1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
[ ] Rule 14a-12
NORTHLAND CABLE PROPERTIES SIX
LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(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):
[ ] No Fee Required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
CALCULATION OF FILING FEE
======================================================================================================
PER UNIT PRICE OR
OTHER UNDERLYING
VALUE OF PROPOSED
TRANSACTION MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE NUMBER OF COMPUTED PURSUANT AGGREGATE
SECURITIES TO WHICH SECURITIES TO WHICH TO EXCHANGE VALUE OF
TRANSACTION APPLIES: TRANSACTION APPLIES: ACT RULE 0-11: TRANSACTION: TOTAL FEE PAID
- ---------------------- -------------------- ------------------ ------------ --------------
L.P. UNITS 29,784 $70,200 $70,200 $14,040
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[X] 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: $12,450 (December 21, 2000)
1,590 (April 25, 2001)
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$14,040
(2) Form, Schedule, or Registration Statement no.: Commission File
No. 000-16063
(3) Filing Party: Registrant / Partnership
(4) Date Filed: December 21, 2000
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
PROXY STATEMENT
To our Limited Partners: July 31, 2001
This proxy statement solicits your vote for two separate proposals. The
first proposal, if approved, will extend the term of Northland Cable Properties
Six Limited Partnership ("NCP-Six") for six years until December 31, 2007. The
second proposal, if approved, will authorize NCP-Six to sell all of its existing
assets leading to the winding up of NCP-Six.
NCP-Six's current debt of approximately $28,215,000 matures on September
30, 2001. NCP-Six's lenders have indicated they will not consider extending this
credit facility, unless NCP-Six's term is extended. If the debt is not paid upon
its maturity, the lenders could commence foreclosure actions against NCP-Six's
assets. As a consequence, the general partners strongly recommend that you vote
in favor of the proposed extension of NCP-Six's term regardless of whether you
approve or disapprove of the proposed sale of NCP-Six's assets at this time. A
vote in favor of extending NCP-Six's term is separate from the approval or
disapproval of the proposed sale of NCP-Six's assets.
Pursuant to the second proposal, if the requisite majority of limited
partners approve the proposed sales and all conditions to closing are satisfied,
NCP-Six will sell and distribute all of its cable television systems and other
assets to three companies affiliated with its managing general partner,
Northland Communications Corporation, in a series of asset sales which combined
are valued at $70,200,000. Assuming the proposed sales to affiliates of the
managing general partner described in this proxy statement are consummated,
projected cash distributions to be made to the limited partners of NCP-Six over
the life of NCP-Six (per $500 partnership unit) are as follows:
PRIOR CASH 120 DAYS AFTER CLOSING NON-RESIDENT ONE YEAR AFTER CLOSING TWO YEARS THREE YEARS
DISTRIBUTIONS THE PROPOSED TRANSACTION TAX(1) THE PROPOSED TRANSACTION AFTER CLOSING AFTER CLOSING TOTAL
- ------------- ------------------------ ------------ ------------------------ ------------- ------------- ------
$128 $599 $55 $221 $147 $137 $1,287
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(1) NCP-Six on behalf of its limited partners will pay a required non-resident
state income tax resulting from the proposed transaction out of purchase
price proceeds to the states of Mississippi, North Carolina and South
Carolina in the aggregate amount of $55 per partnership unit.
THE AMOUNTS SET FORTH IN THE PRECEDING TABLE ARE PROVIDED ON A PRO FORMA BASIS
AS OF MARCH 31, 2001, AND ARE BEING PROVIDED FOR ILLUSTRATIVE PURPOSES ONLY. IT
IS CURRENTLY ANTICIPATED THAT THE PROPOSED SALES WILL CLOSE IN SEPTEMBER 2001.
ACTUAL AMOUNTS WILL VARY FROM THESE PROJECTIONS. WHILE THE MANAGING GENERAL
PARTNER ANTICIPATES THAT THE PROPOSED SALES WILL CLOSE, IF ONE OR MORE SALES ARE
NOT CLOSED AS PLANNED, FUNDS AVAILABLE FOR NCP-SIX TO DISTRIBUTE TO ITS LIMITED
PARTNERS WILL MATERIALLY DIFFER FROM THESE PROJECTIONS. (For details, see
"Projected Cash Available from Liquidation" on page .)
NCP-Six received offers to purchase NCP-Six's assets from various parties
through a blind bid process, but the managing general partner is seeking
approval for the sale of NCP-Six's assets to three companies that are affiliates
of the managing general partner. The proposed sales thus give rise to certain
conflicts of interest as discussed in greater detail in this proxy statement. As
a result, the general partners of NCP-Six and their affiliates will abstain from
voting on whether to approve the proposed sales. Only limited partners of
NCP-Six not affiliated with the general partners will determine whether the
proposed sales should be approved.
This proxy statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies for use at a special meeting of
limited partners to be held at 3:00 p.m., on September 11, 2001. The special
meeting, and any postponements or adjournments, will be held at the offices of
NCP-Six located at 1201 Third Avenue, Suite 3600, Seattle, Washington 98101.
Only limited partners of record as of June 30, 2001 will be entitled to notice
of and to vote at the special meeting.
THE PROPOSALS FOUND IN THIS PROXY STATEMENT HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT
PASSED UPON THE FAIRNESS OR MERITS OF THE PROPOSALS, NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION, CONTAINED IN THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
YOU SHOULD MAKE YOUR DECISION ON THE PROPOSALS PRESENTED IN THIS DOCUMENT
BASED ON THE INFORMATION PRESENTED IN THIS PROXY STATEMENT AS OPPOSED TO BASING
YOUR DECISION ON PREVIOUSLY RECEIVED MATERIALS INCLUDING PRIOR CORRESPONDENCE
FROM THE MANAGING GENERAL PARTNER. YOU ARE URGED TO CAREFULLY REVIEW THIS PROXY
STATEMENT AND TO RETURN YOUR PROXY CARD PROMPTLY IN ORDER FOR IT TO BE RECEIVED
BY THE MANAGING GENERAL PARTNER ON OR BEFORE SEPTEMBER 10, 2001.
We are first mailing this proxy statement to limited partners on or about
July 31, 2001.
Sincerely,
Northland Communications Corporation,
managing general partner of NCP-Six
By:
---------------------------------------
John S. Whetzell, CEO
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
1201 THIRD AVENUE, SUITE 3600
SEATTLE, WASHINGTON 98101
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
ON SEPTEMBER 11, 2001
A special meeting of the limited partners of Northland Cable Properties Six
Limited Partnership will be held at the Washington Mutual Tower, 1201 Third
Avenue, Suite 3600, Seattle, Washington, on September 11, 2001 at 3:00 p.m.
local time. The meeting is called for the following purposes:
1. To vote on an amendment to the NCP-Six partnership agreement extending
the term of NCP-Six for an additional six years from December 31, 2001
to December 31, 2007 as further described in the accompanying proxy
statement. The complete text of the proposed amendment to extend the
term of the NCP-Six partnership agreement is attached as Exhibit C to
the accompanying proxy statement.
2. To vote on authorizing NCP-Six and its general partners to sell
NCP-Six's assets as described in the accompanying proxy statement and to
take all steps necessary to complete such proposed sales. The complete
text of the proposed amendment to authorize the proposed sales is
attached as Exhibit D to the accompanying proxy statement.
3. To transact any other business that properly comes before the special
meeting, including any adjournments or postponements of the meeting.
Only limited partners of record as of June 30, 2001 are entitled to vote at
the special meeting and any adjournments or postponements. Each proposal will be
adopted if holders of a majority of the outstanding limited partnership units
(not including units held by the general partners or their affiliates) vote to
"APPROVE" the proposal. Limited partners are not entitled to dissenters' or
appraisal rights under Washington law with respect to the approval and
consummation of either of the proposals.
THE GENERAL PARTNERS RECOMMEND THAT YOU VOTE TO "APPROVE" EXTENDING
NCP-SIX'S TERM. THE GENERAL PARTNERS ALSO RECOMMEND THAT YOU VOTE TO "APPROVE"
THE PROPOSED SALES. THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST
IN RECOMMENDING APPROVAL OF THE PROPOSED SALES BECAUSE THE THREE COMPANIES TO
WHICH NCP-SIX'S ASSETS ARE PROPOSED TO BE SOLD ARE AFFILIATED WITH NORTHLAND
COMMUNICATIONS CORPORATION, NCP-SIX'S MANAGING GENERAL PARTNER. THE GENERAL
PARTNERS' CONFLICTS OF INTEREST ARE DESCRIBED IN GREATER DETAIL IN THE
ACCOMPANYING PROXY STATEMENT. THE GENERAL PARTNERS URGE YOU TO READ THE FULL
TEXT OF THE PROXY STATEMENT AND ITS EXHIBITS CAREFULLY BEFORE MAKING YOUR
DECISION ON THESE PROPOSALS.
Sincerely,
Northland Communications Corporation,
managing general partner of NCP-Six
By:
------------------------------------
John S. Whetzell, CEO
Seattle, Washington
July 31, 2001
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TABLE OF CONTENTS
PAGE
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SUMMARY..................................................... 1
Extending the Term of NCP-Six -- Proposed Amendment No.
1...................................................... 2
Risk Factors Pertaining to Extending the Term of
NCP-Six................................................
Selling NCP-Six's Assets -- Proposed Amendment No. 2...... 2
Federal Tax Consequences of the Proposed Sales............ 6
Conflicts of Interest of the Managing General Partner..... 6
Conflict of Interest of the Administrative General
Partner................................................ 6
The General Partners' Recommend Extending the Term of
NCP-Six and Approving the
Proposed Sales......................................... 7
Fairness of the Proposed Sales............................ 7
Likely Consequences of Your Vote.......................... 8
Voting at the Special Meeting............................. 9
You Do Not Have Dissenters' Rights........................ 9
SUMMARY HISTORICAL FINANCIAL INFORMATION.................... 10
THE SPECIAL MEETING......................................... 11
Purpose of Special Meeting................................ 11
Record Date; Limited Partners Entitled to Vote at the
Special Meeting........................................ 11
Quorum; Vote Required for Approval........................ 11
Use of Proxies at the Special Meeting..................... 11
Revocation of Proxies..................................... 12
Solicitation of Proxies................................... 12
EXTENDING THE TERM OF NCP-SIX............................... 13
Background and Reasons for Extending the Term of
NCP-Six................................................ 13
Risk Factors Pertaining to the Ongoing Operation of
NCP-Six................................................ 14
THE PROPOSED SALES.......................................... 16
SPECIAL FACTORS OF THE PROPOSED SALES....................... 16
Background of the Proposed Sales.......................... 16
History of NCP-Six........................................ 16
Chronology of Events Leading up to the Proposed Sales..... 18
1999 Third-Party Bid Solicitation Process.............. 20
Northland Communications Corporation's 1999 Effort to
Purchase All of NCP-Six's Assets...................... 23
Failure of Northland Communications Corporation's 1999
Offer Due to Lack of Acceptable Financing............. 26
2000 Third-Party Bid Solicitation Process.............. 26
Preparations for Sales to Bidder D and Northland
Communications Corporation............................ 29
Reasons for the Proposed Sales............................ 32
Federal and State Income Tax Consequences of the Proposed
Sales.................................................. 34
Tax Considerations........................................ 34
Tax Consequences of Disposition of the Assets and
Liquidation of NCP-Six................................. 35
Unrelated Business Taxable Income......................... 36
Tax Consequences of a Decision Not to Sell................ 36
Other Tax Law Changes..................................... 37
State Income Tax Considerations........................... 39
North Carolina......................................... 39
Mississippi............................................ 39
South Carolina......................................... 40
Risk Factors Pertaining to the Proposed Sales............. 40
Alternatives to the Proposed Sales........................ 45
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PAGE
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Fairness of the Proposed Sales............................ 45
The General Partners' Belief as to Fairness............ 45
Material Factors Underlying Belief as to Fairness...... 46
Appraisal Process and Fairness Opinions; Summary of
Reports................................................ 49
Daniels & Associates Appraisal......................... 50
Communications Equity Associates Appraisal............. 53
Houlihan Lokey Fairness Opinion........................ 54
Compensation and Material Relationships................ 61
SPECIFIC TERMS OF THE PROPOSED SALES........................ 63
General Structure of the Proposed Sales................... 63
Terms of Promissory Notes................................. 64
Senior Debt of Northland Cable Networks LLC............... 65
Senior Debt of Northland Communications Corporation....... 65
Purchasers' Sources of Funds.............................. 65
Timing of Closings; Conditions to Completion of the
Proposed Sales......................................... 67
Distributions to General and Limited Partners............. 68
DISSOLUTION AND LIQUIDATION CONSEQUENCES OF THE PROPOSED
SALES..................................................... 70
Dissolution Procedures.................................... 70
Description of NCP-Six Liquidating Trust.................. 70
PROJECTED CASH AVAILABLE FROM LIQUIDATION................... 71
PROJECTED AGGREGATE CASH AVAILABLE FOLLOWING CLOSING THE
PROPOSED SALES............................................ 72
INFORMATION ABOUT NCP-SIX................................... 77
General................................................... 77
Managing General Partner.................................. 77
NCP-Six's Business........................................ 77
NCP-Six Operating Systems................................. 78
Starkville, Mississippi................................ 78
Philadelphia, Mississippi.............................. 79
Highlands, North Carolina.............................. 79
Barnwell, South Carolina............................... 79
Bennettsville, South Carolina.......................... 80
Employees.............................................. 80
Customers.............................................. 80
Seasonality............................................ 80
NCP-Six's Competition..................................... 80
Applicable Regulations and Legislation.................... 80
Summary................................................ 80
Cable Rate Regulation.................................. 80
Cable Entry Into Telecommunications.................... 81
Telephone Company Entry Into Cable Television.......... 81
Electric Utility Entry Into Telecommunications and
Cable Television...................................... 82
Ownership Restrictions................................. 82
Must Carry and Retransmission Consent.................. 82
Access Channels........................................ 82
Access to Programming.................................. 83
Inside Wiring; Subscriber Access....................... 83
Other Applicable Regulations of the Federal
Communications Commission............................. 83
Copyright.............................................. 84
State and Local Regulation............................. 84
Legal Proceedings......................................... 85
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PAGE
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NCP-Six's Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 85
General................................................ 85
Results of Operations for Year 2000.................... 86
Results of Operations Year ended 1999.................. 87
Selected Quarterly Financial Data...................... 88
Liquidity and Capital Resources........................ 88
Capital Expenditures and Improvements.................. 89
Recent Acquisitions and Dispositions................... 90
MANAGEMENT AND BENEFICIAL OWNERSHIP OF NCP-SIX.............. 90
Management of NCP-Six..................................... 90
Officers and Directors of Northland Communications
Corporation........................................... 91
Officers and Directors of FN Equities Joint Venture.... 93
Beneficial Ownership...................................... 93
Changes in Control........................................ 94
FINANCIAL STATEMENTS........................................ 95
EXHIBIT A -- FORM OF PROXY CARD.......................................... A-1
EXHIBIT B -- AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED
PARTNERSHIP OF NORTHLAND CABLE PROPERTIES SIX LIMITED
PARTNERSHIP................................................. B-1
EXHIBIT C -- FORM OF PROPOSED AMENDMENT NO. 1............................ C-1
EXHIBIT D -- FORM OF PROPOSED AMENDMENT NO. 2............................ D-1
EXHIBIT E -- NORTHLAND CABLE NETWORKS LLC ASSET PURCHASE AGREEMENT (RE:
PURCHASE OF PHILADELPHIA AND STARKVILLE, MISSISSIPPI
SYSTEMS..................................................... E-1
EXHIBIT F -- NORTHLAND CABLE NETWORKS LLC LETTER OF INTENT (RE: PURCHASE
OF BENNETTSVILLE, SOUTH CAROLINA SYSTEM).................... F-1
EXHIBIT G -- NORTHLAND CABLE PROPERTIES, INC. ASSET PURCHASE AGREEMENT
(RE: PURCHASE OF BARNWELL, SOUTH CAROLINA SYSTEM)........... G-1
EXHIBIT H -- NORTHLAND CABLE TELEVISION, INC. ASSET PURCHASE AGREEMENT
(RE: PURCHASE OF HIGHLANDS, NORTH CAROLINA SYSTEM).......... H-1
EXHIBIT I -- NORTHLAND CABLE NETWORKS LLC PROMISSORY NOTE................ I-1
EXHIBIT J -- NORTHLAND COMMUNICATIONS CORPORATION PROMISSORY NOTE NO. 1
(RE: NORTHLAND CABLE PROPERTIES, INC. PURCHASE)............. J-1
EXHIBIT K -- NORTHLAND COMMUNICATIONS CORPORATION PROMISSORY NOTE NO. 2
(RE: NORTHLAND CABLE TELEVISION, INC. PURCHASE)............. K-1
EXHIBIT L -- APPRAISAL OF DANIELS & ASSOCIATES........................... L-1
EXHIBIT M -- APPRAISAL OF COMMUNICATIONS EQUITY ASSOCIATES............... M-1
EXHIBIT N -- FAIRNESS OPINION OF HOULIHAN LOKEY.......................... N-1
EXHIBIT O -- NCP-SIX LIQUIDATING TRUST AGREEMENT......................... O-1
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SUMMARY
This summary highlights selected information and may not contain all of the
information important to you. You should carefully read this entire proxy
statement and the attached exhibits for a more complete understanding of the two
proposals set forth herein.
Northland Cable Properties Six Limited Partnership ("NCP-Six") is a
Washington limited partnership whose sole equity owners include its limited
partners, a managing general partner and an administrative general partner. The
managing general partner is Northland Communications Corporation, a Washington
corporation, and a wholly owned subsidiary of Northland Telecommunications
Corporation. The administrative general partner is FN Equities Joint Venture, a
California general partnership.
This proxy statement solicits limited partner approval (i) to extend the
term of NCP-Six for six years until December 31, 2007, and (ii) to authorize the
sale of NCP-Six's assets to three affiliates of Northland Communications
Corporation and if one or more of those sales fail to close as contemplated, to
sell NCP-Six's remaining assets to one or more purchasers that are not
affiliated with the general partners at a price and on terms that the general
partners deem acceptable. The proposed purchasers of NCP-Six's assets are
Northland Cable Properties, Inc., Northland Cable Networks LLC and Northland
Cable Television, Inc. The following organizational chart shows the
interrelationship between NCP-Six and these various companies.
[NORTHLAND CABLE PROPERTIES SIX FLOW CHART]
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EXTENDING THE TERM OF NCP-SIX -- PROPOSED AMENDMENT NO. 1 TO THE NCP-SIX
PARTNERSHIP AGREEMENT (SEE PAGE )
This proxy statement solicits approval from the limited partners of NCP-Six
for an amendment to the NCP-Six partnership agreement that will extend the term
of NCP-Six from its current expiration date of December 31, 2001 until December
31, 2007. Without such amendment to the NCP-Six partnership agreement, NCP-Six
will terminate on December 31, 2001, and upon such termination, the general
partners will be required to initiate the winding up of NCP-Six's affairs
pursuant to the NCP-Six partnership agreement and Washington law. Even before
December 31, 2001, however, NCP-Six will face the maturity of its current credit
facility. That credit facility is scheduled to mature on September 30, 2001.
Based on discussions with NCP-Six's lenders, the managing general partner does
not believe the maturity date can be extended without first extending the term
of NCP-Six for a reasonable period of time. As of March 31, 2001, the balance of
principal and interest owed on the NCP-Six credit facility was $28,215,281.
Regardless of whether you vote to approve the proposed sale of NCP-Six's assets,
the general partners of NCP-Six strongly recommend that you vote to approve
proposed Amendment No. 1 to the NCP-Six partnership agreement to extend
NCP-Six's term. Please refer to the section titled "Background and Reasons for
Extending the Term of NCP-Six" for more details. A copy of the NCP-Six
partnership agreement and proposed Amendment No. 1 are attached to this proxy
statement for your review as Exhibits B and C, respectively.
SELLING NCP-SIX'S ASSETS -- PROPOSED AMENDMENT NO. 2 TO THE NCP-SIX PARTNERSHIP
AGREEMENT (SEE PAGE )
This proxy statement also solicits approval from the limited partners of
NCP-Six to authorize the sale of NCP-Six's assets to three affiliates of
Northland Communications Corporation and, if one or more of those sales fail to
close as contemplated, to authorize the general partners to sell, without
further approval from the limited partners, NCP-Six's remaining assets to one or
more purchasers not affiliated with the general partners at prices and on terms
established by the general partners. A summary of the terms of the proposed
sales to affiliates of the managing general partner is as follows:
PROPOSED SALES
Three affiliates of the managing partner have offered to purchase all of
NCP-Six's operating systems. If the proposed sales are approved by the limited
partners and the respective closing conditions are satisfied, these proposed
sales will be made pursuant to four separate purchase and sales agreements.
NCP-Six may sell some but not all of the operating systems pursuant to these
agreements, but the managing general partner will not consummate any sales to
its affiliates unless those sales occur either concurrently with, or after, the
sale of NCP-Six's Mississippi systems. The managing general partner currently
anticipates that each of the sales will close on or before September 30, 2001.
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The following table identifies the proposed purchasers, the values assigned
to each of NCP-Six's operating systems for each purchase and the method of
payment:
TOTAL CONSIDERATION
-----------------------------------------------------------
LOCATION OF ASSIGNED IN-KIND CASH AT PROMISSORY
OPERATING SYSTEM(S) PURCHASER VALUE CONTRIBUTION(1) CLOSING(2) NOTE(3) TOTAL
------------------- --------- ----------- --------------- ------------- ----------- -----------
Mississippi Northland Cable
Networks LLC $46,250,000 $2,000,000 $38,175,000 $ 6,075,000 $46,250,000
Bennettsville, Northland Cable
South Carolina Networks LLC $ 7,950,000 $ 375,000 $ 5,625,000 $ 1,950,000 $ 7,950,000
Barnwell, Northland Cable
South Carolina Properties, Inc $11,400,000 $3,000,000 $ 5,100,000 $ 3,300,000 $11,400,000
Highlands, Northland Cable
North Carolina Television, Inc $ 4,600,000 $ 504,812 $ 3,595,188 $ 500,000 $ 4,600,000
----------- ---------- ----------- ----------- -----------
Total $70,200,000 $5,879,812 $52,495,188 $11,825,000 $70,200,000
=========== ========== =========== =========== ===========
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(1)Immediately prior to each sale, NCP-Six will make an in-kind distribution to
the managing general partner of its pro rata share of the operating system(s)
to be sold. The in-kind distribution will satisfy in full the managing
general partner's right to receive distributions from NCP-Six with respect to
such sale. This table assumes that the sales of the operating systems occur
in the order set forth above.
(2)This amount represents the cash payment due to NCP-Six in connection with the
sale of each operating system.
(3)This amount represents the principal amount of the promissory note to be
delivered by the purchaser for the purchased operating system(s). See
"Specific Terms of the Promissory to be Issued to NCP-Six" below for a
discussion of the terms of such promissory notes.
SPECIFIC TERMS OF THE PROMISSORY NOTES TO BE ISSUED TO NCP-SIX
As noted above, each sale proposal provides for NCP-Six to receive an
unsecured subordinated promissory note as partial consideration for the
operating systems being sold. Upon the sale of the Mississippi and Bennettsville
systems, the purchaser, Northland Cable Networks LLC, will deliver at closing
promissory notes for $6,075,000 and $1,950,000, respectively. Upon the sale of
the Barnwell, South Carolina system, the purchaser, Northland Cable Properties,
Inc., will deliver to NCP-Six a $3,300,000 promissory note issued by its parent
corporation, Northland Communications Corporation. Upon the sale of the
Highlands, North Carolina system, the purchaser, Northland Cable Television,
Inc., will deliver to NCP-Six, a $500,000 promissory note issued by Northland
Communications Corporation, which is a wholly-owned subsidiary of its parent
company, Northland Telecommunications Corporation. These promissory notes are
separate obligations and are not cross defaulted, meaning that a default under
one promissory note does not constitute a default under any other promissory
note.
Each of these promissory notes, though issued by separate issuers, has
substantially identical terms. Each note will:
- be payable through three equal payments of principal, together with
accrued but unpaid interest, due on the first, second, and third
anniversaries of closing;
- bear interest at a fixed rate of 8% per annum;
- be prepayable, at any time, without penalty or premium;
- constitute a full recourse but unsecured obligation of the issuer; and
- be subordinated to current and future senior debt of the issuer;
provided, however, that lenders of the senior debt will permit payments
to be made upon the issuer's promissory note to NCP-Six so long as there
is not an event of default under the senior debt.
3
10
The 8% interest rate of the notes to be delivered at closing was not deemed
by the general partners to be the equivalent rate that third party lenders would
require for similar borrowings by borrowers with credit worthiness similar to
that of the issuers of the notes. At closing, Northland Cable Networks LLC
expects to have outstanding senior debt in the approximate amount of
$31,800,000, and Northland Communications Corporation expects to have
outstanding senior debt (as a borrower or guarantor) in the approximate amount
of $67,000,000.
CONDITIONS TO CLOSING
Neither Northland Cable Networks LLC, Northland Cable Properties, Inc., nor
Northland Cable Television, Inc. will be obligated to close their respective
purchases in the proposed transaction unless certain closing conditions are
satisfied, including that necessary financing be obtained. Each of the proposed
sales is a separate transaction, which will be consummated pursuant to a
separate purchase and sale agreement. The closing of one sale will not be
conditioned upon the sale of the others, except that the managing general
partner will only close the sale of the NCP-Six's Barnwell, South Carolina,
Bennettsville, South Carolina, and Highlands, North Carolina systems to the
managing general partner's affiliates concurrently with, or after, the closing
of the sale of NCP-Six's Mississippi systems.
NORTHLAND COMMUNICATIONS CORPORATION'S IN-KIND DISTRIBUTION
Immediately prior to consummating each of the proposed sales, NCP-Six will
make in-kind distributions to Northland Communications Corporation, its managing
general partner, in full satisfaction of its interest in the operating system
being sold. These distributions will be in the form of an undivided interest in
the operating system(s) being sold and combined have an imputed value (based
upon the combined value assigned to all of the operating systems) equal to the
distributions that the managing general partner otherwise would receive upon the
disposition of the operating system for the assigned value. Following such
in-kind distributions, the managing general partner will have no right to
participate in any distributions made by NCP-Six from the cash received upon the
sale of such operating system(s) (whether coming from the closing payment or
upon the related promissory note). As discussed in greater detail under
"Specific Terms of the Proposed Sales-The Managing General Partner's In-Kind
Distribution," the managing general partner's in-kind distribution is subject to
a post closing adjustment in the form of cash either from the managing general
partner to NCP-Six or from NCP-Six to the managing general partner. This post
closing adjustment is meant to adjust amounts actually received by the managing
general partner in the form of in-kind distributions so that they equal the
amount the managing general partner would have otherwise received if the total
purchase price in the proposed sales that are closed was paid entirely in cash
at closing. A post closing adjustment will not be made to the managing general
partner's in-kind distribution to account for any payments not being received by
NCP-Six under one or more the promissory notes to be delivered by the purchasers
of NCP-Six's assets at closing.
The NCP-Six partnership agreement does not permit NCP-Six to make
concurrent cash and in-kind distributions to its partners. As a consequence, the
limited partners are being asked to approve an amendment to the NCP-Six
partnership agreement permitting the in-kind distribution to the managing
general partner contemplated by the proposed sales. The form of that proposed
amendment to the NCP-Six partnership agreement is attached to this proxy
statement as Exhibit D. Limited partners voting in favor of the proposed sales
will be approving the proposed amendment to permit concurrent cash and in-kind
distributions. The proposed amendment to the NCP-Six partnership agreement
required to allow the in-kind distribution to the managing general partner will
be effective only for the proposed sales described in this proxy statement.
Limited partners are not being asked to vote on that amendment as a separate
matter since the amendment is meant to be for the limited purpose of
consummating the proposed sales if the proposed sales receive limited partner
approval.
INDEMNIFICATION BY NCP-SIX
With respect to its proposed acquisition of NCP-Six's Mississippi systems,
Northland Cable Networks LLC will have the right to seek indemnification for any
breach of representations and warranties by NCP-Six
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from a $2,000,000 escrow fund to be retained by NCP-Six for one year after
closing. A similar escrow fund may be required for the sale of the Bennettsville
system to Northland Cable Networks LLC, but the specifics of such escrow have
not yet been negotiated. Each asset purchaser will further be entitled to a
right of offset against amounts owed to NCP-Six under the promissory note(s)
delivered by that purchaser at closing.
LIQUIDATION OF NCP-SIX FOLLOWING CONSUMMATION OF THE PROPOSED SALES
Assuming all four proposed sales close as planned, the managing general
partner will commence dissolution of NCP-Six during the third quarter of 2001.
NCP-Six will use the net sale proceeds to pay off all known partnership
obligations and to set up a reserve of $750,000 for post-closing unknown and
contingent liabilities of the partnership. NCP-Six will then distribute the
balance of the cash proceeds to the administrative general partner and limited
partners in accordance with their respective interests in NCP-Six. See "Specific
Terms of the Proposed Transaction -- Distributions to General Partners and
Limited Partners" for the rights of those parties to participate in such
distributions.
Alternately, if NCP-Six consummates some, but not all, of the proposed
sales, it will first apply the net sale proceeds to pay off partnership debt,
including the outstanding amounts due on its secured credit facility (which
outstanding balance was approximately $28,215,281 as of March 31, 2001). Excess
funds will then be used for distributions, but distributions to the
administrative, general partner and limited partners may be delayed until other
operating systems are sold. Upon the sale of all systems, NCP-Six will wind up
its business affairs and liquidation of the partnership will commence.
The proposed amendment to the NCP-Six Partnership Agreement required to
authorize the proposed sales (Proposed Amendment No. 2) is attached to this
proxy statement as Exhibit D. That proposed amendment not only authorizes the
general partners to consummate the proposed sales for a period of 180 days
following the special meeting where the matters presented in the proxy statement
will be voted on, but it further authorizes the general partners to sell any of
NCP-Six operating systems that are not sold in one of the proposed sales to one
or more purchasers not affiliated with the general partners at a price and on
terms established by the general partners. The proposed amendment further
provides that following dissolution of the partnership, NCP-Six shall no longer
be required to provide the limited partners with annual or semiannual financial
reports.
ESTIMATED DISTRIBUTIONS TO LIMITED PARTNERS AS A RESULT OF THE PROPOSED
SALES AND SUBSEQUENT LIQUIDATION OF NCP-SIX.
Assuming that NCP-Six closes all four of the proposed sales as planned,
distributions to the limited partners of NCP-Six over the life of NCP-Six were
estimated as of March 31, 2001 to be:
INITIAL
DISTRIBUTION
120 DAYS ONE YEAR TWO YEARS THREE YEARS
AFTER CLOSING AFTER CLOSING AFTER CLOSING AFTER CLOSING
ANTICIPATED PRIOR CASH THE PROPOSED NON-RESIDENT THE PROPOSED THE PROPOSED THE PROPOSED
DISTRIBUTIONS DISTRIBUTIONS TRANSACTION TAX TRANSACTION TRANSACTION TRANSACTION TOTAL
------------- ------------- ------------- ------------ ------------- ------------- ------------- ------
- - Per $500 partnership
unit................. $128 $ 599 $ 55 $221 $147 $137 $1,287
- - Per $1,000
investment........... $255 $1,198 $110 $443 $294 $274 $2,574
THE AMOUNTS SET FORTH IN THE PRECEDING TABLE ARE ESTIMATES
AND ARE BEING PROVIDED FOR ILLUSTRATIVE PURPOSES ONLY. IT
IS CURRENTLY ANTICIPATED THAT THE PROPOSED SALES WILL
CLOSE CONCURRENTLY IN SEPTEMBER 2001. WHILE THE MANAGING
GENERAL PARTNER ANTICIPATES THAT EACH OF THE PROPOSED
SALES WILL CLOSE, IF ONE OR MORE SALES ARE NOT CLOSED AS
PLANNED, FUNDS AVAILABLE FOR NCP-SIX TO DISTRIBUTE TO ITS
LIMITED PARTNER WILL MATERIALLY DIFFER FROM THESE
PROJECTIONS. ACTUAL AMOUNTS WILL VARY FROM THESE
PROJECTIONS. FOR DETAILS, SEE "PROJECTED CASH AVAILABLE
FROM LIQUIDATION" ON PAGE ).
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AUTHORITY TO SELL REMAINING ASSETS TO THIRD-PARTY PURCHASERS
The managing general partner anticipates that each of the proposed sales
will close as structured sometime during the last two weeks of September 2001.
Notwithstanding, the four proposed sales are to be made under four separate
asset purchase agreements the closing of which are not conditioned upon the
simultaneous closing of the others. The managing general partner will only close
the sale of NCP-Six's Barnwell, Bennettsville and Highlands systems concurrently
with, or after, the sale of NCP-Six's Mississippi systems to Northland Cable
Networks LLC. There is, however, a possibility that one or more of the proposed
sales will not close, thereby leaving NCP-Six with certain assets in which case
the general partners intend to solicit interest from purchasers that are
unaffiliated with the general partners for the purchase of those remaining
assets.
If limited partners approve of the proposed sales, they will also authorize
the general partners to sell any remaining assets of NCP-Six to one or more
purchasers that are unaffiliated with the general partners for prices and under
terms that the general partners deem acceptable. This authority is consistent
with the general partners' currently existing authority to sell all of the
assets of NCP-Six to purchasers that are unaffiliated with the general partners
in dissolution of the partnership. The general partners are, however,
recommending that the term of NCP-Six be extended for the reasons discussed
under "Extending the Term of NCP-Six" below which, if approved, will delay
dissolution of NCP-Six until December 31, 2007 unless the entirety of NCP-Six's
assets are sold prior to that date.
FEDERAL TAX CONSEQUENCES OF THE PROPOSED SALES (SEE PAGE )
The distribution of cash by NCP-Six to its limited partners in liquidation
of their partnership interests will generally result in a taxable transaction.
NCP-Six's limited partners will realize gain or loss on the distribution of cash
on limited partnership units to the extent of the difference between the amount
of cash distributed and the adjusted tax basis of the limited partner's interest
in NCP-Six immediately before the distribution. Upon closing of the proposed
sales, and dissolution of NCP-Six, any limited partner with accrued but unused
net losses suspended under the passive activity loss rules of the Internal
Revenue Code may use such losses to offset any income and gain from the proposed
sales. In addition, the sales may also be taxable under applicable state, local
and foreign tax laws. LIMITED PARTNERS ARE STRONGLY URGED TO CONSULT WITH THEIR
OWN TAX ADVISOR CONCERNING THE IMPACT OF THE ABOVE-DISCUSSED RULES ON THEIR
INVESTMENT IN NCP-SIX AND HOW THOSE RULES WILL LIKELY BE APPLIED TO THEIR
DISTRIBUTIONS RESULTING FROM THE SALE OF NCP-SIX'S ASSETS.
CONFLICTS OF INTEREST OF THE MANAGING GENERAL PARTNER (SEE PAGE )
Northland Communications Corporation is both the managing general partner
of NCP-Six and an affiliate of the purchasers of the assets in the proposed
sales. As managing general partner of NCP-Six, Northland Communications
Corporation has negotiated and structured the terms of the proposed sales on
behalf of NCP-Six. Northland Communications Corporation has an interest in
seeing that its affiliates pay the lowest possible purchase price for their
acquisition of assets from NCP-Six. At the same time, Northland Communications
Corporation is primarily responsible for negotiating, on behalf of NCP-Six, the
highest possible price for NCP-Six's assets. Northland Communications
Corporation took a number of steps to protect against the conflicts of interest
inherent in its negotiation of the proposed sales. Notwithstanding, Northland
Communications Corporation is faced with substantial conflicts of interest with
respect to the proposed sales.
Furthermore, upon consummation of the proposed sales, Northland
Communications Corporation is entitled to receive payment of management and
other fees from NCP-Six for its services as managing general partner and for
cost reimbursements prior to closing the proposed sales. The estimated amounts
of these fees and reimbursements as of March 31, 2001 is $37,298.
CONFLICT OF INTEREST OF THE ADMINISTRATIVE GENERAL PARTNER
FN Equities Joint Venture, the administrative general partner of NCP-Six,
will have no economic or ownership interest in the assets following the closing
of the proposed sales, other than its right to receive
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payment along with the limited partners of proceeds from the liquidation of
NCP-Six. Still, the administrative general partner will receive economic
benefits as a result of the disposition of NCP-Six's assets and subsequent
liquidation of NCP-Six. Under the terms of the NCP-Six partnership agreement,
the administrative general partner is entitled to its percentage share of any
distribution made by NCP-Six. Assuming that all of the proposed sales are closed
as contemplated, the estimated total cash proceeds (excluding interest on the
notes to be delivered by the purchasers at closing) payable to the
administrative general partner is approximately $1,442,000. See "Projected Cash
Available From Liquidation" on page for a detailed discussion of the relative
distributions expected to be made to the administrative general partner and the
limited partners of NCP-Six.
THE GENERAL PARTNERS RECOMMEND EXTENDING THE TERM OF NCP-SIX AND APPROVING THE
PROPOSED SALES (SEE PAGE )
Because there is no guarantee that the various asset sales included in the
proposed sales will close even if approved, the general partners strongly
recommend that you vote to "Approve" extending the term of NCP-Six regardless of
how you vote on the proposed sales. This extension is requested to allow for
continued operation of NCP-Six and sufficient time for future disposition of its
assets in the event one or more of the asset sales do not close as scheduled.
NCP-Six's current credit facility matures on September 30, 2001, and the
managing general partner does not believe that NCP-Six's lenders will approve an
extension of the credit facility unless NCP-Six's term is extended. As of March
31, 2001, the outstanding balance of the NCP-Six credit facility totaled
$28,215,281. In order to further amortize this debt through the anticipated
normal course of operations of NCP-Six, the general partners believe the
shortest acceptable extension of the term of NCP-Six is six years. The general
partners also unanimously recommend the proposed sales for approval.
FAIRNESS OF THE PROPOSED SALES (SEE PAGE )
The general partners believe the terms of the proposed sales are fair to
NCP-Six and its limited partners. The general partners based their determination
as to the fairness of the terms of the proposed sales on the following material
factors, each of which is described in greater detail in this proxy statement:
- the form and amount of consideration offered to the limited partners as a
result of the proposed sales;
- the two independent appraisals prepared by Daniels & Associates and by
Communications Equity Associates, which were used in the general
partners' evaluation of the offers received for NCP-Six's assets. (See
"Appraisal Process and Fairness Opinion; Summary of Reports -- Daniels &
Associates Appraisal" and "-- Communications Equity Associates Appraisal"
at pages and , respectively);
- the third-party bid solicitation process undertaken by NCP-Six to obtain
bids from third parties for the purchase of NCP-Six's assets, which bids
were used in part in the determination of the fair market value of the
assets and in the general partners' evaluation of the proposed sales
price for those assets. (See "Fairness of the Proposed Transaction," and
"Background of the Proposed Transaction -- 1999 Third-Party Bid
Solicitation Process" and "-- 2000 Third-Party Bid Solicitation Process"
at pages and , respectively); and
- the fairness opinion rendered by Houlihan Lokey Howard & Zukin Financial
Advisors, Inc. ("Houlihan Lokey"), following its evaluation and analysis
of the consideration to be received in the aggregate for the proposed
sales (See "Appraisal Process and Fairness Opinion; Summary of
Reports -- Houlihan Lokey Fairness Opinion" at page ).
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LIKELY CONSEQUENCES OF YOUR VOTE
The following table summarizes the most likely consequences of a majority
vote for or against each of the two proposals found in this proxy statement.
- ----------------------------------------------------------------------------------------------
1. LIKELY CONSEQUENCES OF A VOTE TO - NCP-Six will probably be unable to extend
"DISAPPROVE" EXTENDING THE TERM OF the term of its existing credit facility,
NCP-SIX. which currently matures on September 30,
2001.
- NCP-Six will have insufficient funds to pay
its existing credit facility upon maturity,
and its lenders may proceed to foreclose on
their security interests in NCP-Six's assets
unless sufficient net proceeds are received
by NCP-Six from the proposed sales by
September 30, 2001.
- Even if NCP-Six is able to extend the term
of its existing credit facility beyond
September 30, 2001, NCP-Six is to be wound
up upon the December 31, 2001 expiration of
its term pursuant to the NCP-Six partnership
agreement. If all of NCP-Six's assets are
not sold by December 31, 2001 (the
expiration date of NCP-Six's term), NCP-Six
could still be required to sell its assets
under time constraints that could have a
negative impact on the purchase price
obtained.
- ----------------------------------------------------------------------------------------------
2. LIKELY CONSEQUENCES OF A VOTE TO - The likelihood of closing the proposed sales
"APPROVE" EXTENDING THE TERM OF NCP-SIX. will not be affected.
- NCP-Six will be in a better position to seek
extension of its existing credit facility to
protect against foreclosure if such action
becomes necessary due to one or more of the
proposed asset sales not closing by the
credit facility's September 30, 2001
maturity date.
- The general partners will be in a better
position to explore other alternatives to sell
any remaining assets of NCP-Six for a fair
price without being forced to dispose of
those assets on an expedited basis, assuming
for this purpose that the proposed sales are
not approved and consummated.
- NCP-Six may be in a position to repay
amounts currently outstanding under its
existing credit facility through cash
generated by operations during the six year
extension of NCP-Six's term if the proposed
sales are not approved and consummated and
alternate sales fail to occur before the end
of the extended term.
- ----------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------
3. LIKELY CONSEQUENCES OF A VOTE TO - All the operating assets of NCP-Six will be
"APPROVE" THE PROPOSED SALES. sold to Northland Cable Networks, LLC,
Northland Cable Properties, Inc. and
Northland Cable Television, Inc., subject to
certain conditions.
- After closing the proposed sales, net
proceeds from liquidation will be distributed
to the limited partners and the
administrative general partner as outlined
in this proxy statement.
- ----------------------------------------------------------------------------------------------
4. LIKELY CONSEQUENCES OF A VOTE TO - The general partners will continue their
"DISAPPROVE" THE PROPOSED SALES. efforts to identify prospective purchasers for
NCP-Six's assets but the general partners
will have to resolicit limited partner
approval for the sale of all, or
substantially all, of NCP-Six's assets
unless the sale or sales are to parties
unaffiliated with the general partners as
part of dissolution of the partnership.
- ----------------------------------------------------------------------------------------------
VOTING AT THE SPECIAL MEETING
You are entitled to one vote at the special meeting for each unit of
limited partnership interest in NCP-Six that you held of record on the close of
business on June 30, 2001. The affirmative vote of limited partners holding a
majority of the outstanding limited partnership units of NCP-Six is required to
"APPROVE" both (i) the extension of the term of NCP-Six from its current
expiration date of December 31, 2001 until December 31, 2007 and (ii) the
proposed sale of NCP-Six's assets. If you "ABSTAIN" from voting, it will have
the same effect as a vote to "DISAPPROVE" the proposal, or proposals, for which
you abstain.
A proxy card is included with this proxy statement, and the general
partners are asking you to complete, date and sign the proxy card and return it
in the enclosed envelope as soon as possible. A proxy card that is properly
completed, dated, signed and returned in time for voting with a vote specified
on the proxy will be voted as requested.
As of June 30, 2001, the record date for the special meeting, there were
29,784 units of limited partnership interest outstanding, held by 1,795 limited
partners of record. Two affiliates of the general partners hold 30 units, but
these affiliates have indicated that they will abstain from voting upon the two
proposals in this proxy statement. All abstentions shall be counted as a "no"
vote. Any signed and returned proxy cards that fail to vote on one or both of
the proposed measures will be treated as a vote to approve the proposed measure
for which no vote was cast.
You may revoke your proxy at any time prior to the special meeting by
delivering to Northland Communications Corporation either an instrument revoking
the proxy or a duly executed proxy bearing a later date, or by attending the
special meeting and voting in person. Your attendance at the special meeting, by
itself, will not revoke your proxy.
YOU DO NOT HAVE DISSENTERS' RIGHTS
Limited partners are not entitled to dissenters' or appraisal rights in
connection with the proposed sales under either the NCP-Six partnership
agreement or Washington law.
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SUMMARY HISTORICAL FINANCIAL INFORMATION
NCP-Six is providing the following financial information to help you in
your analysis of the proposals submitted for limited partner approval. You
should read the following financial information in conjunction with the
Consolidated Financial Statements of NCP-Six and related notes, and "Information
About NCP-Six -- NCP-Six's Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this proxy statement.
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDING MARCH 31,
------------------------------------------------------------------------------ ----------------
1995 1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ----------- ----------- ----------- ----------------
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Revenues.................. $8,611,947 $9,262,702 $9,644,320 $14,746,766 $15,005,218 $15,221,887 $3,766,902
Expenses.................. $7,488,670 $7,883,536 $7,582,824 $13,125,628 $13,692,895 $13,633,998 $3,379,805
Operating income.......... $1,123,277 $1,394,255 $2,061,496 $ 1,621,138 $ 1,312,323 $ 1,587,889 $ 387,097
Other income (expense).... $ (917,104) $ (997,715) $ (845,597) $(2,990,739) $(1,213,467) $(2,914,282) $ (790,420)
Net income (loss)......... $ 206,173 $ 381,451 $1,215,899 $(1,369,601) $ 98,856 $(1,326,393) $ (403,323)
Allocation of net income
(loss):
general partners........ $ 2,062 $ 3,815 $ 12,159 $ (13,696) $ 989 $ (13,264) $ (4,033)
limited partners........ $ 204,111 $ 377,636 $1,203,740 $(1,355,905) $ 97,867 $(1,313,129) $ (399,290)
Net income (loss) per
limited partnership
unit.................... $ 7 $ 13 $ 40 $ (46) $ 3 $ (44) $ (13)
Cash distributions per
limited partnership
unit(1)................. $ 10 $ 3 $ 0 $ 0 $ 0 $ 0 $ 0
THREE MONTHS
AS OF DECEMBER 31, ENDING MARCH 31,
--------------------------------------------------------------------------------- ----------------
1995 1996 1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- ----------- ----------- ----------------
HISTORICAL BALANCE SHEET
DATA(2):
Total assets........... $14,778,671 $13,253,610 $13,609,386 $32,971,969 $30,603,533 $28,528,812 $27,824,505
Total liabilities...... $15,196,729 $13,365,510 $12,513,387 $33,249,571 $30,786,279 $30,037,951 $29,736,967
Partners' capital
(deficit):
general partners..... $ (131,356) $ (128,294) $ (116,135) $ (129,831) $ (128,842) $ (142,106) $ (146,139)
limited partners..... $ (286,702) $ 16,394 $ 1,212,134 $ (147,771) $ (53,904) $(1,367,033) $(1,766,323)
- -------------------------
(1) Total cash distributions per limited partnership unit as of March 31, 2001
were $127.50 per partnership unit (or $255 per $1,000 investment).
(2)The book value per limited partner unit as of March 31, 2001 was $874.
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THE SPECIAL MEETING
This proxy statement is being furnished in connection with the solicitation
of proxies by the general partners of NCP-Six. The proxies are for use at the
special meeting of limited partners to be held on September 11, 2001 at 3:00
p.m., local time, at the offices of NCP-Six at 1201 Third Avenue, Suite 3600,
Seattle, Washington 98101, and at any adjournment or postponement of the
meeting.
Limited partners are invited to attend the special meeting and are urged to
submit a proxy even if they will be able to attend the special meeting. The
approximate date of mailing this proxy statement and the accompanying proxy card
is July 31, 2001.
PURPOSE OF SPECIAL MEETING
The purpose of the meeting is to vote on proposals to:
- extend the term of NCP-Six from its current expiration date of December
31, 2001, until December 31, 2007; and
- approve the proposed sale of NCP-Six's assets, as described in this proxy
statement.
RECORD DATE; LIMITED PARTNERS ENTITLED TO VOTE AT THE SPECIAL MEETING
Only persons who are limited partners of record of NCP-Six at the close of
business on June 30, 2001 will be entitled to vote at the special meeting or at
any adjournment or postponement of the special meeting. As of the close of
business on March 31, 2001, there were 29,784 units of limited partnership
interest outstanding, held by 1,795 limited partners of record. Limited partners
will be entitled to one vote on each matter presented for approval at the
special meeting for each unit of limited partnership held as of the close of
business on June 30, 2001.
QUORUM; VOTE REQUIRED FOR APPROVAL
Pursuant to the NCP-Six partnership agreement, the presence in person or by
proxy of holders of limited partnership units representing a majority of the
votes entitled to be cast at the special meeting constitutes a quorum for the
transaction of business at the special meeting. Abstentions are included in the
calculation of the number of votes represented at a meeting for purposes of
determining whether a quorum has been achieved. The approval of either of the
two proposals requires the affirmative vote of the holders of a majority of the
outstanding units of limited partnership interest. The general partners and
their affiliates hold 30 units, and they have indicated that they will abstain
from voting on the proposals. A failure to submit a proxy card (or to vote in
person at the special meeting) will have the same effect as a vote to
"Disapprove" both proposals.
USE OF PROXIES AT THE SPECIAL MEETING
The managing general partner will ensure that all properly executed proxies
received before the special meeting will be voted at the special meeting as
instructed on the proxy. Limited partners who abstain from voting will be
considered to have voted against the proposal(s) for which they have abstained.
Any signed and returned proxy cards that fail to specify how to vote on a
proposal will be treated as a vote to approve the proposal for which a vote was
not cast. All questions as to the validity, form, eligibility, time of receipt,
and acceptance of any proxies will be determined by the managing general partner
in its sole discretion, which determination will be final and binding.
The general partners know of no matters that will be presented for a vote
at the special meeting other than the matters identified in this proxy statement
and on the proxy card. If any other matters are properly presented, the persons
designated as proxies on the enclosed proxy card intend to vote on the matters
in accordance with their judgment.
A form of the proxy being solicited is included as Exhibit A to this proxy
statement. An actual execution-ready proxy card accompanies this proxy
statement. By submitting a completed and executed proxy, a limited
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partner will be appointing each of John S. Whetzell and Richard I. Clark as
attorney-in-fact to vote the limited partner's units at the special meeting with
respect to approval or disapproval, as specified on the proxy card. Messrs.
Whetzell and Clark serve as President and Vice President, respectively, of the
managing general partner. The general partners request that limited partners
complete, date and sign the accompanying proxy card and return it promptly in
the enclosed postage-paid envelope, even if they are planning to attend the
special meeting.
REVOCATION OF PROXIES
Once you submit a signed proxy, you may change your vote only by (1)
delivering to the managing general partner before the special meeting either a
signed notice of revocation or a signed proxy dated subsequent to the date of
the proxy previously given, or (2) personally appearing at the special meeting
and, prior to the commencement of the special meeting, delivering to the
managing general partner notice in writing that the proxy already given is being
revoked. Attendance at the special meeting, by itself, will not revoke a proxy.
SOLICITATION OF PROXIES
This proxy statement is being furnished to the limited partners of NCP-Six
by the managing general partner, whose principal executive offices are located
at 1201 Third Avenue, Suite 3600, Seattle, Washington 98101 and whose telephone
number is (206) 621-1351. The principal executive offices and telephone number
of NCP-Six are the same.
In addition to use of the mail, proxies may be solicited by telephone or
personally by the general partners and any of their directors, officers,
partners and employees. The general partners will not pay any additional
compensation to any of these people for their services in this regard. The
expenses of the solicitation will be borne by NCP-Six.
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EXTENDING THE TERM OF NCP-SIX
You should consider the following factors carefully in evaluating whether
to extend the term of NCP-Six. You are also urged to read all of this proxy
statement and all exhibits carefully when evaluating whether to approve
extending NCP-Six's term and authorizing the proposed sales before completing
the accompanying proxy card.
BACKGROUND AND REASONS FOR EXTENDING THE TERM OF NCP-SIX
NCP-Six was formed as a Washington limited partnership in 1986. As set
forth in Article 7 of the NCP-Six partnership agreement, NCP-Six's term expires
on December 31, 2001.
In order to finance its operations, NCP-Six has entered into credit
facility agreements from time to time. Such financing arrangements are customary
in the industry, and are also customarily secured by the assets of the borrower.
In the case of NCP-Six, its current credit facility is secured by a first lien
on the entirety of the assets of NCP-Six.
NCP-Six's current credit facility originally matured on December 31, 2000.
The maturity date was later extended to September 30, 2001. While lenders are
willing to loan funds to limited partnerships, provided the lender is satisfied
that the limited partnership is an acceptable credit risk, lenders become less
willing to extend credit as the expiration date of the partnership grows near.
In the case of NCP-Six, its lenders have expressed an unwillingness to further
extend NCP-Six's debt maturity beyond September 30, 2001 if the term of NCP-Six
is not first extended for a period of time sufficient to amortize further
NCP-Six's existing debt through currently forecasted operations.
As of March 31, 2001, NCP-Six carried an outstanding balance on its credit
facility of $28,215,281. In order to further amortize NCP-Six's debt through the
anticipated normal course of operations, the managing general partner is
proposing that the term of NCP-Six be extended for six years. As a result, the
general partners are soliciting your approval of proposed Amendment No. 1 to the
NCP-Six partnership agreement that will result in extending the term of NCP-Six
through December 31, 2007.
If the term of NCP-Six is not extended, the general partners believe
NCP-Six will be unable to pay its debts when they become due upon the maturity
of NCP-Six's credit facility on September 30, 2001, unless the net proceeds from
the proposed sales are sufficient for such purposes. If NCP-Six defaults in the
payments due under its credit facility, its lenders will have the right to
commence foreclosure actions upon NCP-Six's assets to pay off the amounts due
under the credit facility. The general partners believe that a sale of those
assets either pursuant to, or under the threat of, a foreclosure sale by
NCP-Six's lenders will result in lower net sale proceeds than would be the case
if NCP-Six were able to sell such assets without the threat of foreclosure. This
would correspondingly reduce the return to the limited partners of NCP-Six.
Furthermore, even if NCP-Six could extend its credit facility until
NCP-Six's current December 31, 2001 expiration date, NCP-Six would be faced with
the same situation at the end of 2001. Pursuant to the terms of the NCP-Six
partnership agreement, if the term of NCP-Six is not extended, the general
partners will be required to commence liquidation of NCP-Six upon NCP-Six's
December 31, 2001 expiration. NCP-Six's liquidation will require the prompt sale
of NCP-Six's assets. The general partners believe that selling those assets
under significant time constraints could correspond to a materially lower return
to the limited partners of NCP-Six upon liquidation of NCP-Six.
