with the first such installment due on the last day of the month following Conversion, or, if such day is not a Business Day, on the next succeeding Business Day, subsequent installments due on the last day of each consecutive month thereafter. In any event, the total amount of all unpaid principal and accrued interest hereunder shall be due and payable no later than June 28, 2001. After Conversion, interest shall accrue on the principal outstanding from time to time at a variable rate, which shall fluctuate on a monthly basis, which is equal to the Revolving Credit Rate plus .25%. For purposes of computing such variable rate, changes in the Base Rate shall be effective on the first day of each month based on the Base Rate in effect on such day. Notwithstanding anything in the foregoing to the contrary, after Conversion, Maker may elect one of the following alternatives in order to have a fixed interest rate apply to the principal converted and outstanding hereunder 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, Maker may elect a fixed rate equal to the greater of (i)the Revolving Credit Rate in effect on the date of the notice, plus .75%, or (ii) 2.00% 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"); (b) if the Fixed Rate Notice is given after twelve months but within twenty-four months of Conversion, Maker may elect a fixed rate equal to the greater of (i) the Revolving Credit Rate in effect on the date of the notice, plus .75%, or (ii) 2.00% above the yield on constant maturity Treasury Bonds with a maturity of three years as quoted in the immediately preceding monthly Release; 3 - 63 - (c) if the Fixed Rate Notice is given after twenty-four months of Conversion but within thirty-six months of Conversion, Maker may elect a fixed rate equal to the greater of (i) the Revolving Credit Rate in effect on the date of the notice, plus .50%, or (ii) 2.00% above the yield on constant maturity Treasury Bonds with a maturity of two years, as quoted in the immediately preceding monthly 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, Maker may elect a fixed rate equal to the Revolving Credit Rate in effect on the date of the notice, plus .50%. Any election of a fixed rate by Maker shall be final and irrevocable. Interest shall be due each month concurrently with the Maker's principal payment. Notwithstanding anything to the contrary elsewhere herein, after an Event of Default has occurred interest shall accrue on the entire outstanding balance of principal and interest at a fluctuating rate equal to the Default Rate. Interest shall be calculated on the basis of the actual number of days outstanding and a 360-day year. Interest shall continue to accrue on the full unpaid balance hereunder notwithstanding any permitted or unpermitted failure of Maker to make a scheduled payment or the fact that a scheduled payment day falls on a day other than a Business Day. If Maker's most recent Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was in excess of 300% 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 (as defined in the Agreement) or Converted Note is less than 7.50% per annum, a "Trigger Event" shall be deemed to have occurred. Upon the occurrence of a Trigger Event, Maker shall be obligated to pay the following fees: (i) .375% of the outstanding principal balance as of the date preceding the Trigger Event of each Existing Term Note or Converted Note which accrues interest at less than seven and one-half percent (7.50%) per annum which amount shall be payable promptly upon invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable on the six-month anniversary of the Trigger Event; and (iii) the same amount as computed in clause (i), payable on the twelve-month anniversary of the Trigger Event. Maker may at any time prepay in whole or in part any principal amount outstanding under the Revolving Credit Note or the Converted Note if the Maker has given the Lenders at least two (2) business days prior written notice of its intention to make such prepayment. Any such prepayment may be made without penalty except for a Converted Note as to which interest is accrued at a fixed rate in accordance with clause (a), (b) or (c), in which event a prepayment penalty shall be due to the Lender, at Lender's option, either: (1) the Make-Whole Premium due in respect of such prepayment; or (2) the applicable prepayment fee as set forth below. The applicable prepayment fee for any Converted Note shall be: (i) if interest is accruing at the rate set forth in 4 - 64 - clause (a) above, the fee shall be 1.50% of the amount of such prepayment; (ii) if interest is accruing at the rate set forth in clause (b) above, the fee shall be .75% of the amount of such prepayment; and (iii) if interest is accruing at the rate set forth in clause (c), the fee shall be .30% of the amount of such prepayment. GENERAL TERMS Payment of this Note and the performance of Maker's obligations under the Agreement ("Obligations") are secured by a security interest granted to First National Bank of Omaha, as agent for the Lenders and others ("Agent"), under a 1996 Restated Security Agreement dated as of May 3, 1996, as amended by the First Amendment to the 1996 Restated Security Agreement dated as of June 28, 1996 (the "Restated Security Agreement") in: All of Maker's accounts, accounts receivable, chattel paper, documents, instruments, goods, inventory, equipment, general intangibles, contract rights, all rights of Maker in deposits and advance payments made to Maker by its customers and Subscribers, accounts due from advertisers and all ownership, proprietary, copyright, trade secret and other intellectual property rights in and to computer software (and specifically including, without limitation, all such rights in DTN transmission computer software used in the provision of the Basic DTN Subscription Service and Farm Dayta Service to Maker's Subscribers) and all documentation, source code, information and works of authorship pertaining thereto, all now owned or hereafter acquired and all proceeds and products thereof; and such additional collateral as is more specifically described in the Restated Security Agreement. Maker's liability under its Obligations shall not be affected by any of the following: Acceptance or retention by Lender or Agent of other property or interests as security for the Obligations, or for the liability of any person other than a Maker with respect to the Obligations; The release of all or any of the Collateral or other security for any of the Obligations to any Maker; Any release, extension, renewal, modification or compromise of any of the Obligations or the liability of any obligor thereon; or Failure by Lender or Agent to resort to other security or any person liable for any of the Obligations before resorting to the Collateral. 5 - 65 - Neither Lender nor Agent is required to take any action whatsoever in respect of the Collateral. Impairment or destruction of the Collateral shall not release Maker of its liability hereunder. Maker represents, warrants and covenants as follows: Maker is authorized to grant to Agent a security interest in the Collateral; This Note, the Agreement and the Restated Security Agreement have been duly authorized, executed and delivered by the Maker and constitute legal, valid and binding obligations of Maker; This Note evidences a loan for business or agricultural purposes; and Maker agrees to pay all costs of collection in connection with this Note, the Agreement and the Restated Security Agreement, including reasonable attorneys' fees and legal expenses. Upon the failure of Maker to make any payment of principal or interest when due hereunder or the occurrence of any Event of Default, all of the Obligations shall, at the option of Agent and without notice or demand, mature and become immediately due and payable; and Agent shall have all rights and remedies for default provided by the Uniform Commercial Code, any other applicable law and/or the Obligations. All costs and expenses incurred by Lender or Agent in enforcing its rights under this Note or any mortgage, endorsement, surety agreement, guaranty relating thereto are the obligation of Maker and are immediately due and payable. Interest shall accrue on such costs and expenses from the date of incurrence at the rate specified herein for delinquent Note payments. Each Maker, endorser, surety and guarantor hereby waives presentment, protest, demand, notice of dishonor, and the defense of any statute of limitations. Without affecting the liability of any Maker, endorser, surety or guarantor, the holder or Agent may, without notice, renew or extend the time for payment, accept partial payments, release or impair any Collateral or other security for the payment of this Note or agree to sue any party liable on it. Neither Lender nor Agent shall be deemed to have waived any of its rights upon or under this Note, or under any mortgage, endorsement, surety agreement or guaranty, unless such waivers be in writing and signed by Lender or Agent, as the case may be. No delay or omission on the part of Lender or Agent in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of Lender or Agent on liabilities or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly or concurrently. 6 - 66 - Maker, if more than one, shall be jointly and severally liable hereunder and all provisions hereof regarding the liabilities or security of Maker shall apply to any liability or any security of any or all of them. This Note shall be binding upon the heirs, executors, administrators, assigns or successors of Maker; shall constitute a continuing agreement, applying to all future as well as existing transactions, whether or not of the character contemplated at the date of this Note, and if all transactions between Lender and Maker shall be at any time closed, shall be equally applicable to any new transactions thereafter, provided that Lender's interest in the Collateral shall be limited to the extent provided in the Restated Security Agreement; shall benefit Lender, its successors and assigns; and shall so continue in force notwithstanding any change in any partnership party hereto, whether such change occurs through death, retirement or otherwise. All obligations of Maker hereunder shall be payable in immediately available funds in lawful money of the United States of America at the principal office of First National Bank of Omaha in Omaha, Nebraska or at such other address as may be designated by Bank in writing. This Note shall be construed according to the laws of the State of Nebraska. Unless the content otherwise requires, all terms used herein which are defined in the Uniform Commercial Code shall have the meanings therein stated. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. This Note is given in substitution of that certain Secured Business Promissory Note dated , 1995 in the original principal amount of $ . This Note shall not affect, and there remains outstanding from the Maker to the Lender the Related Bank Debt (as such term is defined in the Agreement) and those certain Secured Business Promissory Notes dated as of July 7, 1992, October 1, 1992, October 12, 1992, October 19, 1992, November 3, 1992, January 4, 1993, February 9, 1993, April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994 and February 27, 1995, and all extensions, renewals, and substitutions of or for the foregoing. Executed as of this day of , l9 . DATA TRANSMISSION NETWORK CORPORATION By: Title: 4508J/44-50 7 - 67 - PROMISSORY NOTE SCHEDULE Loan Advances and Payments of Principal DATA TRANSMISSION NETWORK CORPORATION REVOLVING NOTE ADVANCES AND PAYMENTS: Amount of Unpaid Amount Principal Paid Amount of Principal Notation Date of Advance or Prepaid Interest Paid Balance Made By 8 - 68 - TERM NOTE: Date of Conversion: Amount Due at Date of Conversion: Fixed Rate Notice Date: Fixed Rate: % Amount of Unpaid Amount Principal Paid Amount of Principal Notation Date of Advance or Prepaid Interest Paid Balance Made By 9 - 69 - EXHIBIT B TO 1996 REVOLVING CREDIT AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AND DATA TRANSMISSION NETWORK CORPORATION DRAWING CERTIFICATE 1 - 70 - DRAWING CERTIFICATE DATA TRANSMISSION NETWORK CORPORATION To induce the First National Bank of Omaha, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., Farm Credit Services of the Midlands, PCA, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A. and First Bank, National Association (the "Revolving Lenders") to make an advance under the 1996 Revolving Credit Agreement (the "Agreement") dated as of June 28, 1996, between the undersigned (the "Borrower"), The Boatmen's National Bank of St. Louis ("Boatmen's"), and the Revolving Lenders (as to Boatmen's and the Revolving Lenders together, (the "Banks"), the Borrower hereby certifies to the Banks that its Operating Cash Flow (as defined in the Agreement) as represented below is true and correct and that there is no default under the aforementioned Agreement, or on any other liability of the Borrower to the Banks. All information as of: Date ------------------------------ a) Principal on Converted Notes, Acquisition Notes, Existing Term Notes, and Related Bank Debt 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: --------------------------------------- 2 - 71 - EXHIBIT C TO 1996 REVOLVING CREDIT AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AND DATA TRANSMISSION NETWORK CORPORATION OFFICER'S CERTIFICATE 1 - 72 - COMPLIANCE CERTIFICATE DATA TRANSMISSION NETWORK CORPORATION First National Bank of Omaha Date Attn: James Bonham 16th & Dodge Streets Omaha, Nebraska 68102 I certify that Data Transmission Network Corporation is in compliance with the requirements set forth in the 1996 Revolving Credit Agreement (the "Agreement") dated as of June 28, 1996, between First National Bank of Omaha, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., Farm Credit Services of the Midlands, PCA in care of AgAmerica, FCB, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A., First Bank, National Association, The Boatmen's National Bank of St. Louis and Data Transmission Network Corporation. The following calculations are as of (statement date) as required by Section 4.1(d) of said Agreement: Evaluations: Total Indebtedness/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 Amortization Deferred Income Taxes Non-Ordinary Non-Cash Charges (Credits) Total a) b) Operating Cash Flow = OCF = (a+b)/2 = Section 2.3 o Pricing: If TI/NW is less than 250% then the margin is zero. 2 - 73 - If TI/NW is equal or greater than 250% but less than 300% then the margin is 1/4%. If TI/NW is equal or greater than 300% but less than 350% then the margin is 3/4%. Position: The Revolving Credit Rate is the Base Rate plus zero or 1/4% or 3/4%. Section 2.5 o Trigger Fee: If TI/NW exceeds 300%, then a one time fee, paid in three installments of 3/8% of the then outstanding principal balances, on any of the Existing Term Notes, Acquisition Notes or Converted Notes which have an interest rate less than 7.5% per annum is due. Position: A Trigger Event has/has not occurred. Section 4.3 o Net Worth: A minimum Net Worth (exclusive of subordinated debt) of $23,500,000 is required. Position: Net Worth (exclusive of subordinated debt)= $ ----------- Section 4.4 o Indebtedness: At no time will Total Indebtedness exceed 48 x OCF. Position: (48 x OCF) - Total Indebtedness = - = ---------- ------------------- ----------- o Indebtedness: At no time will TI/NW exceed 350%. Position: TI/NW = % ----- 3 - 74 - o 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 o Interest The ratio of OCF to Interest Expense ("IE") at Coverage: the end of each quarter will not be less than 2.25 to 1.0 (225%). 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 or a material adverse change in management personnel as defined in Section 4.14 of the Agreement; or (ii) a default under Section 6.1(j) or 6.1(l) regarding a change in ownership or control of the Company. (iii) an indemnity claim by Broadcast Partners under Section 6.1(m). Name of Borrower: Data Transmission Network Corporation Signature: ______________________________________ Title: ______________________________________ 4 - 75 - EX-10 7 1ST AMEND TO 1996 REVOLVING CREDIT AGREE FIRST AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT THIS FIRST AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT (the "First Amendment"), dated as of July 31, 1996, is intended to amend the terms of the 1996 Revolving Credit Agreement (the "Agreement") dated as of May 3, 1996, among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, and BOATMEN'S NATIONAL BANK OF ST. LOUIS. The parties to this First Amendment shall include the original parties to the Agreement and BANK OF MONTREAL, a Canadian bank represented by its office at 430 Park Avenue, New York, New York, 10022 ("Montreal"). 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 their respective meanings set forth in the Agreement. The Agreement shall be amended as set forth below. Section 1. "Article I: Definitions" of the Agreement shall be amended by adding the following definition: Montreal: Bank of Montreal/Harris Bank, a Canadian bank being represented by its office at 430 Park Avenue, New York, New York, 10022. The following definitions shall be amended to read as follows: Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo, Mercantile, First Bank, and Montreal, in their capacity as Revolving Lenders under this Agreement, the Term Lenders, lenders of the Related Bank Debt, Boatmen's (as to Articles VI and VII and as to Section 8.6 only), and such additional lenders as may be added hereto or thereto from time to time. Revolving Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo, Mercantile, First Bank, and Montreal and such additional Revolving Lenders as may be added as Revolving Lenders under Section 2.1 hereto from time to time by mutual written agreement of the parties. Section 2. Section 2.1 of the Agreement shall be amended to read as follows: 2.1 Revolving Credit. Until the earlier of June 21, 1997, or the date on which the loan hereunder is converted to a term loan in accordance with Section 2.4, the Revolving Lenders severally agree to advance funds for general corporate purposes not to exceed 1 - 76 - $49,500,000 to the Borrower on a revolving credit basis (amounts outstanding under the Acquisition Notes, Existing Term Notes and Related Bank Debt shall not be counted against such $49,500,000 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: (i) as to FNB-O, $9,966,000; (ii) as to FNB-W, $226,500; (iii) as to NBD, $5,753,100; (iv) as to Norwest, $3,533,400; (v) as to Farm Credit, $9,603,600; (vi) as to Sumitomo, $4,829,900; (vii) as to Mercantile, $4,983,000, (viii) as to First Bank, $5,000,000, and (ix) as to Montreal, $5,604,500. The Borrower shall not be entitled to any Advance hereunder if, after making of such Advance, the Total Indebtedness would exceed thirty-six (36) times the Borrower's Operating Cash Flow, determined at the time of the Advance. Nor shall the Borrower be entitled to any further Advances hereunder after the occurrence of a material adverse change in its management personnel, as described in Section 4.14(b), or after the occurrence of any Event of Default with respect to the Borrower. Advances shall be made, on the terms and conditions of this Agreement, upon the Borrower's request. Requests shall be made by 12:00 noon Omaha time on the Business Day prior to the requested date of the Advance. Requests shall be made by presentation to FNB-O of a drawing certificate in the form of Exhibit B. The Borrower's obligation to make payments of principal and interest on the foregoing revolving credit indebtedness shall be further evidenced by the Revolving Credit Notes. Section 4. The Borrower hereby restates for the benefit of the Lenders the representations and warranties contained in Article III of the Agreement and affirms that such representations and warranties are true and correct as of the date of this First Amendment. Section 5. The Lenders hereby acknowledge the Second Amendment to the 1996 Term Credit Agreement dated as of July 31, 1996 among the parties herein (not including Boatmen's) and Broadcast Partners, and hereby consent to the increase of $300,000 in the total term credit facility to $48,490,000. Section 6. This First Amendment may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. Section 7. This First Amendment shall be effective upon the execution and delivery thereof by the parties hereto. References in the Notes to the Loan Agreement shall be deemed amended to refer to the Loan Agreement as amended by this First Amendment. IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT dated as of July 31, 1996. 2 - 77 - DATA TRANSMISSION NETWORK CORPORATION By /s/ Brian Larson ------------------------ Title: CFO, Secretary,Treasurer ------------------------ 3 - 78 - FIRST NATIONAL BANK OF OMAHA By James P. Bonham ------------------------ Title: Vice President ------------------------ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 4 - 79 - THE SUMITOMO BANK, LIMITED By /s/ Jayleen R.P. Hague ------------------------ Title: Vice President ------------------------ By /s/ Teresa A. Lekich ------------------------ Title: Vice President ------------------------ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 5 - 80 - FIRST NATIONAL BANK, WAHOO, NEBRASKA By /s/ Elizabeth E. Rezac ------------------------ Title: 2nd 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 6 - 81 - NBD BANK By /s/ D.J. Pienta ------------------------ 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 7 - 82 - NORWEST BANK NEBRASKA, N.A. By /s/ Leslie J. 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 8 - 83 - FARM CREDIT SERVICES OF THE MIDLANDS, PCA By /s/ Joseph K. Herman ------------------------ 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 9 - 84 - MERCANTILE BANK OF ST. LOUIS, N.A. By /s/ Joseph L. Scooter ------------------------ 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 10 - 85 - FIRST BANK, NATIONAL ASSOCIATION By /s/ J.M. Crimmins ------------------------ Title: Senior Vice President ------------------------ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 11 - 86 - BOATMEN'S NATIONAL BANK OF ST. LOUIS By /s/ Robert S. Holmes, 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 12 - 87 - BANK OF MONTREAL By /s/ Rene Encarnacion ------------------------ Title: Director ------------------------ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 13 - 88 - EX-10 8 2ND AMEND TO REVOLVING CREDIT AGREEMENT SECOND AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT THIS SECOND AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT (the "Second Amendment"), dated as of December 27, 1996, is intended to amend the terms of the 1996 Revolving Credit Agreement (the "Agreement") dated as of June 28, 1996, among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., AGAMERICA, FCB (assignee of FARM CREDIT SERVICES OF THE MIDLANDS, PCA), THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, as amended by the First Amendment to 1996 Revolving Credit Agreement (the "First Amendment") dated as of July 31, 1996. The parties to this Second Amendment shall include the original parties to the Agreement, BANK OF MONTREAL, a Canadian bank represented by its office at 430 Park Avenue, New York, New York, 10022 ("Montreal"), and LASALLE NATIONAL BANK, a national banking association being represented by its office at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102. 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 their respective meanings set forth in the Agreement. The Agreement shall be amended as set forth below. Section 1. The following definitions of "Article I: Definitions" of the Agreement shall be amended to read as follows: Farm Credit: AgAmerica, FCB, a farm credit bank doingb business at 206 South 19th Street, Omaha, Nebraska 68102-1745, as assignee of Farm Credit Services of the Midlands, P.C.A. Notes: (i) The Revolving Credit Notes, the Convert- ed Notes and Existing Term Notes, the Acquisition Notes, and such additional similar notes as may be issued to certain additional Lenders, and all extensions, renewals, and substitutions of or for the foregoing; and (ii) notes and, in the case of interest rate protection contracts, such contracts evidencing the obligations of the Borrower to any Lender under the Related Bank Debt. Related Bank Debt: The aggregate unpaid balance of all indebt- edness, now or hereafter existing (including future advances) under (i) the Related Loan Agreement, including, without limitation, the amounts outstanding under those certain promissory notes from the Borrower to FNB-O, FirsTier and FNB-W dated as of October 13, 1992, and December 7, 1992, and all extensions, renewals, and substitutions of or for the foregoing; and (ii) certain interest rate protection contracts entered into from time to time by the Borrower with one or more of the Lenders. 1 - 89 - Total Indebtedness: All loans and other obligations of the Borrower and its Subsidiaries, without duplication, for borrowed money (including, without limitation, the indebtedness due to the Lenders) regardless of the maturity thereof but such term shall not include subordinated debt of the Borrower, as such term is defined in the definition of Net Worth up to $15,000,000 if such subordinated debt is existing on May 3, 1996. For purposes of this definition of "Total Indebtedness, "indebtedness under an interest rate protection agreement shall mean the amount if any, at the time of determination, of the unpaid Interest Rate Protection Contract Amounts; provided, however, that solely for purposes of voting under this Agreement by the Lenders, "Total Indebtedness" will not include such Interest Rate Protection Contract Amounts. Section 2. The following definitions shall be added to Article I of the Agreement: Interest Rate Protection Contract Amounts: "Interest Rate Protection Contract Amounts" shall mean amounts due from the Borrower under interest rate protection contracts between the Borrower and one or more Lenders as to (i) the interest differential amounts due in respect of periodic netting payments under any such contract, and (ii) any amount due as a result of marking to market the Borrower's obligations under any such contract upon the occurrence of an event of default under, or other early termination of, such contract; in either case without inclusion of fees and other expenses related to such contract. Such Interest Rate Protection Contract Amounts shall be reported in writing to FNB-O and the Borrower by the applicable Lender at such times as shall be appropriate to carry out the intent of this Agreement. LaSalle: LaSalle National Bank, a national banking association having its principal place of business at 135 South LaSalle Street, Chicago, Illinois 60603. Section 3. On the date of this Second Amendment, the Borrower shall prepay in full the principal amount of, and accrued interest through such date on, the Revolving Credit Note in the principal amount of $9,603,600 payable to Farm Credit, which Revolving Credit Note has been assigned to AgAmerica. Simultaneously, upon (a) receipt by the Borrower of the $9,603,600 Revolving Credit Note payable to Farm Credit, marked "canceled and paid in full" by AgAmerica, and (b) the 2 - 90 - payment of $7,469,462 in immediately available funds from LaSalle to FNB-O for the account of the Borrower, the Borrower shall issue to LaSalle a Revolving Credit Note in the principal amount of $9,603,600, such Revolving Credit Note to be substantially in the form attached to this Second Amendment as Attachment A. Thereafter, (i) LaSalle shall be deemed to be a "Lender" and a "Revolving Lender" under the Agreement and AgAmerica shall cease to be a "Lender" and a "Revolving Lender" thereunder; and (ii) the reference to Farm Credit in clause (v) of Section 2.1 of the Agreement shall be deemed to be a reference to LaSalle. Section 4. Section 2.6 of the Agreement shall be amended to read as follows: 2.6 Payments. All obligations of the Borrower under the Related Bank Debt (other than obligations under any interest rate protection contract), Revolving Credit Notes and Converted Notes and under the other Operative Documents shall be payable in immediately available funds in lawful money of the United States of America at the principal office of FNB-O in Omaha, Nebraska or at such other address as may be designated by FNB-O in writing. In the event that a payment day is not a Business Day, the payment shall be due on the next succeeding Business Day. Section 5. (a) The first sentence of Section 7.1 of the Agreement shall be amended to read as follows: FNB-O will act as sole servicer of the loans evidenced by the Notes (other than in connection with interest rate protection contracts). (b) The penultimate sentence of Section 7.1 shall be amended to read as follows: Notwithstanding the foregoing, unanimous approval of the applicable Lenders under the respective Notes shall be required for: (i) any reduction or compromise of the principal loan amount of such Notes, the amount or rate of interest accrued or accruing thereon or the fees due hereunder; and (ii) extension of the date of any scheduled payment; and unanimous consent of all the Lenders shall be required for (iii) permitting the sale of or releasing the security interest of the Lenders in Collateral which comprises more than ten percent (10%) of net book value of fixed assets of the Borrower; and (iv) any amendment of Sections 7.1 or 7.2 hereof. Section 6. Subsection 7.2(bb) of the Agreement shall be amended to read as follows: (bb) second, pari passu among the Lenders, based on their respective pro rata shares of the funds to be applied. Each Lender's pro rata share shall be equal to a fraction, (x) the numerator of which shall be the total 3 - 91 - principal loan amount then outstanding which is owing to each such Lender under its Notes, and (y) the denominator of which shall be the total principal loan amount then outstanding which is owing to the Lenders under all Notes. As to any Note which represents an obligation of the Borrower to one or more Lenders under an interest rate protection contract, "principal loan amount then outstanding" shall mean, as of the date of determination by FNB-O of the Lenders' respective pro rata shares, the amount, if any, of the unpaid Interest Rate Protection Contract Amounts. Section 7. The following sentence shall be added to the end of Section 7.4 of the Agreement: For purposes of this Section 7.4, "Notes" shall not include interest rate protection contracts. Section 8. The Borrower hereby restates for the benefit of the Lenders the representations and warranties contained in Article III of the Agreement and affirms that such representations and warranties are true and correct as of the date of this Second Amendment. Notwithstanding the foregoing, representations of the Borrower as to UCC filings in respect of the Collateral are hereby amended to reflect such additional filings as shall have been made in favor of the Lenders. Section 9. The Lenders hereby acknowledge and consent to the Third Amendment to the 1996 Term Credit Agreement dated as of the date hereof among the parties herein (not including Boatmen's). Section 10. This Second Amendment may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. Section 11. This Second Amendment shall be effective upon the execution and delivery thereof by the parties hereto. References in the Notes to the Loan Agreement shall be deemed amended to refer to the Loan Agreement as amended by the First Amendment and this Second Amendment. 4 - 92 - IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT dated as of December 27, 1996. DATA TRANSMISSION NETWORK CORPORATION By /s/ Brian Larson ------------------------ Title: Vice President, CFO, Secretary and Treasurer 5 - 93 - FIRST NATIONAL BANK OF OMAHA By /s/ JP Bonham ------------------------ Title: Vice President NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: /s/ BL ------------------------ Borrower 6 - 94 - THE SUMITOMO BANK, LIMITED By /s/ Teresa A. Lekich ------------------------ Title: Vice President By /s/ H.W. Redding ------------------------ Title: Vice President & Manager 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 7 - 95 - FIRST NATIONAL BANK, WAHOO, NEBRASKA By Elizabet Rezac ------------------------ Title: 2nd 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 8 - 96 - NBD BANK By /s/ D.J. Pienta ------------------------ Title: Vice President NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 9 - 97 - NORWEST BANK NEBRASKA, N.A. By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 10 - 98 - AGAMERICA, FCB (assignee of FARM CREDIT SERVICES OF THE MIDLANDS, PCA) By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 11 - 99 - MERCANTILE BANK OF ST. LOUIS, N.A. By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 12 - 100 - FIRST BANK, NATIONAL ASSOCIATION By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 13 - 101 - BOATMEN'S NATIONAL BANK OF ST. LOUIS By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 14 - 102 - BANK OF MONTREAL By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 3796v2 15 - 103 - LASALLE NATIONAL BANK By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 3796 16 - 104 - EX-10 9 1996 TERM CREDIT AGREEMENT 1996 TERM CREDIT AGREEMENT This 1996 Term Credit Agreement (the "Agreement") is entered into as of the 3rd day of May, 1996, among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the "Borrower"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 ("FNB-O"), FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FARM CREDIT SERVICES OF THE MIDLANDS, PCA, a production credit association ("Farm Credit") in care of AGAMERICA, FCB, a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska 68102-1745 ("AgAmerica") and BROADCAST PARTNERS, a general partnership having its principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 50322 ("Broadcast Partners"). WITNESSETH: WHEREAS, the Borrower desires to obtain a term credit facility for the purpose of acquiring substantially all of the assets of Broadcast Partners; and WHEREAS, the parties do not intend for this 1996 Term Credit Agreement to be deemed to extinguish any existing indebtedness of the Borrower or to release, terminate or affect the priority of any security therefor; NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows: 1 - 105 - I. DEFINITIONS For purposes of this Agreement, the following definitions shall apply: 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 1996 Term Credit Agreement Agreement dated as of May 3, 1996, between the Borrower and the Lenders. Banks: FNB-O, FNB-W, NBD Norwest, Farm Credit, AgAmerica and such additional banks as may be added hereto from time to time by mutual written agreement of the parties. Boatmen's: The Boatmen's National Bank of St. Louis, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63166- 0236, and its successors and assigns. Borrower: Data Transmission Network Corporation, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114. Broadcast Partners: Broadcast Partners, a general partnership having its current principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 50322. For purposes of future notices or communications under this Agreement Broadcast Partners address shall be: Broadcast Partners, care of Thomas M. Hanigan, Pioneer Hi-Bred International, Inc., 7200 N.W. 62nd Ave., P.O. Box 184, Johnston, Iowa 50131-0184. 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 2 - 106 - 13(d)(3) of the Exchange Act) (other than any person which is a management employee, or any such "group" which consists entirely of management employees, of the Borrower) being or becoming the beneficial owner, directly or indirectly, of more than 50% of the voting stock of the Borrower, or (ii) a majority of the members of the Borrower's board of directors (the "Board") consisting of persons other than Continuing Directors (as hereinafter defined); and (b) at any other time, less than 50% of the voting stock of the Borrower being owned beneficially, directly or indirectly, by employees of the Borrower or its subsidiaries. As used herein, the term "Continuing Director" means any member of the Board on June 29, 1995 and any other member of the Board who shall be recommended or elected to succeed a Continuing Director by a majority of Continuing Directors who are the members of the Board. Collateral: All personal property of the Borrower described in the Security Agreement, whether now owned or hereafter acquired, including, without limitation: (a) all of the Borrower's accounts, accounts receivable, subscriber contract rights, chattel paper, documents, instruments, goods, inventory, equipment, general intangibles; and (b) all proceeds and products of the foregoing. Existing Term Notes: Those certain promissory notes from the Borrower to FNB-0, FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of May 6, 1992, July 7, 1992, October 1, 1992, October 12, 1992, October 19, 1992, November 3, 1992, January 4, 1993, February 9, 1993, April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994, and February 27, 1995. Farm Credit Farm Credit Services of the Midlands, PCA, a production credit association organized under the laws of United States, and having its principal place of business at 206 South 19th Street, Omaha, Nebraska 68102. 3 - 107 - FirsTier: FirsTier Bank, National Association, Lincoln, Nebraska, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508, and its successors and assigns (it being acknowledged that First Bank is the successor in interest to FirsTier). First Bank: First Bank, National Association, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508, and its successors and assigns (it being acknowledged that First Bank is the successor in interest to FirsTier). FNB-O: First National Bank of Omaha, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102, and its successors and assigns. FNB-W: First National Bank, Wahoo, Nebraska, a national banking association having its principal place of business at Wahoo, Nebraska 68066, and its successors and assigns. Lenders: The Banks and Broadcast Partners. Make-Whole Premium: An amount which shall be sufficient as determined by the rele- vant Bank in good faith and on a reasonable basis and certified to the Borrower in writing, to compensate the Bank for any loss (including any lost yield), cost or expense incurred by the Bank (i) in liquidating or redeploying deposits or other funds acquired by the Bank to fund or maintain the loan prepaid and (ii) in unwinding, amending, cancelling or otherwise modifying or terminating any match funding, swap or other arrangement entered into by the Bank in connection with acquiring or maintaining the funding for the loan prepaid. NBD: NBD Bank, a bank organized under the laws of the State of Michigan and having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226. Net 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 4 - 108 - manner satisfactory to the Lenders, to the indebtedness due to the Lenders, and the repayment of which is forbidden during the existence of any Event of Default hereunder; provided however, that any such indebtedness shall not be deemed subordinated debt to the extent of the amount of principal payments that are due thereon within one year from the date of determination. Norwest: Norwest Bank Nebraska, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102, and its successors and assigns. Notes: Those certain promissory notes from the Borrower to the Lenders dated as of May 3, 1996 including, without limitation, the Notes to the Banks and to Broadcast Partners as referenced in Section 2.1 hereof, and such additional term notes as the parties may hereafter agree to add hereto as Notes. Operating Cash Flow: The Borrower's average monthly earnings or loss before interest, depreciation, amortization of goodwill 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 1996 Loan Agreement, the Notes, the Security Agreement, the financing statements regarding the Collateral and the documents and certificates, other than the Purchase Agreement, delivered pursuant to Article VI. Purchase Agreement: The Asset Purchase and Sale Agreement dated as of May 3, 1996 between the Borrower and Broadcast Partners. 5 - 109 - Quarterly Compliance Certificate: The certificate delivered to the Lenders by the Borrower pursuant to Section 5.1(d). Related Bank Debt: The aggregate unpaid balance of all indebtedness, now or here- after existing (including future advances) under the Related Loan Agreements, including without limitation, the amounts outstanding under those certain promissory notes from the Borrower to FNB-O, FirsTier and FNB-W dated as of October 13, 1992 and December 7, 1992, the amounts outstanding under the Existing Term Notes, and the amounts outstanding under the revolving credit notes issued under the 1995 Restated Loan Agreement referenced below and dated as of June 29, 1995 and under any term notes issued to convert such revolving credit notes or any portion thereof to a term obligation, and all extensions, renewals, and substitutions of or for the foregoing. Related Loan Agreements: The Loan Agreement dated as of October 9, 1992, between the Borrower and FNB-O, FirsTier and FNB-W and the 1995 Restated Loan Agreement dated as of June 29, 1995 between the Borrower and FNB-O, FirsTier, FNB-W, NBD, Norwest, AgAmerica and Boatmen's and any loan agreements issued in extension, renewal, replacement, or restatement of the foregoing (the "1995 Restated Loan Agreement"). Restricted Quarter: Has the meaning set forth in Section 2.2 hereof. Revolving Credit Rate: Has the same meaning as is defined for such term in the 1995 Restated Loan Agreement. Security Agreement: The 1996 Restated Security Agreement dated as of May 3, 1996 between the Borrower and FNB-O, as agent for the Lenders and others, as amended from time to time. Total Indebtedness: All loans and other obligations of the Borrower for borrowed money (including, without limitation, the indebtedness due to the Lenders) 6 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. It is understood and agreed by the parties that, for purposes hereof, Borrower has no obligations for borrowed money to Broadcast Partners other than as is evidenced by the Notes payable to Broadcast Partners. It is understood that the Borrower does have other obligations to Broadcast Partners under the Purchase Agreement. Triggering Event: Has the meaning set forth in Section 2.2 hereof. All accounting terms not otherwise defined herein shall have the meaning ordinarily applied under generally accepted accounting principles. II. TERM FACILITY 2.1. Term Credit. Upon the date of this Agreement, the Banks agree to advance $29,458,000 to the Borrower for the purchase of substantially all of the assets of Broadcast Partners. Such advances shall be made on a pro rata basis by the Banks, based on the following maximum advance limits for each Bank: (1) as to FNB-O, $10,780,000; (ii) as to FNB-W, $245,000; (iii) as to NBD, $6,223,000; (iv) as to Norwest, $1,822,000; and (v) as to Farm Credit, $10,388,000. In addition, Broadcast Partners will receive a note for $18,732,000, representing a portion of the purchase price consideration due to Broadcast Partners under the Purchase Agreement. 2.2 Notes. The Notes shall bear interest on the principal loan amount thereof outstanding through June 30, 1999, at the rate of 8.25% per annum; thereafter the interest rate for the balance of the term shall be set on June 30, 1999, at two percent (2.00%) above the yield on constant maturity Treasury Bonds with maturities of three years, as quoted for the Business Day immediately preceding June 30, 1999 in the applicable Release; provided, however, 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 plus four percent (4.00%). Interest shall be calculated on actual days elapsed and a year of 360 days. If the Borrower's most recent Quarterly Compliance Certificate shows that, as of the end of the prior quarter, Total Indebtedness was in excess of 300% of Net Worth, the current quarter shall be deemed a "Restricted 7 - 110 - Quarter." If, any time during a Restricted Quarter (including, without limitation, during any period in such quarter prior to delivery of the Quarterly Compliance Certificate), the interest rate accruing on any Note is less than seven and one-half percent (7.50%), a "Trigger Event" shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the Borrower shall be obligated to pay the Lenders the following fees: (i) three-eighths of one percent (.375%) of the outstanding principal balance of such Note as of the date preceding the Trigger Event, which amount shall be payable promptly upon invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable on the six-month anniversary of the Trigger Event; and (iii) the same amount as computed in clause (i), payable on the twelve-month anniversary of the Trigger Event. 2.3. Payments. Interest on the unpaid balance of the Notes shall be due on the last day of each month beginning May 31, 1996. The principal amount of each respective Note shall become due and payable in seventy-two equal monthly installments, with the first such installment due on January 31, 1997, and subsequent installments due on the last day of each consecutive month thereafter. The total amount of all unpaid principal and accrued interest hereunder shall be due and payable no later than December 31, 2002. In the event that a payment day is not a Business Day, the payment shall be due on the next succeeding Business Day. Interest shall continue to accrue on the full unpaid balance hereunder notwithstanding any permitted or unpermitted failure of the Borrower to make a scheduled payment or the fact that a scheduled payment day falls on a day other than a Business Day. 2.4. Fees. The Borrower will pay to FNB-O an initial fee equal to $14,729, payable at closing. Such fee will be paid to FNB-O and allocated by FNB-O pro rata among the Banks based on their respective commitments as shown in Section 2.1 above. Furthermore, the Borrower will pay to FNB-O at closing an agenting fee equal to $25,500. 2.5 Payment. The Borrower's obligation to make payments of principal and interest hereunder shall be further evidenced by the Notes, the form of which is attached hereto as Exhibit A. All obligations of the Borrower under the Notes and the other Operative Documents shall be payable in immediately available funds in lawful money of the United States of America at the principal office of FNB-O in Omaha, Nebraska or at such other address as may be designated by FNB-O in writing. 2.6 Prepayment. The Borrower may prepay without penalty the principal loan amount outstanding under all Notes in full, but only if such prepayment occurs on June 30, 1999 and the Borrower has given the Banks at least 30 days prior written notice of its intention to make such prepayment. Prepayments of 8 - 111 - less than all the Notes in full will not be permitted without the prior written consent of FNB-O. If a prepayment occurs on any date other than June 30, 1999, the Borrower shall pay to each Bank, at each Bank's option, either: (1) the Make-Whole Premium due in respect of such prepayment; or (2) a prepayment fee equal to one and one-half percent (1.50%) of the amount of such prepayment. The Borrower shall not be obligated to pay a Make-Whole Premium or prepayment fee to Broadcast Partners. 2.6A Permitted Prepayments to Broadcast Partners. Notwithstanding the provisions of Section 2.6, so long as no Event of Default exists hereunder and so long as no Event of Default will exist after the prepayment, the Borrower shall be permitted to prepay Broadcast Partners in the event that: (i) the Banks or any of them agree, in their sole and absolute discretion, to increase their commitment under Section 2.1 for the purposes of funding such prepayment; (ii) the revolving credit facility provided for in the 1995 Restated Loan Agreement is increased above $46,500,000 (excluding notes converted to term obligations thereunder); (iii) another lender agrees to become a Lender hereunder, with a commitment sufficient to fund such prepayment, and such Lender is acceptable to the other Lenders in their sole and absolute discretion, it being agreed that such other approved Lenders will be entitled to same terms and conditions and pari passu status as the other Lenders hereunder; or (iv) the Borrower raises additional equity capital in a manner reasonably acceptable to the Banks and that results in corresponding increase (less offering costs) in the Borrower's Net Worth as of the date thereof. 2.7 Security. All obligations of the Borrower hereunder and under the Operative Documents, including, without limitation, the Borrower's obligations to make payments of principal and interest shall be secured by a first security interest in the Collateral, as more specifically described in the Security Agreement. 2.8 Related Loan Agreements. Nothing herein shall be deemed to alter or amend the Borrower's obligations under the Related Loan Agreements, the Related Bank Debt or any collateral security therefor, all of which shall continue in full force and effect in accordance with the terms thereof. III. [INTENTIONALLY OMITTED] 9 - 112 - IV. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that as of the date hereof the following are and shall be true and correct: 4.1 Corporate Existence. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and duly qualified and in good standing in all states except Alaska, Hawaii and Rhode Island, and it has full power and authority to own and operate its properties and to carry on its business. 4.2 Corporate Authority. It has full corporate power, authority and legal right to execute, deliver and perform the Operative Documents to which it is a party, and all other instruments and agreements contemplated hereby and thereby, and to perform its obligations hereunder and thereunder; and such actions have been duly authorized by all necessary corporate action, and are not in conflict with any applicable law or regulation, or any order, judgment or decree of any court or other governmental agency or instrumentality or its articles of incorporation or bylaws, or with any provisions of any indenture, contract or agreement to which it is a party or by which it or any of its property may be bound. 4.3 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). 4.4 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. 4.5 Governmental Approvals. The execution, delivery and performance by the Borrower of the Operative Documents or the Purchase Agreement do not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any federal, state or other governmental authority or agency other than as contemplated herein and therein. 10 - 113 - 4.6 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. 4.7 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. 4.8 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. 4.9 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. 4.10 Collateral. The Borrower has good and marketable title to the Collateral and the Collateral is free from all liens, encumbrances or security interests, except as disclosed on Schedule A attached hereto. The Borrower's principal place of business, chief executive office, and the place where it keeps its records concerning the Collateral is Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114. 4.11 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 "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. 11 - 114 - 4.12 Margin Regulations. No part of the proceeds of any advance hereunder shall be used to purchase or carry any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or any "margin security" (within the meaning of Regulation G of said Board of Governors), or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security. No part of the proceeds of any advance hereunder shall be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation G, T, U or X of said Board of Governors. 4.13 Financial Condition. The financial condition of the Borrower is truly and accurately set forth in the most recent financial statement which has been provided to the Lenders and no material adverse change has occurred which would make such financial statement inaccurate or misleading. V. COVENANTS The Borrower hereby covenants that: 5.1 Financial Reports. (a) Within forty-five (45) days after the end of each month, the Borrower, at its sole expense, shall furnish the Lenders a 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 Lenders: (i) a balance sheet and statement of earnings of the Borrower, certified by Deloitte & Touche, or other independent certified public accountants acceptable to the Lenders, that such financial reports fairly present the financial condition of the Borrower and have been prepared in accordance with generally accepted accounting principles consistently applied; and (ii) a certificate from such accountants certifying that in making the requisite audit for certification of the Borrower's financial statements, the auditors either (1) have obtained no knowledge, and are not otherwise aware of, any condition or event which constitutes an Event of Default or which with the passage of time or the giving of notice would constitute an Event of Default under Sections 5.3, 5.4, 5.7, 5.9(b), 5.9(d) or 5.11; or (2) have discovered such condition or event, as 12 - 115 - specifically set forth in such certificate, which constitutes an Event of Default or which with the passage of time or the giving of notice would constitute an Event of Default under such Sections. The auditors shall not be liable to the Lenders by reason of the auditors' failure to obtain knowledge of such event or condition in the ordinary course of their audit unless such failure is the result of negligence or willful misconduct in the performance of the audit. (c) Within 30 days after submission to the Securities and Exchange Commission, the Borrower shall provide to the Lenders copies of its Forms 10K and 10Q, as submitted to the Securities and Exchange Commission during the term of this Agreement. (d) Within twenty (20) days after the end of each quarter, the Borrower, at its expense, shall furnish the Lenders a certificate of the chief financial officer of the Borrower in the form of Exhibit 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 Lenders with such other financial reports and statements as the Lenders may reasonably request. 5.2 Corporate Structure and Assets. The Borrower shall not merge or consolidate with any other corporation or entity unless the Borrower shall be the surviving entity, nor sell any assets except items that are obsolete or no 13 - 116 - longer necessary for operation of the business, other than in the ordinary course of business without the prior written consent of the Lenders. The Lenders shall be entitled to receive as a prepayment on the Notes the proceeds of any sale of assets of the Borrower which are prohibited by the preceding sentence. Notwithstanding the foregoing prepayment requirements, any such prohibited sale shall remain a violation of this Agreement. In addition, the Borrower shall not engage in any business materially different from that in which it is presently engaged without the prior written consent of the Lenders, which consent shall not be unreasonably withheld. The foregoing restrictions on mergers and consolidations shall not apply if: (i) in the case of a merger, the Borrower is the surviving entity and expressly reaffirms its obligations hereunder; (ii) in the case of a consolidation, the resulting corporation expressly assumes the obligations of the Borrower hereunder; (iii) the surviving or resulting corporation is organized under the laws of the United States or a jurisdiction thereof; (iv) after giving effect to such merger or consolidation, the surviving or resulting corporation will be engaged in substantially the same lines of business as are now engaged in by the Borrower; and (v) immediately after giving effect to such merger or consolidation, no Event of Default will exist hereunder. 5.3 Net Worth. The Borrower shall maintain a minimum Net Worth during the term of this Agreement of at least $23,500,000; provided, however, solely for purposes of determining compliance with the provisions of this Section 5.3, "Net Worth" shall not include any subordinated debt. 5.4 Indebtedness. (a) The Borrower shall not at any time permit the sum of the Total Indebtedness to the Lenders 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 of any property or business) shall not exceed an amount equal to sixty times Operating Cash Flow at such date. 14 - 117 - 5.5 Use of Proceeds. The Borrower shall not use the proceeds of the advances hereunder to purchase or carry any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or any "margin security" (within the meaning of Regulation G of said Board of Governors), or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security. No part of such proceeds shall be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation G, T, U or X of said Board of Governors. This section shall not preclude the Borrower from repurchasing any of its own issued and outstanding common stock; provided, however, that such repurchase does not result in the occurrence of any other Event of Default hereunder. 5.6 Notice of Default. The Borrower shall give to the Lenders prompt written notification of the existence or occurrence of: (a) any fact or event which results, or which with notice or the passage of time, or both, would result in an Event of Default hereunder; (b) any proceedings instituted by or against the Borrower in any federal, state or local court or before any governmental body or agency, or before any arbitration board, or any such proceedings threatened against the Borrower by any governmental agency, which is likely to have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents; (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. 5.7 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 prior written consent of the Lenders; provided, however, that the Borrower may declare stock dividends; provided, further, that the Borrower need not obtain the Lenders' 15 - 118 - 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 Lenders pursuant to Section 5.1. (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). 5.8 Compliance with Law and Regulations. The Borrower shall comply in all material respects with all applicable federal and state laws and regulations. 5.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance. (a) The Borrower 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 equipment or inventory provided to subscribers in the ordinary course of business) 16 - 119 - and other tangible assets. The Borrower shall name the Lenders as the loss payee on all such casualty insurance, and as an additional insured on all such liability insurance and shall provide the Lenders with evidence of such insurance upon request. 5.10 Inspection of Properties and Books. The Borrower shall recognize and honor the right of the Lenders, upon request to an officer of the Borrower, to visit and inspect any of the properties of, to examine the books, accounts, and other records of, and to take extracts therefrom and to discuss the affairs, finances, loans and accounts of, and to be advised as to the same by the officers of, the Borrower at all such times, in such detail and through such agents and representatives as the Lenders may reasonably desire. 5.11 Guaranties.cThe Borrower shall not guaranty or become responsible for the indebtedness of any other person or entity. 5.12 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 5.4(b), the foregoing shall not be construed to prohibit the Borrower from acquiring leased equipment in the ordinary course of business. Without limiting the generality of the foregoing, the Borrower covenants and agrees that it shall on request enforce for the benefit of the Banks, but at the sole expense of the Borrower, any and all rights and remedies (including, without limitation, rights to indemnity), that it may have with respect to the existence of any liens, security interests or other encumbrances that may exist on the property of the Borrower acquired from Broadcast Partners under the Purchase Agreement. Notwithstanding anything else to the contrary herein or in the Operative Documents, Broadcast Partners shall have no right to share in the proceeds of any such recovery which constitutes the proceeds of any indemnity claim by the Borrower under the Purchase Agreement. 5.13 Name; Location. The Borrower shall give the Lenders ninety (90) days notice prior to changing its name, identity or corporate structure, moving its principal place of business, chief executive office or place where it keeps its records concerning the Collateral. 5.14 Notice of Change in Ownership or Management. During the term of this Agreement, the Borrower shall give the Lenders notice of the occurrence of any of the following described events, which notice shall be given as soon as the Borrower obtains notice or knowledge thereof: (a) any change, directly or indirectly, in the existing controlling interest in the Borrower; or 17 - 120 - (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 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. 5.15. Interest Coverage. The ratio of Operating Cash Flow to interest expense (as determined in accordance with generally accepted accounting principles but excluding amortization of deferred offering costs and any fees related to the Trigger Event in Section 2.2 of this Agreement) at the end of each quarter during the term of this Agreement, as shown on the Quarterly Compliance Report, shall not be less than 2.25 to 1.0. 5.16 Subordinated Debt. 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 Lenders. The Borrower shall not make any voluntary or optional prepayment on any subordinated debt without the prior written consent of the Lenders. Similarly, the Borrower shall not amend its articles of incorporation or any other documents or agreements relating to the issuance of subordinated debt, preferred stock or warrants for preferred stock without the prior written consent of the Lenders. The indebtedness to Broadcast Partners under the Notes shall not be considered subordinated debt. VI. CONDITIONS PRECEDENT 6.1 Closing Conditions. Any and all obligations of the Lenders hereunder are subject to satisfaction of the following conditions precedent: (a) FNB-O, as agent, shall have received an opinion of counsel to the Borrower covering such matters as the Lenders may request (including, without limitation, corporate existence and good standing, corporate authority, due authorization, execution and delivery of the Operative Documents, the legal, valid, binding and enforceable nature of the Operative Documents, the perfection and priority of the security interest in the Collateral granted to the Lenders, and the Borrower's compliance with applicable state and federal laws in connection with the equity offering specified in Section 6.1(f) below), such opinion 18 - 121 - to be satisfactory in form and substance to counsel to FNB-O. To the extent that FNB-O agrees to accept a post closing opinion from the Borrowers' counsel as to security interest issues, the same shall be delivered no later than ten days after completion of the necessary UCC searches, which shall be ordered promptly after recording any UCC terminations received by the Borrower upon closing of the Purchase Agreement and in any event, such opinion shall be delivered no later than 30 days after closing; (b) FNB-O, as agent, shall have received such certificates and documents as the Lenders may reasonably request from the Borrower, including articles of incorporation and bylaws, certificates regarding good standing, incumbency, copies of other corporate documents, and appropriate authorizing resolutions; (c) the Operative Documents shall have been duly authorized and executed and shall be in full force and effect, and such UCC financing statements shall have been executed and filed in such offices as may be appropriate to perfect the security interest of FNB-O, as agent for the Lenders, in the Collateral, it being understood, however, that certain UCC amendments and terminations will be filed after closing as directed by FNB-O; (d) FNB-O, as agent, shall have received copies of the Purchase Agreement, satisfactory in form and substance to FNB-O; (e) the closing of the Purchase Agreement shall occur prior to or simultaneously with the closing of this Agreement; and (f) the Borrower shall have completed an offering of its common stock and received proceeds therefrom in the approximate amount of $15,010,000, satisfactory in form and substance to the Banks. VII. DEFAULTS AND REMEDIES 7.1 Events of Default. Any of the following shall be deemed an event of default under this Agreement (an "Event of Default"): (a) Any payment of principal required by any of the Operative Documents shall not be paid when due. (b) Any payment of interest or other fees due hereunder or under any of the Operative Documents shall not be paid within 15 calendar days after the date on which such payment was invoiced or due. 19 (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 5.1, 5.2, 5.3, 5.4, 5.7, 5.11, 5.12, 5.13, 5.14, 5.15 or 5.16 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 VII, which failure remains unremedied for ten days following receipt of notice from the Lenders. (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 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 20 - 122 - (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 Section 7.1(j); provided further, that acquisitions of additional shares by members of the existing executive management group of the Borrower shall not be counted as changes in the ownership or control of the Borrower under this Section 7.1(j). For purposes of computing the total issued and outstanding shares as of September 30, 1993, warrants and options for such shares shall be included. (k) An Event of Default shall occur under any Related Loan Agreement and the expiration of any applicable cure period thereunder. 21 - 123 - (l) The Borrower shall be obligated to prepay all or any portion of its subordinated debt as a result of a Change of Control. (m) The Borrower pays, or is determined to be obligated to pay, any indemnity to Broadcast Partners under the Purchase Agreement in excess of $1,000,000 in the aggregate. 7.2 Remedies. If an Event of Default occurs and is continuing, upon the election of the Lenders holding two-thirds of the then outstanding aggregate Total Indebtedness of the Borrower to the Lenders (including under the Notes, the Related Bank Debt and any similar indebtedness but excluding amounts due under the Purchase Agreement), the entire unpaid principal amount under the Notes and all Related Bank Debt, together with interest accrued thereon, shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Lenders may exercise their rights under the other Operative Documents and the Related Loan Agreements (and the operative documents with respect thereto), including, without limitation, under the Security Agreement. For purposes of this Article VII, the term Lenders includes First Bank, Boatmen's and AgAmerica. In addition, the Lenders shall have such other remedies as are available at law and in equity. Remedies under this Agreement, the Operative Documents, the Related Loan Agreements (and the operative documents with respect thereto) are cumulative. Any waiver must be in writing by the Lenders and no waiver shall constitute a waiver as to any other occurrence which constitutes an Event of Default or as to any party not specifically included in such written waiver. ARTICLE VIII. INTER-CREDITOR AGREEMENTS 8.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans evidenced by the Notes issued hereunder and the Related Bank Debt. For purposes of this Article VIII, the term Lenders includes First Bank, Boatmen's and AgAmerica and the term Event of Default means any Event of Default hereunder or under any Related Bank Debt. FNB-O will enforce, administer and otherwise deal with the loans made by the Lenders in accordance with safe and prudent banking standards employed by FNB-O in the case of the loan made by FNB-O. Without limiting the generality of the foregoing, FNB-O will, on its own behalf and on behalf of the Lenders: (i) maintain originals of the Operative Documents and the operative documents in connection with the Related Loan Agreements; (ii) receive requests for advances from the Borrower under the Related Loan Agreements and make such advances on behalf of the revolving lenders in such agreements (provided that FNB-O is assured of reimbursement therefor by the other revolving lenders for their 22 - 124 - pro rata shares); (iii) receive payments and prepayments from the Borrower and apply such payments as provided in Section 8.2; (iv) receive notices from the Borrower and send copies thereof to the Lenders if FNB-O has reasonable cause to believe that such Lenders have not received such notice from another source; and (v) advise the Lenders of the occurrence of any material Event of Default which FNB-O obtains actual knowledge of. The Lenders agree not to attempt to take any action against the Borrower under the Operative Documents, Related Bank Debt or with respect to the indebtedness evidenced thereby without FNB-O's consent unless holders of two-thirds of the then outstanding aggregate Total Indebtedness of the Borrower to the Lenders (including under the Notes, the Related Bank Debt and any similar indebtedness but excluding amounts due under the Purchase Agreement) shall have requested FNB-O to take specific action against the Borrower and FNB-O shall have failed to do so within a reasonable period after receipt of such request. All actions, consents, waivers and approvals by the Lenders shall be deemed taken or given and amendments hereto deemed agreed to if the holders of more than two-thirds of the outstanding aggregate Total Indebtedness of the Borrower to the Lenders shall have indicated their consent thereto. Notwithstanding the foregoing, any reduction or compromise of the principal loan amount of the Notes or any Related Bank Debt 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 Lenders. 8.2 Application of Payments. Until the earlier of the occurrence of an Event of Default or any Lender's giving of notice to the others that it deems itself insecure, payments or prepayments made by the Borrower may be applied to the indebtedness designated by the Borrower or otherwise applied as follows: (a) first, to pay interest to date on the revolving credit due under the 1995 Restated Loan Agreement between the Borrower and certain of the Banks; (b) second, to make payments due but unpaid under any of the Notes and Related Bank Debt; and (c) third, pro rata to the Lenders, such pro rata share to be determined as set forth below in subsection (bb) of this Section 8.2. After the occurrence of an Event of Default or any Lender's giving of notice that it deems itself insecure, payments or prepayments on the Notes and Related Bank Debt received by FNB-O or any of the Lenders and funds realized upon the disposition of any of the Collateral shall be applied as follows: 23 - 125 - (aa) first, to reimburse FNB-O for any costs, expenses, and disbursements (including attorneys' fees) which may be incurred or made by FNB-0: (i) in connection with its servicing obligations; (ii) in the process of collecting such payments or funds; or (iii) as advances made by FNB-O to protect the Collateral (provided, however, that FNB-O shall have no obligation to make such protective advances); and (bb) second, pari passu among the Lenders, based on their respective pro rata shares of the funds to be applied. Each Lender's pro rata share shall be equal to a fraction, (x) the numerator of which shall be total principal loan amount then outstanding which is owing to each such Lender under its Notes and under its share, if any, of the Related Bank Debt, and (y) the denominator of which shall be the total principal loan amount then outstanding which is owing to the Lenders under all Notes and Related Bank Debt. Prepayments made pursuant to Section 2.6A and payments under the Purchase Agreement shall not be subject to this Section 8.2, it being understood, however, that prepayments under Section 2.6A shall not be permitted after the occurrence of an Event of Default without the prior written consent of the Banks. Except as specifically provided in this Section 8.2, FNB-O shall have no obligation to repay or prepay any amount due from the Borrower to any of the other Lenders nor shall FNB-O have any obligation to purchase all or a part of any Note hereunder or any Note evidencing any Related Bank Debt or any advance made by any Lenders, nor shall the Lenders have any recourse whatsoever against FNB-O with respect to any failure of the Borrower to repay the indebtedness referenced herein. 8.3 Liability of FNB-O. FNB-O shall not be liable to the Lenders for any error of judgment or for any action taken or omitted to be taken by it hereunder, except for gross negligence or willful misconduct. Without limiting the generality of the foregoing, FNB-O, except as expressly set forth herein, (a) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no representation or warranty with respect to, and shall not be responsible for, the accuracy, completeness, execution, legality, validity, legal effect or enforceability of this 1996 Term Credit Agreement, the Notes, the Related Loan Agreements or the Related Bank Debt or the other Operative Documents or the operative documents under any Related Bank Debt or the value or sufficiency of any Collateral given by the Borrower or the priority of the Lenders' security interest therein or the financial condition 24 - 126 - of the Borrower; and (c) shall not be responsible for the performance or observance of any of the terms, covenants or conditions of the Operative Documents or the operative documents under any Related Bank Debt on the part of the Borrower and shall not have any duty to inspect the property (including, without limitation, the books and records) of the Borrower. 8.4 Transfers. No Lender shall subdivide, transfer or grant a participation in its respective Notes or notes evidencing any Related Bank Debt, or in any advance hereunder or under any Related Bank Debt, without the prior written consent of FNB-O which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Broadcast Partners shall be permitted to subdivide, transfer or grant a participation in its respective Notes to any of: Pioneer Hi-Bred International, Inc., Farmland Industries, Inc., Illinois Agricultural Service Company, or the majority-owned or controlled subsidiaries or affiliates of any of them. 8.5 Reliance. The Lenders acknowledge that they have been advised that none of the Notes, the notes evidencing any Related Bank Debt nor any interest therein or related thereto has been (i) registered under the Securities Act of 1933, as amended, nor (ii) insured by the Federal Deposit Insurance Corporation. The Lenders acknowledge that they have received from the Borrower all financial information and other data relevant to their decision to extend credit to the Borrower and that they have independently approved the credit quality of the Borrower. 8.6 Relationship of Lenders. The Lenders intend for the relationships created by this Agreement to be construed as concurrent direct loans from each Lender respectively to the Borrower. Nothing herein shall be construed as a loan from any Lender to FNB-O or as creating a partnership or joint venture relationship among them. 8.7 New Lenders. In the event that new Lenders are added to this Agreement or to the Related Loan Agreements, such Lenders shall be required to agree to the inter-creditor provisions of this Article VIII. 8.8 Broadcast Partners. Broadcast Partners is added to this Agreement and: (i) except as otherwise expressly provided in this Agreement or the 1996 Restated Security Agreement, shall have the same rights as Lender hereunder and under the 1996 Restated Security Agreement as the other Lenders; and (ii) the Financing Statements filed in Nebraska and Iowa naming FNB-O as secured party and the Borrower as debtor shall be in favor of FNB-O as agent for itself and the other Lenders, including Broadcast Partners. 25 - 127 - ARTICLE IX. MISCELLANEOUS 9.1 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and may not be effectively amended, changed, modified or altered, except in writing executed by all parties. Notwithstanding the foregoing, it is understood that the purchase and sale transaction between the Borrower and Broadcast Partners is governed by the Purchase Agreement. 9.2 Governing Law. The Operative Documents shall be governed by and construed pursuant to the laws of the State of Nebraska. 9.3 Notices. Until changed by written notice from one party hereto to the other, all communications under the Operative Documents shall be in writing and shall be hand delivered or mailed by registered mail to the parties as follows: If to the Borrower: DATA TRANSMISSION NETWORK CORPORATION Suite 200 9110 West Dodge Road Omaha, Nebraska 68114 Attention: Chief Financial Officer If to the Lenders: FIRST NATIONAL BANK OF OMAHA One First National Center Omaha, Nebraska 68102 Attention: Mr. James P. Bonham Notices shall be deemed given when mailed, except that any notice by the Borrower under Section 2.6 shall not be deemed given until received by FNB-O. 9.4 Headings. The captions and headings herein are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement. 9.5 Counterparts. This Agreement may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. 9.6 Survival; Successors and Assigns. The covenants, agreements, representations and warranties made herein, and in the certificates delivered pursuant hereto, shall survive the execution and delivery to the Lenders of this Agreement and shall continue in full force and effect so long as any Note or 26 - 128 - any obligation to the Lenders under any of the Operative Documents is outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Borrower which are contained in this Agreement shall bind the successors and assigns of the Borrower and shall inure to the benefit of the successors and assigns of the Lenders. 9.7 Severability. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.8 Assignment. The Borrower may not assign its rights or obligations hereunder and any assignment in contravention of the terms hereof shall be void. 9.9 Amendments. Any amendment, modification or supplement to this Agreement must be in writing and must be signed by the parties hereto. IN WITNESS WHEREOF, the Borrower and the Lenders have caused this 1996 Term Credit Agreement to be executed by their duly authorized corporate officers as of the day and year first above written. 27 - 129 - DATA TRANSMISSION NETWORK CORPORATION By Title: 28 - 130 - FIRST NATIONAL BANK OF OMAHA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4866E 29 - 131 - BROADCAST PARTNERS By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4866E 30 - 132 - FIRST NATIONAL BANK, WAHOO, NEBRASKA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4866E 31 - 133 - NBD BANK By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4866E 32 - 134 - NORWEST BANK NEBRASKA, N.A. By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4866E 33 - 135 - FARM CREDIT SERVICES OF THE MIDLANDS, PCA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4866E 34 - 136 - EXHIBIT A TO 1996 TERM CREDIT AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, BROADCAST PARTNERS AND DATA TRANSMISSION NETWORK CORPORATION FORM OF NOTES 1 - 137 - SECURED BUSINESS PROMISSORY NOTE Omaha, Nebraska $ May 3, 1996 December 31, 2002 (Note Date) (Maturity Date) DATA TRANSMISSION NETWORK CORPORATION ("Maker") promises to pay to the order of ("Lender") at the offices of First National Bank of Omaha in Omaha, Nebraska, the principal sum of . Interest on the unpaid principal balance shall be due on the last day of each month, beginning May 31, 1996. The principal sum shall become due and payable in seventy-two equal monthly installments, with the first such installment due on January 31, 1997, or if such day is not a Business Day, on the next succeeding Business Day, and subsequent installments due on the last day of each consecutive month thereafter, or, if such day is not a Business Day, on the next succeeding Business Day. In any event, the total amount of all unpaid principal and accrued interest hereunder shall be due and payable no later than December 31, 2002. All capitalized terms not defined herein shall have the meanings set forth in that certain 1996 Term Credit Agreement dated as of May 3, 1996 among Maker, Lender and others (the "Agreement".) Interest shall accrue on the principal outstanding through June 30, 1999, from time to time at the rate of % per annum; thereafter the interest rate for the balance of the term shall be set on June 30, 1999, at two percent (2.00%) above the yield on constant maturity Treasury Bonds with maturities of three years, as quoted for the immediately preceding Business Day in the applicable Release. Notwithstanding the foregoing, after an Event of Default has occurred interest shall accrue on the entire outstanding balance of principal and interest at a fluctuating rate equal to the Revolving Credit Rate, plus 4.00%. Interest shall be calculated on the basis of the actual number of days outstanding and a 360-day year. Interest shall continue to accrue on the full unpaid balance hereunder notwithstanding any permitted or unpermitted failure of the Borrower to make a scheduled payment or the fact that a scheduled payment day falls on a day other than a Business Day. If, any time during a Restricted Quarter (including, without limitation, during any period in such quarter prior to delivery of the Quarterly Compliance Certificate), the interest rate accruing on this Note is less than seven and one-half percent (7.50%), a "Trigger Event" shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the Maker shall be obligated to pay the following fees: (i) three-eighths of one percent (.375%) of the outstanding principal balance of the Note as of the date preceding the Trigger Event, which amount shall be payable promptly upon invoicing; (ii) the same amount as computed in clause (i), payable on the six-month anniversary of the Trigger Event; and (iii) the same amount as computed in clause (i), payable on the twelve-month anniversary of the Trigger Event. Maker may prepay in full without penalty the unpaid balance hereunder, provided that the Borrower contemporaneously prepays in full all other Notes (as such term is defined in the Agreement), but only if such prepayment occurs on June 30, 1999 and the Borrower has given 2 - 138 - Lender at least 30 days prior written notice of its intention to make such prepayment. In the event of any other prepayment (regardless of whether such prepayment occurs before or after June 30, 1999), the Borrower shall pay to Lender, at Lender's option, either: (1) the Make-Whole Premium (as such term is defined in the Agreement) due in respect of such prepayment; or (2) a prepayment fee equal to one and one-half percent (1.50%) of the amount of such prepayment. Payment of this Note and the performance of Maker's obligations under the Agreement ("Obligations") are secured by a security interest granted to First National Bank of Omaha, as agent for the Lenders and others ("Agent"), under a 1996 Restated Security Agreement dated as of May 3, 1996 (the "Restated Security Agreement") in: All of Debtor's accounts, accounts receivable, chattel paper, documents, instruments, goods, inventory, equipment, general intangibles, contract rights, all rights of Debtor in deposits and advance payments made to Debtor by its customers and subscribers, accounts due from advertisers and all ownership, proprietary, copyright, trade secret and other intellectual property rights in and to computer software (and specifically including, without limitation, all such rights in DTN transmission computer software used in the provision of the Basic DTN Subscription Service and Farm Dayta Service to Debtor's subscribers) and all documentation, source code, information and works of authorship pertaining thereto, all now owned or hereafter acquired and all proceeds and products thereof; and such additional collateral as is more specifically described in the Restated Security Agreement. Maker's liability under its Obligations shall not be affected by any of the following: Acceptance or retention by Lender or Agent of other property or interests as security for the Obligations, or for the liability of any person other than a Maker with respect to the Obligations; The release of all or any of the Collateral or other security for any of the Obligations to any Maker; Any release, extension, renewal, modification or compromise of any of the Obligations or the liability of any obligor thereon; or Failure by Lender or Agent to resort to other security or any person liable for any of the Obligations before resorting to the Collateral. Neither Lender nor Agent is required to take any action whatsoever in respect of the Collateral. Impairment or destruction of the Collateral shall not release Maker of its liability hereunder. Maker represents, warrants and covenants as follows: 3 - 139 - Maker is authorized to grant to Agent a security interest in the Collateral; This Note, the Agreement and the Security Agreement have been duly authorized, executed and delivered by the Maker and constitute legal, valid and binding obligations of Maker; This Note evidences a loan to acquire substantially all of the assets of Broadcast Partners, a general partnership, with its principal place of business at 11274 Aurora Avenue, Des Moines, Iowa 50322; and Maker agrees to pay all costs of collection in connection with this Note, the Agreement and the Security Agreement, including reasonable attorneys' fees and legal expenses. Upon the failure of Maker to make any payment of principal or interest when due hereunder or the occurrence of any Event of Default, all of the Obligations shall, at the option of Agent and without notice or demand, mature and become immediately due and payable; and Agent shall have all rights and remedies for default provided by the Uniform Commercial Code, any other applicable law and/or the Obligations. All costs and expenses incurred by Lender or Agent in enforcing its rights under this Note or any mortgage, endorsement, surety agreement, guaranty relating thereto are the obligation of Maker and are immediately due and payable. Interest shall accrue on such costs and expenses from the date of incurrence at the rate specified herein for delinquent Note payments. Each Maker, endorser, surety and guarantor hereby waives presentment, protest, demand, notice of dishonor, and the defense of any statute of limitations. Without affecting the liability of any Maker, endorser, surety or guarantor, the holder or Agent may, without notice, renew or extend the time for payment, accept partial payments, release or impair any Collateral or other security for the payment of this Note or agree to sue any party liable on it. Neither Lender nor Agent shall be deemed to have waived any of its rights upon or under this Note, or under any mortgage, endorsement, surety agreement or guaranty, unless such waivers be in writing and signed by Lender or Agent, as the case may be. No delay or omission on the part of Lender or Agent in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of Lender or Agent on liabilities or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly or concurrently. Maker, if more than one, shall be jointly and severally liable hereunder and all provisions hereof regarding the liabilities or security of Maker shall apply to any liability or any security of any or all of them. This Note shall be binding upon the heirs, executors, administrators, assigns or successors of Maker; shall constitute a continuing agreement, applying to all future as well as 4 - 140 - existing transactions, whether or not of the character contemplated at the date of this Note, and if all transactions between Lender and Maker shall be at any time closed, shall be equally applicable to any new transactions thereafter, provided that Lender's interest in the Collateral shall be limited to the extent provided in the Security Agreement; shall benefit Lender, its successors and assigns; and shall so continue in force notwithstanding any change in any partnership party hereto, whether such change occurs through death, retirement or otherwise. All obligations of Maker hereunder shall be payable in immediately available funds in lawful money of the United States of America at the principal office of First National Bank of Omaha in Omaha, Nebraska or at such other address as may be designated by Bank in writing. This Note shall be construed according to the laws of the State of Nebraska. Unless the content otherwise requires, all terms used herein which are defined in the Uniform Commercial Code shall have the meanings therein stated. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Executed as of this 3rd day of May, 1996. DATA TRANSMISSION NETWORK CORPORATION By: Title: 4866E/34-38 5 - 141 - EXHIBIT B TO 1996 TERM CREDIT AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, BROADCAST PARTNERS AND DATA TRANSMISSION NETWORK CORPORATION OFFICER'S CERTIFICATE - 142 - COMPLIANCE CERTIFICATE DATA TRANSMISSION NETWORK CORPORATION First National Bank of Omaha Date Attn: James Bonham 16th & Dodge Streets Omaha, Nebraska 68102 I certify that Data Transmission Network Corporation is in compliance with the requirements set forth in the 1996 Term Credit Agreement (the "Agreement") dated as of May 3, 1996, between First National Bank of Omaha, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., Farm Credit Services of the Midlands, PCA in care of AgAmerica, FCB, Broadcast Partners and Data Transmission Network Corporation. The following calculations are as of (statement date) as required by section 5.1(d) of said Agreement: Evaluations: Total Indebtedness/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 Goodwill Amortization Deferred Income Taxes Non-Ordinary Non-Cash Charges (Credits) Total a) b) Operating Cash Flow = OCF = (a+b)/2 = Section 2.2 o Trigger Fee: If TI/NW exceeds 300%, then a one time fee is due, paid in three installments of 3/8% of the then outstanding principal balances, on any of Notes which have an interest rate less than 7.5%. Position: A Trigger Event has/has not occurred. 1 - 143 - Section 5.3 o Net Worth: A minimum Net Worth (exclusive of subordinated debt) of $23,500,000 is required. Position: Net Worth (exclusive of subordinated debt)= $ . ----------- Section 5.4 o Indebtedness: At no time will Total Indebtedness exceed 48 x OCF. Position: (48 x OCF) - Total Indebtedness = - = o Indebtedness: At no time will TI/NW exceed 350%. Position: TI/NW = % o Total At no time will Adjusted Total Indebtedness Indebtedness exceed 60 x OCF plus subordinated debt plus guaranty contingencies (Adjusted Total Indebtedness or ATI): Position: Adjusted Total Indebtedness = $ (60 x OCF) - (ATI) = $ Section 5.15 o Interest The ratio of OCF to Interest Expense ("IE") Coverage: at the end of each quarter will not be less than 2.25 to 1.0 (225%). Position: OCF = $ IE = $ OCF/IE = % Additional Representations: 2 - 144 - There have/have not been any sale(s) of assets which would require prepayment of the Notes under Section 5.2. There has/has not been: (i) a Change of Control or a material adverse change in management personnel as defined in Section 5.14 of the Agreement; or (ii) a default under Section 7.1(j) or 7.1(l) regarding a change in ownership or control of the Company. (iii) an indemnity claim by Broadcast Partners under Section 7.1(m). Name of Borrower: Data Transmission Network Corporation Signature: Title: 3 1 - 145 - SCHEDULE A TO 1996 TERM CREDIT AGREEMENT BETWEEN FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, BROADCAST PARTNERS 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 5/ /96 Amendment FirsTier, Lincoln 6/24/87 #384782 First National Bank of Omaha 2/03/88 #405477 Amendment First National Bank, Wahoo 5/28/92 #553205 Continued NBD, Detroit 10/13/92 #564919 Amendment 2/05/93 #576038 Amendment 11/10/93 #603168 Amendment 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 1