In order to avoid these potential adverse consequences, the general
partners strongly recommend that the limited partners vote to extend the term of
NCP-Six for an additional six years until December 31, 2007. This action is
prudent even if the limited partners vote to approve the proposed sales, because
it is possible that, due to the failure of one or more closing conditions, one
or more of the proposed sales may not close. Even if the limited partners vote
to approve the proposed sales, the general partners cannot provide assurance
that the proposed sales will close. The general partners therefore recommend
that limited partners vote to approve the extension of NCP-Six's term regardless
of how they vote on the proposed sales. Then, if NCP-Six's term is extended, and
the proposed sales are either not approved, or are not closed after being
approved, the general partners will be able to explore other opportunities to
sell NCP-Six's assets for what the general partners feel is
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a fair price, without being required to sell those assets under significant time
constraints that the general partners believe may negatively impact the proceeds
received by NCP-Six and its limited partners.
RISK FACTORS PERTAINING TO THE ONGOING OPERATION OF NCP-SIX
The general partners do not intend to operate NCP-Six through December 31,
2007 even if limited partners approve the proposal to extend the term of
NCP-Six. Instead, the general partners are recommending that the term of NCP-Six
be extended to place NCP-Six in a position to extend its credit facility for a
reasonable period of time to dispose of NCP-Six's assets, if such assets are not
sold pursuant to the proposal described in this proxy statement. The following
is a brief summary of certain risks associated with the ongoing operations of
NCP-Six and its cable systems, if the continued operation of such systems is
necessary.
NCP-SIX OPERATES IN A VERY COMPETITIVE BUSINESS ENVIRONMENT, WHICH MAY
ADVERSELY EFFECT ITS OPERATIONS AND ABILITY TO OPERATE PROFITABLY.
The industry in which NCP-Six operates is highly competitive, and NCP-Six
faces competition from many sources. In some instances NCP-Six competes against
companies with fewer regulatory burdens, easier access to financing, greater
personnel resources, greater brand name recognition and long-standing
relationships with regulatory authorities. NCP-Six faces competition from
companies distributing television broadcast signals without a subscription fee
and from other communications and entertainment media, including conventional
off-air television and radio broadcasting services, direct-to-home satellite
broadcasting services, newspapers, movie theaters, the Internet, live sports
events and home video products. Federal legislation was recently passed that
provides direct-to-home satellite broadcasting services the authority to
transmit local television broadcast signals to their subscribers. The general
partners believe this may enhance the attractiveness of satellite broadcasting
services and could make program offerings even more competitive. NCP-Six also
experiences competition from overbuilders which are parties who have been
granted permits to build duplicate cable systems in a geographic area where an
operational cable system already exists. In order to maintain competitiveness,
NCP-Six anticipates incurring significant capital expenditures to continue
upgrading its systems. The general partners cannot assure the limited partners
that NCP-Six will upgrade its systems in a timely manner or at all or that
upgrading NCP-Six's cable systems will allow NCP-Six to compete effectively.
NCP-SIX MAY NOT BE ABLE TO FUND THE CAPITAL EXPENDITURES NECESSARY TO KEEP
PACE WITH TECHNOLOGICAL DEVELOPMENTS OR ITS CUSTOMERS' DEMAND FOR NEW
PRODUCTS OR SERVICES. THIS COULD LIMIT ITS ABILITY TO COMPETE EFFECTIVELY.
The cable business is characterized by rapid technological change and the
introduction of new products and services. The general partners cannot assure
the limited partners that NCP-Six will be able to fund the capital expenditures
necessary to keep pace with technological developments, or that NCP-Six will
successfully anticipate the demand of its customers for products or services
requiring new technology. This type of rapid technological change could
adversely affect NCP-Six's plans to upgrade or expand its systems and respond to
competitive pressures. NCP-Six's inability to upgrade, maintain and expand its
systems and provide enhanced services in a timely manner, or to anticipate the
demands of the marketplace, could adversely affect its ability to compete.
Consequently, NCP-Six's growth, results of operations and financial condition
could be materially impacted.
NCP-SIX OPERATES ITS CABLE SYSTEMS UNDER FRANCHISES THAT ARE NON-EXCLUSIVE.
LOCAL FRANCHISING AUTHORITIES CAN GRANT ADDITIONAL FRANCHISES AND CREATE
COMPETITION IN MARKET AREAS WHERE NONE EXISTED PREVIOUSLY.
NCP-Six's cable systems are operated under franchises granted by local
franchising authorities. These franchises are non-exclusive. Consequently, these
local franchising authorities can grant additional franchises to competitors in
the same geographic area. As a result, competing operators may build systems in
areas in which NCP-Six holds franchises. The existence of more than one cable
system operating in the same territory is referred to as an "overbuild."
Overbuilds can adversely affect NCP-Six's operations. The general partners
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are currently facing overbuild situations in two of NCP-Six's systems.
Additional overbuild situations may occur in other systems.
NCP-SIX'S CABLE SYSTEMS ARE OPERATED UNDER FRANCHISES THAT ARE SUBJECT TO
NON-RENEWAL OR TERMINATION. THE FAILURE TO RENEW A FRANCHISE COULD
ADVERSELY AFFECT NCP-SIX'S BUSINESS IN A KEY MARKET.
NCP-Six's cable systems operate pursuant to non-exclusive franchises,
permits or licenses granted by a municipality or other state or local government
controlling the public rights-of-way. Many franchises establish comprehensive
facilities and service requirements, as well as specific customer service
standards and establish monetary penalties for non-compliance. In many cases,
franchises are terminable if the franchisee fails to comply with material
provisions set forth in the franchise agreement governing system operations.
Franchises are generally granted for fixed terms and must be periodically
renewed. Local franchising authorities may resist granting a renewal if either
past performance or the prospective operating proposal is considered inadequate.
Franchise authorities often demand concessions or other commitments as a
condition to renewal, which may result in costs to NCP-Six that are
unreasonable. The general partners cannot assure the limited partners that
NCP-Six will be able to renew these or other franchises in the future.
LOCAL FRANCHISE AUTHORITIES HAVE THE ABILITY TO IMPOSE ADDITIONAL
REGULATORY CONSTRAINTS ON NCP-SIX'S BUSINESS. THIS CAN FURTHER INCREASE
EXPENSES.
In addition to franchises, cable authorities have also adopted in some
jurisdictions cable regulatory ordinances that further regulate the operation of
cable systems. This additional regulation could increase the expenses of
operating NCP-Six's business. The general partners cannot assure the limited
partners that the local franchising authorities will not impose new and more
restrictive requirements.
NCP-SIX'S BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL LEGISLATION AND
REGULATION. THE APPLICABLE LAWS AND REGULATIONS, AND CHANGES TO THEM, COULD
ADVERSELY AFFECT NCP-SIX'S BUSINESS BY INCREASING ITS EXPENSES.
Regulation of the cable industry has increased the administrative and
operational expenses and limited the revenues of cable systems. Cable operators
are subject to, among other things:
- limited rate regulation;
- requirements that, under specified circumstances, a cable system must
carry all local broadcast stations or obtain consent to carry a local or
distant broadcast station;
- rules for franchise renewals and transfers; and
- other requirements covering a variety of operational areas such as equal
employment opportunity, technical standards and customer service
requirements.
Many regulatory aspects of NCP-Six's business are currently the subject of
judicial proceedings and administrative or legislative proposals. The general
partners expect further regulatory efforts, but cannot predict whether any of
the states or localities in which NCP-Six now operates will expand regulation of
its cable systems in the future or how they will do so.
NCP-SIX MAY BE REQUIRED TO GRANT INTERNET SERVICE PROVIDERS ACCESS TO ITS
NETWORKS. THIS COULD SIGNIFICANTLY INCREASE NCP-SIX'S COMPETITION AND
ADVERSELY AFFECT THE UPGRADE OF ITS SYSTEMS OR ITS ABILITY TO PROVIDE NEW
PRODUCTS AND SERVICES.
There are several proposals before the United States Congress and the
Federal Communications Commission to require all cable operators to make a
portion of their cable systems' bandwidth available to Internet service
providers, such as America Online. Recently, a number of companies, including
telephone companies and Internet service providers, have also requested local
authorities and the Federal Communications Commission to require cable operators
to provide access to cable's broadband infrastructure, which allows cable to
deliver a multitude of channels and/or services, so that these companies may
deliver Internet
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services directly to customers over cable facilities. Some local franchising
authorities are considering or have already approved these "open access"
requirements. Allocating a portion of NCP-Six's bandwidth capacity to other
Internet service providers may impact its ability to use its bandwidth in ways
that would generate maximum revenues. In addition, if NCP-Six were required to
provide access, it may adversely impact NCP-Six's profitability in many ways,
including significantly increasing competition, increasing the expenses NCP-Six
incurs to maintain its systems, and increasing the expense of upgrading or
expanding its systems.
DESPITE RECENT DEREGULATION OF EXPANDED BASIC CABLE PROGRAMMING PACKAGES,
THE GENERAL PARTNERS ARE CONCERNED THAT CABLE RATE INCREASES COULD GIVE
RISE TO FURTHER REGULATION. THIS COULD IMPACT NCP-SIX'S ABILITY TO RAISE
RATES TO COVER ITS INCREASING COSTS OR CAUSE NCP-SIX TO DELAY OR CANCEL
SERVICE OR PROGRAMMING ENHANCEMENTS.
On March 31, 1999, the pricing guidelines of expanded basic cable
programming packages were deregulated, permitting cable operators to set their
own rates. This deregulation was not applicable to basic services. However, the
Federal Communications Commission and the United States Congress continue to be
concerned that cable rate increases are exceeding inflation. It is possible that
either the Federal Communications Commission or the United States Congress will
again restrict the ability of cable television operators to implement rate
increases. Should this occur, it would impede NCP-Six's ability to raise its
rates. If NCP-Six is unable to raise its rates in response to increasing costs,
its financial condition and results of operations could be materially adversely
affected.
THE PROPOSED SALES
A number of special factors apply to the proposed sales. You should
consider the following factors carefully in evaluating the proposed sales. You
are also urged to read all of this proxy statement and all exhibits carefully
when evaluating whether to approve authorizing the proposed sales before
completing the accompanying proxy card.
SPECIAL FACTORS OF THE PROPOSED SALES
BACKGROUND OF THE PROPOSED SALES
HISTORY OF NCP-SIX
On January 22, 1986 the general partners formed NCP-Six and shortly
thereafter it began operating with the acquisition of cable television systems
serving several communities and surrounding areas in Mississippi and North
Carolina. In a series of transactions since then, NCP-Six acquired and now
operates the cable television systems of five operating groups located in the
following geographic areas:
- Starkville, Mississippi;
- Philadelphia, Mississippi;
- Highlands, North Carolina;
- Barnwell, South Carolina; and
- Bennettsville, South Carolina.
NCP-Six financed its initial acquisitions through a combination of limited
partners' equity and bank loans, and the later acquisitions were financed
through a combination of NCP-Six cash flow and bank loans.
The scheduled expiration date of NCP-Six's term has always been December
31, 2001. Most limited partners first invested in NCP-Six almost fifteen years
ago. The general partners never planned for NCP-Six to be listed on a securities
exchange or quotation system. The general partners also never anticipated that
an active secondary trading market would develop for partnership units in
NCP-Six. Instead, NCP-Six was designed as an investment where limited partners
in NCP-Six would receive a return on capital through one or
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more distributions resulting from the sale of NCP-Six's cable television
systems, and through distributions of excess operating capital from time to
time, as available.
NCP-Six's general partners now believe that many investors have held their
units for more than 14 years without liquidity and that a significant number of
limited partners desire to liquidate their investment in NCP-Six. There is no
established secondary or public market in which the units are being actively
traded, although the general partners are aware that there has been some recent
private sales activity and offers for NCP-Six limited partnership units, in
addition to transfers in connection with estate and retirement planning, by
will, gift or settlement. Pending a liquidation of NCP-Six, the general partners
believe the units will likely remain an illiquid investment. This lack of a
formal secondary market for the units continues to restrict the ability of
investors to increase or decrease their investment in response to changing
personal circumstances or the performance of NCP-Six.
Pursuant to the terms of the NCP-Six partnership agreement, NCP-Six is
currently scheduled to terminate on December 31, 2001 unless the NCP-Six
partnership agreement is amended to extend its term. Furthermore, NCP-Six has
always incurred various amounts of borrowing to acquire, develop and operate its
cable systems. NCP-Six has a $33,000,000 revolving credit facility with a
syndicated lending group led by First Union National Bank as the lending banks'
administrative agent. As of March 31, 2001, NCP-Six had outstanding
approximately $28,215,281 of borrowings from that facility, which as of last
year had a maturity date of December 31, 2000. While the managing general
partner has been successful in negotiating an extension of the credit facility's
maturity date until September 30, 2001, NCP-Six's lenders have indicated that
they are unwilling to further extend the facility's maturity date due to the
impending expiration of NCP-Six's term.
In the spring of 1999, the managing general partner began to explore
potential means to sell NCP-Six's assets to provide a liquidity event for the
limited partners. Those efforts were motivated by the length of time over which
limited partners have held their investment, the belief that limited partners
would welcome the opportunity to liquidate their investment in NCP-Six, and both
the impending maturity date of NCP-Six's credit facility and expiration of
NCP-Six's term.
Neither of the general partners have undertaken any general solicitation or
survey of limited partners to determine the desire of limited partners to
liquidate their investment in NCP-Six. However, based on unsolicited comments
and questions from limited partners with respect to a liquidation of their
investment, the general partners believe that NCP-Six's limited partners may
welcome the opportunity. Furthermore, unlike today, in the late 1980's and early
1990's the market for buying and selling cable systems was significantly
constrained by the lack of available financing and the implementation of
governmental regulations capping rates that cable operators were allowed to
charge for services. Recent industry consolidation, and market interest in cable
systems due to digital and Internet services appear to the managing general
partner to have improved valuations for cable systems. These events, coupled
with the impending maturity of NCP-Six's credit facility and the expiration of
NCP-Six's term, influenced the general partners' timing in exploring
opportunities to pursue a sale of NCP-Six's assets.
SECONDARY SALES OF LIMITED PARTNERSHIP UNITS
The general partners' actions have also been motivated by activity of
unrelated third parties in making unsolicited offers to purchase units of
NCP-Six at prices which, in the managing general partner's opinion, do
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not fairly represent the underlying value of limited partner units in NCP-Six.
The offers that have come to the managing general partner's attention include
the following:
OFFERING PARTY DATES OF OFFER OFFER AMOUNT
-------------- -------------- ---------------
(PER $500 UNIT)
Madison Liquidity Investors........................ January, 2001 $650
Everest Cable Investors LLC........................ January, 2001 $600
June - July, 2000 $500
LP Investors, LLC.................................. January, 2000 $600
Kendall Investment Partners........................ April, 2000 $685
American Partnership Board (Auction Process)....... November, 1999 - April, 2000 $801 - $908
These offers are for amounts below the currently forecasted proceeds to be
received by the limited partners of NCP-Six per partnership unit if the proposed
sales are consummated as planned. These offers are also for amounts below the
general partners' prior estimated distributions to limited partners of NCP-Six
upon liquidation of NCP-Six based on appraisals of NCP-Six's assets obtained
prior to the date of these offers, and the managing general partner's belief as
to the value of NCP-Six's assets. See "The Proposed Transaction -- Appraisal
Process and Fairness Opinion; Summary of Reports -- Daniels & Associates
Appraisal" and "-- Communications Equity Associates Appraisal."
Northland Communications Corporation currently serves, and in the past has
served, as the managing general partner of several limited partnerships. It has
been Northland Communications Corporation's experience that especially as the
end of the term of a partnership grows near, unsolicited offers are made for
limited partnership units at values that are less than the value of the
partnership's underlying assets. These offers are made with the expectation of a
positive return upon liquidation of the partnership at or near the expiration of
the partnership's term. The managing general partner is not familiar with how
the parties making unsolicited offers for limited partnership units in NCP-Six
have arrived at their offered price, nor is the managing general partner
familiar with the auction process used by the American Partnership Board which
has resulted in the sale of limited partnership units in NCP-Six from time to
time. The managing general partner has, however, referred limited partners who
have desired to sell their partnership units to the American Partnership Board
since the American Partnership Board's auction process at various times can
provide a mechanism for the sale of limited partnership units where a secondary
market for the sale of those units does not otherwise exist.
CHRONOLOGY OF EVENTS LEADING UP TO THE PROPOSED SALES
Beginning in the spring of 1999, the managing general partner started to
research what options were available to provide a liquidity event for the
unaffiliated limited partners of NCP-Six. At that time, representatives of the
managing general partner contacted Cairncross & Hempelmann, NCP-Six's legal
counsel, to discuss options available to NCP-Six to provide an opportunity for
liquidity to the limited partners. Representatives of the managing general
partner held similar discussions with appraisal firms (Daniels & Associates and
Communications Equity Associates), and the managing general partner and the
administrative general partner engaged in general discussions regarding a
liquidity event for the unaffiliated limited partners. During these general
discussions, both the managing general partner and the administrative general
partner expressed a common goal of striving to determine the best means for
selling the assets of NCP-Six for a price that would result in the most
favorable return to the limited partners of NCP-Six. Although the managing
general partner and the administrative general partner are general partners of a
number of other cable television system limited partnerships, the administrative
general partner is independent of Northland Communications Corporation. See
"Information About NCP-Six -- Affiliates of NCP-Six."
The possibility that Northland Communications Corporation or one of its
affiliates might acquire the assets of NCP-Six arose from the outset of these
discussions. Northland Communications Corporation and its affiliates were seen
as possible purchasers of the assets since they are in the business of acquiring
and operating cable television assets similar to those owned by NCP-Six, and
Northland Communications Corporation has previously purchased assets from
various limited partnerships in which it has served as a general partner.
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John S. Whetzell and Richard I. Clark, who are senior officers of the managing
general partner and who are each shareholders of Northland Telecommunications
Corporation, the sole shareholder of the managing general partner, were required
to assess the opportunity presented to both NCP-Six and Northland Communications
Corporation by the prospect of a sale or other disposition of the assets. By
virtue of their dual capacity and their ownership interest in the managing
general partner, Mr. Whetzell and Mr. Clark faced a conflict of interest in
making this assessment.
During the spring of 1999, the managing general partner and the
administrative general partner discussed the feasibility of soliciting offers
for the proposed sale of the assets of NCP-Six from third parties. In evaluating
the possibility of Northland Communications Corporation or an independent third
party acquiring the assets, the general partners' primary motivating factor was
their desire to obtain liquidity for the unaffiliated limited partners at a
maximized value. The general partners recognized that the assets might be more
attractive to a Northland Communications Corporation affiliate than to a third
party. Factors identified that could make the acquisition more attractive to a
Northland Communications Corporation affiliate included Northland Communications
Corporation's familiarity with the operation of the assets of NCP-Six and the
ownership by the companies affiliated with Northland Communications Corporation
of other cable television systems in the vicinity of some of NCP-Six's assets.
This proximity may afford the companies affiliated with Northland Communications
Corporation an opportunity to benefit from centralized billing, management,
advertising, maintenance, installation, customer service and support personnel.
While other third-party cable system owners and operators have cable systems
adjacent to certain of the assets, NCP-Six is not aware of any single entity
which owns or operates cable television systems near all or substantially all of
the systems owned by NCP-Six. Accordingly, a third party may not experience the
same efficiencies as those available to the companies affiliated with Northland
Communications Corporation. A third-party purchaser would also be forced to bear
transaction costs that a Northland Communications Corporation affiliate would
not be required to bear. For example, Northland Communications Corporation's
engineers are currently familiar with the technical aspects of the systems
comprising the assets of NCP-Six, and Northland Communications Corporation's
management is familiar with NCP-Six's on-site operations and administrative
staff. A third-party purchaser presumably would be required to devote additional
management, administrative, human resources and technical attention to the
operation of the assets while gaining the degree of familiarity with the assets
that Northland Communications Corporation has already attained.
In April 1999, after concluding that a sale of the assets of NCP-Six was a
possibility, the general partners determined that it was an appropriate time to
obtain an appraisal of the fair market value of NCP-Six's assets.
Representatives of the managing general partner met with representatives of
Daniels & Associates and Communications Equity Associates to discuss the
potential sale of NCP-Six and an appraisal of NCP-Six's assets. These
discussions focused on the background of NCP-Six and the makeup of NCP-Six's
assets and operations. The nature of these discussions were focused on
instructing both Daniels & Associates and Communications Equity Associates to
determine separate valuations for the assets of NCP-Six based on their
respective independent methodologies. These firms are recognized by the general
partners for their experience in appraising cable television systems and other
media-related businesses and were selected in large part based on their
experience in the cable television industry generally and on their research
capabilities and resources.
Between April 26, 1999 and May 5, 1999, representatives of Daniels &
Associates and Communications Equity Associates met with Mr. Clark to perform
on-site due diligence inspections of the systems and the communities served. On
May 25, 1999, NCP-Six formally engaged Communications Equity Associates to
perform an appraisal of the fair market value of NCP-Six's assets with a
valuation date as of July 1, 1999. On June 25, 1999, NCP-Six formally engaged
Daniels & Associates to also perform an appraisal of the fair market value of
NCP-Six's assets with the same valuation date of July 1, 1999.
In early July 1999, Daniels & Associates and Communications Equity
Associates each delivered its written appraisal to the managing general partner
valuing NCP-Six's assets as of July 1, 1999. The Daniels & Associates appraisal
valued the assets at $73.3 million. The Communications Equity Associates
appraisal valued the assets at $74.6 million.
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Concurrently with the appraisal process, the general partners evaluated the
possibility of obtaining third-party bids for the purchase of the assets. While
Northland Communications Corporation had an interest in acquiring the assets of
NCP-Six, that interest was outweighed by other operational priorities of the
companies affiliated with Northland Communications Corporation, and as a result
neither Northland Communications Corporation nor its affiliated companies were
prepared to submit an offer to purchase NCP-Six's assets. Even if the companies
affiliated with Northland Communications Corporation had been prepared to
acquire the assets at the time, the managing general partner determined that a
bid solicitation process would be used in an effort to secure the highest
possible price by involving several potential purchasers. Based on the managing
general partner's experience in connection with transactions involving similar
sized cable television systems, and the physical location of NCP-Six's systems,
the general partners concluded that soliciting third-party purchasers for the
assets would require NCP-Six to retain a broker. In an effort to obtain the best
transaction value for the limited partners, the managing general partner decided
on a strategy whereby NCP-Six would engage a broker to identify qualified
potential buyers and solicit the highest and best offer from each potential
purchaser, after which the general partners would review the dollar amount and
terms of the offers received.
During July 1999, the general partners discussed the formation of a special
committee to review anticipated offers and concluded that the expense of forming
a special committee outweighed any benefits to the limited partners that might
result from independent representation. As part of forming a special committee,
NCP-Six would be required to establish a procedure for selecting representative
unaffiliated limited partners to serve on the committee. NCP-Six would have to
locate limited partners who would be willing to serve and would have to incur
management time and expense in educating the committee as to all aspects of
NCP-Six's business. NCP-Six would have to pay for committee member travel
expenses to the systems and travel expenses for committee meetings. NCP-Six
would also have to obtain liability and indemnification insurance for each
committee member. Finally, the general partners determined that a special
committee was not warranted because they believed that the steps being taken to
structure the proposed transaction constituted sufficient safeguards to protect
the limited partners' interests. Those steps included:
- soliciting bids from third parties through an experienced broker of cable
television systems;
- commissioning two independent appraisals of the fair market value of the
assets to be used as a benchmark for evaluating the third-party bids; and
- obtaining approval of a majority of NCP-Six's unaffiliated limited
partners before a sale could be made to either a third party or to the
managing general partner or any of its affiliates.
1999 THIRD-PARTY BID SOLICITATION PROCESS
On July 2, 1999, NCP-Six engaged Daniels & Associates to assist in
brokering the sale of NCP-Six's cable systems to a third party. The managing
general partner, in conjunction with input from Daniels & Associates, developed
a bid process to solicit interest from third-party purchasers. Specifically, the
bid process entailed sending a confidential memorandum to each party deemed by
Daniels & Associates to be a potential purchaser of the assets. That
confidential memorandum included the following:
- an executive summary of NCP-Six's cable systems and geographic location
of those systems;
- a summary of subscribers for each cable system;
- a summary of rates and programming for each system;
- a summary of operations and assets to be sold;
- a summary of technical information describing the systems and their
technological characteristics;
- a description of the markets served by each system; and
- a compilation of historical financial data.
Along with the confidential memorandum, Daniels & Associates included a
proposed form of asset purchase agreement prepared by counsel for NCP-Six.
Bidders were advised that they were free to mark up
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the proposed asset purchase agreement form when submitting their bids, but that
material deviations from the proposed form of agreement could have a negative
impact on the attractiveness of their offer. Potential purchasers were
instructed to submit their bid to Daniels & Associates no later than August 20,
1999. They were also invited to tour NCP-Six's facilities upon confirmation of
serious interest.
During July and early August 1999, Daniels & Associates contacted 35
potential purchasers regarding the solicitation of bids for the sale of all or a
portion of NCP-Six's assets. The potential purchasers were selected by Daniels &
Associates based on the broker's expertise in the marketplace and belief as to
purchasers that might be interested in purchasing systems similar to NCP-Six's.
Daniels & Associates provided each of the 35 potential purchasers with a copy of
the confidential memorandum prepared by the managing general partner and Daniels
& Associates.
In early August 1999, two potential purchasers performed on-site due
diligence reviews of NCP-Six's cable systems under the supervision of Daniels &
Associates. On August 20, 1999, the submission date for third-party bids,
Daniels & Associates received offers from three potential purchasers ("Bidder
A," "Bidder B" and "Bidder C"). Neither Northland Communications Corporation nor
any affiliated company submitted a bid. The offer by Bidder A proposed the
purchase of all of NCP-Six's assets for a price of $76 million. The offer
submitted by Bidder B included two options -- first, for all of the assets at a
price of $70.4 million and, second, for all of the Mississippi operating group
assets at a price of $46,635,000. The offer submitted by Bidder C proposed the
purchase of only the Starkville, Mississippi system at a price of $19 million.
The following table summarizes the four bids submitted, including
identifying the NCP-Six assets subject to the bid, the total purchase price
offered and the purchase price divided by the number of subscribers in the
systems subject to the offer (which in the managing general partner's
professional opinion is an accepted valuation statistic in the cable television
industry):
ESTIMATED PRICE
BID BIDDER ASSETS PURCHASE PRICE PER SUBSCRIBER
- --- -------- ------ -------------- ---------------
1 Bidder A All $76,000,000 $2,303
2 Bidder B All $70,400,000 $2,136
3 Bidder B Mississippi only $46,635,000 $2,389
4 Bidder C Starkville, Mississippi $19,000,000 $2,312
On August 30, 1999, Mr. Whetzell, Mr. Clark, other senior officers of the
managing general partner and representatives of NCP-Six's legal counsel,
Cairncross & Hempelmann, met to review and evaluate the four offers. They
reviewed the scope of the offers, the terms and amounts of the proposed purchase
prices, and other conditions to the four offers. Primary attention was given to
the price offered by Bidder A since it was significantly higher than the other
bids submitted. At the meeting, the terms of each of the offers were evaluated
and a list of questions and clarification points was prepared for follow-up with
Bidder A. Specifically, the points for which clarification was sought from
Bidder A included clarification on conditions to signing a definitive agreement,
financing and the availability of funds, and Bidder A's proposed remedies for
any breach of the definitive agreement once it was signed.
On August 30, 1999, after the meeting of senior officers of the managing
general partner, NCP-Six rejected the bids of Bidder B and Bidder C. NCP-Six
rejected Bidder B's bid for all of the assets because the proposed purchase
price was significantly lower than the purchase price proposed by Bidder A.
NCP-Six rejected Bidder B's bid for the assets of the Mississippi systems, and
rejected Bidder C's bid for the assets of the Starkville system because the
managing general partner felt that selling only a portion of the assets of
NCP-Six without a mechanism for selling the remaining assets of NCP-Six was not
in the best interests of NCP-Six or its limited partners.
The managing general partner's reluctance to sell only a portion of
NCP-Six's assets without a means to sell the remaining assets is based on two
factors. First, a partial asset sale for an amount that is less than NCP-Six's
outstanding debt will not provide liquidity to limited partners since NCP-Six is
subject to certain loan covenants that require it to pay the proceeds from any
sales of assets outside the ordinary course of
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business towards the cancellation of debt prior to making any distributions to
limited partners. Second, if only certain of NCP-Six's assets are sold,
NCP-Six's fixed administrative and management expenses will use a higher
percentage of available operating cash flow.
Had Bidder B or Bidder C's bids for only a portion of NCP-Six's assets been
significantly higher (on a per subscriber basis) than the corresponding bid for
all of the assets submitted by Bidder A, the managing general partner
acknowledged that it would consider the sale of a select portion of NCP-Six's
assets, but only under circumstances that would result in obtaining a premium
purchase price. Otherwise, at the August 30, 1999 meeting, the managing general
partner expressed the goal of only selling a portion of NCP-Six's assets in
conjunction with one or more sales that would provide for the combined sale of
the entirety of the assets of NCP-Six and its subsequent liquidation. Given the
extent of the brokerage effort undertaken by Daniels & Associates, the general
partners did not believe any other potential purchasers would come forward to
buy NCP-Six's other systems.
In order to negotiate what, at the time, seemed to be the bid most in line
with the interests of the limited partners of NCP-Six, the general partners
focused their efforts on the offer of Bidder A. Specifically, Bidder A's offer
included the following material terms:
- an all cash purchase price of $76 million for all of the assets of
NCP-Six, subject to certain adjustments;
- an assumption that at least 33,000 subscribers would be delivered at
closing, and a purchase price adjustment equal to $2,300 multiplied by the
number of NCP-Six subscribers under 33,000 actually delivered;
- prior to closing, a $3.5 million break up fee to be secured by a letter
of credit and to serve as liquidated damages to Bidder A if NCP-Six
breached the agreement prior to closing;
- after closing, a hold-back escrow equal to $3.5 million to secure
NCP-Six's indemnification obligations for one year from the closing date;
On September 3, 1999, the managing general partner responded by letter to
Bidder A, requesting clarification on several threshold matters concerning
Bidder A's proposal. The letter specifically requested clarification on
conditions to signing a definitive agreement, financing and the availability of
funds, and bidder A's proposed remedies for a breach of the definitive
agreement.
On September 9, 1999, Mr. Whetzell, Mr. Clark, other senior officers of the
managing general partner and representatives of Cairncross & Hempelmann met to
discuss oral comments provided by representatives of Bidder A. Those comments
failed to provide a definitive response to the questions posed by the managing
general partner's September 3 letter to Bidder A. The managing general partner
then decided to request from Bidder A a written response to the September 3,
1999 letter, and set September 17, 1999 as the deadline for that response.
On September 17, 1999, Bidder A responded in writing to the managing
general partner's letter of September 3, 1999. Bidder A confirmed its
willingness to sign a definitive agreement prior to limited partner approval of
the sale on the condition that if limited partner consent was not obtained
NCP-Six would pay Bidder A's costs and expenses. Bidder A's response also
included a new provision for payment of a break-up fee if the transaction was
not consummated due to the failure of the limited partners to approve the
transaction and the assets were subsequently sold to another party within three
years. The break-up fee payment was to be the greater of (i) $3.8 million or
(ii) 50% of the difference between the actual sale price for those assets and
Bidder A's offer. The response also clarified that Bidder A would not require
financing to close because it had adequate funds available.
On September 23, 1999, Mr. Whetzell, Mr. Clark, other senior officers of
the managing general partner, the administrative general partner and
representatives of Cairncross & Hempelmann participated in a conference call to
discuss the offer from Bidder A as revised by its September 17, 1999 letter. The
meeting focused on the terms of the offer, including the break-up fee, payment
terms for the purchase price and the terms of Bidder A's proposed asset purchase
agreement.
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Representatives of the general partners exhaustively reviewed the terms of
Bidder A's offer for the NCP-Six assets, including holding discussions with
Daniel & Associates. Based on the nature of the prior oral comments from Bidder
A and discussions between Bidder A and Daniels & Associates, the general
partners concluded that further negotiations with Bidder A would simply result
in additional delay without successful results.
Finally, on September 23, 1999, the general partners rejected the bid of
Bidder A and did not negotiate further with Bidder A. The general partners
determined that the $76 million purchase price proposed by Bidder A provided
excellent value to the limited partners since the proposed purchase price
exceeded the appraised value of the assets as determined by Daniels & Associates
and by Communications Equity Associates. However, the general partners also
concluded that the terms of the purchase agreement submitted by Bidder A under
which the assets would be sold were not as advantageous to NCP-Six and could
significantly decrease the value of the transaction to the limited partners of
NCP-Six. The general partners placed particular emphasis on the break-up fee if
the transaction was not closed, the downward adjustment of the purchase price in
the event of a short-fall in the number of subscribers delivered at closing and
the representations and warranties required by Bidder A. At the time, a company
affiliated with Northland Communications Corporation had not yet made an offer
to purchase the assets of NCP-Six, and the general partners' decision to reject
Bidder A's offer was not based on an expectation that a company affiliated with
Northland Communications Corporation would subsequently attempt to make an offer
for those assets.
NORTHLAND COMMUNICATIONS CORPORATION'S 1999 EFFORT TO PURCHASE ALL
OF NCP-SIX'S ASSETS
After NCP-Six broke off negotiations with Bidder A because NCP-Six could
not accept Bidder A's terms, Mr. Whetzell and Mr. Clark expressed the
willingness of Northland Communications Corporation to attempt to purchase all
of NCP-Six's operating systems for $76,000,000. This offer was based on the same
valuation proposed by Bidder A, but contemplated that Northland Communications
Corporation's purchase price would be paid in part by delivery of a $3,800,000
promissory note with a term of one year and an interest rate of 6 1/2%. The
amount of the promissory note was substantially equivalent to the $3,500,000
hold-back escrow amount proposed by Bidder A.
Northland Communications Corporation explained that it would undertake an
effort to try to secure financing to purchase the assets for the $76 million
dollar purchase price proposed by Bidder A, but that Northland Communications
Corporation was not sure it could secure such financing at the time because
Northland Communications Corporation and its affiliates were unwilling to
subject themselves to unfavorable borrowing conditions such as unacceptable debt
service levels caused by a higher interest rate or shorter term of borrowing,
and onerous restrictive loan covenants and/or the requirement of loan
guarantees. While Northland Communications Corporation submitted its informal
offer, no definitive agreement was negotiated or signed between Northland
Communications Corporation and NCP-Six since both parties understood that if
suitable financing could not be secured, the transaction would not proceed. At
that time, the general partners both concluded that if Northland Communications
Corporation could not secure acceptable financing for the purchase of the
assets, then a second round of bidding would be solicited.
The general partners compared Northland Communications Corporation's 1999
offer to the offer of Bidder A that had previously been rejected. Several
aspects of Northland Communications Corporation's offer were seen by the general
partners to be more favorable to NCP-Six than the prior offer of Bidder A. The
more favorable aspects of Northland Communications Corporation's 1999 offer
included:
- No Break-Up Fee. A significant factor that lead the general partners to
reject Bidder A's offer was the break-up fee proposed by Bidder A. If the
asset purchase agreement was signed with Bidder A, but the transaction
failed to close because the limited partners failed to approve it, then
NCP-Six would have been liable to Bidder A for its costs and expenses
(including attorneys' fees) incurred with respect to the transaction (such
as due diligence expenses and costs of negotiating the agreement). In
addition, if at any time in the subsequent three years NCP-Six sold the
assets to another party, NCP-Six would have been required to pay to Bidder
A the greater of $3.8 million or 50% of the amount for which the assets
were sold in excess of $76 million. The general partners believed that
these provisions regarding
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payment of a break-up fee and reimbursement of costs and attorneys' fees
represented a significant potential liability to NCP-Six had the
partnership proceeded with the transaction with Bidder A. Additionally,
the general partners were concerned that the break-up fee provision may
have had the negative effect of inducing limited partners to approve the
transaction, regardless of its merits, merely to avoid payment of the
break-up fee. In contrast, Northland Communications Corporation's 1999
offer did not include a break-up fee or a reimbursement of expense
provision.
- Limited Representations and Warranties. A significant difference between
Northland Communications Corporation's 1999 offer and Bidder A's bid was
the breadth of the representations and warranties that NCP-Six would be
required to make. It is typical in business asset purchase agreements for
the seller to make extensive representations and warranties about the
seller's business and the assets to be acquired. The accuracy and
completeness of such representations by the seller is a condition to the
buyer's obligation to close the transaction. Claims for indemnification
made by the buyer against the seller after the closing of an asset
purchase transaction are often based on the seller's representations and
warranties. In the proposed asset purchase agreement submitted by Bidder
A, NCP-Six would have been required to make extensive representations and
warranties about the systems, the subscribers and other aspects of its
business. On the other hand, because Northland Communications Corporation,
as managing general partner of NCP-Six, has extensive knowledge about
NCP-Six's operations, Northland Communications Corporation required
NCP-Six to make only a very limited number of representations and
warranties. The representations and warranties required by Northland
Communications Corporation related solely to partnership power and
authorization matters, rather than representations about the systems or
the business. The limited number of representations requested of NCP-Six
by Northland Communications Corporation in 1999 were the minimum required
to assist Northland Communications Corporation with its application for
financing.
- No Adjustment for Number of Equivalent Basic Subscribers. Northland
Communications Corporation's 1999 offer did not include any downward
adjustment to the transaction price based on the number of equivalent
basic subscribers served by the systems at closing. In contrast, the bid
submitted by Bidder A included a downward adjustment to the purchase price
of $2,300 for every subscriber delivered at closing below 33,000
subscribers. The general partners felt that this was a significant
negative factor of Bidder A's bid due to the recent historical attrition
in subscriber counts experienced by NCP-Six primarily due to increased
competition from satellite delivered services. As of July 1999, the total
estimated number of equivalent basic subscribers served by NCP-Six's
systems was 32,597, representing an approximate 1.8% decrease in the
number of these subscribers from the estimated total of 33,183 for the
prior year at July 1998. That amount as of July 1999 also represented a
1.1% decrease from the number of equivalent basic subscribers at March 31,
1999 of 32,963. The number of subscribers at March 31, 1999 was provided
to all third-party bidders by Daniels & Associates. Based on the number of
equivalent basic subscribers at July 1999, the purchase price from Bidder
A would have been adjusted downward from $76 million to approximately
$75,073,100, and it would have been subject to further decrease if the
number of subscribers at closing declined from the July 1999 figure.
- No Post-Closing Escrow Deposit by NCP-Six. The offer received from Bidder
A included a provision requiring NCP-Six to deposit $3.5 million of the
sales proceeds into a hold-back escrow account to secure any
indemnification rights of Bidder A after closing. The escrowed funds would
have been released one year from closing to the extent that Bidder A had
not made any claim against them due to a breach of any representations or
warranties associated with the sale of the assets by NCP-Six. This
post-closing escrow would have had the effect of possibly delaying and/or
reducing the funds payable to the limited partners at closing. Northland
Communications Corporation's 1999 offer did not require NCP-Six to deposit
any amount into an escrow account. Northland's 1999 offer did, however,
include a $3.8 million promissory note repayable on the first anniversary
after closing.
- Limitation on Liability of NCP-Six. Northland Communications
Corporation's 1999 offer included a maximum cap on NCP-Six's liability for
any indemnification obligations under the purchase agreement in an amount
equal to 4% of the total valuation price (which was approximately $3.04
million). Northland's 1999 offer also included a provision that NCP-Six
would not be liable for indemnification
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until the total amount of claims exceeded $250,000. The form asset
purchase agreement sent to prospective third party bidders contained the
4% cap on liability and the $250,000 deductible. However, the bid and
further clarification received from Bidder A indicated that the 4% cap was
not acceptable and that the amount of the cap and the deductible would
need to be negotiated.
In addition to the favorable terms described above, the general partners
considered the following factors of Northland Communications Corporation's 1999
offer that were seen as less favorable than the terms of Bidder A's bid to
NCP-Six and its limited partners:
- Terms of the Promissory Note. Northland's 1999 offer included Northland
Communications Corporation's delivery of a $3.8 million promissory note to
NCP-Six for a portion of the purchase price. The $3.8 million promissory
note proposed by Northland Communications Corporation was to be an
unsecured obligation of Northland Communications Corporation and was to be
subordinated to Northland Communications Corporation's senior debt
(including approximately $53 million in then current senior debt and
approximately $66.4 million in additional bank financing that Northland
Communications Corporation would have needed to obtain in connection with
the transaction proposed by Northland Communications Corporation's 1999
offer). Northland Communications Corporation's promissory note was not to
be guaranteed by any other party. The note was also to bear interest at a
fixed rate of 6% per annum. The 6% per annum fixed rate of Northland
Communications Corporation's promissory note was recognized by the general
partners to be below market for similar corporate borrowings.
- No Earnest Money Deposit by Buyer. The form asset purchase agreement sent
to prospective third-party bidders contained a provision that required the
buyer to deposit 5% of the total purchase price into an escrow account
when the asset purchase agreement was signed to secure the buyer's
obligations to close the transaction. The offer received from Bidder A
included an agreement by Bidder A to deposit $3.5 million into an escrow
account. Northland Communications Corporation's offer, however, did not
require it to deposit any amount into an escrow account either at the time
the asset purchase agreement was signed, or at any time prior to closing.
At the time that Northland Communications Corporation informally submitted
its 1999 offer to acquire the assets of NCP-Six, the general partners did not
compare the likelihood of Northland Communications Corporation obtaining
financing for the transaction against the prior representation of Bidder A that
Bidder A had secured available funds to consummate the purchase of assets
reflected in Bidder A's 1999 bid. Such a determination was not relevant at the
time since Bidder A's offer had already been rejected due to Bidder A's
requirement of a break-up fee, stringent representations and warranties, and a
downward purchase price adjustment in the event of a loss in the number of
subscribers prior to closing.
In October, 1999, representatives of the managing general partner met with
representatives of Cairncross & Hempelmann to discuss a preliminary draft of a
proxy statement soliciting the consent of limited partners to the sale of
NCP-Six's assets to Northland Communications Corporation or one of its
affiliated companies. On December 6, 1999, the general partners filed a
preliminary draft of the corresponding proxy statement with the Securities and
Exchange Commission, while Northland attempted to secure its necessary
financing.
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FAILURE OF NORTHLAND COMMUNICATIONS CORPORATION'S 1999 OFFER DUE
TO LACK OF ACCEPTABLE FINANCING
In mid October 1999, Northland Communications Corporation began preliminary
discussions with the agent bank of its lending group regarding the financing of
its 1999 offer. In January 2000, the lenders presented to Northland
Communications Corporation financing terms that were deemed by Northland
Communications Corporation to be unacceptable due to the overall cost of the
debt, and other terms and conditions that were required as part of the proposed
loan commitment.
In January 2000, Northland Communications Corporation's lenders presented a
lending proposal for the financing of Northland Communications Corporation's
1999 offer that included the following specific terms:
- The companies affiliated with Northland Communications Corporation would
have had to restructure into a holding company structure with a new parent
corporation that would have been the senior borrower under the proposed
credit facility.
- The newly created holding company would have been required to incur a
first tranche of debt equal to $30 million at a rate of libor plus 6%. In
addition, the lenders would have required a 2% up front fee for this $30
million first tranche of debt.
- Northland Cable Properties, Inc., a wholly owned subsidiary of Northland
Communications Corporation, would have then been allowed to increase
amounts available under its senior credit facility to a credit limit of
$100 million. This $100 million credit facility would have covered
Northland Cable Property, Inc.'s then existing outstanding debt of
approximately $55.8 million, plus additional borrowings necessary to close
the proposed purchase of NCP-Six's assets. This $100 million portion of
the credit facility would have been at an interest rate of libor plus
2.875%. In addition, the lenders would have required up front fees of
1-1/8% to 1-3/8% for borrowings by Northland Cable Properties, Inc. under
this $100 million portion of the credit facility.
Northland Communications Corporation felt that the interest rates proposed
for these borrowings plus the significant up front fees, that were estimated to
be in excess of $1.6 million, were not acceptable especially in light of debt
service coverage covenants also required by the lenders for the proposed credit
facility. When evaluating the cost of debt proposed by its lenders, Northland
Communications Corporation evaluated how anticipated cash flow from operations
and required debt payments would correspond to debt service and debt to equity
covenants proposed by its lenders. In the final analysis, Northland
Communications Corporation concluded that the cost of debt and the covenants
required by its lenders provided too little flexibility for future operations.
When Northland Communications Corporation presented its offer to purchase
the assets of NCP-Six for a valuation of $76 million, Northland Communications
Corporation stated that it had to secure suitable financing to consummate the
purchase, and that at the time Northland Communications Corporation did not know
whether it could secure such financing under acceptable terms. Northland
Communications Corporation's offer was therefore subject to Northland
Communications Corporation securing acceptable financing in Northland
Communications Corporation's sole discretion. At the time, Northland
Communications Corporation was not aware of alternative lending sources that
were likely to provide the financing required to make the purchase based on a
$76 million valuation. As a result, Northland Communications Corporation
rescinded its 1999 offer once Northland Communications Corporation determined
that it could not secure acceptable financing. The preliminary proxy statement
filed on December 6, 1999 was subsequently withdrawn before being submitted to
any unaffiliated limited partners for consideration.
2000 THIRD-PARTY BID SOLICITATION PROCESS
In January 2000, as a result of the general partners' continued belief that
a significant number of limited partners desire to liquidate their investment in
NCP-Six, the managing general partner decided to institute a second round of
bidding in which Northland Communications Corporation would actively
participate. The managing general partner felt that a second round of bidding
was more appealing than contacting only Bidder A and Bidder B in an effort to
reopen negotiation of the offers they made in response to the first bid
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solicitation. This conclusion was reached since the general partners had
determined that further negotiations with Bidder A would not be successful, and
based on the amount bid by Bidder B, the general partners had hoped that a
second round of bidding would secure a higher purchase price. Furthermore, both
Bidder A and Bidder B were invited to participate in the second round of bidding
in order to provide them an opportunity to express their willingness to further
negotiate for the purchase of the assets if they expressed an interest to pay
the maximum value for those assets.
When considering a second round of bidding the general partners continued
to be motivated by the impending maturity date of NCP-Six's credit facility, the
approaching expiration date of NCP-Six's term, and the continued positive market
environment for cable systems. The second bid solicitation process provided for
the ability to submit bids, on a system by system basis, for the separate cable
systems of NCP-Six, but the goal remained to find a means to sell all of the
systems of NCP-Six for a fair price before the maturity of NCP-Six's debt and
the expiration of NCP-Six's term. Accordingly, NCP-Six once again engaged
Daniels & Associates to assist in brokering the sale of its cable systems.
Preparations for Daniels & Associates to solicit the second round of bidding and
the updating of bid books took place between January 2000, the date when the
managing general partner decided to solicit a second round of bids, and the
middle of July. During this six month period the managing general partner
continued to service the operational requirements of NCP-Six and worked with
Daniels & Associates as needed to prepare for the solicitation of new bids.
During June and July 2000, Daniels & Associates again contacted 35
potential purchasers regarding the sale of NCP-Six's systems, including all of
the 1999 bidders. The 35 potential purchasers contacted by Daniels & Associates
were the same purchasers contacted by Daniels & Associates during the first bid
solicitation process. On July 18, 2000, Daniels & Associates provided each of
the potential purchasers who expressed an interest in purchasing some or all of
the assets with a form asset purchase agreement and with information about
NCP-Six. Bidders were instructed to submit to Daniels & Associates, by August 8,
2000, an offer for some or all of the assets of NCP-Six. Submitted offers were
to include the bidder's highest non-negotiable purchase price and a mark-up of
the form asset purchase agreement indicating the terms on which the purchaser
was willing to agree. NCP-Six would evaluate and review all submitted bids, but
would be under no obligation to accept any offer. Bidders were also advised that
Northland Communications Corporation or its affiliates might bid on some or all
of the assets.
In order to avoid the possibility that Northland Communications Corporation
or any other party could learn of the specific terms of a third-party's bid
before Northland Communications Corporation's bid submission, Daniels &
Associates advised all bidders that the bids were to be marked as "confidential"
and then sent only to an independent law firm, Hubbard and Johnson, P.C., who
would hold each bid on a blind bid basis. The bid results would then only be
disclosed after the deadline for submission of bids had passed. Similar
procedural safeguards were not followed in the 1999 bidding process. On July 28,
2000, Daniels & Associates sent each of the potential bidders follow-up bid
instructions advising them that if bidders submitted offers within 2% of the top
bid (as separately evaluated for each operating system), those bidders would be
invited to resubmit second offers for each operating system for which their bids
were within the 2% threshold.
On August 8, 2000, Daniels & Associates received bids for NCP-Six's assets
from four different bidders, including a new bid from Bidder A and a bid from
Northland Communications Corporation. Of those bids, only Northland
Communications Corporation offered to purchase all of the assets of NCP-Six. The
other three bidders limited their offers to between one and two operating
systems. While Bidder A had bid for all GNCP-Six's Operating System in 1999,
Bidder A's 2000 bid was limited to NCP-Six's Mississippi Systems.
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The following table summarizes the four bids received in 2000, including
identifying the NCP-Six assets subject to each bid, the total purchase price
offered and the purchase price divided by the number of subscribers in the
systems subject to each offer:
ESTIMATED
PURCHASE PRICE
BID BIDDER ASSETS PRICE PER SUBSCRIBER
--- -------------- ------ -------------- ---------------
1 Bidder D Bennettsville, South Carolina $ 7,922,000 $1,661
2 Bidder E Starkville, Mississippi $26,300,000 $2,113
Philadelphia, Mississippi $13,700,000 $1,982
TOTAL FOR MISSISSIPPI SYSTEMS $40,000,000 $2,067
3 Bidder A Starkville and Philadelphia,
Mississippi (Combined)
TOTAL FOR MISSISSIPPI SYSTEMS $40,000,000 $2,067
4 Northland Starkville, Mississippi $32,750,000 $2,632
Communications Philadelphia, Mississippi $13,500,000 $1,953
Corporation TOTAL FOR MISSISSIPPI SYSTEMS $46,250,000 $2,389
Highlands, North Carolina $ 4,600,000 $1,767
Barnwell, South Carolina $11,400,000 $1,896
Bennettsville, South Carolina $ 7,950,000 $1,667
TOTAL FOR ALL SYSTEMS $70,200,000 $2,144
On August 9, 2000, Mr. Whetzell, Mr. Clark, other senior officers of the
managing general partner, and legal counsel from Cairncross & Hempelmann met to
review and evaluate the four offers. They reviewed the scope of the offers, the
terms and amounts of the proposed purchase prices, and other conditions of the
four offers.
Because Bidder D and Northland Communications Corporation's bids for the
Bennettsville system were within 2% of one another, Daniels & Associates
contacted both Bidder D and Northland Communications Corporation. Daniels &
Associates informed Bidder D and Northland Communications Corporation of their
respective opportunities to submit follow-up bids for the Bennettsville system
by August 15, 2000. In response, Northland Communications Corporation confirmed
the terms of its original bid, but did not increase its offer for Bennettsville.
Bidder D instead increased its offer to $8,388,000.
Similarly, Bidder E's bid of $13,700,000 for the Philadelphia, Mississippi
system was higher than, but still within 2% of, Northland Communications
Corporation's second highest bid for that system. As a result, both Bidder E and
Northland Communications Corporation were invited to submit their second round
bids for the Philadelphia, Mississippi system. Northland Communications
Corporation responded by confirming its original bid without change, while
Bidder E replied that it was only interested in the Philadelphia system if it
could also acquire the Starkville, Mississippi system, and based on Northland
Communications Corporation's combined offer for both the Starkville and
Philadelphia systems, Bidder E withdrew from further bidding.
On August 16, 2000, the second round of bidding was closed. The following
table shows the winning bids from Daniels & Associates 2000 bid solicitation
process.
ESTIMATED PRICE
BIDDER ASSETS PURCHASE PRICE PER SUBSCRIBER
------ ------ -------------- ---------------
Bidder D Bennettsville, South Carolina $ 8,388,000 $1,759
Northland Starkville, Mississippi $32,750,000 $2,632
Communications Philadelphia, Mississippi $13,500,000 $1,953
Corporation TOTAL FOR MISSISSIPPI SYSTEMS $46,250,000 $2,389
Highlands, North Carolina $ 4,600,000 $1,767
Barnwell, South Carolina $11,400,000 $1,896
TOTAL NORTHLAND BID $62,250,000 $2,275
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On August 17, 2000, the general partners determined that it was in the best
interest of NCP-Six to accept the offers of Bidder D and Northland
Communications Corporation, subject to unaffiliated limited partner approval in
the case of the Northland Communications Corporation offer. The general partners
based their determination to accept Bidder D and Northland Communications
Corporation's offers on their conclusion that Bidder D and Northland
Communications Corporation submitted the highest bid for the assets covered by
their respective offers. The general partners also believed that Bidder D and
Northland Communications Corporation's offers proposed the best terms and
conditions for consummation of their respective sales. While Bidder D proposed a
hold back escrow, which was one of the reasons the general partners finally
rejected Bidder A's offer in the 1999 bid solicitation process, Bidder D's offer
did not include the break-up fee previously required by Bidder A.
When the general partners accepted the offer submitted by Northland
Communications Corporation in the 2000 bid solicitation, they took into account
that Northland Communications Corporation's offer was less than its previously
rescinded offer to acquire all of the assets of NCP-Six for a valuation of $76
million. This revised purchase price, however, reflected the maximum amount that
Northland Communications Corporation was willing to pay for the assets following
Northland Communications Corporation's prior analysis of available financing.
In the second bid solicitation process, bidders were advised that all cash
offers would be considered more favorable than offers that included a deferment
of part of the purchase price through promissory notes or other financing. When
evaluating Northland Communications Corporation's offer for the Mississippi
systems, the general partners took into account that Northland Communications
Corporation's offer included a proposed $9,875,000 promissory note with a 6 1/2%
interest rate. That rate was below what would customarily be charged in the
marketplace. The managing general partner performed a present value analysis of
Northland Communications Corporation's offer for the Mississippi systems using a
discount factor for Northland Communications Corporation's note equal to the
approximate 14.8% rate then in effect for Northland Communications Corporation's
outstanding unsecured subordinated bond obligations. After discounting the
promissory note to present value using this rate, the general partners
determined that Northland Communications Corporation's bid for the Mississippi
systems was equivalent to an all cash bid of approximately $45,569,000.