- 146 -
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
2 - 147 -
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 3
- 148 -
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
4 - 149 -
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 Amendment First National Bank, Wahoo 1/08/93 #30081001734 Continued NBD, Detroit 2/09/93 #30391203308 Amendment 11/22/93 #33261003899 Amendment 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 Continued NBD, Detroit 2/09/93 #02099338901 Amendment 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
5 - 150 -
Oklahoma Secretary of State First National Bank of Omaha 11/12/93 059782
6 - 151 -
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
7
Texas Secretary of State First National Bank of Omaha 11/29/93 227591-- 8
2 - 152 - EX-10 10 1ST AMENDMENT TO 1996 TERM CREDIT AGREEMENT FIRST AMENDMENT TO 1996 TERM CREDIT AGREEMENT THIS FIRST AMENDMENT TO 1996 TERM CREDIT AGREEMENT (the "First Amendment"), dated as of July, 17, 1996, is intended to amend the terms of the 1996 Term Credit Agreement (the "Agreement") dated as of May, 3, 1996, among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, and BROADCAST PARTNERS. The parties to this Amendment shall include the original parties to the Agreement, THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri, 63101 and FIRST BANK, NATIONAL ASSOCIATION (successor in interest to FirsTier Bank, National Association), a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508. 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 their respective meanings set forth in the Agreement. The Agreement shall be amended as set forth below. Section 1. "Article I: Definitions" of the Agreement shall be amended by adding the following definitions: Mercantile: Mercantile Bank of St. Louis, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101. New York Prime: The floating interest rate published as the"Prime Rate" (the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks) in the Wall Street Journal on the first day of each month, or if no rate is published on the first day of any month, on the first day thereafter when such rate is published. For purposes of this Agreement, New York Prime shall fluctuate on a monthly basis. Changes to New York Prime shall be effective on the first day of each month based on the "Prime Rate" in effect on such day. Release: The Federal Reserve Statistical Release. Subsidiaries: Any corporation, business association, partnership, joint venture, limited liability company or other business entity in which the Borrower, or one or 1 - 153 - more of its Subsidiaries, or the Borrower and one or more of its Subsidiaries has either (i) more than 50% of the equity ownership thereof, or (ii) the power to elect a majority of the directors or to control the identification of the managing or general partners or similar governing persons thereof. Sumitomo: The Sumitomo Bank, Limited, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch. The following definitions shall be amended to read as follows: Banks: FNB-O, FNB-W, First Bank, Mercantile, NBD, Norwest, Farm Credit, AgAmerica and Sumitomo and such additional banks as may be added hereto from time to time by mutual written agreement of the parties. Net Worth: The Borrower's consolidated net worth as determined in accordance with generally accepted accounting principles plus subordinated debt. For purposes of this definition, "subordinated debt" means indebtedness of the Borrower which is subordinate, in a manner satisfactory to the Lenders, to the indebtedness due to the Lenders, and the repayment of which is forbidden during the existence of any Event of Default hereunder; provided however, that any such indebtedness shall not be deemed subordinated debt to the extent of the amount of principal payments that are due thereon within one (1) year from the date of determination. Notes: Those certain promissory notes from the Bor- rower to the Lenders dated as of May 3, 1996 and July 17, 1996, including, without limitation, the Notes to the Banks and to Broadcast Partners as referenced in Section 2.1 hereof, and such additional term notes as the parties may hereafter agree to add hereto as Notes. Operating Cash Flow: The Borrower's consolidated average monthly earnings or loss before interest, depreciation, amortization and taxes, less current tax expense and plus or minus any non-ordinary non-cash charges or credits to earnings, which average shall be based on the Borrower's actual financial results in the two (2) full calendar months preceding the date of determination. For purposes of calculating Operating Cash Flow for this Agreement, the Borrower shall not permit deferred commission expenses to be capitalized for any period in excess of twelve (12) months. 2 - 154 - Related Loan Agreements: The Loan Agreement dated as of October 9, 1992, between the Borrower and FNB-O, FirsTier and FNB-W and the 1995 Restated Loan Agreement dated as of June 29, 1995 between the Borrower and FNB-O, FirsTier, FNB-W, NBD, Norwest, AgAmerica and Boatmen's and any loan agreements issued in extension, renewal, replacement, or reinstatement of the foregoing, including the 1996 Revolving Credit Agreement dated as of June 28, 1996 among the Borrower, FNB-O and certain other banks named therein (the "1995 Restated Loan Agreement"). Revolving Credit Rate: The floating interest rate announced from time to time by FNB-O as its "National Base Rate." The National Base Rate is set by FNB-O, solely in its discretion, to reflect generally the rates charged by national money center banks as their reference rates. (Previously, the rate was announced by FNB-O as its "New York Base Rate.") Rates charged by FNB-O may be at, above or below the National Base Rate, as determined by FNB-O as to each respective customer. Total Indebtedness: All loans and other obligations of the Bor- rower and its Subsidiaries, without duplication, for borrowed money (including, without limitation, the indebtedness due to the Lenders and the holders of the Related Bank Debt) regardless of the maturity thereof but such term shall not include subordinated debt of the Borrower, as such term is defined in the definition of Net Worth, up to $15,000,000 if such subordinated debt is existing on May 3, 1996. Section 2. Section 2.1 of the Agreement shall be amended to read as follows: 2.1. Term Credit. The Banks agree to advance $44,119,900 to the Borrower for the purchase of substantially all of the assets of Broadcast Partners. Such advances shall be made, in one or more closings, on a pro rata basis by the Banks, based on the following maximum advance limits for each Bank: (1) as to FNB-O, $10,780,000; (ii) as to FNB-W, $245,000; (iii) as to NBD, $6,223,000; (iv) as to Norwest, $4,047,000; (v) as to Farm Credit, $10,388,000; (vi) as to Mercantile, $5,333,900; (vii) as to Sumitomo, $5,170,000, (viii) as to First Bank, $1,933,000. In addition, Broadcast Partners will receive a replacement note for $4,070,100, representing a portion of the purchase price consideration due to Broadcast Partners under the Purchase Agreement. It is understood and agreed by the parties that the foregoing advances by FNB-O, FNB-W, NBD, and Farm Credit were made at the initial closing under the Agreement on May 3, 1996. The foregoing advance by Norwest represents a new advance of $2,225,000, which is in addition to the advance of 3 - 155 - $1,822,000 made at the initial closing under the Agreement on May 3, 1996. The foregoing advances by Mercantile, Sumitomo and First Bank represent new advances, the proceeds of which, along with the new advance by Norwest, shall be used to partially prepay the existing Note held by Broadcast Partners in the original principal amount of $18,732,000. principal amount of $18,732,000. Section 3. The Borrower shall, upon the effective date hereof, pay a fee of $7,330.95 to FNB-O, for distribution to the Banks making new advances as follows: (i) $1,112.50 to Norwest; (ii) $2,666.95 to Mercantile; (iii) $2,585.00 to Sumitomo; and (iv) $966.50 to First Bank. Section 4. Notwithstanding Section 2.2 of the Agreement, interest on the Notes issued to First Bank and Broadcast Partners hereunder shall bear interest on the principal loan amount thereof at the following rates until June 30, 1999 (whereupon the interest rate reset described in Section 2.2 of the Agreement shall be applicable): (a) as to Broadcast Partners, the interest rate shall continue to be 8.25% per annum; and (b) as to First Bank, the rate shall be 8.36% per annum. Notwithstanding Section 2.2 of the Agreement, the Notes issued to Mercantile, NBD, Sumitomo, Norwest and FNB-W hereunder shall bear interest on the principal loan amount thereof at a variable rate per annum equal to New York Prime minus one-half of one percent (0.5%). After an Event of Default, such floating rate Notes will bear interest at a rate per annum equal to three and one-half percent (3.5%) above New York Prime. Section 5. The following provisions of the Agreement shall be amended as follows: (a) Section 2.6 of the Agreement shall be amended to read as follows: Prepayment. Prepayments of the Notes may be made in full or in part at any time upon 10 days prior written notice to the Lenders; provided, however, that unanimous consent of the Lenders shall be required for any prepayment (other than a prepayment to Broadcast Partners in accordance with Section 2.6A below) which is not applied pro rata to the Lenders in accordance with Section 8.2. Prepayment penalties will be required as indicated below: (a) The Borrower may prepay in full without penalty the principal loan amounts outstanding under all Notes which bear interest at a fixed rate in accordance with Section 2.2 hereof, if such prepayment occurs on June 30, 1999 and the Borrower has given the Banks at least 30 days prior written notice of its intention to make such prepayment. 4 - 156 - (b) If a prepayment of a Note which bears interest at a fixed rate in accordance with Section 2.2 hereof occurs other than in accordance with (a) above, the Borrower shall pay to the respective Bank payee thereof, at such payee's option, either: (1) the Make-Whole Premium due in respect of such prepayment; or (2) a prepayment fee equal to one and one-half percent (1.50%) of the amount of such prepayment. (c) The Borrower shall not be obligated to pay a Make- Whole Premium or prepayment fee to Broadcast Partners or to any Bank payee of a Note which bears interest at a floating rate indexed to New York Prime. (b) The sections of Articles IV, V, and VII of the Agree- ment set forth on Attachment A hereto shall be amended to read as set forth on Attachment A. All other sections of such articles of the Agreement shall remain in full force and effect. (c) The last sentence of Section 8.1 of the Agreement shall be deleted in its entirety and the following shall be inserted in its place: Notwithstanding the foregoing, unanimous approval shall be required for: (i) any reduction or compromise of the principal loan amount of the Notes, the amount or rate of interest accrued or accruing thereon or the fees due hereunder; (ii) extension of the date of any scheduled payment; (iii) permitting the sale of or releasing the security interest of the Lenders in Collateral which comprises more than ten percent (10%) of net book value of fixed assets of the Borrower; (iv) any amendment of Sections 8.1 or 8.2 hereof. A Lender's commitment hereunder may not be increased without the consent of such Lender, it being understood, however, that increases in the total facility hereunder may be made with the consent of the holders of more than two-thirds of the aggregate total outstanding obligations of the Borrower to the Lenders under the Agreement, so long as such increase does not result in the increase of any non-consenting Lender's commitment hereunder. (d) Add the following to the end of clause (a) of Section 8.2: "and fees due to the Lenders and holders of the Related Bank Debt" Section 6. The Borrower hereby restates for the benefit of the Lenders the representations and warranties contained in Article IV of the Agreement, as amended by this First Amendment, and affirms that such representations and warranties are true and correct as of the date of this First Amendment. Section 7. This First Amendment may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. 5 - 157 - Section 8. This First Amendment shall be effective upon the execution and delivery thereof by the parties hereto and the delivery of the applicable Notes, dated July 17, 1996, to Sumitomo, Mercantile, First Bank, Norwest, NBD, FNB-W and Broadcast Partners. Upon receipt of its replacement note and accrued and unpaid interest thereof through July 17, 1996, each of FNB-O, Farm Credit, FNB-W, NBD and Norwest agrees to surrender to the Borrower the Note dated May 3, 1996 which the Borrower had previously delivered to such Bank. Upon receipt of its replacement note and $14,661,900 plus accrued and unpaid interest, Broadcast Partners agrees to surrender to the Borrower the Note dated May 3, 1996 which the Borrower had previously delivered to Broadcast Partners. References in the Notes to the Loan Agreement shall be deemed amended to refer to the Loan Agreement as amended by this First Amendment. References in the Notes to the Security Agreement shall be deemed amended to refer to the Security Agreement as amended by the First Amendment to 1996 Restated Security Agreement dated as of June 28, 1996. IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT TO 1996 TERM CREDIT AGREEMENT dated as of July 17, 1996. DATA TRANSMISSION NETWORK CORPORATION By Title: 4511J 6 - 158 - FIRST NATIONAL BANK OF OMAHA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 7 - 159 - THE SUMITOMO BANK, LIMITED By Title: By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 8 - 160 - FIRST NATIONAL BANK, WAHOO, NEBRASKA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 9 - 161 - NBD BANK By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 10 - 162 - NORWEST BANK NEBRASKA, N.A. By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 11 - 163 - FARM CREDIT SERVICES OF THE MIDLANDS, PCA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 12 - 164 - MERCANTILE BANK OF ST. LOUIS, N.A. By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 13 - 165 - FIRST BANK, NATIONAL ASSOCIATION By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 14 - 166 - BROADCAST PARTNERS By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4511J 15 - 167 - ATTACHMENT A TO FIRST AMENDMENT TO 1996 TERM CREDIT AGREEMENT 4.1 Corporate Existence. It and each of its Subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and duly qualified and in good standing in all states where it is doing business except where the failure to be so qualified would not have a material adverse effect on it and it has full power and authority to own and operate its properties and to carry on its business. As of July 12, 1996, the Borrower has no Subsidiaries. 4.2 Corporate Authority. It has full corporate power, authority and legal right to execute, deliver and perform the Operative Documents to which it is a party, and all other instruments and agreements contemplated hereby and thereby, and to perform its obligations hereunder and thereunder; and such actions have been duly authorized by all necessary corporate action, and are not in conflict with any applicable law or regulation, or any order, judgment or decree of any court or other governmental agency or instrumentality or its articles of incorporation or bylaws, or with any provisions of any indenture, contract or agreement to which it or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of its or their property may be bound. 4.3 Validity of Agreements. The Borrower's Operative Documents have been duly authorized, executed and delivered and constitute its legal, valid and binding agreements, enforceable against the Borrower in accordance with their respective terms (except to the extent that enforcement thereof may be limited by any applicable bankruptcy, reorganization, moratorium or similar laws now or hereafter in effect, or by principles of equity). 4.4 Litigation. Neither the Borrower nor any Subsidiary is a party to any pending lawsuit or proceeding before or by any court or governmental body or agency, which is likely to have a materially adverse effect on the Borrower's ability to perform its obligations under its Operative Documents; nor is the Borrower aware of any threatened lawsuit or proceeding, to which it or any Subsidiary may become a party or of any investigation of any Court or governmental body or agency into its affairs, which if instituted would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 4.6 Defaults Under Other Documents. Neither the Borrower nor any Sub- sidiary is in default or in violation (nor has any event occurred which, with notice or lapse of time or both, would constitute a default or violation) under any document or any agreement or instrument to which it may be a party or under which it or any of its properties may be bound and the result of which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 4.7 Judgments. There are no outstanding or unpaid judgments (which are not adequately bonded) of the Borrower or any Subsidiary which would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 16 - 168 - 4.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is in violation of any laws, regulations or judicial or governmental decrees in any respect which could have any material adverse effect upon the validity or enforceability of any of the terms of the Borrower's Operative Documents or which could have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents. 4.9 Taxes. All tax returns of the Borrower and its Subsidiaries for material taxes required to be filed have been filed or extensions permitted by law have been obtained; all taxes of the Borrower and its Subsidiaries of a material nature and which are due and payable as reflected on such returns have been paid, other than taxes which are due but for which only a nominal late payment penalty is payable and for which the taxing authority is not yet entitled to enforce its remedies for payment thereof and other than taxes being contested in good faith and with respect to which adequate reserves have been established; and no material amounts of taxes of the Borrower and its Subsidiaries not reflected on such returns are payable. 4.11 Pension Benefits. Neither the Borrower nor any Subsidiary maintains a "Plan" as defined in Section 3 of the Employees Retirement Income Security Act of 1974 ("ERISA"), or each such entity is in compliance with the minimum funding requirements with respect to any such "Plan" maintained by it and it has not incurred any material liability to the Pension Benefit Guaranty Corporation ("PBGC") or otherwise under ERISA in connection with any such Plan. 4.13 Financial Condition. The financial condition of the Borrower an its Subsidiaries is truly and accurately set forth in the most recent financial statement which has been provided to the Lenders and no material adverse change has occurred which would make such financial statement inaccurate or misleading. 5.1 Financial Reports. (a) Within forty-five (45) days after the end of each month, the Borrower, at its sole expense, shall furnish the Lenders a consolidated balance sheet and statement of earnings of the Borrower and its consolidated Subsidiaries, and such financial statements on a consolidating basis as to the Borrower, all such financial statements to be prepared in accordance with generally accepted accounting principles consistently applied and certified as completed and correct, subject to normal changes resulting from year-end audit adjustments, by the chief financial officer of the Borrower. (b) Within ninety (90) days after the close of the Borrower's fiscal year, the Borrower, at its sole expense, shall furnish the Lenders: (i) a consolidated balance sheet and statement of earnings of the Borrower and its consolidated Subsidiaries, certified by Deloitte & Touche, or other independent certified public accountants acceptable to the Lenders, that such financial reports fairly present the financial condition of the Borrower and its consolidated Subsidiaries and have been prepared in accordance with generally accepted accounting principles consistently applied; and (ii) a certificate from such accountants certifying that in making the requisite audit for certification of the Borrower's financial statements, the auditors either (1) have obtained no knowledge, and are not 17 - 169 - otherwise aware of, any condition or event which constitutes an Event of Default or which with the passage of time or the giving of notice would constitute an Event of Default under Sections 5.3, 5.4, 5.7, 5.9(b), 5.9(d) or 5.11; 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 Lenders by reason of the auditors' failure to obtain knowledge of such event or condition in the ordinary course of their audit unless such failure is the result of negligence or willful misconduct in the performance of the audit. (c) Within thirty (30) days after submission to the Securities and Exchange Commission, the Borrower shall provide to the Lenders copies of its Forms 10K and 10Q, as submitted to the Securities and Exchange Commission during the term of this Agreement. (d) Within twenty (20) days after the end of each quarter, the Borrower, at its expense, shall furnish the Lenders a certificate of the chief financial officer of the Borrower in the form of Exhibit C, setting forth such information (including detailed calculations) sufficient to verify the conclusions of such officer after due inquiry and review, that: (i) The Borrower and each Subsidiary, either (y) is in compliance with the requirements set forth in this Agreement or (z) is NOT in compliance with the foregoing for reasons specifically set forth therein; and (ii) The chief financial officer of the Borrower has reviewed or caused to be reviewed all of the terms of the Operative Documents of the Borrower and that such review either (1) has NOT disclosed the existence of any condition or event which constitutes an event of default or any condition or event which with the passage of time or the giving of notice would constitute an event of default under the Operative Documents or (2) has disclosed the existence of a condition or event which constitutes an event of default, or a condition or event which with the passage of time or the giving of notice would constitute an event of default, under the aforesaid instrument or instruments and the specific condition or event is specifically set forth. (e) The Borrower shall provide the Lenders with such other financial reports and statements as the Lenders may reasonably request. 5.4 Indebtedness. (a) The Borrower shall not at any time permit the sum of the Total Indebtedness to the Lenders and the holders of the Related Bank Debt to exceed forty-eight (48) times Operating Cash Flow. 18 - 170 - (b) The Borrower shall not at any time permit consolidated Total Indebtedness to exceed 350% of Net Worth. (c) On the day the Borrower or a Subsidiary becomes liable with respect to any debt and immediately after giving effect thereto and to the concurrent retirement of any other debt, the sum of Total Indebtedness, plus the amount of any outstanding subordinated debt of the Borrower and its Subsidiaries, plus the contingent obligations of the Borrower and its Subsidiaries under any guaranty of the debt of any other person or entity (other than unsecured debt of a Subsidiary incurred in the ordinary course of business for other than borrowed money or to finance the purchase price of any property or business) shall not exceed an amount equal to sixty (60) times Operating Cash Flow at such date. 5.6 Notice of Default. The Borrower shall give to the Lenders prompt written notification of the existence or occurrence of: (a) any fact or event which results, or which with notice or the passage of time, or both, would result in an Event of Default hereunder; (b) any proceedings instituted by or against the Borrower in any federal, state or local court or before any governmental body or agency, or before any arbitration board, or any such proceedings threatened against the Borrower by any governmental agency, which is likely to have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents; (c) any default or event of default involving the payment of money under any agreement or instrument which is material to the Borrower or any Subsidiary to which such entity is a party or by which it or any of its property may be bound, and which default or event of default would have a material adverse effect upon the Borrower's ability to perform its obligations under its Operative Documents; and (d) the Borrower shall give immediate notice of the commence- ment of any proceeding under the Federal Bankruptcy Code by or against the Borrower or any Subsidiary. 5.7 Distributions. (a) Neither Borrower nor any Subsidiary shall declare any dividends or make any cash distribution in respect of any shares of its capital stock or warrants of its capital stock, without the prior written consent of the Lenders; provided, however, that the Borrower may declare stock dividends; provided, further, that the Borrower need not obtain the Lenders' consent with respect to (i) dividends in any one (1) year which are, in aggregate, less than 25% of the Borrower's net operating profit after taxes in the previous four (4) quarters, as reported to the Lenders pursuant to Section 5.1; or (ii) dividends or distributions from any consolidated Subsidiary. 19 - 171 - (b) Neither the Borrower nor any Subsidiary other than a Sub- sidiary which is wholly-owned by the Borrower shall purchase, redeem, or otherwise retire any shares of its capital stock or warrants of its capital stock if, immediately after the making of such purchase or redemption, the Borrower or any Subsidiary will be in default of any other covenant or provision of this Agreement (including, without limitation, the covenants and provisions pertaining to minimum net worth and limitations on indebtedness). 5.8 Compliance with Law and Regulations. The Borrower and each Sub- sidiary shall comply in all material respects with all applicable federal and state laws and regulations. 5.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance. (a) The Borrower and each Subsidiary shall maintain its pro- perty in good condition in all material respects, ordinary wear and tear excepted, and make all renewals, replacements, additions, betterments and improvements thereto necessary for the efficient operation of its business. (b) The Borrower and each Subsidiary shall keep true books of record and accounts in which full and correct entries shall be made of all its business transactions, all in accordance with generally accepted accounting principles consistently applied. (c) The Borrower and each Subsidiary shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate form of existence as is necessary for the continuation of its business in substantially the same form, except where such failure to do so with respect to any Subsidiary would not have a material adverse effect on the ability of the Borrower to perform its obligations under the Operative Documents. (d) The Borrower and each Subsidiary shall pay all taxes, as- sessments and governmental charges or levies imposed upon it or its property; provided, however, that the Borrower or any Subsidiary shall not be required to pay any of the foregoing taxes which are being diligently contested in good faith by appropriate legal proceedings and with respect to which adequate reserves have been established. (e) The Borrower shall maintain or cause to be maintained liability insurance and casualty insurance upon the Collateral (excluding equipment or inventory provided to Subscribers in the ordinary course of business) and other tangible assets owned by it and its Subsidiaries. The Borrower shall name FNB-O as agent for the Lenders and the holders of the Related Bank Debt as the loss payee on all such casualty insurance, and as an additional insured on all such liability insurance and shall provide the Lenders with evidence of such insurance upon request. 5.11 Guaranties. Neither the Borrower nor any Subsidiary shall guar- anty or become responsible for the indebtedness of any other person or entity; provided, however, that a 20 - 172 - Subsidiary may guaranty the obligation of the Borrower; provided further, that the Borrower may guaranty the obligations of a Subsidiary so long as no Event of Default (or not event or occurrence which with the passage of time or notice, or both, would become an Event of Default) has occurred or will occur hereunder, taking into account such guaranty and indebtedness. 5.12 Collateral. Neither the Borrower nor any Subsidiary shall incur or permit to exist any mortgage, pledge, lien, security interest or other encumbrance on the Collateral, except as permitted in the Security Agreement. Subject to Section 5.4(b), the foregoing shall not be construed to prohibit the Borrower or any Subsidiary from acquiring leased equipment in the ordinary course of business. Without limiting the generality of the foregoing, the Borrower covenants and agrees that it shall on request enforce for the benefit of the Lenders and the holders of the Related Bank Debt, but at the sole expense of the Borrower, any and all rights and remedies (including, without limitation, rights to indemnity), that it may have with respect to the existence of any liens, security interests or other encumbrances that may exist on the property of the Borrower acquired from Broadcast Partners under the Purchase Agreement. Notwithstanding anything else to the contrary herein or in the Operative Documents, Broadcast Partners shall have no right to share in the proceeds of any such recovery which constitutes the proceeds of any indemnity claim by the Borrower under the Purchase Agreement. 5.14 Notice of Change in Ownership or Management. During the term of this Agreement, the Borrower shall give the Lenders notice of the occurrence of any of the following described events, which notice shall be given as soon as the Borrower obtains notice or knowledge thereof: (a) any change, directly or indirectly, in the existing con- trolling interest in the Borrower; or (b) any material adverse change in its management personnel. A material adverse change in the Borrower's management personnel shall be deemed to have occurred if any one (1) of the following has occurred with respect to two of the four (4) individuals who are both officers and members of the Board of Directors of the Borrower: (i) the resignation, retirement, or voluntary or involuntary termination of employment and/or status of such persons as officers and directors of the Borrower; (ii) any announcement, notice of intent, resolution or similar advance notice with respect to the matters referenced in the foregoing clause; or (iii) the death, disability or legal incompetence of such persons. 5.16 Subordinated Debt. Neither the Borrower nor any Subsidiary shall incur any subordinated debt or issue any preferred stock or warrants for preferred stock except upon the prior written consent of the Lenders. Neither the Borrower nor any Subsidiary shall make any voluntary or optional prepayment on any subordinated debt without the prior written consent of the Lenders. Similarly, the Borrower shall not amend its articles of incorporation or any other documents or agreements relating to the issuance of subordinated debt, preferred stock or warrants for preferred stock without the prior written consent of the Lenders. The indebtedness to Broadcast Partners under the Notes shall not be considered subordinated debt. 21 - 173 - 5.17 Subsidiaries. The Borrower shall give prompt written notice to the Lenders of the Borrower's intent to acquire, or the Borrower's acquisition of, any Subsidiary. Prior to the creation or acquisition of such Subsidiary, the Borrower (i) shall cause a first security interest in the assets of such Subsidiary to be perfected in favor of FNB-O, as agent for the Lenders and the holders of the Related Bank Debt, and (ii) shall cause the Subsidiary to enter into a security agreement, to execute and file such financing statements and to provide opinions all in form satisfactory to the Lenders and the holders of the Related Bank Debt, as to compliance with this section. 5.18 Amendments to Purchase Agreement. The Borrower shall not amend the Purchase Agreement without the prior written consent of the Lenders. 7.1 Events of Default. Any of the following shall be deemed an event of default under this Agreement (an "Event of Default"): (a) Any payment of principal required by any of the Operative Documents shall not be paid when due. (b) Any payment of interest or other fees due hereunder or under any of the Operative Documents shall not be paid within fifteen (15) calendar days after the date on which such payment was invoiced or due. (c) Any representation or warranty of the Borrower under any of the Operative Documents, or any financial reports or statements or certificates submitted pursuant to this Agreement, shall prove to have been false in any material respect when made. (d) A failure of the Borrower or any Subsidiary to comply with any requirement or restriction applicable to such entity and contained in Sections 5.1, 5.2, 5.3, 5.4, 5.7, 5.11, 5.12, 5.13, 5.14, 5.15 or 5.16 of this Agreement. (e) A failure of the Borrower or any Subsidiary to comply with any requirement or restriction contained in any provision of the Operative Documents not otherwise specified in this Article VI, which failure remains unremedied for ten (10) days following receipt of notice from FNB-O on behalf of the Lenders. (f) The occurrence of a default or a breach of any of the ob- ligations of the Borrower or any Subsidiary (other than obligations of such Subsidiary to the Borrower) under any note, loan agreement, preferred stock, subordinated debt instrument or agreement, or any other agreement evidencing an obligation to repay borrowed money. (g) The entry of a final judgment against the Borrower or any Subsidiary for the payment of money, which is not covered by insurance, and the expiration of thirty (30) days from the date of such entry during which the judgment is not discharged in full or stayed. 22 - 174 - (h) The occurrence of any one or more of the following: (1) The Borrower or any Subsidiary shall file a vol- untary petition in bankruptcy or an order for relief shall be entered in a bankruptcy case as to such entity or shall file any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors; or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of such entity or of all or any part of its property, or of any or all of the royalties, revenues, rents, issues or profits thereof, or shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts or shall generally not pay its debts as they become due; or (2) A court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against the Borrower or any Subsidiary seeking any reorganization, dissolution or similar relief under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, and such order, judgment or decree shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive) from the first date of entry thereof; or any trustee, receiver or liquidator of the Borrower or any Subsidiary or of all or any part of its property, or of any or all of the royalties, revenues, rents, issues or profits thereof, shall be appointed without the consent or acquiescence of such entity and such appointments shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive); or (3) A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in the Collateral, or any judgment involving monetary damages shall be entered against the Borrower or any Subsidiary which shall become a lien on the Collateral or any portion thereof or interest therein and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within thirty (30) days after its entry or levy. (i) Any event of default shall occur under any Operative Document. (j) A change shall occur after November 8, 1993, directly or indirectly, in the ownership or control of the Borrower; provided, however, that changes in the ownership or control of, or new issuances of, voting common stock which do not exceed, cumulatively, 50% of the total issued and outstanding shares of the Borrower as of September 30, 1993 shall not be deemed an Event of Default under this Section 7.1(j); provided further, that acquisitions of additional shares by members of the existing executive management group of the Borrower shall not be counted as changes in the ownership or control of the Borrower under this Section 7.1(j). For purposes of computing the total issued and outstanding shares as of September 30, 1993, warrants and options for such shares shall be included. 23 - 175 - (k) An Event of Default shall occur under any Related Bank Debt or the Related Loan Agreement and the expiration of any applicable cure period thereunder. (l) The Borrower shall be obligated to prepay all or any por- tion of its subordinated debt as a result of a Change of Control. (m) The Borrower pays, or is determined to be obligated to pay, any indemnity to Broadcast Partners under the Purchase Agreement in excess of $1,000,000 in the aggregate. 4511J/27 24 - 176 - EX-10 11 2ND AMENDMENT TO 1996 TERM CREDIT AGREEMENT SECOND AMENDMENT TO 1996 TERM CREDIT AGREEMENT THIS SECOND AMENDMENT TO 1996 TERM CREDIT AGREEMENT (the "Second Amendment"), dated as of July 31, 1996, is intended to amend the terms of the 1996 Term Credit Agreement dated as of May 3, 1996, as previously amended (the "Agreement") by the First Amendment to 1996 Term Credit Agreement ("First Amendment") dated as of July 17, 1996, among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS, PCA, THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, and BROADCAST PARTNERS. The parties to this Second Amendment shall include each of the parties to the First Amendment and shall also include BANK OF MONTREAL, a Canadian bank being represented by its office at 430 Park Avenue, New York, New York, 10022 ("Montreal"). 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 their respective meanings set forth in the Agreement. The Agreement shall be amended as set forth below. Section 1. "Article I: Definitions" of the Agreement shall be amended by adding the following definition: Montreal: Bank of Montreal, a Canadian bank being represented by its office at 430 Park Avenue, New York, New York, 10022. The following definitions shall be amended to read as follows: Notes: Those certain promissory notes from the Borrower to the Lenders dated as of May 3, 1996, July 17, 1996, and July 31, 1996, including, without limitation, the Notes to the Banks as referenced in Section 2.1 hereof, and such additional term notes as the parties may hereafter agree to add hereto as Notes. Section 2. Section 2.1 of the Agreement shall be amended to read as follows: 2.1. Term Credit. The Banks agree to advance $48,490,000 to the Borrower for the purchase of substantially all of the assets of Broadcast Partners. Such advances shall be made, in one or more closings, on a pro rata basis by the Banks, based on the following maximum advance limits for each Bank: (1) as to FNB-O, $10,780,000; (ii) as to FNB-W, $245,000; (iii) as to NBD, $6,223,000; (iv) as to Norwest, $4,047,000; (v) as to Farm Credit, $10,388,000; (vi) as to Mercantile, $5,333,900; (vii)as to Sumitomo, $5,170,000, (viii) as to First Bank, $1,933,000, (ix) as to Montreal, $4,370,100. 1 - 177 - It is understood and agreed by the parties that the foregoing advances by FNB-O, FNB-W, NBD, and Farm Credit were made at the initial closing under the Agreement on May 3, 1996. The foregoing advance by Norwest represents an advance of $1,822,000 which was made at the initial closing under the Agreement on May 3, 1996, and an additional advance of $2,225,000, which was made at the closing under the First Amendment on July 17, 1996. The foregoing advances by Mercantile, Sumitomo and First Bank were made at the closing under the First Amendment on July 17, 1996. The advance made by Montreal represents a new advance, the proceeds of which shall be used to prepay the existing Note held by Broadcast Partners in the remaining principal amount of $4,070,100, and to provide an additional $300,000 to the Borrower. Section 3. The Borrower shall, upon the effective date hereof, pay a fee of $2,185.05 to FNB-O, for distribution to Montreal. Section 4. Notwithstanding Section 2.2 of the Agreement, the Note issued to Montreal shall bear interest on the principal loan amount thereof at a variable rate per annum equal to New York Prime minus one-half of one percent (0.5%). After an Event of Default, such floating rate Notes will bear interest at a rate per annum equal to three and one-half percent (3.5%) above New York Prime. Section 5. The Borrower hereby restates for the benefit of the Lenders the representations and warranties contained in Article IV of the Agreement, as amended by the First Amendment, and affirms that such representations and warranties are true and correct as of the date of this Second Amendment. Section 6. The Lenders hereby acknowledge the First Amendment to the 1996 Revolving Credit Agreement among the parties herein and Boatmen's, and hereby consent to the increase of $5,604,500 in the total revolving credit facility to $49,500,000. Section 7. This Second Amendment may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. Section 8. This Second Amendment shall be effective upon the execution and delivery thereof by the parties hereto and the delivery of the applicable Note, dated July 31, 1996, to Montreal. Upon receipt of $4,070,100 plus accrued and unpaid interest, Broadcast Partners agrees to surrender to the Borrower the Note dated July 17, 1996 which the Borrower had previously delivered to Broadcast Partners. Upon receipt of such payment Broadcast Partners shall cease to be a party to the Agreement, or a "Lender" under the Agreement or the Revolving Credit Agreement. Notwithstanding any of the foregoing, the representations, warranties, indemnities and other covenants made by the Borrower in favor of Broadcast Partners under the Agreement, as amended hereby and by the First Amendment, and under the Restated Security Agreement dated as of May 3, 1996, as amended by the First Amendment to 1996 Restated Security Agreement dated as of June 28, 1996 and by the Second Amendment to 1996 Restated Security Agreement dated as of July 31, 2 - 178 - 1996, shall survive (a) the payment to Broadcast Partners of the Borrower's Note dated July 17, 1996 delivered to Broadcast Partners and (b) the cessation of Broadcast Partners as a party to the Agreement; provided, however, they survive solely for the benefit of Broadcast Partners as a former Lender under the Agreement, and not as the seller under the Purchase Agreement (as defined in the Agreement) or in any other capacity. Broadcast Partners does not waive any rights inuring to its benefit at any time while it was a Lender under the Agreement. References in the Notes to the Loan Agreement shall be deemed amended to refer to the Loan Agreement as amended by this Second Amendment. IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT TO 1996 TERM CREDIT AGREEMENT dated as of July 31, 1996. DATA TRANSMISSION NETWORK CORPORATION By Title: 3 - 179 - FIRST NATIONAL BANK OF OMAHA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4 - 180 - THE SUMITOMO BANK, LIMITED By Title: By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 5 - 181 - FIRST NATIONAL BANK, WAHOO, NEBRASKA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 6 - 182 - NBD BANK By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 7 - 183 - NORWEST BANK NEBRASKA, N.A. By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 8 - 184 - FARM CREDIT SERVICES OF THE MIDLANDS, PCA By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 9 - 185 - MERCANTILE BANK OF ST. LOUIS, N.A. By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 10 - 186 - FIRST BANK, NATIONAL ASSOCIATION By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 11 - 187 - BROADCAST PARTNERS By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 12 - 188 - BANK OF MONTREAL By Title: NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower - 189 - EX-10 12 3RD AMENDMENT TO 1996 TERM CREDIT AGREEMENT THIRD AMENDMENT TO 1996 TERM CREDIT AGREEMENT THIS THIRD AMENDMENT TO 1996 TERM CREDIT AGREEMENT (the "Third Amendment"), dated as of November , 1996, is intended to amend the terms of the 1996 Term Credit Agreement (the "Agreement") dated as of May 3, 1996, and amended by the First Amendment to 1996 Term Credit Agreement ("First Amendment") dated as of July 17, 1996, and the Second Amendment to 1996 Term Credit Agreement (the "Second Amendment") dated as of July 31, 1996, among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., AGAMERICA, FCB (assignee of FARM CREDIT SERVICES OF THE MIDLANDS, PCA), THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., and FIRST BANK, NATIONAL ASSOCIATION. (Pursuant to the Second Amendment, Broadcast Partners is no longer a party to the Agreement.) The parties to this Third Amendment shall include each of the parties to the First Amendment and the Second Amendment and shall also include BANK OF MONTREAL, a Canadian bank being represented by its office at 430 Park Avenue, New York, New York, 10022 ("Montreal"). 