Similarly, the managing general partner performed a present value analysis of
Northland Communications Corporation's total bid using the same 14.8% discount
factor, leading the general partners to determine that Northland Communications
Corporation's total bid was equivalent to an all cash bid of approximately
$61,144,000. In either case, Northland Communications Corporation's bid was
superior to all other bids submitted during the 2000 bidding for those assets
covered by Northland Communications Corporation's bid.
Consideration was also given to the ability of Northland Communications
Corporation to obtain necessary financing. The general partners evaluated the
outcome of previous discussions held by Northland Communications Corporation
with prospective lenders regarding the current lending environment and specific
parameters the lenders advised would be necessary to finance Northland
Communications Corporation's purchase. These parameters included certain
financial covenants such as the ratio of overall debt to operating cash flow,
the ratio of operating cash flow to interest expense, limits on the level of
capital expenditures and the period over which the debt could reasonably be
expected to be repaid. Northland Communications Corporation then prepared
projections incorporating these parameters and reported to the general partners
that it had determined the necessary financing could most likely be obtained to
support its current bid.
PREPARATIONS FOR SALES TO BIDDER D AND NORTHLAND COMMUNICATIONS
CORPORATION
On September 28, 2000, Mr. Whetzell, Mr. Clark, other senior officers of
the managing general partner and legal counsel from Perkins Coie LLP met to
discuss a preliminary draft of this proxy statement. Pursuant to an engagement
letter dated October 21, 2000, the managing general partner, on behalf of
NCP-Six, engaged Houlihan Lokey to conduct a fairness analysis of the
consideration to be received by NCP-Six in the sale to Northland Communications
Corporation, and separately in the sale to Bidder D.
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On December 20, 2000, the general partners filed a preliminary draft of
this proxy statement with the Securities and Exchange Commission. Then on
February 16, 2001, the general partners met with Houlihan Lokey at Northland
Communications Corporation's office for Houlihan Lokey's formal presentation of
its findings with regards to their preliminary fairness analysis. At the
meeting, Houlihan Lokey advised that in its opinion the consideration to be
received by NCP-Six in the sale to bidder D, and separately in the sale to
Northland Communications Corporation, was fair from a financial point of view.
NEGOTIATIONS WITH BIDDER D
The managing general partner commenced negotiations with Bidder D to
finalize the terms of a definitive asset purchase agreement for NCP-Six's
Bennettsville, South Carolina assets in September 2000. Negotiations continued
through the middle of March 2001. By that time, the managing general partner
felt that the final terms of the asset purchase agreement had been negotiated
with Bidder D and that Bidder D had only to sign the agreement. Bidder D,
however did not sign the agreement. Instead, by letter dated March 14, 2001 to
Mr. Whetzell, Bidder D advised NCP-Six that Bidder D would proceed with the
transaction only if the purchase price for the Bennettsville, South Carolina
system was lowered to $1,600 per subscriber.
Mr. Whetzell, Mr. Clark, and other senior officers of the managing general
partner met to evaluate the status of negotiations with Bidder D and to review
Bidder D's March 14 correspondence. Those present at the meeting expressed
frustration at Bidder D's recent position in light of the protracted
negotiations that had already taken place. Mr. Whetzell and Mr. Clark also
sought clarification on Bidder D's most recent position and instructed the
managing general partner's in house legal department to draft a letter to Bidder
D seeking clarification.
On April 4, 2001, the managing general partner sent a letter to Bidder D's
deputy general counsel. That letter advised Bidder D that NCP-Six's most recent
records reflected that the Bennettsville system had 4,948 equivalent basic
subscribers and inquired whether Bidder D was willing to pay $1,600 for each
subscriber delivered at closing, or whether Bidder D was simply lowering its
original offer to $1,600 per subscriber without an upward adjustment for any
subscribers that had been added since the 2000 bids were received. The letter
also requested Bidder D to make an earnest money deposit of 5% of the purchase
price to secure further execution of a definitive agreement before April 30,
2001.
On April 9, 2001, Bidder D's deputy general counsel responded to the
managing general partner's April 4 letter. Bidder D clarified that it would only
pay $1,600 per subscriber for up to a maximum of 4,660 subscribers. If at
closing NCP-Six delivered less than 4,660 subscribers, the purchase price would
be adjusted downward by an amount equal to $1,600 for each subscriber under
4,660. No corresponding upward adjustment would be allowed. The result would be
a maximum purchase price of $7,456,000, with the possibility of a downward
adjustment if subscribers fell below 4,660. In its April 9 letter, Bidder D also
refused to make an earnest money deposit.
On April 12, 2001, Mr. Whetzell, Mr. Clark, and the chief financial officer
of the managing general partner discussed Bidder D's April 9 letter and
concluded that Bidder D's revised maximum purchase price of $7,456,000 was
materially less than Northland Communications Corporation's $7,950,000 bid for
the Bennettsville system. The general partners also concluded that the bid was
subject to a possible downward adjustment if less than 4,660 subscribers were
delivered at closing. Finally, they determined that despite the managing general
partner's extensive efforts to negotiate a definitive asset purchase agreement
with Bidder D, that agreement remained unsigned and Bidder D was now trying to
lower the purchase price. Without some form of an earnest money deposit being
paid to NCP-Six, Mr. Whetzell and Mr. Clark felt that further negotiations had a
much greater likelihood of failure than success. In response, the managing
general partner determined that it should recommend calling off any further
negotiations with Bidder D in order to provide Northland Communications
Corporation the opportunity to purchase the Bennettsville system for its
$7,950,000 bid.
Following the April 12 discussion with Mr. Whetzell, Mr. Clark spoke with
the administrative general partner to discuss whether the administrative general
partner agreed with terminating further negotiations with Bidder D in order to
proceed with Northland Communications Corporation's offer to purchase the
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Bennettsville system for $7,950,000. In response, the administrative general
partner and the managing general partner both agreed to terminate further
negotiations with Bidder D. The general partners then offered the Bennettsville
system to Northland Communications Corporation for Northland Communications
Corporation's $7,950,000 bid.
NORTHLAND COMMUNICATIONS CORPORATION'S 2000 OFFER TO PURCHASE ALL OF
NCP-SIX'S ASSETS
Northland Communications Corporation submitted in the second round of
bidding offers to purchase all of NCP-Six's operating systems for an aggregate
consideration of $70,200,000. The specific amounts offered for NCP-Six's various
systems are set forth above under "2000 Third-Party Solicitation Process." The
bids from Northland Communications Corporation were the highest bids received
during the 2000 bidding, except for the revised bid of $8,388,000 for the
Bennettsville, South Carolina system tendered by Bidder D. Based upon these
bids, NCP-Six commenced negotiations with Northland Communications Corporation
to purchase all of its systems except Bennettsville, South Carolina, and with
Bidder D to purchase the Bennettsville, South Carolina system. However, as
negotiations with Bidder D began to stall, Northland Communications Corporation
reconfirmed its interest in purchasing the Bennettsville, South Carolina system
if NCP-Six was unable to secure a signed purchase agreement from Bidder D. Once
NCP-Six called off further negotiations with Bidder D, NCP-Six revived
negotiations with Northland Communications Corporation regarding the purchase of
its Bennettsville operating system for $7,950,000, which is the amount of the
initial 2000 bid by Northland Communications Corporation for that system.
Northland Communications Corporation advised the managing general partner
that subject to obtaining financing it desired to structure the acquisition of
NCP-Six's operating assets as follows:
(a) NCP-Six would distribute in-kind to the managing general partner
at closing an undivided interest in all NCP-Six's operating systems in full
satisfaction of the managing general partner's right to participate in
distributions of proceeds from the proposed transaction. This in-kind
distribution represents the cash amount that NCP-Six would otherwise
distribute to the managing general partner if all operating systems were
sold at a value of $70,200,000. This in-kind distribution is valued at
$5,879,812 based on NCP-Six's expenses and liabilities equaling the pro
forma expenses and liabilities set forth under the "Projected Cash
Available from Liquidation" section below. Immediately following closing,
the managing general partner will contribute its undivided interest in the
operating systems received through the in-kind distribution from NCP-Six to
the affiliated purchasers. The purchasers will then own an undivided 100%
interest in their respective systems.
(b) Northland Cable Properties, Inc., a wholly-owned subsidiary of
Northland Communications Corporation, would purchase NCP-Six's remaining
interest in the Highlands, North Carolina and Barnwell and Bennettsville,
South Carolina systems for an aggregate purchase price of $20,036,022.
(c) Northland Cable Networks LLC, a newly-formed limited liability
company in which Northland Communications Corporation has an initial 12.5%
equity interest, would purchase from NCP-Six its remaining interest in the
Philadelphia and Starkville, Mississippi systems for an aggregate purchase
price of $44,250,000. Northland Cable Networks LLC is majority owned and
controlled by a group of independent investors led by Providence Growth
Investors L.P.. Northland Communications Corporation will manage the day to
day operations of Northland Cable Networks LLC under a Management Services
Agreement with Northland Cable Networks LLC.
Then, in May, 2001, it appeared that Northland Cable Properties, Inc. would
not be able to secure sufficient borrowing capacity under its credit facility to
purchase each of the Highlands, North Carolina, and Barnwell and Bennettsville
South Carolina systems. As a result, Northland Communications Corporation
proposed that another of its affiliates, Northland Cable Television, Inc., be
assigned the rights to purchase the Highlands, North Carolina system under
Northland Cable Television, Inc.'s separate credit agreement. Northland
Communications Corporation also proposed that Northland Cable Networks LLC be
designated as the proposed purchaser of the Bennettsville, South Carolina system
subject to the approval of the investor group that controls Northland Cable
Networks LLC. The valuation assigned to each of the systems was to remain that
valuation proposed by Northland Communications Corporation in its 2000 bid.
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On May 29, 2001, Northland Cable Networks LLC and NCP-Six executed an Asset
Purchase Agreement, a copy of which is attached hereto as Exhibit E, for the
purchase and sale of NCP-Six's Philadelphia and Starkville, Mississippi systems.
On June 14, 2001, Northland Cable Properties, Inc. and NCP-Six executed an Asset
Purchase Agreement, a copy of which is attached hereto as Exhibit G, for the
purchase and sale of NCP-Six's Barnwell, South Carolina system. On June 14,
2001, Northland Cable Television, Inc. and NCP-Six executed an Asset Purchase
Agreement, a copy of which is attached hereto as Exhibit H, for the purchase and
sale of NCP-Six's Highlands, North Carolina system. Finally, on July , 2001,
Northland Cable Networks LLC and NCP-Six signed a Letter of Intent, a copy of
which is attached hereto as Exhibit F, for the purchase and sale of NCP-Six's
Bennettsville, South Carolina system. The specific terms of each purchase and
sale are discussed in greater detail under the section of this proxy statement
titled "Specific Terms of the Proposed Transaction."
The consideration payable for these operating systems is to be made through
a combination of cash and promissory notes, as described in detail under
"Specific Terms of The Proposed Transaction." Northland Communications
Corporation's 2000 bid originally proposed that the promissory notes to be
delivered to NCP-Six would be paid through two equal principal installments,
together with accrued interest, payable on the first and second anniversary of
the closing. However, after discussions with potential lenders, Northland
Communications Corporation determined that it would be necessary to extend the
term of the promissory notes from two years to three years in response to
concerns raised by the lending banks.
The managing general partner expressed concern about extending the term of
the purchasers' promissory notes for an additional year, especially in light of
the 6 1/2% rate on those promissory notes. Northland Communications Corporation
then offered to increase the interest rate on the promissory notes to be
delivered to NCP-Six at closing from 6 1/2% to 8%, provided the term of the
notes was increased from two to three years. Northland Communications
Corporation then reiterated that without extending the term of those promissory
notes, there was a likelihood that the purchasers would be unable to obtain
acceptable bank financing required to close the proposed transaction. The
managing general partner determined that the one year extension of the term of
the promissory notes coupled with the increase in the interest rate from 6 1/2
to 8% did not materially change the present value of the proposed transaction
compared to Northland Communications Corporation's 2000 bid. The general
partners did not conclude that the 8% rate of the promissory notes was
equivalent to the market rate for equivalent loans to borrowers with similar
risk characteristics as the purchasers. Instead, the general partners accepted
the 8% rate as a necessary term of Northland Communications Corporation's bid.
REASONS FOR THE PROPOSED SALES
The general partners believe the reason for NCP-Six to enter into the
proposed sales is that it provides an opportunity for the efficient winding up
of NCP-Six near the expiration of its term for an amount they believe represents
fair value for NCP-Six's assets. In reaching their conclusion to present the
proposed sales to NCP-Six's unaffiliated limited partners for approval the
general partners considered the following factors:
- the past and projected financial and operational performance of NCP-Six;
- the relative lack of liquidity for limited partnership units in NCP-Six;
- the recent unsolicited offers to purchase units at prices which, in the
managing general partner's opinion, do not fairly represent the
underlying value of the units;
- the impending expiration of NCP-Six's term on December 31, 2001,
according to the NCP-Six partnership agreement;
- the potential alternatives to the proposed sales, including the
alternative of remaining as an independent active operator of the systems
and of selling portions or all of the systems to unaffiliated third-
parties;
- the terms of the proposed asset purchase agreements presented by
Northland Cable Networks LLC, Northland Cable Properties, Inc. and
Northland Cable Television, Inc.
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The general partners also considered the following risks and potentially
negative factors in deliberations concerning the proposed sales:
- the possibility that the value of the systems and assets might increase
from the proposed sale valuations prior to or following closing of the
various asset sales;
- the conflicts of interest facing the managing general partner in
structuring and implementing the proposed sales;
- the terms of the promissory notes to be delivered by the purchasers as
part of the purchase price in the proposed sales, including their eight
percent interest rate, and that the notes will be unsecured and junior to
all other past or future debt of Northland Communications Corporation in
the case of the Northland Communications Corporation notes, and Northland
Cable Networks LLC in the case of its notes;
- the tax impact of the proposed sales on limited partners; and
- the costs of the proposed sales and the effect of transaction expenses
and other known and contingent liabilities on the net amount to be
distributed to limited partners.
Following their analysis of the factors considered, the general partners
concluded that the anticipated benefits of the proposed sales to the limited
partners of NCP-Six outweighed the possible disadvantages.
Northland Cable Networks LLC's, Northland Communications Corporation's,
Northland Cable Properties, Inc.'s and Northland Cable Television, Inc.'s
reasons for entering into the proposed sales, are to acquire additional cable
assets for a suitable price in geographic locations that are complimentary to
Northland Communications Corporation's existing operations. If the proposed
sales close, Northland Communications Corporation and its affiliates will
acquire additional cable assets at a price, and corresponding level of
borrowing, that they deem acceptable. Since Northland Communications Corporation
will receive an in-kind distribution of a portion of the assets being purchased
equal in value to the amount Northland Communications Corporation would
otherwise receive upon liquidation of NCP-Six. Northland Communications
Corporation's affiliates will be able to consummate the proposed sales with less
cash at closing than if they were purchasing the assets from another seller.
Assuming that all of the proposed sales are closed, the value of the in-kind
distribution to be received by Northland Communications Corporation as managing
general partner is estimated to equal approximately $5,879,812.
Another reason for the general partners to enter into the proposed sales is
that it provides an opportunity to wind up NCP-Six near the end of NCP-Six's
term for a positive return. Also, under the NCP-Six partnership agreement, the
managing general partner and certain of its affiliates are entitled to receive
payment of management and other fees from NCP-Six for its services and for cost
reimbursements prior to liquidation of NCP-Six. The estimated amounts of these
fees and reimbursements as of March 31, 2001 totaled $37,298. The NCP-Six
partnership agreement similarly provides that the administrative general partner
is entitled to receive its pro rata portion of the distributions to be made to
the partners of NCP-Six upon liquidation. Assuming that all of the proposed
sales are closed, the estimated total cash proceeds (excluding interest on the
notes to be delivered at closing by the purchasers) payable to the
administrative general partner is approximately $1,441,937. See "Projected Cash
Available from Liquidation." These amounts are not, however, unique to the
proposed sales and would still be received by the managing general partner and
the administrative general partner if the assets were being sold to a
third-party purchaser for a price equal to the valuation of the proposed sales.
Mr. Clark's reason for the proposed sales is that as a limited partner in
NCP-Six, Mr. Clark desires to liquidate his investment in NCP-Six, and the
proposed sales provide him an opportunity to do so at what he believes is a fair
return for his investment. As of March 31, 2001, Mr. Clark held 20 limited
partnership units in NCP-Six. Another reason for Mr. Whetzell and Mr. Clark to
enter into the proposed sales is that as equity owners in Northland
Telecommunications Corporation, they believe that the assets to be purchased by
Northland Cable Networks LLC, Northland Cable Properties, Inc. and Northland
Cable Television, Inc. in the proposed sales are of the type customarily
purchased and operated by the companies affiliated with
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Northland Telecommunications Corporation and those assets are being purchased
for a price that they believe is acceptable and within the range for which
acceptable borrowing terms can be secured.
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE PROPOSED SALES
The following discussion provides a general summary of the financial income
tax consequences of a disposition of NCP-Six assets as applicable to NCP-Six.
This summary is based on the Internal Revenue Code of 1986 (the "Code"), as
amended by various subsequent tax acts. It is not possible to discuss all of the
provisions of the Code and tax acts applicable to a limited partner's investment
in this proxy statement. Moreover, in many areas the Code and tax acts
specifically authorize the United States Treasury Department to promulgate
regulations to govern certain transactions and it is not known what positions
any of the regulations not yet issued will take. In addition, since the proposed
sales are not expected to close until September 2001, Congress could pass
further legislation that could significantly change the tax consequences of the
proposed transaction from that discussed below. The following constitutes a
general summary of some of the provisions of the Code and tax acts. The
following discussion of tax consequences represents the managing general
partner's best knowledge and belief, based on its experience in reporting the
tax consequences of transactions similar to the disposition of assets described
in this proxy statement. The general partners have not sought, nor will we
receive, a legal opinion as to the matters discussed below.
YOU ARE STRONGLY ENCOURAGED TO REVIEW THE CODE, THE TAX ACTS AND THIS
SECTION OF THE PROXY STATEMENT WITH YOUR PERSONAL TAX ADVISORS.
TAX CONSIDERATIONS
Certain material tax consequences to NCP-Six's limited partners will result
from the proposed sales. To avoid the additional expense, NCP-Six has not
obtained a tax opinion in connection with the proposed transaction. The table
below sets forth certain estimated federal income tax consequences per $1,000
investment if all of the proposed sales close as contemplated. The table relates
only to persons who purchased units in NCP-Six's initial offering and have an
initial tax basis of $500 per unit. The table does not reflect estimated federal
income tax consequences for those persons who received their interests through
transfer from other limited partners or have tax basis adjustments to their
interests in NCP-Six arising from transactions other than the operations of
NCP-Six.
The table below sets forth the amount of long-term capital gain and
ordinary income that is expected to result from the disposition of the assets
and the liquidation of NCP-Six. For this purpose it is assumed that the entire
amount of Code Section 1231 gain allocated by NCP-Six to the limited partners
will be treated as long-term capital gain income on the recipient's individual
tax return. The dollar amounts reflect allocations as required pursuant to the
NCP-Six partnership agreement and are based on the 29,784 units ($500/unit) of
limited partnership interests in NCP-Six outstanding as of March 31, 2001.
ALL FIGURES SET FORTH IN THE FOLLOWING TABLE ARE NECESSARILY IMPRECISE AND
REPRESENT ONLY THE MANAGING GENERAL PARTNER'S ESTIMATE OF CERTAIN TAX EFFECTS,
ASSUMING THAT THE LIMITED PARTNERS HAVE NO OTHER CAPITAL GAINS OR PASSIVE
ACTIVITY TRANSACTIONS. ACTUAL TAX CONSEQUENCES WILL DEPEND ON THE INDIVIDUAL
LIMITED PARTNER'S TAX SITUATION. ALL LIMITED PARTNERS ARE STRONGLY ENCOURAGED TO
REVIEW THE FOLLOWING TABLE, THIS SECTION OF THE PROXY STATEMENT AND THEIR
INDIVIDUAL TAX SITUATIONS WITH THEIR PERSONAL TAX ADVISORS.
TAX RESULTS FROM DISPOSITION OF ASSETS IN THE PROPOSED SALES AND RESULTING
LIQUIDATION
(Per $1,000 Investment)
Overall ordinary income per $1,000 investment(1)(2)......... $1,445
Overall long-term capital gain per $1,000
investment(2)(3).......................................... $ 498
- -------------------------
(1) Assumes that depreciation recapture per $1,000 investment will be equal to
$1,555, and state income taxes in the amount of $110 per $1,000 investment
will be deductible.
(2) If available, current or suspended passive activity losses from other
passive activities (other than suspended tax basis losses) may also be used
to offset income or gain.
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(3) Aggregate of capital gain and loss from the disposition of assets and
liquidation of NCP-Six. Assumes that the limited partners' remaining basis
in NCP-Six may be used upon termination of NCP-Six to offset capital gain
from the disposition of the assets of $145 per $1,000 investment.
TAX CONSEQUENCES OF DISPOSITION OF THE ASSETS AND LIQUIDATION OF
NCP-SIX
Upon the disposition of the assets, taxable income will be recognized by
NCP-Six to the extent that the amount realized from the disposition exceeds the
adjusted tax basis of the assets disposed of. The taxable gain from the sale
will be allocated among the partners in accordance with the NCP-Six partnership
agreement. The allocation of gain to the limited partners will increase their
adjusted tax basis in NCP-Six and increase their "amount at risk" with respect
to NCP-Six's activity. Suspended or current passive activity losses from a
limited partner's other passive activities may be used to offset gain from the
disposition of the assets. See "-- Tax Consequences of a Decision Not to Sell"
below for a discussion of passive activity loss limitations and suspended
losses. The general partners believe that these allocations will have
"substantial economic effect," as required by regulations issued by the Treasury
Department. In the event the Internal Revenue Service ("IRS") should prevail in
any contention that the taxable gain from the sale should be allocated
differently from the manner reported by the general partners, the amounts of
capital gain (or loss) and ordinary income (or loss) of the limited partners
would be adjusted in equal offsetting amounts.
The majority of assets being sold by NCP-Six will be treated as "Section
1231 assets." Section 1231 assets are generally defined as depreciable and
amortizable assets used in a trade or business, which have been held by the
taxpayer for more than one year. The assets comprising the distribution systems
of NCP-Six, including franchise rights and associated intangible assets, are
section 1231 assets. A limited partner's share of gain or loss on the sale of
the assets (excluding ordinary income depreciation recapture, discussed below)
will be combined with any other Section 1231 gain or loss the limited partner
incurs in that taxable year and the limited partner's net Section 1231 gain or
loss will be taxed as capital gain or ordinary loss, as the case may be.
However, Section 1231 gain will be converted into ordinary income to the extent
a limited partner has net Section 1231 losses in the five most recent tax years
("non-recaptured net Section 1231 losses"). The tax treatment of Section 1231
gains will depend on the limited partner's tax situation. In addition, cost
recovery deductions which have been taken with respect to certain assets will be
subject to recapture as ordinary income upon the sale to the extent of gain on
the sale, and each limited partner will be allocated a share of this ordinary
income depreciation recapture in proportion to the cumulative net losses
previously allocated to the limited partner under the NCP-Six partnership
agreement. It is estimated that ordinary income of $778 per partnership unit (or
$1,555 per $1,000 investment) will be allocated to the limited partners. Each
limited partner will also recognize gain or loss upon the liquidation of NCP-Six
following the disposition of the assets to the extent that the cash distributed
in the liquidation exceeds or is less than the limited partner's adjusted tax
basis in its partnership interest. See "-- Other Tax Law Changes" below for a
discussion of the applicable tax rates for ordinary income and capital gains.
Neither NCP-Six nor any partner is allowed to deduct or to amortize amounts
paid for syndication expenses. Syndication expenses are amounts which were paid
or incurred by NCP-Six in connection with the issuance and marketing of the
units of limited partnership interest, including sales costs. Upon liquidation
of NCP-Six the treasury regulations also provide that NCP-Six may not deduct the
capitalized syndication expenses. However, there is uncertainty in the law
concerning whether a limited partner may claim a capital loss for the remaining
portion of their tax basis in NCP-Six which is attributable to the capitalized
syndication costs. For purposes of the calculations presented in the "Tax
Results from Disposition of the Assets and Resulting Liquidation" table above,
the general partners have assumed that the limited partners' remaining basis in
NCP-Six's capitalized syndication costs may be used upon the termination of
NCP-Six to offset capital gain from the sale of the partnership's assets. The
IRS may contend, however, that the limited partners are not entitled to use this
offset because they should have instead reduced their basis in their partnership
interests by an amount equal to their allocated share of the capitalized
syndication fees. In such event, the IRS may also contend that the limited
partners should recognize an additional amount of capital gain. YOU SHOULD
CONSULT WITH YOUR INDIVIDUAL TAX ADVISOR WITH RESPECT TO YOUR TREATMENT OF
SYNDICATION COSTS UPON TERMINATION OF NCP-SIX.
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If the IRS were to argue successfully that the allocations of taxable
income among the partners should differ from the allocations that are reported
on NCP-Six's tax returns, the amounts of ordinary income and loss and capital
gain and loss limited partners report will change. Notwithstanding, the managing
general partner believes this change will not have a material adverse effect on
the limited partners in NCP-Six.
There will be no federal tax consequences to NCP-Six resulting from the
proposed sales. All federal tax consequences are instead imposed on the partners
of NCP-Six. Northland Communications Corporation, as managing general partner,
will not recognize taxable gain or loss on the proposed sales, but rather will
receive its proportionate interest in NCP-Six as a distribution in-kind of cable
system assets. This in-kind distribution is anticipated to be a tax free event.
FN Equities Joint Venture, as administrative general partner, will recognize
taxable income to the extent of its share of proceeds from the proposed sales,
as determined under the NCP-Six partnership agreement. In general, FN Equities
Joint Venture will receive 5% of the proceeds after the limited partners have
been returned the balance of their capital contributions.
UNRELATED BUSINESS TAXABLE INCOME
Unrelated business taxable income ("UBTI") will be generated by the sale of
the assets and allocated to limited partners that are qualified retirement plans
and tax exempt trusts ("Plans") as defined by the Code and subject to the
Employment Retirement Income Security Act of 1974 (i.e., IRAs, Keoghs, pension
plans, etc.).
Generally, partnership allocations of ordinary income, Section 1231 gains
and capital gains will result in UBTI to Plans and generate an unrelated
business income tax. The Code allows an exempt entity a specific deduction for
UBTI of up to $1,000 per year and thus the annual UBTI generated by the Plans
will be taxed to the extent it exceeds $1,000. If the Plan has net operating
loss and suspended basis loss carryovers, the UBTI may also first be reduced by
these carryover losses.
The following table illustrates the impact of UBTI to Plans as the result
of the sale of assets in the proposed sales. The table is based on an assumption
that a $5,000 IRA investment is the sole UBTI investment of the Plan. It also
assumes that a limited partner has properly reported and is carrying over net
operating losses generated in the early years of NCP-Six.
PER INITIAL NCP-SIX IRA INVESTMENT OF $5,000
Cash distributions received over the life of NCP-Six,
excluding interest payments to be made in 2002, 2003 and
2004 pursuant to the purchasers' promissory notes to be
delivered at closing (projected to total $122 in interest
per $1,000 investment).................................... $12,260
UBTI tax liability in 2001.................................. (1,865)
-------
Net cash after taxes to IRA Investor........................ $10,395
=======
This analysis indicates that due to loss carryovers and the annual UBTI
exemption referred to above, an IRA investor would not be subject to UBTI tax
until the year of sale (2001). In addition, should the IRA be able to utilize a
capital loss in 2001, the remaining basis in NCP-Six in the year of termination
(2001) would result in a $725 tax deduction due to the capital loss (not shown).
TAX CONSEQUENCES OF A DECISION NOT TO SELL
The general consequence of a decision not to sell and to continue to
operate NCP-Six as a partnership is that each limited partner will continue to
be allocated its share of NCP-Six's income, deduction, gain and loss, and will
be distributed its share of cash available for distribution as determined under
the NCP-Six partnership agreement. In general, income or loss from operations of
NCP-Six constitutes ordinary income or loss and is allocated to limited partners
in accordance with the NCP-Six partnership agreement. Cash distributions to
limited partners are not taxable unless they exceed the adjusted tax basis of
the limited partner's partnership interest. Limited partners may not deduct
losses allocated to them to the extent the
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losses exceed the adjusted tax basis of their partnership interest. These unused
losses may be carried forward and utilized in future years, subject to the same
limitation based on the limited partner's tax basis in its NCP-Six interest.
With respect to the deductibility of partnership losses by a limited
partner, the Code does not allow a taxpayer to use losses and credits from a
business activity in which he or she does not materially participate (e.g., a
limited partner in a limited partnership) to offset other income such as salary,
active business income, dividends, interest, royalties and investment capital
gains. However, passive activity losses can be used to offset passive activity
taxable income from another passive activity. In addition, disallowed losses and
credits from one tax year may be suspended and carried forward by a taxpayer and
used to offset income from passive activities in the future. The disallowed
losses will be allowed in full when the taxpayer recognizes gain or loss upon a
taxable disposition of his or her entire interest in the passive activity. A
limited partner should note that the Treasury Department prescribed regulations
that will recharacterize certain income as "portfolio" income and restrict the
offset of that income by losses from a passive activity. These regulations could
impact the use of passive activity losses or income from NCP-Six. For example,
the Treasury Department has issued regulations holding that interest earned on
partnership cash balances represents portfolio income, and thus may not be
offset by passive activity losses.
If a decision is made not to sell, the losses (if any) allocated to the
limited partners in NCP-Six will be subject to the passive loss rules discussed
above. Unless the limited partner has income from other passive activities, the
losses allocated by NCP-Six will not be currently deductible. In addition, the
limited partner could be allocated interest income or other portfolio income
that could not be offset by passive activity losses.
YOU SHOULD NOTE THAT THE EFFECT OF PASSIVE ACTIVITY LOSS LIMITATIONS MAY
VARY FROM ONE TAXPAYER TO ANOTHER DEPENDING ON EACH TAXPAYER'S INDIVIDUAL TAX
SITUATION. THEREFORE, YOU SHOULD CONSULT YOUR PERSONAL TAX ADVISOR WITH RESPECT
TO THE APPLICATION OF THE PASSIVE ACTIVITY LOSS LIMITATIONS TO YOUR PARTICULAR
TAX SITUATION.
With respect to the recovery of capital expenditures, eligible personal
property placed in service after December 31, 1986 is assigned to a three-year
class, five-year class, seven-year class, ten-year class, or twenty-year class.
The depreciation method applicable to the three-year, five-year, seven-year and
ten-year classes is the 200 percent declining balance method. The cost of
non-residential real property is recovered using the straight-line method over
39 years. Partnership equipment that is placed in service after December 31,
1986 is classified as seven-year or five-year property and the purchase price
for that equipment is depreciated over the applicable period.
The Code has eliminated the investment tax credit for all property placed
in service after December 31, 1985, subject to certain transitional rules that
do not currently apply to NCP-Six.
OTHER TAX LAW CHANGES
The following discussion relates primarily to individual taxpayers.
Different tax rules may apply to other taxpayers (e.g., corporations, estates,
trusts, etc.). The Code and tax acts generally provide for five taxable income
brackets and five tax rates (15%, 28%, 31%, 36%, and 39.6%) for years after
1992. Beginning in 2001 a new 10% tax bracket is created. In addition, from 2001
to 2006 the 28%, 31%, 36% and 39.6% tax rates will be gradually reduced to 25%,
28%, 33% and 35%, respectively. The benefits of certain itemized deductions and
personal exemptions are phased out for certain higher income taxpayers. These
phase out provisions will gradually be eliminated beginning in 2006. Capital
gain income, including net Section 1231 gains treated as capital gains, may
receive favorable tax treatment as discussed below.
Capital gains from sales of certain property held more than one year are
now taxed at maximum tax rates that vary from 10% to 28%, depending on the type
of property sold, the taxpayer's marginal tax rate and the holding period of the
property. In summary, capital gain assets held for more than one year
("long-term gains") are taxed at a maximum tax rate of 20% for taxpayers
otherwise in the 28% or higher tax bracket. The maximum tax rate is 10% for
those gains that would otherwise be taxed at the taxpayer's 15% tax bracket.
Capital gain assets held for one year or less continue to be taxed at the
taxpayer's ordinary income tax rate as
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was the case under prior law. Long-term capital gain arising from the sale of
certain designated assets (works of art, antiques, gems, coins and other
collectibles) are taxed at a maximum rate of 28%. Finally, long-term capital
gains from the sale of depreciable real estate are taxed at a maximum tax rate
of 25% to the extent the gain is attributable to prior depreciation deductions
not recaptured as ordinary income under the depreciation recapture rules
discussed above.
The large majority of NCP-Six's assets will have been held by NCP-Six for
more than one year at the time of the proposed transaction. None of NCP-Six's
assets are collectibles. Therefore the capital gain income (including the
Section 1231 gains) recognized by the limited partners will constitute long-term
gains eligible for the 20% or 10% tax rates, as applicable. As discussed above,
to the extent that a limited partner has non-recaptured net Section 1231 losses,
their Section 1231 gain will be treated as ordinary income and will not receive
the favorable capital gain tax rates. Also as discussed above, gain attributable
to prior depreciation and amortization deductions on personal property will be
taxed as ordinary income under the depreciation recapture rules. Finally, a
small portion of NCP-Six gain may be attributable to depreciable real estate
that would be subject to the 25% tax rate.
Tax legislation has increased the alternative minimum tax rate from 24% to
26% and 28% depending on the level of the alternative minimum taxable income.
The favorable capital gain tax rates discussed above also apply for alternative
minimum tax purposes. The tax acts also expanded the tax preference items
included in the alternative minimum tax calculation. Accelerated depreciation on
all property placed in service after 1986 is a preference to the extent
different from alternative depreciation (using the 150 percent declining balance
method, and using longer lives for personal property placed in service before
1999). Certain other tax preferences also have been modified and new preference
items added. The alternative minimum tax exemption amount is increased to
$49,000 for joint filers and $35,750 for unmarried individuals beginning in
2001. However, the exemption amount is phased out once a taxpayer's alternative
minimum taxable income exceeds certain threshold amounts. A taxpayer paying
alternative minimum tax after 1986 is allowed a tax credit for the alternative
minimum tax liability attributable to timing differences. In general, this
minimum tax credit can be carried forward and used against the taxpayer's
regular tax liability to the extent the taxpayer's regular tax liability exceeds
his or her minimum tax liability. Upon the sale of NCP-Six's assets, limited
partners will be allocated an adjustment amount that will reduce their taxable
gain for alternative minimum tax purposes. This adjustment amount arises because
the prior depreciation deductions claimed for regular tax purposes will have
exceeded the amount of depreciation claimed for alternative minimum tax
purposes. It is estimated this amount will be $23 per limited partnership unit
(or $46 per $1,000 investment).
An individual taxpayer generally is not allowed a deduction for investment
interest expense in excess of net investment income. Net investment income
generally includes interest, dividends, annuities, royalties and short-term
capital gains, less expenses attributable to the production of the income.
Long-term capital gains from investment property are not generally included in
net investment income, however a taxpayer may elect to forego the favorable tax
rates available for long-term gains and include them in net investment income.
Long-term gains from business property (such as NCP-Six's assets) are not
included in net investment income. Therefore, the gain allocated to a limited
partner from the proposed transaction will not increase his or her net
investment income. Investment interest expense includes all interest paid or
accrued on indebtedness incurred or continued to purchase or carry property held
for investment. Investment interest does not include interest that is taken into
account in determining a taxpayer's income or loss from a passive activity
provided, however, that interest expense which is properly attributable to
portfolio income from the passive activity is treated as investment interest.
Any interest a limited partner incurred to acquire units in NCP-Six is treated
as a passive activity deduction, and not investment interest.
Personal interest is not deductible except for interest expense for debt
incurred on a taxpayer's principal or second residence, subject to certain
restrictions. In Notice 89-35, the IRS ruled that, in general, the character of
debt incurred by a partnership to make distributions to partners would be
determined by the use of the distributed proceeds by the partners unless NCP-Six
elects to allocate the distributed debt and related interest expense to one or
more partnership expenditures made during the year of the distribution. The
election is not available to the extent the distributed debt proceeds exceed
partnership expenditures during the year. When applicable, NCP-Six has made the
election under Notice 89-35.
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STATE INCOME TAX CONSIDERATIONS
In addition to the federal income tax considerations outlined above, the
proposed sales have state income tax consequences. Limited partners who are
residents of states imposing income taxes should consult their own tax advisor
or their own state law to determine the state tax consequences and their state's
filing requirements.
THE FOLLOWING IS ONLY A BRIEF SUMMARY OF THE POTENTIAL STATE TAX
CONSIDERATIONS OF THE PROPOSED SALES FOR NONRESIDENTS OF NORTH CAROLINA,
MISSISSIPPI AND SOUTH CAROLINA. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF EACH STATE'S INCOME TAX LAWS AND OTHER STATE AND
LOCAL LAWS TO YOUR SPECIFIC SITUATION.
NORTH CAROLINA
The State of North Carolina, where certain of NCP-Six's assets are located,
imposes an income tax on the net income earned by nonresident partners from
property located in North Carolina or from a business operation conducted in the
state of North Carolina. This includes property owned or a business conducted
through a partnership. This state tax applies to the limited partners of
NCP-Six.
NCP-Six is responsible for reporting each nonresident partner's share of
the income derived from North Carolina, and is required to compute and pay the
tax due for each nonresident partner. The tax will be based on the income
generated by NCP-Six's operations, including the income to be generated by the
proposed transaction, as apportioned to North Carolina under state law. The
North Carolina personal income tax rates increase on a graduated scale,
beginning at 6% up to a maximum marginal tax rate of 7.75%. NCP-Six anticipates
making the required tax calculations on behalf of its limited partners when the
North Carolina partnership income tax return is prepared. The tax paid on a
limited partner's behalf will be reported on their Schedule K-1 for 2001, and
will be treated for federal income tax purposes as cash distributed to that
limited partner.
A nonresident individual partner is not required to file a North Carolina
income tax return when the only income from North Carolina sources is the
nonresident's share of income from a partnership doing business in North
Carolina, and the partnership pays the tax due for the nonresident partner.
Payment of the tax due by the partnership on behalf of corporations,
partnerships, trusts or estates does not relieve those taxpayers from filing a
North Carolina return. Accordingly, nonresident limited partners who are neither
corporations, partnerships, trusts or estates will not be required to file a
North Carolina income tax return unless they have North Carolina income from
sources other than partnerships which have paid the requisite tax on their
behalf. Any limited partner in NCP-Six may however file a North Carolina income
tax return if they so choose. If a limited partner files in North Carolina, the
tax paid by NCP-Six on the limited partner's behalf may be claimed as a credit
towards the limited partner's North Carolina tax liability.
MISSISSIPPI
The State of Mississippi, where certain of NCP-Six's assets are located,
imposes an income tax on the net income earned by nonresident partners from
property located in Mississippi or from a business operation conducted in the
State of Mississippi. This includes property owned or a business conducted
through a partnership. This state tax applies to the limited partners of
NCP-Six.
NCP-Six is responsible for reporting each non-resident partner's share of
the income derived from Mississippi, and will withhold 5% of the net gain or
profit allocated to each non-resident partner and remit it to the Mississippi
State Tax Commission. The tax will be based on the income generated by NCP-Six's
operations, including the income to be generated by the proposed sales, as
apportioned to Mississippi under state law. The Mississippi personal income tax
rates increase on a graduated scale, beginning at 3% up to a maximum marginal
tax rate of 5%.
The Mississippi tax paid on behalf of a NCP-Six limited partner will be
reported on their Schedule K-1 for 2001, and will be treated for federal income
tax purposes as cash distributed to them. A limited partner should claim the
amount withheld as estimated tax paid on their Mississippi individual tax return
for the year of withholding.
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SOUTH CAROLINA
The State of South Carolina, where certain of NCP-Six's assets are located,
imposes an income tax on the net income earned by nonresident partners from
property located in South Carolina or from a business operation conducted in the
State of South Carolina. This includes property owned or a business conducted
through a partnership. This state tax applies to the limited partners of
NCP-Six.
South Carolina tax will be based on the income generated by NCP-Six's
operations, including the income to be generated by the proposed transaction, as
apportioned to South Carolina under state law. South Carolina allows individuals
a deduction equal to 44% of net capital gains with a two year holding period
reported as South Carolina income on the South Carolina tax return. The South
Carolina personal income tax rates increase on a graduated scale, beginning at
2.5%, up to a maximum marginal tax rate of 7%. NCP-Six is required to withhold
5% of the South Carolina taxable income of partners who are nonresidents of
South Carolina, and remit it to the South Carolina Department of Revenue.
The South Carolina tax paid on behalf of a NCP-Six limited partner will be
reported on their Schedule K-1 for 2001, and will be treated for federal income
tax purposes as cash distributed to them. A limited partner should claim the
amount withheld as estimated tax paid on their South Carolina individual income
tax return for the year of withholding.
RISK FACTORS PERTAINING TO THE PROPOSED SALES
While the general partners believe the proposed sales are fair to NCP-Six
and its limited partners, their deliberations have made them aware of certain
risks associated with the proposed sales. In order to apprise you of these
risks, the general partners wish to draw your attention to the following
factors.
ALTHOUGH THE GENERAL PARTNERS BELIEVE THAT THE PRICE TO BE PAID BY EACH OF
THE PURCHASERS REPRESENTS FAIR VALUE FOR THE ASSETS BEING ACQUIRED, THOSE
ASSETS MAY INCREASE IN VALUE PRIOR TO CLOSING.
The general partners believe that each of the proposed sales is fair to the
limited partners and they have taken steps to structure the proposed sales in a
manner they believe provides the limited partners with fair value. While the
general partners believe that the total sales price represents fair value for
NCP-Six's assets, the purchase price to be paid for NCP-Six's asset is fixed and
will not be adjusted for any increase in value that might occur prior to
closing. The amount of the purchase price was determined in August, 2000. If the
closings occur in or about September 2001, more than one year will have lapsed
between the fixing of the purchase price and the closing.
The general partners do not intend to obtain an updated appraisal from
either Daniels & Associates or Communications Equity Associates, nor do they
intend to resolicit third-party bids prior to closing. Assuming the proposed
transaction closes in September 2001, at closing those two appraisals will be
more than two years out of date and the closing will take place more than one
year after receipt of the most recent third-party bid. The general partners are
choosing not to update the appraisals because they relied on the appraisals
primarily as a benchmark to evaluate the offers received in the third-party bid
solicitation process and because they have since obtained a fairness opinion
regarding the offered consideration.
BECAUSE THE PROPOSED SALES CONSIST OF FOUR SEPARATE PROPOSED SALES TO
AFFILIATES OF THE MANAGING GENERAL PARTNER, THE STRUCTURE OF THE SALES POSE
CERTAIN RISKS THAT WOULD NOT BE PRESENT HAD NCP-SIX BEEN ABLE TO NEGOTIATE
THE SALE OF ALL ASSETS TO A SINGLE BUYER.
The following summarizes certain risks that arise because there are four
separate proposed sales:
(a) While the managing general partner will only close the sale of
NCP-Six's Barnwell, South Carolina, Bennettsville, South Carolina, and
Highlands, North Carolina systems to the managing general partner's
affiliates concurrently with, or after, the closing of the sale of
NCP-Six's Mississippi systems, it is possible that the sale of one or more
of those systems may not close.
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(b) Each acquisition represents a separate contractual arrangement
between the purchaser and NCP-Six, and a breach or default by the purchaser
of any of its obligations under one of the purchase agreements has no
impact upon the buyer's rights under the other purchase agreements.
(c) The purchasers will pay part of their purchase price by delivery
promissory notes to NCP-Six. The proposed sales contemplate that such
promissory notes will be issued by two separate parties under four separate
asset purchase agreements. Such obligations are not cross-defaulted, nor
are they cross-collateralized. The acceleration of the indebtedness owed
under one of the notes for nonperformance will not trigger acceleration of
the other notes.
IF LIMITED PARTNERS APPROVE THE PROPOSED SALES, THEY WILL BE CONCURRENTLY
AUTHORIZING (I) THE SALE OF THE OPERATING SYSTEMS TO THE AFFILIATES OF THE
MANAGING GENERAL PARTNER ON THE TERMS DESCRIBED IN THIS PROXY STATEMENT, OR
(II) THE SALE OF THE OPERATING SYSTEMS TO NONAFFILIATES, AT SUCH PRICES AND
UPON SUCH TERMS AS THE GENERAL PARTNERS ESTABLISH, TO THE EXTENT THAT ONE
OR MORE OF THE PROPOSED SALES TO THE AFFILIATES OF THE MANAGING GENERAL
PARTNER DO NOT OCCUR.
If the proposed sales are approved by NCP-Six's limited partners, the
managing general partner expects all operating systems of NCP-Six to be sold in
2001 to affiliates of the managing general partner as described in this proxy
statement. If, however, one or more of such proposed sales do not close, the
general partners believe it is in the interest of NCP-Six and its limited
partners to proceed with the sale of the unsold operating systems to
unaffiliated third parties as soon as is reasonably practicable. The terms of
such sales would be determined through arm's-length negotiations between the
general partners and the nonaffiliates interested in purchasing the unsold
operating systems. To facilitate such alternative transactions, the general
partners are asking the limited partners to approve the closing of such sales,
even though they do not know the terms of the sales. Limited partners will rely
solely upon the general partners to protect their interests in such sales to
nonaffiliates. Seeking limited partner approval for such contingency plans at
this time will allow NCP-Six to avoid the costs of securing later limited
partner approval, and eliminates potential closing delays. In addition, securing
limited partner approval now may strengthen the general partners' negotiating
leverage in dealing with nonaffiliates, since they will then be empowered to
conclude the terms, and close the proposed sales, without being required to
return to the limited partners for additional approval.
BECAUSE AFFILIATES OF THE MANAGING GENERAL PARTNER MAY ACQUIRE NCP-SIX'S
OPERATING SYSTEMS IF THE PROPOSED SALES ARE APPROVED, THE TERMS OF THE
SALES WERE NOT NEGOTIATED BETWEEN UNAFFILIATED THIRD PARTIES, AND THE
MANAGING GENERAL PARTNER'S INTEREST IN OBTAINING THESE ASSETS MAY HAVE
ADVERSELY AFFECTED, FROM THE LIMITED PARTNERS' PERSPECTIVE, THE PRICING AND
STRUCTURE OF THE PROPOSED SALES.
There are a number of ways in which the managing general partner will
benefit from closing the proposed sales:
(a) Affiliates of the managing general partner will acquire NCP-Six's
operating systems, allowing those operating systems to remain within the
control of the managing general partner.
(b) The sale of NCP-Six's operating systems will result in the in-kind
distribution of a portion of NCP-Six's assets to the managing general
partner, allowing it to secure an economic benefit from its equity interest
in NCP-Six.
(c) Affiliates of the managing general partner will be able to finance
a significant amount of their purchase by delivering unsecured subordinated
promissory notes with interest rates of 8% to NCP-Six.
(d) The managing general partner will not bear the risk that all or
part of the payments under the promissory notes may go unpaid.
Such conflicts of interest may have led the managing general partner to
propose to the limited partners a transaction in which the purchase price is
lower than that which could have been obtained from an unaffiliated third-party
even though a blind bid process was conducted. The proposed sales' deal terms
may also be less favorable than those that would have been obtained in a
transaction negotiated between independent parties negotiating at arm's length.
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THE MANAGING GENERAL PARTNER'S POTENTIAL INTEREST IN ACQUIRING NCP-SIX'S
OPERATING SYSTEMS MAY HAVE INFLUENCED THE MANNER IN WHICH IT CONDUCTED THE
1999 AND 2000 PUBLIC BIDDING PROCESSES FOR THE SALE OF NCP-SIX'S OPERATING
SYSTEMS.
To insure fair treatment of the limited partners, the managing general
partner caused NCP-Six to solicit in 1999, and again in 2000, third-party bids
for NCP-Six's operating systems. The managing general partner believes it acted
in good faith and in a manner consistent with its fiduciary duties in designing
the bidding process, responding to third parties' inquiries and bids, and
negotiating with the highest bidders. Still, the managing general partner's
potential interest in NCP-Six's operating systems created significant conflicts
of interest for the managing general partner in discharging its responsibilities
to the partnership.
THE ADMINISTRATIVE GENERAL PARTNER HAS A CONFLICT OF INTEREST IN THE
PROPOSED SALES.
Unlike the managing general partner and its affiliates, the administrative
general partner will have no economic or ownership interest in the assets
following the closing of the proposed sales, other than its right, together with
that of the limited partners, to receive its share of the net liquidation
proceeds. Nonetheless, consummation of the proposed sales will result in the
administrative general partner receiving distributions that otherwise would be
deferred until NCP-Six could arrange for the disposition of the assets to other
parties. See "Projected Cash Available from Liquidation" for a detailed
discussion of the relative distributions expected to be made to the general
partners and the limited partners upon liquidation of NCP-Six.
THE MANAGING GENERAL PARTNER DID NOT FORM A LIMITED PARTNER COMMITTEE OR
DESIGNATE AN UNAFFILIATED THIRD-PARTY TO REPRESENT THE LIMITED PARTNERS'
INTEREST IN STRUCTURING THE PROPOSED SALES. HAD SUCH REPRESENTATION BEEN
ARRANGED, THE TERMS OF THE PROPOSED SALES MIGHT HAVE BEEN MORE FAVORABLE TO
THE LIMITED PARTNERS.
It is not uncommon, where conflicts of interest exist, for a fiduciary to
designate an independent third-party to safeguard the interest of limited
partners. The managing general partner did not form a limited partner committee,
or designate an independent unaffiliated third-party, to specifically represent
the interest of the limited partners even though it was negotiating the terms of
the proposed sales with affiliates. The managing general partner took a number
of procedural steps, as described in "Fairness of the Proposed Sales -- The
General Partners' Belief as to Fairness" above, to protect the limited partners
from potential overreaching that could result from the managing general
partner's control over the negotiation process with its affiliated purchasers.
The general partners have commissioned two independent appraisals of the
systems, undertaken a sealed third-party bid solicitation process, secured a
favorable fairness opinion and are submitting the proposed sales to the
partnership's unaffiliated limited partners for approval. These procedural
steps, however, may not have afforded limited partners the same level of
protection that they would have received if an independent third-party had been
negotiating the proposed sales' terms on their behalf.
A LIMITED PARTNER DOES NOT HAVE ANY DISSENTERS' OR APPRAISAL RIGHTS IN THIS
TRANSACTION.
A limited partner is not entitled to dissenters' or appraisal rights under
either the NCP-Six partnership agreement or Washington law with respect to the
proposed sales, or the subsequent liquidation of NCP-Six. NCP-Six will not
voluntarily provide any similar rights in connection with the proposed sales.
Therefore, even if a limited partner disapproves of the proposed sales and votes
against it, the proposed sales will proceed if they receive the requisite
limited partner approval, and the limited partner, though disapproving, will not
be able to demand that the assets be appraised to determine their fair value.
IF A MAJORITY OF THE HOLDERS OF LIMITED PARTNERSHIP UNITS APPROVE THE
PROPOSED SALES, EACH LIMITED PARTNER WILL BE BOUND BY THAT DECISION, EVEN
IF THE LIMITED PARTNER VOTES TO "DISAPPROVE" THE PROPOSED SALES.
Under NCP-Six's partnership agreement and Washington law, NCP-Six may
proceed with the proposed sales if its general partners and a majority in
interest of its limited partners approve the proposed sales. If this majority
approval is obtained, each limited partner will be bound by the decision of the
majority, even if the limited partner disapproves of the proposed sales and
votes against them or abstains from voting.
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THE FOLLOWING SPECIFIC TERMS OF SALE IN THE PROPOSED SALES MAY POSE SPECIAL
RISKS TO LIMITED PARTNERS:
(A) THE FOUR PROMISSORY NOTES TO BE ISSUED AS PARTIAL CONSIDERATION FOR
NCP-SIX'S ASSETS WILL BE UNSECURED, SUBORDINATED OBLIGATIONS OF
NORTHLAND CABLE NETWORKS LLC AND NORTHLAND COMMUNICATIONS CORPORATION.
If the proposed sales occur, NCP-Six will receive four promissory notes
with an aggregate principal amount of $11,825,000, representing approximately
35% of the distributable proceeds payable to the administrative general partner
and limited partners upon liquidation of NCP-Six. These promissory notes will be
unsecured obligations of their respective issuers and subordinated to repayment
of the issuers' respective current and future senior debt. In the event the
issuer is in default under its senior debt, the terms of each promissory note
issued to NCP-Six will preclude payment under the note until the senior debt
default is either cured or waived. During this period, the issuer of the note
will not be deemed to be in default of its obligations to NCP-Six under the
promissory notes issued to NCP-Six. There are no restrictions upon the amount of
senior debt that may be incurred by either of those issuers. At the closing,
each issuer will have significant senior debt, and each expects to incur
significant additional senior debt in the future. This senior debt will be
secured, allowing the senior secured lenders to foreclose upon their interest in
the issuer's collateral before the value of such collateral could be used to
repay amounts due NCP-Six under the promissory notes. No assurance can be given
that either of the issuers will not default in the payment of its obligations
under existing or future senior debt. Moreover, the four promissory notes to be
given to NCP-Six will not be cross-defaulted.
(B) THE 8% FIXED INTEREST RATE ON THE PROMISSORY NOTES TO BE GIVEN TO
NCP-SIX IS LIKELY LOWER THAN THE INTEREST RATE THAT MIGHT BE EXPECTED
ON DEBT INSTRUMENTS FROM AN ISSUER HAVING SIMILAR CHARACTERISTICS TO
NORTHLAND CABLE NETWORKS LLC AND NORTHLAND COMMUNICATIONS CORPORATION.
The promissory notes to be given to NCP-Six in the proposed transaction
will bear interest at 8% per annum, with a default rate of 10% per annum. The 8%
interest rate and 10% default rate of the notes is likely lower than the
interest rate on unsecured subordinated debts of other comparable issuers. It is
not expected than an unaffiliated third party would loan funds to either
Northland Cable Networks LLC or Northland Communications Corporation on similar
terms at these interest rates. A higher interest rate might be expected to
compensate the lender for the unsecured subordinated nature of the debt.