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 their respective meanings set forth in the Agreement. The Agreement shall be amended as set forth below. Section 1. The following definitions of Article I shall be amended to read as follows: Related Bank Debt: Section 2. Section 2.1 of the Agreement shall be amended to read as follows: 2.1. Term Credit. The Banks agree to advance $48,490,000 to the Borrower for the purchase of substantially all of the assets of Broadcast Partners. Such advances shall be made, in one or more closings, on a pro rata basis by the Banks, based on the following maximum advance limits for each Bank: (1) as to FNB-O, $10,780,000; (ii) as to FNB-W, $245,000; (iii) as to NBD, $6,223,000; (iv) as to Norwest, $4,047,000; (v) as to Farm Credit, $10,388,000; (vi) as to Mercantile, $5,333,900; (vii) as to Sumitomo, $5,170,000, (viii) as to First Bank, $1,933,000, (ix) as to Montreal, $4,370,100. It is understood and agreed by the parties that the foregoing advances by FNB-O, FNB-W, NBD, and Farm Credit were made at the initial closing under the Agreement on May 3, 1996. The foregoing advance by Norwest represents an advance of $1,822,000 which was made at the initial closing under the Agreement on May 3, 1996, and an additional advance of $2,225,000, which was made at the closing under the First Amendment on July 17, 1996. The foregoing advances by Mercantile, Sumitomo and First 1 - 190 - Bank were made at the closing under the First Amendment on July 17, 1996. The advance made by Montreal represents a new advance, the proceeds of which shall be used to prepay the existing Note held by Broadcast Partners in the remaining principal amount of $4,070,100, and to provide an additional $300,000 to the Borrower. Section 3. The Borrower shall, upon the effective date hereof, pay a fee of $2,185.05 to FNB-O, for distribution to Montreal. Section 4. Notwithstanding Section 2.2 of the Agreement, the Notes issued to Montreal shall bear interest on the principal loan amount thereof at a variable rate per annum equal to New York Prime minus one-half of one percent (0.5%). After an Event of Default, such floating rate Notes will bear interest at a rate per annum equal to three and one-half percent (3.5%) above New York Prime. Section 5. The Borrower hereby restates for the benefit of the Lenders the representations and warranties contained in Article IV of the Agreement, as amended by the First Amendment, and affirms that such representations and warranties are true and correct as of the date of this Second Amendment. Section 6. The Lenders hereby acknowledge the First Amendment to the 1996 Revolving Credit Agreement among the parties herein and Boatmen's, and hereby consent to the increase of $5,604,500 in the total revolving credit facility to $49,500,000. Section 7. This Second Amendment may be executed in several counterparts and such counterparts together shall constitute one and the same instrument. Section 8. This Second Amendment shall be effective upon the execution and delivery thereof by the parties hereto and the delivery of the applicable Note, dated July 31, 1996, to Montreal. Upon receipt of $4,070,100 plus accrued and unpaid interest, Broadcast Partners agrees to surrender to the Borrower the Note dated July 17, 1996 which the Borrower had previously delivered to Broadcast Partners. Upon receipt of such payment Broadcast Partners shall cease to be a party to the Agreement, or a "Lender" under the Agreement or the Revolving Credit Agreement. References in the Notes to the Loan Agreement shall be deemed amended to refer to the Loan Agreement as amended by this Second Amendment. IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT TO 1996 TERM CREDIT AGREEMENT dated as of July 31, 1996. DATA TRANSMISSION NETWORK CORPORATION By________________________________________ Title:____________________________________ 2 - 191 - FIRST NATIONAL BANK OF OMAHA By________________________________________ Title:____________________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 3 - 192 - THE SUMITOMO BANK, LIMITED By Title:_________________________ By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 4 - 193 - FIRST NATIONAL BANK, WAHOO, NEBRASKA By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 5 - 194 - NBD BANK By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 6 - 195 - NORWEST BANK NEBRASKA, N.A. By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 7 - 196 - FARM CREDIT SERVICES OF THE MIDLANDS, PCA By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 8 - 197 - MERCANTILE BANK OF ST. LOUIS, N.A. By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 9 - 198 - FIRST BANK, NATIONAL ASSOCIATION By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 10 - 199 - BROADCAST PARTNERS By Title:_________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 11 - 200 - BANK OF MONTREAL By Title:________________________ NOTICE: A credit agreement must be in writing to be enforceable under Nebraska law. To protect you and us from any misunderstandings or disappointments, any contract, promise, undertaking, or offer to forebear repayment of money or to make any other financial accommodation in connection with this loan of money or grant or extension of credit, or any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any instrument or document executed in connection with this loan of money or grant or extension of credit, must be in writing to be effective. INITIALED: Borrower 12 - 201 - EX-10 13 1996 RESTATED SECURITY AGREEMENT 1996 RESTATED SECURITY AGREEMENT THIS 1996 RESTATED SECURITY AGREEMENT (this "Security Agreement") is between DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the "Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for itself and FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL ASSOCIATION, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being acknowledged that First Bank is the successor in interest to FirsTier Bank, National Association, Lincoln, Nebraska ("FirsTier")), and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association having its principal place of business at One Boatmen's Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236 ("Boatmen's"), FARM CREDIT SERVICES OF THE MIDLANDS, PCA, a production credit association ("Farm Credit") in care of AGAMERICA, FCB, a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska 68102-1745 ("AgAmerica") and BROADCAST PARTNERS, a general partnership having its principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 50322 ("Broadcast Partners") (collectively the "Lenders"). WITNESSETH: WHEREAS, Debtor and Secured Party are parties to a Security Agreement dated as of February 8, 1988, as amended by a First Amendment to Security Agreement dated as of March 31, 1989, a Second Amendment to Security Agreement dated as of March 22, 1990, a Third Amendment to Security Agreement dated as of November 30 1991, a Fourth Amendment to Security Agreement dated as of October 9, 1992, a Fifth Amendment to Security Agreement dated as of December 31, 1992; a Restated Security Agreement dated as of November 8, 1993 and a First Amendment to Restated Security Agreement dated as of June 29, 1995. WHEREAS, Debtor and Secured Party wish to further amend such prior Security Agreement, as amended and restated; WHEREAS, Debtor and Secured Party wish to have this 1996 Restated Security Agreement be the controlling agreement with respect to the matters set forth herein, which shall supersede the prior Security Agreement, as amended and restated; and 1 - 202 - WHEREAS, the Debtor and Secured Party do not intend for this Restated Security Agreement to be deemed to extinguish any existing indebtedness of the Debtor or to release, terminate or affect the priority of any security therefor; NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows: 1. Grant of Security Interest. Debtor hereby grants to Secured Party and reaffirms its prior grant of a security interest in the Collateral. 2. Collateral. The Collateral to which this Security Agreement refers is described on Exhibit A. 3. Obligations Secured. The security interest granted herein is given to secure all present and future obligations of Debtor: (i) under the 1996 Term Credit Agreement dated as of May 3, 1996, as amended from time to time between the Debtor and First National Bank of Omaha, First National Bank, Wahoo, Nebraska, Norwest Bank Nebraska, N.A., NBD Bank, Farm Credit Services of the Midlands, P.C.A. and Broadcast Partners; (ii) under the 1995 Restated Loan Agreement dated as of June 29, 1995, as amended from time to time between the Borrower and First National Bank of Omaha, First National Bank, Wahoo, Nebraska, FirsTier Bank, National Association, NBD Bank, Norwest Bank Nebraska, N.A., AgAmerica FCB, and The Boatmen's National Bank of St. Louis; (iii) under the 1993 Restated Loan Agreement dated as of November 8, 1993, as amended from time to time, between Debtor and First National Bank of Omaha, FirsTier Bank, National Association, Lincoln, Nebraska, First National Bank, Wahoo, Nebraska, NBD Bank, N.A., Norwest Bank Nebraska, N.A. and The Boatmen's National Bank of St. Louis; (iv) under the Loan Agreement dated as of October 9, 1992, as amended from time to time, between Debtor and First National Bank of Omaha, FirsTier Bank, National Association, Lincoln, Nebraska and First National Bank, Wahoo, Nebraska; (v) under any and all promissory notes previously, now or hereafter made by Debtor to the Lenders pursuant to any of the foregoing Loan Agreements (all of which are referred to herein as the "Loan Agreements") or any predecessor loan agreements, including, without limitation, those various promissory notes made by the Debtor to the Lenders (or certain of them or their predecessors in interest) and dated as of May 6, 1992, July 7, 1992, October 1, 1992, October 12, 1992, October 19, 1992, November 3, 1992, January 4, 1993, February 9, 1993, April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994, February 27, 1995, June 29, 1995 and May 3, 1996, all as set forth in part on Schedule A hereto, and under any notes given in extension, renewal or substitution of the foregoing (collectively, the "Notes"); (vi) to reimburse the Secured Party for all sums, if any, advanced to protect the Collateral; and (vii) to reimburse Secured Party for all costs and expenses incurred in collection of the foregoing, including, without limitation, costs of repossession and sale and reasonable attorneys' fees. 2 - 203 - 4. Representations and Warranties. Debtor represents and warrants: (a) Debt. Debtor is justly indebted to the Lenders for the obligations secured and has no set off or counterclaim with respect thereto; (b) Possession and Ownership. The Collateral is or will be in Debtor's possession (except for equipment or inventory provided to Debtor's Customers in the ordinary course of business) and Debtor has or will acquire absolute title thereto and will defend the Collateral against the claims and demands of all persons other than Secured Party. Debtor has full right and power to grant the security interest herein to Secured Party. (c) Liens and Encumbrances. No financing state- ment covering the Collateral or other filing evidencing any lien or encumbrance on the Collateral is on file in any public office and there is no lien, security interest or encumbrance on the Collateral except for the security interest held by Secured Party pursuant to this Security Agreement and for those security interests described on Schedule B. (d) Truth of Representations. All information, statements, representations, and warranties made by Debtor herein and in any financial or credit statement, application for credit, or any other writing executed prior to or substantially contemporaneously herewith are true, accurate and complete in all material respects. (e) Location. Debtor has its chief executive office, principal place of business and place where it keeps it records concerning the Collateral at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114. (f) Authority. Debtor has full authority to enter into this Security Agreement and in so doing is not violating any law, regulation, or agreement with third parties. This Security Agreement has been duly and validly authorized by all necessary corporate action. 5. Covenants. Debtor covenants and agrees: (a) Liens and Encumbrances. Except as otherwise expressly allowed by the Loan Agreements, Debtor shall keep the Collateral free and clear of liens, encumbrances, security interests, and other claims of third parties and will, at Debtor's expense, defend the Collateral against the claims and demands of all third parties. Debtor shall promptly pay and discharge any indebtedness owing to any third party who, by reason of said indebtedness, could obtain or become entitled to a lien or encumbrance on the Collateral, other than such indebtedness being contested in good faith and with respect to which adequate reserves have been established. (b) Proceeds; Sale. Debtor shall not sell or otherwise dispose of any Collateral without first obtaining the written consent of Secured Party; provided, however, that Debtor may provide equipment or inventory to customers and others in the ordinary course of business so long as: (i) such equipment or inventory is not sold to customers; and (ii) the value of equipment or inventory disposed of to others (e.g., for salvage purposes) does 3 - 204 - not exceed, in aggregate, $25,000. Debtor shall at all times keep the Collateral and the proceeds from any authorized or unauthorized disposition thereof identifiable and separate from the other property of Debtor or any third party. (c) Protection of Value. Debtor shall use the utmost care and diligence to protect and preserve the Collateral, and shall not commit nor suffer any waste to occur with respect to the Collateral. In pursuance of the foregoing, Debtor shall maintain the Collateral in good condition and repair and shall take such steps as are necessary or as are requested by Secured Party to prevent any impairment of the value of the Collateral. (d) Taxes. Debtor shall promptly pay and dis- charge any and all taxes, levies and other impositions made upon the Collateral which may give rise to liens upon the Collateral if unpaid or which are imposed upon the creation, perfection, or continuance of the security interest provided for herein, other than taxes being contested in good faith and with respect to which adequate reserves have been established. (e) Insurance. All risk of loss of, damage to, or destruction of the Collateral shall at all times be on Debtor. Debtor shall procure and maintain, at its own expense, insurance covering the Collateral against all risks under policies and with companies acceptable to Secured Party, for the duration of this Security Agreement (except for equipment provided to Debtor's Customers in the ordinary course of business). Such policies shall be written for and shall name Debtor and Secured Party as their interests may appear, shall contain a standard loss payable clause in favor of Secured Party. Proof of insurance shall be provided to Secured Party upon request. For purposes of security, Debtor hereby assigns to Secured Party any and all monies (including, without limitation, proceeds of insurance and refunds of unearned premiums) due or to become due under any such policy. Debtor hereby directs the issuer of any such policy to pay any such monies directly to Secured Party. Secured Party may act as attorney for Debtor in obtaining, settling and adjusting such insurance and in endorsing any checks or drafts paid thereunder. (f) Secured Party as Payee. Debtor shall take such steps as are necessary or as are requested by Secured Party to have Secured Party named as a payee on any check, draft or other document or instrument which Debtor may obtain or anticipate obtaining with respect to the Collateral. Without limiting the generality of the foregoing, Secured Party shall be named as a payee on all instruments from insurers of the Collateral. Notwithstanding anything in the foregoing or in Subsection (e) above to the contrary, Secured Party agrees that: (i) insurance proceeds may be paid to Debtor so long as no event of default exists hereunder and such proceeds are, in aggregate, less than $25,000; and (ii) Secured Party's rights hereunder are subject to the interests of the parties identified on Schedule B. (g) Records. Debtor shall keep accurate and complete records pertaining to the Collateral and pertaining to Debtor's business and financial condition, and shall allow Secured Party to inspect the same from time to time upon reasonable request and shall submit such periodic reports relating to the same to Secured Party from time to time as Secured 4 - 205 - Party may reasonably request. Debtor shall provide that the Secured Party's interest is noted on all chattel paper and that there is only one single original of any chattel paper held by Debtor and created after the date hereof. (h) Notice to Secured Party. Debtor shall promptly notify Secured Party of any loss or damage to the Collateral, any impairment of the value thereof, any claim made thereto by any third party, or any adverse change in Debtor's financial condition which may affect its prospect to pay or perform its obligations to Secured Party. (i) Location. Except for equipment or inventory provided to Debtor's customers in the ordinary course of business, Debtor will not move the Collateral, its chief executive office, principal place of business 5 - 206 - or place where it keeps its records concerning the Collateral from the location specified above without first obtaining the written consent of Secured Party and shall not permit any Collateral to be located in any state in which a financing statement covering the Collateral is required to be, but has not in fact been, filed in order to perfect the security interest granted herein. Debtor shall not change its name without giving Secured Party at least ninety (90) days' prior notice thereof. (j) Other Documents. Debtor shall execute such further documents as may be requested by Secured Party to obtain and perfect a security interest in the Collateral, including without limitation, Uniform Commercial Code Financing Statements and amendments thereto. A carbon, photographic or other reproduction of this Security Agreement or of any financing statement signed by Debtor shall have the same force and effect as the original for all purposes of a financing statement. 6. Default. Debtor shall be in default hereunder if any of the following occurs: (a) Event of Default. An Event of Default occurs under any of the Notes or the Loan Agreements. (b) Failure to Pay. Debtor fails to pay when due or within the applicable cure period any of the obligations secured hereby. (c) Misrepresentation. Any of the representa- tions or warranties made by Debtor herein or in any of the documents referred to herein or executed prior hereto or substantially contemporaneously herewith are or become false or misleading in any material respect. (d) Breach of Covenants. Debtor fails to perform any of its covenants, agreements or obligations hereunder or under any document referred to herein or executed prior hereto or substantially contemporaneously herewith. (e) Other Indebtedness. Any event occurs which results in acceleration of the maturity of the indebtedness of Debtor under any material agreement with any third party. (f) Loss of Security. Collateral with an aggregate value in excess of $25,000 is lost, damaged or destroyed. (g) Business Failure. The death, dissolution, termination of existence, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or commencement of any proceeding in bankruptcy or insolvency by or against Debtor or any principals of Debtor or any guarantor or surety for Debtor. 6 - 207 - 7. Rights and Remedies of Secured Party. Secured Party shall have all of the rights and remedies provided at law and in equity and in the Uniform Commercial Code and in addition thereto and without limitation thereon shall have the following rights which may be exercised singularly or concurrently: (a) Inspection. Secured Party may at any time, with or without notice, enter upon Debtor's premises or any other place where the Collateral is located to inspect and examine the same and, if Debtor is in default, to take possession thereof. (b) Performance by Secured Party. If Debtor fails to perform any of its obligations hereunder, Secured Party may, at its sole discretion, pay or perform such obligations for Debtor's account and may add any cost or expense thereof to the obligations secured hereby. (c) Acceleration. Upon default, Secured Party may, without demand or notice to Debtor, accelerate all of the obligations secured hereby and proceed to enforce payment of the same with or without first resorting against the Collateral. (d) Proceed Against Collateral. Subject to applicable cure periods, if any, upon default, Secured Party may: require Debtor to make the Collateral available to Secured Party at a place to be designated by Secured Party; take possession of the Collateral, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof which Debtor hereby expressly waives) and sell, retain or otherwise dispose of the Collateral in full or partial satisfaction of the obligations secured hereby. (e) Power of Attorney. Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party as Debtor's true and lawful attorney, with full power of substitution, without notice to Debtor and at such time or times as Secured Party in its sole discretion may determine to: (i) create, prepare, complete, execute, deliver and file such documents, instruments, financing statements, and other agreements and writings as may be deemed appropriate by Secured Party to facilitate the intent of this Security Agreement; (ii) notify account debtors and others with obligations to Debtor to make payment of their obligations to Secured Party; (iii) demand, enforce and receive payment of any accounts or obligations owing to Debtor, by legal proceedings or otherwise; (iv) settle, adjust, compromise, release, renew or extend any account or obligation owing to Debtor; (v) notify postal authorities to change the address for delivery of mail to Debtor to such address as Secured Party may designate; (vi) receive, open and dispose of all mail addressed to Debtor; (vii) endorse Debtor's name on any check, note, draft, instrument or other form of payment that may come into Secured Party's possession; and (viii) send requests to Debtor's customers and account debtors for verification of amounts due to Debtor. Secured Party covenants not to exercise the foregoing rights prior to the occurrence of an event of default hereunder. (f) Deficiency. Upon default, and after any disposition of the Collateral, Secured Party may sue Debtor for any deficiency remaining. 7 - 208 - 8. Obligations of Secured Party. Secured Party has no obligations to Debtor hereunder except those expressly required herein. Except as expressly provided in the Loan Agreements, Secured Party has not agreed to make any further advance or loan of any kind to Debtor. Secured Party's duty of care with respect to the Collateral in its possession shall be deemed fulfilled if Secured Party exercises reasonable care in physically safekeeping the Collateral or, in the case of Collateral in the possession of a bailee or third party, exercises reasonable care in the selection of the bailee or third party. Secured Party need not otherwise preserve, protect, insure or care for the Collateral. Secured Party need not preserve rights the Debtor may have against prior parties, realize on the Collateral in any particular manner or order, or apply proceeds of the Collateral in any particular order of application. 9. Miscellaneous. (a) No Waiver. No delay or failure on the part of Secured Party in the exercise of any right or remedy hereunder shall operate as a waiver thereof and no single or partial exercise by Secured Party of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. (b) Amendment and Termination. This Security Agreement may be amended or terminated and the security interest granted herein can be released only by an explicit written agreement signed by Debtor and Secured Party. (c) Choice of Law. This Security Agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of Nebraska. 8 - 209 - (d) Binding Agreement. This Security Agreement shall be binding upon the parties hereto and their heirs, successors, personal representatives and permitted assigns. (e) Assignment. This Security Agreement may be assigned by Secured Party only. (f) Captions. Captions and headings herein are for convenience only and in no way define, limit or describe the scope or intent of any provision or section of the Security Agreement. (g) Severability. If any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. (h) Notices. All notices to be given shall be deemed sufficiently given if delivered or mailed by registered or certified mail postage prepaid if to Debtor at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114; if to Secured Party at One First National Center, Omaha, Nebraska 68102; or such other address as the parties may designate in writing from time to time. Debtor shall promptly notify Secured Party of any changes in Debtor's address. (i) Priorities. The security interest of a Lender in any property of the Debtor (i) arising under and in connection with the Agreement, this Security Agreement or any of the Related Loan Agreements and (ii) granted to secure any obligation of the Debtor to such Lender, including, without limitation, all Collateral, shall rank equally in priority with the security interests of each of the other Lenders, if any, in such property of the Borrower, irrespective of the time or order of attachment or perfection of such security interest, or the time or order of filing, or the failure to file, and regardless of the date any obligation of the Debtor to a Lender was incurred. Any amounts or payments obtained upon disposition of any property securing an obligation of the Debtor to a Lender shall be applied as provided in Article 8 of the 1996 Term Credit Agreement, dated as of May 3, 1996. IN WITNESS WHEREOF, the undersigned have executed this 1996 Restated Security Agreement as of this 3rd day of May, 1996. 9 - 210 - DATA TRANSMISSION NETWORK CORPORATION By Title FIRST NATIONAL BANK OF OMAHA, as agent for itself, First Bank, National Association, First National Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., The Boatmen's National Bank of St. Louis, Farm Credit Services of the Midlands, P.C.A., AgAmerica FCB and Broadcast Partners. By Title 5470A 10 - 211 - EXHIBIT A TO SECURITY AGREEMENT BY AND BETWEEN FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party") AND DATA TRANSMISSION NETWORK CORPORATION ("Debtor") COLLATERAL All of Debtor's accounts, accounts receivable, chattel paper, documents, instruments, goods, inventory, equipment, general intangibles, contract rights, all rights of Debtor in deposits and advance payments made to Debtor by its customers and subscribers, accounts due from advertisers and all ownership, proprietary, copyright, trade secret and other intellectual property rights in and to computer software (and specifically including, without limitation, all such rights in DTN transmission computer software used in the provision of the Basic DTN Subscription Service and/or Farm Dayta Service to Debtor's subscribers) and all documentation, source code, information and works of authorship pertaining thereto, all now owned or hereafter acquired by Debtor and all proceeds and products thereof (including, without limitation, all such assets acquired by Debtor from Broadcast Partners); and Further including, without limiting the generality of the foregoing, the following all now owned or hereafter acquired by the Debtor: (a) all accounts, accounts receivable, chattel paper, documents, instruments, goods, inventory, equipment, general intangibles and contract rights that constitute, are due under or by reason of, or are described in, subscription agreements or arrangements between Debtor and its subscribers, and similar agreements or arrangements purchased by Debtor from Broadcast Partners and including, without limitation, all: (i) equipment and inventory of Debtor, whether in its possession or in the possession of its customers and subscribers (but subject to such customers' and subscribers' rights therein), which equipment and inventory may include, but not be limited to, computer monitor screens, D-127, D-128, D-120, D-110 and 6001 or comparable receivers, outdoor antennas, and satellite interfaces (collectively, the "Equipment"); (ii) parts, accessories, attachments, additions, substitutions, rents, profits, proceeds, products, and customer deposits and advance payments related to or arising from the Equipment; 1 - 212 - (iii) chattel paper, instruments, general intangibles, accounts, accounts receivable and contract rights in, arising from or corresponding to the Equipment, which may include but not be limited to, all rights of Debtor under Subscription Agreements between Debtor and its customers and subscribers (collectively, the "Subscriptions"); and (iv) accounts, accounts receivable, rents, profits, modifications, renewals, extensions, substitutions, proceeds, and products related to or arising from the Subscriptions; and (b) all rights, remedies, privileges, claims and other contract rights and general intangibles of Debtor arising under or related to the Asset Purchase and Sale Agreement (including, without limitation, rights to indemnity) between Debtor and Broadcast Partners or the transactions contemplated thereby. (c) all proceeds and products of the foregoing. 2 - 213 - SCHEDULE A TO SECURITY AGREEMENT BY AND BETWEEN FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party") AND DATA TRANSMISSION NETWORK CORPORATION ("Debtor") EXISTING NOTES (See Attached) - 214 -
SCHEDULE B TO SECURITY AGREEMENT BY AND BETWEEN FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party") AND DATA TRANSMISSION NETWORK CORPORATION ("Debtor") PERMITTED ENCUMBRANCES Secured Party Financing Statements Nebraska Secretary of State First National Bank of Omaha 12/28/87 #401690 10/13/92 #564918 Amendment 11/13/92 #568176 Continued 5/ /96 Amendment FirsTier, Lincoln 6/24/87 #384782 First National Bank of Omaha 2/03/88 #405477 Amendment First National Bank, Wahoo 5/28/92 #553205 Continued NBD, Detroit 10/13/92 #564919 Amendment 2/05/93 #576038 Amendment 11/10/93 #603168 Amendment 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
1 - 215 -
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
2 - 216 -
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 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 Amendment First National Bank, Wahoo 1/08/93 #30081001734 Continued NBD, Detroit 2/09/93 #30391203308 Amendment 11/22/93 #33261003899 Amendment 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 Continued NBD, Detroit 2/09/93 #02099338901 Amendment 11/12/93 #1129331801 Amendment
3 - 217 -
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 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
4 - 218 -
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--
5 - 219 - EX-10 14 1ST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT THIS FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT is intended to amend the 1996 RESTATED SECURITY AGREEMENT (the "Agreement") dated as of May 3, 1996 by and 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 "Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for itself and FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL ASSOCIATION, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being acknowledged that First Bank is the successor in interest to FirsTier Bank, National Association, Lincoln, Nebraska ("FirsTier")), and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association having its principal place of business at One Boatmen's Plaza, 800 market Street, P.O. Box 236, St. louis, Missouri 63166-0236 ("Boatmen's"), FARM CREDIT SERVICES OF THE MIDLANDS, PCA, a production credit association ("Farm Credit") in care of AGAMERICA, FCB, a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska 68102- 1745 ("AgAmerica") and BROADCAST PARTNERS, a general partnership having its principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 59322 ("Broadcast Partners") (collectively, and together with any other Lender that hereinafter becomes a party to any "Loan Agreement" as hereinafter defined, the "Lenders"). 1. THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo") and MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri, 63101 ("Mercantile") are hereby added to the definition of "Lenders" referenced in the Agreement. 2. Replace clause (ii) of Section 3 with the following: "under the 1996 Revolving Credit Agreement dated as of June 28, 1996, as amended from time to time between the Debtor and First National Bank of Omaha, First National Bank, Wahoo, Nebraska, Norwest Bank Nebraska, N.A., NBD Bank, Farm Credit Services of the Midlands, PCA, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A. First Bank, National Association and The Boatmen's National Bank of St. Louis." - 220 - 3. In the last sentence of Section 9 (i), change "Article 8 of the 1996 Term Credit Agreement dated as of May 3, 1996" to "Article VII of the 1996 Revolving Credit Agreement as in effect on June 28, 1996." 4. Unanimous approval of the Lenders shall be required for changes to Section 9(i) of the Agreement. - 221 - IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT as of June 28, 1996. DATA TRANSMISSION NETWORK CORPORATION By: /s/ Brian Larson ------------------ Title: CFO, Secretary & Treasurer FIRST NATIONAL BANK OF OMAHA By: /s/ James P. Bonham -------------------- Title: Vice President - 222 - - 223 - EX-10 15 2ND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT SECOND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT THIS SECOND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT is intended to amend the 1996 RESTATED SECURITY AGREEMENT (the "Agreement") dated as of May 3, 1996, and amended by the FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT (the "First Amendment") dated as of June 28, 1996 by and 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 "Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for itself and FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL ASSOCIATION, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being acknowledged that First Bank is the successor in interest to FirsTier Bank, National Association, Lincoln, Nebraska ("FirsTier")), THE 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"), FARM CREDIT SERVICES OF THE MIDLANDS, PCA, a production credit association ("Farm Credit") in care of AGAMERICA, FCB, a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska 68102-1745 ("AgAmerica"), THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101 ("Mercantile"), and BROADCAST PARTNERS, a general partnership having its principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 50322 ("Broadcast Partners") (collectively, and together with any other Lender that hereinafter becomes a party to any "Loan Agreement" as hereinafter defined, the "Lenders"). 1. BANK OF MONTREAL, a Canadian bank being represented by its office at 430 Park Avenue, New York, New York 10022 is hereby added to the definition of "Lenders" referenced in the Agreement. 2. Replace clause (ii) of Section 3 with the following: "under the 1996 Revolving Credit Agreement dated as of July 31, 1996, as amended from time to time between the Debtor and First National Bank of Omaha, First National Bank, Wahoo, Nebraska, Norwest Bank Nebraska, N.A., NBD Bank, Farm Credit Services of the Midlands, PCA, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A., First Bank, National Association, Bank of Montreal and The Boatmen's National Bank of St. Louis." 1 - 224 - IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT as of July 31, 1996. DATA TRANSMISSION NETWORK CORPORATION By Title FIRST NATIONAL BANK OF OMAHA By Title 2 - 225 - EX-10 16 3RD AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT THIRD AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT THIS THIRD AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT (the "Third Amendment") is intended to amend the 1996 RESTATED SECURITY AGREEMENT dated as of May 3, 1996, as previously amended (the "Security Agreement") by the FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT (the "First Amendment") dated as of June 28, 1996 and the SECOND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT (the "Second Amendment") dated as of July 31, 1996, by and 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 "Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking association having its principal place of business at One First National Center, Omaha, Nebraska 68102 as agent ("Secured Party") for itself and FIRST NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of the State of Michigan having its principal place of business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national banking association having its principal place of business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL ASSOCIATION, a national banking association having its principal place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being acknowledged that First Bank is the successor in interest to FirsTier Bank, National Association, Lincoln, Nebraska ("FirsTier")), THE 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"), THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking association having its principal place of business at One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101 ("Mercantile"), and LASALLE NATIONAL BANK, a national banking association being represented by its office at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102 ("LaSalle") (collectively, and together with any other Lender that hereinafter becomes a party to any "Loan Agreement" as hereinafter defined, the "Lenders"). (In accordance with the Third Amendment to the 1996 Revolving Credit Agreement, as described in Section 3(ii) of the Security Agreement, Ag America is no longer a Lender.) 1 - 226 - 1. The following sentence shall be added to the end of Section 1 of the Security Agreement: All capitalized terms not defined in this Security Agreement shall have their respective meanings as set forth in the Revolving Credit Agreement, as described in Section 3(ii) below. 2. The following shall be added to the end of clause (iv) of Section 3 of the Security Agreement: or under any interest rate protection agreement entered into by Debtor with one or more Lenders; 3. Clause (v) of Section 3 of the Security Agreement shall be amended to read as follows: (v) under any and all Notes previously, now or hereafter made by Debtor to the Lenders pursuant to any of the foregoing Loan Agreements and interest rate protection agreements (all of which are referred to herein as the "Related Loan Agreements") or any predecessor loan agreements, including, without limitations, the Existing Term Notes and any notes given in extension, renewal or substitution of the Notes; 4. The last sentence of Section 9(i) of the Security Agreement shall be amended to read as follows: Any amounts or payments obtained upon disposition of any property securing an obligation of Debtor to a Lender shall be applied as provided in Article VII of the 1996 Revolving Credit Agreement as in effect on December 27, 1996. 5. Debtor hereby restates, as of the date hereof, for the benefit of the Lenders the representations and warranties set forth in Section 4 of the Agreement. Notwithstanding the foregoing, representations of Debtor as to filings in respect of the Collateral are hereby amended to reflect such additional filings as shall have been made in favor of the Lenders. 6. This Third Amendment shall be effective as of December 27, 1996. References in the Notes, the Related Loan Agreements and similar documents to the "Security Agreement" or the "1996 Restated Security Agreement" shall mean the Security Agreement, as amended by the First Amendment, the Second Amendment and this Third Amendment. 2 - 227 - IN WITNESS WHEREOF, the undersigned have executed this THIRD AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT as of December 27, 1996. DATA TRANSMISSION NETWORK CORPORATION By Title 3 - 228 - FIRST NATIONAL BANK OF OMAHA By Title 3797 4 - 229 - EX-10 17 2ND AMENDMENT TO NOTE & WARRANT PURCHASE AGREEMENT SECOND AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT This Second Amendment to Note and Warrant Purchase Agreement (this "Second Amendment") is dated as of ____________, 1996, and entered into by and among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation ("Company"), THE NOTEHOLDERS LISTED ON THE SIGNATURE PAGES HEREOF (collectively the "Noteholders"). RECITALS: WHEREAS, Company and the initial purchaser of the Notes are parties to that certain Note and Warrant Purchase Agreement dated as of June 30, 1994, as amended by that certain First Amendment to Note and Warrant Purchase Agreement dated as of April 13, 1995 (as amended, the "Purchase Agreement"), the terms defined therein being used herein as therein defined; and WHEREAS, Company and Noteholders desire to further amend the Purchase Agreement as hereinafter set forth; NOW, THEREFORE, subject to the terms and conditions herein contained, the parties hereto hereby agree as follows: Section 1. AMENDMENT TO THE PURCHASE AGREEMENT. The definition of "Consolidated Operating Cash Flow" set forth in Section 14 of the Purchase Agreement hereby is amended by adding ", amortization" immediately after the word "depreciation" in such definition. Section 2. COMPANY'S REPRESENTATIONS AND WARRANTIES. In order to induce the Noteholders to enter into this Second 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 Second Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Purchase Agreement as amended by this Second Amendment (the "Amended Agreement"). 2.2 Authorization of Agreements. The execution and delivery of this Second Amendment have been duly authorized by all necessary corporate action by Company. 1 - 230 - 2.3 Binding Obligation. This Second 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 Second 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 Second Amendment. Section 4. MISCELLANEOUS. 4.1 Reference to and Effect on the Purchase Agreement. From and after the date of this Second 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 Second Amendment. Except as specifically amended by this Second Amendment, the Purchase Agreement and 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 Second 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 same instrument. This Second Amendment shall become effective upon the execution of a counterpart hereof by each of the parties hereto. 4.3 Governing Law. This Second 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 Second Amendment are included herein for convenience of reference only and shall not constitute a part of this Second Amendment for any other purpose or be given any substantive effect. 2 - 231 - 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: _______________________________ Title : ___________________________ NOTEHOLDERS: EQUITABLE CAPITAL PRIVATE INCOME AND EQUITY PARTNERSHIP II, L.P. By: EQUITABLE CAPITAL MANAGEMENT CORPORATION, its General Partner By: _______________________________ Title: Investment Officer 3 - 232 - EX-11 18 EARNINGS PER SHARE DATA TRANSMISSION NETWORK CORPORATION COMPUTATION OF INCOME(LOSS) PER SHARE
Year Ended December 31, --------------------------------------- 1996 1995 1994 ------------ ------------ ----------- Primary Computation of income (loss) per common and common equivalent share: Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738) ============ ============ ============ Average shares outstanding 10,657,893 9,908,592 9,760,200 Add shares applicable to stock options and warrants (1) Add shares applicable to stock options & warrants prior to conversion, using average market price prior to conversion(1) ------------ ------------ ------------ Total shares 10,657,893 9,908,592 9,760,200 ============ ============ =========== Per common share: Net income (loss) ($0.09) ($0.03) $0.16) ============ ============ =========== - ------------------------------------------------------------------------------- (1) Shares applicable to warrants and stock options are antidilutive for the period ended December 31, 1996, 1995 and 1994, and thus, are excluded from the calculation of net loss per common share.
26 - 233 -
EXHIBIT 11 - Pg 2 DATA TRANSMISSION NETWORK CORPORATION COMPUTATION OF INCOME(LOSS) PER SHARE Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ----------- Fully Dilutive Computation of income (loss) per common and common equivalent share: Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738) ============ ============ ============ Average shares outstanding 10,657,893 9,908,592 9,760,200 Add shares applicable to stock options and warrants (1) Add shares applicable to stock options & warrants prior to conversion, using average market price prior to conversion(1) ------------ ------------ ------------ Total shares 10,657,893 9,908,592 9,760,200 ============ ============ =========== Per common share: Net income (loss) ($0.09) ($0.03) ($0.16) ============ ============ =========== - ------------------------------------------------------------------------------ (1) Shares applicable to warrants and stock options are antidilutive for the period ended December 31, 1996, 1995 and 1994, and thus, are excluded from the calculation of net loss per common share.