(C) AS THE PROPOSED SALES ARE STRUCTURED, THE MANAGING GENERAL PARTNER
WILL RECEIVE ITS PRO RATA SHARE OF THE NET LIQUIDATION PROCEEDS AT
CLOSING, WHILE THE ADMINISTRATIVE GENERAL PARTNER AND LIMITED PARTNERS
WILL RECEIVE THEIR PAYMENTS THROUGH A CLOSING CASH PAYMENT AND THREE
SUBSEQUENT ANNUAL PAYMENTS.
This deal term leaves the administrative general partner and the limited
partners exposed to the risk that the three annual installment payments due on
the promissory notes given to NCP-Six are not paid when due. A comparable risk
is not borne by the managing general partner.
(D) IF NORTHLAND CABLE NETWORKS LLC MAKES A SUCCESSFUL CLAIM AFTER
CLOSING AGAINST THE $2,000,000 HOLD-BACK ESCROW REQUIRED BY NORTHLAND
CABLE NETWORKS LLC, THAT CLAIM WILL DECREASE THE DISTRIBUTIONS RECEIVED
BY THE LIMITED PARTNERS.
The Northland Cable Networks LLC asset purchase agreement for the purchase
of NCP-Six's Mississippi systems includes a $2,000,000 hold-back escrow to
secure indemnification claims against NCP-Six for a period of one year from the
closing of that sale. Any funds remaining in the hold-back escrow following the
first anniversary of closing the proposed sale of NCP-Six's Mississippi systems
will be released from the escrow and will be made available for distribution. A
successful claim against the hold back escrow by Northland Cable Networks LLC
will decrease or possibly even exceed the amount left in the hold-back escrow.
The result would be that less money will be available for distribution to the
limited partners.
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(E) NORTHLAND CABLE NETWORKS LLC AND NORTHLAND COMMUNICATIONS
CORPORATION SHALL HAVE THE RIGHT TO OFF-SET AGAINST THEIR PROMISSORY
NOTES INDEMNIFICATION OBLIGATIONS OF NCP-SIX UNDER RESPECTIVE ASSET
PURCHASE AGREEMENTS WITH NCP-SIX, TO THE EXTENT THOSE INDEMNIFICATION
OBLIGATIONS EXCEED NCP-SIX'S RETAINED FUNDS.
NCP-Six plans to retain $750,000 from amounts paid at the closing of the
proposed sales in order to have available funds to satisfy unexpected expenses
and liabilities associated with winding up NCP-Six. Such potential liabilities
include indemnity claims that might be brought by either Northland Cable
Networks LLC, Northland Cable Properties, Inc. or Northland Cable Television,
Inc. under their respective asset purchase agreements.
THE AMOUNT AND TIMING OF FINAL DISTRIBUTIONS TO LIMITED PARTNERS MAY BE
AFFECTED BY UNANTICIPATED OR CONTINGENT LIABILITIES, INCLUDING ANY
POTENTIAL LITIGATION ARISING OUT OF THE PROPOSED SALES.
The managing general partner is not aware of any contingent liabilities
that are likely to exceed the $750,000 reserve to be established to cover
unknown liabilities. Notwithstanding, such liabilities might arise. If, for
example, claims were brought against the general partner for breaches of
fiduciary duty, securities law violations, or other claims, such actions would
likely give rise to indemnity claims by such persons against NCP-Six, possibly
reducing the amounts available for distribution to its limited partners. In this
regard, limited partners should be aware that Northland Communications
Corporation serves, and has served, as managing general partner of other limited
partnerships involved in the cable television industry. In June 1998, the
limited partners of one such limited partnership, Northland Cable Properties
Five Limited Partnership, voted by a 74% majority vote to approve the
disposition of that partnership's assets to a company affiliated with Northland
Communications Corporation and the subsequent liquidation of that partnership. A
class action lawsuit was subsequently filed against that partnership and its
general partners alleging various claims, including that the purchase price paid
did not represent fair value and breaches of fiduciary duties in the
transaction. That action was ultimately settled and dismissed. If the
unaffiliated limited partners of NCP-Six vote to approve the proposed sales and
the proposed sales close, and if a similar lawsuit is brought against NCP-Six,
such lawsuit may have the effect of delaying payment of or reducing the amount
of cumulative distributions.
THE PROPOSED SALES WILL BE TAXABLE FOR U.S. FEDERAL INCOME TAX PURPOSES.
THIS MAY RESULT IN SUBSTANTIAL RECOGNITION OF GAIN TO NCP-SIX'S LIMITED
PARTNERS.
The receipt of cash from the proposed sales will be taxable transaction for
federal income tax purposes and may also be taxable under applicable state,
local and foreign tax laws. Accordingly, limited partners will recognize a gain
or loss on the payment of cash on limited partnership units to the extent of the
difference between the amount realized and the limited partner's adjusted tax
basis in their units. Upon closing each proposed sale, any net losses of NCP-Six
that were suspended under the passive loss rules of the Internal Revenue Code
may be used to offset income and gain in that sale.
EVEN IF THE REQUISITE MAJORITY OF THE LIMITED PARTNERS OF NCP-SIX VOTE TO
APPROVE THE PROPOSED SALES, ONE OR MORE OF THE PROPOSED SALES MAY NOT CLOSE
DUE TO A LACK OF REQUIRED FINANCING OR FAILURE TO SATISFY OTHER CONDITIONS
TO CLOSING.
Northland Cable Networks LLC's agreement to purchase NCP-Six's Mississippi
systems and its proposal to purchase NCP-Six's Bennettsville, South Carolina
system are subject to it obtaining financing on satisfactory terms. Each of
Northland Cable Networks LLC, Northland Cable Properties, Inc. and Northland
Cable Television Inc.'s agreements also contain certain conditions which must be
satisfied prior to closing. Therefore, even if the requisite majority of the
limited partners of NCP-Six vote to approve the proposed sales, one or more of
the sales may not close.
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ALTERNATIVES TO THE PROPOSED SALES
In addition to the proposed sales, the general partners considered the
following alternatives, when reaching their conclusion that a sale of all of
NCP-Six's assets would provide the limited partners with the highest return for
their investment in NCP-Six. The managing general partner also solicited input
from Daniels & Associates as to potential alternatives to consider. The
following list describes those alternatives that were considered:
- The continuation of the operation of NCP-Six as currently structured.
This alternative is being made available to the limited partners of
NCP-Six through this proxy statement. If the unaffiliated limited
partners desire to continue the operation of NCP-Six beyond its current
term, they can vote to "approve" the proposed extension to the NCP-Six
partnership agreement, thereby extending the life of NCP-Six for an
additional six years until December 31, 2007, and simultaneously vote to
"disapprove" the proposed sales.
- The sale of only a portion of the assets in several installments. As
discussed in this proxy statement, NCP-Six is subject to certain loan
covenants that require NCP-Six to apply the proceeds from the sale of any
assets outside the ordinary course of business towards NCP-Six's existing
debt. As a result, the managing general partner has concluded that
partial asset sales, without an accompanying opportunity to sell
NCP-Six's remaining assets, will only be suitable in situations where a
very favorable price can be obtained. This conclusion is supported by the
managing general partner's belief that if only certain assets are sold
without making arrangements for the sale of the remaining assets of
NCP-Six, NCP-Six could be left with certain less attractive assets that
are harder to sell, while still being required to pay its operating
expenses from a resulting smaller pool of operating cash flow.
- The refinancing or other form of new borrowings by NCP-Six aimed at
generating proceeds to make distributions to the limited partners of
NCP-Six. The managing general partner concluded that lenders will not
currently support such transactions, and that the only viable option for
NCP-Six to generate adequate unrestricted funds for distribution to its
limited partners is through the sale of enough assets that after paying
off existing debt, adequate funds remain to make meaningful distributions
to the partners of NCP-Six.
- The sale of NCP-Six's assets to another party or parties. Based on the
efforts of the managing general party to solicit bids from third parties
on two separate occasions through Daniels & Associates, and negotiate the
offers and potential terms of purchase agreements with Bidders A and D,
the general partners have concluded that the proposed sales represent is
the only suitable offer to present at this time to the unaffiliated
limited partners of NCP-Six for consideration. This conclusion is based
on the purchase price and transaction terms presented in the proposed
sales relative to the offer of other bidders, and the reality that prior
negotiations with Bidder A and D were unsuccessful.
After considering each of these alternatives, the general partners have
concluded that a sale of the assets of NCP-Six as structured in the proposed
sales is the most viable option available for maximizing distributions to the
limited partners of NCP-Six at this time.
FAIRNESS OF THE PROPOSED SALES
THE GENERAL PARTNERS' BELIEFS AS TO FAIRNESS
The general partners, Mr. Whetzell and Mr. Clark have considered the issue
of fairness of the proposed sales to the unaffiliated limited partners of
NCP-Six. In analyzing the fairness issue, the discussions of the general
partners and Mr. Whetzell and Mr. Clark focused on appropriate valuation of the
assets and conflicts of interest faced by the managing general partner. The
managing general partner and Mr. Whetzell and Mr. Clark determined at the outset
that concurrence by the administrative general partner would be required with
respect to decisions made regarding the proposed sales, because the
administrative general partner is not subject to conflicts of interest in the
proposed sales to the same extent as the managing general partner.
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The general partners and Mr. Whetzell and Mr. Clark believe that the terms
of the proposed sales are reasonable and fair to the unaffiliated limited
partners of NCP-Six. This determination of fairness, as well as the decision to
recommend that unaffiliated limited partners vote to "Approve" the proposed
sales, was unanimous among the general partners.
MATERIAL FACTORS UNDERLYING BELIEF AS TO FAIRNESS
The following discussion highlights the material factors underlying the
general partners' belief that the proposed sales are fair to the unaffiliated
limited partners. Each of these factors was considered by the general partners
and Mr. Whetzell and Mr. Clark. In view of the wide variety of factors
considered in connection with their evaluation of the fairness of the proposed
sales, the general partners and Mr. Whetzell and Mr. Clark did not attempt to
quantify, rank or otherwise assign relative weights to these factors, with two
exceptions. They emphasized the procedures used in the 2000 bid process and the
resulting offers received by NCP-Six for its assets because they felt that the
bid process reflected the price that interested buyers were willing to pay. They
also emphasized the Houlihan Lokey fairness opinion, over the earlier appraisals
of Daniels & Associates and Communications Equity Associates. They emphasized
the Houlihan Lokey opinion over the earlier appraisals because the opinion was
more current than the appraisals that were completed over a year prior to
Northland Communications Corporation's 2000 bid. While they adopted the
methodology of each of Daniels & Associates, Communications Equity Associates
and Houlihan Lokey as sound in the performance of their respective assessments,
they did not adopt that analysis as their own, but instead considered it as
relevant factors in reaching their own respective independent conclusions as to
the fairness of the proposed sales.
- Third-Party Bid Solicitation. The general partners considered the bids
solicited from third parties by Daniels & Associates. Daniels &
Associates first contacted 35 potential purchasers to solicit bids for
some or all of the assets of NCP-Six in July and August of 1999.
Ultimately, two bids for some of the assets and two bids for all of the
assets were submitted. One bid for all of the assets offered an amount of
$76 million, and the other offered an amount of $70.4 million. The two
bids for portions of the assets offered an amount, on a per subscriber
basis, that did not differ materially from the higher bid for all the
assets. The general partners rejected all of the third party bids for
reasons explained in "Background of the Proposed Sales -- Chronology of
Events Leading up to the Proposed Sales." The general partners then had
Daniels & Associates solicit bids a second time from interested third
parties between June and August, 2000. Daniels & Associates received four
bids in response, with Northland submitting the highest bid for all of
NCP-Six's cable systems, except Bennettsville, South Carolina, for which
Bidder D offered a higher purchase price. Bidder D subsequently lowered
its offer to a price below what Northland had offered to pay.
- Consideration Offered. The general partners believe that the transaction
valuation of $70,200,000 for NCP-Six's assets constitutes fair value. In
reaching this conclusion, the general partners considered the appraisals
of the fair market value of the assets prepared by Daniels & Associates
and Communications Equity Associates, the bids solicited from independent
third parties through Daniels & Associates and the fairness opinion of
Houlihan Lokey.
- Fairness Opinion. The general partners considered and reviewed the
fairness opinion of Houlihan Lokey with respect to the proposed sales.
That fairness opinion concludes that the aggregate consideration to be
received by NCP-Six in the proposed sales is fair from a financial point
of view. When reviewing the fairness opinion of Houlihan Lokey, the
general partners recognized that the opinion specifically evaluated the
fairness of the consideration to be received by NCP-Six in the proposed
sales, as opposed to the fairness of the amounts estimated to finally be
distributed to the limited partners of NCP-Six. Notwithstanding, because
the proposed sales reflect an effort to sell all of the assets of NCP-Six
in order to liquidate the partnership near the end of the partnership's
term, the general partners' primary emphasis focused on the fairness of
the consideration to be paid to NCP-Six for the partnership's assets.
During the process of liquidating NCP-Six, all amounts received by
NCP-Six in the proposed sales will be first used to pay off existing
partnership debt and the balance will be distributed to the partners of
NCP-Six in proportion to their pro-rata ownership interests in the
partnership. Therefore, the general partners feel that the relevant
inquiry as to the fairness of the
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proposed sales is whether the consideration to be received by NCP-Six for
its assets is fair from a financial point of view. The general partners
also recognize that the Houlihan Lokey fairness opinion only evaluates
the fairness of the aggregate consideration to be received from the
combined proposed sales and does not separately evaluate the fairness of
the consideration to be received in each of the four proposed sales.
Notwithstanding, the general partners feel that the likelihood of one of
the proposed sales closing without all of the proposed sales closing is
remote.
- Independent Appraisals. The general partners considered the valuations
and corresponding timing of the appraisals performed by Daniels &
Associates and Communications Equity Associates. See "-- Appraisal
Process and Fairness Opinion; Summary of Reports" below. Daniels &
Associates concluded that the fair market value of the entirety of the
NCP-Six assets was $73.3 million, and Communications Equity Associates
concluded that the fair market value of those assets was $74.6 million.
Each appraisal valued those assets as of July 1, 1999.
You should note that the purchase price for all of NCP-Six's assets in
the proposed sales totals $70,200,000. This amount is less than the
appraised value for those assets of $73.3 million by Daniels &
Associates, and $74.6 million by Communications Equity Associates. While
the general partners believe that the third-party bid process established
a fair actual value for the assets and that it provides evidence of what
a third-party is willing to pay, the general partners believe the
difference between the appraised value and the purchase prices obtained
in the 2000 bid process may reflect market fluctuations in values for
cable systems between the date of the appraisals and the actual date of
obtaining the third-party bids. This belief is supported by the financial
analysis performed by Houlihan Lokey in preparation of its fairness
opinion. See"-- Appraisal Process and Fairness Opinion; Summary of
Reports -- Houlihan Lokey Fairness Opinion" below.
You should also note that in November 1999 the managing general partner
was made aware of a second overbuild situation facing one of NCP-Six's
systems in Highlands, North Carolina. This potential second overbuild in
the Highlands system may have a negative impact on the present or future
value and revenues for that system. This second overbuild situation was
not present at the time of either of the appraisals or at the time of the
1999 third-party bid solicitation process and was not considered in
either process. The general partners cannot predict whether or to what
extent this second overbuild situation would have affected the results of
either appraisal or the 1999 third-party bids that NCP-Six received.
- Current market prices of limited partnership units in NCP-Six. The
general partners considered the prices offered for limited partnership
units in recent unsolicited offers. As already discussed in this proxy
statement under "The Proposed Sales -- Background of the Proposed
Sales -- Secondary Sales of Limited Partnership Units," the managing
general partner and Mr. Whetzell and Mr. Clark are familiar with certain
recent unsolicited offers made for the purchase of limited partnership
units in NCP-Six. While they do not believe that such offers amount to a
reliable secondary market, the managing general partner and Mr. Whetzell
and Mr. Clark do believe that the prices offered provide a relevant
factor to consider when determining whether the proposed sales are fair
to the limited partners of NCP-Six. Following their evaluation, each of
the general partners and Mr. Whetzell and Mr. Clark concluded that the
forecasted distributions to be received by the limited partners of
NCP-Six as a result of the proposed sales will exceed the amount per unit
offered for partnership units in those offers.
- Net Book Value, Liquidation Value and Going Concern Value. The general
partners did not consider net book value to be relevant in their fairness
determination. Several of the assets of NCP-Six have been significantly
depreciated over time for tax and accounting purposes. As a result the
net book value of those NCP-Six assets is significantly less than their
fair market value. Notwithstanding, the net book value per limited
partner unit as of March 31, 2001 was calculated to equal $874. By
comparison, the estimated aggregate amount to be received by NCP-Six per
limited partner unit assuming the four proposed sales close as
contemplated equals approximately $2,356. Liquidation value, on the other
hand, was considered by each of the general partners and Mr. Whetzell and
Mr. Clark since the proposed transaction is in essence a liquidation of
NCP-Six. As already discussed in this section of the proxy statement,
each of those parties has concluded that the amount to be received by
NCP-Six upon
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the sale of the entirety of NCP-Six's assets is fair to the limited partners of
NCP-Six. To the extent the general partners have been able to quantify the
liquidation value of NCP-Six per limited partner unit, they feel the forecasted
aggregate distributions per limited partner unit generated by the proposed
sales provides the best estimate of NCP-Six's liquidation value. Those
forecasted distributions are quantified in detail under "Projected
Distributions For Each Limited Partner Unit." The general partners also
considered the going concern value of NCP-Six when making their
determination as to fairness. Current management and goodwill associated
with the Northland name would not be transferred with NCP-Six's operating
systems upon their sale to a third party purchaser, which could have a
negative impact on the going concern value of NCP-Six's operating systems.
The general partners did not, however, discount the going concern value of
those operating systems to take such factors into account. Instead, the
general partners considered the going concern value of NCP-Six based on
current operations and performance. This methodology is consistent with
the approach taken by Daniels & Associates and Communications Equity
Associates in 1999 when they conducted their appraisals of NCP-Six's
assets, and more recently by Houlihan Lokey in 2001 when it conducted its
valuation and fairness analysis of NCP-Six's assets. Based on Houlihan
Lokey's most recent calculations, Houlihan Lokey arrived at a going
concern valuation range of $61.9 million to $67.9 million for the entirety
of NCP-Six compared to the aggregate $70.2 million valuation presented by
the proposed sales. See "Houlihan Lokey Fairness Opinion -- Other
Considerations."
- Prior Purchase of the Barnwell, South Carolina system in 1998. The
general partners considered NCP-Six's acquisition of its Barnwell, South
Carolina cable systems in January 1998 for a price of $11,372,483,
reflecting a price per subscriber of $1,856. The purchase price to be
paid by Northland Cable Properties, Inc. in the proposed sale for the
Barnwell system totals $11,400,000, or approximately $1,949 per
subscriber determined as of December 31, 2000. Northland Communications
Corporation's 2000 bid initially translated to a purchase price of $1,896
per subscriber for the Barnwell System, but it did not include a downward
purchase price adjustment for a loss of subscribers before closing. While
the general partners did not place any emphasis on these comparisons in
concluding the proposed sale is fair, the general partners do believe
that the price paid for Barnwell is in line with the price for which it
is to be sold in the proposed sale. Furthermore, Northland Communications
Corporation's offer to purchase Barnwell was only part of its overall bid
to purchase all of the systems to be included in the proposed sales. No
party, except Northland Communications Corporation, bid in either the
1999 or 2000 bid procedures to separately purchase the Barnwell system.
As a result, the general partners do not feel that the comparison of the
price paid for Barnwell to the price for which it is proposed to be sold
deserves as much importance in reaching their decision as to fairness as
the other factors considered.
- Consent Procedures and Procedural Safeguards. The general partners
acknowledged that the proposed sales can take place only if limited
partners holding a majority of NCP-Six's limited partnership units (not
including the 30 units held by the general partners) approve the proposed
sales. If holders of a majority of those units vote to disapprove the
proposed sales, the proposed sales will be terminated.
- The proposed sales' effect on NCP-Six's future operations. The general
partners did not consider the effects the proposed sales will have on the
future operations of NCP-Six to be material when reaching their
determination that the proposed sales are fair to the limited partners of
NCP-Six. The general partners did not feel that the effects of the
proposed sales on future operations was material because the general
partners have structured the proposed sales as part of an overall
transaction that they believe will lead to the sale of the entirety of
NCP-Six's assets and the subsequent dissolution of the partnership.
Furthermore, each of NCP-Six's operating systems to be sold in the
proposed sales are managed as separate operating groups. While the
managing general partner believes that each of the proposed sales will
close as contemplated, in the event one or more of those sales do not
close, the general partners believe any remaining systems can still be
operated independently while the general partners negotiate and
consummate the sale of those remaining systems to one or more
unaffiliated purchasers.
- The effect of the proposed sales on NCP-Six's economies of scale. Because
NCP-Six has certain fixed costs associated with its operations regardless
of whether it operates one or several cable television
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systems, the general partners considered NCP-Six's existing economies of
scale when evaluating the fairness of the proposed sales. Specifically,
the general partners sought to avoid the sale of only some of NCP-Six's
cable systems without an accompanying opportunity to sell NCP-Six's
remaining systems leading to liquidation of the partnership.
Notwithstanding, the general partners also sought to secure the highest
price for each of the systems being sold. While the fairness of the price
to be received by NCP-Six for its assets was weighed more heavily by the
general partners in their analysis than the ability to structure a
transaction that provides for the potential sale of all of NCP-Six's cable
systems, the general partners considered the effect the sale of only one
or two cable systems would have on NCP-Six's economies of scale when
evaluating the fairness of the proposed sales. In their final analysis,
the general partners concluded that because NCP-Six operates each of its
systems within one of five separate operating groups, the sale of one or
more systems may effect the ratio of administrative costs to operating
costs for future operations, but the actual operations of the remaining
systems would not be materially affected.
- The effect of the managing general partner's in-kind distribution. The
general partners recognized the benefits to be received by the managing
general partner as a result of the managing general partner receiving its
percentage ownership in NCP-Six in the form of an in-kind distribution of
assets at closing, rather than a distribution of cash at the same
intervals as cash distributions are made to the limited partners. The
benefits to the managing general partner include the managing general
partner's ability to receive its distributions from NCP-Six on a tax
deferred basis, and the managing general partner's ability to realize its
entire distribution at the time of closing unlike the limited partners who
will receive a portion of their distributions on the first, second and
third anniversaries of closing when funds are received from the various
promissory notes proposed by the purchasers. By receiving its entire
distributions at closing, the managing general partner is not subject to
the credit risk that the limited partners bear that payments under one or
more of the promissory notes may not be paid as contemplated. Despite
these benefits to the managing general partner, the general partners do
not, however, feel that the managing general partner's proposed in-kind
distribution materially effects the fairness of the proposed sales to the
limited partners since it is not anticipated to impact the distributions
to be received by the limited partners. To the extent that events
occurring after closing, such as claims being made against the hold back
escrow required by Northland Cable Networks LLC and/or the final
calculation of subscribers existing as of the closing date, result in an
adjustment to the purchase price upon which the managing general partner's
in-kind distribution was calculated, an equalizing cash payment will be
made after closing. The managing general partner will reimburse NCP-Six in
cash in an amount equal to the managing general partner's pro-rata
ownership percentage of any decrease in the purchase price and NCP-Six
will distribute to the managing general partner in cash an amount equal to
the managing general partner's pro-rata ownership percentage of any
increase. See "Specific Terms of the Proposed Sales -- The Managing
General Partner's In-Kind Distribution."
APPRAISAL PROCESS AND FAIRNESS OPINION; SUMMARY OF REPORTS
In May 1999, NCP-Six retained Communications Equity Associates, a
nationally recognized cable brokerage, appraisal and investment banking firm to
appraise the fair market value of the entirety of NCP-Six's assets. In June
1999, NCP-Six retained Daniels & Associates, a nationally recognized cable
brokerage, appraisal and investment banking firm to conduct a second appraisal
of the fair market value of those assets. Given Daniels & Associates' and
Communications Equity Associates' experience, the general partners did not at
that time retain any other outside experts to conduct appraisals of the NCP-Six
assets. Subsequently, however, the general partners retained Houlihan Lokey to
render an opinion as to the fairness of the aggregate consideration to be
received by NCP-Six in the proposed sales as discussed in greater detail later
in this proxy statement under "-- Houlihan Lokey Fairness Opinion." Based on the
managing general partner's prior working relationship with both Communications
Equity Associates and Daniels & Associates, at the time the general partners
retained those firms to conduct their appraisals, the general partners felt that
those firms were qualified to appraise the assets of NCP-Six due to their
expertise and knowledge of the cable television industry.
The managing general partner instructed both Daniels & Associates and
Communications Equity Associates to prepare appraisals on the basis that the
assets were to be sold to an independent third party on
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the open market. Daniels & Associates and Communications Equity Associates were
advised at the time of their engagement that one of the companies affiliated
with Northland Communications Corporation might be a potential buyer of the
assets. Daniels & Associates delivered a written report in July 1999 that the
fair market gross asset value of the entirety of NCP-Six's assets as of July 1,
1999 was $73.3 million. Communications Equity Associates delivered a written
report in July 1999 that the fair market gross asset value of those assets as of
July 1, 1999 was $74.6 million.
Daniels & Associates and Communications Equity Associates each relied on a
discounted cash flow analysis based on the projected operating results of the
systems over a ten-year period, and applied a factor for the residual value of
the assets at the end of that ten-year period. Daniels & Associates and
Communications Equity Associates each undertook a comparable private market
transaction multiples analysis, to correlate and validate the findings of the
discounted cash flow analysis. This methodology involved a review of other cable
system sales that had recently occurred, and a comparison of the values per
subscriber and multiples of cash flow for those system sales with the same
statistics for NCP-Six.
Upon completion of the second third-party bid process, the general partners
wanted to obtain an independent third-party evaluation as to whether the
consideration to be received by NCP-Six as a result of the anticipated sales to
Bidder D and Northland Communications Corporation was fair from a financial
point of view. The general partners' desire to obtain independent review of the
fairness of the proposed sales was further motivated by their recognition that
the prior appraisals of both Daniels & Associates, and Communications Equity
Associates each valued the assets of NCP-Six as of July 1, 1999. Rather than
update those appraisals, the general partners concluded that it would be more
beneficial to NCP-Six if they obtained a fairness opinion that not only
evaluated the assets to be sold, but that further evaluated whether the
consideration to be received by NCP-Six was fair from a financial point of view.
Following their investigation of investment banking firms and financial advisory
services that are recognized to have expertise in valuing assets and
transactions in the cable television industry, the general partners concluded
that Houlihan Lokey was suitable to evaluate the fairness of the proposed sales.
The managing general partner provided Daniels & Associates, Communications
Equity Associates and Houlihan Lokey with pro forma three year capital
expenditure plans for NCP-Six. No other financial projections or forecasts were
provided by the general partners. Instead, each report was developed based on
independent information obtained by Daniels & Associates, Communications Equity
Associates and Houlihan Lokey, respectively. The general partners intentionally
refrained from providing additional materials to these professionals because the
general partners wanted the analysis to remain independent from the general
partners' internal forecasts and the general partner wanted the professionals to
develop their own forecasts based on each professional's knowledge of the cable
market-place. Neither of the appraisals placed a value on any individual assets
or cable systems of NCP-Six. Instead, they valued the assets of NCP-Six as a
whole. The general partners did not ask either Daniels & Associates,
Communications Equity Associates or Houlihan Lokey to appraise separately the
operating systems of NCP-Six. Such appraisals, if they had been obtained, could
have been used by the managing general partner to assess not only the overall
fairness of the bids submitted for the operating systems, but the fairness of
bids for one or more of the separate systems.
The following summaries are qualified by, and should be read in conjunction
with, the Daniels & Associates appraisal, the Communications Equity Associates
appraisal and the Houlihan Lokey fairness opinion. You are encouraged to review
the appraisals prepared by Daniels & Associates and Communications Equity
Associates which are attached to this proxy statement as Exhibits L and M,
respectively. You are also encouraged to review Houlihan Lokey's fairness
opinion which is attached to this proxy statement as Exhibit N.
DANIELS & ASSOCIATES APPRAISAL
General. The general partners engaged Daniels & Associates to appraise the
entirety of NCP-Six's assets comprising the cable television systems serving
seven communities in Mississippi, South Carolina and North Carolina. Daniels &
Associates delivered its appraisal based on the review, analysis, scope and
limitations described in its written summary. Daniels & Associates appraised
NCP-Six's assets as of July 1, 1999. Events occurring after July 1, 1999, and
before the effective date of the proposed transaction could
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affect the properties or assumptions used in preparing the appraisal. Daniels &
Associates will not deliver any additional written summary of the analysis and
will not prepare an update to its appraisal closer to the time of closing the
proposed transaction. The material assumptions, qualifications, limitations and
methods used in the Daniels & Associates appraisal are described below.
Summary of Methodology. Daniels & Associates evaluated each system on a
going-concern basis, in conformance with standard appraisal techniques,
utilizing a ten-year discounted net cash flow analysis and applying relevant
market and economic factors.
In valuing the assets, Daniels & Associates relied on a discounted
operating cash flow analysis based on the projected operating results of
NCP-Six's assets over a ten-year period and applied a factor for the residual
value of the assets at the end of that ten-year period. The discounted cash flow
analysis was validated by a review of private market transactions in cable
systems that had occurred in the recent past. The market transaction approach
applies the value per subscriber and operating cash flow multiples from the
other private market sales of cable systems. It then correlates those statistics
to the actual statistics of NCP-Six's assets. According to Daniels & Associates,
both the discounted cash flow analysis and the comparable private market
transaction multiple analysis are standard valuation methodologies used in the
cable television industry.
In the course of performing the valuation, Daniels & Associates engaged in
discussions with employees of the managing general partner's corporate office
and local system offices, made due diligence visits to substantially all of the
operating systems comprising the assets, reviewed and evaluated materials and
information provided by the managing general partner and local cable system
management, researched demographic information relating to the various
communities served by NCP-Six, analyzed forecasted financial and operating
information, and drew upon its own general knowledge about the cable television
industry. On the basis of this information and these efforts, Daniels &
Associates prepared summaries of relevant operating, technical, financial and
demographic characteristics of NCP-Six's operating systems.
Thereafter, in order to assess the fair market value of NCP-Six's assets,
Daniels & Associates prepared detailed operating and financial forecasts for
each of NCP-Six's operating cable systems, taking into account operating
revenues and expenses as well as capital expenditure requirements. These
financial forecasts formed the basis for determining a discounted cash flow for
each operating cable system. The combined values for each operating cable system
constituted the value of the cable operating assets for NCP-Six on a discounted
cash flow basis. In addition to this methodology, Daniels & Associates used the
comparable private market transaction multiple methodology to derive an
aggregate value for NCP-Six by analyzing the value per subscriber and operating
cash flow multiples obtained in similar private sales of cable television
systems. Informed by the results of these methodologies, Daniels determined a
final appraised value for NCP-Six's assets.
Assumptions. In performing its discounted cash flow analysis of the value
of the assets, Daniels & Associates assumed the assets have been and will
continue to be operated as efficiently as comparable cable systems. Daniels &
Associates assumed that the franchises and asset leases used by NCP-Six in the
operation of the assets will be renewed indefinitely as needed without material
change except to reflect any upgrade or rebuild of the assets. Daniels &
Associates assumed, when evaluating future capital expenditures and cash flows,
that the various systems comprising the assets will be upgraded within three to
five years.
Discounted Cash Flow Valuation. The discounted cash flow valuation method
measures the present value of the assets' forecasted free cash flow from
operations, which is defined as earnings before interest, taxes, depreciation
and amortization ("EBITDA"), less capital expenditures including all rebuild or
upgrade costs. Daniels & Associates determined forecasted free cash flows by
creating ten-year operating forecasts for each of the operating cable systems.
Each forecast took into account detailed projections of revenue and expense
components. Daniels & Associates then calculated the projected residual value of
the assets assuming a sale of each system at the end of the ten-year period.
This terminal enterprise value was based on a multiple of EBITDA which Daniels &
Associates determined to be reasonable in light of comparable private market
transaction multiples of EBITDA.
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Daniels & Associates' revenue forecasts were based on its forecasts of the
number of homes passed and the subscriber penetration levels and rates for each
operating cable system, plus an analysis of non-subscriber based revenue
sources. Its expense forecast was based on assumed rates of inflation over the
forecast period, adjusted to reflect the particular growth characteristics of
each operating system. The capital expenditure forecasts were based on costs
associated with new construction of cable plant, plant maintenance, and rebuild
or upgrade requirements. Daniels believes that the opportunities of the systems
comprising the assets to provide ancillary telecommunications and data services
are limited and costs uncertain, and thus Daniels & Associates did not include
telephony or data service revenue, expenses or capital costs in its projections.
Daniels & Associates did include residential data service revenue and expenses
where appropriate. All information provided to the managing general partner
relating to Daniels & Associates' operating revenue and expense forecasts and
the assumptions underlying these forecasts is contained in the Daniels &
Associates' appraisal. The general partners did not request that additional
information or analysis be included in the Daniels & Associates' appraisal
because they looked to Daniels & Associates to develop the appraisal methodology
it deemed appropriate in its professional judgment. The general partners did not
want to otherwise influence the appraisal performed by Daniels & Associates by
requiring any changes to its prepared methodology.
Once Daniels & Associates arrived at a forecast of cash flow and terminal
enterprise value, it discounted these values back to the present at a discount
rate representing the weighted average cost of capital for various entities
within the cable television industry that are capable of consummating a sale
similar in size to the acquisition of the assets. Daniels & Associates described
the weighted average cost of capital as the rate of return required by an entity
on its investment in order to satisfy the expectations of the entity's debt and
equity investors. After some analysis, Daniels & Associates assumed that the
prime rate on July 1, 1999 (7.5%) was a fair estimate of the cost of debt. It
determined the cost of equity by sampling the estimated private market cost of
equity for cable television investments and blended this cost with the equity
return objectives for large publicly traded companies. Daniels & Associates
determined the cost of equity to be 22.5%. Daniels & Associates arrived at a
weighted cost of capital of 13.5%.
Applying the discount rate to its cash flow forecasts, Daniels & Associates
arrived at a valuation of $73.3 million for NCP-Six's assets, representing a
value equal to 10.9 times annualized free cash flow and $2,200 per equivalent
basic subscriber.
Comparable Transactions Valuation. In addition to the discounted cash flow
methodology, Daniels & Associates used the comparable private market transaction
multiple methodology. Daniels & Associates describes this as another generally
accepted valuation method for correlating and validating the findings of the
discounted cash flow analysis with private market realities. Under this
methodology, Daniels & Associates compared selected market multiples reported in
the sales of cable television systems of similar size, situated in similar
markets, and of similar technical condition to NCP-Six's assets. In these
transactions, the purchase prices paid ranged from 9.0 to 14.0 times operating
cash flow, with a weighted average of 10.0. Prices per subscriber ranged from
$1,500 to $2,732, with a weighted average of $1,940. All information provided to
the general partners relating to the basis for Daniels & Associates' selection
of comparable transactions is also contained in the Daniels & Associates
appraisal.
Valuation. Based on its analysis using these two methodologies, Daniels &
Associates arrived at an estimated fair market value for NCP-Six's cable
television assets as of July 1, 1999 of $73.3 million, representing 10.9 times
the estimated operating cash flow for those assets. The $73.3 million estimate
also translates to a value per equivalent basic subscriber of $2,200. This cash
flow multiple is slightly higher than the weighted average multiple for
comparable transactions and equal to the multiple derived from the discounted
cash flow analysis. The value per subscriber is higher than the weighted average
value per subscriber derived from the comparable transaction analysis and equal
to the value per subscriber derived from the discounted cash flow analysis.
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COMMUNICATIONS EQUITY ASSOCIATES APPRAISAL
General. The general partners also engaged Communications Equity Associates
("CEA") to appraise the entirety of NCP-Six's assets comprising the cable
television systems serving seven communities in Mississippi, South Carolina and
North Carolina. CEA delivered its appraisal based on the review, analysis, scope
and limitations described in its written summary. CEA appraised NCP-Six's assets
as of July 1, 1999. Events occurring after July 1, 1999, and before the
effective date of the proposed transaction could affect the properties or
assumptions used in preparing the appraisal. CEA will not deliver any additional
written summary of the analysis and will not prepare an update to its appraisal
closer to the time of closing the proposed transaction. The material
assumptions, qualifications, limitations and methods used in the CEA appraisal
are described below.
Summary of Methodology. CEA evaluated each system on a going-concern basis
in conformance with standard appraisal techniques, utilizing a ten-year
discounted net cash flow analysis and applying relevant market and economic
factors. In valuing the assets, CEA relied on a discounted cash flow analysis
and market approach. The discounted cash flow approach is based on the projected
operating results of the assets over a ten-year period and applies a factor for
the residual value of the assets at the end of that ten-year period. The market
transaction approach reviews and compares recent private market transactions
involving comparable assets. The market approach provides a comparison of (1)
the multiple of cash flow represented by the purchase price of such other
systems with the multiple of NCP-Six's cash flow represented by the appraised
value for the assets, and (2) the value per subscriber of such other system
sales with the corresponding value per subscriber for NCP-Six's operating cable
systems. According to CEA, both the discounted cash flow analysis and the
comparable private market transaction multiple analysis are generally accepted
valuation methodologies for cable television systems.
In the course of performing its valuation, CEA engaged in discussions with
employees of the managing general partner's corporate office and local system
offices, and made due diligence visits to substantially all of the operating
systems comprising the assets. CEA reviewed and evaluated materials and
information provided by the managing general partner and local cable system
management, researched demographic information relating to the various
communities served by NCP-Six, and analyzed forecasted financial and operating
information and drew upon its own general knowledge about the cable television
industry. On the basis of this information and these efforts, CEA prepared
summaries of relevant operating, technical, financial and demographic
characteristics of NCP-Six's operating cable systems.
In order to assess the fair market value of NCP-Six's assets, CEA prepared
detailed operating and financial forecasts for each of NCP-Six's operating cable
systems, taking into account operating revenues and expenses as well as capital
expenditure requirements. These financial forecasts formed the basis for
determining a discounted cash flow for each operating cable system. The combined
value for each operating cable system constituted the value of the operating
cable assets for NCP-Six on a discounted cash flow basis. In addition to this
methodology, CEA used the comparable private market transaction multiple
methodology to derive an aggregate value for NCP-Six by analyzing the value per
subscriber and operating cash flow multiples obtained in private sales of
comparable systems. Informed by the results of both of these methodologies, CEA
determined a final appraised value for NCP-Six's assets.
Assumptions. In performing its discounted cash flow analysis of the value
of NCP-Six's assets, CEA assumed the assets have been and will continue to be
operated as efficiently as comparable cable systems. CEA assumed that the
franchises and asset leases used by NCP-Six in the operation of the assets will
be renewed indefinitely as needed without material change, other than upgrade
and/or rebuild requirements. CEA further assumed that the systems were in
material compliance with all franchise, regulatory and Federal Communications
Commission requirements.
Discounted Cash Flow Approach. The discounted cash flow approach measures
the present value of the assets' forecasted free cash flow from operations less
capital expenditures including all rebuild or upgrade costs. CEA determined
forecasted cash flows by creating ten-year operating forecasts for each of
NCP-Six's operating cable systems, each of which took into account detailed
projections of revenue and expenses. CEA then calculated the projected residual
value of NCP-Six's assets at the end of the ten-year period. This
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terminal value was calculated by multiplying the projected free cash flow by a
multiple which CEA determined to be reasonable in light of its experience in the
cable industry. All information provided to the managing general partner
relating to CEA's forecasts and assumptions underlying these forecasts is
contained in the CEA appraisal. The general partners did not request that
additional information or analysis be included in the CEA appraisal because they
looked to CEA to develop the appraisal methodology it deemed appropriate in its
professional judgment. The general partners did not want to otherwise influence
the appraisal performed by CEA by requiring any changes to its prepared
methodology.
Once CEA had arrived at a forecast of cash flow and terminal enterprise
value, it discounted these values back to the present at a discount rate
representing the weighted average cost of capital for cable television system
operators. CEA described the weighted average cost of capital as the rate of
return likely required by equity and debt investors in order to satisfy the
expectations of the investors. CEA assumed, based on its experience in raising
debt financing for cable operators, that a lender would likely charge an
interest rate of 8% for debt financing. It determined the cost of equity based
on its experience in the cable industry as being a 25% return on investors'
equity. Applying these rates, CEA arrived at a weighted cost of capital of
14.8%.
Applying the discount rate to its cash flow forecasts, CEA arrived at a
total present valuation of $74.6 million for NCP-Six's assets, representing a
value equal to 11.1 times NCP-Six's estimated operating cash flow and a price of
$2,263 per basic subscriber.
Comparable Market Approach. In addition to its discounted cash flow
methodology, CEA used the comparable market transaction approach. CEA describes
this as another generally accepted valuation method for valuing businesses and
for correlating and validating the findings of the discounted cash flow analysis
with private market realities. CEA noted in its appraisal that there was
significant consolidation activity in the cable industry during the first six
months of 1999. CEA observed that although there had been dramatic increases in
the prices paid for large cable systems, due in part to the size and location of
the systems and the introduction of cable Internet services, there had been
fewer transactions involving cable systems of comparable size and markets as
NCP-Six's assets and that the prices paid for these smaller systems had not seen
dramatic increases.
Under the market transaction method, CEA evaluated and compared
transactions occurring during the first six months of 1999 involving cable
systems of similar size and markets as NCP-Six's assets. In these transactions,
the purchase prices paid ranged from 9.2 to 12.7 times operating cash flow, with
a weighted average of 10.8 and a median of 11.3. Prices per subscriber ranged
from $1,500 to $2,755, with a weighted average of $2,313 and a median of $2,134.
Based on CEA's experience, it determined that a cash flow multiple of 11.0 was
appropriate to value the systems. CEA applied this multiple to NCP-Six's
annualized cash flow of $6,731,196 resulting in a valuation of $74,043,156,
representing a per subscriber price of $2,246.
Valuation. Based on CEA's analysis using these two methodologies, CEA
arrived at an estimated fair market value for NCP-Six's assets as of July 1,
1999 of $74.6 million, which represents a value equal to 11.1 times the
estimated operating cash flow and a price of $2,263 per basic subscriber. This
cash flow multiple of 11.1 is slightly higher than the weighted average multiple
for comparable market transactions and is equal to the multiple derived by CEA's
discounted cash flow analysis. The value per subscriber of $2,263 is slightly
higher than the weighted average value per subscriber for comparable market
transactions and is equal to the value per subscriber derived by CEA's
discounted cash flow analysis.
HOULIHAN LOKEY FAIRNESS OPINION
On May 13, 1998, the general partners in their capacities as general
partners of Northland Cable Properties Five Limited Partnership ("NCP-Five")
distributed a proxy statement to the limited partners of NCP-Five calling a
special meeting to consider a sale of NCP-Five's assets to Northland
Communications Corporation and the subsequent liquidation of NCP-Five. In that
transaction the assets were valued by a single appraiser and third-party bids
were not solicited. On June 3, 1998, a class action lawsuit was filed by a class
of limited partners of NCP-Five challenging the proposed sale of NCP-Five's
assets. On June 18, 1998, the managing general partner wrote to the limited
partners of NCP-Five alerting them to the lawsuit and outlining the allegations.
The special meeting of NCP-Five was held on June 25, 1998. The votes of limited
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partners were counted and the results indicated that the holders of 77% of the
outstanding units had voted and, of those units voted, 95% were voted in favor
of the transaction. On August 28, 2000, a trial of the NCP-Five lawsuit
commenced in King County Superior Court, in Seattle, Washington. The litigation
was subsequently settled. On September 1, 1998, the managing general partner
closed the purchase and sale of the assets of NCP-Five.
To address issues raised in the NCP-Five litigation, the general partners
decided to solicit bids for NCP-Six's assets through a blind bid process. The
general partners also decided to engage an independent third party to evaluate
the fairness of the consideration to be received by NCP-Six as a result of the
proposed sales, and to render a formal opinion as to those findings.
On October 24, 2000, the managing general partner on behalf of NCP-Six
engaged Houlihan Lokey to render opinions as to the fairness of the
consideration to be paid to NCP-Six, from a financial point of view, in both the
sale of the Bennettsville system to Bidder D and the sale of NCP-Six's remaining
assets to Northland Communications Corporation or its affiliates for the
purchase price of the bids submitted by each party in August 2000. Houlihan
Lokey did not assist the general partners with any of the negotiations with
Bidder D or any company affiliated with Northland Communications Corporation.
On February 16, 2001, Houlihan Lokey delivered to the general partners a
presentation as to Houlihan Lokey's findings and drafts of separate opinions as
to the fairness of each of the sale of the Bennettsville system to Bidder D and
the sale of NCP-Six's remaining assets to Northland Communications Corporation
or its affiliates. Based on the assumptions, qualifications and limitations
stated in those draft opinions, Houlihan Lokey concluded that the consideration
to be received by NCP-Six in both transactions was fair from a financial point
of view as of February 16, 2001.
Following the general partners' termination of negotiations with Bidder D,
the managing general partner requested Houlihan Lokey to revise its fairness
evaluation. Because the proposed transaction includes selling all of NCP-Six's
assets to Northland Communications Corporation affiliated companies, the
managing general partner requested Houlihan Lokey to consolidate its prior draft
fairness opinions into one opinion addressing whether the combined consideration
to be received by NCP-Six from Northland Cable Networks LLC, Northland Cable
Properties, Inc. and Northland Cable Television, Inc. was fair from a financial
point of view.
The full text of Houlihan Lokey's opinion in connection with the proposed
sales, which sets forth, among other things, assumptions made, matters
considered and limitations on the review undertaken, is attached to this proxy
statement as Exhibit N. Houlihan Lokey's opinion was prepared for the use of the
general partners in connection with their respective evaluations of the proposed
sales and does not constitute a recommendation to the limited partners of
NCP-Six as to how they should vote on matters presented in this proxy statement.
Because Houlihan Lokey cannot control how the sale proceeds from the
proposed sales will be distributed to the limited partners of NCP-Six, the
Houlihan Lokey opinion is also limited to whether the consideration to be
received by NCP-Six is fair from a financial point of view, and does not make a
separate determination as to the fairness of the consideration to be received by
the limited partners of NCP-Six upon liquidation of NCP-Six. Notwithstanding,
the net proceeds from any sale of the assets of NCP-Six will be first applied to
the payment of known NCP-Six liabilities and a $750,000 reserve for potential
unknown or contingent liabilities. The balance of net proceeds will be
distributed pro rata amongst the partners of NCP-Six following consummation of
the proposed sales and the payment of NCP-Six's liabilities. Therefore, the
primary concern of the general partners and Messrs. Whetzell and Clark when
evaluating whether to approve of the proposed sales was the fairness of the
price to be received by NCP-Six for its assets.
Houlihan Lokey's opinion does not address the underlying business decisions
of the general partners to proceed with the proposed sales. Instead, Houlihan
Lokey's opinion is limited to Houlihan Lokey's independent evaluation of whether
the aggregate consideration to be received in the proposed sales is fair as of
the date of the opinion.
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In connection with the preparation of Houlihan Lokey's opinion, Houlihan
Lokey, among other things:
1. met with the following financial advisors and representatives of senior
management of Northland Telecommunications Corporation and NCP-Six to discuss
the operations, financial condition, future prospects and projected operations
and performance of NCP-Six:
- John Whetzell: Founder, President, CEO and Chairman of the Board of
Directors, Northland Telecommunications Corporation;
- Gary Jones: Vice President and Chief Financial Officer, Northland
Telecommunications Corporation;
- Richard Dyste: Vice President of Technical Services, Northland
Telecommunications Corporation;
- Laura Williams: Vice President and Senior Counsel, Northland
Communications Corporation;
- Richard Clark: Vice President, Treasurer and Director, Northland
Telecommunications Corporation;
- H. Lee Johnson: Divisional Vice President, Northland Telecommunications
Corporation;
- Richard Belland: System Manager, Starkville, MS system;
- Ricky Mooneyham: Regional Manager, Philadelphia and Forest, MS system;
- Toby Ellington: South East Operations Analyst, Northland Communications
Corporation;
- Bill Staley: Regional Manager, Aiken, SC area systems;
- Bob Sturm: System Technician, Barnwell, SC system;
- Shirley McCormick: Business Manager, Bennettsville, SC system;
- Leroy Hendricks: System Technician, Bennettsville, SC system; and
- Randy Wells: Senior Vice President, Daniels & Associates, L.P.;
2. visited the following cable system operations representing approximately
92% of NCP-Six's subscribers:
- Starkville, MS;
- Philadelphia, MS;
- Barnwell, SC; and
- Bennettsville, SC;
3. reviewed the following documents:
- Northland Telecommunications Corporation 1999 Annual Report;
- Northland Cable Properties Six Limited Partnership Prospectus dated
July 10, 1986;
- Amended and Restated Certificate and Agreement of Limited Partnership
of Northland Cable Properties Six Limited Partnership, executed on
November 3, 1986;
- Northland Cable Properties Six Limited Partnership First Supplement to
Prospectus dated October 23, 1986;
- Northland Cable Properties Six Limited Partnership Second Supplement to
Prospectus dated December 1, 1986;
- Northland Cable Properties Six Limited Partnership Third Supplement to
Prospectus dated January 26, 1987;
- Audited Financial Statements for the years ended December 31, 2000 and
1999;
- Audited Financial Statements for the years ended December 31, 1988 and
1987;
- Audited Financial Statements for the years ended December 31, 1996 and
1995;
- Audited Financial Statements for the years ended December 31, 1997 and
1996;
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- Northland Cable Properties Six Limited Partnership 10-K for the fiscal
year ended December 31, 1997;
- Northland Cable Properties Six Limited Partnership 8-K dated January 2,
1998;
- Northland Cable Properties Six Limited Partnership 10-K/A for the
fiscal year ended December 31, 1998;
- Northland Cable Properties Six Limited Partnership 10-Q for the
quarterly period ended June 30, 1999;
- Northland Cable Properties Six Limited Partnership 10-K for the fiscal
year ended December 31, 1999;
- Northland Cable Properties Six Limited Partnership 10-Q for the
quarterly period ended June 30, 2000;
- Unaudited detailed financial statements for each operating group for
the year-to-date period ended December 31, 2000;
- Unaudited detailed financial statements for each operating group for
the five months ended May 31, 2001;
- Northland Cable Properties Six Limited Partnership Appraisal Analysis
Summary as of July 1, 1999 prepared by Daniels & Associates, L.P.;
- Northland Cable Properties Six Limited Partnership Asset Valuation
Analysis as of July 1, 1999 prepared by Communications Equity
Associates;
- Northland Cable Properties Six Limited Partnership Confidential
Memorandum, prepared by Daniels & Associates, L.P., dated July 1999;
- Northland Cable Properties Six Limited Partnership Bid Instructions
Letter, dated August 6, 1999 from Daniels & Associates, L.P.;
- Northland Cable Properties Six Limited Partnership Buyer List, prepared
by Daniels & Associates, dated August 20, 1999;
- Northland Cable Properties Six Limited Partnership Bid Summary, dated
August 20, 1999;
- Northland Cable Properties Six Limited Partnership Confidential
Memorandum, prepared by Daniels & Associates, L.P., dated June, 2000;
- Northland Cable Properties Six Limited Partnership Bid Instructions
Letter, dated July 27, 2000 from Daniels & Associates, L.P.;
- Bid Procedures Letter from Daniels & Associates, L.P., dated July 18,
2000 and Proposed Asset Purchase Agreement;
- Northland Cable Properties Six Limited Partnership Prospective Buyers
List, prepared by Daniels & Associates, dated July 28, 2000;
- Northland Cable Properties Six Limited Partnership Updated Bid Book,
dated August 16, 2000;
- Follow-up Bid Instruction Letters to Bidder D from Daniels &
Associates, L.P., dated July 28, 2000 and August 3, 2000;
- Affidavits from Hubbard & Johnson, P.C., signed August 10, 2000 and
August 17, 2000;
- Proposed Asset Purchase and Sale Agreement by and Between Northland
Cable Properties Six Limited Partnership and Bidder D;
- Letter of Intent between Northland Cable Networks LLC and Northland
Cable Properties Six Limited Partnership dated June 8, 2001;
- Asset Purchase and Contribution Agreement among Northland Cable
Properties Six Limited Partnership, Northland Communications
Corporation and Northland Cable Networks LLC dated May 29, 2001;
- Asset Purchase Agreement between Northland Cable Properties Six Limited
Partnership and Northland Cable Properties, Inc. dated June , 2001;
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- Asset Purchase Agreement between Northland Cable Properties Six Limited
Partnership and Northland Cable Television, Inc. dated June , 2001;
- Northland Cable Networks LLC, Limited Liability Company Agreement,
dated April , 2001;
- BMO Nesbitt Burns term sheet for Northland Cable Properties, Inc.,
dated , 2001;
- GE Capital Commercial Finance, Inc. Term Sheet for "NEWCO" LLC dated
June 21, 2001;
- Northland Cable Properties Six Limited Partnership Preliminary Proxy
Statement filed with the Securities and Exchange Commission on December
9, 1999;
- Northland Cable Properties Six Limited Partnership Preliminary Proxy
Statement filed with the Securities Exchange Commission on December 21,
2000;
- Northland Cable Properties Six Limited Partnership Subscriber History
from January 1998 to September 2000, dated October 25, 2000;
- Northland Cable Properties Six Limited Partnership Subscriber
Report -- end of month subs as of December 2000;
- Northland Cable Properties Six Limited Partnership Subscriber
Report -- end of month subs as of May 2001;
- Summary of Secondary Trading for units in NCP-Six from inception to
April 16, 2001 from Bloomberg L.P.;
- NCP-Six Subscriber Summary for the first quarter of 2001;
- Franchise Renewal Docket;
- Listing of Property Leases;
- Channel Line-ups, printed October 25, 2000;
- NCP-Six Company Summary Three Year Capital Plan dated January 22, 2001;
- Organization Chart for Northland Telecommunications Corporation; and
- publicly available information on the industry, NCP-Six and comparable
companies and transactions;
4. performed an appraisal of the assets proposed to be sold in the proposed
transaction which included the following analyses:
- Analysis of comparable transactions;
- Analysis of all previous purchases and sales of cable systems by
NCP-Six;
- Analysis of comparable public companies;
- Discounted cash flow analysis;
- Review of the returns to the original limited partners and limited
partners from secondary trading;
- Review of the historical and projected financial performance of the
systems;
- Review of the historical subscriber performance of the systems;
- Review of the historical and projected capacity and other technical
aspects of the systems;
- Review of the implied multiples from the proposed transactions; and
- Analysis of the change in valuations of cable systems over time.