27 - 234 - EX-99.B2 19 1996 - -------------------------------------------------------------------------------- CORPORATE PROFILE - -------------------------------------------------------------------------------- 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. DTN's services are tailored to meet our subscriber's 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 subscriber's 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 subscriber's convenience. DTN's services reach 145,900 subscribers in the U.S. and Canada. The Company has services for the agriculture, automotive, energy, farm implement, financial, mortgage, produce, golf, turf management, aviation, construction, emergency management and other weather related industries. The services include DTN AgDaily and DTN FarmDayta, targeted for agribusinesses; DTN Pro SeriesSM and DTN FarmDayta Elite, advanced information services for agribusinesses; DTNstant, for customers needing a real-time agriculture ticker service; DTNironSM for the farm implement dealer; DTN PROduce for the produce industry; DTN Weather Center, for the golf, turf management, aviation and construction industries; DTN Wall Street and DTN SpectrumSM, an enhanced version of DTN Wall Street on the ACE technology, for the financial industry; DTN FirstRate for the mortgage industry; DTN GovRate for U.S. government securities; DTN Broker +SM for the brokerage industry; DTNergy for the petroleum and natural gas industries; DTNautoSM for the auto auctions and auto dealers; and joint ventures for the electrical equipment and trucking industries. - -------------------------------------------------------------------------------- MISSION STATEMENT - -------------------------------------------------------------------------------- Led by customer suggestions and demands, Data Transmission Network Corporation has engineered growth and evolution from what we were the first low-cost, electronically delivered agricultural commodities information service to what we are today a multi-faceted information provider utilizing a full-service communication technology system 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. - 235 -
- -------------------------------------------------------------------------------- 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 ............................................. 23 Independent Auditor's Report .............................................. 23 Financial Statements ...................................................... 24 Notes to Financial Statements ............................................. 28 Quarterly Data ............................................................ 33 Trading Information ....................................................... 33 Investor Information ...................................................... 34 Directors and Officers .................................................... 34 Appendix - A Letter To Our Shareholders - Technology Update ............... 35
1 - 236 - - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
For the Year: 1996 1995 % Change - ------------------------------------------------------------------------------------------------------------------------------------ Revenues $ 98,383,713 $ 62,287,989 58% Operating cash flow(1) 40,377,428 23,154,402 74% Loss before income taxes (1,404,306) (397,076) - Net loss (958,306) (283,076) - Net loss per share (4) $ (.09) $ (.03) - - ------------------------------------------------------------------------------------------------------------------------------------ At Year End: Total assets $ 177,729,762 $ 92,672,050 92 % Long-term debt and subordinated notes 97,747,823 47,020,527 108 % Stockholders equity 28,290,289 12,876,965 120 % Book value per share (4) $ 2.56 $ 1.29 98 % - ------------------------------------------------------------------------------------------------------------------------------------ Key Indicators: Total subscribers at year-end 145,900 95,900 52 % Subscriber retention rate 89.3% 91.0% (2)% Net development costs(2) $ 5,344,261 $ 3,733,530 43 % Operating cash flow from core services(3) $ 45,512,581 $ 26,749,974 70 % As a percent of revenue: Operating cash flow(1) 41.0 % 37.2 % Operating cash flow from core services(3) 47.4 % 44.4 % Depreciation and amortization 34.0 % 30.2 % Interest 8.6 % 7.7 % Net loss before income taxes (1.4)% (.6)% - -------------------------------------------------------------------------------- (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. (4) Per share data is shown after 3-for-1 stock split.
- -------------------------------------------------------------------------------- FIVE YEARS IN REVIEW - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORM: 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Revenues ($ millions) 26.8 36.0 46.1 62.3 98.4 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Operating Cash Flow ($ millions) 9.9 12.9 15.8 23.2 40.4 2 - 237 - - -------------------------------------------------------------------------------- FIVE YEARS IN REVIEW - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORM: 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Operating Cash Flow (percent of revenue) 37% 36% 34% 37% 41% 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Net Development Costs ($ millions) 1.1 2.7 4.3 3.7 5.3 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Subscribers At Year End (thousands) 67.6 74.1 82.0 95.9 145.9 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Subscriber Retention Rate (percent) 88.2 88.8 89.8 91.0 89.3 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Annual Revenue Per Subscriber ($ based on average subscribers) 409 507 591 700 775 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Annual Operating Cash Flow Per Subscriber ($ based on average subscribers) 151 183 202 260 318 3 - 238 - - -------------------------------------------------------------------------------- LETTER TO STOCKHOLDERS - -------------------------------------------------------------------------------- The two most significant highlights for DTN during 1996 were the measurable improvements in the efficiency of administration and customer service and our acquisition of Broadcast Partners. These factors are primarily responsible for improved operating cash flow (operating income before depreciation and amortization) as a percentage of revenue. Operating cash flow improved from 34 percent of revenue for the first quarter of 1996 to 40 percent of revenue for the fourth quarter of 1996. This comparison is apples to apples - it excludes any effects associated with the second most significant highlight of 1996: our May acquisition of Broadcast Partners. Broadcast Partners was our biggest competitor in the agricultural delayed quotes field. We paid $73,300,000 for this asset acquisition and gained 39,000 customers and approximately $10,000,000 in annual operating cash flow. With the merger of the two businesses, its associated synergies and elimination of some redundancies, the acquired cash flow appears to be more in the magnitude of $13,000,000 to $14,000,000 per year. The above two highlights are responsible for total company cash flow in the fourth quarter of 1996 to be 44.8 percent of fourth quarter revenues. We improved 1996 operating efficiency because all employees pitched in to help manage our fast-growing company in a frugal fashion. Each and every one of us took ownership of the task in a way that makes me proud. Additionally, I salute Greg Sloma, our President, and his supporting cast, whose abilities and tenacity brought to us the acquisition of Broadcast Partners. DTN recorded an outstanding, unprecedented performance in 1996. Here are the highlights. o Revenues grew 58 percent from $62,288,000 for 1995 to $98,384,000 for 1996. o Operating cash flow (operating income before depreciation and amortization expense) grew 74 percent from $23,154,000 for 1995 to $40,377,000 for 1996. o Operating cash flow as a percentage of revenue improved from 37 percent for 1995 to 41 percent for 1996. o Total subscribers increased 52 percent from 95,900 for 1995 to 145,900 for 1996. o Operating revenue per subscriber - consisting of subscriptions, "a la carte" additional services, communications and advertising revenue - increased 9.4 percent from $55.70 per month for 1995 to $60.92 for 1996. To assist in your own analysis of DTN, I have included the following 1995 vs. 1996 comparisons, which exclude growth associated with our acquisition of Broadcast Partners. o Revenues grew 33 percent from $62,288,000 to $82,937,000. o Operating cash flow grew 32 percent, from $23,154,000 to $30,539,000. o Total subscribers increased 11.5 percent, from 95,900 to 106,900. DTN's growth in services leaves us with many more doors to knock on than our existing sales force can possibly handle, so a major focus at our shop continues to be enlarging our distribution capability, primarily our field sales force. During 1996, our field sales force grew approximately 40 percent, from 120 to 170 people. For 1997, we have planned an additional 40 percent increase. For the second and third quarter reports of 1996, I asked Robert Herman, our Senior Vice President for Research and Technology, to give us an abbreviated technology update. I have put him in the hot seat one more time. So for this annual report, Robert has included a more comprehensive appendix entitled, "A Letter to Our Shareholders - Technology Update". I think you will enjoy it. Additionally, as can be seen in the graphic on the following page, DTN has put together an array of services for the Agricultural, Weather, Financial, Energy, Auto, Electrical Equipment and Trucking Industries. The business review section located in the following pages offers a comprehensive description of each service. By necessity our business review section is a little voluminous. However, I suggest that each shareholder read it as carefully as if you are to be subjected to an exam on its contents. Careful reading of this section will allow you to conjure up a picture of your company, its accomplishments, our momentum, and more importantly assess the potential of our future. Know what you own. 4 - 239 - My thanks to our customers, suppliers, financiers and stockholders for their support. And a special thanks to all of our employees and their families for a very successful 1996. Very sincerely yours, Roger Brodersen Chairman and CEO 5 - 240 - - -------------------------------------------------------------------------------- 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 1996, DTN added several new services in the agriculture, weather and financial service lines. All of these services are discussed in this report. DTN services reach 145,900 subscribers throughout the U.S. and Canada. 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 communications industry. The Company continues to make large investments to develop and enhance its information distribution technology. These investments have 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 develop information distribution technologies that cost effectively deliver the timely (NEWS...NOT HISTORY) information that the Company's subscribers demand. DTN supports several information distribution technologies allowing the distribution (transmission) and receiving (capture, manipulation and display) of information. These technologies include FM radio side-band channels (FM), small dish Ku-band satellite (Ku), Fax, Cable TV (by using the vertical blanking interval, or VBI), E-Mail and the Internet. The first technology used by the Company was FM radio side band. The Ku technology was added in 1989, providing the ability to reach customers outside the geographic territory of the signal of the FM stations. Fax, 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 and VBI. This equipment includes a receiver, specifically built for the Company, a video monitor, a 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 Engine (ACE) receiver, a color graphics receiver system, that expanded the ability to provide information and communication services. This receiver has multiple processors that capture, manipulate and display high resolution color pictures, 6 - 241 - graphics and text. A separate processor provides the ability to play audio clips such as weather forecasts, voice advertisements or audio alarms which are used when a futures contract reaches a pre-set price. In addition, this processor may send and retrieve information by using an internal modem connected to a phone line. The ACE receiver also has the capability 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 displayed. The receivers built-in control panel, keyboard or mouse allows the subscribers to conveniently view this information. One of the unique aspects of the Company's information distribution technology is the computer software developed by the Company 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 or group of subscribers. The Company leases FM radio side-band channels, satellite channels and VBI space to deliver the information to the Company's receivers used by its subscribers. All information is up-linked from Omaha to satellite (except Internet, Fax and other telephone delivery technology) and down-linked from the satellite to the subscriber based on the distribution technology. The FM monochrome subscribers receive their information using an FM antenna that receives the information via the side-band signal transmitted from radio stations. On December 31, 1996, 15,600 subscribers were receiving the Company's services via FM distribution technology. The Ku subscribers utilize a 30" satellite dish, a direct down-link, to receive their information. On December 31, 1996, 128,000 subscribers were receiving the Company's services via Ku distribution technology. Early in 1994, the Company began using a new cable TV distribution technology involving vertical blanking intervals (VBI). The Company 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, 1996, 2,300 subscribers were receiving the Company's services by VBI distribution technology. The Company has approximately 10,500 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 500 E-Mail sources delivering over 1,500 pages of information to subscribers daily. The Company began to deliver services on the Internet in 1995. The Company is currently offering services in the agriculture, produce and finance service lines 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 services, (3) communication services, (4) advertising and (5) service initiation fees. The percentage of total revenue for each category over the last three fiscal years was:
1996 1995 1994 ---- ---- ---- Subscriptions 76% 74% 73% Optional services 6% 6% 8% Communication services 9% 11% 10% Advertising 3% 3% 5% Service Initiation Fees 6% 6% 4%
The subscription revenue is generated from monthly, quarterly or annual subscription fees for one of the Company's services. The Company offers a discount to subscribers who pre-pay their subscriptions annually. A more detailed review of each service is found later in this report. Optional services are offered to subscribers on an "a la carte" basis, similar to premium channels on cable TV. 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 in total dollars and has maintained the level achieved in 1996 as a percentage of total revenue during this period of rapid subscriber and subscription revenue growth. The Company sells communication services that allow companies to cost-effectively communicate a large amount of timely (NEWS...NOT HISTORY) information to their customers or field offices. This category includes revenue generated from FAX and E-Mail services. Communication revenue has continued to grow in total dollars and management believes this area offers opportunities for future growth. 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 timely (NEWS...NOT HISTORY) delivery of the ad, as well as the ability to change the advertising message quickly and as frequently as market conditions dictate. Advertising revenue continues to grow in total dollars and has maintained the level achieved in 1996 as a percentage of total revenue during this period of rapid subscriber and subscription revenue growth. Service initiation fees are one-time charges for new subscriptions depending on the service and the information distribution technology. DTN also charges an initiation fee for those subscribers who convert to another service (ie: from a monochrome FM to a Ku color service). - -------------------------------------------------------------------------------- DTN AGRICULTURAL SERVICES - -------------------------------------------------------------------------------- The DTN Agricultural Services include DTN AgDaily, DTN ProSeries, DTN FarmDayta, DTNstant, DTNiron and DTN PROduce. New subscriptions are primarily sold by the Company's national sales force of employee district sales representatives, in-house sales staff, and inde- 7 - 242 - GRAPH IN TABULAR FORM: 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- DTN Ag Services Revenue ($ millions) 20.6 27.0 33.7 44.0 69.7 pendent, commission-only sales representatives. The Company obtains leads for the sales force through telemarketing, direct mail, print media advertising and customer referrals. The Company's management continues to analyze the markets in the U.S. and Canada to determine the optimum sales force necessary to cost-effectively maximize sales. The biggest competition to these services is the combination of printed advisory services, radio, television, telephone, other satellite information services, on-line services and the changing of old information gathering habits DTN's agricultural subscribers have more than 150 optional services available to them. These services consist of advisory, informational and educational products. Additional services include newswire, association and free services. DTN subscribers are given the opportunity to tailor their DTN unit to their specific needs by choosing from a broad mix of "a la carte" services. DTN continues to develop new optional services to meet customer demands by listening closely to the marketplace. The Company markets these services through a combination of individual free trials, system-wide trials, on-screen advertising, direct mail, invoice stuffers, equipment stuffers and telemarketing. The total number of monthly subscriptions increased over 25% primarily due to these marketing campaigns. The increase in subscriptions fueled the impressive increase in optional services revenue. Optional service subscription prices range from $6 to $1,200 per quarter with the average subscription price of $60/quarter. In 1996, the agricultural related services sold over three million dollars 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 1996 confirmed that DTN is an important player in the agriculture media field. - -------------------------------------------------------------------------------- DTN AGDAILY SERVICES - -------------------------------------------------------------------------------- The DTN AgDaily Services are DTN AgDaily, DTN Pro Series and DTN FarmDayta. 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, Pro Series and FarmDayta subscribers farm nearly one third of the nations total cropland and market more than 50% of the nations' cattle and hogs. Subscribers can be found throughout the U.S and Canada. DTN AgDaily management believes the trend toward consolidation into larger farms is expanding the market for agricultural information services. Also, the governments move toward fewer agricultural price supports and an open market system will support expansion of agricultural information services. This expansion should provide steady growth for DTN AgDaily, DTN Pro Series and DTN FarmDayta. DTN AgDaily SERVICE REVIEW The Company's first service, DTN AgDaily, is an agricultural market information, quote and weather 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 affect grain and livestock prices. The DTN AgDaily color graphics system includes an advanced weather segment with national and regional radar maps (updated every 15 minutes), infrared satellite cloud cover maps, precipitation, temperature, jet stream, surface wind and snow cover maps, and much more. The subscriber can custom design high resolution charts and/or select from a library that holds over 1,000 charts. 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 as well as general, business, sports and entertainment news. DTN AgDaily color service offers 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 allows subscribers to search an extensive seed catalog. The price of the monochrome FM service is currently $29 per month, $35 per month for monochrome Ku service and $52 per month for color Ku service. DTN offers services with advanced features bundled with DTN AgDaily called the DTN Pro Series. The DTN Pro Series services are also managed as a service within DTN AgDaily. DTN Pro Series 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, fore- 8 - 243 - cast 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. News Pro subscribers receive AP Online, a service of the Associated Press, as a news source. 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 Pro Series' enhanced functionality includes a high interest window that allows a user to view future or options quotes on any page, key word search that automatically searches the news story database for articles affecting the user's operation, a user custom segment that creates a customized segment with up to five of the users favorite pages, and a personal library that serves as a customized archive segment. Each individual Pro Series service is currently priced at $62 per month except the Stock Pro which is currently priced at $66 a month. DTN Premier is the package of Weather Pro, News Pro, Chart Pro and Intraday Pro, currently priced at $79 per month. DTN Premier Plus is the package of DTN Premier and Stock Pro, currently priced at $82 a month. This service is available by color Ku-band satellite transmission. DTN FarmDayta SERVICE REVIEW DTN FarmDayta was the principle asset acquired from the Broadcast Partners acquisition in May 1996. The content of this service is very similar to DTN AgDaily. In fact, since its start in 1990, DTN FarmDayta was the primary competition for DTN AgDaily services. DTN FarmDayta is an agricultural market information, quote and weather service delivering delayed commodity futures and options quotes; local cash grain and livestock prices; selected regional and world weather updates; and a variety of daily analysis, commentary and news that affect grain and livestock prices. DTN FarmDayta Elite service is an advanced version of DTN FarmDayta and is similar in content to the DTN AgDaily service. Additional features include additional options quotes, charting, weather maps and a hard drive to store data in the receiver which is critical to maintaining storage of information during a power outage. DTN FarmDayta Elite Plus is an advanced service that includes the DTN FarmDayta Elite features and is similar in content to the DTN Pro Series. This service includes more advanced news (Reuters Headline News), quotes, weather (including motion and zoom capabilities) and programmable charts. DTN FarmDayta, and its enhanced versions DTN FarmDayta Elite and Elite Plus, are currently priced at $44, $52, and $62 a month, respectively. All these services are available by color Ku-band satellite transmission. The addition of DTN FarmDayta gives the Company a fully integrated agricultural service line with price entry points across a wide spectrum, expanding the marketing horizons for all DTN agricultural services. At the time of the acquisition, DTN FarmDayta had 39,000 agricultural subscribers. The Company does not plan to convert DTN FarmDayta equipment to DTN AgDaily equipment and currently maintains the DTN FarmDayta facilities, with nearly 100 employees, in Des Moines, Iowa. 1996 AGDAILY SERVICES HIGHLIGHTS DTN AgDaily remains the Company's largest service and its 1996 performance exceeded managements expectations. A 17% subscription growth rate demonstrated acceptance of higher-priced services. The number of subscribers in Canada increased 64% in 1996 compared to 1995. DTN AgDaily introduced a number of enhancements to the service during 1996, including 48-color regional radar maps, northern grains segment and a peanut segment. 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. The DTN Pro Series had an extremely successful 1996. The number of Pro Series subscribers grew more than 60%, accounting for 47% of all the DTN AgDaily service sales. Our ongoing 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 has remained very high and is well above the Company's combined subscriber retention rate. In September, the Company introduced its agricultural Internet service, DTN FarmDayta Online. DTN FarmDayta Online is similar in content to DTN FarmDayta Elite Plus, and is designed for the producer who either prefers to use his or her own personal computer to receive information or is not able to utilize the traditional satellite-based system that DTN supplies to its subscribers. DTN FarmDayta Online is currently available for $25 a month. The market for subscription-based Internet services in agriculture is relatively new so it is difficult to reach any conclusions on market acceptance. 9 - 244 - DTNstant SERVICE REVIEW DTNstant is a color service that provides a selection of real-time futures and options quotes from the major commodity exchanges and headline commodity news from multiple sources such as the Associated Press, Futures World News and Knight Ridder. The service also provides market leading cash information, in-depth charting capabilities, plus all the information available on the DTN AgDaily color service. In addition, this service 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 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 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 Company's national sales force which is supported by telemarketing and direct mail campaigns. This service is available by color Ku-band satellite transmission and is currently priced at $170 a month. 1996 HIGHLIGHTS DTNstant experienced a year of good growth from the momentum gained from the 1995 acquisition of Knight-Ridder Commodity Center subscribers. Subscribers grew by 8%, and management believes this growth is impressive due to a significant amount of resources committed to converting the acquired subscribers to the DTN ACE receiver system. New features added during the year include user-programmable formulas for data analysis, the enhancement of the high interest windows to include news stories, and increased keyboard functionality. The service is planned to receive additional enhancements in 1997. The DTNstant service became compatible with software that allows the "pass thru" of data and graphics into a computer local area network (LAN). One DTN ACE receiver then feeds information to multiple users/traders on the LAN. This pass thru software opens new markets, by utilizing information distribution within a customer's LAN enhancing analytical capabilities. DTNiron 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 implements and 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 implements and equipment for sale or needed by dealers. A listing stays on the system for a minimum of 30 days, renewable at the dealers request. Subscribers receive industry news, financial information, economic indicators and information from the DTN AgDaily color service. The DTNiron service also includes listings of construction equipment, trucks, trailers and other equipment that is found in the agriculture industry. The service provides listings for implement and equipment parts, especially hard to find parts. In addition, the service sorts the listings by regions and provides hourly updates to keep the information as timely (NEWS...NOT HISTORY) as possible. This service is available by color Ku-band satellite transmission and is currently priced at $98 a month. 1996 HIGHLIGHTS DTNiron introduced the Combine and Tractor Demand Monitor, the first widely distributed annual sales outlook to cut across the entire spectrum of tractor and combine manufacturers. This monthly economic study released to all DTNiron subscribers helps track the money-making trends in the industry. The monitor has been quickly adopted by the industry as the standard for sales outlooks. The Combine and Tractor Demand Monitor is released to the trade and agricultural press one or two days after release to DTNiron subscribers. DTN PROduce SERVICE REVIEW DTN PROduce is the authority in providing the produce industry with the most timely weather, produce prices, transportation data 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 news including AP Online. DTN PROduce maintains a price discovery network, the DTNdex, that is the industry standard. Competition in this industry continues to focus on older technology, such as Fax machines. The market for this service is the entire produce food chain of growers, shippers, packers, brokers, retailers and institutions. This service is available via color Ku-band satellite and currently is priced at $88 per month. 1996 HIGHLIGHTS DTN PROduce began working with the key industry sources of news including "The Packer" and "The Produce News" and credit information from the 10 - 245 - "Produce Reporter Company" and the "Red Book Credit Service" to offer the most complete information service available. DTN PROduce developed a service targeted specifically to the produce growers to capitalize on this segment of the market. This service includes all the features of the DTN PROduce service with the exception of transportation information and AP Online news. This service is currently available via color Ku-band satellite and currently is priced at $62 per month. DTN PROduce expanded its service to the Internet to accommodate seasonal and international customers who are unable to utilize a satellite dish. The price of this service is currently $50 a month. - -------------------------------------------------------------------------------- DTN WEATHER SERVICES - -------------------------------------------------------------------------------- The DTN Weather Center Services have expanded from DTN Weather Center into specific industry-related services including DTN Weather Center - Turf Manager, DTN Aviation Center and DTN Weather Center - Contractor Dayta. GRAPH IN TABULAR FORM: 1994 1995 1996 ---- ---- ---- DTN Weather Services Revenue ($ millions) 0.0 1.0 5.6 DTN WEATHER CENTER SERVICE REVIEW DTN Weather Center is a comprehensive weather information system designed to meet the weather information needs of many industries. Markets specifically targeted by DTN Weather Center are golf courses, turf management, emergency management, state transportation departments, construction and aviation. DTN Weather Center has found a home in numerous other industries where timely (NEWS...NOT HISTORY), accurate and easily accessible weather information is a critical ingredient in operational planning and staffing decisions. DTN Weather Center services provide over 100 weather maps, 20 regional radar maps including NEXRAD radar and infrared satellite photos and six satellite maps. The services provide short-range (12-48 hours) forecasts, long-range (3-90 day) outlooks, and 10 day city forecasts for over 550 different cities in the U.S. and Canada. The services include a personal programmable segment, storing of maps in an "Archive Segment" and AP Online News is provided as an optional service. This DTN Weather Center service is available via color Ku-band satellite transmission and is currently priced at $72 per month. DTN WEATHER CENTER TURF MANAGER SERVICE REVIEW Turf Manager is available to those individuals and businesses involved in turf-related operations such as golf course, lawn maintenance, landscaping and sod farm. This service provides the news, weather and chemical information designed for turf management. Chemical and Pesticide Press Turf Index is a unique feature providing an information database of over 275 turf pesticides. Lightning Indicator Maps are updated hourly including the latest information on where lightning is striking. Evapotranspiration Tables provide regional evaporation rates for planning watering and chemical applications. ESPN Sports Ticker provides the current golf related stories and results from ESPN. AP ONLINE provides over 300 current news stories in four chapters: General, Business, Sports and Entertainment. The National Golf Course Directory is a database of the location, phone number, course pro, and course superintendent of any member course. This combination of features along with the weather information makes the Turf Manager a complete package. DTN Weather Center - Turf Manager is available via color Ku-band satellite transmission and is currently priced at $72 a month. DTN AVIATION CENTER SERVICE REVIEW DTN Aviation Center is a comprehensive aviation weather package specially designed for pilots, airports and Fixed Base Operators (FBO's). DTN Aviation Center supplies airports, pilots and FBO's with the comprehensive flight-plan information found on many premier "on-line" systems. This package includes U.S. and regional depiction maps, 24 hour low level significant weather prognosis, and U.S. region winds and temperatures aloft. Subscribers of DTN Aviation Center use it while speaking to flight services to help visualize the current weather conditions while they are making their flight plan. This service can also help determine alternate route destinations. Subscribers can choose the Level I service, which is designed for the local/regional flyers up to 18,000 feet, or the Level II service which is designed for pilots and airports flying nationally up to 45,000 feet. The Level II service also provides European flight information. DTN Aviation Center is available via color Ku-band satellite transmission and is currently priced at $103/month for Level I and $152/month for Level II. 11 - 246 - DTN WEATHER CENTER Contractor Dayta SERVICE REVIEW The DTN Contractor Dayta service is designed to keep subscribers informed of all construction related news and industry information to assist them in maintaining a competitive advantage. This service provides all of the valuable weather information that comes with the DTN Weather Center and is necessary for making those important day-to-day business decisions. Industry specific information includes general information, association and industry information, construction news, bids and resources and the contractors exchange. In addition, subscribers receive sports scores and highlights and financial indicators. The DTN Contractor Dayta service in available via color Ku-band satellite transmission and is currently priced at $82 a month. 1996 WEATHER CENTER SERVICES HIGHLIGHTS DTN Weather Center services exceeded company sales goals for the second straight year and now has over 8,000 subscribers. The industries leading with the highest concentration of sales continue to be golf courses, aviation, governmental agencies (emergency management and state transportation departments) and construction-related businesses. The growth of DTN Weather Center in 1996 has again led to the decision to expand the sales and marketing staff for 1997 and will include the addition of sales directors for the aviation and government markets. The success of the governmental agencies included sixteen state Departments of Transportation (DOT) adding DTN Weather Center systems to their maintenance garages following the lead of the Iowa DOT which added over 100 systems in 1995. DTN Weather Center is quickly becoming the industry standard for weather information provided to state DOTs. DTN Weather Center made significant progress in the golf industry and added two of the industry's leading organizations as information providers; the United States Golf Association and the Golf Course Superintendents Association of America. DTN Weather Center also branched out to other sports providing on site weather information at 11 NCAA championship events and the 1996 Summer Olympic Games in Atlanta. - -------------------------------------------------------------------------------- DTN FINANCIAL SERVICES - -------------------------------------------------------------------------------- DTN Financial Services offers five services, DTN Wall Street, DTN SPECTRUM, DTN FirstRate, DTN GovRate and DTN Broker+. Subscribers to all DTN Financial Services have a variety of optional services from which to choose providing stock selection and timing advice, earnings estimates, fundamental stock market data, U.S. Treasury quotes and other financial market related services. GRAPH IN TABULAR FORM: 1992 1993 1994 1995 1996 DTN Financial Services Revenue ($ millions) 3.3 4.1 5.1 6.1 8.6 DTN Financial Services revenue grew 41% during 1996, adding to its bullish 35% compounded revenue growth for the past 5 years. DTN Financial Services' objective is to provide a comprehensive in-depth service at an affordable cost to its subscribers. This objective will remain very important due to the highly competitive nature of this business. The "a la carte" optional services offered to subscribers give them an even larger variety of information. Contents of all DTN Financial Services are broader in scope and cost less than competitive services. This combination allows the services to continue maintaining a competitive advantage in its market niches. DTN SPECTRUM SERVICE REVIEW DTN SPECTRUM was released in 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, news search and charting capabilities. DTN SPECTRUM is being very well received by new subscribers and existing subscribers who are electing to "switch-up" to gain use of the advanced features of the service. DTN SPECTRUM subscription sales accounted for 54% of DTN Financial Services new subscription sales during 1996. An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. DTN SPECTRUM R-T marked the entry by DTN Financial Services into the real-time commodity quotes market during 1996. This service provides a mix of exchange-delayed quotes along with the subscriber's choice of real-time futures quotes. By year-end 1996, this higher revenue and higher margin service was generating 21% of the total DTN SPECTRUM subscription sales. DTN SPECTRUM and DTN SPECTRUM R-T are available on the color platform by Ku-band satellite transmission and are currently priced at $68 and $118 per month, respectively. 12 - 247 - DTN Wall Street SERVICE REVIEW DTN Wall Street provides exchange-delayed quotes on stocks, bonds, mutual and money market funds, futures, interest rates, currencies and real-time index quotes. This service also provides in-depth economic, financial and business news and other time-sensitive (NEWS... NOT HISTORY) financial market information such as company-specific news and earnings. This service allows subscribers to custom program the system to track their selection of financial quotes. The majority of subscribers to DTN Wall Street are individual investors, and the balance of subscribers are independent brokers, financial advisors and financial institutions. The primary competition for DTN Wall Street are satellite, TV cable (VBI), Internet and dial-up quote services. DTN Wall Street is available on the monochrome platform by Ku-band satellite and TV cable (VBI) transmission and is currently priced at $44 per month. DTN FirstRate SERVICE REVIEW DTN FirstRate is a service for the mortgage industry providing wholesale mortgage rates in an easy-to-use standard format and intra day interest rate information to indicate the direction of mortgage loan rates. This service also provides subscribers with snapshots of real-time rates from Fannie Mae and Freddie Mac plus other news, commentary and analysis for mortgage lenders. Sales for DTN FirstRate during 1996 remained slow. In October 1996, DTN FirstRate+ was made available on the ACE platform. This service, named DTN FirstRate+, provides many more useful features which are proving to be appreciated by new subscribers. Marketing for DTN FirstRate is now all being done by DTN Financial Services' institutional sales group which assists direct sales of this service by DTN's national sales force. We believe the availability of DTN FirstRate+ on the ACE platform and a more focused marketing effort will lead to higher sales in 1997. DTN FirstRate is available on the monochrome platform by Ku-band satellite or TV cable (VBI) transmission and is currently priced at $98 per month. DTN FirstRate+ is currently available on the ACE platform via Ku-band satellite transmission for $129 per month. DTN GovRAte SERVICE REVIEW DTN GovRate provides executable U.S. government security quotes. These real-time prices are provided from a primary dealer, the former Discount Corporation of New York (DCNY), now operated as a division of Zions First National Bank. The Company views this service as an important development for financial institutions. DTN GovRate is providing opportunities for small to mid-size banks, public and corporate treasurers, and independent brokerage firms to participate in trading of U.S. government securities. Zions First National Bank facilitates this by offering odd lot trading and repurchase agreements. This service is currently available on the monochrome platform by Ku-band satellite or TV cable (VBI) transmission for $34.95 per month and is also currently available on the ACE platform by Ku-band satellite transmission for $68 per month. DTN Broker+ SERVICE REVIEW DTN Broker+ is a modified version of DTN SPECTRUM with enhancements designed specifically to serve independent securities brokers and financial advisors. Marketing for DTN Broker+ is all done by DTN Financial Services institutional sales group which assists direct sales of this service by DTN's national sales force. DTN Broker+ provides a comprehensive source of market data and time-sensitive, market moving news. It is a low cost alternative source of news and delayed market quotes in its targeted market niche. DTN Broker+ is available on the ACE platform by Ku-band satellite transmission and is currently priced at $73 per month. An extension of DTN Broker+, which provides real-time futures quotes, is currently offered for $123 per month on the ACE platform by Ku satellite transmission. 1996 FINANCIAL SERVICES HIGHLIGHTS The enhanced version of DTN Wall Street utilizing ACE technology, DTN SPECTRUM, was well received during 1996, the first full year of marketing and delivering this service. A majority of the 41% revenue growth for DTN Financial Services during 1996 is attributable to DTN SPECTRUM. DTN Financial Services reorganized its sales and marketing operations into two groups during 1996. One group is responsible for sales to individual investors and the second group is responsible for sales to institutional subscribers. The investor sales and marketing efforts continue to be directed from our Omaha headquarters. The institutional sales and marketing efforts are being directed from the DTN Financial Services office in Salt Lake City. The DTN Financial Services' investor sales and marketing group continues to do direct response marketing utilizing mostly television, print media and direct mail supported by inbound telemarketing. The institutional sales and marketing group utilizes DTN's national sales force to make direct sales to its institutional subscribers such as banks, public and corporate treasurers, independent brokers and financial planners. A mid-year development that has enhanced the DTN Financial Services is the development and release of a software program, DTN Chameleon, which enables subscribers to automatically download from the DTN receiver into their PC and thereby customize the use of the quotes and news to their personal needs. DTN Chameleon also provides a universal and seamless interface to most other proprietary software 13 - 248 - programs used for technical analysis and portfolio management. This almost universal compatibility makes DTN Financial Services an appealing, comprehensive and low cost source of market data for thousands of users of these software programs. - -------------------------------------------------------------------------------- DTN ENERGY SERVICES - -------------------------------------------------------------------------------- The energy related services include DTNergy for the refined fuels, natural gas industries and electric industries. DTNERGY 1992 1993 1994 1995 1996 DTN Energy Services Revenue ($ millions) 2.9 4.9 7.2 10.0 12.2 SERVICE REVIEW DTNergy is a service providing pricing information and communication 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 (distributors 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. Wholesalers currently pay a monthly subscription fee of $38.00 for the monochrome Ku-band satellite service. Refiners pay fees based on the number and length of communications sent to wholesalers. DTNergy also has an information service for the natural gas and electric industries. Subscribers receive instant or delayed NYMEX energy futures and options quotes, a comprehensive weather package and industry specific news and market information. This service is marketed to energy producers and generators, transporters, marketers, utilities and larger energy consumers. The service is available on color Ku-band satellite and is currently priced at $130 a month with 30-minute delayed quotes and $170 a month with real-time quotes. 1996 DTN ENERGY SERVICES HIGHLIGHTS The DTN Energy Services had another very good year in 1996, with total revenue growth of more than 22% between the two product groups that make up DTNergy. The market information and messaging services provided to refiners and their distributors continues to be the first choice of the industry for the distribution of terminal prices, funds transfer notifications and electronic invoices. The DTNergy system now carries more than two million messages a month for this industry. Total revenue growth for the Refined Fuels service was 19% for the year. Although the subscriber base receiving market information via DTN's satellite receiver system is nearing maturity, growth potential still exists in niche areas such as refiner communications to commercial and industrial customers and fax communications to smaller fuel distributors. The deregulation of the natural gas and electric markets along with the growth of trading in these commodities will continue to increase the need and value of market quotes and information to these industries and their customers. DTN's strategy is to become a key player in these industries and the Company began providing market quotes and weather information to customers via their local area networks (LAN's) in 1996. The future services and market positioning are being addressed related to providing Internet services and strategic industry alliances which could have a positive impact on the future of the DTN Energy Services. - -------------------------------------------------------------------------------- DTN Auto Services - -------------------------------------------------------------------------------- SERVICE REVIEW GRAPH IN TABULAR FORM: 1994 1995 1996 ---- ---- ---- DTN Auto Services Revenue ($ Millions) 0.0 0.7 1.4 14 - 249 - DTNauto DTNauto is a communication and information service for the automobile industry. This service offers automobile dealers precision information to value trade-ins and 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 available by color Ku-band satellite transmission and is currently priced at $98 per month. 1996 DTNAUTO HIGHLIGHTS The driving force that fuels the DTNauto service remains the pre-auction listings of used cars at more than 125 auctions across the country and AuctionNet, a wholesale pricing service. DTNauto established remarketing and communication networks giving the manufacturers the ability to communicate with the dealers. These included Lexus, Mazda, Chrysler, American Honda, Subaru and Kia. A remarketing segment was also established for the following rental car companies: Avis, Dollar, Enterprise and Thrifty. - -------------------------------------------------------------------------------- JOINT VENTURE SERVICES - -------------------------------------------------------------------------------- GRAPH IN TABULAR FORM: 1994 1995 1996 ---- ---- ---- DTN Joint Ventures Services Revenue ($ Millions) 0.0 0.7 1.4 DTN has joined forces with other companies to market their services using the Company's technology. The services are TracElectric and DAT Transportation Terminal. TRACELECTRIC 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 by monochrome Ku-band satellite and DTN receives a percentage of the revenue. DAT Services SERVICE REVIEW The DAT (Dial-A-Truck) Transportation Terminal (DAT) service, located in Beaverton, OR, is an information communication system for the trucking industry. The service provides load and truck matching performed on a database of 30,000 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 available by color Ku-band satellite and DTN receives a monthly fee per receiver. 15 - 250 - - -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- GRAPHS IN TABULAR FORMS: % of Total Revenues: 1996 1995 1994 ---- ---- ---- DTN Ag Services 71% 71% 73% DTN Financial Services 9% 10% 11% DTN Energy Services 12% 16% 16% DTN Weather Services 6% 2% - Other Services 2% 1% - % of Subscribers At Year End: 1996 1995 1994 ---- ---- ---- DTN Ag Services 80% 78% 81% DTN Financial Services 8% 10% 10% DTN Energy Services 5% 8% 8% DTN Weather Services 5% 3% - Other Services 2% 1% 1%
1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ For the Year: Revenues $ 98,383,713 $ 62,287,989 $ 46,109,789 $ 35,992,754 $ 26,816,254 Operating income 6,920,791 4,343,252 694,560 2,408,868 2,995,319 Income (loss) before income taxes (1,404,306) (397,076) (2,422,738) 1,020,831 2,051,352 Net income (loss) (985,306) (283,076) (1,602,738) 663,831 1,351,352 Net income (loss) per share (.09) (.03) (.16) .07 .14 Dividends per share -- - - - - - ------------------------------------------------------------------------------------------------------------------------------------ At Year End: Total assets $ 177,729,762 $ 92,672,050 $ 71,459,356 $ 57,242,313 $ 38,260,351 Long-term debt and subordinated notes 97,747,823 47,020,527 33,982,814 25,375,000 13,677,083 Stockholders equity 28,290,289 12,876,965 12,706,978 12,780,477 12,167,584
16 - 251 - - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- FINANCIAL CONDITION GENERAL OVERVIEW The equipment used by subscribers is a large capital investment for the Company. This equipment accounts for 65% of the Company's total assets. The Company has also made significant investments during 1995 and 1996 to acquire subscribers. The net intangible asset (goodwill) resulting from the acquisition of subscribers is 21% of the Company's total assets. The acquisition of subscribers is expected to enhance the operating performance and financial condition of the Company. The investments in subscriber equipment will require the Company to increase long-term debt until cash generated from operating activities is sufficient to support future investments. The Company's strategy is to utilize long-term debt financing versus equity whenever possible to prevent the dilution of shareholders value. NET CASH PROVIDED BY OPERATING ACTIVITIES Net cash provided by operating activities in 1996 was $33,777,467 compared to $16,623,310 in 1995. This increase of $17,154,157 was primarily the result of the $17,223,026 increase in operating cash flow plus $3,438,972 of additional cash generated from the change in assets and liabilities, including taxes, offset by the $3,634,158 increase in interest expense related to the Company's investing activities. NET CASH USED BY INVESTING ACTIVITIES Net cash used by investing activities in 1996 was $106,290,603 compared to $29,427,948 in 1995. This increase is primarily due to the purchase of equipment used by subscribers and the purchase of Broadcast Partners. The expenditures on equipment used by subscribers are primarily for color receivers and related equipment. The investment in color receivers and related equipment is a direct result of the growth in the Company's subscriber base and equipment needed to support trial and complimentary subscriptions related to marketing. In addition, approximately 3,500 monochrome system (FM and Ku) subscribers upgraded to the color Ku-band system with over 60% of these conversions involving DTN AgDaily subscribers and the remaining 40% were DTN Wall Street subscribers converting to DTN SPECTRUM. The conversion of approximately 2,200 subscribers from DTN AgDaily on the color Ku-band system to other more advanced Ku-band services such as DTN Pro Series, DTNstant/Knight Ridder, DTNiron, DTN PROduce and DTN Weather Center resulted in upgraded equipment. The acquisition of Knight Ridder customers resulted in approximately 1,400 systems being installed during 1996 for customers added in 1995. DTN increased its inventory of color receivers and components to build color receivers during 1996. At December 31, 1996 the Company had approximately $10,000,000 of inventory compared to $5,000,000 in 1995. This build up of inventory occurred due to advance commitments on inventory purchases. The Company adjusted production schedules during the fourth quarter and will reduce this inventory to a level adequate to supply forecasted sales activity. The reduced production of color systems should reduce borrowing requirements in the first quarter of 1997. The Company had approximately 39,000 monochrome customers at December 31, 1996. The Company utilizes monochrome receiver equipment coming in from conversions for new DTN AgDaily, DTN Wall Street and DTNergy subscribers. DTN will continue to research new markets for monochrome system services but at this time the Company's management believes the prospects are higher for more color system based services. As it relates to the Company's investing activities, the Company had negative working capital of $14,748,094 at December 31, 1996, compared to $10,471,938 in 1995. The increase in the working capital deficiency was primarily due to the Broadcast Partners acquisition which contributed to the growth in accrued expenses of $3,061,044 for acquisition start-up costs and the growth in the current portion of long-term debt of $6,055,625 from additional term debt borrowing needed to finance the acquisition. The working capital deficiency created by the increases in accrued expenses and current portion of long-term debt was offset by an increase in accounts receivable of $3,177,190 from December 31, 1995 to 1996. Accounts receivable increased due to the 52% increase in total subscribers and $3,129,400 was a direct result of the Broadcast Partners acquisition. On 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 for these subscriber over two years. The Company agreed to pay $1,500,000 at closing and $1,500,000 one year from the closing. The remaining $1,970,000 was based on future revenue sharing from company estimates and is scheduled to be paid quarterly during the first two years of this agreement. The purchase price is being capitalized as an intangible asset (goodwill) and is being amortized using the straight line method over eight years. On May 3, 1996, the Company acquired substantially all of the assets of Broadcast Partners, an electronic information and communications services company providing similar services as DTN in the agricultural industry for $63.5 million cash and the assumption of certain "non-interest" bearing current liabilities of approximately $9.8 million. The Company received 39,000 agricultural subscribers in this acquisition to bring the Company's total subscribers to 145,900 at December 31, 1996. 17 - 252 - The Broadcast Partners acquisition was financed with a combination of $15 million of privately placed common stock equity and $48.5 million of six year term debt (see note 3). Included in the acquisition was approximately $38.2 million of equipment used by subscribers and other equipment, which is being capitalized and amortized using the straight line method over five years. Approximately $35.2 million was capitalized as an intangible asset (goodwill) and is being amortized using the straight line method over eight years. NET CASH PROVIDED BY FINANCING ACTIVITIES Net cash provided by financing activities of $72,441,171 was the result of an increase in total debt outstanding (current and long-term) of $56,703,541 and the private placement of 948,000 shares (split adjusted, see note 6) for $15,010,000. The increase in debt outstanding included $48,490,000 of six year term borrowings used to fund the acquisition of Broadcast Partners with the remaining debt used for subscriber growth, conversions and subscriber equipment inventory. The private placement of $15,010,000 of equity was used to fund the balance of the acquisition of Broadcast Partners. The Company made principal payments of $9,036,459 on bank term debt during 1996. DTN anticipates that internally generated cash flow and bank credit lines will be sufficient to fund operating activities, capital expenditures and principal payments on long-term debt. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company believes that inflationary trends have a limited effect on the business. However, since a large percentage of the Company's subscribers and revenues are related to agricultural industries, the general state of the agricultural economy may impact the Company's business operations and financial condition. RESULTS OF OPERATIONS GRAPH IN TABULAR FORM: 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Operating Cash Flow ($ millions) 9.9 12.9 15.8 23.2 40.4 GENERAL OVERVIEW The financial dynamics of DTN's business operations are similar to businesses that sell monthly subscriptions such as electronic publications and communications and cable TV companies. The financial dynamics are such that DTN makes an initial investment of variable marketing costs to obtain new subscribers (generally a one year subscription agreement) and the Company makes a capital expenditure to provide the subscriber with the necessary equipment to receive the Company's services. In addition, DTN has a level of fixed costs, such as FM and Ku satellite leases, certain news and quote providers, and administrative expenses, not directly affected by the number of subscribers receiving the Company's services. DTN's operating cash flow (operating income before depreciation and amortization expense), a key indicator monitored by DTN management, has increased at a compounded growth rate of 42% from 1992 to 1996. This trend is primarily the result of a growing base of subscribers covering the Company's fixed expenses. The following graph details the trend in operating cash flow as a percentage of revenue to illustrate operating leverage. GRAPH IN TABULAR FORM: 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Operating Cash Flow (percent of revenue) 37% 36% 34% 37% 41% The Company has operating leverage due to low variable cost per subscriber. This leverage is present when a growth in subscribers and related revenues has a direct impact on operating cash flow. This leverage, as seen in the 1992 to 1994 periods, can be negatively impacted by the Company increasing the amount committed to research and development activities. DTN accumulates research and development activities as "Net Development Costs". The Company defines "Net 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 administrative allocations plus interest for a full quarter. The service becomes a core ser- 18 - 253 - vice after reaching this level in the development process. During the 1992 through 1994 period, the Company was expanding development activities (see chart on page 3) quite rapidly therefore negatively impacting operating cash flow on a total and percentage basis. During 1995, the success of subscription sales of the new developmental services decreased net development costs. While the overall developmental expenses increased, the growth rate of developmental related expenses declined in 1995 compared to 1994. The result, operating cash flow as a percentage of revenue increased to 37% in 1995 compared to 34% in 1994. Core services operating cash flow as percentage of core services revenue improved to 44.4% in 1995 compared to 43.8% in 1994. Finally, during 1996, DTN expanded it developmental activities with net development costs growing from $3.7 million in 1995 to $5.3 million in 1996. The Company's increased efficiencies on a per subscriber per month basis and the acquisition of subscribers from Broadcast Partners contributed to an increase in operating cash flow as a percentage of revenue from 37% in 1995 to 41% in 1996. Operating cash flow as a percentage of revenue, excluding the acquisition of Broadcast Partners, was 37% in 1996. The expansion of developmental activities was offset by increased efficiencies on a per subscriber per month basis. Core services operating cash flow as a percentage of core services revenue improved to 47.4% in 1996 compared to 44.4% in 1995. Core services operating cash flow as percentage of core services revenue, excluding the acquisition of Broadcast Partners, was 44.3% in 1996 compared to 44.4% in 1995. 1996 COMPARED TO 1995 DTN's management team remained focused on growing subscribers, revenues and operating cash flow during 1996. The acquisition of Broadcast Partners and a focus on improving subscriber efficiencies led to outstanding operating results as compared to the prior year. Operating income improved but higher interest expense linked to the expansion of the business and the acquisition of Broadcast Partners resulted in a loss for the year.
(In thousands) 1996 1995 % Change Subscribers 145.9 95.9 52% Revenues $98,384 $62,288 58% Operating cash flow 40,377 23,154 74% Operating income 6,921 4,343 59% Net Loss (958) (283) (239%)
Total revenue increased 58% in 1996 compared to 1995 and all operating revenue categories made significant contributions to this increase. Operating revenues consisting of subscriptions, additional services, communications and advertising increased to $60.92 per subscriber per month in 1996 compared to $55.70 in 1995. A 52% growth in total subscribers and subscribers upgrading to higher priced services led to a 63% growth in subscription revenue. On May 3, 1996, the Company acquired approximately 39,000 subscribers from Broadcast Partners receiving agricultural information and communications services. The subscriber growth for DTN without the acquisition of Broadcast Partners was 11,000 subscribers, a growth of 11.5%, and subscription revenue related to this subscriber growth was up 34% in 1996 compared with 1995. At December 31, 1996, 88% of total subscribers were receiving service via Ku-band satellite transmission compared to 77% in 1995. All acquired subscribers were receiving service via Ku-band satellite transmission. Subscription revenue on a per subscriber per month basis increased to $49.24, compared to $43.60 in 1995. The price of Ku-band satellite delivered services ranged from $35 for monochrome DTN AgDaily to $160 for the color DTNstant service during 1996. The price of Ku-band satellite delivered services ranged from $33 for monochrome DTN AgDaily to $160 for the color DTNstant service during 1995. The price of the monochrome FM delivered DTN AgDaily (the only FM service) was $27 in 1996 and $26 in 1995. The subscribers converting to higher priced services includes those that switched from the monochrome FM or Ku-band satellite DTN AgDaily service to the color Ku-band satellite DTN AgDaily, priced at $50 in 1996 ($46 prior to June 1, 1996) and $46 in 1995. Subscribers continued to convert from the color Ku-band satellite DTN AgDaily service to the color Ku-band satellite DTN Pro Series which ranged in price from $63 ($59 prior to June 1,1996), for one Pro Series service, to $79 ($74 prior to June 1,1996), for all four Pro Series services (DTN Premier), in both 1996 and 1995. The DTN Premier and Stock Pro, DTN Premier Plus, was priced at $82 a month in 1996 ($78 prior to June 1, 1996) and $78 a month in 1995. The Company increased the number of information services through "a la carte" optional services (180 in 1996 versus 100 in 1995). The growth in services combined with the growth of total subscribers and the acquisition of Broadcast Partners resulted in a 48% increase in additional services revenue. The additional services revenue growth, excluding the acquisition of Broadcast Partners, was 30% in 1996. The revenue increased on a per subscriber per month basis to $3.80 in 1996 compared to $3.70 in 1995. The growth in communications revenue was primarily in the DTNergy service. The DTNergy service transmits refiner prices and communications to wholesaler/subscribers. The number of refiner communications continued to rise and produced a revenue growth of 28% over 1995 levels. The revenue decreased on a company wide per subscriber per month basis to $5.78, down from $6.49 in 1995. This decrease is due to spreading communications revenue over a larger base of subscribers, with the largest increase coming from the acquisition of Broadcast Partners. Advertising revenue grew 58% to $3,198,300 in 1996 compared to $2,022,500 in 1995. This growth was due to an increase in the acceptance of the color system as an electronic medium, the acquisition of Broadcast Partners and less discounting due to the increased subscriber base 19 - 254 - associated with the acquisition. Advertising revenue growth, excluding the acquisition of Broadcast Partners, was 30% in 1996. Advertising revenue increased on a company wide per subscriber per month basis to $2.10 in 1996, up from $1.89 in 1995. Service initiation fees, the Company's up-front one-time charges to new subscribers ranged from $150 to $495 in 1996 and from $150 to $295 in 1995 depending on the service and information distribution technology. Initiation fees for subscribers that convert to another service or change delivery technology (such as FM to Ku) ranged from $50 to $100 depending on the service in 1995 and 1996. The total fees collected increased 66% in 1996 to $5,560,100 compared to $3,357,300 in 1995. The increase was due to increased sales activity related to the expansion of the national sales force, reduced discounting in the agricultural related services and an increase in conversions from DTN Wall Street to DTN SPECTRUM. Service initiation fee revenue, excluding the acquisition of Broadcast Partners, was 53% in 1996. Total operating expenses increased 58% in 1996 over 1995. This increase was due to a 45% increase in selling, general and administrative costs, a 71% increase in sales commissions and a 78% increase in depreciation and amortization. These expenses (excluding the sales commission costs) increased on a per subscriber per month basis to $54.07 in 1996 compared to $49.75 in 1995. Selling, general and administrative expenses on a per subscriber per month basis increased to $32.12, up slightly from 31.97 in 1995. These costs were flat due to efficiency gains from spreading costs over a larger base of subscribers obtained from an expanded sales force and from acquisitions. Selling, general, and administrative expenses as a percentage of revenue decreased from 54% in 1995 to 50% in 1996. Selling, general and administrative expenses as a percentage of revenue, excluding the acquisition of Broadcast Partners, decreased to 53%. Sales commissions are generated from new subscription sales and revenues related to the DTNergy service. Sales commissions increased 71% during 1996 compared to 1995. This increase is due to higher subscription sales, incentive programs to the national sales force and sales management related to the rapid expansion and 22% higher revenues in DTNergy. Sales commissions growth, excluding the acquisition of Broadcast Partners, was 60% in 1996. Depreciation and amortization expense primarily increased due to the purchase of $37,400,000 of new equipment used by subscribers and the acquisition of Broadcast Partners. The Company acquired and capitalized approximately $38.2 million of equipment and $35.2 million of intangible assets related to the acquisition. The Company began using a six year life for depreciating subscriber equipment in July of 1992 compared to an eight year life prior to the change. The Company is depreciating the equipment acquired in the acquisition of Broadcast Partners over a five year life and is amortizing the intangible assets from this acquisition over an eight year life beginning in May of 1996. Operating income increased 59% to $6,920,800, up from $4,343,200 in 1995 as a result of the growth in revenues and expenses discussed above. Operating cash flow grew 74% to $40,377,400, up from $23,154,400 in 1995. Interest expense increased 76% in 1996 compared to 1995. The increase is related to borrowings to finance new subscriber equipment and the acquisition of Broadcast Partners. The Company increased the revolving credit line borrowings from $21,250,000 at December 31, 1995 to $38,500,000 at December 31, 1996. The Company borrowed $48,490,000 to acquire Broadcast Partners. The Company's federal and state effective tax rate was 32% and 29% for 1996 and 1995, respectively. 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.
(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 20 - 255 - 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. 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 Company's 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 Company's 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. Operating income increased significantly due to the Company's 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 Company's federal and state effective tax rate was 29% for 1995 and 35% for 1994. 21 - 256 - - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 22 - 257 - - -------------------------------------------------------------------------------- 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. Roger R. Brodersen 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, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Data Transmission Network Corporation as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Deloitte & Touche LLP January 31, 1997 Omaha, Nebraska 23 - 258 - - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------ As of December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------ ASSETS Current Assets: Cash $ 708,053 $ 780,018 Accounts receivable, net of allowance for doubtful accounts of $520,000 and $300,000 9,653,766 6,476,576 Prepaid expenses 583,985 474,135 Deferred commission expense 2,807,330 2,076,262 Total Current Assets 13,753,134 9,806,991 Property and Equipment Equipment Used By Subscribers 203,310,661 130,266,792 Equipment and Leasehold Improvements 19,702,330 13,952,173 223,012,991 144,218,965 Less: Accumulated Depreciation 98,564,288 67,909,419 Net Property and Equipment 124,448,703 76,309,546 Intangible Assets From Acquisitions, net of accumulated amortization of $3,871,956 and $258,850 36,517,799 4,711,150 Other Assets 3,010,126 1,844,363 177,729,762 $ 92,672,050 - ------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts payable $ 7,485,517 $ 9,385,812 Accrued expenses 5,923,628 1,856,659 Current portion of long-term debt 15,092,083 9,036,458 Total Current Liabilities 28,501,228 20,278,929 Long-Term Debt 83,184,373 32,536,457 Subordinated Long-Term Notes, net of unamortized discount of $436,550 and $595,310 14,563,450 14,484,070 Equipment Deposits 515,142 541,720 Unearned Revenue 22,675,280 11,953,909 Stockholders Equity: Common stock, par value $.001, authorized 20,000,000 shares, issued 11,074,224 and 10,126,224 11,074 3,375 Paid-in capital 30,025,990 14,422,689 Retained earnings (deficit) (1,404,602) (497,687) Treasury stock, at cost, 45,919 and 180,945 shares (342,173) (1,051,412) Total Stockholders Equity 28,290,289 12,876,965 $ 177,729,762 $ 92,672,050 - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 24 - 259 -
- ------------------------------------------------------------------------------------------------------------------------------------ STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES: Subscriptions $ 75,019,826 $ 46,126,332 $ 33,936,160 Additional services 5,792,799 3,917,631 3,526,295 Communication services 8,812,718 6,864,275 4,680,987 Advertising 3,198,321 2,022,440 1,738,830 Service initiation fees 5,560,049 3,357,311 2,227,517 98,383,713 62,287,989 46,109,789 EXPENSES: Selling, general and administrative 48,944,027 33,827,282 26,715,251 Sales commissions 9,062,258 5,306,305 3,643,811 Depreciation and amortization 33,456,637 18,811,150 15,056,167 91,462,922 57,944,737 45,415,229 OPERATING INCOME 6,920,791 4,343,252 694,560 Interest expense 8,432,270 4,798,112 3,158,106 Other income, net 107,173 57,784 40,808 LOSS BEFORE INCOME TAXES (1,404,306) (397,076) (2,422,738) Income tax benefit (446,000) (114,000) (820,000) NET LOSS $ (958,306) $ (283,076) $ (1,602,738) - ------------------------------------------------------------------------------------------------------------------------------------ LOSS PER SHARE $ (0.09) $ (0.03) $ (0.16) - ------------------------------------------------------------------------------------------------------------------------------------ Weighted Average Number of Shares Outstanding 10,657,893 9,908,592 9,760,200 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 25 - 260 -
- ------------------------------------------------------------------------------------------------------------------------------------ STATEMENTS OF STOCKHOLDERS EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 1996, 1995 and 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Retained Total Common Paid-in Earnings Treasury Stockholders Stock Capital (Deficit) Stock Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 1994 $ 3,375 $ 13,525,884 $ 1,516,466 $ (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 Treasury stock issued on exercise of employee stock options and warrants -- -- 51,391 709,239 760,630 Tax benefit related to exercise of employee stock options and warrants -- 634,000 -- -- 634,000 Issuance of common stock 316 14,976,052 -- -- 14,977,000 Three-for-one stock split 7,383 (7,383) -- -- -- Net loss -- -- (958,306) -- (958,306) Balance, December 31, 1996 $ 11,704 $ 30,025,990 $ (1,404,602) $ (342,173) $ 28,290,289 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 26 - 261 -
- ------------------------------------------------------------------------------------------------------------------------------------ STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities: Net loss $ (958,306) $ (283,076) $ (1,602,738) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 33,456,637 18,811,150 15,056,167 Amortization of debt issue costs and discount 139,694 128,760 64,380 Deferred income taxes (480,000) (239,000) (802,000) Change in assets and liabilities: Accounts receivable (63,634) (3,178,803) (1,003,263) Prepaid expenses (21,839) (284,803) (58,262) Deferred commission expense (310,792) (1,446,337) (22,215) Deferred debt issuance costs (112,078) -- (395,000) Other assets -- (1,029,433) -- Accounts payable (1,947,116) 604,791 1,183,434 Accrued expenses (149,687) 739,453 143,249 Equipment deposits (26,578) (382) (37,269) Unearned revenue 4,251,166 2,800,990 1,849,771 Net Cash Provided By Operating Activities 33,777,467 16,623,310 14,376,254 Cash Flows From Investing Activities: Capital expenditures: Equipment used by subscribers (37,424,684) (23,746,086) (27,354,107) Equipment and leasehold improvements (3,120,125) (3,914,442) (2,607,100) Acquisition of Subscribers (65,745,794) (1,767,420) -- Net Cash Used By Investing Activities (106,290,603) (29,427,948) (29,961,207) Cash Flows From Financing Activities: Proceeds from term debt agreement 48,490,000 -- -- Principal payments on long-term debt (9,036,459) (8,718,750) (20,333,334) Proceeds from revolving credit agreement 17,250,000 21,250,000 20,250,000 Proceeds from subordinated long-term notes -- -- 15,000,000 Proceeds from the exercise of stock options and warrants 760,630 333,063 1,274,239 Proceeds from the issuance of common stock 14,977,000 -- -- Purchase of treasury stock -- -- (534,000) Net Cash Provided By Financing Activities 72,441,171 12,864,313 15,656,905 Net Increase (Decrease) in Cash (71,965) 59,675 71,952 Cash at Beginning of Period 780,018 720,343 648,391 Cash at End of Period $ 708,053 $ 780,018 $ 720,343 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 27 - 262 - - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Years Ended December 31, 1996, 1995 and 1994 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition - The Company provides its subscribers with equipment to receive information and communications service. DTN charges a recurring subscription fee and in most instances a one-time service initiation fee. The subscriptions are contracted for an initial period of one year and are generally billed quarterly in advance. Payments received in advance for subscriptions, additional services and advertising are deferred and recognized as the services are provided to the subscribers. Service initiation fees 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 the messages delivered to subscribers. Deferred Commission Expense - Commissions and bonuses which are paid at the time of the initial subscription to sales representatives, to company representatives, or to subscribers for successful customer referrals, are deferred and expensed over the initial twelve-month subscription period. Equipment Used By Subscribers - Equipment used by subscribers to receive the Company's electronically transmitted information and communication services is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over a useful life of three to eight years for assets placed in service prior to July 1, 1992, and three to six years for assets placed in service subsequent to July 1, 1992. Equipment and Leasehold Improvements - Equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from two to seven years, or the related lease, which range from five to ten years. Intangible Assets - Intangible assets for acquisition of subscribers are stated at cost less accumulated amortization. These costs are amortized using the straight-line method over eight years. The carrying value of intangible assets is periodically assessed by the Company by reviewing the recoverability of the assets over the amortization period based on the projected undiscounted future cash flows of the related business unit. Cash flow projections are based on trends of historical performance and managements estimate of future performance, giving consideration to existing and anticipated competition and economic conditions. Income Taxes -Income taxes are computed in accordance with the provisions of Statement of Financial Accounting Standard 109, "Accounting for Income Taxes" (SFAS 109). The objective of the statement is to recognize the amount of taxes payable or refundable in the current year and to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. Earnings (Loss) Per Share - Earnings (loss) 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. For the periods ending December 31, 1996 and 1995, the Company's outstanding options and warrants were antidilutive and therefore not used in determining weighted average shares outstanding. All share and per share data, for all periods presented, have been adjusted to reflect a three-for-one stock split effectuated on June 28, 1996, for shares of record on June 14, 1996. 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, 1996, 1995 and 1994, the Company made interest payments of $8,555,000, $4,386,000 and $3,165,000, respectively. Capital expenditures for subscriber equipment included in accounts payable at year end totalled $1,394,000, $2,191,000 and $1,106,000 at December 31, 1996, 1995 and 1994, 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 1996 or 1994. At December 31, 1996 and 1995, $931,700 and $3,202,600 of the purchase price for acquired subscribers is due in future periods and is included in accounts payable. Research and Development - Research and development costs are charged to earnings as incurred and approximated $2,263,000, $1,596,000 and $1,493,000 for the periods ended December 31, 1996, 1995, and 1994. Stock-Based Compensation - The Company accounts for its stock-based compensation under the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25). Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 28 - 263 - Fair Value of Financial Instruments - Because of their maturities and/or interest rates, the Company's financial instruments have a fair value approximating their carrying value. These instruments include accounts receivable, revolving credit and term borrowings, subordinated debt, commercial paper, and trade payables. 2. ACQUISITIONS KNIGHT-RIDDER 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 agreed to pay KRF approximately $4,970,000 for these subscribers over two years. The Company agreed to pay $1,500,000 at closing and $1,500,000 one year from the closing. The remaining $1,970,000 was based on future revenue sharing from Company estimates and is scheduled to be paid quarterly during the first two years of this agreement. The purchase price is being capitalized as an intangible asset and amortized using the straight-line method over eight years. BROADCAST PARTNERS Effective May 3, 1996, the Company closed on an "Asset Acquisition" of Broadcast Partners, an information provider primarily in the agricultural industry. The Company acquired substantially all the assets of Broadcast Partners for $63.5 million cash and the assumption of certain current liabilities of approximately $9.8 million. In the acquisition, the Company received 39,000 agricultural subscribers. Also included, was approximately $38.2 million of equipment which is being depreciated using the straight-line method over five years. In addition, an intangible asset of approximately $35 million was capitalized and is being amortized using the straight-line method over eight years. The acquisition was financed with a combination of $15,010,000 of privately placed common stock equity representing, 948,000 split adjusted shares and with six year term debt of $48,490,000. The following unaudited pro forma information sets forth the results of operations as though the acquisition of Broadcast Partners had occurred at January 1, 1995:
Pro Forma December 31, 1996 1995 Revenues $ 106,646,073 $ 84,018,887 Net Loss $ (1,303,509) $ (2,903,648) Loss Per Share $ (0.12) $ (0.27)
This unaudited pro forma information is based on historical results of operations as if the acquisition took place on January 1, 1995 adjusted for acquisition costs, realized efficiencies and in the opinion of Management, is not necessarily indicative of what the results would have been had the Company operated with the acquisition since the beginning of 1995. 3. LONG-TERM DEBT AND LOAN AGREEMENTS
December 31, 1996 1995 Revolving Credit Agreement Revolving credit line $38,500,000 $21,250,000 Term notes 10,786,456 19,322,915 Term Credit Agreement Term notes 48,490,000 -- Stock Repurchase Agreement Term notes 500,000 1,000,000 Total Loan Agreements 98,276,456 41,572,915 Less current portion 15,092,083 9,036,458 Total Long-Term Debt $83,184,373 $32,536,457
The Company has a revolving credit agreement, as amended, with a group of banks (the "Revolving Credit Agreement"). The Revolving Credit Agreement, which expires June 28, 1997 unless extended, provides for a total commitment of up to $49,500,000 in new borrowings. As of December 31, 1996, $38,500,000 of the total commitment had been borrowed, with the remaining $11,000,000 available to the Company subject to certain restrictions as discussed below. Additional borrowings under the Revolving Credit Agreement are available to the Company, as long as at the time of the advance, no default exists with any of the Company loan agreements or the subordinated notes agreement (see Note 4), and total debt outstanding (including term notes outstanding but excluding long-term subordinated debt) does not exceed thirty-six times monthly operating cash flow (as defined). As of December 31, 1996 based on current operating cash flow, the Company would be able to borrow all of the $11,000,000 remaining commitment available. In addition to the restrictions mentioned above with respect to advances, total debt outstanding (excluding long-term subordinated debt) is limited to forty-eight times monthly operating cash flow 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 $23,500,000 through June 28, 1997 and, a ratio of quarterly operating cash flow to interest expense (as defined) of at least 2.25 to 1. The Company is permitted to pay cash dividends in any one year, which are, in the aggregate, less than 25% of the Company's net operating profit after taxes in the previous four quarters. Interest on the outstanding borrowings (prior to when the borrowings might be converted to term loans, as discussed below) is at a variable rate, depending on the ratio of the Company's total borrowings (excluding long-term subordi- 29 - 264 - nated debt) to stockholders equity (including long-term subordinated debt) (the "Ratio"). The base rate is the First National Bank of Omaha's "National Base Rate", minus 3/4%. So long as the Ratio is below 2.5 to 1, interest is at the base rate. When the Ratio is between 2.5 to 1 and 2.99 to 1, the interest rate is at base rate plus a 1/4% margin. When the Ratio is between 3.00 to 1 and 3.49 to 1, the interest rate is the base rate plus a 3/4% margin. The Company is not to exceed a Ratio of 3.5 to 1. The base rate is adjusted monthly, with the interest rate margin (as defined above) changed quarterly. Through June 27, 1996, the variable rate borrowings outstanding were accruing interest at the rate of 8.25%. Effective June 28, 1996 through December 31, 1996, the variable rate borrowings outstanding were accruing at the base rate of 7.50%. The Company has the option to convert the outstanding revolving credit borrowings to term loans at any time, payable in forty-eight equal principal installments, plus interest. Interest on the converted term loans is at the Company's option, a variable interest rate of 1/4% over the base rate (as determined in the preceding paragraph) or, at a fixed rate of 3/4% over the base rate, or, 2% over the average of the 3 and 5 year U. S. treasury securities, as quoted in the prior month "Federal Reserve Statistical Release", whichever is greater. As of December 31, 1996, $38,500,000 of the total borrowings outstanding had not been converted to term loans. As of December 31, 1996, $10,786,456 of term loans were outstanding with monthly installments due through October 1998, with interest rates ranging from 6.75% to 9.25%. The Company has a Term Credit Agreement dated May 3, 1996, as amended, with a group of banks providing for an aggregate principal amount of $48,490,000 to be repaid in 72 equal principal installments beginning January 31, 1997. Through July 16, 1996, the outstanding principal was accruing interest at the rate of 8.25%. Effective July 17, 1996 through July 30, 1996, interest on $21,300,000 of the principal balance was variable, accruing at the NY Prime rate less one-half of one percent (7.75%). Effective July 31, 1996 through December 31, 1996, interest on $25,400,000 of the principal balance is variable, accruing at the NY Prime rate less one-half of one percent. Interest on the remainder is fixed, accruing at interest rates ranging from 8.25% to 8.36%. Interest payments are due on the last day of each month beginning May 31, 1996. The Company pays a commitment fee of 1/4% on the unused portion of the total revolving credit commitment. Additionally, once the Ratio (as described previously) reaches 3.00 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. In the event the Ratio exceeds 3.0 to 1, any term note accruing interest at less than 7.5% is included in a "Trigger Event". The Company is obligated to pay the holders of such term notes a fee of 0.375% of the outstanding balance of the notes upon the occurrence of the Trigger Event and like amounts on the six month anniversary and the twelve month anniversary of the Trigger Event. During 1992, the Company entered into a loan agreement and borrowed $2,000,000 solely for the repurchase of the Company's outstanding common stock (the "Stock Repurchase Agreement"). Currently, this commitment is being repaid in equal quarterly principal payments, plus interest, due through December, 1997. As of December 31, 1996, the amounts borrowed under the Stock Repurchase Agreement, are accruing interest at 7.69% and 8.00%. Substantially all of the Company's assets are pledged as collateral under the Company's long-term debt and loan agreements. The minimum principal maturities of long-term debt, excluding the revolving credit line, are as follows.