The following is a summary of the material financial analyses performed by
Houlihan Lokey in connection with rendering its opinion related to the proposed
sales.
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow approach values a company on a going-concern
basis. The discounted cash flow approach determines the present risk-adjusted
value of the expected future cash flow stream, with expected
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growth incorporated into the projections. There are three steps involved in
using the discounted cash flow approach as follows:
- determination of cash flow projections that are supportable in light of
historical performance, industry performance and industry expectations,
and reasonable future expectations of NCP-Six;
- determination of the "terminal value" of NCP-Six at the end of the
projection period; and
- determination of the appropriate discount rate to be used to discount the
projected cash flows.
In its analysis of NCP-Six, Houlihan Lokey used forecasts and projections
for the years ended December 31, 2001 through 2005. Projected capital
expenditures for 2001 to 2003 were based on NCP-Six's detailed three-year
capital plan. Debt-free cash flows are generally defined as representative
debt-free earnings less capital expenditures plus depreciation and amortization
less increases in net working capital. Houlihan Lokey discounted the value of
the debt-free cash flow streams to present values using discount rates ranging
from 13% to 17%. Houlihan Lokey selected the discount rates by estimating the
weighted average cost of capital for the combined operating units of NCP-Six.
The weighted average cost of capital used by Houlihan Lokey in its analysis was
primarily based on the cost of equity for publicly traded cable companies and
the cost of debt for similar risk securities in Northland Communications
Corporation.
In order to determine the terminal value of NCP-Six's assets at the end of
the projection period, Houlihan Lokey utilized a capitalization of operating
cash flow approach. This approach was utilized by applying a 10.0x multiple to
2005 operating cash flow. The terminal multiple of 10.0 was based on the average
multiple for similar transactions. Houlihan Lokey then discounted the terminal
value of the assets associated with the proposed transaction to the present
using the same discount rate range as the interim cash flows. Houlihan Lokey
added together the present value of the interim cash flows and the present value
of the terminal value to arrive at a total enterprise value range of $59.5
million to $68.4 million for the assets associated with the proposed sales.
COMPARABLE TRANSACTION ANALYSIS
Using publicly available information, Houlihan Lokey analyzed the
consideration offered and the implied transaction value multiples paid in the
following selected acquisition transactions in the cable system industry:
PRICE PRICE/ CASH
PAID PER CASH FLOW/
DATE BUYER SELLER SUBSCRIBER FLOW SUBSCRIBER
---- ----- ------ ---------- ------ ----------
June 2000............. Adelphia Tri-Lakes $2,778 13.2 $210
June 2000............. Cable One Telepartners 2,500 11.8 212
June 2000............. Charter Communications Inc. Enstar 6-B 1,720 11.0 156
June 2000............. Gans Multimedia Enstar 1,624 9.5 171
July 2000............. Mediacom Spirit Lake CATV 2,160 10.0 216
July 2000............. Mediacom So. KY Service Corp. 2,100 9.7 216
July 2000............. Omega Rifkin Acquisition Partners 2,111 9.0 235
August 2000........... Gans Multimedia Enstar 1,725 7.0 246
October 2000.......... Mediacom Illinet Cable Systems 1,950 10.0 195
October 2000.......... Lewis County Cable and
Time Warner Henderson Cable 1,304 8.0 170
November 2000......... Mediacom Satellite Cable Services 2,392 7.5 306
February 2001......... Time Warner Cable Texas 2,462 15.1 163
February 2001......... Uvision, LLC Stuck Electric, Inc. 1,391 8.0 174
In analyzing these comparable transactions, Houlihan Lokey compared the
total consideration paid in such transactions as a multiple of the number of
subscribers as well as the latest twelve months and estimated calendar 2000 cash
flows, where available.
The transactions above were relied on more heavily than other transactions
analyzed because they were closer in time to the proposed sales, similar in size
to the combined proposed sales and the acquired companies were located in
similar rural communities. The average multiple of operating cash flows for
these transactions
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was 10.0 and the median was 9.7. The average price per subscriber was $2,009 and
the median was $2,100. In contrast to these comparables, the consideration
offered and the implied transaction value multiples for the combined proposed
sales are:
AGGREGATE AGGREGATE AGGREGATE
PRICE PRICE/ CASH
NCP-SIX SYSTEM(S) PAID PER CASH FLOW/
TO BE SOLD BUYER SELLER SUBSCRIBER FLOW SUBSCRIBER
----------------- ----- ------ ---------- --------- ----------
Barnwell, South Northland Cable Properties, Inc. NCP-Six
Carolina..............
Highlands, North Northland Cable Television, Inc. NCP-Six
Carolina..............
Philadelphia and Northland Cable Networks LLC NCP-Six
Starkville,
Mississippi........... $2,225 10.1 221
Bennettsville, South Northland Cable Networks LLC NCP-Six
Carolina..............
After reviewing the composite range of multiples indicated for the
comparable transactions, Houlihan Lokey arrived at the following multiple ranges
for NCP-Six:
2000 Cash Flow Multiple Range....................... 9.5 to 10.0
Price per Subscriber Multiple Range................. $1,900 to $2,100
After applying these ranges to NCP-Six's representative values, Houlihan
Lokey arrived at an aggregate valuation range for NCP-Six's assets of $63.1
million to $67.7 million. In comparison, the combined proposed sales provide for
an aggregate purchase price valuation of $70.2 million.
OTHER CONSIDERATIONS
In addition to the analyses mentioned above, Houlihan Lokey:
- performed an analysis of all previous purchases and sales of cable
systems by NCP-Six. Houlihan Lokey reviewed previous sales and
acquisitions of cable systems made by NCP-Six including its acquisition
of the Bennettsville and Barnwell operating systems in 1998 at $1,817 per
subscriber.
- reviewed the returns to NCP-Six's original limited partners from
secondary trading. Limited partners in NCP-Six originally purchased units
for $500 per unit. To date, distributions totaling $128 per unit have
been paid by NCP-Six to its limited partners. Distributions to limited
partners resulting from the proposed transaction are forecasted to be
$1,159 per unit, although $505 of that amount is to be paid over three
years from closing. During the life of NCP-Six, Houlihan Lokey's research
showed the pricing of units in the secondary market ranged from a low of
$300 to a high of $870. The highest trade at $870 per unit was for a
total of ten units in May 2000. The highest number of units traded in any
given month was 169 in March 2000 for prices ranging from $800 to $831.
- analyzed the change in valuations of U.S. cable systems since the date of
the previous appraisals by Daniels & Associates and Communications Equity
Associates. The market price for public cable companies decreased 22%
between June 25, 2001 and July 1, 1999, the date of the previous
appraisals by Daniels & Associates and Communications Equity Associates.
The average appraisal value from Daniels & Associates and Communications
Equity Associates was $73.95 million as of July 1, 1999. Applying a 22%
decrease implies a value of $57.68 million as of June 25, 2001 for the
combined assets to be sold in the proposed sales. In addition, the number
of total NCP-Six subscribers has decreased from 32,617 at the end of June
1999 to 31,428 at the end of May 2001. This puts downward pressure on the
current valuation of NCP-Six's assets as compared to July 1999.
- reviewed the implied multiples for the combined proposed sales. The
implied multiple per subscriber from the proposed transaction is $2,225.
The implied operating cash flow multiple from the combined proposed sales
is 10.1. These multiples were calculated based on an adjusted purchase
price. The adjusted purchase price of $69.2 million was determined by
adding the expected proceeds to be paid to
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NCP-Six on the closing date to the present value of the principal and
interest payments to be paid over the next three years on the two
promissory notes to be delivered to NCP-Six upon closing.
- held discussions with Daniels & Associates regarding the sale procedures
and bid processes followed in connection with the sale of the assets of
NCP-Six.
After applying the various approaches and considering the factors mentioned
above, Houlihan Lokey arrived at a valuation range of $61.9 million to $67.9
million. This range is below the $70.2 million aggregate purchase price
valuation of the proposed sales. The highest value within this range is also
below the combined adjusted present value of the proposed sales which was
calculated to equal $69.2 million as of June 25, 2001. As a result, Houlihan
Lokey has concluded that the combined proposed sales are fair to NCP-Six from a
financial point of view.
COMPENSATION AND MATERIAL RELATIONSHIPS
NCP-Six paid Daniels & Associates and Communications Equity Associates
$50,000 each plus out-of-pocket expenses for their appraisal services. If the
proposed sales are consummated, NCP-Six will pay Daniels & Associates up to
$702,000 as a brokerage fee for its efforts in soliciting bids for the assets
from independent third parties. The actual amount of the brokerage fee will
equal 1% of the purchase price paid at each closing.
The managing general partner retained Daniels & Associates and
Communications Equity Associates based on each company's experience and
expertise as a nationally recognized cable brokerage, appraisal and investment
banking firm. Each firm, as part of its investment banking business, is
continuously engaged in the valuation of cable businesses and securities in
connection with mergers and acquisitions, competitive biddings and private
placements. The general partners decided not to retain appraisers other than
Daniels & Associates and Communications Equity Associates, because they believed
Daniels & Associates and Communications Equity Associates had significant
expertise in the rural cable television markets in which NCP-Six's systems are
located. The general partners' belief as to the qualifications of Daniels &
Associates and Communications Equity Associates is based on the managing general
partner's years of experience working in the cable television industry. The
managing general partner's experiences have included negotiating numerous
transactions for cable assets; valuing systems for both operation, purchase and
sale; attending numerous trade shows and industry events; maintaining
relationships with various parties that work in the cable industry, including
parties known to customarily appraise cable assets; and keeping abreast of
industry developments through trade publications and various news sources. Both
Daniels & Associates and Communications Equity Associates are independent of the
companies affiliated with Northland Communications Corporation and NCP-Six.
Neither firm has any ownership interest in or management control over any
Northland Communications Corporation affiliated company although the managing
general partner is aware of one individual at Communications Equity Associates
who owns eight units of limited partnership interest in NCP-Six (out of 29,784
units outstanding). This individual has agreed to not vote his units at the
special meeting. In the past, Daniels & Associates has provided brokerage and
appraisal services to NCP-Six, including assisting in brokering the sale of the
Sandersville, Mississippi system in April 1999. In addition, both Daniels &
Associates and Communications Equity Associates have previously provided
brokerage and appraisal services to Northland Communications Corporation and
affiliates and it is expected that they may provide similar services in the
future. In all cases, each firm has received customary fees for the rendering of
these services. Both Daniels & Associates and Communications Equity Associates
have consented to the use of their appraisals in connection with this proxy
statement.
NCP-Six paid Houlihan Lokey a fee of $125,000 plus certain hourly fees and
out-of-pocket expenses for its services in connection with rendering its opinion
as to the fairness of the consideration to be received by NCP-Six in the
proposed sales. The amount paid to Houlihan Lokey was not conditioned upon the
outcome of its fairness opinion and was negotiated prior to Houlihan Lokey's
evaluation of any of the assets of NCP-Six. NCP-Six retained Houlihan Lokey to
evaluate the assets of NCP-Six and the consideration to be received in the
proposed sales due to Houlihan Lokey's experience and reputation in evaluating
transactions and rendering fairness opinions for various companies in various
industries, including companies operating in the telecommunications sector.
Houlihan Lokey was ranked number one amongst national investment banking
services
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companies for the number of fairness opinions rendered in the United States
during calendar year 2000. Prior to this engagement, neither Northland
Communications Corporation nor any of its affiliates had entered into a
relationship with Houlihan Lokey, and to the knowledge of the general partners
Houlihan Lokey does not own any interest in, or have any management control over
any Northland Communications Corporation affiliated company. Houlihan Lokey has
consented to the use of its fairness opinion in connection with this proxy
statement.
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SPECIFIC TERMS OF THE PROPOSED SALES
GENERAL STRUCTURE OF THE PROPOSED SALES
The proposed sales are to be made under four separate purchase agreements.
The terms and conditions of each agreement are set forth in the Northland Cable
Networks LLC, Northland Cable Properties, Inc., and Northland Cable Television,
Inc. asset purchase agreements and the Northland Cable Networks LLC Letter of
Intent, copies of which are attached as Exhibits E through H. These offers are
by the following purchasers at the following values:
TOTAL CONSIDERATION
---------------------------------------------------------
LOCATION OF ASSIGNED IN-KIND CASH AT PROMISSORY
OPERATING SYSTEM(S) PURCHASER VALUE CONTRIBUTION(1) CLOSING NOTE(6) TOTAL
- --------------------- ------------------- ----------- --------------- ----------- ----------- -----------
Mississippi Northland Cable
Networks LLC(2) $46,250,000 $2,000,000 $38,175,000 $ 6,075,000 $46,250,000
Bennettsville, Northland Cable
South Carolina Networks LLC(3) $ 7,950,000 $ 375,000 $ 5,625,000 $ 1,950,000 $ 7,950,000
Barnwell, Northland Cable
South Carolina Properties, Inc.(4) $11,400,000 $3,000,000 $ 5,100,000 $ 3,300,000 $11,400,000
Highlands, Northland Cable
North Carolina Television, Inc.(5) $ 4,600,000 $ 504,812 $ 3,595,188 $ 500,000 $ 4,600,000
----------- ---------- ----------- ----------- -----------
Total $70,200,000 $5,879,812 $52,495,188 $11,825,000 $70,200,000
=========== ========== =========== =========== ===========
- ---------------
(1) Immediately prior to each sale, NCP-Six will make an in-kind distribution to
the managing general partner in exchange for its pro rata share of the
operating system(s) sold. The in-kind distribution will satisfy in full the
managing general partner's right to receive further distributions from
NCP-Six with respect to those systems, so that all subsequent distributions
will be made exclusively to the other partners in NCP-Six. The aggregate
in-kind distribution is valued at $5,879,812, based on NCP-Six's expenses
and liabilities equaling the pro forma expenses and liabilities set forth
under the "Projected Cash Available from Liquidation" section below. To the
extent that events occurring after closing, such as claims being made
against the hold back escrow required by Northland Cable Networks LLC and/or
the final calculation of subscribers existing as of the closing date, result
in an adjustment to the purchase price upon which the managing general
partner's in-kind distribution was calculated, an equalizing cash payment
will be made after closing. The managing general partner will reimburse
NCP-Six in cash in an amount equal to the managing general partner's pro
rata ownership percentage of any decrease in the purchase price and NCP-Six
will distribute to the managing general partner in cash an amount equal to
the managing general partner's pro-rata ownership percentage of any
increase. See the subsection below titled "-- The Managing General Partner's
In-kind Distribution" for further details.
(2) Northland Cable Networks LLC will pay to NCP-Six $44,250,000 for NCP-Six's
remaining interest in its Mississippi operating systems. This purchase price
will be paid at closing to NCP-Six through a cash payment of $38,175,000 and
delivery of a promissory note in the principal amount of $6,075,000 issued
by Northland Cable Networks LLC.
(3) Northland Cable Networks LLC will pay to NCP-Six $7,575,000 for NCP-Six's
remaining interest in its Bennettsville, South Carolina. The purchase price
will be paid at closing through a cash payment of $5,625,000 and delivery of
a promissory note in the principal amount of $1,950,000 issued by Northland
Cable Networks LLC.
(4) Northland Cable Properties, Inc. will pay to NCP-Six $8,400,000 for
NCP-Six's remaining interest in its Barnwell, South Carolina operating
systems. This purchase price will be paid at closing to NCP-Six through a
cash payment of $5,100,000 and delivery of a promissory note in the
principal amount of $3,300,000 issued by Northland Communications
Corporation.
(5) Northland Cable Television, Inc. will pay to NCP-Six $4,095,188 for
NCP-Six's remaining interest in its Highlands, North Carolina system. This
purchase price will be paid at closing to NCP-Six through a cash
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payment of $3,595,188 and delivery of a promissory note in the principal
amount of $500,000 issued by Northland Communications Corporation.
(6) The economic terms of each of the promissory notes are identical and
described below under the subsection titled "Terms of Promissory Notes."
POTENTIAL PURCHASE PRICE ADJUSTMENTS
With respect to each of the proposed sales, the value assigned to the
operating systems being purchased is based on the following assumptions:
(i) NCP-Six will transfer its assets free and clear of all liens and
encumbrances;
(ii) the purchaser will assume no debts and liabilities of NCP-Six
(other than obligations arising from the acquired assets after closing);
and
(iii) the purchaser will not receive any of NCP-Six's closing cash
balances, accounts receivable, prepaid expenses or certain other immaterial
assets.
In addition, the $46,250,000 value assigned to NCP-Six's Mississippi
systems is predicated upon the assumption that NCP-Six's Philadelphia and
Starkville, Mississippi systems will have combined at least 18,638
subscribers as of the date of closing. Any lesser amount of subscribers
will result in a downward adjustment of the assigned value equal to $2,447
times the number of subscribers below 18,638. As of March 31, 2001, NCP-Six
had a total of 18,383 subscribers for its combined Mississippi systems.
Subscriber numbers for these systems historically decrease during the
summer months due to a seasonal subscriber base, but such seasonal
decreases customarily reverse themselves by September 30. In an effort to
protect against a downward adjustment to Northland Cable Networks LLC's
purchase price for NCP-Six's Mississippi systems, NCP-Six is focusing its
marketing efforts to increase the number of subscribers for NCP-Six's
Mississippi systems. Based on information provided by NCP-Six's operational
personnel in Mississippi, the managing general partner is optimistic that
there will be an adequate number of subscribers at the time of closing the
sale of NCP-Six's Mississippi systems to avoid a material downward
adjustment to the purchase price of those systems due to the number of
subscribers delivered at closing.
The purchasers may also assume certain of NCP-Six's liabilities at closing.
If one of the purchasers assumes an NCP-Six liability the amount of such
assumption will have no impact on the net cash available to NCP-Six for
distribution to the administrative general partner and the limited partners. To
the extent such liabilities are not assumed by the purchasers, NCP-Six will be
required to pay off its liabilities out of the net proceeds received in the
proposed sales.
TERMS OF PROMISSORY NOTES
As noted above, NCP-Six will receive at closing, as partial consideration
for the sale of its assets, various promissory notes from Northland Cable
Networks LLC and Northland Communications Corporation in the aggregate principal
amount of $11,825,000. While these promissory notes will be from different
issuers, they will have substantially identical terms. Each promissory note
will:
- be payable through three equal payments of principal, together with
accrued but unpaid interest, due on the first, second, and third
anniversaries of closing.
- bear interest at a fixed rate of 8% per annum with a default interest
rate fixed at 10% per annum.
- be prepayable, at any time, without penalty or premium.
- constitute a fully recourse but unsecured obligation of the issuer.
- be subordinated to senior debt incurred by the issuer; provided, however,
that such senior debt will permit payments to be made upon such
promissory note as long as there is not an event of default under the
senior debt. In the event the issuer is in default under its senior debt,
the terms of each promissory note issued to NCP-Six will preclude payment
under the note until the senior debt default
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'is either cured or waived. During this period, the issuer of the note will not
be deemed to be in default of its obligations to NCP-Six under the promissory
notes issued to NCP-Six.
SENIOR DEBT OF NORTHLAND CABLE NETWORKS LLC
Northland Cable Networks LLC is a newly-formed limited liability company.
Northland Communications Corporation owns approximately 12.5% of its outstanding
voting equity, and unaffiliated third-party investors own the balance of the
outstanding voting equity. However, under the terms of Northland Cable Networks
LLC's organizational documents, management personnel of Northland Communications
Corporation may acquire up to an additional 12.5% of Northland Cable Networks
LLC's outstanding equity under an employee incentive plan. To finance the
$43,800,000 cash payments due to NCP-Six at the closings of the sales of
NCP-Six's Mississippi and Bennettsville, South Carolina operating systems,
Northland Cable Networks LLC plans to borrow up to $31,800,000 from a senior
lender that will acquire a first lien on all assets of Northland Cable Networks
LLC, including the assets acquired from NCP-Six. Northland Cable Networks LLC
may incur from time to time additional senior debt for its operations and future
acquisitions. All senior debt incurred by Northland Cable Networks LLC will have
priority over payment of the promissory notes delivered by Northland Cable
Networks LLC to NCP-Six. If Northland Cable Networks LLC defaults on any of its
senior debt, it will be prohibited from making payments on the promissory notes
given to NCP-Six until the default is cured. Furthermore, since the senior debt
will be secured by the assets of Northland Cable Networks LLC, its senior
lienholders will be able to realize upon the collateral value of such assets,
before its collateral is available to pay amounts owing to NCP-Six.
SENIOR DEBT OF NORTHLAND COMMUNICATIONS CORPORATION
Northland Communications Corporation has guaranteed all senior debt that
has been or may be incurred by Northland Cable Properties, Inc. Northland Cable
Properties, Inc. has an existing senior credit facility with a maximum borrowing
limit of $85,000,000. Northland Cable Properties, Inc. expects to utilize this
expanded credit facility to finance the cash portion of the purchase price due
to NCP-Six for the purchase of NCP-Six's Barnwell, South Carolina system and,
after borrowing such additional funds, it anticipates having an outstanding
senior debt of approximately $67,000,000. Separate and apart from its guarantee
of this senior debt, Northland Communications Corporation has, as of March 31,
2001, outstanding senior debt of approximately $1,600,000. Both the direct and
guaranteed debt of Northland Communications Corporation will be senior to the
amounts owing under the promissory notes that Northland Communications
Corporation will deliver to NCP-Six at closing.
PURCHASERS' SOURCES OF FUNDS
As discussed under "General Structure of Proposed Sales" at the beginning
of this section, each of the three purchasers in the proposed sales will pay its
purchase price by delivering to NCP-Six at closing a combination of cash and one
or more promissory notes. Each of those purchasers will be relying upon debt
financing for most, if not all, of the cash portion of the purchase price to be
delivered at closing. As of the date of this proxy statement, the purchasers had
made the following arrangements for financing their proposed purchases:
NORTHLAND CABLE PROPERTIES, INC.
On May 24, 2001, Northland Cable Properties, Inc. and a syndicated group of
lenders led by Bank of Montreal as administrative agent entered into an Amended
and Restated Credit Agreement providing for borrowings of up to $85,000,000 by
Northland Cable Properties, Inc. and Northland Cable Ventures LLC. This credit
facility is secured by a first position lien on all of the existing and after
acquired assets of the borrowers. Northland Cable Properties, Inc. plans to
borrow the entire $5,100,000 cash portion of its purchase price for NCP-Six's
Barnwell, South Carolina operating system from this credit facility, the terms
of which specifically reference that a portion of the funds available under the
credit facility may be borrowed to purchase operating systems from NCP-Six.
Northland Cable Properties, Inc. plans to repay such borrowings through future
operations. Conditions applicable to Northland Cable Properties, Inc.'s ability
to borrow the
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anticipated $5,100,000 under the Amended and Restated Credit Agreement include
customary borrowing conditions for similar commercial loans, including the
lenders' receipt of various security and loan documents, the borrowers not being
in default of the Amended and Restated Credit Agreement at the time the loan is
requested and the absence of any pending litigation prohibiting the loan or the
transaction for which the loan is requested. Additional conditions under the
Amended and Restated Credit Agreement specific to the borrowing required for the
purchase of NCP-Six's Barnwell, South Carolina operating system include the
requirement that all necessary consents for the transfer of NCP-Six's Barnwell
assets are obtained, all assets purchased from NCP-Six are free and clear of all
liens, and Northland Communications Corporation must issue its $3,300,000
promissory note to be delivered by Northland Cable Properties, Inc. to NCP-Six
at closing. Northland Cable Properties, Inc. has not pursued alternative
financing for the proposed sales and is looking solely to its existing Amended
and Restated Credit Agreement to borrow the funds necessary for it to close its
purchase of NCP-Six's Barnwell, South Carolina operating system.
NORTHLAND CABLE TELEVISION, INC.
In August, 2000, Northland Cable Television, Inc. and a syndicated group of
lenders led by Bank of America as administrative agent entered into a Credit
Agreement providing for borrowings of up to $100,000,000 by Northland Cable
Television, Inc. This credit facility is secured by a first position lien on all
of the existing and after acquired assets of Northland Cable Television, Inc.
Northland Cable Television, Inc. plans to borrow the entire $3,595,188 cash
portion of its purchase price for NCP-Six's Highlands, North Carolina operating
system from this credit facility and plans to repay these borrowings through
future operations. Northland Cable Television, Inc.'s ability to borrow the
$3,595,188 amount from this credit facility is subject to certain conditions
customarily found in similar credit agreements. Those conditions include the
requirement that the lenders receive certain loan documents, the borrower not be
in default under the terms of the Credit Agreement at the time the borrowing is
requested, and that there be no material adverse change in the borrower's assets
or operations. Northland Cable Television, Inc. has not pursued alternative
financing for its proposed purchase of NCP-Six's Highlands, North Carolina
operating system and is looking solely to its existing Credit Agreement to
borrow the funds necessary for it to close its purchase.
NORTHLAND CABLE NETWORKS LLC
On June 27, 2001, Northland Cable Networks LLC received a written
expression of interest from a commercial lender to provide a credit facility
with borrowing capacity of up to $35,000,000. In order to close on the combined
purchase of NCP-Six's Mississippi and Bennettsville, South Carolina operating
systems, Northland Cable Networks LLC plans to borrow up to $31,800,000, which
it plans to repay through the course of its operations, asset sales or
subsequent refinancings. Northland Cable Networks LLC plans to pay the remaining
$12 million due at closing for NCP-Six's Mississippi and Bennettsville operating
systems through cash provided by the investor group which owns the majority of
the voting equity of Northland Cable Networks LLC. The proposed credit facility
would have a term of 8.5 years. The interest rate under the credit facility
would be variable based on either an adjusted LIBOR rate or an adjusted
Prime/Federal Funds rate. The credit facility would be secured by a first
position lien on all of the existing and after acquired assets of Northland
Cable Networks LLC. Conditions to borrowing under the credit facility would
include ongoing satisfaction of various financial covenants, including that the
borrower meet specified maximum debt to cash flow ratios, not exceed specified
maximum capital expenditure limits, and maintain at least 20,500 cable
subscribers. Additional conditions to the lender providing the credit facility
include Northland Cable Networks LLC having sufficient cash at the time of
closing the purchase of NCP-Six's operating systems to pay the non-borrowed cash
portion of the purchase price, and evidence that Northland Cable Networks LLC
has delivered its promissory note(s) to NCP-Six at closing in payment of the
remainder of the purchase price for the assets being acquired. As of July 1,
2001, Northland Cable Networks LLC had agreed to the lender's terms and was
awaiting the lender's final underwriting commitment for the anticipated credit
facility.
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TIMING OF CLOSINGS; CONDITIONS TO COMPLETION OF THE PROPOSED SALES
The managing general partner anticipates that each of the proposed sales
will be consummated concurrently during the last two weeks of September, 2001.
However, the obligations of each of the purchasers (Northland Cable Networks
LLC, Northland Cable Properties, Inc. and Northland Cable Television, Inc.) to
consummate each of the proposed sales is subject to the satisfaction of certain
material closing conditions, including the following:
- the proposed transaction must be approved by holders of a majority of the
outstanding limited partnership units of NCP-Six;
- there must be no action, suit or other proceeding pending or threatened
to prevent or restrict the proposed transaction;
- the Hart-Scott-Rodino Act waiting period must have expired or terminated;
- the necessary consents from all franchising authorities and from the FCC
must be obtained;
- in the case of purchases by Northland Cable Networks LLC, the necessary
financing must be obtained; and
- there must be no material change in the financial condition of NCP-Six.
These closing conditions are for the benefit of the purchasers. As a
consequence, each of the proposed sales may not close if one or more of these
conditions are not satisfied or waived by the applicable purchaser, even if the
proposed sales are approved by limited partners holding a majority of NCP-Six's
limited partnership units.
NORTHLAND CABLE NETWORKS LLC'S LETTER OF INTENT
As of the date of this proxy statement, Northland Cable Networks LLC and
NCP-Six had yet to finalize negotiation and execution of a definitive asset
purchase agreement for the purchase and sale of NCP-Six's Bennettsville, South
Carolina system. Notwithstanding, NCP-Six and Northland Cable Networks LLC have
entered into a Letter of Intent setting forth the material terms for the sale of
NCP-Six's Bennettsville system, a copy of which is attached as Exhibit F.
The Letter of Intent between NCP-Six and Northland Cable Networks LLC does
not require either party to sign a definitive agreement. As such, there is a
possibility that such an agreement will not be finally agreed upon, although the
managing general partner feels that such an outcome is unlikely. By authorizing
the proposed sales, the limited partners will authorize NCP-Six to finalize an
asset purchase agreement with Northland Cable Networks LLC on terms that are not
inconsistent with those terms set forth in the Letter of Intent.
OTHER ACQUISITION TERMS
The definitive purchase and sale agreements for the proposed sales contain
certain representations and warranties by NCP-Six as the seller, and Northland
Cable Networks LLC, Northland Cable Television, Inc. and Northland Cable
Properties, Inc., as the purchasers. The definitive agreements also provide for
the termination of the proposed sales if all closing conditions are not
satisfied or waived.
AUTHORIZATION OF SALES TO NON-AFFILIATE PURCHASERS
The proposed amendment to the NCP-Six Partnership Agreement (Proposed
Amendment No. 2) required to authorize the proposed sales is attached to this
proxy statement as Exhibit D. That amendment further provides that in the event
one or more of NCP-Six's operating systems are not purchased in the proposed
sales, the general partners shall have authority, without further limited
partner approval, to sell the
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remaining operating system(s) to one or more purchasers that are not affiliated
with the general partners at prices and on terms established by the general
partners.
DISTRIBUTIONS TO GENERAL AND LIMITED PARTNERS
Under the NCP-Six partnership agreement, partnership distributions are to
be allocated in the following order of priority:
- first, until the limited partners receive cumulative distributions equal
to their capital contributions, 99% to the limited partners and 1% to the
managing general partner; and
- thereafter, 75% to the limited partners, 5% to the administrative general
partner, and 20% to the managing general partner.
Limited partners will participate in the distributions that are to be made
to them in proportion to the number of limited partnership units they hold.
The proposed sales contemplate that the managing general partner will
receive its share of distributions resulting from the proposed sales through
in-kind distributions of a pro rata undivided share of NCP-Six's operating
systems. The administrative general partner and the limited partners will
instead receive their respective shares of the net liquidation proceeds through
cash payments. Since the NCP-Six partnership agreement does not contemplate
concurrent in-kind and cash distributions to different classes of partners, the
managing general partner seeks the limited partners' approval of proposed
Amendment No. 2 to the NCP-Six partnership agreement to permit the concurrent
distributions to be made. A copy of proposed Amendment No. 2 to the NCP-Six
partnership agreement is attached to this proxy statement as Exhibit D. This
amendment is required for the proposed sales.
APPLICATION OF NET CASH PROCEEDS
NCP-Six and the liquidating trust, after it is formed, will apply NCP-Six's
available cash to discharge unpaid NCP-Six liabilities. The managing general
partner has estimated the amount of NCP-Six's total liabilities on a pro forma
basis, assuming that the sales had occurred as of March 31, 2001. See "Projected
Cash Available for Distribution." While NCP-Six's actual liabilities will differ
from those set forth in the pro forma statement, the managing general partner
does not anticipate that NCP-Six's actual liabilities, either at closing or
thereafter, will be materially greater than those set forth in the pro forma
statement. The pro forma statement includes a reserve of $750,000 for contingent
and unknown expenses that arise after the closing.
The net cash proceeds will be applied to cover NCP-Six's expenses, whether
or not such expenses are greater or less than those set forth in the pro forma
statement before cash distributions are made to the administrative general
partner or the limited partners. The balance of the net sale proceeds will then
be distributed to the administrative general partner and limited partners in
proportion to their rights under the NCP-Six partnership agreement. The amounts
of these distributions are estimated to be in the range of those amounts as set
forth under "Projected Cash Available From Liquidation" below.
THE MANAGING GENERAL PARTNERS' IN-KIND DISTRIBUTION
A condition to closing the proposed sales is that immediately prior to, or
concurrently with, the closing of each sale the managing general partner is to
receive a portion of its pro-rata ownership interest in NCP-Six by way of an
in-kind distribution of an undivided interest in the cable operating system(s)
transferred at closing. This in-kind distribution will be in lieu of any cash
distribution that the managing general partner would otherwise be entitled to
receive from the proceeds available for distribution to the partners of NCP-Six.
The aggregate estimated value of the managing general partner's in-kind
distribution described in this proxy statement was calculated using pro forma
financial data as of March 31, 2001 based on the assumption that the proposed
sales will close as contemplated. See "Projected Aggregate Cash Available
Following Closing the Proposed Sales." Several variables could effect the actual
value of the managing general partner's interest in NCP-Six, including purchase
price adjustments at the closing of one or more of the proposed sales,
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or a post closing claim made against the hold-back escrow required by Northland
Cable Networks LLC. Furthermore, the assigned value for the managing general
partner's in-kind distribution on a per system basis was not calculated to
reflect the value of the managing general partner's specific interest in each
operating system. Instead, certain of the assigned values of the managing
general partner's in-kind distribution on a per system basis are higher, and
certain of the assigned values on a per system basis are lower, than the amount
the managing general partner would otherwise be entitled to receive. In order
for the final value of the managing general partner's in-kind distribution to
equal the amount of cash that the managing general partner would receive if a
third party purchaser bought all of NCP-Six's operating systems for cash at a
single closing, a post closing adjustment will be made. Specifically, the
managing general partner will pay to NCP-Six in cash an amount equal to any
excess value received by the managing general partner, and NCP-Six will pay the
managing general partner in cash an amount equal to any shortfall. The cash
payment will be made within 180 days after the last operating system is sold.
Notwithstanding, no adjustment will be made in response to one or more payments
not being made under the promissory notes delivered by the purchasers at
closing. The delivery of those promissory notes will be treated the same as
delivery of cash equal to the principal amount of the notes for purposes of
calculated the managing general partner's in-kind distribution. The managing
general partner will also not be entitled to participate in any interest that
accrues on those promissory notes.
TIMING OF DISTRIBUTIONS TO THE ADMINISTRATIVE GENERAL PARTNER AND LIMITED
PARTNERS
As soon as is reasonably practicable after each sale, NCP-Six intends to
distribute to the administrative general partner and the limited partners their
respective shares of the net cash proceeds then available, after discharging all
known NCP-Six liabilities and setting up a $750,000 reserve for contingent
liabilities. NCP-Six expects these cash distributions to be made within 120 days
of the closings.
As described below under "Dissolution and Liquidation Consequences of the
Proposed Sales -- Description of The NCP-Six Liquidating Trust," NCP-Six intends
to establish a liquidating trust. The liquidating trust will receive the three
subsequent installments of the purchase price from each sale (the amounts due
under the promissory notes), discharge liquidating trust liabilities and any
NCP-Six liabilities arising after NCP-Six's dissolution, administer the
$2,000,000 hold-back escrow required by Northland Cable Networks LLC and
distribute the balance of the funds to the administrative general partner and
the limited partners as available. NCP-Six expects the balance of the net
proceeds to be distributed through three annual installments, each within
approximately sixty days after the payment date on the promissory notes and the
release date of the hold-back escrow.
See "Projected Cash Available from Liquidation" for estimates of the
amounts distributable to the limited partners if the proposed sales are
approved. Considering this arrangement, limited partners should bear in mind
that the pro forma statement includes projected expenses of $750,000 for unknown
and contingent liabilities. The managing general partner considers this estimate
to be reasonable, but such expenses and liabilities may exceed that amount.
TIMING OF DISTRIBUTION TO MANAGING GENERAL PARTNER
If the limited partners approve the proposed sales, NCP-Six will make the
in-kind distributions to the managing general partner of the managing general
partner's pro-rata interest in each system sold at the closing of those systems.
This arrangement favors the managing general partner in two respects. First, the
managing general partner will receive its full pro rata share of NCP-Six's net
liquidation value at closing, in contrast to the installment method used to
distribute the cash payable to the administrative general partner and limited
partners. Second, the managing general partner will not run the risk the
administrative general partner and the limited partners will face that a share
of the distributable assets will be reduced due to a default in payment of one
or more of the promissory notes delivered to NCP-Six by the purchasers.
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DISSOLUTION AND LIQUIDATION CONSEQUENCES OF THE PROPOSED SALES
DISSOLUTION PROCEDURES
If all four of the proposed sales close in their entirety as contemplated,
the managing general partner will commence dissolution of NCP-Six during the
fourth quarter of 2001. NCP-Six will continue to file periodic reports with the
Securities and Exchange Commission under the Securities Exchange Act of 1934
until it is dissolved. Upon its dissolution NCP-Six will file a Certification
and Notice of Termination on Form 15 with the Securities and Exchange
Commission, and will thereafter no longer be subject to the Securities Exchange
Act and will cease filing periodic reports with the Securities and Exchange
Commission. NCP-Six will have completed the dissolution process when it has
discharged all known NCP-Six liabilities, and disposed of all NCP-Six assets,
other than NCP-Six's rights to receive payments on up to four promissory notes
received in the proposed sales, rights to the $2,000,000 hold-back escrow
required by Northland Cable Networks LLC, and a cash reserve of $750,000 for
contingent and unknown liabilities. At that time, NCP-Six will transfer such
assets to the liquidating trust described below. Following dissolution of the
partnership, NCP-Six will no longer provide its limited partners with annual or
semiannual reports if the proposed amendment authorizing the proposed sales is
approved.
DESCRIPTION OF THE NCP-SIX LIQUIDATING TRUST
After NCP-Six is wound up and a certificate of cancellation is filed with
the Washington Secretary of State, the promissory notes received in the proposed
sales will be assigned to a liquidating trust created and maintained for the
benefit of the administrative general partner and the limited partners. The
liquidating trust will be governed by the NCP-Six Liquidating Trust Agreement, a
copy of which is attached as Exhibit O. In addition to the notes, NCP-Six's
rights to the $2,000,000 hold-back escrow required in the Northland Cable
Networks LLC purchase will be transferred to the trust. NCP-Six will also
deposit $750,000 from the cash received upon closing the proposed sales with the
trust to secure any contingent or unknown liabilities.
The trust will permit NCP-Six to dissolve after it ceases operations and
will facilitate administration and distribution of the proceeds of the notes to
the administrative general partner and limited partners. The trust is prohibited
from conducting a trade or business and from making investments (other than
short-term investments in demand or time deposits or similar temporary
investments) and will not hold itself out as an investment company. The trust
will terminate the sooner of the date upon which the trustee has disbursed all
of the proceeds of the notes, which is expected to occur within 60 days of the
third anniversary of closing, or December 31, 2005.
Income and expenses of the trust will be allocated among the administrative
general partner and the limited partners as beneficiaries of the trust according
to their percentage interest in NCP-Six. The trust is designed as a "spendthrift
trust" and expressly precludes voluntary transfer of a beneficiary's interests
in the trust, whether by assignment or otherwise. Although the terms of the
trust also prohibit involuntary transfer of beneficial interests in the trust,
whether by creditors, judgment or operation of law, there can be no assurance
that these provisions will be enforceable in all circumstances. Subject to the
restrictions on the trust's actions as described above, the trustee of the trust
has all rights and authorities granted to trustees generally under Washington
law.
The trust will not be required to file periodic reports with the Securities
and Exchange Commission.
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PROJECTED CASH AVAILABLE FROM LIQUIDATION
The following table sets forth an estimate of the cash available for
distribution to the limited partners if all sales to the affiliates of the
managing general partner are closed. The table provides estimates based on an
initial $500 and $1,000 investment in NCP-Six. It projects net sale proceeds
from the proposed transaction, including payments of principal and interest on
the four promissory notes, of $2,464 per $1,000 investment and rounded to $1,159
per $500 unit. It also shows the overall return of an investment in NCP-Six,
from inception to liquidation, of $2,574 per $1,000 investment and rounded to
$1,287 per $500 unit.
The estimates are computed on a pro forma basis and based upon a number of
assumptions. The projected net cash available assumes that each of the sales in
the proposed transaction closes on March 31, 2001, and reflects payments of
principal and interest on NCP-Six indebtedness and certain accrued receipts and
costs as of March 31, 2001. The current estimated total expenses in the proposed
sales are approximately $1,452,000 (including transaction and proxy costs, and
NCP-Six administrative expenses), but such estimate does not include
administrative costs of dissolving and winding up NCP-Six. Although these
expenses will vary depending on the timing and structure of the sales
transactions, the expenses incurred would likely be equal to or greater than
those set forth in the table. Other expenses, such as NCP-Six administrative
costs and miscellaneous costs, represent expenses that would be incurred by
NCP-Six regardless of the parties to or structure of a sale of NCP-Six's assets.
The estimated expenses include a $750,000 reserve to be held by NCP-Six in the
liquidating trust to pay contingent and unknown liabilities and indemnification
obligations of NCP-Six.
Pursuant to the terms of the Northland Cable Networks LLC purchase
agreement, $2,000,000 of the purchase price will be held in escrow to secure
contingent liabilities and indemnification obligations arising out of the
Northland Cable Networks LLC purchase for a period of one year from closing. It
is assumed that these proceeds will be distributed in full with the first
installment payment from the Northland Cable Networks LLC promissory note.
THE ESTIMATES SET FORTH ON THE FOLLOWING TABLE ARE PROVIDED ON A PRO FORMA
BASIS AS OF MARCH 31, 2001, AND ARE BEING PROVIDED FOR ILLUSTRATIVE PURPOSES
ONLY. THE GENERAL PARTNERS CURRENTLY ANTICIPATE CLOSING EACH OF THE SALES OF THE
PROPOSED TRANSACTION IN LATE SEPTEMBER 2001. ACTUAL AMOUNTS WILL VARY FROM THE
ESTIMATES INCLUDED ON THE FOLLOWING TABLE. THE AMOUNT OF CASH ACTUALLY
DISTRIBUTED TO LIMITED PARTNERS WILL ALSO VARY FROM THESE ESTIMATES. THE AMOUNT
OF THE VARIANCE WILL DEPEND ON A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED
TO, THE ACTUAL DATES OF CLOSING, THE POSSIBILITY THAT ONE OR MORE OF THE SALES
MAY NOT CLOSE AS ANTICIPATED, THE RESULTS OF OPERATIONS OF NCP-SIX PRIOR TO THE
FINAL SALE OF ITS ASSETS, AND THE INCURRENCE OF UNEXPECTED LIABILITIES. THE
AMOUNT OF THE VARIANCE COULD BE SIGNIFICANT.
Although the figures are presented on a pro forma basis as if the proposed
transaction occurred on March 31, 2001, the managing general partner does not
currently anticipate that any events will occur between March 31, 2001 and the
closing date of the final sale in the proposed transaction that will materially
affect the figures.
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PROJECTED AGGREGATE CASH AVAILABLE FOLLOWING CLOSING THE PROPOSED SALES
Assuming all four of the proposed sales close as contemplated, projected
cash available for distribution by NCP-Six to its limited partners was estimated
as of March 31, 2001 to equal the following:
PROJECTIONS FOR ENTIRETY OF NCP-SIX:
Gross aggregate valuation for all four proposed sales..... $ 70,200,000
Adjustments to gross aggregate valuation:
Current liabilities assumed(1)............................ 565,080
Combined adjusted gross aggregate valuation............... 69,634,920
Plus (less) partnership liabilities and other assets:
Receivables and other assets(2)........................ 665,567
Cash on hand........................................... 1,105,672
Broker expenses(3)..................................... (702,000)
Transaction and proxy costs(4)......................... (650,000)
Partnership administrative costs(5).................... (100,000)
Debt repayment to others(6)............................ (29,158,823)
Other costs; contingencies(7).......................... (750,000)
------------
Projected net cash value(8)(9)............................ 40,045,336
Less projected value of distributions to general
partners(9)............................................... 7,321,749
============
Projected aggregate cash available for distribution to
limited partners(9)(10)................................ 32,723,587
- -------------------------
(1) Includes advance subscriber payments and deposits.
(2) Includes NCP-Six's (i) accounts receivable of $513,463 and (ii) prepaid
expenses of $152,104, all of which were determined as of March 31, 2001.
(3) Under NCP-Six's agreement with Daniels & Associates, NCP-Six is obligated
to pay Daniels & Associates a fee of up to $702,000 for its brokerage
services, representing one percent of the gross valuation of the assets as
they are sold.
(4) Estimated costs of this proxy solicitation and closing of the proposed
sales include legal fees and expenses of approximately $300,000, fees and
costs associated with the issuance of a fairness opinion for the proposed
transaction of approximately $150,000, printing costs of approximately
$175,000, mailing expenses of approximately $10,000 and Securities and
Exchange Commission filing fees of approximately $15,000. NCP-Six will be
responsible for all of these costs. No significant auditing or solicitation
costs are expected to be incurred in connection with the proposed sales.
(5) General and administrative, auditing, accounting, legal, reporting and
other costs have been estimated through the final distribution, which is
assumed to occur in October 2004. It is estimated that approximately
$50,000 of this amount will be payable to the managing general partner for
its services in the dissolution and winding up of NCP-Six. Services
provided by the managing general partner will include ongoing accounting
and legal services as well as administrative and investor relations
services during the dissolution and winding up of NCP-Six. The amount to be
paid to the managing general partner represents an estimate of the actual
cost incurred by the managing general partner to provide these services to
NCP-Six.
(6) Consists of (i) notes payable of $28,215,281 to NCP-Six's lender, (ii)
management fees and other operating costs of $37,298 payable to the
managing general partner and affiliates, and (iii) accounts payable,
accrued expenses and other liabilities of $906,244, all of which were
determined as of March 31, 2001.
(7) This amount will be set aside to cover unknown and contingent liabilities
that may exist after closing the last proposed sale and will be held in
NCP-Six's liquidating trust.
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(8) "Projected net cash value" includes the partners' distributive share of
cash and the value of the in-kind distribution of assets to the managing
general partner.
(9) As noted in this proxy statement, the four proposed sales are structured to
occur under separate purchase agreements and legally are not subject to any
requirement that they close concurrently. Notwithstanding, the managing
general partner believes that all four proposed sales will close as
planned. Furthermore, the managing general partner will not sell NCP-Six's
Barnwell, South Carolina, Bennettsville, South Carolina, or Highlands,
North Carolina systems to the managing general partner's affiliates unless
NCP-Six's Mississippi system is closed concurrently or prior to the sale of
those other systems. If, however, the sales of one or more of these other
systems are not closed, NCP-Six will receive less cash for distribution to
its limited partners. This will in turn effect the amount of distributions
to be made per limited partnership unit by NCP-Six. (See "Projected
Distributions For Each Limited Partner Unit Following Closing the Proposed
Sales.")
(10) The difference between "projected net cash value" and "projected cash
available for distribution to limited partners" represents the projected
value of (i) the assets to be distributed to the managing general partner
in-kind, less the managing general partner's share of liabilities, and (ii)
the projected cash to be distributed to the administrative general partner.
These amounts were calculated using the applicable formula found in Article
16(d) of the NCP-Six partnership agreement. That formula applies to the
calculation of the share of distributable proceeds to be paid to the
general partners and limited partners upon dissolution of NCP-Six. The
formula generally provides that distributions to the general partners are
capped at 1% until the limited partners receive 100% return of their
capital contribution. Thereafter, distributions are made 75% to the limited
partners and 25% to the general partners. The following tables illustrate
the application of the formula to the projected proceeds from the proposed
sales.
Excess of Limited Partners' Capital Contributions over Prior Cash Distributions
This table shows the amount to be distributed to the limited partners in
order to return 100% of their capital contributions.
PER $1,000
PER UNIT INVESTMENT AGGREGATE
-------- ---------- -----------
Original combined capital contributions for all
outstanding limited partner units....................... $500.00 $1,000 $14,892,000
(Less prior cash distributions paid to limited
partners)............................................ 127.50 255 3,797,460
======= ====== ===========
Remaining balance of capital contributions to be returned
to limited partners..................................... $372.50 $ 745 $11,094,540
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Break Down Of Distributions Of Aggregate Proposed Sale Proceeds
Between General Partners and Limited Partners
This table shows the calculation of estimated aggregate distributions to be
made to the general partners and limited partners assuming all four of the
proposed sales close as contemplated.
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------- ----------- -----------
Pursuant to Article 16(d)(iii) of the NCP-Six
partnership agreement:
Return to limited partners of excess of capital
contributions over prior cash distributions..... -- $11,094,540(a) $11,094,540
Distributions to the general partners equal to 1%
until limited partners receive 100% return of
capital contributions........................... $ 112,066 -- $ 112,066
Pursuant to Article 16(d)(iv) of the NCP-Six
partnership agreement:
Balance distributed 75% to the limited partners and
25% to the general partners........................ $7,209,683 $21,629,047 $28,838,730
---------- ----------- -----------
Combined distribution of projected net cash value.... $7,321,749 $32,723,587 $40,045,336
========== =========== ===========
- -------------------------
(a) Results in a projected distribution of $372.50 per limited partnership
unit.
Projected Value Of General Partner Distributions From Aggregate Proposed Sale
Proceeds
This table shows the calculation of estimated amounts to be distributed to
the general partners assuming all four of the proposed sales close as
contemplated.
Projected net cash value.................................... $40,045,336
Less distributions to the general partners capped at 1%
until limited partners receive 100% return of their
capital contributions pursuant to Article 16(d)(iii) of
the NCP-Six partnership agreement...................... (112,066)
Less projected value of assets to be distributed to the
managing general partner and cash to be distributed to
the administrative general partner, minus share of
liabilities as determined after the limited partners
receive 100% return of their aggregate capital
contributions pursuant to Section 16(d)(iv) of the
NCP-Six partnership agreement.......................... 7,209,683
-----------
Resulting projected aggregate cash available for limited
partner distributions..................................... $32,723,587
===========
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PROJECTED DISTRIBUTIONS FOR EACH LIMITED PARTNER UNIT FOLLOWING CLOSING THE
PROPOSED SALES
Assuming all four of the proposed sales close as contemplated, projected
cash available for distribution by NCP-Six per limited partnership unit is
estimated to equal the following:
PER $500
PARTNERSHIP
PER $1,000 UNIT
INVESTMENT (ROUNDED)
---------- -----------
Initial distribution from closing all four of the
proposed sales.................................... $1,198 $ 599
Distribution from the first note payments and the
Northland Cable Networks LLC hold-back escrow,
excluding interest................................ 383 191
Distributions from the second note payments,
excluding interest................................ 253 127
Distributions from the third note payments, excluding
interest.......................................... 253 127
Previously received cash distributions............... 255 128
North Carolina, South Carolina, and Mississippi
nonresident tax paid on behalf of the limited
partners -- (treated as a cash distribution)(1)... 110 55
Aggregate interest on first, second and third note
payments.......................................... 122 60
------ ------
Total overall potential return over the life of the
partnership (including interest).................. $2,574 $1,287
====== ======
-----------------------------------------
(1) NCP-Six has operating assets in the states of Mississippi,
North Carolina and South Carolina. These states impose an
income tax on the net income earned by nonresident partners
from property located in the state. NCP-Six is required to
compute and pay this tax on behalf of its limited partners.
This tax will be paid on behalf of the limited partners out
of proceeds from the proposed sales that could otherwise be
distributed directly to the limited partners. A limited
partner residing in Mississippi, North Carolina or South
Carolina may be entitled to refund of a portion of this tax
paid on their behalf. See "Federal and State Income Tax
Consequences of the Proposed Sales -- State Income Tax
Considerations" above for a more detailed discussion of this
state tax.
-----------------------------------------
As noted in this proxy statement, however, the four proposed sales are
structured to occur under separate purchase agreements and legally are not
subject to any requirement that they close concurrently. Notwithstanding, the
managing general partner believes that all four proposed sales will close as
planned. Furthermore, the managing general partner will not sell NCP-Six's
Barnwell, South Carolina, Bennettsville, South Carolina, or Highlands, North
Carolina systems to the managing general partner's affiliates unless NCP-Six's
Mississippi systems are closed concurrently or prior to the sale of those other
systems. The sale of NCP-Six's Mississippi systems to Northland Cable Networks
LLC is expected to generate sale proceeds of approximately $44,250,000. If this
sale were the only sale to occur in 2001, the managing general partner estimates
that approximately $30,277,985 of such sale proceeds will be used to retire
third-party debt, partnership payables, and transactional costs, leaving
approximately $15,253,837 available for distribution to the administrative
general partner and limited partners. Of this estimated amount, approximately
$7,056,496 (or $237 per unit) will be available for distribution to limited
partners within 120 days after closing, approximately $4,434,242 (or $149 per
unit) one year after closing, approximately $2,308,856 (or $78 per unit) two
years after closing, and approximately $2,149,809 (or $72 per unit) three years
after closing. These numbers include projected interest to be paid on the
$6,075,000 promissory note to be delivered by Northland Cable Networks LLC.
These amounts are substantially below the estimated distributions to limited
partners within these periods if all four proposed sales close concurrently in
2001. However, since a significant portion of the net sale proceeds
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received from the proposed sale of NCP-Six's Mississippi systems will be used to
pay substantially all existing partnership obligations (including NCP-Six's
existing credit facility indebtedness of approximately $28,215,281), NCP-Six
will hold its interest in the remaining unsold systems essentially free of debt.
When the remaining systems are sold in 2002 or in later periods, substantially
all of the net sale proceeds (subject to reserves and holdbacks), when and as
received by NCP-Six, will be available for distribution to the partners in
accordance with their respective interests. Limited partners, in considering
whether to approve the proposed sales, should bear in mind, that there is no
assurance that all four proposed sales will occur concurrently in 2001, although
the managing general partner considers the concurrent closing of all four sales
likely. Failure to close the transactions concurrently will affect the timing of
the distributions to limited partners and may have a material adverse effect on
the amounts ultimately distributed to the limited partners depending upon the
prices and terms upon which NCP-Six ultimately sells the remaining operating
systems. Such prices and terms may be more or less favorable than those proposed
by the managing general partner's affiliates, and may result in the limited
partners receiving more or less than the estimated distribution amounts, which
estimates were predicated solely upon the assumption that all four of the
proposed sales to the affiliated entities were consummated in 2001.
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INFORMATION ABOUT NCP-SIX
GENERAL
NCP-Six is a Washington limited partnership consisting of two general
partners and approximately 1,795 limited partners as of March 31, 2001.
Northland Communications Corporation, a Washington corporation, is the managing
general partner of NCP-Six. FN Equities Joint Venture, a California general
partnership, is the administrative general partner of NCP-Six.
MANAGING GENERAL PARTNER
Northland Communications Corporation was initially formed in March 1981.
Northland Communications Corporation is principally involved in the ownership
and management of cable television systems. Northland Communications Corporation
currently manages the operations and serves as the general partner for cable
television systems owned by four limited partnerships. Northland Communications
Corporation is the parent company of Northland Cable Properties, Inc., which was
formed in February 1995 and is principally involved in direct ownership of cable
television systems. Northland Cable Properties, Inc. is the managing member of
Northland Cable Ventures, LLC. Northland Communications Corporation is also a
minority member of Northland Cable Networks LLC and will manage Northland Cable
Networks LLC's operation under a management services contract. Northland
Telecommunications Corporation is the parent company of Northland Communications
Corporation and Northland Cable Television, Inc. Other direct and indirect
subsidiaries of Northland Telecommunications Corporation include:
- Northland Cable News, Inc. -- formed in May 1994 -- is principally
involved in the production and development of local news, sports and
informational programming.
- Northland Cable Services Corporation -- formed in August 1993 -- is
principally involved in the development and production of computer
software used in billing and financial record keeping for
Northland-affiliated cable systems; Northland Cable Services Corporation
is the sole shareholder of Cable Ad-Concepts, Inc.
- Cable Ad-Concepts, Inc. -- formed in November 1993 -- is principally
involved in the sale, development and production of video commercial
advertisements that are cablecast on Northland-affiliated cable systems.
- Northland Media, Inc. -- formed in April 1995 -- is a holding company
that serves as the sole shareholder of Statesboro Media, Inc. and
Corsicana Media, Inc.:
- Statesboro Media, Inc. -- formed in April 1995 -- is principally involved
in operating an AM radio station serving the community of Statesboro,
Georgia and surrounding areas.
- Corsicana Media, Inc. -- purchased in September 1998 from an
affiliate -- is principally involved in operating an AM radio station
serving the community of Corsicana, Texas and surrounding areas.
NCP-SIX'S BUSINESS
On January 22, 1986 the general partners formed NCP-Six and began
operations with the acquisition of cable television systems serving several
communities and their surrounding areas in Mississippi and North Carolina. In a
series of transactions since then, NCP-Six acquired and now operates cable
television systems through five operating groups located in the following
geographic areas:
- Starkville, Mississippi;
- Philadelphia, Mississippi;
- Highlands, North Carolina;
- Barnwell, South Carolina; and
- Bennettsville, South Carolina.
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NCP-Six's revenues are derived primarily from monthly payments received
from cable television subscribers. Subscribers are divided into three
categories: basic subscribers, tier subscribers and premium subscribers. "Basic
subscribers" are households that subscribe to the basic level of service, which
generally provides access to the four major television networks (ABC, NBC, CBS
and Fox), a few independent local stations, PBS (the Public Broadcasting System)
and certain satellite programming services, such as ESPN, CNN or The Discovery
Channel. "Tier subscribers" are households that subscribe to an additional level
of programming services the content of which varies from system to system.
"Premium subscribers" are households that subscribe to one or more "pay
channels" in addition to the basic service. These pay channels include services
such as Showtime, Home Box Office, Cinemax or The Movie Channel.
As of March 31, 2001, the total number of basic subscribers served by
NCP-Six's systems was approximately 31,828. As of March 31, 2001, NCP-Six's
penetration rate (basic subscribers as a percentage of the total number of
estimated homes passed by NCP-Six's cable distribution system) was approximately
63%. NCP-Six's systems are located in rural areas, which to some extent do not
offer consistently acceptable signals capable of being received by an "off-air"
antenna. This factor, combined with the existence of fewer entertainment
alternatives than in large markets contributes to a higher penetration rate in
rural areas than in larger more urban areas.
NCP-Six has 35 non-exclusive franchises to operate its systems. These
franchises, which will expire at various dates through the year 2017, are
granted by local, county, state and other governmental authorities in the areas
in which NCP-Six's systems currently operate. Annual franchise fees are paid to
the granting governmental authorities. These fees vary between 2% and 5% of the
respective gross revenues of the system derived from the system's operations in
a particular community. The franchises may be terminated for failure to comply
with their respective conditions.
NCP-SIX OPERATING SYSTEMS
NCP-Six operates five groups of cable systems serving the communities of
and areas surrounding Starkville and Philadelphia, Mississippi; Highlands, North
Carolina; and Barnwell and Bennettsville, South Carolina. The following is a
description of these operating groups.
STARKVILLE, MISSISSIPPI
The Starkville operating group serves the communities of and areas
surrounding Starkville and Kosciusko, Mississippi. The city of Starkville is the
home of Mississippi State University with an enrollment of approximately 12,000
students. Mississippi State University's 10 colleges and schools comprise 58
departments that offer more than 120 majors. Mississippi State University is
also the largest employer in Starkville, with nearly 1,300 faculty members or
professionals and 1,450 support staff. Also located in Starkville is the
Mississippi Research and Technology Park, which is a long-range economic
development project initiated through the joint efforts of the city of
Starkville, Oktibbeha County, Mississippi State University and the local
business community. Mississippi Research and Technology Park is located on
approximately 220 acres across from the entrance to Mississippi State University
and will enhance high-technology research for application to the economic
sector. The developers and businesses that comprise Mississippi Research and
Technology Park intend to work hand in hand with research efforts at Mississippi
State University, and companies that locate in Mississippi Research and
Technology Park will have the benefit of Mississippi State University facilities
and faculty.
The following provides subscriber information regarding the Starkville,
Mississippi operating group as of March 31, 2001:
Basic Subscribers........................................... 11,749
Tier Subscribers............................................ 6,063
Premium Subscribers......................................... 4,033
Estimated Homes Passed...................................... 16,525
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PHILADELPHIA, MISSISSIPPI
The Philadelphia operating group serves the communities of and areas
surrounding Philadelphia and Forest, Mississippi. The systems are located in
central Mississippi in an area where the local economies are based primarily in
manufacturing. The region has excellent highway and railroad transportation, a
year-round mild climate, and the availability of a trained, cost-effective labor
force. One of the main industries in the area is poultry. Nearly two million
birds are dressed weekly in the city of Forest, which ranks as the
second-largest producer of broilers in the nation. Other industries in the area
include apparel, ready mix concrete, frozen food products, lumber, small
appliances, electronic assembly, steel and meat processing.
The following provides subscriber information regarding the Philadelphia,
Mississippi operating group as of March 31, 2001:
Basic Subscribers........................................... 6,634
Tier Subscribers............................................ 3,002
Premium Subscribers......................................... 2,648
Estimated Homes Passed...................................... 8,910
HIGHLANDS, NORTH CAROLINA
The Highlands operating group serves an area located on the high plateau of
the Blue Ridge Mountains where the corners of Georgia, North Carolina and South
Carolina meet. Highlands has long offered a cool and beautiful summer retreat
for affluent families from such southern cities as Atlanta, New Orleans and
Tampa. The Highlands region is almost encircled by the 200,000 acres of the End
National Forest, and boasts a lush mixture of hardwoods and evergreens because
of an abundant rainfall. Highlands has an average altitude of over 4,000 feet,
and thus maintains a temperate summer climate. The influx of tourists increases
Highland's year-round population of approximately 2,000 to over 20,000 between
May and October.
The Highlands area is perhaps best known for its exclusive golf clubs.
There are three beautiful golf courses in the Highlands area, the oldest being
the Highlands Country Club. About half the land in the Highlands area is under
private ownership; the rest is part of the End National Forest and is open for
hiking, fishing, hunting, camping and other outdoor activities. The private land
near the golf courses consists largely of exclusive housing developments, many
of which feature rambling, ranch-style vacation homes with values ranging from
$200,000 to $500,000. The Great Smokey Mountains National Park and the Blue
Ridge Parkway are within easy driving distance of Highlands. Several lakes in
the area offer swimming, boating, skiing, fishing and other water sports.
Rafting is also popular in the area due to the close proximity of the Chattooga
and Cullasaja Rivers.
The following provides subscriber information regarding the Highlands
system as of March 31, 2001:
Basic Subscribers........................................... 2,544
Premium Subscribers......................................... 541
Estimated Homes Passed...................................... 4,190
BARNWELL, SOUTH CAROLINA
The Barnwell operating group serves the communities of and areas
surrounding Barnwell, Bamberg and Allendale, South Carolina. The region served
by the Barnwell operating group is located approximately sixty miles south of
Columbia, South Carolina. The economy is based primarily on agricultural and
manufacturing activities.
The following provides subscriber information regarding the Barnwell system
as of March 31, 2001:
Basic Subscribers........................................... 5,888
Premium Subscribers......................................... 3,971
Estimated Homes Passed...................................... 12,125
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BENNETTSVILLE, SOUTH CAROLINA
The Bennettsville operating group serves the community of and area
surrounding Bennettsville, South Carolina. The region served by the
Bennettsville operating group is located approximately 100 miles northeast of
Columbia, South Carolina and serves as the county seat of Marlboro County. The
economy is primarily driven by agriculture and manufacturing. Three of the
largest employers in Bennettsville are Mohawk Carpet, United Technologies
Automotive and Willamette Industries.
The following provides subscriber information regarding the Bennettsville
system as of March 31, 2001:
Basic Subscribers........................................... 5,013
Premium Subscribers......................................... 3,428
Estimated Homes Passed...................................... 9,090
EMPLOYEES
NCP-Six had 48 employees as of March 31, 2001. Management of these systems
is handled through offices located in the towns of Starkville, Forest, Kosciusko
and Philadelphia, Mississippi; Highlands, North Carolina; and Barnwell and
Bennettsville, South Carolina.
CUSTOMERS
The business of NCP-Six is not dependent on a single customer or a few
customers, so the loss of any one or more customers would not have a material
adverse effect on its business. No customer accounts for 10% or more of
revenues. No material portion of NCP-Six's business is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of any
governmental unit, except that franchise agreements may be terminated or
modified by the local franchising authorities. See "-- Regulation and
Legislation."
SEASONALITY
NCP-Six's cable television business is generally not seasonal, with the
exception of the Highlands system, which is subject to seasonal fluctuations in
its number of subscribers.
NCP-SIX'S COMPETITION
NCP-Six currently experiences competition from several sources, including
broadcast television, cable overbuilds, satellite services, motion pictures,
home video cassette recorders, and the Internet.
APPLICABLE REGULATIONS AND LEGISLATION
SUMMARY
The following summary addresses the key regulatory developments and
legislation affecting NCP-Six and its systems. Other applicable existing federal
legislation and regulations, copyright licensing and, in many jurisdictions,
state and local franchise requirements are currently the subject of a variety of
judicial proceedings, legislative hearings and administrative and legislative
proposals. Resulting development could change, in varying degrees, the manner in
which NCP-Six must operate. There can be no assurance that the final form of
regulation will not have a material adverse impact on NCP-Six's operations.
CABLE RATE REGULATION
The 1992 Cable Act imposed an extensive rate regulation regime on the cable
television industry, which limits the ability of cable companies, including
NCP-Six, to increase certain subscriber fees. Although the Federal
Communications Commission established the underlying regulatory scheme, local
government units commonly referred to as local franchising authorities are
primarily responsible for administering the regulation of the lowest level of
cable service called the basic service tier. The basic service tier typically
contains local broadcast stations and public, educational and government access
channels. Local franchising authorities also
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have primary responsibility for regulating cable equipment rates. Under federal
law, charges for various types of cable equipment must be unbundled from each
other and from monthly charges for programming services.
Under the rate regulations of the Federal Communications Commission, most
cable systems were required to reduce their basic service tier and cable
programming service tier rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs as well as providing some
incentive for expanding channel carriage. The Federal Communications Commission
has modified its rate adjustment regulations to allow for annual rate increases
and to minimize previous problems associated with regulatory lag. Operators also
have the opportunity to bypass this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Cost of service regulation is a traditional form of rate
regulation under which a utility is allowed to recover its costs of providing
the regulated service plus a reasonable profit.
The Federal Communications Commission itself historically administered rate
regulation of cable programming service tiers, which represent the expanded
level of non-"basic" and "premium" programming services. The 1996 Telecom Act,
however, provided immediate rate relief for small cable operators offering cable
programming service tiers. All of NCP-Six's systems qualified for this cable
programming service tier deregulation. The elimination of cable programming
service tier regulation afforded NCP-Six substantially greater pricing
flexibility.
CABLE ENTRY INTO TELECOMMUNICATIONS
The 1996 Telecom Act creates a more favorable environment for NCP-Six to
provide telecommunications services beyond traditional video delivery. It
provides that no state or local laws or regulations may prohibit or have the
effect of prohibiting any entity from providing any interstate or intrastate
telecommunications service. A cable operator is authorized under the 1996
Telecom Act to provide telecommunications services without obtaining a separate
local franchise. States are authorized, however, to impose "competitively
neutral" requirements regarding universal service, public safety and welfare,
service quality and consumer protection. State and local governments also retain
their authority to manage the public rights-of-way and may require reasonable,
competitively neutral compensation for management of the public rights-of-way
when cable operators provide telecommunications service. The favorable pole
attachment rates afforded NCP-Six under federal law can be gradually increased
by utility companies owning the poles beginning in 2001, if NCP-Six starts
providing telecommunications services as well as cable services over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the Federal Communications Commission and state
regulators. One critical component of the 1996 Telecom Act to facilitate the
entry of new telecommunications providers (including cable operators) is the
interconnection obligation imposed on all telecommunications carriers. Although
these regulations should enable new telecommunications entrants to reach viable
interconnection agreements with incumbent carriers, many issues remain
unresolved, including which specific network elements the Federal Communications
Commission can mandate that incumbent carriers make available to competitors.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION
The 1996 Telecom Act allows telephone companies to compete directly with
cable operators by repealing the historic telephone company cable
cross-ownership ban. Local exchange carriers, including the regional telephone
companies, can now compete with cable operators both inside and outside their
telephone service areas with certain regulatory safeguards. Because of their
resources, local exchange carriers could be formidable competitors to NCP-Six.
Various local exchange carriers currently are providing video programming
services within their telephone service areas through a variety of distribution
methods, including both the deployment of broadband wire facilities and the use
of wireless transmission.
Although local exchange carriers and cable operators can now expand their
offerings across traditional service boundaries, the general prohibition remains
on local exchange carrier buyouts of co-located cable systems. Cable operator
buyouts of co-located local exchange carrier systems, and joint ventures between
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cable operators and local exchange carriers in the same market are also
prohibited. The 1996 Telecom Act provides a few limited exceptions to this
buyout prohibition, including a carefully circumscribed "rural exemption." The
1996 Telecom Act also provides the Federal Communications Commission with the
limited authority to grant waivers of the buyout prohibition.
ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS AND CABLE TELEVISION
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, including cable
television, notwithstanding the Public Utility Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the Federal Communications
Commission for operating authority. Like telephone companies, electric utilities
have substantial resources at their disposal, and could be formidable
competitors to traditional cable systems. Several of these utilities have been
granted broad authority to engage in activities which could include the
provision of video programming.
OWNERSHIP RESTRICTIONS
The 1996 Telecom Act eliminates statutory restrictions on broadcast cable
cross-ownership, but leaves in place existing Federal Communications Commission
regulations prohibiting local cross-ownership between co-located television
stations and cable systems. The 1996 Telecom Act leaves in place existing
restrictions on cable cross-ownership with satellite master antenna television
and multichannel multipoint distribution service facilities, but lifts those
restrictions where the cable operator is subject to effective competition.
Federal Communications Commission regulations permit cable operators to own and
operate satellite master antenna television systems within their franchise area,
provided that their operation is consistent with local cable franchise
requirements.
MUST CARRY AND RETRANSMISSION CONSENT
The 1992 Cable Act contains broadcast signal carriage requirements.
Broadcast signal carriage is the transmission of broadcast television signals
over a cable system to cable customers. These requirements, among other things,
allow local commercial television broadcast stations to elect once every three
years between "must carry" status or "retransmission consent" status. Less
popular stations typically elect must carry, which is the broadcast signal
carriage rule that allows local commercial television broadcast stations to
require a cable system to carry the station. Must carry requests can dilute the
appeal of a cable system's programming offerings because a cable system with
limited channel capacity may be required to forego carriage of popular channels
in favor of less popular broadcast stations electing must carry. More popular
stations, such as those affiliated with a national network, typically elect
retransmission consent, which is the broadcast signal carriage rule that allows
local commercial television broadcast stations to negotiate terms (such as
mandating carriage of an affiliated cable network) for granting permission to
the cable operator to carry the stations. Retransmission consent demands may
require substantial payments or other concessions.
NCP-Six has been able to reach agreements with all of the broadcasters who
elected retransmission consent. To date, compliance with the "retransmission
consent" and "must carry" provisions of the 1992 Cable Act has not had a
material effect on NCP-Six, although these provisions may affect the future
operations of NCP-Six.
ACCESS CHANNELS
Local franchising authorities can include franchise provisions requiring
cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity, up to 15% in some cases, for
commercial leased access by unaffiliated third parties. The Federal
Communications Commission has adopted rules regulating the terms, conditions and
maximum rates a cable operator may charge for commercial leased access use.
Requests made to NCP-Six to date for commercial leased access carriage have been
relatively limited.
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ACCESS TO PROGRAMMING
To spur the development of independent cable programmers and competition to
incumbent cable operators, the 1992 Cable Act imposed restrictions on the
dealings between cable operators and cable programmers. Of special significance
from a competitive business posture, the 1992 Cable Act precludes video
programmers affiliated with cable companies from favoring their cable operators
over new competitors and requires these programmers to sell their
satellite-delivered programming to other multichannel video distributors. This
provision limits the ability of vertically integrated cable programmers to offer
exclusive programming arrangements to cable companies.
INSIDE WIRING; SUBSCRIBER ACCESS
In an order issued in 1997, the Federal Communications Commission
established rules that require an incumbent cable operator upon expiration of a
multiple dwelling unit service contract to sell, abandon or remove "home run"
wiring that was installed by the cable operator in a multiple dwelling unit
building. These inside wiring rules are expected to assist building owners in
their attempts to replace existing cable operators with new programming
providers who are willing to pay the building owner a fee, where this fee is
permissible. The Federal Communications Commission has also proposed abrogating
all exclusive multiple dwelling unit service agreements held by incumbent
operators.
OTHER APPLICABLE REGULATIONS OF THE FEDERAL COMMUNICATIONS COMMISSION
In addition to the Federal Communications Commission regulations noted
above, there are other Federal Communications Commission regulations to which
NCP-Six is subject covering such areas as:
- equal employment opportunity;
- subscriber privacy;
- programming practices, including, among other things;
- syndicated program exclusivity;
- network program nonduplication;
- local sports blackouts;
- indecent programming;
- lottery programming;
- political programming;
- sponsorship identification;
- children's programming advertisements;
- closed captioning;
- registration of cable systems and facilities licensing;
- maintenance of various records and public inspection files;
- aeronautical frequency usage;
- lockbox availability;
- antenna structure notification;
- tower marking and lighting;
- consumer protection and customer service standards;
- technical standards;
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- consumer electronics equipment compatibility; and
- emergency alert systems.
COPYRIGHT
NCP-Six is subject to federal copyright licensing covering carriage of
television and radio broadcast signals. In exchange for filing certain reports
and contributing a percentage of its revenues to a federal copyright royalty
pool, NCP-Six can obtain blanket permission to retransmit copyrighted material
included in broadcast signals. Effective July 1, 2000, the Federal Copyright
Office increased the cable compulsory license rates used to calculate cable
systems' copyright payments under the cable compulsory license. The possible
modification or elimination of this compulsory copyright license is the subject
of continuing legislative review and could adversely affect NCP-Six's ability to
obtain desired broadcast programming. NCP-Six cannot predict the outcome of this
legislative activity.
Cable operators distribute locally originated programming and advertising
that use music controlled by the two principal major music performing rights
organizations, the American Society of Composers, Authors and Publishers (ASCAP)
and Broadcast Music, Inc. (BMI). The cable industry has had a long series of
negotiations and adjudications with both organizations. A prior voluntarily
negotiated settlement with BMI has now expired, and is subject to further
proceedings. The governing rate court recently set retroactive and prospective
cable industry rates for ASCAP music based on the previously negotiated BMI
rate. Although NCP-Six cannot predict the ultimate outcome of these industry
proceedings or the amount of any license fees NCP-Six may be required to pay for
past and future use of association-controlled music, NCP-Six does not believe
these license fees will be significant to its business and operations.
STATE AND LOCAL REGULATION
NCP-Six's cable television systems generally are operated pursuant to
nonexclusive franchises granted by a municipality or other state or local
government entity in order to cross public rights-of-way. Federal law now
prohibits local franchising authorities from granting exclusive franchises or
from unreasonably refusing to award additional or renew existing franchises.
Cable franchises generally are granted for fixed terms and in many cases
include monetary penalties for non-compliance and may be terminable if the
franchisee fails to comply with material provisions. The specific terms and
conditions of franchises vary materially among jurisdictions. Each franchise
generally contains provisions governing cable operations, service rates,
franchising fees, system construction and maintenance obligations, system
channel capacity, design and technical performance, customer service standards
and indemnification protections. A number of states subject cable systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility. Although local
franchising authorities have considerable discretion in establishing franchise
terms, there are certain federal limitations or a local franchisor's authority.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the local franchising authority may seek to impose new and more onerous
requirements, such as significant upgrades in facilities and service or
increased franchise fees as a condition of renewal. Similarly, if a local
franchising authority's consent is required for the sale of a cable system or
franchise, the local franchising authority may attempt to impose more burdensome
or onerous franchise requirements in connection with a request for consent.
Historically, most of NCP-Six's franchises have been renewed and transfer
consents granted.
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LEGAL PROCEEDINGS
NCP-Six is not subject to any material legal proceedings.
NCP-SIX'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The general partners are not recommending the proposed sales due to
insufficient working capital or declining results of operations. NCP-Six has
historically generated significant net losses due, in part, to non-cash charges
to income for depreciation and amortization. Prior to the deduction of these
non-cash items, NCP-Six has generated sufficient operating income to service its
debt and achieve certain levels of cash distributions to limited partners in
prior years. Although quarterly cash distributions are not currently being made
to limited partners, it is anticipated that quarterly distributions could
possibly be reinstated in the future if the proposed transaction is not
consummated and certain amendments to NCP-Six's bank loan agreements can be
negotiated. The amounts and timing of any future distributions are dependent in
part on NCP-Six's ability to increase cash flow from operations.
NCP-Six's current senior revolving credit facility matures on September 30,
2001 with a projected outstanding principal balance of approximately $28,215,000
due and payable on that date. Should NCP-Six continue its operations beyond this
date an amendment to the existing loan agreement will be required to extend the
loan maturity and revise certain financial covenants. An agreement was reached
with NCP-Six's lenders to extend the loan maturity to September 30, 2001 to
allow sufficient time to close the proposed transaction. It is probable that any
agreement by the lenders to further extend the loan maturity beyond September
30, 2001 will be conditioned upon an amendment to the NCP-Six partnership
agreement to extend the life of NCP-Six, which currently expires on December 31,
2001. This proxy statement solicits approval for an amendment to the NCP-Six
partnership agreement aimed at effectuating an extension of NCP-Six for six
additional years until December 31, 2007. In the managing general partner's
opinion, amendments to NCP-Six's loan agreement can likely be obtained from
NCP-Six's lenders at a cost and on terms that will not adversely affect
NCP-Six's ability to continue operating as a going concern, but only if
NCP-Six's life is first extended.
NCP-Six generates the majority of its revenue from subscriber fees. The
following table displays historical average rate information for various
services offered by the partnership's systems (amounts per subscriber per
month):
2000 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------
Basic Rate............................. $28.50 $26.50 $24.20 $23.00 $22.24 $21.53
Tier Rate.............................. 8.95 8.50 7.65 6.90 6.35 5.95
HBO Rate............................... 10.30 10.25 10.50 11.35 11.25 11.10
Cinemax Rate........................... 8.25 7.70 7.30 8.70 8.50 8.25
Showtime Rate.......................... 8.15 7.95 6.30 4.50 8.45 8.45
Movie Channel Rate..................... 6.20 6.00 6.60 -- -- 7.00
Disney Rate............................ -- 6.50 6.20 5.10 6.00 6.75
Encore Rate............................ 1.10 1.50 1.50 -- -- --
Starz Rate............................. 6.25 8.50 8.50 -- -- --
Service Contract Rate.................. 2.25 2.30 2.35 2.60 2.65 2.65
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
Total Revenue. NCP-Six's revenues totaled $3,766,902 for the three months
ended March 31, 2001, representing no significant change over the same period in
2000. Of these revenues, $2,553,765 (68%) was derived from basic service
charges, $333,796 (9%) from premium services, $478,962 (13%) from tier services,
$101,595 (3%) from service maintenance contracts, $93,993 (2%) from advertising
and $204,792 (5%) from other sources.
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Operating Expenses. NCP-Six's operating expenses totaled $285,081 for the
three months ended March 31, 2001, representing a decrease of approximately 6%
over the same period in 2000. The decrease is primarily due to decreased
operating salaries and regional management expense offset by increases in system
maintenance and vehicle operating expenses.
General and Administrative Expenses. NCP-Six's general and administrative
expenses totaled $910,016 for the three months ended March 31, 2001,
representing an increase of approximately 2% over the same period in 2000. This
increase is primarily attributable to increases in salary and benefit costs due
to cost of living adjustments, as well as increased property taxes.
Programming Expenses. NCP-Six's programming expenses totaled $1,052,623 for
the three months ended March 31, 2001, representing an increase of approximately
7% over the same period in 2000. This increase is primarily attributable to
higher costs charged by various program suppliers as well as additional costs
associated with launching additional channels. Programming expenses consist
mainly of payments made to the suppliers of various cable programming services.
As these costs are based on the number of subscribers served, future subscriber
increases will cause the trend of increasing programming costs to continue.
Additionally, rate increases from program suppliers, as well as new fees
associated with the launch of additional channels will contribute to further
increased programming costs.
Depreciation and Amortization Expense. NCP-Six's depreciation and
amortization expenses totaled $1,132,085 for the three months ended March 31,
2001, representing an increase of approximately 1% over the same period in 2000.
This increase is mainly due to depreciation on plant and equipment acquired
during the quarter, offset by assets becoming fully depreciated.
Interest Expense. NCP-Six's interest expense for the three months ended
March 31, 2001 increased approximately 5% over the same period in 2000. The
average bank debt decreased from $28,965,281 during the first quarter of 2000 to
$28,215,281 during the first quarter of 2001. The Partnership's effective
interest rate increased from 8.31 % in the first quarter of 2000 to 9.25% in the
first quarter of 2001.
RESULTS OF OPERATIONS FOR YEAR 2000
Total Revenue. NCP-Six's revenues totaled $15,221,887 for the year ended
December 31, 2000, representing an increase of approximately 1% over the same
period in 1999. Of these revenues, $11,025,826 (72%) was derived from basic
service charges, $1,379,913 (9%) from premium services, $948,969 (6%) from tier
services, $331,125 (2%) from installation charges, $397,470 (3%) from service
maintenance contracts, $581,281 (4%) from advertising and $557,303 (4%) from
other sources. NCP-Six's April 1999 disposition of its Sandersville, Mississippi
system decreased revenues by approximately $189,000 or 1%. Assuming the
Sandersville, system was disposed of at the beginning of each of the respective
periods, revenues would have increased approximately 2%. The growth in revenue
is attributable to rate increases implemented in NCP-Six's systems.
Operating Expenses. NCP-Six's operating expenses totaled $1,161,419 for
the year ended December 31, 2000, representing a decrease of approximately 12%
over the same period in 1999. Excluding the impact of the Sandersville,
Mississippi system disposition, operating expenses would have decreased
approximately 10% for the year ended December 31, 2000. The decrease in
operating expenses is primarily due to decreased regional management expense and
system maintenance costs. Salary and benefit costs are a major component of
operating expenses. Employee wages are reviewed annually and, in most cases,
increased based on cost of living adjustments and other factors. As a result,
operating expenses are expected to increase in future years.
General and Administrative Expenses. NCP-Six's general and administrative
expenses totaled $4,035,555 for the year ended December 31, 2000, representing a
decrease of approximately 1% over the same period in 1999. Excluding the impact
of the Sandersville, Mississippi system disposition, general and administrative
expenses would have increased approximately 1.3% for the year ended December 31,
2000. This increase is primarily attributable to (i) increases in salary and
benefit costs due to cost of living adjustments, and (ii) increases in revenue
based expenses such as management fees and franchise fees as well
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as increased property taxes. Significant general and administrative expenses are
calculated as a percentage of NCP-Six's revenues. As NCP-Six's revenues
increase, its administrative expenses increase proportionately.
Programming Expenses. NCP-Six's programming expenses totaled $3,968,492
for the year ended December 31, 2000, representing a 1% increase over the same
period in 1999. Adjusting for the Sandersville, Mississippi system disposition,
programming expenses would have increased approximately 4% for the year ended
December 31, 2000 compared to the same period in 1999. This increase is mainly
due to higher costs charged by various program suppliers offset by reduced local
programming expenses. Programming expenses consist mainly of payments made to
the suppliers of various cable programming services. Since these costs are based
on the number of subscribers served, future subscriber increases will cause the
trend of increasing programming costs to continue. Additionally, rate increases
from program suppliers, as well as new fees associated with the launch of
additional channels will contribute to further increased programming costs.
Depreciation and Amortization Expenses. NCP-Six's depreciation and
amortization expenses totaled $4,468,532 for the year ended December 31, 2000,
representing a 2% increase over the same period in 1999. This increase is mainly
due to depreciation on plant and equipment acquired during the last year offset
by assets becoming fully depreciated during the year.
Interest Expense. NCP-Six's interest expense for the year ended December
31, 2000 increased approximately 5% over the same period in 1999. The average
bank debt decreased from $30,169,000 in 1999 to $28,590,000 during 2000, and
NCP-Six's effective interest rate increased from 8.18% in 1999 to 8.59% in 2000.
RESULTS OF OPERATIONS YEAR ENDED 1999
Total Revenue. NCP-Six's total revenue reached $15,005,218 for the year
ended December 31, 1999, representing an increase of approximately 2% over 1998.
Of the 1999 revenue, $10,781,941 (72%) is derived from subscriptions to basic
services, $1,509,949 (10%) from subscriptions to premium services, $846,215 (6%)
from subscriptions to tier services, $507,932 (3%) from advertising, $384,380
(3%) from service maintenance revenue, $367,300 (2%) from installation charges
and $607,501 (4%) from other sources. The increase in revenue is attributable
primarily to rate increases placed into effect in August 1999 as well as new
product services introduced in 1999. In April 1999, NCP-Six sold the cable
television system and assets relating to its Sandersville, Mississippi system,
resulting in the disposition of approximately 1,400 subscribers and decreased
revenues of approximately $200,000 or 2%. Assuming the Sandersville, Mississippi
system was disposed of at the beginning of each of the respective periods,
revenues would have increased approximately 4%.
Operating Expenses. NCP-Six's operating expenses totaled $1,320,255 for
the year ended December 31, 1999, representing an increase of approximately 5%
over the same period in 1998. Excluding the impact of the disposition of the
Sandersville, Mississippi system, operating expenses would have increased
approximately 9% for the year. This increase was primarily due to increased
operating salaries and pole rental expense offset by decreased system
maintenance expenses and drop materials.
General and Administrative Expenses. NCP-Six's general and administrative
expenses totaled $4,064,866 for the year ended December 31, 1999, representing
an increase of approximately 7% over the same period in 1998. Excluding the
impact of the Sandersville, Mississippi system disposition, general and
administrative expenses would have increased approximately 10% compared to the
same period in 1998. This increase was due to higher revenue based expenses such
as management fees and franchise fees as well as increased utilities, legal
expenses, property taxes and bad debt expense offset by reduced billing
expenses, marketing expenses and copyright fees.
Programming Expenses. NCP-Six's programming expenses totaled $3,915,701
for the year ended December 31, 1999, representing an increase of approximately
3% over 1998. Adjusting for the Sandersville, Mississippi system disposition,
programming expenses would have increased approximately 6% compared to the same
period in 1998. This increase was mainly due to higher costs charged by various
program suppliers as well as increased advertising expenses and production
expenses.
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Depreciation and Amortization Expenses. NCP-Six's depreciation and
amortization expenses totaled $4,392,073 for the year ended December 31, 1999,
representing an increase of approximately 2% over the same period in 1998. This
increase was due to depreciation and amortization on purchases of plant and
equipment in 1999 offset by assets becoming fully depreciated.
Interest Expense. NCP-Six's interest expense for 1999 decreased
approximately 7% over 1998. The average bank debt decreased from $31,373,000
during 1998 to $30,169,000 during 1999, offset by an increase to NCP-Six's
effective interest rate from 7.88% in 1998 to 8.18% in 1999.
SELECTED QUARTERLY FINANCIAL DATA
The following unaudited selected quarterly financial data for the quarter
ended March 31, 2001 and each of the four quarters ending in years 2000 and 1999
has been prepared by the managing general partner.
QUARTERS ENDED
----------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
2001 2000 2000 2000 2000 1999 1999
----------- ------------ ------------- ----------- ----------- ------------ -------------
Revenue................ $ 3,766,902 $ 3,852,433 $ 3,812,503 $ 3,803,536 $ 3,753,415 $ 3,798,006 $ 3,709,213
Operating income....... $ 387,097 $ 188,724 $ 477,806 $ 465,645 $ 455,714 $ 93,778 $ 429,065
Gain (loss) on
retirement of
assets................ $ -- $ (162,743) $ (108,898) $ -- $ 4,708 $ (273,689) $ (58,045)
Net income (loss)...... $ (403,323) $ (636,562) $ (309,847) $ (195,891) $ (184,093) $ (795,894) $ (261,347)
Net income (loss) per
limited partner unit
(weighted average).... $ (13) $ (21) $ (10) $ (7) $ (6) $ (27) $ (9)
Investment in cable
television
properties............ $26,040,200 $26,422,694 $27,009,267 $27,446,910 $28,197,268 $29,161,847 $29,907,660
Book value per limited
partner unit.......... $ 874 $ 887 $ 907 $ 922 $ 947 $ 979 $ 1,004
QUARTERS ENDED
--------------------------
JUNE 30, MARCH 31,
1999 1999
----------- -----------
Revenue................ $ 3,765,208 $ 3,732,791
Operating income....... $ 441,461 $ 348,019
Gain (loss) on
retirement of
assets................ $ 1,662,267 $ --
Net income (loss)...... $ 1,467,256 $ (311,159)
Net income (loss) per
limited partner unit
(weighted average).... $ 49 $ (10)
Investment in cable
television
properties............ $30,170,700 $30,583,736
Book value per limited
partner unit.......... $ 1,013 $ 1,027
LIQUIDITY AND CAPITAL RESOURCES
NCP-Six's primary sources of liquidity include cash flow from operations
and the $8,000,000 revolving credit line portion of NCP-Six's senior credit
facility with its syndicated lending group led by First Union National Bank as
administrative agent. As of March 31, 2001 approximately $5,650,000 in principal
was outstanding on that revolving credit line portion, and approximately
$28,215,000 in principal was outstanding under the entire senior credit
facility. Based on management's analysis, NCP-Six's cash flow from operations
and amounts available for borrowing under NCP-Six's revolving credit line are
sufficient to cover operating costs and planned capital expenditures up to the
expected liquidation date of NCP-Six.
Under the terms of NCP-Six's senior credit facility agreement, all amounts
outstanding under the senior credit facility become due and payable on September
30, 2001. NCP-Six's continuing operations will not provide sufficient liquidity
to satisfy this obligation at its stated maturity. Alternatives available to
NCP-Six include a sale of a portion or all of its assets to generate proceeds
sufficient to repay the outstanding debt or to renegotiate the terms of the
credit agreement with its lenders to extend the maturity date. Management
believes agreement by NCP-Six's lenders to extend the maturity date will first
require limited partner approval to extend the expiration of NCP-Six, which
currently expires on December 31, 2001. This proxy statement solicits approval
for that extension.
The general partners have formulated a proposal to liquidate the assets of
NCP-Six. In the opinion of the managing general partner the proposal will
provide sufficient proceeds to retire all of NCP-Six's debt obligations. The
proposed sales require approval of a majority in interest of NCP-Six's limited
partners. Approval for the proposed sales is solicited in this proxy statement.
If the proposed sales are approved and closed, it is anticipated that NCP-Six
will be liquidated as a partnership during the fourth quarter of 2001 regardless
of whether NCP-Six's term is extended.
During the year ended December 31, 2000, and quarter ended March 31, 2001,
NCP-Six's primary source of liquidity was cash provided from operations. NCP-Six
generates cash on a monthly basis through the
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monthly billing of subscribers for cable services. Losses from uncollectible
accounts have not been material. During the year ended December 31, 2000 and
quarter ended March 31, 2001, cash generated from monthly billings was
sufficient to meet NCP-Six's needs for working capital, capital expenditures and
scheduled debt service.
Under the terms of NCP-Six's senior credit facility NCP-Six has agreed to
restrictive covenants which require the maintenance of certain financial
performance ratios. These ratios include a senior debt to annualized operating
cash flow ratio of no more than 5.25 to 1.00, and an annual operating cash flow
to interest expense ratio of not less than 2.25 to 1.00. As of March 31, 2001,
NCP-Six was in compliance with its required financial covenants.
As of the date of this proxy statement, the balance under NCP-Six's senior
credit facility was $28,215,281. Certain fixed rate swap agreements that
previously provided NCP-Six with a fixed interest rate on certain borrowings
expired during the third quarter of 2000. As a result, indebtedness under
NCP-Six's senior credit facility is currently subject to an adjustable rate of
interest. That interest rate is adjusted monthly and was a Libor based rate of
6.83% expiring June 29, 2001 on a principal balance of $27,815,281, and prime on
an additional principal balance of $400,000. This rate includes a margin paid to
the lender based on overall leverage and may increase or decrease as NCP-Six's
leverage fluctuates.
CAPITAL EXPENDITURES AND IMPROVEMENTS
Cable television systems require continuous upgrades and maintenance to
remain competitive.
NCP-Six does not, however, have any current plans to accelerate any maintenance
or improvements to its systems. Instead, all currently scheduled capital
improvements are within the ordinary course of NCP-Six's standard operations. As
of March 31, 2001, NCP-Six's scheduled capital improvements included digital
programming equipment for the Starkville, Philadelphia, Highlands and
Bennettsville systems at an estimated cost of approximately $1,050,000. The
Highlands and Bennettsville systems are scheduled to launch digital programming
in the fourth quarter of 2001.
During 2000, NCP-Six incurred approximately $2,054,000 of capital
expenditures. Those expenditures included:
- an ongoing upgrade to the Starkville, Mississippi system, including the
launch of digital programming services in Starkville;
- an ongoing upgrade to the Forest, Mississippi system;
- an ongoing upgrade to the Barnwell, South Carolina system; and
- an ongoing extension of service lines for all of NCP-Six's systems.
During 1999, NCP-Six incurred approximately $2,660,000 in capital
expenditures. Those expenditures included:
- an ongoing upgrade to 550 MHz to the Starkville, Mississippi system;
- a vehicle replacement for the Starkville, Mississippi system;
- the completion of an upgrade to 450 MHz to the Kosciusko, Mississippi
system;
- an ongoing upgrade to 450 MHz to the Philadelphia, Mississippi system,
including channel additions;
- a vehicle replacement for the Philadelphia, Mississippi system;
- an ongoing deployment of fiber optic cable in the Highlands, North
Carolina system;
- a vehicle replacement and addition of a stand-by generator for the
Bennettsville, South Carolina system;
- an ongoing upgrade to 450 MHz in the Barnwell, South Carolina system;
- a vehicle replacement for the Barnwell, South Carolina system; and
- an ongoing extension of service lines for all of NCP-Six's systems.
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During 1998, NCP-Six incurred approximately $2,820,000 in capital
expenditures. Those expenditures included:
- an ongoing deployment of fiber optic cable in the Starkville, Mississippi
system;
- an ongoing upgrade to 450 MHz to the Kosciusko, Mississippi system;
- a vehicle replacement for the Philadelphia, Mississippi system;
- an ongoing upgrade to 450 MHz to the Philadelphia, Mississippi system;
- an ongoing deployment of fiber optic cable in the Highlands, North
Carolina system;
- an upgrade of computer hardware and software in the Bennettsville, South
Carolina system;
- a new office building purchase for the Barnwell, South Carolina system;
- an upgrade to 450 MHz to the Barnwell, South Carolina system; and
- an ongoing extension of service lines for all of NCP-Six's systems.
RECENT ACQUISITIONS AND DISPOSITIONS
On April 30, 1999, NCP-Six sold the assets of its cable television system
serving approximately 1,400 subscribers in and around the community of
Sandersville, Mississippi. The sales price for the system was $1.9 million and
the net proceeds were utilized to reduce outstanding debt. NCP-Six determined to
sell the Sandersville system due to a significant "overbuild" situation facing
the system and the surrounding geographic area. Due to the overbuild and lack of
other interested purchasers for the system, NCP-Six sold the Sandersville system
to the overbuilder.
On January 2, 1998, NCP-Six purchased cable television systems serving
approximately 11,200 subscribers in and around the communities of Allendale,
Bamberg, Barnwell and Bennettsville, South Carolina. The purchase price of these
systems was $20.5 million. NCP-Six borrowed approximately $20.47 million to
finance the acquisition of the South Carolina cable systems. That borrowing was
made under NCP-Six's outstanding senior credit facility.
MANAGEMENT AND BENEFICIAL OWNERSHIP OF NCP-SIX
MANAGEMENT OF NCP-SIX
NCP-Six is a Washington limited partnership with no directors or officers.
The managing general partner of NCP-Six is Northland Communications Corporation,
a Washington corporation. The administrative general partner of NCP-Six is FN
Equities Joint Venture, a California general partnership.
The principal business of Northland Communications Corporation historically
has been locating cable television systems, negotiating for their acquisition,
forming limited partnerships to own the systems, arranging for the sale of
limited partnership interests to investors, managing limited partnerships,
including NCP-Six, and liquidating partnership assets upon dissolution.
Northland Communications Corporation is a wholly-owned subsidiary of Northland
Telecommunications Corporation, a Washington corporation. The address of the
principal executive offices of each of Northland Communications Corporation and
Northland Telecommunications Corporation is 1201 Third Avenue, Suite 3600,
Seattle, Washington 98101.
The sole partners of the administrative general partner are FN Equities,
Inc., and FN Network Partners, Ltd., a California limited partnership. John S.
Simmers is the sole owner of FN Equities, Inc. The principal business of each of
the administrative general partner and FN Equities, Inc. is to provide
administrative services as administrative general partner of cable television
limited partnerships. FN Network Partners, Ltd. is an investment partnership.
The address of the principal executive offices of each of the administrative
general partner, FN Equities, Inc., FN Network Partners, Ltd. and John S.
Simmers is 2780 SkyPark Drive, Suite 300, Torrance, California 90505.
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OFFICERS AND DIRECTORS OF NORTHLAND COMMUNICATIONS CORPORATION
The following table sets forth information about the executive officers and
directors of Northland Communications Corporation:
NAME AGE POSITION
---- --- --------
John S. Whetzell........................... 59 Board Chairman and Chief Executive Officer
Richard I. Clark........................... 43 Director, Executive Vice President,
Assistant Treasurer and Assistant Secretary
John E. Iverson............................ 64 Director and Secretary
Gary S. Jones.............................. 43 President
Richard J. Dyste........................... 55 Senior Vice President -- Technical Services
H. Lee Johnson............................. 57 Divisional Vice President
R. Gregory Ferrer.......................... 45 Vice President and Treasurer
Matthew J. Cryan........................... 36 Vice President, Budgets and Planning
Laura N. Williams.......................... 34 Vice President and Senior Counsel
Rick J. McElwee............................ 39 Vice President and Controller
JOHN S. WHETZELL is the founder of Northland Communications Corporation,
its Chief Executive Officer and has been a Director since March 1982. Mr.
Whetzell became Chairman of the Board of Directors in December 1984. He also
serves as Chief Executive Officer and Chairman of the Board of Northland
Telecommunications Corporation and each of its subsidiaries. He has been
involved with the cable television industry for over 26 years. Between March
1979 and February 1982, he was in charge of Ernst & Whinney's national cable
television consulting services. Mr. Whetzell first became involved in the cable
television industry when he served as the Chief Economist of the Cable
Television Bureau of the Federal Communications Commission from May 1974 to
February 1979. He provided economic studies to support the deregulation of cable
television both in federal and state arenas. He participated in the formulation
of accounting standards for the industry and assisted the Federal Communications
Commission in negotiating and developing the pole attachment rate formula for
cable television. His undergraduate degree is in economics from George
Washington University, and he has an MBA degree from New York University.
RICHARD I. CLARK, an original incorporator of Northland Communications
Corporation, serves as Executive Vice President, Assistant Secretary and
Assistant Treasurer of Northland Communications Corporation. He also serves as
Executive Vice President, Assistant Secretary and Treasurer of Northland
Telecommunications Corporation. Mr. Clark has served on the Board of Directors
of both Northland Communications Corporation and Northland Telecommunications
Corporation since July 1985. In addition to his other responsibilities, Mr.
Clark is responsible for the administration and investor relations activities of
Northland Communications Corporation, including financial planning and corporate
development. From July 1979 to February 1982, Mr. Clark was employed by Ernst &
Whinney in the area of providing cable television consultation services and has
been involved with the cable television industry for nearly 22 years. He has
directed cable television feasibility studies and on-site market surveys. Mr.
Clark has assisted in the design and maintenance of financial and budget
computer programs and he has prepared documents for major cable television
companies in franchising and budgeting projects through the application of these
programs. In 1979, Mr. Clark graduated cum laude from Pacific Lutheran
University with a Bachelor of Arts degree in accounting.
JOHN E. IVERSON is the Secretary of Northland Communications Corporation
and has served on its Board of Directors since December 1984. He also is the
Secretary and serves on the Board of Directors of Northland Telecommunications
Corporation and each of its subsidiaries. He is currently a member of the law
firm of Ryan, Swanson & Cleveland P.L.L.C. He is a member of the Washington
State Bar Association and American Bar Association and has been practicing law
for more than 38 years. Mr. Iverson is the past president and a Trustee of the
Pacific Northwest Ballet Association. Mr. Iverson has a Juris Doctor degree from
the University of Washington.
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GARY S. JONES is the President of Northland Communications Corporation. Mr.
Jones has previously served as Vice President and Chief Financial Officer for
Northland Communications Corporation. Mr. Jones joined Northland Communications
Corporation in March 1986. Mr. Jones is responsible for cash management,
financial reporting and banking relations for Northland and is involved in the
acquisition and financing of new cable systems. Prior to joining Northland
Communications Corporation, Mr. Jones was employed by the Certified Public
Accounting firm of Laventhol & Horwath from 1980 to 1986. Mr. Jones received his
Bachelor of Arts degree in Business Administration with a major in accounting
from the University of Washington in 1979.
RICHARD J. DYSTE serves as Senior Vice President -- Technical Services of
Northland Communications Corporation and each of its subsidiaries. Mr. Dyste
joined Northland Communications Corporation in April 1987. Mr. Dyste is
responsible for planning and advising all Northland cable systems with regard to
technical performance as well as system upgrades and rebuilds. He is a past
president and current member of the Society of Cable Telecommunications
Engineers, Inc. Mr. Dyste joined Northland Communications Corporation in 1986 as
an engineer and served as Operations Consultant to Northland Communications
Corporation from August 1986 until April 1987. From 1977 to 1985, Mr. Dyste
owned and operated Bainbridge TV Cable. He is a graduate of Washington
Technology Institute.
H. LEE JOHNSON has served as Divisional Vice President for Northland
Communications Corporation's Statesboro, Georgia regional office since March
1994. He is responsible for the management of systems serving subscribers in
Alabama, Georgia, Mississippi, North Carolina and South Carolina. Prior to his
association with Northland he served as Regional Manager for Warner
Communications, managing four cable systems in Georgia from 1968 to 1973. Mr.
Johnson has also served as President of Sunbelt Finance Corporation and was
employed as a System Manager for Statesboro CATV when Northland purchased the
system in 1986. Mr. Johnson has been involved in the cable television industry
for over 32 years and is a current member of the Society of Cable Television
Engineers. He is a graduate of Swainsboro Technical Institute and has attended
numerous training seminars, including courses sponsored by Jerrold Electronics,
Scientific Atlanta, The Society of Cable Television Engineers and CATA.
R. GREGORY FERRER joined Northland Communications Corporation in March 1984
as Assistant Controller and serves as Vice President and Treasurer of Northland
Communications Corporation. Mr. Ferrer also serves as Vice President and
Assistant Treasurer of Northland Telecommunications Corporation. Mr. Ferrer is
responsible for coordinating all of Northland's property tax filings, insurance
requirements and system programming contracts as well as interest rate
management and other treasury functions. Prior to joining Northland, he was a
Certified Public Accountant at Benson & McLaughlin, a local public accounting
firm, from 1981 to 1984. Mr. Ferrer received his Bachelor of Arts in Business
Administration from Washington State University with majors in marketing in 1978
and accounting and finance in 1981.
MATTHEW J. CRYAN is Vice President -- Budgets and Planning and has been
with Northland Communications Corporation since September 1990. Mr. Cryan is
responsible for the development of current and long-term operating budgets for
all Northland entities. Additional responsibilities include the development of
financial models used in support of acquisition financing, analytical support
for system and regional managers, financial performance monitoring and reporting
and programming analysis. Prior to joining Northland, Mr. Cryan was employed as
an analyst with NKV Corp., a securities litigation support firm located in
Redmond, Washington. Mr. Cryan graduated from the University of Montana in 1988
with honors and holds a Bachelor of Arts in Business Administration with a major
in finance.
LAURA N. WILLIAMS is Vice President and Senior Counsel for Northland
Communications Corporation and has served in this role since August 2000. Prior
to this time, she served as Associate Counsel for each of the Northland entities
from August 1995. She is a member of the Washington State Bar Association,
American Bar Association and Women in Telecommunications. Ms. Williams received
her Bachelor of Science degree in Business Administration with a major in
finance and an M.B.A. from California State University, Long Beach, and has a
Juris Doctor degree from Seattle University School of Law.
RICK J. MCELWEE is Vice President and Controller for Northland
Communications Corporation. He joined Northland in May 1987 as System Accountant
and was promoted to Assistant Controller of Northland
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Cable Television, Inc. in 1993. Mr. McElwee became Divisional Controller of
Northland Telecommunications Corporation in 1997 and in January 2001, he was
promoted to Vice President and Controller of Northland Telecommunications
Corporation. Mr. McElwee is responsible for managing all facets of the
accounting and financial reporting process for the Northland companies. Prior to
joining Northland, he was employed as an accountant with Pay n' Save Stores,
Inc., a regional drugstore chain. Mr. McElwee graduated from Central Washington
University in 1985 and holds a Bachelor of Science degree in Business
Administration with a major in accounting.
OFFICERS AND DIRECTORS OF FN EQUITIES JOINT VENTURE
The following table sets forth information about the executive officers and
directors of FN Equities, Inc.:
NAME AGE POSITION
---- --- --------
Miles Z. Gordon................ 54 President and Director
John S. Simmers................ 50 Vice President, Secretary and Director
MILES Z. GORDON is President of FN Equities, Inc. and President and Chief
Executive Officer of Financial Network Investment Corporation (FNIC), and has
held those positions since 1983. From 1979 through April 1983 he was President
of University Securities Corporation. In 1978, Mr. Gordon was engaged in the
private practice of law, and from 1973 through 1978, he was employed by the
Securities and Exchange Commission. He presently serves as Chairman of the
Securities Industry Association Independent Contractor Firms Committee. Mr.
Gordon was also Chairman and a member of the NASD District Business Conduct
Committee and a former member of the NASD Board of Governors. He is past
president of the California Syndication Forum and has also served on several
committees for the Securities Industry Association.
JOHN S. SIMMERS is Vice President and Secretary of FN Equities, Inc. and
Executive Vice President and Chief Operating Officer of Financial Network
Investment Corporation and has held those positions since 1983. From June 1980
through April 1983, he was Executive Vice President of University Securities
Corporation, Vice President of University Capital Corporation and Vice President
of University Asset Management Group. From 1974 through May 1980, he was
employed by the National Association of Securities Dealers.
BENEFICIAL OWNERSHIP
Security ownership of management in NCP-Six as of March 31, 2001 is as
follows:
PERCENT OF AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP
- ------------------------------------ -------------- --------------------
Northland Communications Corporation General Partner's Interest (See Note A)
1201 Third Avenue (See Note A)
Suite 3600
Seattle, WA 98101
FN Equities Joint Venture General Partner's Interest (See Note B)
2780 Skypark Dr. (See Note B)
Suite 300
Torrance, CA 90505
- -------------------------
Note A: Northland Communications Corporation has a 1% interest in NCP-Six, which
increases to a 20% interest in NCP-Six when NCP-Six's limited partners
have received 100% return of their aggregate capital contributions. The
natural person who exercises voting and/or investment control over these
interests is John S. Whetzell.
Note B: FN Equities Joint Venture has no interest in NCP-Six until NCP-Six's
limited partners have received 100% return of their aggregate capital
contributions, at which time FN Equities Joint Venture will have a 5%
interest in NCP-Six. The natural person who exercises voting and/or
investment control over these interests is John S. Simmers.
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CHANGES IN CONTROL
Northland Communications Corporation has pledged its ownership interest as
managing general partner of NCP-Six to NCP-Six's lenders as collateral pursuant
to the terms of the senior credit facility agreement between NCP-Six and its
syndicated group of lenders, led by First Union National Bank as administrative
agent.
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FINANCIAL STATEMENTS
Included with this proxy statement, starting on the following page, are
NCP-Six's unaudited financial statements for the quarter ended as of March 31,
2001 and audited financial statements for fiscal years ending as of December 31,
2000, 1999 and 1998. Financial statements for prior years and periods have
previously been distributed to the limited partners on an ongoing basis.
If a limited partner desires any additional information regarding financial
statements, please contact the managing general partner.