Year ending December 31, 1997 $15,092,100 1998 12,310,800 1999 8,128,500 2000 8,081,700 2001 8,081,700 2002 and after 8,081,700 TOTAL $59,776,500
4. SUBORDINATED LONG-TERM NOTES On June 30, 1994, the Company sold to one investor $15,000,000 of its 11.25% subordinated long-term notes in a private placement transaction (the "subordinated debt"). The subordinated debt is subordinated in right of payment to all current and future senior debt. Interest on the subordinated debt is scheduled to be paid quarterly, with principle due in five equal annual installments beginning on June 30, 2000. The Company has the option to prepay the subordinated debt on any date after June 30, 1997 at a premium beginning at 7.5% of the principal prepaid, and decreasing by 1.5% per year until June 30, 2002 when no premium is required. There are also provisions for mandatory prepayment upon a change in ownership control (as defined), at a premium beginning at 12.0% of the principal prepaid during the period ended June 30, 1995 and decreasing by 1.5% per year until June 30, 2002 when no premium is required. The subordinated debt agreement contains a cross-acceleration clause, whereby the subordinated debt will become immediately due and payable upon a payment default on the revolving and term credit agreements. Other subordinated debt financial covenants and restrictions are generally less restrictive than those of the other loan agreements. The Company also issued a warrant to the investor to purchase 75,000 shares of the Company's $.001 par value common stock at $7.39 per share (as adjusted after the three-for-one stock split) on or before June 30, 2004. In 30 - 265 - 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. 5. INCOME TAXES Components of the income tax (benefit) provision are as follows:
1996 1995 1994 - ---------------------------------------------------------------- Current $ 34,000 $ 125,000 $ (18,000) Deferred (480,000) (239,000) (802,000) $(446,000) $(114,000) $(820,000)
The income tax (benefit) provision differs from the (benefit) provision at federal statutory rates for the following reasons:
1996 1995 1994 - -------------------------------------------------------------------------------- Federal $ (477,000) $(139,000) $(824,000) State taxes (28,000) 1,000 (24,000) Other 59,000 24,000 28,000 $(446,000) $(114,000) $(820,000)
The components of deferred tax liability (asset) are as follows:
1996 1995 - -------------------------------------------------------------------------------- Depreciation $ 6,411,000 $ 4,880,000 Net operating loss carryforwards (8,301,000) (5,383,000) Other 282,000 9,000 Net Deferred Asset $(1,608,000) $ (494,000)
The Company had approximately $24,000,000 of unused net operating loss (NOL) carryforwards at December 31, 1996. The NOL carryforwards will expire in the years 2002 to 2011. In addition, the Company is reflecting in the Other Assets approximately $1,029,000 relating to pending IRS refund claims. 6. CAPITAL STOCK The Company's articles of incorporation provide for the authorization of 1,000,000 shares of $.50 par value per share preferred stock. The preferred stock, none of which has been issued, presently has no voting rights or other features, although the articles of incorporation contain provisions to adopt various features or privileges at the discretion of the Board of Directors. In September 1992, the Company's Board of Directors authorized the repurchase of up to 350,000 shares of the Company's outstanding common stock. The purchases are to be made from time to time in the open market or in arranged transactions at such price or prices as company officers may deem advisable. The Company has purchased 150,000 shares of outstanding common stock since September 1992. The common stock repurchased may be used to provide shares for the Company's existing stock options and warrants outstanding. As part of the May 3, 1996 acquisition of Broadcast Partners, the Company sold 948,000 (split adjusted) shares through a private placement transaction. During the second quarter of 1996, the Company effectuated a three-for-one common stock split, payable June 28, 1996 to stockholders of record June 14, 1996. The stated par value of each share was not changed from $.001. A total of $7,383 was reclassified from the Company's additional paid in capital account to the Company's common stock account. 7. 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 75,000 shares of common stock at a price of $7.39 per share (as adjusted after the three-for-one stock split). These warrants are exercisable through June 30, 2004. 8. 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 1996, 1995 and 1994, the Company contributed $671,000, $482,000 and $344,000, respectively, to the plan as matching contributions. 9. STOCK-BASED COMPENSATION The Company has employee and director stock option plans with aggregate limits of 2,100,000 shares for the employee plan and 210,000 shares for the non-employee director plan. The exercise price of the stock options is equal to the market value of the Company's common stock on the date of grant. The options are exercisable for a period of up to ten years from the date of grant and generally vest equally over a period of three years. 31 - 266 - The following table summarizes the stock options as of December 31, 1996, 1995 and 1994:
Outstanding at beginning of year 1,276,959 $ 5.79 988,185 $ 5.57 876,231 $ 4.40 Granted 538,800 $ 15.64 401,250 $ 6.23 273,750 $ 8.91 Exercised (134,878) $ 5.64 (70,224) $ 4.74 (129,426) $ 4.41 Cancelled (160,071) $ 7.93 (42,252) $ 6.32 (32,370) $ 7.23 Outstanding at end of year 1,520,810 $ 9.04 1,276,959 $ 5.79 988,185 $ 5.57 Exercisable at end of year 741,409 $ 5.67 629,811 $ 5.08 475,152 $ 4.50
The following table summarizes information about stock options outstanding as of December 31, 1996:
Weighted Weighted Weighted Averaged Average Average Range of Shares Remaining Exercise Shares Exercise Exercise Prices Outstanding Life Price Exercisable Price $ 0.00 - $ 4.67 450,661 5.0 years $ 4.30 423,601 $ 4.34 $ 4.75 - $ 8.83 519,899 7.1 years $ 6.64 293,658 $ 6.79 $ 9.67 - $14.42 42,220 8.6 years $ 9.81 6,150 $ 9.95 $15.50 - $20.83 508,050 9.0 years $ 15.64 18,000 $ 17.33 $ 0.00 - $20.83 1,520,810 7.2 years $ 9.04 741,409 $ 5.67
At December 31, 1996, shares of the Company's authorized but unissued common stock were reserved for issuance as follows:
Shares ------- Employee stock option plan 312,929 Non-employee director plan 114,003 Total 426,932
The Company accounts for its stock-based compensation plans under the provisions of APB 25. Accordingly, no compensation cost has been recognized for its fixed stock option plans. The effect on 1996 and 1995 net loss and loss per share of accounting for stock-based compensation based on the fair value method at the grant dates consistent with the method of FASB Statement 123, Accounting for Stock-Based Compensation, are shown in the pro forma information below:
1996 1995 - -------------------------------------------------------------------------------- Net Loss As reported $ (958,306) $ (283,076) Proforma $ (2,452,206) $ (675,125) Loss per share As reported $ (0.09) $ (0.03) Proforma $ (0.23) $ (0.07) Fair Value $ 8.22 $ 3.21
The fair value for options granted under the above mentioned plans was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
1996 1995 - -------------------------------------------------------------------------------- Risk-free interest rate 5.4% 7.8% Dividend yield 0.0% 0.0% Expected volatility 56.0% 54.0% Expected life (years) 4.75 4.25
10. LEASES The Company leases the right to subsidiary channel authorizations from FM radio stations and satellite network transmission capacity to broadcast the Company's information service to its subscribers. These leases are accounted for as operating leases and are for varying periods of one to ten years and contain annual renewal options for periods of up to five years. The Company also has various operating leases for office space, warehouse facilities and equipment. These leases expire on various dates through 2005 and generally provide for renewal options at the end of the lease. The Company is generally obligated to pay the cost of property taxes, insurance, utilities and maintenance on the leases. Future minimum lease payments under all non-cancellable operating leases at December 31, 1996 are as follows:
Year Ending December 31, 1997 $ 3,438,000 1998 3,059,000 1999 2,467,000 2000 2,236,000 2001 1,588,000 2002 and after 4,379,000 Total future minimum lease payments $17,167,000
Total rent expense on all operating leases was $3,459,000, $2,712,000 and $2,369,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 2 - 267 - - -------------------------------------------------------------------------------- QUARTERLY DATA (UNAUDITED) - --------------------------------------------------------------------------------
Operating Pre-Tax Net Income (loss) Revenues Cash Flow(1) Income(loss) Amount Per Share Subscribers - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal 1996 First $19,113,017 $ 6,502,483 $ (557,991) $ (356,991) $ (.04) 99,600 Second 24,194,864 9,592,827 (701,346) (447,346) (.03) 142,000 Third 27,141,339 11,759,893 (328,503) (260,003) (.02) 144,100 Fourth 27,934,493 12,522,225 183,534 106,034 .01 145,900 Year $98,383,713 $40,377,428 $(1,404,306) $ (958,306) $ (.09) 145,900 Fiscal 1995 First $13,617,210 $ 4,967,889 $ (426,972) $ (272,972) $ (.03) 84,600 Second 14,739,450 5,591,904 51,802 32,802 -- 86,700 Third 16,168,251 6,173,867 150,556 96,556 .01 92,400 Fourth 17,763,078 6,420,742 (172,462) (139,462) (.01) 95,900 Year $62,287,989 $23,154,402 $ (397,076) $ (283,076) $ (.03) 95,900 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Operating income before depreciation and amortization expense. (2) Net income per share for each of the four quarters may not agree to net income per share for the year due to rounding.
- -------------------------------------------------------------------------------- TRADING INFORMATION - --------------------------------------------------------------------------------
Market Price 1996 Market Price 1995 Quarter Ended High Low Last High Low Last March 31 16 58 13 58 15 38 8 38 5 12 8 14 June 30 23 00 15 58 21 38 8 58 7 78 8 12 September 30 26 12 17 00 21 00 12 14 8 12 11 78 December 31 23 00 19 34 22 14 16 34 11 18 16 38 - --------------------------------------------------------------------------------
The Company's common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol: DTLN. On December 31, 1996, there were approximately 500 stockholders of record, not including beneficial holders whose shares are held in names other than their own. 33 - 268 - - -------------------------------------------------------------------------------- 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 23, 1997 at 10:00 A.M., at the Holiday Inn-Old Mill, 655 N. 108th Avenue, Omaha, Nebraska. Form 10-K: A COPY OF THE COMPANY'S FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: Secretary Data Transmission Network Corporation 9110 West Dodge Road, Suite 200 Omaha, Nebraska 68114 Dividends: The Company has never paid any dividends and has no present intention of so doing. Payment of cash dividends in the future, if any, will be determined by the Board of Directors in light of the Company's earnings, financial condition and other relevant considerations. - -------------------------------------------------------------------------------- DIRECTORS AND OFFICERS - -------------------------------------------------------------------------------- Board of Directors: - ------------------------------- Roger R. Brodersen Chairman of the Board Chief Executive Officer Data Transmission Network Corp. Robert S. Herman Senior Vice President Data Transmission Network Corp. David K. Karnes President Chief Executive Officer The Fairmont Group Inc. Of Counsel, Kutak Rock law firm J. Michael Parks Former President Former Chief Operating Officer First Data Resources, Inc. Jay E. Ricks Chairman of the Board Douglas Communications Corp. Greg T. Sloma President Chief Operating Officer Data Transmission Network Corp. Roger W. Wallace Senior Vice President Data Transmission Network Corp. Corporate Officers: - ------------------------------- Roger R. Brodersen Chairman of the Board Chief Executive Officer Greg T. Sloma President Chief Operating Officer Robert S. Herman Senior Vice President Research and Technology Roger W. Wallace Senior Vice President Co-President, Ag Services James J. Marquiss Senior Vice President Co-President, Ag Services Charles R. Wood Senior Vice President President, Financial Services Keith A. Cook Vice President President, Auto Services H. Wade German Vice President Business Research Brian L. Larson Vice President Chief Financial Officer Secretary and Treasurer Gordon R. Lundy Vice President President, Energy Services Charles E. McQuinn Vice President President, West Financial Services James G. Payne Vice President Services Support and Special Projects 34 - 269 - - -------------------------------------------------------------------------------- A LETTER TO OUR SHAREHOLDERS - TECHNOLOGY UPDATE - -------------------------------------------------------------------------------- Shareholders ask, Is DTN keeping ahead of the "technology curve"? We at DTN strive to keep abreast of the fast pace of technological change, especially as it relates to the evolution of our marketplace and customer. Media hype leads one to believe that the world is changing overnight, yet in the marketplace most changes occur incrementally over time. DTN is, for the most part, a low-cost niche-market information provider and so we have the luxury of avoiding the, often unproven, "bleeding edge" technology. To put things in some perspective, Interactive TV was the hype of the moment two years ago, but has now nearly dropped off the screen. The landscape is littered with companies that made large bets too early in the game. At DTN, we prefer making studied incremental changes, allowing us to take advantage of proven, cost-effective technologies. Our overriding intent at DTN is to deliver comprehensive, high-quality, business-related information to our subscribers in a manner that is time-sensitive, convenient, reliable, secure, and economical. These are the qualities most meaningful to our subscriber. How the information travels, arrives, and how it is accessed is relevant only as it contributes to the suitability and convenience of the content to the user. At DTN, we take advantage of new alternatives when and if they become suitable for our use and for the needs of our subscribers. This technology update will concentrate on the Internet and some related items. I. THE INTERNET - AN OVERVIEW AND SOME CAUTIONARY COMMENTS Simply described, the Internet is an international network of computers and data communications circuits of varying capacity. It is somewhat akin to a telephone, a magazine or newspaper, an on-line service (AOL, Prodigy, CompuServe, etc.), the Library of Congress, and sometimes it is likened to the talk around the water cooler. The Internet is both more and less than any of these. Functionally, it is owned by no one, controlled by no one, planned by no one, and maintained by no one (or by everyone, depending on how you look at it). In many respects, it brings to mind the joke that defines a helicopter as a conglomeration of 100,000 rapidly moving parts all flying in loose formation. What keeps the Internet working is a common set of standards and protocols for data file development, manipulation, and communications. This is no small feat and represents a good example of your tax dollars at work. Internet standards allow diverse hardware and software platforms to communicate efficiently across the street or around the world, be it text, databases, graphics, audio, computer software, video, data packets, or any combination of the above. You will also often hear about another phenomena called the World Wide Web, often shortened to "the Web". The Web is the sexy part of the Internet where the real action in graphics, audio, video, browsers, Java applets, and the like take place. The Web has made the Internet a household word and is spurring most of the growth, as well as most of the hype. Although the Internet and the Web are not one and the same, for purposes of this discussion these terms will sometimes be used interchangeably. The Internet/Web is almost always acknowledged as having changed the technological landscape. It has been compared to man's discovery and use of fire. At the other extreme, it has also been described as the CB radio of the 1990s (i.e., of huge use to some, but to most a passing fad). As with all technology, merit is found in its application. What many people seem to forget is that the Internet is, first and foremost, a tool. By analogy, a hammer is a useful tool found in nearly every home. It can be used productively in building a home; harmlessly as entertainment by a child randomly pounding nails; or dangerously as a weapon of lethal threat. The hammer, much like the tool called the Internet, is neither good nor bad in and of itself, but as defined by the use to which it is put. Ill try not to hammer this analogy to death, but there is an old saying that often seems to apply to the Internet, When the only tool you have is a hammer, every problem begins to look like a nail. At DTN, we believe that tools are to be mastered and then utilized as suits the task. It is interesting to us at DTN that, having talked to a great many people in the information business, the following stands out. The predominant rationale that most companies use for positioning themselves as an information provider on the Internet is fear-fear of being left behind and missing out on this seemingly historical change. Getting on the Internet is rarely based on the positive opportunity of making an immediate or near-term return on ones investment. BROAD BRUSH PLUSES ABOUT THE INTERNET: o It benefits from being the newest "IN" thing. A significant part of the growth is based on children. I have to have it or my child will fall behind. o Low-cost access. Approximately $20/month for unlimited access & mostly free usage of content (excluding subscription or pay-per-use sites) -for now. o The magnitude of available information is huge and growing rapidly. As a means of random access to massive amounts of unfiltered and unorganized data, it cant be beat. The number of "pages" on the Web alone is estimated to exceed 50,000,000 today-but no one really knows, or can know. For the most part, information is broad but shallow, targeted for mass appeal. One mostly 35 - 270 - skims the surface, thus the expression, "surfing the WEB". o International in scope. While mostly a positive, this is a double-edged sword. Widely varying business environments with regard to taxes, rules on competitive promotion, trademarks, etc., all mean that rarely is doing business as simple as it looks. o Two-way point-to-point communications allows direct business transactions. o Near-universal accessibility in the U.S. Approximately 13% of the population has already tried either the Internet, On-Line, or other type of computer-based communications at some time. o A rapid adoption curve, faster than that of TVs, VCRs, or CDs. BROAD BRUSH MINUSES ABOUT THE INTERNET: Problem of "the Commons". Communal property will be overused to destruction. Paying no incremental cost, no one is particularly concerned about efficiency, prioritization of best use (as defined by whom), or the general conservation of resources. The relationship between supply and demand is effectively being short-circuited. Capacity (read timeliness and reliability) is being strained due to growth in both subscribers and high-bandwidth (capacity hog) applications. It has reached the point that a University of Michigan Internet monitoring group says that" every day at peak periods, the Internet backbones lose more than 10% of the data packets they transmit". "Brownouts" are becoming common. Larry Landweber, Chairman of the Internet Society, opines that these problems will probably worsen before they improve. Several dynamics within the world of the Internet appear to be working together to ensure that bandwidth demand exceeds supply. It has not yet experienced its first significant failure. Many knowledgeable insiders would emphasize the word YET. Murphy's Law has not been repealed. Significant security and privacy issues remain regarding dollar transactions, ability to control access to data by subscriptions, covert information gathering, and general data integrity. For typical users, the Internet is mostly inconvenient and slow. Navigation is tedious and it takes significant time to retrieve data. The World Wide Web is sometimes frustratedly referred to as the World Wide Wait. "The Internet is a ripe medium for fraud"", according to Pennsylvania's attorney general's office. Plagiarism, theft of data content, copyright abuse, and outright fraud are fairly common. For instance, a theme drawing much recent attention has involved stock or investment-related information. You often cant know who you are dealing with or whose interests are being served. Two private consumer protection groups noted recently that the Internet is providing new opportunities for scams. The Internet has not yet had to face up to its natural enemies-the governmental bureaucracies driven to control such things, the Luddites who don't want to allow serious change to the status quo, and the tax man who wants to cut a deep wedge of revenue from it. Since the Internet seemed to spring up nearly overnight, "opposing forces" have lagged in their response to it-but they are gathering. THE INTERNET AS IT RELATES TO DTN: DTN has launched its first product on the Net. It is available by subscription (www.dayta.com). We will soon be following this Ag service with DTN PROduce, Weather Center, Aviation Center, Wall Street Spectrum, and others. Our intent is to gain experience in niches that present a viable opportunity and establish a position in the Internet marketplace. Impact of competition from the Internet on DTN: o The Internet allows competitors easier access to a small, but growing, portion of our customer base. o The availability of some free sources of information may raise the hurdle for attracting the marginal-use subscriber who might be satisfied with an incomplete or less convenient package. o Possibility of diminishing some of the advantage that having our own delivery system has given us. BENEFITS TO DTN OF GETTING ON THE INTERNET: o Becoming positioned to take advantage of additional or alternative market opportunities, such as international and corporate markets. 36 - 271 - o Being a player on the new field in order to gain experiences. o Enhancement of DTN's market positioning. Customers want to be reassured that DTN is up-to-date and on the cutting edge. We are often asked, "Are you on the Net"? even though these customers are rarely interested in getting us via the Net. o May allow DTN to capture revenue from the sale of information to the more casual user. So how is DTN positioned face-to-face with the Internet and attendant would-be competitors? Consider first that potential competitors must create content from scratch, along with a fully functional, secure, and redundant data center, regardless of the distribution system used. The Internet merely allows them to avoid investments in such things as satellite delivery. However, since the Internet is point-to-point in nature, it will have at least some incremental cost per subscriber (bandwidth & hardware costs...). The bigger barrier to market entry that would-be competitors must face is represented by the market position and the economies of scale that DTN has already achieved. Take our ag-oriented products, Ag Daily, FarmDayta, and DTNstant, as an example. Our cost of acquiring and aggregating information is already spread out across 145,000+ subscribers. A start-up service on the Internet faces a formidable task to overcome that advantage. Another piece of the competitive equation is that DTN has both considerable brand-name awareness, a strong position in existing markets, and the trust of our subscribers. This is particularly true of our agricultural and energy services. DTN's ag-related services combine to represent a significant share of the producer, agribusiness, and grain elevator markets in the U.S. The information provided by DTN to its subscribers is the most widespread information on which the markets trade. Because of this, even when other information is available, the people in the marketplace still need to know what their competitors are reading on DTN. And since delivery of quality information is our only business, our customers have grown to trust that we do not shade the information to our own advantage. This trust is a valuable resource that we strive to build on every day. DTN's energy service, DTNergy, is used nearly exclusively by virtually all refined fuel suppliers (over 110) in the United States to send wholesale daily fuel prices to virtually all jobbers (over 15,000) in the United States. We further strengthen our market position by using our proprietary technology to add value by receiving information from suppliers in a wide variety of formats, processing and managing that information, and delivering it to each jobber in the format and by the delivery method of his choice. By being a one-stop-shop for a wide variety of information management and delivery needs, we ensure that we maximize the value of our dominant position in this niche market. According to our research, DTN's stand-alone systems are seen as significantly easier to use, much faster, more convenient, and more capable (charting etc.) than Internet-based information. Access to DTN information is more reliable and, since information transfer is continuous, the user can set alarms on his selected key interests to notify him when an event has occurred. He has constant connections to information 24 hours a day, 7 days a week. He is not dependent on having to continually re-establish access. Generally speaking, on the Internet access is more cumbersome, communications are slower, and support is poorer, making the Internet a less than optimum alternative to DTN's satellite system. SPECIFIC DTN PRODUCTS AND THE INTERNET: FarmDayta, Ag Daily, Pro-Series, & Premier Series via the Internet. DTN launched (4th Qtr. 1996) a subscription-based service into the agricultural market (www.dayta.com) based on our FarmDayta content. We currently have paying subscribers active on the FarmDayta site. We see this DTN Internet site as superior in content to other Internet agriculture information providers; however, there has been no landslide of interest. This site may well prove to be a good sales tool for bringing customers to our satellite-based system. By comparison, our satellite service is superior in content and ease of use. Our research suggests that only 4% of our Ag customers have ever had any on-line experience (AOL, CompuServe, Prodigy, Internet, etc.). Additionally, much of rural America incurs long-distance phone charges for Internet Access. Of tangential interest, DTN's FarmDayta Web site, only a few months old, is one of the larger Web sites anywhere based on pages of information available on a regularly-updated basis. The vast majority of sites are filled with generally static information such as brochures, product sheets, annual reports, and press releases. DTN PROduce via the Internet DTN recently launched (1st Qtr 1997) an Internet product that mirrors DTN PROduce. The produce industry provides an example of how an Internet delivery vehicle can be used to expand our market with virtually zero downside risk. In this industry, there is little "free" information available on the Internet. In addition, U.S. data on the marketplace drives much of the world produce market. Hence, DTN has the opportunity to open up international markets as well as corporate opportunities here in North America. The Internet may also prove to be a better platform for the smaller growers with short-term seasonal needs for information. 37 - 272 - DTN Weather Center, Aviation, Marine, & Forestry Centers via the Internet DTN recently launched (1st Qtr 1997) an Internet product that mirrors DTN Weather Center products. We believe that DTN's Weather Center site is one of the best weather-oriented sites on the Internet. DTN Weather Center subscribers are not casual users of weather information. For these high-power users, the superior reliability, convenience, completeness, image quality, and timeliness of DTN's satellite-based system are all elevated in importance. While there is, relatively speaking, a considerable amount of free weather data on the Internet, this information is not very time-sensitive, nor is it complete. Because it is graphics intensive, weather information is slow to download. Almost by definition, anyone who is satisfied with the information provided via the Internet is not a serious candidate for DTN's Weather Center product. Therefore, while meeting some niche applications, we feel that the satellite-based system will dominate the weather market. Financial Information Services via the Internet DTN Wall Street currently provides several "segments" of news and market information on an Internet web site operated by PAWWS, a division of Security APL/Checkfree Corporation. These segments are provided for monthly subscription fees. While this service is producing modest revenues for DTN, were gaining useful experience which is helping us plan and develop new applications for delivery of financial services via the Internet on DTN's own Internet site. DTN Wall Street and DTN SPECTRUM retain key advantages in convenience, timeliness, reliability, customer service, and especially in the ability to provide a complete equities feed for purposes of charting or technical analysis on all instruments. These are things that the Internet is less able to provide. Other DTN services via the Internet Those remaining DTN services not discussed above are either being researched for Internet applications or have been dismissed as not applicable. QUESTIONS AND ANSWERS Volumes have been written about the Internet. Any search of newspapers, periodicals, technical journals, and the like will turn up more analysis, opinion, and (in many cases) hype than can be absorbed in a lifetime. The following discussion is not exhaustive or complete concerning all facets of the Internet. Instead, it provides some broad-brush observations in a Q & A format concerning how this all effects DTN. Please let us know if you have questions that may have gone unanswered herein. Well respond as well as we are able. Q.Why is the Internet attracting so much attention? Why the hype? A.First of all, because the Internet truly is big; it will be a major force in our future in one form or another. This extremely useful tool has grown explosively (as you might expect for something that is seen as essentially free). It touches all the bases-entertainment, business, leading-edge communications, wild get-rich-quick success stories, gruesome roadkill, buzzwords galore, and the high-adrenaline excitement due a proper revolution. A "new high" of hype. Forrester Research, one of the dominant research and analysis companies covering this field of business, states they have never seen an industry built on such hype. However, the overload of hype does not preclude the underlying substance and value. What is there just may not be as much, as fast, or as good as you may otherwise be led to believe. Q.Describe the nature of information on the Internet and some of the ramifications for the future. A.There is an unknowable volume of information on the Internet, most of which is interesting or useful to only a few. The term BROCHURE-WARE has been coined to slander the practice of putting up company marketing or P/R material that hardly ever changes. The smaller category of information that changes regularly is not often vetted. Anybody can put out information, with any spin, be it legitimate or fraudulent. Information is very often used as a lure to hook you for an advertiser. (This is the chief means of obtaining revenue over the Internet to date.) As a lure, it need only be good enough to bring you into the advertiser's net. Information, as a lure, also tends to be scattered about at different sites. It is unusual to find a one-stop-shop on the Internet. As such, convenience and completeness suffers (especially at the free sites). The content is often purposefully delayed or abbreviated to protect its value to the provider. By way of example, Reuters news is provided as part of several WEB sites. What the user is not told, is that Reuters is not crazy enough to give away their core franchise value. The wire provided is of "selected" stories from the full newswire and is often provided on a delayed basis. The good stuff isn't free! Q.The number of Internet users is growing rapidly. Can any generalizations be made about them? A.There are many projections/guesses about age, gender, education, income, and other assorted demographics. However, the biggest generalizations about the Internet users are that they are young, that their use is sporadic (only 10%-15% of the approximately 15,000,000 WEB surfers use the medium frequently), and that the primary use is for entertain- 38 - 273 - ment. The hype of Internet numbers should be regarded cautiously. Sources that produce these numbers have great incentive to keep the bandwagon rolling and may be less than critical. Q.Who, if anyone, is making money on the Internet? A.The generally accepted, if somewhat glib, answer is made in comparison to the gold rush. While prospectors may have made a strike here and there, the ones who reliably and consistently made money sold the picks, shovels, and mules. So far at least, this analogy generally applies to those who sell the PCs, network and database servers, and modems. A commonly-heard warning is often made to small companies that are first getting involved in the Internet-"Invariably, it will cost more than you plan for". As one wag has said,"The Internet is a marvel of efficiency. It allows you to make your mistakes at an accelerated rate and they can be of far greater magnitudes". For some, a quote by Don Logan, CEO of Time, Inc. is instructive. He comments that Pathfinder, Time Warner's glitzy Web site,"gives new definition to the term black hole". Q.Access costs (the on-ramp to this Information Highway) have gotten fairly cheap. Will Internet access continue to get less expensive? A.With common offerings of $20/month for Internet access (the on-ramp), costs have likely bottomed out for awhile. Given hardware and phone line costs, margins are now probably tight enough to drive out all but the major players (AT&T, Sprint, MCI, etc.) over time. According to one source (Robert Lucky - OEM Magazine Dec 96), Bell Atlantic, in a regulatory filing, is claiming that providing Internet access to their users costs them $75/month once all customer service, marketing, and technology-related costs are fully accounted for. While this may be an exaggeration, it does support the general conclusion that today's Internet model may not be economically sound over the long haul. What is apt to happen is that prices will remain fairly level, despite higher connection speeds or other bells and whistles being added to upgrade the level of service provided. Providers appear to be targeting market share rather than profits notwithstanding that this is generally a commodity business with extremely low consumer brand loyalty. There are also a number of events, such as those relating to tax policy, that could send Internet access costs significantly higher. (For some good amplifying material see "Why the $19.95 Internet Fees May Not Last" in the December 24, 1996 Wall Street Journal.) Q.Will basic usage (excluding subscription-based services) on the Internet remain "free"? A.This is one of the great questions that will likely drive the future of the Internet. A little history is in order. The Internet, while now worldwide and generally uncontrolled, was created by the U.S. Government for the purpose of building a communications network that could survive and operate under a scenario of nuclear war. The vision certainly did not include the commercialization/privatization that has since developed. Initially, the Internet was supported with government funds and was built on a socialistic model with no cost associated with amount of usage or priorities. Hence, the "Tragedy of the Commons" scenario has come to apply. The culture of the Internet is that "information wants to be free". Setting fees on the Internet, either for specific information or for general "usage" of the resource, will generate shock waves impacting content availability, content quality, usage/demand, and service quality. The effect of setting fees will ripple through every other corner of the communications world. Implementing this change will be no small task even for the giants of the communications industry. (Can you name any other industry that is expected to thrive and continue to expand geometrically while being given away?) Without a pricing mechanism to allocate resources, the Internet is headed for trouble. Already, it is less dependable and often slower than only months ago. Robert Metcalfe, one of the primary founders of networking technology and founder of 3COM Corp., widely predicts a "catastrophic collapse, probably within the next year" of the Internet. Such an event, should it occur, may provide the opportunity for changing the model-and the culture. In addition, look at the relative economics. Free Internet telephones, free Internet Fax services and free Internet links are slowly replacing traditional dedicated telco circuits and the revenues that they here-to-fore represented. It seems unlikely that the phone giants will quietly go out of business, nor will the tax receipts that they represent to the government be quietly foregone. One need only look at the acquisition prices of Internet-related businesses such as UUNET and MFS Communications to see that the companies providing the backbone, heart, and soul of the Internet system are placing big bets on a pay-for-usage/priority model. Otherwise, the prices being paid for these acquisitions would seem to make little economic sense. A "parallel Internet" based on paying for usage and priority of delivery, is already being put into place by some large users. They have been effectively chased off the Internet because of speed, reliability, quality, and security considerations that can't be "fixed" on the current "free" model. As this "shadow Internet" becomes fine-tuned, the technical issues of converting the Internet to a price/usage model may become less daunting. Q.What factors lead you to believe that demand for communications capacity (bandwidth) may outpace supply? A.1) The newest and cleverest uses of the Internet are generally based on high-capacity applications such as audio, video, and complex graphics. Meanwhile, higher-speed modems and communications lines reduce the "waiting penalty" experienced by the user at the current choke 39 - 274 - point-the access ramp to the information highway. The result is a geometric increase on bandwidth demanded as providers foster expectations of a near-TV experience. While improvement in data compression schemes and other technological advancements may mitigate this exploding drain on system resources, it also demands a customer base that will regularly "keep up" with the system by purchasing expensive hardware and software updates. Access to the free stuff can often be quite costly! 2) The current analogy for the Internet is a pipeline to which users are connected with drinking straws. The capacity of the drinking straw itself acts as a governor on each users demand for bandwidth. High-speed modems and communications links (cable, ADSL, ISDN, etc.) boost the drinking straw to a large diameter fire hose, connected to the same pipeline. Demand is likely to outstrip supply in the near term. 3) Relative to other communications, the providers of the backbone circuits (Sprint, AT&T, MCI, etc.) are not very well paid for providing more and more Internet backbone capacity. (Despite the lack of some usage-based charge, they are pressed to continually upgrade their infrastructure with no clear expectation of a return on their investment.) How long will they continue to subsidize a venture that is attacking their own cash cow? 4) Absent a money-making model that provides for a pay-per-usage on the Internet, the backbone providers' core business (long-distance telephony) is put at considerable risk. Internet telephone software and Internet FAX service compete directly with the more lucrative long-distance business, while Internet E-Mail and other information transfers of data compete indirectly. These backbone providers are now established as integral "players" in the game. Letting core business erode while providing nearly free services on the Internet is becoming a losing game, one that they are unlikely to play for very long. The Information Highway is destined to have many toll booths, both commercial and governmental. Q.Industry experts casually suggest that capacity can be easily added to meet demand. Can it reasonably be done? A.Telephone companies are currently in the process of making a complete change in their physical plants, from POTS (Plain Old Telephone Service) networks to digital networks. The switched model contained an implicit assumption that approximately 1% of potential users would be on the line at any one time, with the average call being under 5 minutes. The digital model, which includes the Internet, infers a continuous connection. Taken to the logical next step, this infers a massive upgrade just to "stay even". Hence, the technological answer to the question is probably yes, but to do this will cost LOTS OF MONEY. Many industry experts who say that capacity can be easily added are being very generous with other companies' money and future revenue streams. In my experience, technology is rarely the problem. If the economics are in line, the engineers and programmers will solve the technological hurdles. The economics of the current Internet model are not rational. Therefore, most of the commentary and reporting on Internet issues are barking up the wrong tree. The hype and glitz of the technology are simply distractions from concentrating on old fashion business modeling, analysis, planning, and execution. Q.Can the Internet compare with DTN's satellite-based services concerning the issue of reliability? A.Somewhat simplified, the Internet is just a series of network connections. It consists of the user, the users' access provider, the Internet backbone provider(s), the information providers' access provider, the information provider, and then back again through the chain to the original user. The system can (and often does) break down at any of the points along this path-in either direction. Therefore, in each transaction on the Internet, there are ten potential parties that may be responsible for any given failure. The real problem is not so much that the electronic chain of connections occasionally breaks, but rather that no one entity is responsible to the customer for knowing about or responding to the breakdown in communications. The opportunity for even the most responsible access provider or information provider to support the subscriber with end-to-end customer service is nil. Even when all systems work from end to end, the Internet often suffers time delays. This is inherent to the network for there is no predicting what all of the other millions of users are going to do at any given moment. With no priorities to Internet activities, your critical information can be backed up behind someone downloading pornography off the net. In the Internet, your priority, or lack thereof, is the same. Worse yet, peak demand is managed by general rationing. Some communications simply don't get through. News articles about last springs market correction and the resultant overwhelmed financial-oriented sites provide a cautionary tale to anyone thinking to rely on the Internet when real money is involved. The USA TODAY article concerning strained phone lines in California provides another twist to consider before depending on the Internet for important information. DTN's closed point-to-multipoint network is managed so that this problem does not exist. Q.Discuss security issues on the Internet. What are the main issues and their primary ramifications? A.Data Security: Can I send data without it being intercepted? Can I prevent someone from getting into my system and corrupting my data? If the proper precautions are used, the general answer is yes. Software and related firewall procedures have joined to eliminate this problem at the levels of information security needed by DTN. Payment Security: Are subscribers safe making payments over the Internet? This issue is generally overblown and is mostly a perception problem. [Note: According to someone who worked on the protocols, SET (Secure Electronic Transactions protocol developed by Visa and 40 - 275 - MasterCard) was developed as a marketing tool to spur the use of credit card sales over the Internet by relieving the public's fears. SET does not provide complete end-to-end security.] Keep in mind that providing your credit card over the Internet is no more dangerous than handing it to a waiter who then takes it out of your sight for processing. In either case, you generally have a limit to liability of $50. The primary risk lies in to whom you give this information and what levels of care they give to your private information. From DTN's viewpoint, this is a non-issue, as we are readily able to take credit card information over the phone, should a customer desire, rather than directly via the Internet. We already have customer support and administrative system safeguards in place to handle this challenge. Subscription Security: Historically, the greatest hurdle to subscription-based services on the Internet has been the inability to limit access to paying subscribers. Most security efforts use a LOGIN and PASSWORD method to control access. This works well for pay-per-use or transactional services, but not for subscription services where such codes can too easily be shared around to bypass payment requirements. This is one reason why so few subscription-based services currently exist on the Internet. Q.What are the predominant business models for actually making money on the Internet? A.There are fundamentally three scenarios: 1) Advertising-supported sites. By volume, these sites have enjoyed the most significant initial (financial) success. However, advertisers are growing wary of the relative value of Internet advertising. 2) Transaction-based models. With few exceptions (porno sites, for example), these sites tend to deal in tangible goods. Various catalog companies or mail-order firms are good examples. As security/payment questions are answered, this model is likely to come into greater acceptance. Highly-specialized sites should do better than general merchandise. 3) Subscription-based models. This model attempts to bridge the gap between pay-per-take pricing and free information on the Internet. They allow all-you-can-eat access at a set price. Few have been successful to date, as the technology to limit services to only paying subscribers has been lacking. Q. How does DTN plan to make money on the Internet? A.DTN is primarily targeting the subscription-based model. We have developed a reliable means of ensuring that only a single subscriber per subscription can access our service. It ensures that we are properly paid for our services. The convenience and completeness of our information aggregation, coupled with our proprietary information and trusted name in our primary industries and our low marginal costs for providing such services should allow for some success on the Internet. Q.Given that DTN is aimed in that direction, is there any major impediment to the success of a subscription-based model? A. Yes. The basic culture of the net is somewhat chaotic with countless gurus making statements such as "Information wants to be free". This is fine as long as I am the user and someone else is the provider. (No one says that cars or ice cream cones want to be free.) There is a significant cadre who feel that, once they get access to the Internet, it is somehow un-American to be charged for anything. Q.Why doesn't DTN follow the advertising-supported model? What are the weaknesses inherent in them? A.In fact, we will be using aspects of this model as well. DTN has had significant advertiser revenue for some time now on our existing products. Success with our Web sites should reflect enhanced revenue as well. We have an added leg up on competing sites, because we have already-established relationships and accounts with advertisers. This is no small advantage. Advertising-supported Internet models are most successful when the site is inexpensive and of adequate quality to bring bodies through the gate. This often means the emphasis is on new bodies, since they are more likely to explore around and run into the advertising. Successful sites are often better known for their novelty or cleverness (entertainment value?) than their true business-oriented utility. Because advertising can make the site slower and more complex, the ease of use to the subscriber and the advertising value are often inversely related. An ever-growing number of sites are dividing up a limited revenue pie estimated as being less than $100 million in 1996. Considering the size of the Web and the grandiose predictions, this is not a large pie to be divided. Bigger estimates are often bandied about but they include the inferred value of advertising done as a cashless swap or valued and then discounted to free to lure in potential future revenue streams. As advertisers become more knowledgeable about the Internet, the payment models are changing and it will become more difficult to retain a meaningful piece of the pie. The successful sites will be relatively few in number and will be the main WEB search engines (YAHOO! et. al.) and the more successful entertainment-oriented sites (ESPN, etc.). Serious information services do not yet appear to be successful using this model. Q.Death and Taxes are inevitable. When does the taxman come to the Web? A.Soon. Some states, such as West Virginia, Tennessee, Texas, New York, and Ohio are already imposing taxes on Internet access providers. Most other taxing authorities are studying the issue. Their greatest difficulty lies in tracking down the "from whom and by what method". To actually collect funds, they all appear to be looking at a transactional model like taxes on long-distance services. This model would provide big money and, for the Internet in general, 41 - 276 - this is potentially a major time bomb looking for the spot marked X. Since the Internet is international, cross-border taxes should be expected. The UK has already introduced a VAT tax on Internet Access providers via "a new interpretation" of the rules. Some use-based tax is thought to be not far behind. If the German and Chinese governments can successfully censor content that originates outside of their borders, taxing it wont be too difficult. Governments will eventually go after this pot of gold notwithstanding the political heat of a vocal base of users. This is where the money is. Q.Is there any reason to believe that Internet pricing models are indeed changing? A.The first rumbles of recognition of the already-mentioned problems have already occurred. The faults and defects of the Internet are slowly becoming apparent to the mainstream media as well as to the techno-crowd. USA TODAY's Oct 30, 1996 headline proclaimed that "Net use strains phone lines". It went on to state that, in one area of California, 16% of all calls did not connect, due mainly to high Internet usage. This is not just Internet calls, but ALL calls! The article went on to cite statistics about call volumes, call duration comparisons, etc., which clearly indicate that the problems and risks to the Internet that I describe are more than theoretical. Another good article, "Web Snarl", appeared in the April 8, 1996 issue of Forbes magazine. The picture of the Internet being painted in the media is slowly becoming more balanced in nature. That is an important first step in laying the groundwork for needed changes to be accepted in the future. Further evidence of change in the current model is starting to appear. According to recent wire stories, the FCC is considering allowing phone companies (the backbone providers) to raise their monthly fees to access providers from an average of $30/month to approximately $600/month. This is approximately what a long-distance carrier would pay for the equivalent service. Pacific Bell found that the access providers and Internet users are subsidized to the extent that they pay only 12% of what a long-distance carrier would have to pay for the same line. Bell Atlantic's access customers paid just 4.5% of the equivalent long-distance rates, even though Internet users made longer calls, tying up more of the phone system resources than did voice traffic. When the government supported the Internet and was paying for these lines, it was in its best interest to keep the cost of these lines low and to not tax them (as they would have been effectively taxing themselves). Now that they do not pay the freight AND they can tax the gross, the push to allow dramatic increases in pricing and to add taxes is obvious. Q.What happens if/when the Internet has a serious failure? A.In the short-term, a failure would be painful because it would strain the perceptions of reliability and credibility that now exist. Over the long run, this would probably result in needed changes. As an example, consider Interactive Television (ITV). Two years ago, ITV was the wave of the future. It was to obsolete every competing technology in its path. ITV would fill nearly every need or want that could be thought of and be in every room of every home within twelve to eighteen months. Licenses for ITV spectrum were sold for megabucks! All this took place without working production-level equipment or tested and proven business models. Today, ITV is still suffering from its collision with reality. Incredible amounts of money are being lost in the shake-out process that will leave ITV as a humbled, yet entirely viable industry. Interestingly enough, a shake-out of the Internet (resulting in some form of pay-per-usage model) will probably be positive for DTN. Since DTN targets the serious subscriber oriented towards business, a sifting out of the chaff should eliminate the distractions that now proliferate. It would also tend to make the users experience more positive from a reliability standpoint. By analogy, its better to pay admittance to Disney World than to have it free to everybody but too crowded to even enter. Most serious business users would prefer less chaos on the Internet and more reliability-even at a price. II. INTRANETS DTN sees significant opportunity in the interesting variations of the Internet known as Intranets. They are closed systems, normally within a business organization, that use Internet standards and technology. While they are compatible with Internet providers, they do not allow contact with the Internet except through a barrier often called a firewall. This barrier protects the corporate resources from being pirated from the outside, while restricting outbound connections to the Internet by internal users. Hence, the organization can use the same navigational and display tools, that are cheaply available for Internet browsing, for use of internal distribution and control of information. Common items found on Intranets are those that require wide-spread distribution such as personnel policies, general announcements, training material, and business-oriented news or information. As to the opportunity for DTN? DTN is a great source for a broad range of business-related information across many marketplaces. We can bypass the less-than-reliable parts of the Internet with our satellite systems and feed the corporate Intranet directly. We then use the network resources of the organizations Intranet as an internal delivery and display system thus avoiding the need to provide hardware for each node on the network. This is a natural next step-a step that we are now taking. As an aside, the proliferation of Intranets will contribute to the degradation of performance problems on the Internet. The Internet model is based, in part, on each new site taking resources from the Internet, but also contributing resources in the form of computing power or communications pathways. 42 - 277 - Intranets, by virtue of their firewalls, take resources from the Internet, but do not contribute much back to the common system. The law of unintended consequences strikes again. III. ADSL & CABLE MODEMS These are two competing technologies that would, if widely available, provide much faster access to the Internet by the user. Think of them as a dramatically souped up engine that turns the Internet from a Model A into a Jaguar. Both technologies are technically feasible, but require large investments by the telephone and cable companies respectively. They are part of the competing strategies that the respective industries have for taking away each other's business. (Telephone companies want to be your cable providers. Cable companies want to be your telephony providers.) These technologies may also be slower in reaching widespread availability than first expected, due partly to the magnitude of the investment required by the cable or telco companies and to the financial squeeze that they are already in. These technologies do address a significant problem-speed of download and access by the user. What this will mean for the Internet is a toss-up. Will people pay the price? (Currently, ADSL modems cost between $1,500 and $2,500 each, with monthly connection costs of between $75 and $250 per month.) If the mass market won't pay the price, will the providers build it? Stay tuned... On the downside, these technologies will contribute significantly to the demand side of the resource equation, placing incredible strains on the infrastructure of the Internet. An earlier analogy likened the Internet to drinking straws connected to a water main. The faster modems would shift the description to fire hoses connected to the water main. While it means that any one hose can get a lot more water, it also speeds the eventual failure of the system. (The Internet has not been exempted from the general rule that, while each problem may have its solution, each solution creates its own problems.) It is unlikely that, in any near term, these technologies will be in widespread usage beyond the early-adapters. As an interesting side note, the cable and ADSL forces are not fighting just each other. They also are faced with significant infighting, the fratricide centering around conflicting standards and interoperability. This fight is expected to go on for the next two to three years. To close, I would reiterate that DTN is not a technology company. We are an information and communications company that uses technology. We do not sell technology-we sell value to our subscriber. This creates value for you, our shareholders. We are working to maintain and enhance that value for the benefit of all. I hope that discussions such as this are helpful and interesting to you, our shareholders. I continue to welcome your comments or questions, and will try to use them to direct the subject matter for my comments in the coming quarterly shareholder reports. You can reach me by E-Mail at roberth@dtn.com, by phone at (402)390-2328, or by FAX at (402)390-7188. Very truly yours, Robert S. Herman Senior Vice President Research and Technology - 278 - EX-23 20 INEDPENDENT AUDITORS' REPORT 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, 1996 and 1995, and for each of the three years in the period ended December 31, 1996 and have issued our report thereon dated January 31, 1997; such financial statements and report are included in the 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Data Transmission Network Corporation, listed in Item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Omaha, Nebraska January 31, 1997 - 279 - EX-27 21 ARTICLE 5 FDS FOR 1996 10-K
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 708,503 0 10,173,766 520,000 0 13,753,134 223,012,991 98,564,288 177,729,762 28,501,228 97,747,823 0 0 11,074 28,279,215 177,729,762 98,373,713 98,373,713 0 91,462,922 0 0 8,432,270 (1,404,306) (446,000) (958,306) 0 0 0 (958,306) (0.09) (0.09)
EX-99 22 PROXY STATEMENT FOR 1997 ANNUAL MEETING SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [ x ] Check the appropriate box: [ ] Preliminary Proxy Statement [ x ] Definitive Proxy Statement [ ] Definitive Addditional 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 computer pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------- 5) Total fee paid: ---------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ---------------------------------- 2) Form, Schedule or Registration Statement No.: ------------- 3) Filing Party: ---------------------------------------------- 4) Date Filed: ------------------------------------------------ 2 - 282 - 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 23, 1997 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 23, 1997 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 approve an amendment to the Company's Stock Option Plan of 1989. 3. To consider and vote upon a proposal to ratify the appointment of Deloitte & Touche LLP independent auditors for the Company for the 1997 fiscal year. 4. To transact such other business as may properly come before the meeting or any adjournments thereof. Any action may be taken on any one of the foregoing proposals at the meeting on the date specified above, or on any date or dates to which the meeting may be adjourned. The Board of Directors of the Company has fixed the close of business on March 5, 1997, as the record date for determination of the stockholders of the Company entitled to notice of and to vote at the meeting. All stockholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, please complete, date and sign the enclosed proxy card and mail it promptly in the self-addressed envelope provided. The giving of such proxy does not affect your right to vote in person in the event you attend the meeting. BY ORDER OF THE BOARD OF DIRECTORS /s/ Brian L. Larson ------------------------------ Omaha, Nebraska Brian L. Larson March 10, 1997 Secretary IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. 3 - 283 -
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 Compensation Committee Report of Executive Compensation ................... 10 Amendment to Employee Stock Option Plan ................................... 12 Approval of Appointment of Auditors ....................................... 14 Transactions with Management .............................................. 14 Compensation Committee Interlocks and Insider Participation ............... 14 Stockholder Proposals for 1998 Annual Meeting ............................. 14 Section 16(a) Beneficial Ownership Reporting Compliance ................... 14 Other Matters ............................................................. 15 Miscellaneous ............................................................. 15 Exhibit A - Fifth Amendment to Stock Option Plan of 1989 .................. 16
4 - 284 - PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 23, 1997 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 23, 1997, at 10:00 A.M. Omaha time. Stockholders of record at the close of business on March 5, 1997 are entitled to notice of and to vote at the Meeting. The Company's principal executive offices are located at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114. PROXIES Proxies are being solicited by the Board of Directors of the Company with all costs of the solicitation to be paid by the Company. If the accompanying proxy is executed and returned, the shares represented by the proxy will be voted as specified therein. A stockholder may revoke any proxy given pursuant to this solicitation by delivering to the Company prior to the 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 14, 1997. VOTING SECURITIES At March 5, 1997, the Company had issued and outstanding 11,063,020 shares of the Company's $.001 par value common stock. The Company effected a three for one stock split on June 28, 1996, for shareholders of record on June 14, 1996. The Company has no other class of voting securities outstanding. Each stockholder voting in the election of directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are entitled, or may distribute such votes on the same principle among as many candidates as the stockholder chooses, provided that votes cannot be cast for more than the total number of directors to be elected at the Meeting. The seven nominees receiving the most votes at the Meeting will be elected as directors. Each share has one vote on all other matters. An affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the meeting is required for approval of all 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 either or both of the proposals to amend the Company's Employee Stock Option Plan or to ratify the appointment of auditors are treated as votes against the particular proposal. Broker non-votes on either or both of the proposals to amend the Company's Employee Stock Option Plan or to ratify the appointment of auditors are treated as shares as to which voting power has been withheld by the beneficial holders of those shares and, therefore, as shares not entitled to vote on the proposal as to which there is the broker non-vote. 1 - 285 - PROPOSAL NO. 1 ELECTION OF DIRECTORS At the Meeting, the stockholders will elect a board of seven directors for a term extending until the 1998 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 5, 1997, with respect to the nominees for election as directors of the Company. The information relating to their respective business experience was furnished to the Company by such persons.