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
(PREPARED BY THE MANAGING GENERAL PARTNER)
MARCH 31, 2001
MARCH 31, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
Cash........................................................ $ 1,105,672 $ 1,281,380
Due from affiliates......................................... 13,065 14,109
Accounts receivable......................................... 513,464 725,123
Prepaid expenses............................................ 259,638 85,506
Property and equipment, net of accumulated depreciation of
$16,814,546 and $16,325,363, respectively................. 14,188,776 13,960,226
Intangible assets, net of accumulated amortization of
$17,313,965 and $16,661,387, respectively................. 11,851,424 12,462,468
------------ ------------
Total assets........................................... $ 27,932,039 $ 28,528,812
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses....................... $ 906,244 $ 1,297,584
Due to managing general partner and affiliates.............. 50,363 35,458
Converter deposits.......................................... 28,550 29,590
Subscriber prepayments...................................... 536,529 460,038
Notes payable............................................... 28,215,281 28,215,281
------------ ------------
Total liabilities...................................... 29,736,967 30,037,951
------------ ------------
Partners' deficit:
General Partners:
Contributed capital, net.................................. (37,565) (37,565)
Accumulated deficit....................................... (104,541) (104,541)
(142,106) (142,106)
------------ ------------
Limited Partners:
Contributed capital, net.................................. 8,982,444 8,982,444
Accumulated deficit....................................... (10,645,266) (10,349,477)
(1,662,822) (1,367,033)
------------ ------------
Total partners' deficit................................ (1,804,928) (1,509,139)
------------ ------------
Total liabilities and partners' deficit................ $ 27,932,039 $ 28,528,812
============ ============
The accompanying notes are an integral part of these statements.
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(PREPARED BY THE MANAGING GENERAL PARTNER)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
----------- -----------
(UNAUDITED)
Service revenues............................................ $3,766,902 $3,753,415
Expenses:
Operating (including $49,136 and $78,210 to affiliates,
respectively).......................................... 285,081 304,646
General and administrative (including $391,758 and
$393,404 to affiliates, respectively).................. 910,016 891,032
Programming (including $21,649 and $63,012 to affiliates,
respectively)............................................. 1,052,623 985,622
Depreciation and amortization............................... 1,132,085 1,116,401
---------- ----------
3,379,805 3,297,701
---------- ----------
Income from operations...................................... 387,097 455,714
Other income (expense):
Interest expense.......................................... (690,463) (652,095)
Interest income and other................................. (99,957) 12,288
---------- ----------
(790,420) (639,807)
Net loss.................................................... $ (403,323) $ (184,093)
========== ==========
Allocation of net loss:
General Partners.......................................... $ (4,033) $ (1,841)
========== ==========
Limited Partners.......................................... $ (399,290) $ (182,252)
========== ==========
Net loss per limited partnership unit: (29,784 units)....... $ (13) $ (6)
========== ==========
Net loss per $1,000 investment.............................. $ (27) $ (12)
========== ==========
The accompanying notes are an integral part of these statements.
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(PREPARED BY THE MANAGING GENERAL PARTNER)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... (403,323) (184,093)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization............................. 1,132,085 1,116,401
Amortization of loan fees................................. 59,675 50,655
Gain on sale of assets.................................... -- (4,708)
(Increase) decrease in certain operating assets and
liabilities:
Accounts receivable....................................... 211,659 16,336
Prepaid expenses.......................................... (66,598) (45,424)
Accounts payable and accrued expenses..................... (391,340) (518,926)
Due to managing general partner and affiliates............ 15,949 28,942
Converter deposits........................................ (1,040) (1,479)
Subscriber prepayments.................................... 76,491 185,518
---------- ----------
Net cash from operating activities.......................... 633,558 643,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net..................... (767,732) (192,319)
Proceeds from disposal of assets............................ -- 7,000
Increase in intangibles..................................... (41,534) (12,454)
Net cash used in investing activities....................... (809,266) (197,773)
---------- ----------
(Decrease) Increase in Cash................................. (175,708) 445,449
Cash, beginning of period................................... 1,281,380 556,962
---------- ----------
Cash, end of period......................................... $1,105,672 $1,002,411
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ 648,438 $ 608,025
========== ==========
The accompanying notes are an integral part of these statements.
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2001
(1)The unaudited financial statements have been prepared in conformity with Rule
10-01 of Regulation S-X regarding interim financial statement disclosure and
do not contain all of the necessary footnote disclosures required for a fair
presentation of the balance sheets, statements of operations and statements
of cash flows in conformity with generally accepted accounting principles.
However, in the opinion of management, this data includes all adjustments,
consisting only of normal recurring accruals, necessary to present fairly
NCP-Six's financial position at March 31, 2001, its statements of operations
for the three months ended March 31, 2001 and 2000 and its statements of cash
flows for the three months ended March 31, 2001 and 2000. These financial
statements and notes should be read in conjunction with NCP-Six's audited
financial statements for the year ended December 31, 2000.
(2)In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) and
in June 2000 issued SFAS No. 138, amendment of SFAS 133. These statements
establish accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. These statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.
Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB No. 133 -- an Amendment
to FASB Statement No. 133" the effective date of SFAS No. 133 has been
deferred until fiscal years beginning after January 15, 2000. SFAS No. 133
cannot be applied retroactively. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1998 (and, at the company's election, before January 1, 1999).
NCP-Six has elected not to designate its derivatives as hedges under SFAS
133. Accordingly, NCP-Six will record an asset equal to the fair value to
settle the agreements and a corresponding credit in its statement of
operations. Each quarter, the change in the market value of NCP-Six's
derivatives will be recorded as other income or expense. At March 31, 2001,
NCP-Six's had no outstanding derivatives.
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDING AS OF DECEMBER 31, 2000, AND 1999
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Northland Cable Properties Six Limited Partnership:
We have audited the accompanying balance sheets of Northland Cable
Properties Six Limited Partnership (a Washington limited partnership) as of
December 31, 2000 and 1999, and the related statements of operations, changes in
partners' deficit and cash flows for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Northland Cable Properties
Six Limited Partnership as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
January 26, 2001
(Except for paragraph three
of note 10 for which the
date is March 14, 2001)
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
ASSETS
Cash........................................................ $ 1,281,380 $ 556,962
Accounts receivable, including $14,109 and $24,885 due from
affiliates in 2000 and 1999, respectively................. 739,232 806,712
Prepaid expenses and other assets........................... 85,506 78,012
Investment in cable television properties:
Property and equipment.................................... 30,285,589 28,912,812
Less -- Accumulated depreciation.......................... (16,325,363) (14,639,656)
------------ ------------
13,960,226 14,273,156
Franchise agreements (net of accumulated amortization of
$15,438,907 and $13,309,803 in 2000 and 1999,
respectively)............................................. 11,788,486 13,917,591
Acquisition costs (net of accumulated amortization of
$154,766 and $107,709 in 2000 and 1999, respectively)..... 82,806 129,862
Loan fees and other intangibles (net of accumulated
amortization of $1,067,714 and $911,862 in 2000 and 1999,
respectively)............................................. 591,176 841,238
------------ ------------
Total investment in cable television properties...... 26,422,694 29,161,847
------------ ------------
Total assets......................................... $ 28,528,812 $ 30,603,533
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 188,372 $ 607,156
Other current liabilities................................. 1,109,212 719,404
Due to general partner and affiliates..................... 35,458 46,388
Deposits.................................................. 29,590 35,422
Subscriber prepayments.................................... 460,038 412,628
Note payable.............................................. 28,215,281 28,965,281
------------ ------------
Total liabilities.................................... 30,037,951 30,786,279
------------ ------------
Commitments and Contingencies (Note 8)
Partners' Deficit:
General partners --
Contributed capital, net............................... (37,565) (37,565)
Accumulated deficit.................................... (104,541) (91,277)
------------ ------------
(142,106) (128,842)
------------ ------------
Limited partners --
Contributed capital, net -- 29,784 units in 2000 and
1999................................................. 8,982,444 8,982,444
Accumulated deficit.................................... (10,349,477) (9,036,348)
------------ ------------
(1,367,033) (53,904)
------------ ------------
Total liabilities and partners' deficit.............. $ 28,528,812 $ 30,603,533
============ ============
The accompanying notes are an integral part of these balance sheets.
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- -----------
REVENUE............................................. $15,221,887 $15,005,218 $14,746,766
----------- ----------- -----------
Expenses:
Operating (including $270,067, $286,365 and
$285,212, net, paid to affiliates in 2000, 1999
and 1998, respectively)........................ 1,161,419 1,320,255 1,262,672
General and administrative (including $1,505,136,
$1,575,500 and $1,632,936, net, paid to
affiliates in 2000, 1999 and 1998,
respectively).................................. 4,035,555 4,064,866 3,790,975
Programming (including $95,703, $233,163 and
$241,521, net, paid to affiliates in 2000, 1999
and 1998, respectively)........................ 3,968,492 3,915,701 3,784,358
Depreciation and Amortization Expense............. 4,468,532 4,392,073 4,287,623
----------- ----------- -----------
Operating income............................... 1,587,889 1,312,323 1,621,138
Other Income (Expense):
Interest income................................... 45,351 26,668 17,932
Interest expense.................................. (2,495,892) (2,379,744) (2,566,743)
(Loss) gain on disposal of assets................. (266,933) 1,330,533 (229,940)
Amortization of loan fees and other............... (196,808) (190,924) (211,988)
----------- ----------- -----------
Net (loss) income.............................. $(1,326,393) $ 98,856 $(1,369,601)
=========== =========== ===========
Allocation of Net (Loss) Income:
General partners.................................. $ (13,264) $ 989 $ (13,696)
=========== =========== ===========
Limited partners.................................. $(1,313,129) $ 97,867 $(1,355,905)
=========== =========== ===========
Net (Loss) Income Per Limited Partnership Unit...... $ (44) $ 3 $ (46)
=========== =========== ===========
The accompanying notes are an integral part of these statements.
102
109
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ----------- -----------
BALANCE, December 31, 1997........................... $(116,135) $ 1,212,134 $ 1,095,999
Repurchase of limited partnership units............ -- (4,000) (4,000)
Net loss........................................... (13,696) (1,355,905) (1,369,601)
--------- ----------- -----------
BALANCE, December 31, 1998........................... (129,831) (147,771) (277,602)
Repurchase of limited partnership units............ -- (4,000) (4,000)
Net income......................................... 989 97,867 98,856
--------- ----------- -----------
BALANCE, December 31, 1999........................... (128,842) (53,904) (182,746)
Net loss........................................... (13,264) (1,313,129) (1,326,393)
--------- ----------- -----------
BALANCE, December 31, 2000........................... $(142,106) $(1,367,033) $(1,509,139)
========= =========== ===========
The accompanying notes are an integral part of these statements.
103
110
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................ $(1,326,393) $ 98,856 $ (1,369,601)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization expense......... 4,468,532 4,392,073 4,287,623
Amortization of loan costs.................... 196,808 190,923 182,859
Loss (gain) on disposal of assets............. 266,933 (1,330,533) 229,940
Changes in certain assets and liabilities
Accounts receivable........................... (122,520) 131,092 (278,190)
Prepaid expenses and other assets............. (7,494) (120,998) 153,371
Accounts payable and other current
liabilities................................. (28,976) 144,817 224,658
Due to general partner and affiliates......... (10,930) (121,243) (12,090)
Deposits...................................... (5,832) (21,635) (35,036)
Subscriber prepayments........................ 47,410 (82,549) 85,225
----------- ----------- ------------
Net cash provided by operating
activities............................. 3,477,538 3,280,803 3,468,759
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............... (2,054,270) (2,659,141) (2,820,143)
Acquisition of cable system...................... -- -- (20,500,000)
Proceeds from disposal of assets................. 202,700 1,726,026 500
Purchase of intangibles.......................... (151,550) (59,887) (77,199)
----------- ----------- ------------
Net cash used in investing activities.... (2,003,120) (993,002) (23,396,842)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable...................... -- -- 20,473,427
Principal payments on notes payable.............. (750,000) (2,407,567) --
Repurchase of limited partnership units.......... -- (4,000) (4,000)
Loan fees and other costs........................ -- (26,179) (7,471)
----------- ----------- ------------
Net cash (used in) provided by financing
activities............................. (750,000) (2,437,746) 20,461,956
----------- ----------- ------------
Increase (Decrease) in Cash........................ 724,418 (149,945) 533,873
Cash, beginning of year............................ 556,962 706,907 173,034
----------- ----------- ------------
Cash, end of year.................................. $ 1,281,380 $ 556,962 $ 706,907
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest........... $ 2,489,075 $ 2,373,440 $ 2,562,492
=========== =========== ============
The accompanying notes are an integral part of these statements.
104
111
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. ORGANIZATION AND PARTNERS' INTERESTS:
Formation and Business
Northland Cable Properties Six Limited Partnership (the Partnership), a
Washington limited partnership, was formed on January 22, 1986. The Partnership
was formed to acquire, develop and operate cable television systems. The
Partnership began operations on November 3, 1986 by acquiring a cable television
system in Mississippi. Subsequently, additional cable television systems were
acquired in Mississippi, North Carolina and South Carolina. The Partnership has
35 nonexclusive franchises to operate cable systems for periods, which will
expire at various dates through 2017.
Northland Communications Corporation is the Managing General Partner (the
General Partner or Northland) of the Partnership. Certain affiliates of the
Partnership also own and operate other cable television systems. In addition,
the General Partner manages cable television systems for other limited
partnerships for which it is General Partner.
FN Equities Joint Venture, a California joint venture, is the
Administrative General Partner of the Partnership.
Contributed Capital, Commissions and Offering Costs
The capitalization of the Partnership is set forth in the accompanying
statements of changes in partners' deficit. No limited partner is obligated to
make any additional contribution.
The general partners purchased their 1% interest in the Partnership by
contributing $1,000 to Partnership capital.
Pursuant to the Partnership Agreement, brokerage fees paid to an affiliate
of the Administrative General Partner and other offering costs paid to the
General Partner were recorded as a reduction of limited partners' capital. The
Administrative General Partner received a fee for providing certain
administrative services to the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are stated at cost. Replacements, renewals and
improvements are capitalized. Maintenance and repairs are charged to expense as
incurred.
Depreciation of property and equipment is provided using the straight-line
method over the following estimated service lives:
Buildings................................................... 20 years
Distribution plant.......................................... 10 years
Other equipment and leasehold improvements.................. 5 - 20 years
The Partnership periodically reviews the carrying value of its long-lived
assets, including property, equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable.
Allocation of Cost of Purchased Cable Television Systems
The Partnership allocated the total contract purchase price of cable
television systems acquired as follows: first, to the estimated fair value of
net tangible assets acquired; then, to the franchise and other determinable
intangible costs; then any excess is allocated to goodwill.
105
112
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Intangible Assets
Costs assigned to franchise agreements, loan fees, acquisition costs and
other intangibles are being amortized using the straight-line method over the
following estimated useful lives:
Franchise agreements........................................ 10 - 20 years
Acquisition costs........................................... 5 years
Loan fees and other intangibles............................. 1 - 10 years
Revenue Recognition
Cable television service revenue, including service maintenance, is
recognized in the month service is provided to customers. Installation revenue
is recognized to the extent of direct selling costs when the installation is
complete. Advance payments on cable services to be rendered are recorded as
subscriber prepayments. Revenues resulting from the sale of local spot
advertising are recognized when the related advertisements or commercials appear
before the public. Local spot advertising revenues earned were $581,280,
$507,932 and $456,007, respectively, in 2000, 1999 and 1998.
Derivatives
The Partnership has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Partnership periodically enters into
interest rate swap agreements with major banks or financial institutions
(typically its bank) in which the Partnership pays a fixed rate and receives a
floating rate with the interest payments being calculated on a notional amount.
Gains or losses associated with changes in fair values of these swaps and the
underlying notional principal amounts are deferred and recognized against
interest expense over the terms of the agreement in the Partnership's statement
of operations.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133 -- In June 1998,
the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and in June 2000 issued SFAS
138, "Accounting for Certain Derivative Instruments and Hedging Activities," an
amendment of SFAS 133. The statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of operations, and requires that a
company must formally document, designate, and assess the effectiveness of
transactions that are subject to hedge accounting.
Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB No. 133 -- an
Amendment to FASB Statement No. 133," the effective date of SFAS No. 133 has
been deferred until fiscal years beginning after January 15, 2000. SFAS No. 133
cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1998
(and, at the company's election, before January 1, 1999).
The Partnership had no outstanding interest rate swaps or other derivative
financial instruments at December 31, 2000.
106
113
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Estimates Used in Financial Statement Presentation
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amount 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 those estimates.
3. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES:
Management Fees
The General Partner receives a fee for managing the Partnership equal to 6%
of the gross revenues of the Partnership, excluding revenues from the sale of
cable television systems or franchises. The amount of management fees charged by
the General Partner was $913,313, $900,313 and $884,806 in 2000, 1999 and 1998,
respectively.
Income Allocation
All items of income, loss, deduction and credit are allocated 99% to the
limited partners and 1% to the general partners until the limited partners have
received aggregate cash distributions in an amount equal to aggregate capital
contributions. Thereafter, the general partners receive 25% and the limited
partners are allocated 75% of partnership income and losses. Prior to the
general partners receiving a distribution in any year, the limited partners must
receive distributions equal to at least 50% of their allocable share of net
income for such year, based on projections by the Managing General Partner of
the net income of the Partnership for the year. If cash distributions to the
general partners are deferred because of this 50% limitation, those deferred
cash distributions will be paid to the general partners in subsequent years or
upon liquidation of the Partnership. Any distributions other than from cash
flow, such as from the sale or refinancing of a system or upon dissolution of
the Partnership, will be determined according to contractual stipulations in the
Partnership Agreement.
The limited partners' total initial contributions to capital were
$15,000,000 ($500 per partnership unit). As of December 31, 2000, $3,817,997
($127.50 per partnership unit) has been distributed to the limited partners, and
the Partnership has repurchased $100,475 of limited partnership units (173 units
at $500 per unit and 43 units at $325 per unit).
Reimbursements
The General Partner provides or causes to be provided certain centralized
services to the Partnership and other affiliated entities. The General Partner
is entitled to reimbursement from the Partnership for various expenses incurred
by it or its affiliates on behalf of the Partnership allocable to its management
of the Partnership, including travel expenses, pole and site rental, lease
payments, legal expenses, billing expenses, insurance, governmental fees and
licenses, headquarters' supplies and expenses, pay television expenses,
equipment and vehicle charges, operating salaries and expenses, administrative
salaries and expenses, postage and office maintenance.
The amounts billed to the Partnership are based on costs incurred by
affiliates in rendering the services. The costs of certain services are charged
directly to the Partnership, based upon the personnel time spent by the
employees rendering the service. The cost of other services is allocated to the
Partnership and affiliates based upon relative size and revenue. Management
believes that the methods used to allocate services to the Partnership are
reasonable. Amounts charged for these services were $769,480, $719,456 and
$663,191 for 2000, 1999 and 1998, respectively.
107
114
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
In 2000, 1999 and 1998, the Partnership paid installation charges and
maintenance fees for billing system support provided by an affiliate, amounting
to $75,798, $73,965 and $79,590, respectively.
The Partnership has entered into operating management agreements with
affiliates managed by the General Partner. Under the terms of these agreements,
the Partnership or an affiliate serves as the executive managing agent for
certain cable television systems and is reimbursed for certain operating and
administrative expenses. The Partnership paid $25,788, $160,722 and $290,147,
net, under the terms of these agreements during 2000, 1999 and 1998,
respectively.
The Partnership pays monthly program license fees to Northland Cable News,
Inc. (NCN), an affiliate of the General Partner, for the rights to distribute
programming developed and produced by NCN. Total license fees paid to NCN during
2000, 1999 and 1998 were $0, $178,797 and $165,147, respectively.
Cable Ad Concepts, Inc. (CAC), an affiliate of the General Partner, was
formed in 1993 and began operations in 1994. CAC was organized to assist in the
development of local advertising markets and management and training of local
sales staff. CAC billed the Partnership $85,895, $69,752 and $57,611 in 2000,
1999 and 1998, respectively, for these services.
Due to General Partner and Affiliates
DECEMBER 31,
------------------
2000 1999
------- -------
Reimbursable operating costs and other................... 25,534 12,417
Other amounts due to affiliates, net..................... 9,924 33,971
------- -------
$35,458 $46,388
======= =======
4. PROPERTY AND EQUIPMENT:
DECEMBER 31,
--------------------------
2000 1999
----------- -----------
Land and buildings................................ $ 880,611 $ 858,198
Distribution plant................................ 27,278,014 26,230,081
Other equipment................................... 1,775,523 1,738,465
Leasehold improvements............................ 43,020 40,550
Construction in progress.......................... 308,421 45,518
----------- -----------
$30,285,589 $28,912,812
=========== ===========
5. OTHER CURRENT LIABILITIES:
DECEMBER 31,
----------------------
2000 1999
---------- --------
Programmer license fees.............................. $ 317,339 $ 52,159
Accrued property taxes............................... 263,174 133,728
Accrued franchise fees............................... 261,775 253,003
Other................................................ 266,924 280,514
---------- --------
$1,109,212 $719,404
========== ========
108
115
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
6. NOTE PAYABLE:
The Partnership's note payable consisted of a revolving credit and term
loan agreement, collateralized by a first lien position on all present and
future assets of the Partnership. The note's fair value is approximate to its
book value. Interest rates vary based on certain financial covenants, and is
currently 8.50%. The maturity of the note has been extended to June 30, 2001 at
which time it is due in full.
Under the terms of the revolving credit and term loan agreement, the
Partnership has agreed to restrictive covenants which require the maintenance of
certain ratios, including an Annual Operating Cash Flow to Interest Expense
Ratio greater than 2.25 to 1, and a Senior Debt to Annualized Operating Cash
Flow Ratio of no more than 5.25 to 1, among others. The General Partner submits
quarterly debt compliance reports to the Partnership's creditor under this
agreement. As of December 31, 2000, the Partnership was in compliance with the
terms of the loan agreement.
7. INCOME TAXES:
Income taxes payable have not been recorded in the accompanying financial
statements because they are obligations of the partners. The federal and state
income tax returns of the Partnership are prepared and filed by the General
Partner.
The tax returns, the qualification of the Partnership as such for tax
purposes, and the amount of distributable partnership income or loss are subject
to examination by federal and state taxing authorities. If such examinations
result in changes with respect to the Partnership's qualification or in changes
with respect to the income or loss, the tax liability of the partners would
likely be changed accordingly.
There was no taxable income to the limited partners in any of the three
years in the periods ended December 31, 2000. Generally, subject to the
allocation procedures discussed in the following paragraph, taxable income to
the limited partners is different from that reported in the statements of
operations principally due to differences in depreciation and amortization
expense allowed for tax purposes and the amount recognizable under generally
accepted accounting principles. Traditionally, there are no other significant
differences between taxable income and net income reported in the statements of
operations.
The Partnership agreement provides that tax losses may not be allocated to
the Limited Partners if such loss allocation would create a deficit in the
Limited Partners' Capital Account. Such excess losses are reallocated to the
General Partner ("Reallocated Limited Partner Losses"). In general, in
subsequent years, 100% of the Partnership's net income is allocated to the
General Partner until the General Partner has been allocated net income in
amounts equal to the Reallocated Limited Partner Losses.
In general, under current federal income tax laws, a partner's allocated
share of tax losses from a partnership is allowed as a deduction on their
individual income tax return only to the extent of the partner's adjusted basis
in their partnership interest at the end of the tax year. Any excess losses over
adjusted basis may be carried forward to future tax years and are allowed as a
deduction to the extent the partner has an increase in his adjusted basis in the
Partnership through either an allocation of partnership income or additional
capital contributions to the Partnership.
In addition, the current tax law does not allow a taxpayer to use losses
from a business activity in which they do not materially participate (a "passive
activity," e.g., a limited partner in a limited partnership) to offset other
income such as salary, active business income, dividends, interest, royalties
and capital gains. However, such losses can be used to offset income from other
passive activities. In addition, disallowed losses can be carried forward
indefinitely to offset future income from passive activities. Disallowed losses
can be used in full when the taxpayer recognizes gain or loss upon the
disposition of their entire interest in the passive activity.
109
116
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
8. COMMITMENTS AND CONTINGENCIES:
Lease Arrangements
The Partnership leases certain tower sites, office facilities and pole
attachments under leases accounted for as operating leases. Rental expense
included in operations amounted to $231,248, $214,581 and $209,627 in 2000, 1999
and 1998, respectively. Minimum lease payments through the end of the lease
terms are as follows:
2001....................................................... $12,431
2002....................................................... 3,133
2003....................................................... 1,083
2004....................................................... 283
2005....................................................... 283
Thereafter................................................. 1,671
-------
$18,884
=======
Effects of Regulation
On February 8, 1996, the Telecommunications Act of 1996 (the 1996 Act) was
enacted. This act dramatically changed federal telecommunications laws and the
future competitiveness of the industry. Many of the changes called for by the
1996 Act will not take effect until the Federal Communications Commission (FCC)
issues new regulations which, in some cases, may not be completed for a few
years. Because of this, the full impact of the 1996 Act on the Partnership's
operations cannot be determined at this time. A summary of the provisions
affecting the cable television industry, more specifically those affecting the
Partnership's operations, follows.
Cable Programming Service Tier Regulation. FCC regulation of rates for
cable programming service tiers has been eliminated for small cable systems
owned by small companies. Small cable systems are those having 50,000 or fewer
subscribers which are owned by companies with fewer than 1% of national cable
subscribers (approximately 600,000) and having no more than $250 million in
annual revenue. The Partnership qualifies as a small cable company and all of
the Partnership's cable systems qualify as small cable systems. Basic tier rates
remain subject to regulations by the local franchising authority under most
circumstances until effective competition exists. The 1996 Act expands the
definition of effective competition to include the offering of video programming
services directly to subscribers in a franchised area served by a local
telephone exchange carrier, its affiliates or any multichannel video programming
distributor which uses the facilities of the local exchange carrier. The FCC has
not yet determined the penetration criteria that will trigger the presence of
effective competition under these circumstances.
Telephone Companies. The 1996 Act allows telephone companies to offer
video programming services directly to customers in their service areas
immediately upon enactment. They may provide video programming as a cable
operator fully subject to any provision of the 1996 Act, or a radio-based
multichannel programming distributor not subject to any provisions of the 1996
Act, or through nonfranchised "open video systems" offering nondiscriminatory
capacity to unaffiliated programmers, subject to select provisions of the 1996
Act. Although management's opinion is that the probability of competition from
telephone companies in rural areas is unlikely in the near future, there are no
assurances that such competition will not materialize.
The 1996 Act encompasses many other aspects of providing cable television
service including prices for equipment, discounting rates to multiple dwelling
units, lifting of anti-trafficking restrictions, cable-telephone cross ownership
provisions, pole attachment rate formulas, rate uniformity, program access,
scrambling and censoring of Public, Educational and Governmental and leased
access channels.
110
117
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
Self-Insurance
The Partnership began self-insuring for aerial and underground plant in
1996. Beginning in 1997, the Partnership began making quarterly contributions
into an insurance fund maintained by an affiliate which covers all Northland
entities and defrays a portion of any loss should the Partnership be faced with
a significant uninsured loss. To the extent the Partnership's losses exceed the
fund's balance, the Partnership absorbs any such loss. If the Partnership were
to sustain a material uninsured loss, such reserves could be insufficient to
fully fund such a loss. The capital cost of replacing such equipment and
physical plant, could have a material adverse effect on the Partnership, its
financial condition, prospects and debt service ability.
Amounts paid to the affiliate, which maintains the fund for the Partnership
and its affiliates, are expensed as incurred and are included in the statements
of operations. To the extent a loss has been incurred related to risks that are
self-insured, the Partnership records an expense and an associated liability for
the amount of the loss, net of any amounts to be drawn from the fund. For 2000,
1999 and 1998, respectively, the Partnership was charged $19,456, $20,197 and
$20,878 by the fund. As of December 31, 2000, the fund had a balance of
$509,135.
9. ACQUISITION OF SYSTEMS AND DISPOSITION OF ASSETS:
On January 2, 1998, the Partnership purchased cable television systems
located in and around the communities of Allendale, Bamberg, Barnwell and
Bennettsville, all in the state of South Carolina. The purchase price of these
systems was $20,500,000. The systems are operated from four headends and serve
11,200 subscribers.
The Partnership borrowed an additional $20,473,427 under an amended and
restated revolving credit and term loan agreement with its lender to finance the
acquisition of the South Carolina cable systems.
On April 30, 1999, the Partnership sold cable television systems serving
approximately 1,400 subscribers in and around the communities of Sandersville,
Heidelberg and Laurel, Mississippi. The system was sold at a sales price of
$1,900,000 of which the Partnership received $1,710,000. The remaining balance
of $190,000 was held in escrow for one year from the date of sale. The
Partnership used net proceeds of $1,540,000 to pay down the existing bank debt.
Pro Forma operating results of the Partnership for 1999 and 1998, assuming
the disposition described above had been completed as of the beginning of 1998,
follows:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
Revenue........................................... $14,183,800 $14,183,431
=========== ===========
Net loss.......................................... $(1,482,272) $(1,271,034)
=========== ===========
Net loss per limited partnership unit............. $ (50) $ (43)
=========== ===========
10. SUBSEQUENT EVENT:
The Partnership has filed a Preliminary Proxy Statement (Proxy) with the
Securities and Exchange Commission (SEC) which solicits votes for two separate
proposals. Upon clearance from the SEC, the Proxy will be delivered to the
limited partners for their vote. A vote of more than 50% of the outstanding
limited partnership units is required to approve each proposal. The first
proposal is to extend the term of the Partnership for six years until December
31, 2007. The second proposal will provide authority to sell all of its
111
118
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
existing assets, excluding the Bennettsville system, which is being sold to a
third-party in a separate transaction, to the Managing General Partner, or its
affiliates, for an aggregate price of $62,250,000. The Partnership's current
revolving credit and turn loan facility matures on June 30, 2001. Should the
Partnership continue its operations beyond this date, an amendment to the
existing loan agreement would be required to extend the loan maturity and revise
certain financial covenants. In the event the sale is not approved, management
believes it will be able to renegotiate the terms of the note payable, at a cost
and on terms that would not adversely affect the Partnership's ability to
continue operating as a going concern, as long as the limited partners have
approved the extension of the partnership term. It is management's opinion that
the likelihood that both of these proposals would not be approved by a majority
of the limited partners is remote.
Once the sale proposal is approved, the financial statement disclosure
thereafter will be on the liquidation basis.
Per a letter dated March 14, 2001 the third party disclosed above revoked
their bid to purchase all existing assets of the Bennettsville system. As the
general partner submitted the second highest bid for the Bennettsville assets,
the general partner, or its affiliates, will purchase those assets for an
aggregate purchase price of $7,950,000.
112
119
EXHIBIT A
PROXY CARD
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of limited partners of NORTHLAND CABLE PROPERTIES SIX LIMITED
PARTNERSHIP ("NCP-Six") and accompanying Proxy Statement, each dated July 31,
2001 ("Proxy Materials"). The undersigned appoints John S. Whetzell and Richard
I. Clark, or either of them, as proxies, each with full power to appoint his
substitute. The undersigned represents that he or she holds of record as of June
30, 2001 the number of units of limited partnership interest in NCP-Six set
forth below and authorizes the proxies to represent and to vote, as designated
below, all of such interest at the special meeting of limited partners to be
held on September 11, 2001 and at any postponements or adjournments thereof.
THIS PROXY IS BEING SOLICITED BY THE MANAGING GENERAL PARTNER OF NCP-SIX.
The undersigned directs the proxies to vote on the following proposals as
follows:
PROPOSED AMENDMENT NO. 1
To authorize the extension of the term of NCP-Six for an additional six
years so that its current expiration date of December 31, 2001 is changed to a
future expiration date of December 31, 2007 as described in the Proxy Materials.
APPROVE [ ] DISAPPROVE [ ] ABSTAIN [ ]
PROPOSED AMENDMENT NO. 2
To authorize NCP-Six and its general partners to consummate the sale of
NCP-Six's assets as described in the Proxy Materials and to take any and all
steps necessary to complete such sales.
APPROVE [ ] DISAPPROVE [ ] ABSTAIN [ ]
This proxy will be voted as directed by the undersigned. The
above-referenced proposals are independent of one another. Therefore, a vote for
or against one of the two proposals does not dictate how a limited partner must
vote for the other proposal. Notwithstanding, limited partners may not vote for
or against individual elements of either proposal, but must vote either for or
against each proposed amendment in its entirety. IF THIS PROXY IS EXECUTED AND
RETURNED AND NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED TO APPROVE BOTH
OF THE ABOVE-REFERENCED PROPOSALS. SIMILARLY, IF THIS PROXY IS EXECUTED AND
RETURNED AND DIRECTION IS INDICATED AS TO ONLY ONE OF THE TWO PROPOSALS, THIS
PROXY WILL BE VOTED TO APPROVE THE PROPOSAL FOR WHICH NO DIRECTION IS INDICATED.
When limited partner interests are held by joint tenants, both should sign.
When signing as attorney, executor, administrator, trustee or guardian, give
full title as such. A corporation should sign in full corporate name by its
president or other authorized officer, and a partnership should sign in full
partnership name by its authorized representative.
Dated: July 31, 2001
Number of Limited Partnership $500 Units Held: ____________
X
--------------------------------------
(SIGNATURE)
X
--------------------------------------
(SIGNATURE, IF HELD JOINTLY)
PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
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EXHIBIT B
AMENDED AND RESTATED
CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP
(the "Agreement") is made and entered into by and between NORTHLAND
COMMUNICATIONS CORPORATION ("Northland"), a Washington corporation, FN EQUITIES
JOINT VENTURE ("FNEJV"), a California joint venture (Northland and FNEJV
collectively referred to herein as the "General Partners"), RICHARD I. CLARK
(the "Original Limited Partner"), and remaining parties who now or hereafter
from time to time are accepted by the Managing General Partner as Limited
Partners (the "Limited Partners") of NORTHLAND CABLE PROPERTIES SIX LIMITED
PARTNERSHIP (the "Partnership"). Northland shall be the managing general partner
("Managing General Partner") and FNEJV shall be the administrative general
partner ("Administrative General Partner") of the Partnership. This Agreement
amends and restates the Certificate and Agreement of Limited Partnership of
Northland Cable Properties Six Limited Partnership filed with the office of the
Secretary of State of the State of Washington on January 22, 1986, as amended as
of the date hereof.
The Partnership is formed pursuant to the Washington Uniform Limited
Partnership Act.
1. Formation of Limited Partnership. The parties do hereby agree to operate
as a limited partnership pursuant to the Washington Uniform Limited Partnership
Act on the terms and conditions set forth in this Agreement. The General
Partners will cause this Agreement to be duly recorded forthwith in the office
of the Secretary of the State of Washington, in accordance with the provisions
of the Washington Uniform Limited Partnership Act, and will qualify the
Partnership as a limited partnership in other jurisdictions, as required, where
the Partnership shall do business. The General Partners shall not be required to
deliver or -- mail a copy of the "filed" Agreement to the Limited Partners.
2. Name. The name under which the Partnership business shall be con-ducted
is NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP. The General Partners will
cause, wherever necessary or appropriate, the execution of a fictitious business
name statement and cause such statement to be published and filed where
appropriate.
3. Office and Principal Place of Business. The office and principal place
of business for the Partnership shall be 3500 One Union Square Building,
Seattle, Washington 98101, or at such other place or places as the Managing
General Partner may from time to time determine. The Managing General Partner
may establish and maintain such other offices and places of business of the
Partnership, either in the state of Washington or elsewhere, as the Managing
General Partner may from time to time determine.
4. Agent for Service. The agent of the Partnership for service of process
in the state of Washington shall be Northland Communications Corporation, a
Washington corporation having its principal place of business at 3500 One Union
Square Building, Seattle, Washington 98101. The agent of the Partnership for
service of process in any other state requiring an agent shall be as designated
by the Managing General Partner.
5. Purpose and Nature of Business. The purpose and primary business of the
Partnership is (a) to acquire, develop and operate cable television systems in
the United States, (b) to provide any or all services and products related to
that business, (c) to own, lease or otherwise acquire, encumber and dispose of
any or all assets and services related to such business, and (d) to do any other
act necessary or convenient in connection therewith.
6. Definitions. The defined terms used in this Agreement shall, unless the
context otherwise requires, have the meanings specified in this Article 6.
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"Administrative General Partner" means FN Equities Joint Venture, or its
successors as designated in accordance with the terms of this Agreement.
"Affiliate" of another person means (a) any person directly or indirectly
owning, controlling, or holding with power to vote 10% or more of the
outstanding voting securities of such other person; (b) any person 10% or more
of whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote, by such other person; (c) any person
directly or indirectly controlling such other person; (d) any officer, director
or partner of such other person; and (e) if such other person is an officer,
director or partner, any company for which such person acts in any such
capacity.
"Agreement" means this Amended and Restated Certificate and Agreement of
Limited Partnership, as amended, modified or supplemented from time to time.
"Capital Account" means the account established and maintained on the books
of the Partnership for each Partner pursuant to Article 10.
"Capital Contribution" means all cash actually contributed (but not loans)
to the Partnership by a Partner.
"Cash Available for Distribution" means cash funds of the Partnership in
excess of amounts reasonably required for the repayment of Partnership
borrowings, interest thereon, other liabilities, Partnership working capital and
reserves which the Managing General Partner deems to be reasonably required or
appropriate for the proper operation of the business of the Partnership.
"Cash Distributions" shall include cash and property, at its net fair
market value, distributed to the Partners.
"Cash Flow" means Gross Revenues for a given period less all operating and
other expenses actually incurred and related to the Gross Revenues for such
period.
"Code" means Internal Revenue Code of 1954, as amended.
"General Partners" means Northland Communications Corporation, a Washington
corporation; FN Equities Joint Venture, a California joint venture; and any
other person or entity which is subsequently admitted to the Partnership as a
General Partner in accordance with the terms of this Agreement.
"Gross Revenues" means all revenues and receipts actually received from the
service of providing secondary transmissions of primary broadcast transmitters
and from related activities including, but not limited to the full amount of
monthly (or other periodic) service fees for any and all basic and pay services
or tiers of basic and pay services, additional set fees, converter fees,
installation (including connection, relocation, disconnection or reconnection)
fees, separate charges for security, alarm or facsimile services, charges for
late payments, charges for program origination services and advertising
revenues.
"Limited Partner" means any person or entity accepted by the General
Partners as a limited partner of the Partnership pursuant to the terms of this
Agreement and who is named on Schedule A hereto.
"Majority Vote of the Limited Partners" means a vote by Limited Partners
who collectively hold of record more than 50% of the Units.
"Managing General Partner" means Northland Communications Corporation, or
its successor as duly designated in accordance with the terms of this Agreement.
"Net Income and Net Losses" means the amount of the aggregate Partnership
taxable income or loss (including items requiring separate computation under
Section 702 of the Code) as determined for federal income tax purposes.
"Noncash Additions" means the sum of all increases to a Partner's Capital
Account other than increases for the contribution of money or property to the
Partnership.
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"Noncash Reductions" means the sum of all reductions to a Partner's Capital
Account other than reductions for the distribution of cash or property to such
Partner.
"Offering and Organization Costs" means the costs of offering and marketing
the Units and organizing the Partnership (not including sales commissions or due
diligence fees), including printing costs and legal, accounting and other
professional fees incurred in connection with any offering documents and this
Agreement, and related filing and recordation costs, and the registration, or
application for exemption therefrom, of the Units under applicable federal and
state securities laws.
"Partners" means, collectively, the Limited Partners, as constituted from
time to time, and the General Partners.
"Partnership" means Northland Cable Properties Six Limited Partnership, a
Washington limited partnership.
"Substitute Limited Partner" means a transferee of a limited partnership
interest who has been admitted to the Partnership in accordance with the terms
of this Agreement.
"Systems" means, collectively, the cable television systems which will be
owned, directly or indirectly, by the Partnership.
"Units" means participation interests in the Partnership owned by Limited
Partners. Each Unit represents a $500 Capital Contribution.
7. Term of the Partnership. The Partnership commenced as of the date of
filing and recording the original certificate of limited partnership of the
Partnership and shall continue until the date of the first of the following
events:
(a) December 31, 2001; or
(b) Dissolution as provided in Article 16 of this Agreement.
8. Capital Contributions.
(a) Contributions by General Partners. The Managing General Partner shall
contribute $1,000 as the collective Capital Contribution of the General Partners
to the Partnership. The General Partners shall have no further obligation to
make any Capital Contributions to the Partnership, except as may be required by
paragraph (e) of Article 16.
(b) Contribution by Original Limited Partner. The Original Limited Partner
shall contribute $100 to the Partnership as his Capital Contribution. Upon
admission of additional Limited Partners, the Original Limited Partner shall
withdraw from the Partnership and his Capital Contribution shall then be
refunded to him; provided, however, that he may again become a Limited Partner
in accordance with the provisions of paragraph (d) below. Notwithstanding the
provisions of Articles 15 and 16 and other provisions of this Agreement to the
contrary, the interest of the Original Limited Partner, as such, in income,
gain, loss, deduction, credit distributions or capital shall not exceed one
percent of the total of any of such amount and the balance shall be allocated or
distributed to, or owned by, the General Partners.
(c) Offering and Organization Costs. The Managing General Partner, or any
agent thereof, is hereby authorized to take any and all actions as may in its
judgment be necessary or advisable in order to raise the capital authorized in
this Article, including, without limitation, the filing of such documents or
instruments as are necessary or advisable to claim exemption from the
registration requirements of federal or state securities laws, the registration
and/or qualification of the Units under federal and state securities laws, the
qualification of the Partnership as a foreign limited partnership in any
jurisdiction wherein the Partnership does business, the engagement of legal
counsel, accountants, or any other experts necessary for the preparation of any
documents required in connection with the Units, or the engagement of one or
more broker-dealers to assist with the offering of the Units. The Partnership
will pay all Offering and Organization Costs up to a maximum of 3.5% of the
aggregate Capital Contributions from Limited
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Partners. All Offering and Organization Costs in excess of 3.5% of aggregate
Capital Contributions from Limited Partners shall be borne by the General
Partners.
The Partnership shall also pay Financial Network Investment Corporation, an
Affiliate of the Administrative General Partner, a selling commission and due
diligence fee equal in the aggregate to 10.5% of aggregate Capital Contributions
from Limited Partners, provided, however, that no such commission or fee shall
be payable with respect to Units purchased by the Managing General Partner or
its Affiliates, officers, directors, employees or agents.
(d) Limited Partners. The Partnership shall offer 30,000 Units, at $500 per
Unit, to be subscribed for by the Limited Partners to be admitted subsequent to
the original formation of the Partnership. The minimum purchase is eight Units
($4,000). The Managing General Partner reserves the right, however, in its sole
discretion, to accept subscriptions for less than eight Units but not less than
four Units ($2,000) from Individual Retirement Accounts (IRAs) or HR-10 (Keogh)
plans. The Managing General Partner does not intend to accept subscriptions for
more than twenty percent (20%) of the Units from IRAs, Keogh plans or other
"tax-exempt entities", as defined in Section 168(j)(4) of the Code, or from any
pass-thru entities (as defined in Code Section 267(e)(2) in which a tax-exempt
entity has an interest. The General Partners may purchase Units of limited
partnership interest on the same basis as other investors and hold such Units as
a Limited Partner. Such Limited Partners as subscribe for Units shall be
admitted to the Partnership in accordance with paragraph (f) below upon the
conditions contained herein. No Limited Partners shall be admitted pursuant to
this paragraph (d) unless subscriptions for at least 2,000 Units have been
received and accepted by the Managing General Partner by July 31, 1987.
Limited Partners shall make their Capital Contributions to the Partnership
in cash at the time of subscription.
(e) Withdrawal of Capital Contributions. No Partner shall have the right to
withdraw or reduce the amount of his or her Capital Contribution, except to the
extent that any such withdrawal or reduction may be required or expressly
permitted by this Agreement. In addition, no part of any Capital Contribution
shall be withdrawn until all obligations and liabilities of the Partnership
(except such as may be due to the General Partners and to the Limited Partners
on account of their Capital Contributions) have been paid or unless, in the
opinion of the Managing General Partner, sufficient assets for the payment of
such obligations and liabilities have been set aside and designated for that
purpose.
(f) Acceptance of Subscriptions. Acceptance of each subscription for Units
shall be discretionary with the Managing General Partner, and the Managing
General Partner may reject any subscription for any reason it deems appropriate.
Upon acceptance of a Limited Partner's subscription and the release from the
escrow account of his or her subscription funds to the Partnership or the direct
deposit of such subscription funds in the Partnership's general business
account, the Managing General Partner shall file an amendment to this Agreement
in accordance with the Washington Uniform Limited Partnership Act together with
a list of the names, addresses and interests of the newly-admitted Limited
Partners pursuant to paragraph (d) of Article 19.
(g) Additional Capital. The General Partners are authorized to raise at any
time additional capital for the Partnership, in addition to that authorized by
paragraph (d) above, by selling additional limited partnership interests upon
terms and conditions and for such prices as the Managing General Partner may
determine; provided, however, that the General Partners must first offer such
interests to the then current Limited Partners in proportion to their then
current ownership upon such terms and conditions and for such price as the
Managing General Partner proposes to sell such interests to third parties. Any
person who is not a then current Limited Partner and who acquires an interest in
the Partnership which has been offered in accordance with the provisions of this
paragraph (g) shall be admitted to the Partnership as a new Limited Partner upon
acceptance by the Managing General Partner, and no further consent to such
admission by the then current Partners or any execution of documents by them
shall be required.
(h) Initial Investment. Pending initial investment of its funds, or to
provide a source from which to meet contingencies, the Partnership may
temporarily invest its funds in short-term, highly liquid
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investments that provide appropriate safety of principal, such as bank
certificates of deposit, money market funds, short-term debt obligations and
interest-bearing accounts.
(i) Priority and Return of Capital. Except as expressly provided by the
provisions of this Agreement, no Partner shall have priority over any other
Partner, either as to the return of Capital Contributions or as to net income,
net losses or Cash Distributions. No Partner shall be entitled to the return of
any amount contributed by such Partner to the capital of the Partnership out of
any assets other than the assets of the Partnership and then only in accordance
with the provisions of this Agreement.
9. Advances by General Partners. A General Partner, or any Affiliate
thereof, may in its discretion advance monies to the Partnership for use in
acquiring the Systems or other assets or funding Partnership operations when the
Partnership is in need of such monies. The aggregate amount of such advances
shall become an obligation of the Partnership to such General Partner or
Affiliate, and shall be paid with interest; provided, that the interest rate or
other finance charges and fees with respect to any such loan shall be payable at
a per annum rate not greater than the average interest rate charged, from time
to time, to such General Partner or Affiliate by the financial institution which
principally finances the activities and affairs of such entity or, if the source
of the loan funds is an unaffiliated third-party lender that has loaned such
funds to such General Partner or Affiliate, the per annum rate charged, from
time to time, with respect to such funds by such unaffiliated lender to such
General Partner or Affiliate; and provided, further, that no repayment charge or
penalty shall be imposed with respect to any such loan, except to the extent
that such prepayment charge or penalty is attributable to an underlying
encumbrance.
10. Capital Accounts.
(a) Establishment of Capital Accounts. The Partnership shall establish and
maintain a Capital Account for each Partner in accordance with Treasury
Regulations promulgated under Code Section 704(b).
(b) Adjustments to Capital Accounts. The Capital Account of each Partner
shall be increased to reflect (i) such Partner's cash contributions, (ii) the
fair market value of property contributed by such Partner (net of liabilities
securing such contributed property that the Partnership is considered to assume
or take subject to under Code Section 752), (iii) the Partner's share of the Net
Income (including all gain as calculated pursuant to Section 1001 of the Code)
of the Partnership, (iv) such Partner's share of income and gain exempt from
tax, and (v) such Partner's share of any basis increase pursuant to Code Section
48(q)(2). The Capital Account of each Partner shall be reduced to reflect (i)
the amount of money distributed to such Partner, (ii) the fair market value of
property distributed to such Partner (net of liabilities securing such
distributed property that such Partner is considered to assume or take subject
to under Section 752), (iii) such Partner's share of noncapitalized expenditures
not deductible by the Partnership in computing its taxable income as determined
under Code Section 705(a)(2)(B), (iv) such Partner's share of the amount of any
basis adjustment pursuant to Code Sections 48(q)(1) and 48(q)(3), (v) such
Partner's share of Net Losses, and (vi) such Partner's share of amounts paid or
incurred to organize the Partnership or to promote the sale of Partnership Units
to the extent that an election under Code Section 709(b) has not properly been
made for such amounts. The Managing General Partner shall determine the fair
market value of all Partnership property which is distributed in kind, and the
Capital Accounts of the Partners shall be adjusted on the basis of such fair
market value determination by the Managing General Partner as though the
property had been sold for its fair market value and the proceeds (net of
liabilities) had been distributed to the Partner receiving the property in kind.
In the event of a contribution or distribution of property with a fair market
value which is not equal to its adjusted basis (as determined for federal income
tax purposes), the Partnership shall maintain both "tax" and "book" capital
accounts in accordance with the rules prescribed in Treasury Regulations
promulgated under Code Section 704.
11. Management of Partnership Activities and Indemnification. The General
Partners shall conduct, direct and exercise full control over all the activities
of the Partnership. The Limited Partners shall have no power over the conduct of
the affairs of the Partnership except as specifically set forth herein.
Notwithstanding anything in this Agreement to the contrary, in the event of a
dispute between the
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Managing General Partner and the Administrative General Partner, the Managing
General Partner shall control.
(a) General Powers of the General Partners. Subject to the provisions of
paragraphs (b) and (c) of Article 12, and in addition to the powers granted to
general partners of a limited partnership under the laws of the State of
Washington, or which are granted to the General Partners under other provisions
of this Agreement, and within the limitations of the purposes for which the
Partnership has been formed, the General Partners shall have full power to do
all things deemed necessary, appropriate or desirable by them to conduct the
business of the Partnership, including, but not limited to:
(i) The making of expenditures and the incurring of any obligations
they deem necessary or desirable to implement the purposes of the
Partnership; the employment of such personnel as they deem desirable for
the conduct of such activities, including permanent, temporary, or
part-time employees, themselves, and outside consultants or contractors,
and the determination of their compensation and other terms of employment;
provided, however, that any contract for services with the General Partners
or their Affiliates may be cancelled upon a Majority Vote of the Limited
Partners.
(ii) Subject only to any express limitations contained in this
Agreement, the acquisition and the disposition, exchange, mortgage, or
other hypothecation of any or all of Assets of the Partnership, including
the Systems, the borrowing of monies, and the use of the revenues or
borrowing proceeds of the Partnership for any purpose and on any terms the
General Partners see fit, including, without limitation, the financing of
the activities of the Partnership (with or without the pledge of the
Partnership's revenues or other assets), the repayment of borrowings, the
lease or purchase of properties and equipment, and the conduct of
additional activities by the Partnership, provided that assets and revenues
attributable to the interests of the Limited Partners shall not be pledged
or used for the benefit of the General Partners or their Affiliates, and
provided that (except upon dissolution of the Partnership) a Majority Vote
of the Limited Partners shall be required for the sale or hypothecation of
all, or substantially all, of the Partnership's assets in connection with
any transaction not in the normal and ordinary course of Partnership
business, and provided further that no lender shall be required to look to
the application of proceeds hereunder and shall be entitled to rely on the
representations of the General Partners as to their authority to enter into
financing arrangements and shall be entitled to deal with the General
Partners as if they were the sole party in interest therein, both legally
and beneficially.
Notwithstanding any other provisions herein limiting the General Partners'
power to borrow on behalf of the Partnership or hypothecate all or substantially
all of the Partnership's assets in connection with such borrowing, the General
Partners may, on behalf of the Partnership, borrow and secure said borrowings
with Partnership assets for the express purpose of providing funds to the
Partnership for Cash Distributions to the Partners in accordance with Article
15.
No creditor who makes a non-recourse loan to the Partnership shall have or
acquire at any time as a result of making such loan any direct or indirect
interest in the profits, capital, or property of the Partnership other than as a
secured creditor.
The amount of Partnership cash flow used in any calendar year to acquire
Systems will in no event exceed 50% of the Net Income before depreciation
allocated to Limited Partners for that year.
(iii) The negotiation and execution on any terms deemed desirable by
them of all necessary agreements, or other instruments required or deemed
beneficial to implement the powers granted under this Agreement.
(iv) The formation of any further limited or general partnerships,
joint ventures, or other relationships which they deem desirable, provided
that the Partnership shall not invest in any other partnership or joint
venture or engage in any other relationship except for the purpose of
operating the Systems and unless it has a controlling interest in such
venture or partnership; and provided that neither the General Partner nor
any Affiliate shall receive any fees or compensation from such venture
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or partnership; and provided that all Systems owned by the Partnership
shall be owned directly, and not indirectly through an ownership interest
in any limited or general partnership, joint venture or other entity.
(v) The execution of operating, management or agency agreements with
any parties selected by them to supervise or assist in the operation of any
activities undertaken by the Partnership and the making of agreements for
the conduct of operations, or the furnishing of facilities, services and
personnel.
(vi) The lease or sale of any assets of the Partnership for any
Partnership purpose, including but not limited to franchises or similar
operating authorizations of any portion of the Systems, except to the
General Partners or their Affiliates and subject to the limitations in
subparagraph (ii) above; provided, however, that notwithstanding anything
else herein, upon a Majority Vote of the Limited Partners approving the
terms of the transaction, all or any portion of the Partnership's assets
may be sold to the Managing General Partner or its Affiliates; and
provided, further, no Majority Vote of the Limited Partners shall be
required for the sale to the Managing General Partner or its Affiliates of
a System previously acquired by the Partnership if (a) the Managing General
Partner or its Affiliates had advanced funds to the Partnership in order to
enable the Partnership to acquire the System and an amount equal to at
least 50% of the funds so advanced remains an outstanding obligation of the
Partnership to the Managing General Partner or its Affiliates at the time
of the proposed acquisition of the System by the Managing General Partner
or its Affiliates and (b) the purchase price to be paid to the Partnership
by the Managing General Partner or its Affiliates is equal to or in excess
of the purchase price originally paid by the Partnership for the System.