Nominee Age Positions and Offices with the Company Director Since - ------- --- -------------------------------------- -------------- Roger R. Brodersen 51 Chairman of the Board, 1984 Chief Executive Officer and Director Robert S. Herman 44 Senior Vice President and Director 1984 David K. Karnes 48 Director 1989 J. Michael Parks 46 Director 1990 Jay E. Ricks 64 Director 1995 Greg T. Sloma 45 President, Chief Operating Officer 1993 and Director Roger W. Wallace 40 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 is currently a Director of the Federal Home Loan Bank of Topeka and served as its Chairman from 1989 to 1996. Mr. Karnes also served as a United States Senator from 1987 to 1989. 2 - 286 - 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. 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 has served as President of the Company since January 1996. He has served as Chief Operating Officer of the Company since January 1994. Mr. Sloma served as Executive Vice President of the Company from January 1994 to December 1995 and as Chief Financial Officer from April 1993 to December 1993. From 1983 to 1993, Mr. Sloma was a Tax Partner at Deloitte & Touche. Mr. Wallace has served as Senior Vice President of the Company since 1989. He served as Vice President of the Company from 1984 to 1989. Board Meetings and Committees - ----------------------------- The Board of Directors met four times during the fiscal year ended December 31, 1996. During fiscal 1996, with the exception of Mr. Karnes who was not present at one meeting of the Board of Directors, all directors attended all of the meetings of the Board of Directors, and related committees on which they served. The Company does not have a Standing Nominating Committee. The Audit Committee recommends the selection of the independent auditors, reviews the scope of the audits performed by them and reviews their audit report and any recommendations made by them relating to internal financial controls and procedures. Members of the Audit Committee, which met twice during fiscal 1996, are David K. Karnes, J. Michael Parks and Jay E. Ricks. The Compensation Committee reviews and makes recommendations to the Board of Directors regarding officers' compensation and the Company's employee benefit plans; provided, however, the Compensation Committee administers the Company's Stock Option Plan of 1989 through its Stock Option Plan Subcommittee, consisting of all members of the Compensation Committee other than Greg T. Sloma. Members of the Compensation Committee, which met once during fiscal 1996, are David K. Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma. Directors Compensation - ---------------------- During fiscal 1996, each member of the Board of Directors who was not an employee of the Company received $1,000 for each Board of Directors meeting attended, $400 for each Audit Committee meeting attended and $1,000 for the Compensation Committee meeting attended. Non-employee members of the Board of Directors also receive awards under the Company's Non-Employee Directors Stock Option Plan (the "Non-Employee Directors Plan"). Stock option grants under the Non-Employee Directors Plan are automatic and occur each time a non-employee director is elected, re-elected or appointed a director of the Company. In 1996, David K. Karnes, J. Michael Parks and Jay E. Ricks each received an option to purchase 6,000 shares of the Company's common stock at an exercise price of $17.33 per share. The Non-Employee Directors Plan has been amended for fiscal year 1997 to reduce from 6,000 to 4,500 the number of shares for which options are to be awarded to each non-employee director. The exercise price of options granted under the Non-Employee Directors Plan is the fair market value of the common stock on the date of the option grant. 3 - 287 - OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as to the beneficial ownership of the Company's common stock by each person or group who, as of March 5, 1997, to the knowledge of the Company, beneficially owned more than 5% of the Company's common stock:
Name and Address of Amount and Nature Percent of Beneficial Owner Of Ownership Class - ------------------- ----------------- ---------- Roger R. Brodersen 1,648,355(1) 14.9% 16705 Ontario Plaza Omaha, NE 68130 Furman Selz Incorporated 1,090,110(2) 9.9% 230 Park Avenue New York, NY 10169 Wanger Asset Management, L.P., 1,053,800(3) 9.5% Wanger Asset Management Ltd., and Ralph Wanger 227 West Monroe, Suite 3000 Chicago, IL 60606 Acorn Investment Trust, 750,000(4) 6.8% Series Designated Acorn Fund 227 West Monroe Street, Suite 3000 Chicago, IL 60606 Peter H. Kamin and Peak Investment 620,400(5) 5.6% Limited Partnership as a group One Financial Center, Suite 1600 Boston, MA 02111 - ---------------------------------- (1) This includes 80,000 shares subject to options exercisable within 60 days of March 5, 1997, 39,150 shares held in a trust for the benefit of Mr. Brodersen's children, 36,999 shares beneficially owned by Mr. Brodersen's spouse, and 19,137 shares allocated to Mr. Brodersen through his participation in the Company's 401(k) Savings Plan. (2) According to a Schedule 13G dated February 14, 1997, Furman Selz Incorporated has sole voting and sole dispositive power over such shares. (3) According to a Schedule 13G dated February 14, 1997, Wanger Asset Management, L.P., Wanger Asset Management Ltd., and Ralph Wanger have shared voting and shared dispositive power over such shares. Such shares include 750,000 shares also shown in this table as beneficially owned by Acorn Investment Trust, Series Designated Acorn Fund. Wanger Asset Management, L.P. serves as investment adviser to such trust. Wanger Asset Management Ltd. is the general partner of Wanger Asset Management, L.P. Ralph Wanger is the principal stockholder of Wanger Asset Management Ltd. (4) According to a Schedule 13G dated February 14, 1997, Acorn Investment Trust has shared voting and shared dispositive power over such shares. Such shares also are shown in this table as beneficially owned by Wanger Asset Management, L.P. which is the investment advisor of Acorn Fund. 4 - 288 - (5) According to a Schedule 13D, amended through December 30, 1994, and a telephone conversation by the Secretary of the Company with Peter H. Kamin on January 31, 1997, Peak Investment Limited Partnership ("Peak") is the beneficial owner of 585,400 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 585,400 shares. According to the Schedule 13D, as modified by such telephone conversation, Mr. Kamin also is the beneficial owner of an additional 35,000 shares for which he has sole voting and sole dispositive power.
The following table sets forth information as to the shares of common stock of the Company beneficially owned as of March 5, 1997, 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 1,648,355 ( 3) 14.9% Robert S. Herman 432,154 ( 4) 3.9% David K. Karnes 61,935 ( 5) * James J. Marquiss 138,586 ( 6) 1.3% J. Michael Parks 44,999 ( 7) * Jay E. Ricks 16,500 ( 8) * Greg T. Sloma 152,349 ( 9) 1.4% Roger W. Wallace 277,230 (10) 2.5% All directors and executive officers as a group (15 persons) 2,911,304 (11) 26.3% * Less than 1.0% - ------------------------------------ ( 1) The number of shares in the table include interests of the named persons, or of members of the directors and executive officers as a group, in shares held by the trustee of the Company's 401(k) Savings Plan. The beneficial owners have sole investment power over these shares but do not have sole voting power. ( 2) Shares subject to options exercisable within 60 days of March 5, 1997 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 80,000 shares subject to options exercisable within 60 days of March 5, 1997, 39,150 shares which are held in trust for Mr. Brodersen's children, 36,999 shares beneficially owned by Mr. Brodersen's spouse, and 19,137 shares allocated to Mr. Brodersen through his participation in the Company's 401(k) Savings Plan. 5 - 289 - ( 4) Includes 92,048 shares subject to options exercisable within 60 days of March 5, 1997, 6,645 shares beneficially owned by Mr. Herman's spouse, and 15,779 shares allocated to Mr. Herman through his participation in the Company's 401(k) Savings Plan. ( 5) Includes 32,499 shares subject to options exercisable within 60 days of March 5, 1997. ( 6) Includes 63,874 shares subject to options exercisable within 60 days of March 5, 1997 and 14,712 shares allocated to Mr. Marquiss through his participation in the Company's 401(k) Savings Plan. ( 7) Includes 30,999 shares subject to options exercisable within 60 days of March 5, 1997. ( 8) Includes 13,500 shares subject to options exercisable within 60 days of March 5, 1997. ( 9) Includes 123,000 shares subject to options exercisable within 60 days of March 5, 1997, 4,212 shares beneficially owned by Mr. Sloma's children and 22,687 shares allocated to Mr. Sloma through his participation in the Company's 401(k) Savings Plan. (10) Includes 92,048 shares subject to options exercisable within 60 days of March 5, 1997, 4,500 shares beneficially owned by Mr. Wallace's spouse, and 15,832 shares allocated to Mr. Wallace through his participation in the Company's 401(k) Savings Plan. (11) Includes 654,370 shares subject to options exercisable within 60 days of March 5, 1997, 39,150 shares held in trust for the children of executive officers and directors, 52,356 shares owned beneficially by spouses or children of executive officers and directors, and 96,666 shares allocated to executive officers through their participation in the Company's 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, 1996. 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 1996 $179,172 $112,178 $0 240,000(3) $9,500 Chairman, & 1995 172,000 147,897 0 30,000 9,240 Chief Executive Officer 1994 165,000 80,217 0 30,000 9,240 Greg T. Sloma 1996 145,996 147,707(4) 0 16,500(5) 9,500 President & 1995 140,000 131,466 0 18,000 9,240 Chief Operating Officer 1994 135,000 65,712 0 18,000 2,464 Robert S. Herman 1996 120,865 97,707 0 7,500 9,500 Senior Vice President 1995 115,000 131,466 0 15,000 9,240 1994 110,000 71,304 0 15,000 6,160 Roger W. Wallace 1996 120,858 108,390 0 7,500 9,170 Senior Vice President 1995 115,000 126,227 0 15,000 9,240 1994 110,000 70,108 0 15,000 7,204 James J. Marquiss 1996 120,858 108,390 0 6,000 9,170 Senior Vice President 1995 115,000 125,843 0 12,000 9,240 1994 110,000 62,540 0 9,000 6,902 6 - 290 - (1) Excludes perquisites and other benefits because the aggregate of such compensation was less than either $50,000 or 10% of the total of annual salary and bonus reported for the named executive officer. (2) The amounts included in the All Other Compensation column represent 401(k) matching contributions made by the Company. (3) This amount includes 225,000 shares underlying a replacement option issued to Mr. Brodersen in exchange for the surrender of outstanding, unexpired and unexercised options to acquire an aggregate of 117,999 shares previously awarded to Mr. Brodersen under the Company's Stock Option Plan of 1989. See Footnote 2 to the table captioned Option Grants In Last Fiscal Year for additional information concerning such replacement option. (4) This amount includes a $50,000 bonus awarded to Mr. Sloma for his performance related to the acquisition of Broadcast Partners by the Company. (5) This amount includes 7,500 shares subject to an option awarded to Mr. Sloma for his performance related to the acquisition of Broadcast Partners 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 (4) - ------------------ ----------- ------------ ----------- --------- ---------- Roger R. Brodersen 240,000(2) 46.1% $15.50 1-05-06 $1,974,900 Greg T. Sloma 9,000 1.7% 15.50 1-05-06 74,100 7,500(3) 1.4% 20.83 5-13-06 82,900 Robert S. Herman 7,500 1.4% 15.50 1-05-06 61,700 Roger W. Wallace 7,500 1.4% 15.50 1-05-06 34,100 James J. Marquiss 6,000 1.2% 15.50 1-05-06 27,300 (1) Except as indicated in the footnotes to this table, the options referred to in this table were granted by the Stock Option Plan Committee on January 5, 1996 under the Company's Stock Option Plan of 1989. 7 - 291 - (2) This amount includes 225,000 shares underlying a replacement option issued to Mr. Brodersen in exchange for the surrender of outstanding, unexpired and unexercised options to acquire an aggregate of 117,999 shares of common stock of this corporation previously awarded to Mr. Brodersen under the Company's Stock Option Plan of 1989. The surrendered options exercisable for 117,999 shares were considered for tax purposes as Incentive Stock Options (ISO's), whereas, the replacement option for 225,000 shares is considered for tax purposes as a Non-Qualified Stock Option. The weighted average exercise price per share of the surrendered options was $6.28, while the exercise price of the replacement option was the fair market value of the common stock on January 5, 1996 or $15.50 per share. (3) This amount represents shares underlying an option awarded to Mr. Sloma on May 13, 1996 for his performance related to the acquisition of Broadcast Partners by the Company. (4) As suggested by the Securities & Exchange Commission's rules on executive compensation, the Company used the Black-Scholes model of option valuation to determine grant date present value. The Company does not necessarily agree that the Black-Scholes model can properly determine the value of an option. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised, so that there is no assurance that the value realized will be at or near the value estimated by the Black-Scholes model.
The following table provides information on option exercises in fiscal 1996 and the value of unexercised options at December 31, 1996 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 Shares Underlying Unexercised Value of Unexercised Acquired Options at Fiscal In-the-Money Options On Value Year End (shares) At Fiscal Year End(1) ----------- ------------- ----------- ------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------ -------- -------- ----------- ------------- ----------- ------------- Roger R. Brodersen - $ 0 0 240,000 $0 $1,440,000 Greg T. Sloma. - 0 85,500 57,000 1,395,500 709,500 Robert S. Herman - 0 79,548 22,500 1,314,500 268,400 Roger W. Wallace - 0 79,548 22,500 1,314,500 268,400 James J. Marquiss - 0 54,874 17,000 908,900 202,000 (1) The closing "bid" price of the Company's common stock as quoted by NASDAQ on December 31, 1996 was $21.50. The values shown are computed based upon the difference between this price and the exercise price of the underlying options.
8 - 292 - Performance Graph The following performance graph compares the performance of the Company's common stock to the Center for Research in Securities Prices (CRSP) Total Return Index for the NASDAQ Stock Market (U.S. Companies) and to the CRSP Total Return Industry Index for NASDAQ Telecommunications Stocks. The graph assumes that the value of the investment in the Company's Common Stock and each index was $100 at December 31, 1991.
Nasdaq Nasdaq Total Telecommunications Year DTN Return Index Industry Index - ---- --- ------------ ------------------ 1991 100 100 100 1992 118 116 123 1993 219 134 189 1994 142 131 158 1995 410 185 207 1996 556 227 212
9 - 293 - COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Compensation Philosophy - ----------------------- The Company strives to apply a consistent philosophy on compensation for all employees, including senior management. The goals of the compensation program are to directly link compensation with corporate profitability and the enhancement of the underlying value of the Company's business. The following objectives are used by the Company and the Compensation Committee as guidelines for compensation decisions: o Provide a competitive total compensation package that allows the Company to attract and retain the best people possible. o The Company pays for performance. Employees are rewarded based upon corporate performance, business unit performance and individual performance. o Provide variable compensation programs that are linked with the performance of the Company and that align executive compensation with the interests of shareholders. Compensation Program Components - ------------------------------- The Committee annually reviews the Company's compensation program to ensure that pay levels and incentive opportunities are competitive and reflect the performance of the Company. The components of the compensation program for executive officers, which are comparable to those used for all employees, are outlined below. Base Salary - Base pay levels are determined by reviewing competitive positions in the market, including comparisons with companies of similar size, complexity and growth rates. Modest increases in base salary were recommended by senior management for fiscal 1996 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 Company's employees, including the executive officers, participate in an annual bonus plan. For fiscal 1996, the bonus pool was eight percent of the Company's income before income taxes and depreciation and amortization expenses of which approximately 75% was earned and will be paid. The five executive officers named in the Summary Compensation Table received approximately thirty-three 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. 10 - 294 - CEO Compensation - ---------------- The factors and criteria upon which Mr. Brodersen's compensation was based for fiscal year 1996 are the same as those considered by the Committee in establishing the compensation program for all of the executive officers of the Company as outlined above. The annual base salary of Mr. Brodersen was established by the Committee on February 29, 1996 for the calendar year 1996. The Committee's decision was based on Mr. Brodersen's personal performance of his duties and on salary levels to chief executive officers of companies of similar size, complexity and growth rates. Mr. Brodersen's 1996 fiscal year incentive cash compensation was based on the actual financial performance of the Company. His annual cash bonus award was based on the bonus pool described above and represented approximately seven percent of the bonus pool awarded for 1996. An option grant for 15,000 shares was awarded to Mr. Brodersen under the Company's Employee Stock Option Plan based upon his performance and leadership with the Company. The grant placed a significant portion of his total compensation at risk, since the value of the option depends on the appreciation of the Company's common stock over the option term. On January 5, 1996, Mr. Brodersen also surrendered unexpired and unexercised options previously awarded to him under the plan in exchange for a replacement option. Such replacement option was not considered as part of the Company's 1996 compensation program. It was an isolated occurrence where the Company obtained cancellation of options with exercise prices substantially below fair market value by exchanging a replacement option with additional shares and an extended option term, but with an exercise price equal to the fair market value of the common stock on the date the replacement option was granted. See Footnote 2 to the table captioned Option Grants In Last Fiscal Year for additional information concerning such replacement option. Compensation Committee of the Board of Directors ------------------------- David K. Karnes J. Michael Parks Jay E. Ricks Greg T. Sloma 11 - 295 - PROPOSAL NO. 2 AMENDMENT TO EMPLOYEE STOCK OPTION PLAN Description of Employee Stock Option Plan - ----------------------------------------- The Company's Stock Option Plan of 1989 (the "Plan") provides for the grant of options to purchase shares of the Company's common stock to full-time employees of the Company. The Plan is administered by a subcommittee of the Compensation Committee of the Board of Directors consisting of the non-employee directors (the "Committee"). Options granted under the Plan are exercisable pursuant to a three-year vesting schedule and they terminate no later than ten years from the date of their grant. If employment ends sooner than the end of an options specified exercise period, the options terminate six months after the termination of the participant's employment for any reason other than disability or death. In the event of disability or death, they terminate twelve months after such disability or death. The Plan currently reserves for issuance 2,100,000 shares of the Company's common stock. The maximum number of shares for which options may be granted under the Plan was adjusted from 700,000 to 2,100,000 as a result of a three for one stock split effective June 28, 1997 for stockholders of record June 14, 1996. The Board of Directors proposes the adoption of the Fifth Amendment to the Plan which accompanies this Proxy Statement as Exhibit "A" (the "Fifth Amendment"). The Fifth Amendment will amend the Plan by increasing from 2,100,000 shares to 2,800,000 shares the total number of shares for which options may be granted under the Plan. Subject to the express provisions of the Plan, the Committee has complete authority, in its discretion, to interpret the Plan and select those eligible participants to whom and the terms upon which options shall be granted. No options shall be granted at an exercise price less than 100% of the fair market value of the shares at the date of the grant. As of March 5, 1997, the market value of the shares of common stock of the Company, determined by the closing "bid" price of such shares as reported by the NASDAQ system for such day, was $23.38 per share. No cash consideration is to be received by the Company for the granting of options pursuant to the Plan. In the event of any changes in the number of issued shares through stock splits, dividends, or other change in capitalization, the total number of shares under the Plan is to be adjusted so that the aggregate consideration due the Company and the value of each benefit shall not change. Plan Activity - ------------- As of March 5, 1997, options to purchase an aggregate of 388,344 shares of common stock issued under the Plan had been exercised, and options to purchase 1,587,576 shares were outstanding. Without taking into account the proposed amendment to the Plan, 124,080 shares remained available for future grants as of March 5, 1997. The table under the caption "Option Grants in Last Fiscal Year" provides information with respect to the grant of options under the Plan to the Chief Executive Officer and the next four most highly compensated executive officers during fiscal year 1996. The following table sets forth additional information with respect to options granted under the Plan during the fiscal year 1996 to certain groups: 12 - 296 -
Option Weighted Average Shares Identity of Group Exercise Price Granted - --------------------------- ---------------- -------- All executive officers as a group (12 persons) $15.63 298,500 Non-executive officer employees as a group (approximately 610 persons) $15.53 222,300
Certain United States Federal Income Tax Information - ---------------------------------------------------- The Plan provides for the issuance of both incentive stock options and non-qualified options. The two types of options are subject to differing federal income tax treatment. There generally are no federal income tax consequences either to the participant or the Company upon the grant of an option under the Plan. Upon the exercise of an incentive stock option, the participant will not recognize any income for income tax purposes, and the Company will not be entitled to a deduction for income tax purposes, although such exercise may give rise to a liability on the part of the participant under the alternative minimum tax provisions of the Internal Revenue Code. Generally, if the participant disposes of shares acquired upon the exercise of an incentive stock options within two years after the date of grant or one year after the date of exercise, the participant will recognize compensation income, and the Company will be entitled to a deduction for income tax purposes, in the amount of the excess of the fair market value of the shares of common stock of the Company on the date of exercise over the option exercise price (or the gain upon such sale, if less). Otherwise, the Company will not be entitled to any deduction for income tax purposes upon the disposition of such shares, and the participant's entire gain will be treated as a capital gain. Upon the exercise of a non-qualified stock option, the amount by which the fair market value of the common stock of the Company on the date of exercise exceeds the option exercise price generally will be taxable to the participant as compensation income and generally will be deductible for income tax purposes by the Company. The disposition of shares of common stock of the Company acquired upon the exercise of a non-qualified stock option generally will result in a capital gain or loss for the participant but will have no tax consequences for the Company. Amendment To Employee Stock Option Plan - --------------------------------------- The Board of Directors has unanimously approved, and recommends to the stockholders for their approval and adoption, the Fifth Amendment to the Plan which will increase from 2,100,000 to 2,800,000 the total number of shares for which options may be granted under the Plan. The Board of Directors has determined that the ability of the Company to continue to attract and retain highly qualified employees will be enhanced by the continued grant of options under the Plan and, accordingly, recommends a vote FOR adoption of the Fifth Amendment. The affirmative vote of a majority of the shares of the Company's common stock present in person or by proxy at the meeting is required for the adoption of the Fifth Amendment. The full text of the amended Plan is available to any shareholder without charge by oral or written request to the Company Secretary, Data Transmission Network Corporation, 9110 West Dodge Road, Suite 200, Omaha, NE 68114, telephone (402) 390-2328. A copy of the Plan document will be sent by first class mail to the requesting party promptly upon receipt of the request by the Company Secretary. 13 - 297 - PROPOSAL NO. 3 APPROVAL OF APPOINTMENT OF AUDITORS The Board of Directors has, upon the recommendation of the Audit Committee, appointed the firm of Deloitte & Touche LLP to audit the Company's financial statements for the fiscal year ending December 31, 1997, subject to ratification by the stockholders of the Company. Deloitte & Touche LLP served as the Company's auditors for the 1996 fiscal year. Ratification of the appointment of the independent auditors requires the affirmative vote of a majority of the shares of Common Stock present, in person or by proxy, and voting at the Meeting. If the stockholders should not ratify the appointment of Deloitte & Touche LLP, the Board of Directors will reconsider the appointment. A representative of Deloitte & Touche LLP is expected to be present at the Meeting, will have an opportunity to make a statement if desired, and will be available to respond to appropriate stockholder questions. The Board of Directors recommends a vote FOR the approval of the appointment of Deloitte & Touche LLP as independent auditors for the Company. TRANSACTIONS WITH MANAGEMENT No reportable transactions occurred during fiscal 1996 between the Company and its officers and directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following directors served on the Compensation Committee of the Company's Board of Directors: David K. Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma. Mr. Sloma, because he is an officer and employee of the Company, abstains from all votes dealing with officer compensation. Also, only Mr. Karnes, Mr. Parks and Mr. Ricks are members of the Stock Option Plan Subcommittee of the Compensation Committee which administers the Company's Stock Option Plan of 1989. STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING Proposals of stockholders for which consideration is desired at the 1998 Annual Meeting of Stockholders must be received by the Company no later than December 31, 1997, in order to be considered for inclusion in the Company's proxy statement and form of proxy relating to such meeting. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers and holders of more than 10% of the Company's common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. The Company believes that during the fiscal year ended December 31, 1996, its executive 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. James J. Marquiss, an officer, filed one late Form 4 for the month of November 1996 with respect to a single transaction involving shares of the Company's Common Stock sold by him during such month. 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 14 - 298 - 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 Company's stock transfer agent, to assist in the distribution and solicitation of proxies at a cost of approximately $3,000, including the reimbursement of certain expenses. The Company's Annual Report to Stockholders, including financial statements, has been mailed to all stockholders of record as of the close of business on March 5, 1997. Any stockholder who has not received a copy of such Annual Report may obtain a copy by writing the Company. Such Annual Report is not to be treated as a part of this proxy solicitation material nor as having been incorporated herein by reference. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the Compensation Committee Report on page 10 and the Performance Graph on page 9 shall not be incorporated by reference into any such filings. THE BOARD OF DIRECTORS Omaha, Nebraska March 10, 1997 A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, DATA TRANSMISSION NETWORK CORPORATION, 9110 WEST DODGE ROAD, SUITE 200, 0MAHA, NEBRASKA 68114. 15 - 299 - Exhibit A FIFTH AMENDMENT TO DATA TRANSMISSION NETWORK CORPORATION STOCK OPTION PLAN OF 1989 PREAMBLE Data Transmission Network Corporation, a Delaware corporation (the "Company"), adopted the Data Transmission Network Corporation Stock Option Plan of 1989 (the "Plan") effective as of February 15, 1989. The Plan was previously amended by a First Amendment effective as of January 15, 1990, a Second Amendment effective as of January 2, 1991, a Third Amendment effective as of May 1, 1991 and a Fourth Amendment effective as of January 3, 1994. In addition, in accordance with Section 4 of Article I of the Plan, the terms of the Plan were adjusted to reflect the effect of a three for one stock split implemented by the Company on June 28, 1997. Section 1 of Article III of the Plan provides that the Board of Directors of the Company or any authorized committee of the Board of Directors may from time to time amend the Plan with shareholder approval required under certain circumstances. Except as modified by or specifically defined in this Fifth Amendment, capitalized terms used in this Fifth Amendment shall have the meanings given to such terms in the Plan. AMENDMENT Subject to ratification and approval by the shareholders of the Company at their annual meeting to be held on the 23rd day of April, 1997, the Plan is hereby amended, effective as of May 1, 1997, as follows: 1. Subsections (a) and (b) of Section 1 of Article II of the Plan shall be amended by increasing from 2,100,000 to 2,800,000 Shares the total number of Shares for which Options may be granted under the Plan. 2. Except as specifically amended by this Fifth Amendment, the Plan, as previously amended, shall remain in full force and effect and is hereby ratified and confirmed. 16 - 300 - This page intentionally left blank 17 - 301 - DATA TRANSMISSION NETWORK CORPORATION 9110 West Dodge Road, Suite 200 Omaha, NE 68114 18 - 302 - DATA TRANSMISSION NETWORK CORPORATION PROXY Annual Meeting of Stockholders To Be Held April 23, 1997 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 5, 1997 at the Annual Meeting of Stockholders to be held on April 23, 1997 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. PROPOSAL TO AMEND STOCK OPTION PLAN OF 1989. FOR ----- AGAINST ----- ABSTAIN ----- 3. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP as independent auditors of the Corporation for fiscal year ending December 31, 1997 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 23, 1997 and the Proxy Statement for such meeting. Dated , 1997 --------------------------- ----------------------------------- ----------------------------------- (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. -19- - 303 - -----END PRIVACY-ENHANCED MESSAGE-----