(vii) The exercise on behalf of the Partnership, in such manner as
they in their sole judgment deem appropriate, of all rights, elections, and
obligations granted to or imposed upon the Partnership by agreements
entered into by it, including but not limited to elections permitted the
Partnership by any taxing authority.
(viii) The establishment and maintenance of bank accounts on behalf of
the Partnership, provided that the General Partners will employ all funds
and assets of the Partnership for the Partnership's sole benefit and use
and will not commingle the Partnership's funds with the funds of any other
person.
(ix) The control of any matters affecting the rights and obligations
of the Partnership or its Partners, including the employment of attorneys
and others, the incurring of legal expenses and the prosecution, defense,
compromise, arbitration or settlement of claims and litigation.
Any transaction which the General Partners are authorized hereby to enter
into on behalf of the Partnership, including but not limited to the acquisition,
disposition, exchange, mortgage or other hypothecation of Partnership assets and
revenues, the borrowing of monies, the formation of general or limited
partnerships, joint ventures, or other relationships, and the making of
operating, agency, management or other agreements for the conduct of operations
or the furnishing of goods, facilities, services or personnel, may be entered
into by the Partnership with the General Partners or their Affiliates provided
that (a) the fees and prices charged are in accordance with paragraph (d) of
Article 12 herein, if applicable, and competitive with the fees, prices and
compensation of any other person who is rendering comparable services or selling
or leasing comparable goods which could reasonably be made available to the
Partnership, and (b) any such agreement may be terminated upon a Majority Vote
of the Limited Partners without penalty upon 60 days' notice. Further, the
General Partners will not engage in any practices such as rebates, give-ups or
reciprocal arrangements in connection with providing such services or goods. The
General Partners also may subcontract and delegate all or any part of their
duties hereunder to any agency chosen by them, including an Affiliate, but such
delegation by them shall not relieve them of their responsibilities hereunder.
In no event will a General Partner or its Affiliates engage in any real estate
transactions with the Partnership where such General Partner or Affiliate is a
principal without an affirmative Majority Vote of the Limited Partners, unless
the General Partner or Affiliate is selling such real estate to the Partnership
at cost and on identical terms.
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(b) Other Activities of the General Partners. The General Partners shall
devote such part of their time as they, in their sole discretion, deem necessary
to carry out the operations contemplated under this Agreement and shall make
available at reasonable times their respective offices, organizations and
facilities to carry out the purposes of the Partnership. Each of the parties
hereto may engage in whatever other activities it chooses. It is specifically
recognized that the General Partners and their Affiliates will each engage in
the cable television business both for their own account and for others, and
nothing contained herein shall be deemed to prevent such parties from engaging
in such activities individually, jointly with others, or as a partner of any
other partnership, joint venture, or other entity to which they are or may
become a party, in any locale, fields or areas of operation, including those in
which the Partnership may likewise be active, or from dealing with the
Partnership as independent parties or through any other entity in which they may
be interested, including the sale or lease of goods and equipment to, and the
performance of accounting, technical and management services for, the
Partnership at a profit, nor as requiring them to permit the Partnership or any
Partner thereof to participate in any such operations in which they may be
interested, except as indicated herein. Neither the General Partners nor their
Affiliates shall be obligated to present any particular investment opportunity
to the Partnership or the Partners even if such opportunity is of a character
which, if presented to the Partnership, could be taken by the Partnership, and
each of the General Partners shall have the right to take such investment for
his or its own account (individually or on behalf of others) or to recommend to
others any particular investment opportunity. A Limited Partner, because of his
or her interest in the Partnership, shall not acquire any rights or interest in
any other partnership managed, operated or otherwise affiliated with the General
Partners or their Affiliates. Nothing in this paragraph (b) shall be deemed to
diminish the General Partners' fiduciary obligations nor waive any rights that
the Partnership or the Limited Partners may have against the General Partners.
(c) Indemnification. Neither the General Partners nor any director,
officer, partner, employee, agent or Affiliate thereof shall be liable,
responsible or accountable in damages or otherwise to the Partnership or any of
the Partners for, and the Partnership and any receivers and/or trustees thereof
shall hold harmless, indemnify and defend the General Partners and such other
persons from and against, any claim, liability, loss, damage or expense
(including, without limitation, reasonable attorneys' fees) suffered by the
General Partners or such other persons by virtue of any act performed or omitted
to be performed in connection with the Partnership's activities, provided that
if such claim, liability or expense arises out of any action or inaction by a
General Partner or such other persons, the Managing General Partner must have
determined, in good faith, that such course of conduct was carried out in a
manner reasonably believed to be in the best interest of the Partnership, and
that such course of conduct did not constitute fraud, negligence or breach of
fiduciary duty by the General Partners. All judgments against the Partnership,
the General Partners, or such other persons, wherein the General Partners or
such other persons are entitled to indemnification, must first be satisfied from
Partnership assets before the General Partners or such other persons are
responsible for obligations.
Notwithstanding anything herein to the contrary, the General Partners and
their Affiliates, shareholders, directors, officers or other employees shall not
be indemnified for liability imposed or expenses incurred in connection with any
claim arising out of a violation of the Securities Act of 1933, as amended, with
respect to the offer and sale of the Units, unless: (1) the General Partners are
successful in defending such action; or (2) a final adjudication that such
indemnification is contrary to public policy as expressed in said Act has not
been made by a court of appropriate jurisdiction.
Subject to the above, expenses incurred by a General Partner or any
Affiliate, shareholder, partner, director, officer, agent or other employee, in
defending any claim with respect to which such General Partner or such other
person may be entitled to indemnification by the Partnership hereunder, may be
advanced by the Partnership prior to the final disposition of such claim, upon
receipt of an undertaking by or on behalf of such General Partner or other
person to repay the advanced amount of such expenses unless it is determined
ultimately that such General Partner or other person is entitled to
indemnification by the Partnership under this paragraph (c).
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Any indemnification hereunder shall be made only to the extent of the
Partnership's assets, and no Partner shall be personally liable on such
indemnification; provided, however, that nothing contained in this paragraph (c)
shall be deemed to excuse any General Partner from liability to the other
General Partner with respect to any claim described herein, where such General
Partner would otherwise be so liable in the absence of the indemnification
contained in this paragraph (c).
(d) Failure to Take Action. Except in the event of any act for which they
would not be entitled to indemnification under paragraph (c) above, the General
Partners and their Affiliates, shareholders, directors, partners, officers,
agents and other employees will not be liable to any of the Limited Partners for
failure to take any action on behalf of the Partnership (including, but not
limited to, any action which may prevent the foreclosure of all or any portion
of the assets of the Partnership) due to the Partnership's lack of sufficient
funds for the payment of its debts, provided the General Partners give the
Limited Partners prior notice thereof, so that the Limited Partners may, but
shall not be obligated to, contribute such funds if they then desire that such
action be taken. Moreover, in the event that after such notice is given funds
are not contributed to the Partnership by the Limited Partners, the General
Partners shall have the power, but shall not be obligated, to (1) sell all or
any portion of the assets of the Partnership in order to raise such funds, or
(2) cause the dissolution of the Partnership or the abandonment of all or any
portion of its assets, or both.
(e) Tax Matters Partner. For the purpose of Code Section 6223(a), Northland
Communications Corporation, the Managing General Partner, is hereby designated
as "Tax Matters Partner" ("TMP"). In the event that at any time the TMP
determines that it cannot act as the TMP, it shall notify all Partners and
unless another General Partner is designated by the General Partners as the TMP
a meeting shall be called pursuant to the provisions of paragraph (g) of Article
20 herein for the purpose of the Limited Partners appointing a Partner as the
new TMP. The TMP, if notified by the Internal Revenue Service of a "final
partnership administrative adjustment" ("FPD"), shall inform the Limited
Partners and provide them with a copy of such notice within fifteen (15) days of
its receipt. Within ninety (90) days after the day on which such FPD notice is
received by the TMP, the TMP shall notify the Limited Partners of the position
that the TMP is taking in connection with such notice or that it is taking no
position. The General Partners shall not be liable to the Partnership or the
Limited Partners for any act performed or omitted to be performed by the TMP in
connection with its position as TMP with respect to the federal income tax
consequences of Partnership transactions, unless the TMP was grossly negligent
or failed to act in good faith with respect to such tax matters.
12. General Partners' Duties, Management Fees and Partnership Expenses.
(a) Acquisition Fee. Northland shall receive an acquisition fee equal to
6.5% of the Capital Contributions from Limited Partners pursuant to the offering
described in paragraph (d) of Article 8 herein as compensation for investigating
the acquisition of the Systems and for initial management services rendered by
the executive officers of the Managing General Partner to the Partnership. Such
fee shall be paid when and as such Capital Contributions are released to the
Partnership, and is in addition to the management fee payable pursuant to
paragraph (b) below and reimbursable amounts payable pursuant to paragraph (d)
below.
(b) Managing General Partner's Duties and Management Fees. The Managing
General Partner shall be responsible for the overall management of the
Partnership, including:
(i) Determination and implementation of Partnership policies;
(ii) Review of Partnership budget, surveys, cash flow and working
capital requirements;
(iii) Review and approval of Partnership reports and financial
statements, including those filed with regulatory agencies and including
those prepared and distributed pursuant to paragraph (f) of Article 16 and
paragraphs (b) through (g) of Article 18; and
(iv) Supervision of professionals and others employed by the
Partnership in connection with the above.
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For the services of the executive officers of the Managing General Partner
in connection with such supervision and management, the Managing General Partner
shall also receive a management fee equal to 6% of the gross revenues of the
Partnership, not including revenues from the sale or refinancing of the Systems
or any portion thereof. Such fee shall be calculated and paid monthly. This fee
is in addition to reimbursable amounts payable pursuant to paragraph (d) below.
(c) Administrative General Partner's Duties and Management Fees. The
Administrative General Partner shall have responsibility for overall
administration of the Partnership in all respects and in all matters, and shall
make administrative decisions. In return for the compensation described below,
the Administrative General Partner shall actively engage in ongoing consultation
with and shall provide assistance to the Managing General Partner regarding
operations of the Partnership, including, but not limited to, acquisition of
properties, financing, analysis of System demographics and System planning. In
addition, the Administrative General Partner shall have responsibility to
perform, or cause to be performed, the following services:
(i) Establishment of books of account, record and payment procedures,
including individual Capital Accounts of the Partners;
(ii) Provision of bookkeeping and other related services for the
Partnership;
(iii) Disbursement of the original Capital Contributions of the
Partners for the purposes set forth in this Agreement;
(iv) Disbursement of all receipts and the making of all necessary
payments and expenditures in accordance with the terms of this Agreement;
(v) Making of all reports to the Limited Partners required by this
Agreement or by law;
(vi) Admission of an assignee of a Limited Partner's interest as a
Substitute Limited Partner, without the consent of any Limited Partner; and
(vii) To the extent that funds of the Partnership are, in the Managing
General Partner's judgment, not required for the conduct of the
Partnership's business, the temporary investment of the excess funds in the
manner set forth in paragraph (h) of Article 8.
For its services in connection with such administration, the Administrative
General Partner shall receive an administrative fee equal to 1% of the Capital
Contributions from Limited Partners pursuant to the offering of Units described
in paragraph (d) of Article 8, payable when and as the Limited Partners' Capital
Contributions are released to the Partnership. This fee is in addition to
reimbursable amounts payable pursuant to paragraph (d) below.
(d) Partnership Expenses; Reimbursement of Expenses Incurred on Behalf of
the Partnership. The Partnership shall pay or reimburse the General Partners and
their Affiliates for expenses of every kind incurred, including expenses
involved in the acquisition of the Systems. Such expenses to be paid or
reimbursed by the Partnership include, but are not limited to: (i) all costs of
personnel employed by the Partnership, and all personnel employed by the
Managing General Partner and its Affiliates who perform accounting, marketing
and engineering services for the Partnership, for which personnel the
Partnership will reimburse the Managing General Partner and its Affiliates for
salaries and other employment costs of such personnel; (ii) all costs of
borrowed money, taxes, insurance, and assessments against Partnership assets or
applicable to the Partnership or its assets; (iii) legal, appraisal, audit,
accounting, brokerage and other fees; (iv) printing, engraving and other
expenses and taxes incurred in connection with the transfer, issuance,
registration and recording of documents evidencing ownership of an interest in
the Partnership or in connection with the business of the Partnership; (v) costs
for goods and materials, whether purchased by the Partnership directly or by the
General Partners or their Affiliates, on behalf of the Systems or the
Partnership; (vi) expenses of revising, amending, converting, modifying or
terminating the Partnership; (vii) expenses in connection with distributions
made by the Partnership to, and communications and bookkeeping work necessary in
maintaining relations with, Limited Partners, including the cost of printing and
mailing to such persons reports of meetings of the Partnership, and of
preparation of proxy statements
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and solicitations of proxies in connection therewith; (viii) expenses in
connection with preparing and mailing reports required to be furnished to
Limited Partners for investor, tax reporting or other purposes, or other reports
which the Managing General Partner deems to be in the best interest of the
Partnership; (ix) costs of any accounting, statistical or bookkeeping equipment
necessary for the maintenance of the books and records of the Partnership; (x)
the cost of preparation and dissemination of the informational material and
documentation relating to the Partnership; (xi) costs of any computer services
or equipment or services of personnel used for or by the Partnership; (xii)
expenses in connection with the disposition, replacement, alteration, repair,
remodeling, refurbishment, leasing, refinancing, operation and expansion of the
Systems and of maintenance of the Systems; (xiii) costs of any litigation in
which the Partnership is involved, as well as costs of any examination,
investigation, or other proceeding conducted by any regulatory agency in
connection with the Partnership, including legal and accounting fees incurred in
connection therewith; and (xiv) expenses of professionals employed by the
Partnership in connection with any of the foregoing, including attorneys,
accountants, computer specialists, engineers, brokers and appraisers. With
respect to Offering and Organization Costs, such reimbursement shall not exceed
3.5% of the Capital Contributions from Limited Partners; to the extent Offering
and Organization Costs exceed 3.5% of the aggregate Capital Contributions from
Limited Partners, the Managing General Partner shall be responsible for the
difference.
In addition, the Partnership will reimburse the Managing General Partner
and its Affiliates for all ordinary and necessary expenses incurred on the
Partnership's behalf, including expenses listed above which are advanced by the
Managing General Partner or its Affiliates, which shall not include charges for
overhead (except for centralized billing [if applicable], bookkeeping, telephone
and postage, copy and computer charges, which shall be reimbursed at the lower
of competitive price or cost, including allocation for overhead). All charges
for expenses and fees, whether charged by the Managing General Partner, its
Affiliates or any other party, will be billed directly to the Partnership.
13. Limited Partners.
(a) Rights and Obligations of the Limited Partners. No Limited Partner
shall be personally liable for any debts, liabilities or obligations of the
Partnership beyond the amount of his or her Capital Contribution plus his or her
share of undistributed income and the amount of any distribution (including the
return of any Capital Contribution) made to him or her that must be returned to
the Partnership pursuant to the Washington Uniform Limited Partnership Act or
other applicable state law, nor shall he or she be obligated to restore the
capital of the Partnership or repay to the Partnership any distribution made to
such person as a Limited Partner except as may be required by law. No Limited
Partner, as such, shall take part in the control of the Partnership's business
or transact any business for the Partnership.
(b) Names and Addresses of Limited Partners. The General Partners shall
keep at the principal place of business of the Partnership a list containing the
name, address and interest of each Limited Partner. Within thirty (30) days
after the admission of any Limited Partner or the receipt by the Partnership of
a written notice of change of address or transfer of interest (pursuant to
Article 14) from any Limited Partner, the General Partners shall cause such list
to be corrected to reflect such admission, transfer or change of address. Within
fifteen (15) days after receiving a written request therefor from any Limited
Partner or his or her representative, the Partnership shall send a copy of such
list to such Limited Partner; provided, however, that the Partnership may charge
for such copy its cost of reproducing the same. Any Limited Partner or his or
her representative shall have the right to inspect and copy (at his or her own
cost) at the Partnership's principal place of business the names, addresses and
interests of the Limited Partners.
(c) General Partner as Limited Partner. A General Partner, or any Affiliate
of a General Partner, may at any time invest in or acquire Limited Partner
interest in the Partnership and thereby acquire the same rights and obligations
as other Limited Partners.
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14. Transfer of Limited Partner Units.
(a) Assignment of Limited Partner Units. Following payment in full of cash
for his or her Units, a Limited Partner shall have the right to assign any or
all of the Units held by such Limited Partner, and the Partnership shall
recognize any such assignment, subject to the following conditions:
(i) In the event an assignor makes an assignment of less than all of
his or her interest in the Partnership, then, after such assignment,
neither the assignor nor the assignee shall hold less than one full Unit
except for assignments by gift, inheritance, intra-family assignments and
family dissolutions;
(ii) Such assignment shall not violate any applicable federal or state
securities law or regulation, including, without limitation, any
restriction imposed thereby with respect to the financial suitability of,
or minimum purchase requirements by, any transferee for consideration;
(iii) Such assignment is made by written instrument of assignment,
executed by the assignor, the terms of which do not contravene any of the
terms of this Agreement;
(iv) Notice of such assignment, including an executed copy of such
instrument of assignment, the name, address and taxpayer identification
number of the assignee and the number of Units assigned, has been delivered
to the Partnership.
(v) Such assignment does not jeopardize the status of the Partnership
for federal income tax purposes nor cause a termination of the Partnership
for federal income tax purposes as determined under Section 708 of the
Code; and
(vi) The assignee of such interest in the Partnership is not a
tax-exempt entity, as such term is defined in Section 168(j)(4) of the
Code, and is not a pass-thru entity, as defined in Section 267(e)(2) of the
Code, in which a tax-exempt entity holds an interest, unless the original
subscriber for such Unit was a tax-exempt entity, provided, however, that
in no event will tax-exempt entities own in the aggregate more than 20% of
the Partnership Units.
An assignment of Units satisfying the conditions specified in this
paragraph (a) shall, subject to the provisions of paragraph (d) below, entitle
the assignee to receive all Cash Distributions and allocations of Net Income and
Net Losses made with respect to the assigned Units after the "Acceptance Date,"
as defined in paragraph (c) below, but shall not entitle such assignee to any of
the other rights and privileges of a Limited Partner hereunder unless such
assignee becomes a Substitute Limited Partner in accordance with paragraph (h)
below. In the event the Partnership or its counsel determines that an assignment
does not satisfy the conditions specified in this paragraph (a), the General
Partners shall promptly notify the assignor of such determination; provided,
however, nothing contained in this paragraph (a) shall obligate the General
Partners or their counsel to make any independent examination or investigation
to determine whether such conditions have been satisfied.
(b) Transfers of Limited Partner Units by Operation of Law. Upon any
transfer of Units by operation of law (including, without limitation, transfers
at death, whether testamentary or otherwise), either the transferee or
transferor (or the transferor's personal representative) shall promptly give the
Partnership written notice of such transfer, stating by what means it occurred.
The Partnership shall recognize any such transfer of which it receives such
notice, provided such transfer also satisfies the condition set forth in clause
(ii) of paragraph (a) above. A transferee of Units satisfying the conditions
specified in this paragraph (b) shall, in accordance with paragraph (d) below,
be entitled to receive all Cash Distributions and all allocations of Net Income
and Net Losses made with respect to the transferred Units after the Acceptance
Date for such transfer, but shall not be entitled to any of the other rights and
privileges of a Limited Partner hereunder unless such transferee becomes a
Substitute Limited Partner in accordance with paragraph (h) below.
(c) Acceptance Date for Assignments and Other Transfers. The "Acceptance
Date" for any assignment or other transfer of Units satisfying the conditions
set forth in paragraph (a) or (b) above, and paragraph (d) below, of this
Article shall mean the first day of the calendar month succeeding the month in
which the Partnership receives written notice of such assignment or other
transfer (in accordance with
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the provisions of paragraph (a) or (b) above). If an assignment does not comply
with paragraph (a) above because such assignment would cause a termination of
the Partnership for federal income tax purposes under Section 708 of the Code,
then such assignment shall be deferred until the day after the last day of the
next ensuing calendar month during which such acceptance would not risk such a
termination for tax purposes. If, at any time, more than one such assignment or
other transfer is so deferred, the deferred assignments and transfers shall
subsequently be recognized (to the extent all of them cannot be recognized in
the same calendar month) in the same order as the Partnership received written
notice thereof. Whenever the Partnership determines that it will not recognize
an assignment or other transfer of Units for the reasons set forth in this
paragraph (c), the General Partners shall promptly give written notice thereof
to all of the Limited Partners.
(d) Rights and Obligations of Assignees or Transferees. Any assignee or
transferee of a Limited Partner interest hereunder shall be bound by the
provisions of this Agreement. Prior to recognizing any assignment of a Limited
Partner's interest that has been transferred in accordance with this Article,
the General Partners, at their sole discretion, may require the transferring
Limited Partner to execute and acknowledge a written instrument of assignment in
form and substance satisfactory to the General Partners, may require an opinion
of counsel satisfactory to the General Partners that such transfer will not be
in violation of the various securities laws or otherwise adversely affect the
Partnership or the Limited Partners, and may require the assignee to execute an
amendment to the Agreement and to assume all obligations of the assigning
Limited Partner. Any assignee who is not an existing Partner at the time of an
assignment in accordance with paragraph (a) or (b) of this Article shall be
entitled to the allocations and distributions attributable to the interest
assigned to it and to transfer and assign such interest in accordance with the
terms of this Agreement; provided, however, such assignee shall not be entitled
to the other rights of a Limited Partner unless and until it becomes a
Substitute Limited Partner in accordance with paragraph (h) below.
Notwithstanding the above, the Partnership and the General Partners shall incur
no liability for allocations and distributions made in good faith to the
transferring Limited Partner until the written instrument of assignment has been
received by the Partnership and recorded on its books and the Acceptance Date of
the assignment has passed. In the event of any transfer which shall result in
multiple ownership of the transferring Limited Partner's aggregate interest, the
General Partners may require one or more trustees or nominees to be designated
to represent the entire interest for the purpose of receiving all notices which
may be given and all payments which may be made under this Agreement and
exercising all rights which such transferees have pursuant to this Agreement.
(e) Assignees Not Limited Partners. No assignee of a Limited Partner's
interest is entitled to become a Substitute Limited Partner, except as set forth
in paragraph (h) below.
(f) Continuation of Obligations After Transfer. No transfer of an interest
by a Limited Partner, including a transfer of less than all its rights hereunder
or the transfer of all its rights hereunder to more than one party, shall
relieve such Limited Partner of his or her obligations hereunder arising prior
to such transfer, or unless the transferee(s) become(s) a Substitute Limited
Partner(s) pursuant to paragraph (h) below, arising subsequent to such transfer.
(g) Termination of Rights Upon Transfer. At the time of a transfer of a
Limited Partner's interest in accordance with this Article, all the rights
possessed as a Limited Partner in connection with the transferred interest,
which rights otherwise would be held either by the transferor or the transferee,
shall terminate unless the transferee is admitted to the Partnership as a
Substitute Limited Partner pursuant to the provisions of paragraph (h) below,
except that such transferee shall be entitled to receive the economic rights
described in paragraph (e) above.
(h) Admission of Substitute Limited Partners. An assignee or transferee of
Units recognized under this Article may become a Substitute Limited Partner in
place of his or her assignor or transferor, to the extent of the Units assigned
or transferred, only if:
(i) The written and executed instrument of assignment delivered to the
Partnership with respect to such assignment sets forth the intention of the
assignor that the assignee become a Substitute Limited Partner in his or
her place, to the extent of the Units assigned;
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(ii) The assignee or transferee of such Units executes, acknowledges
and delivers to the Partnership a written agreement to become a party to
and be bound by the provisions of this Agreement, in a form satisfactory to
the General Partners, as well as such other instruments as the General
Partners may deem necessary or appropriate with respect to the admission of
such assignee or transferee as a Substitute Limited Partner;
(iii) Such assignee or transferee tenders to the Partnership a
transfer fee, in an amount determined by the General Partners in their sole
discretion sufficient to cover all reasonable expenses incurred by the
Partnership in connection with admission of a Substitute Limited Partner;
and
(iv) The Managing General Partner gives its written consent to the
admission of such assignee or transferee as a Substitute Limited Partner,
which consent may be given or arbitrarily withheld in the sole discretion
of the Managing General Partner (except that, without limiting the
foregoing, the Managing General Partner shall not consent to any such
admission which, in its opinion, would jeopardize the status of the
Partnership as a partnership for federal income tax purposes or would cause
a termination of the Partnership within the meaning of Section 708(b) of
the Code).
It is expressly understood that the Managing General Partner's absolute
discretion to consent or to refuse to consent to the admission of an assignee or
transferee of Units as a Substitute Limited Partner is granted to the Managing
General Partner for the benefit of the Limited Partners in order to negate the
corporate characteristic of free transferability of interests and that exercise
of such discretion is not subject to any standard, including, without
limitation, any standard based on lack of arbitrariness, consistency,
reasonableness, fairness or the best interests of any assignor/transferor or
assignee/transferee of Units. No consent of any of the Limited Partners shall be
required to effect the admission of such an assignee or transferee as a
Substitute Limited Partner except (in the case of an assignment) the consent of
the Limited Partner making such assignment (which shall be evidenced as provided
in clause (i) of paragraph (h) above). The admission date for any Substitute
Limited Partner shall be the last day of the calendar quarter in which the
Managing General Partner gives written consent to the admission of such
Substitute Limited Partner, and on or within 30 days after such admission date
the Managing General Partner shall cause the Agreement to be amended and, as so
amended, filed to reflect the admission of such Substitute Limited Partner.
(i) Allocations of Cash Distributions, Net Income and Net Losses between
Transferors and Transferees. Any assignment or transfer shall be deemed to be
effective as of the first day of the calendar month succeeding the month in
which all of the requirements of this Article are met. Distributions to Limited
Partners allocable to any month shall be paid, with respect to any Unit, to the
person shown on the Partnership's books as holding such Unit on the first day of
such month. Net Income and Net Losses for any period of the Partnership during
which any Unit is assigned or otherwise transferred shall be allocated between
the assignor/transferor and assignee/transferee of such Unit in proportion to
the number of days during such period that each was recognized as the holder of
such Unit, except that extraordinary, nonrecurring items shall be allocated
entirely to the Partners recognized as holding the interest as of the date such
extraordinary event occurs. The Partnership shall not have any obligation to
make payment of any Cash Distributions or allocation of any Net Income or Net
Losses to any assignee or other transferee of Units until and unless such
transfer is recognized by the Partnership in accordance with the provisions of
paragraph (a) or (b) and paragraph (d) above.
(j) Redemptions. Upon the written request of a Limited Partner, the
Partnership may, at the sole discretion of the Managing General Partner, redeem
all or a portion of the Units held by such Limited Partner at a redemption price
equal to the original issuance price, i.e., $500 per Unit.
15. Allocation of Net Income and Net Losses and Cash Distributions.
(a) Allocation of Net Income and Net Losses from Operations.
(i) For all purposes of this Agreement, Net Income and Net Losses
shall be calculated utilizing the method of accounting and depreciation
utilized by the Partnership for federal income tax purposes. Except as
specifically provided in paragraphs (d), (e), (f), (g), (h) and (i) of this
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Article 15 and paragraph (c) of Article 16, Net Income and Net Losses from
operations shall be allocated as follows:
(1) First, the General Partners shall be allocated 1% and the
Limited Partners shall be allocated 99% of Partnership Net Income, Net
Losses, other Noncash Reductions, other Noncash Additions and credits
until such time as the Limited Partners have received aggregate Cash
Distributions in an amount equal to 100% of their aggregate Capital
Contributions; and
(2) Thereafter, the General Partners shall be allocated 25%, and
the Limited Partners shall be allocated 75% of Partnership Net Income,
Net Losses, other Noncash Reductions, other Noncash Additions and
credits from operations.
(ii) As between the General Partners, they shall share in the 1%
allocation pursuant to clause (1) above in the following ratio: the entire
1% to the Managing General Partner. Subject to paragraph (c) of Article 17,
the General Partners shall share in the 25% allocation pursuant to clause
(2) above in the following ratio: one-fifth, or 5%, to the Administrative
General Partner and four-fifths, or 20%, to the Managing General Partner.
(b) Allocations and Election for Tax Purposes. With respect to Partnership
tax years beginning on or after January 1, 1988, Net Income, Net Losses, other
Noncash Reductions, other Noncash Additions and credits for any year shall be
prorated among the Partners on a daily basis, based upon the number of days in
such Partnership tax year that each Partner has been recognized as such by the
Managing General Partner, except that all extraordinary, nonrecurring items
shall be allocated entirely to the Partners recognized as holding the interests
as of the date such extraordinary event occurs.
With respect to the Partnership tax years ending on December 31, 1986 and
December 31, 1987, each Partner's varying interest in the Partnership's Net
Income, Net Losses, other Noncash Reductions, other Noncash Additions and
credits for each year shall be determined by an interim closing of the
Partnership books as of each date that any new Partners are recognized as
Partners by the Managing General Partner during the year. Partners who are
admitted on or before the last day of any calendar month in 1986 and 1987 shall
be recognized as Partners by the Managing General Partner as of the first day of
such month.
All allocations set forth in this Agreement of Net Income, Net Losses and
other items shall govern the reporting of such by the Partnership for federal
income tax purposes. The Partnership shall also be permitted to prepare
financial statements in accordance with generally accepted accounting
principles. For purposes of such financial statements, the Managing General
Partner may provide for such allocation of income and losses as it deems
appropriate and shall not be bound by the tax allocations set forth herein,
except that such financial statements shall not materially distort the financial
interests in and ownership of the Partnership.
Except as set forth in paragraphs (d), (e), (f), (g), (h) and (i) of this
Article and paragraph (c) of Article 16, all items of special tax significance,
whether or not entering into taxable income, including but not limited to gains,
losses and tax credits, shall be allocated in accordance with the Net Income
percentages then in effect under paragraph (a) above.
No election shall be made by the Partnership, the General Partners or any
Limited Partner for the Partnership to be excluded from the application of the
provisions of Subchapter K of the Code.
In the event of the transfer of an interest in the Partnership or upon the
death of an individual party hereto, or in the event of the distribution of
property to any party hereto, the Partnership, if it is deemed by the Managing
General Partner to be in the best interest of a majority of the Limited Partners
or if the Managing General Partner in its sole discretion otherwise determines
to do so, may file an election, in accordance with applicable Treasury
regulations, to cause the basis of the Partnership assets to be adjusted for
federal income tax purposes as provided in Sections 734 and 743 of the Code.
(c) Cash Distributions. The Managing General Partner will determine at
least annually the amount of Cash Available for Distribution, if any, after
payment of all Partnership expenses, current debt service and the establishment
of such reserves as it reasonably deems to be appropriate. Subject to paragraph
(c)
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of Article 16, Cash Available for Distribution will be paid to the Limited
Partners and the General Partners in accordance with the allocation of Net
Losses then in effect, as set forth in paragraph (a) above, without regard to
paragraphs (d), (e), (f), (g), (h) and (i) of this Article. Notwithstanding
anything in this Agreement to the contrary, prior to the General Partners
receiving Cash Distributions for any year, the Limited Partners must receive
Cash Distributions equal to at least 50% of the Limited Partners' allocable
share of the Net Income for such year, based on projections by the Managing
General Partner of the Net Income of the Partnership for such year. If Cash
Distributions would be made to the General Partners except for the limitation in
the preceding sentence, such deferred Cash Distributions shall be made to the
General Partners as soon as possible in subsequent years from the Cash Available
for Distribution for those years (subject to the 50% limitation for such years)
or from the distribution of assets upon liquidation. This payment of the
deferred Cash Distributions shall be in addition to Cash Distributions otherwise
payable to the General Partners in such subsequent years or the amount of assets
which would otherwise be distributed to the General Partners upon liquidation.
(d) Installment Sales. In the event of a sale of all or any portion of the
Partnership assets where payment of a portion of the sales price is deferred and
the Partnership uses the installment sale method to report such gain, the
Capital Accounts of the Partners shall be fully adjusted upon closing of the
sale in accordance with paragraph (a) of this Article or paragraph (c) of
Article 16, as applicable, as though the full sales price had been received by
the Partnership in cash at closing. Upon ultimate receipt of such deferred sales
proceeds, gain shall be allocated among the Partners in proportion to the amount
of the excess, if any, of the gain credited to each Partner's Capital Account at
the time of the sale over the amount of gain recognized for federal income tax
purposes at the time of such sale, but such allocation of gain upon receipt of
proceeds shall not increase (again) the Partners' Capital Accounts. Interest
income earned or accrued by the Partnership on an installment obligation
subsequent to the closing of an installment sale shall be allocated among the
Partners in proportion to their relative positive Capital Account balances after
adjustment of such accounts in accordance with this paragraph (d) and as
reduced, from time to time, for Cash Distributions made by the Partnership to
the Partners.
(e) Recapture Amounts. Notwithstanding anything to the contrary, in the
case of ordinary income upon disposition of Partnership assets resulting from
the application of Section 1245 or 1250 of the Code, for purposes of paragraph
(a) of this Article and paragraph (c) of Article 16, such ordinary income shall
be allocated as follows:
(i) first, to each of the Partners proportionately in an amount equal
to the excess, if any, of the cumulative Net Losses allocated to such
Partner pursuant to this Article over the cumulative Net Income allocated
to such Partner pursuant to this Article; and
(ii) thereafter, 75% to the Limited Partners and 25% to the General
Partners.
(f) Negative Capital Account Limitation. No Partner shall be allocated Net
Losses or other Noncash Reductions if such allocation would cause a deficit
balance in such Partner's Capital Account unless the Capital Account balances of
all other Partners are equal to zero. Capital Account balances for the purposes
of this paragraph shall be treated as having been reduced for (i) allocations of
losses and deductions which are reasonably expected to be made as of the end of
the taxable year to such Partner pursuant to Code Section 704(e)(2), Code
Section 706(d) and Treas. Reg. Sec. 1.751-l(b)(2)(ii), and (ii) for
distributions which at the end of the taxable year are reasonably expected to be
made to such Partner to the extent that said distributions exceed offsetting
increases to such Partner's Capital Account that are reasonably expected to
occur during (or prior to) the taxable years in which such distributions are
reasonably expected to be made. Net Losses and other Noncash Reductions which
are subject to the limitation of this paragraph shall be reallocated among the
Partners with positive Capital Account balances until such time as all Partners
have zero balances in their Capital Accounts and, thereafter, Net Losses and
other Noncash Reductions will be allocated among the Partners pursuant to
paragraph (a) of this Article to the extent such allocations are permitted under
paragraph (g) of this Article. For purposes of this paragraph and paragraph (h)
of this Article, each Partner shall be treated as having already contributed any
amount for which such Partner has a mandatory contribution obligation (including
the
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136
amount of any Capital Account deficit such Partner is obligated to restore upon
liquidation) provided that such contribution must be made in all events within
90 days of liquidation of the Partnership ("Mandatory Obligation").
(g) Cumulative Loss Allocations.
(i) Notwithstanding anything contained in this Article to the contrary,
cumulative allocations of Net Losses to any Limited Partner shall not exceed the
cumulative sum of the following amounts determined as of the end of each taxable
year of the Partnership: (a) the amount of such Limited Partner's Capital
Contribution determined pursuant to Article 8 plus the amount of such Limited
Partner's uncontributed Mandatory Obligation less the amount of any cash or
property distributed to such Limited Partner; and (b) such Limited Partner's
cumulative share of Net Income or other Noncash Allocations. To the extent the
foregoing limitation results in non-allocation to a Limited Partner of
Partnership Net Losses which would otherwise be allocated to him, such Net
Losses shall be allocated pro rata to other Limited Partners to the extent each
such other Limited Partner may be allocated further Net Losses under the
foregoing limitation, and any remaining Net Losses for the taxable year in
question shall be allocated to the General Partners.
(ii) To the extent the foregoing limitation in clause (i) immediately above
results in a non-allocation to the Limited Partners of Partnership Net Losses
and in an allocation of such Net Losses to the General Partners ("Reallocated
Limited Partners' Losses"), the General Partners shall be allocated, in
subsequent taxable years, all Partnership Net Income until such time as they
have been allocated Net Income in an amount equal to the Reallocated Limited
Partners' Losses plus the Net Income the General Partners would have otherwise
been allocated notwithstanding this clause (ii).
(iii) Notwithstanding the limitation in clause (i) above, the Managing
General Partner may elect to have Net Losses continue to be allocated 99% to the
Limited Partners and 1% to the General Partners, provided that the Managing
General Partner obtains an opinion from tax counsel that such an allocation is a
reasonable interpretation of the requirements of Section 704(b) of the Code and
Treasury Regulations promulgated thereunder, provided that if Net Losses
otherwise subject to the limitation of clause (i) above are subsequently
disallowed and reallocated to the General Partners; the General Partners shall
then be allocated all future Partnership Net Income until such time as they have
been allocated additional future Net Income equal to such disallowed and
reallocated Net Losses.
(h) Qualified Income Offset. Notwithstanding anything contained in this
Article to the contrary, there shall be reallocated to each Limited Partner with
a negative balance in his or her Capital Account (determined after the
allocation of income, gain and loss under this Article for such year) each item
of Partnership gross income (unreduced by any deductions) and gain until such
time as the deficit in his or her Capital Account is eliminated. In the event
that for any taxable year Partnership gross income or gain is less than the
deficit balances of all the Limited Partners, such gross income or gain shall be
allocated in proportion to the relative deficit balances of the respective
Limited Partners.
(i) Modifications to Partnership Allocations. It is the intent of the
Partners that each Partner's distributive share of income, gain, loss,
deduction, or credit (or items thereof) shall be determined and allocated in
accordance with this Article and Article 16 to the fullest extent permitted by
Section 704(b) of the Code. In order to preserve and protect the determinations
and allocations provided for in this Article and Article 16, the Managing
General Partner shall be, and hereby is, authorized and directed, upon receipt
of an opinion of counsel, to allocate income, gain, loss, deduction, or credit
(or items thereof) arising in any year different from the manner otherwise
provided for in this Article and Article 16 if, and to the extent that,
allocating income, gain, loss, deduction, or credit (or items thereof) in the
manner provided for in this Article and Article 16 would cause the determination
and allocation of each Partner's distributive share of income, gain, loss,
deduction, or credit (or items thereof) not to be permitted by Section 704(b) of
the Code and Treasury Regulations promulgated thereunder ("Treasury
Regulations"). Any allocation made pursuant to this paragraph (i) (including all
three clauses thereof) shall be deemed to be a complete substitute for any
allocation otherwise provided for in this Article and Article 16 and no
amendment of this Agreement or approval of any Partner shall be required.
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16. Dissolution and Winding Up of the Partnership.
(a) Dissolution. The Partnership shall be dissolved at the expiration of
the term of the Partnership as set forth in Article 7 unless sooner terminated
upon any of the events as hereinafter set forth:
(i) A Majority Vote of the Limited Partners to dissolve and wind up;
or
(ii) The adjudication of bankruptcy, incompetency, removal, withdrawal
(which withdrawal shall take effect sixty (60) days after written notice
thereof is given to all other Partners), or termination of the existence of
a General Partner, unless (a) at the time there is at least one other
General Partner who consents to carry on the business, or (b) within ninety
(90) days after the occurrence of any such event all the Limited Partners
agree in writing to continue the business of the Partnership and to the
appointment of a substitute General Partner. In the event of removal or
withdrawal of the Administrative General Partner, the Managing General
Partner may, in its sole discretion, elect a substitute Administrative
General Partner without the consent of the Limited Partners.
Subject to paragraph (c) of Article 17, a General Partner may not
assign its interest as a General Partner in the Partnership without the
consent of a majority in interest of the Limited Partners; provided,
however nothing herein shall prohibit a General Partner from substituting
another corporation or entity as a General Partner and assigning its
interest in the Partnership to such other corporation or entity in
connection with an acquisition by or merger with such corporation or entity
so long as such corporation or entity assumes all the obligations of such
General Partner with regard to the Partnership; provided, further, nothing
herein shall prohibit a General Partner from pledging or otherwise
assigning its interest (but not its right to manage the Partnership) as
collateral for any loan;
(iii) The Partnership becomes insolvent or bankrupt;
(iv) The disposition, sale or abandonment of all or substantially all
of the assets of the Partnership other than in the ordinary course of
business; or
(v) The occurrence of any event that makes it unlawful for the
business of the Partnership to be continued.
(b) Winding Up. Upon the occurrence of an event causing the termination
and/or dissolution of the Partnership, the General Partners shall wind up the
business and affairs of the Partnership. In the event there is no remaining
General Partner because of bankruptcy, incompetency, withdrawal, removal,
resignation or termination of the existence of both General Partners, the
Limited Partners shall elect, by Majority Vote of the Limited Partners, a
trustee to wind up the business and affairs of the Partnership and shall
determine such trustee's compensation.
(c) Allocation of Gain and Loss. Upon sale or other disposition of the
Partnership's assets other than in the ordinary course of business, including by
reason of dissolution, involuntary conversion or condemnation, the gain or loss
of the Partnership attributable to such disposition shall be determined and loss
shall be allocated pro rata to those Partners having positive Capital Account
balances in proportion to and to the extent of such positive balances, and
thereafter to the General Partners, and gain shall be allocated as follows:
(i) First, to those Partners having negative Capital Account balances
in proportion to such negative balances until such negative balances are
eliminated and the balances are restored to zero. In determining the size
of the negative balance in a Partner's Capital Account and the amount of
the gain that needs to be allocated to restore said account to zero,
distributions of sale proceeds resulting from the transaction that produced
the gain and any allocations made pursuant to the remaining provisions of
this paragraph (c) shall be disregarded;
(ii) Second, 99% to the Limited Partners and 1% to the General
Partners until such time as the Limited Partners' aggregate Capital Account
balances equal the excess, if any, of their aggregate Capital Contribution
over the sum of the aggregate Cash Distributions made by the Partnership to
the
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Limited Partners prior to the sale or other disposition (such excess, if
any, shall be referred to as the "Limited Partners' Unreturned Capital
Contributions");
(iii) Third, to the General Partners until such time as the General
Partners' aggregate Capital Account balances equal the sum of 1.01% of the
Limited Partners' Unreturned Capital Contributions plus one-third ( 1/3) of
the excess, if any, of the Limited Partners' aggregate Capital Account
balances over the Limited Partners' Unreturned Capital Contributions;
(iv) Finally, the balance of the remaining portion of gain shall be
allocated among the General Partners and Limited Partners in accordance
with the Net Income allocation percentages set forth in clause (a)(i)(2) of
Article 15.
(d) Distribution of Assets Upon Liquidation and Winding Up of the
Partnership. Upon the sale of all or substantially all of the Partnership's
assets and/or the dissolution and winding up of the Partnership, the cash and
unsold assets of the Partnership, if any, shall be distributed in the following
order of priority (after the allocations of gains and losses to the Partners'
Capital Accounts are made pursuant to paragraph (c) of this Article):
(i) First, to payment of all loans and obligations of the Partnership,
including loans made by a General Partner and any Affiliates of the General
Partners and any deferred management fees not previously paid;
(ii) Second, to the setting up of any reserves which the Managing
General Partner in its sole discretion deems reasonably necessary for any
contingent liabilities or obligations of the Partnership or of the General
Partners arising out of or in connection with the Partnership. Such
reserves shall be placed in escrow by the Managing General Partner to be
held for the purpose of disbursing such reserves in payment of any such
contingencies, and, at the expiration of such period as the Managing
General Partner in its sole discretion deems advisable, distributing the
remaining balance in the manner hereinafter provided;
(iii) Third, to the Partners pro rata in the amount of their positive
Capital Account balances after such balances have been fully adjusted in
accordance with paragraph (c) of this Article and Article 15; and
(iv) Finally, the balance, if any, to the Partners in proportion to
the Net Income allocation percentages as set forth in clause (a)(i)(2) of
Article 15.
(e) Deficit Capital Accounts at Liquidation. It is understood and agreed
that one purpose of the provisions of Articles 15 and 16 is to ensure that none
of the Partners has a negative Capital Account balance after liquidation and to
ensure that all allocations under Article 15 will be respected by the Internal
Revenue Service. The Partners and the Partnership do not intend nor expect that
any Partner will have a negative Capital Account balance after liquidation, and
the provisions of this Agreement shall be construed and interpreted to give
effect to such intention. However, except as provided below, no Partner shall
have any obligation upon dissolution of the Partnership or at any other time to
restore a negative Capital Account balance other than to contribute any amounts
required under Article 8 that remain uncontributed. Notwithstanding the
foregoing sentence, upon dissolution of the Partnership the General Partners
shall be obligated to make a Capital Contribution to the Partnership equal to
the lesser of (i) the negative aggregate balances in the General Partners'
Capital Accounts after such accounts have been fully adjusted for all
Partnership items pursuant to Article 15 and paragraph (c) of this Article, and
(ii) the excess of 1.01% of the total Capital Contributions made by all Partners
to the Partnership over the total of all Capital Contributions made to date by
the General Partners.
(f) Responsibility of the General Partners or Trustee in Liquidating and
Winding Up the Partnership. Upon dissolution and winding up of the Partnership,
the General Partners or trustee, as the case may be, shall have a certified
public accountant complete a review of the books and prepare an unaudited
statement which shall be furnished to all Partners. The Limited Partners shall
look solely to the assets of the Partnership and not to the General Partners or
the trustee for the return of any portion of their capital.
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17. Limited Partners' Removal of a General Partner.
(a) Election to Remove.
(i) Limited Partners holding 10% of the Units of the Partnership may
request, in writing to the General Partners, a vote for the purpose of
removing a General Partner and/or cancelling any contract for services with
it or its Affiliates, or for adding a new General Partner(s).
(ii) Within 10 days of the General Partners' receipt of such request,
the General Partners shall furnish the Limited Partners with a written
ballot to vote on whether to take such action. The ballot will require that
it be received by the General Partners within 30 days after the date of
mailing as specified in the ballot in order to be valid and counted; and
(iii) The affirmative Majority Vote of the Limited Partners to take
such action, including Units held by Limited Partners who do not vote or
whose ballots were invalid, shall be necessary to remove a General Partner
and/or to cancel any contract for services with it or its Affiliates, or to
add a new General Partner(s).
(b) General Partners' Interest Upon Removal.
(i) In the event a General Partner is removed pursuant to this
Article, it shall be relieved of any and all liabilities as permitted under
the Washington Uniform Limited Partnership Act.
(ii) Upon removal, the General Partner shall be entitled to the fair
market value of its interest at the time of removal as determined by an
independent appraiser. The fair market value shall include prospective
values under Article 15 and paragraphs (c) and (d) of Article 16, to the
extent appropriate. The independent appraiser shall be mutually agreed upon
by the removed Genera} Partner and a Majority Vote of the Limited Partners
or a representative thereof elected by a Majority Vote of the Limited
Partners. In the event the Partners cannot within 15 days of such removal
agree on an appraiser, then the valuation of the removed General Partner's
interest shall be submitted to arbitration in accordance with paragraph (j)
of Article 20; and
(iii) Upon removal, the removed General Partner shall be paid the
value of its interest, as determined in subparagraph (b)(ii) above, in cash
or by the issuance of a promissory note bearing interest at 12% per annum
to be paid in five equal annual installments beginning with the end of the
first fiscal year during which such removal occurs.
(c) Withdrawal of Administrative General Partner. Notwithstanding anything
else in this Agreement to the contrary, in the event (a) John S. Simmers
withdraws as a joint venture partner of FN Equities Joint Venture and is not
replaced by Miles Z. Gordon or another individual or entity satisfactory to the
Managing General Partner in its sole discretion, or (b) John S. Simmers and
Miles Z. Gordon no longer serve as directors of FN Equities, Inc., then, at the
request of the Managing General Partner: (i) FN Equities Joint Venture shall
immediately withdraw without compensation as Administrative General Partner of
the Partnership, and shall no longer have any rights or interest in the
Partnership; (ii) all compensation, all allocations of Net Income, Net Losses,
other Noncash Reductions, other Noncash Additions, credits, net gains and net
losses, and all Cash Available for Distribution and other distributions to which
the Administrative General Partner would otherwise be entitled (including but
not limited to all amounts allocable pursuant to subparagraph (a)(ii) of Article
15) (collectively, "FNEJV Compensation") shall be allocated and distributed to
the Managing General Partner from the date the Managing General Partner
requested that the Administrative General Partner withdraw; and (iii) the
Managing General Partner shall assume all duties, responsibilities and authority
previously granted to the Administrative General Partner; provided, however,
that the Managing General Partner may, in its sole discretion, grant all or any
portion of the FNEJV Compensation to any individual or entity, including but not
limited to Messrs. Simmers or Gordon or FN Equities Joint Venture, in return for
which such individual or entity shall render administrative services to the
Partnership.
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18. Records and Reports.
(a) Books and Records. The books and records of the Partnership shall be
maintained in accordance with the method determined by the General Partners in
their sole discretion to be in the best interests of the Partnership.
(b) Quarterly Reports. The Limited Partners will receive quarterly reports
for the first two years of Partnership operations. Such reports shall set forth
all fees received by the General Partners and their Affiliates during the
quarter period.
(c) Semi-Annual Reports. The Limited Partners will receive, in addition to
the quarterly reports indicated above, within sixty (60) days after the
Partnership's first six-month period of operations and each six-month period
following the end of the Partnership's fiscal year, an unaudited balance sheet,
statement of income and cash flow statement covering such period.
(d) Annual Report. Within one hundred twenty (120) days after the end of
the Partnership's fiscal year, the General Partners shall prepare and cause to
be distributed to each Limited Partner an audited statement of the Partnership's
operations for such year, including a balance sheet as of the end of the fiscal
year and statements of income, partners' equity and changes in financial
position, a cash flow statement for such year and a report of the activities of
the Partnership during such year. Said statements will be audited either
according to generally accepted accounting principles and will be accompanied by
an auditor's report containing an opinion of independent certified public
accountants.
(e) Additional Reports. The General Partners may distribute to Limited
Partners such additional reports as they believe, in their sole discretion, are
appropriate.
(f) Tax Information. Within 75 days after the end of the Partnership's
fiscal year, the General Partners shall furnish each Limited Partner such
information as is necessary for the proper preparation of the Limited Partner's
federal income tax returns.
(g) Filings with Regulatory Authorities. All reports required by regulatory
authorities shall be filed within a reasonable time period, including such of
the above reports as are required pursuant to the rules and regulations of any
applicable state securities authority.
19. Amendment of the Certificate and Agreement of Limited Partnership.
(a) Amendments by General Partners Without Consent of Limited Partners. The
General Partners may amend this Agreement, without the consent of any of the
Limited Partners, to (i) admit any Limited Partner, Substitute Limited Partner
or additional Limited Partner in accordance with the provisions of Article 8 or
14, (ii) change the name and/or principal place of business of the Partnership,
or (iii) cure any ambiguity, or correct or supplement any provision hereof which
may be inconsistent with any other provision hereof, or to make amendments with
respect to any matter or question arising under this Agreement so long as such
additional provision is not inconsistent herewith; provided, however, that no
amendment shall be adopted pursuant to this Article unless the adoption thereof
(i) is for the benefit of or not adverse to the interests of the Limited
Partners, (ii) does not alter, adversely to the Limited Partners or any of them,
the allocations of Cash Distributions, Net Income or Net Losses among the
Limited Partners or between the Limited Partners and the General Partners, and
(iii) does not affect the limited liability of the Limited Partners or the
status of the Partnership as a partnership for federal income tax purposes.
(b) Amendment by Majority Vote of the Limited Partners Without Consent of
the General Partners. The Limited Partners may amend this Agreement pursuant to
a Majority Vote of the Limited Partners without the consent of the General
Partners, except that the Limited Partners may not so amend:
(i) Any provision of this Agreement that affects the rights of or
payments, allocations, compensation and reimbursements to the General
Partners without the consent of the General Partners; and
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(ii) Any provision of this Agreement so as to convert a Limited
Partner's interest into a General Partner's interest or otherwise modify
the limited liability of Limited Partners without the consent of each
Limited Partner adversely affected thereby; provided, further, that this
paragraph (b) may be amended only by the consent of all of the Partners.
(c) Amendments by General Partners with a Majority Vote of the Limited
Partners. In addition to any amendment otherwise authorized herein, this
Agreement may be amended by the General Partners with the consent, pursuant to a
Majority Vote, of the Limited Partners; provided, however, that this Agreement
may not be amended so as to convert a Limited Partner's interest into a General
Partner's interest or otherwise modify the limited liability of a Limited
Partner without the consent of each Limited Partner adversely affected thereby;
provided further that this paragraph (c) may be amended only by the consent of
all of the Partners.
(d) Execution and Recording of Amendments. Any amendment to this Agreement
adopted in accordance with the provisions of this Article or in accordance with
any other provisions of this Agreement shall be executed by the Managing General
Partner for itself and as attorney-in-fact for the other Partners pursuant to
the power of attorney contained in paragraph (f) of Article 20 (except that any
such amendment requiring the consent of a Limited Partner under paragraph (b) or
(c) above, other than the consent of a Limited Partner to the admission of an
assignee of any of his or her Units as a Substitute Limited Partner, shall be
executed by such Limited Partner personally, or by the Managing General Partner
as attorney-in-fact for such Limited Partner under a power of attorney given
expressly with respect to such amendment). After the execution of such
amendment, the General Partners shall prepare and record or file any certificate
or other document which may be required to be recorded or filed with respect to
such amendment; either under the Washington Uniform Limited Partnership Act or
under the law of any other applicable jurisdiction.
20. Miscellaneous Provisions.
(a) Notices. All notices or statements required to be given under this
Agreement by any party to any other party shall be in writing, sent by telegram
or certified mail and, if to the Limited Partners, addressed as shown opposite
the signature on the Signature Page and Power of Attorney to the Subscription
Agreement; if to the General Partners, addressed as follows:
Managing General Partner:
Northland Communications Corporation
3500 One Union Square Building
Seattle, Washington 98101
Administrative General Partner:
FN Equities Joint Venture
3858 Carson Street, Suite 300
Torrance, California 99503
Notices shall be given and any applicable time shall run from the date such
notice is placed in the mails or delivered to the telegraph company as to any
notice given by a General Partner, and when received as to any notice given by
any other party.
Any notice to a party other than the General Partners, including a notice
requiring concurrence or nonconcurrence, shall be effective, and any failure to
respond binding, irrespective of whether or not such notice is actually
received, and irrespective of any disability or death on the part of the notice,
whether or not known to the party giving such notice.
The address of any party hereto may be changed by written notice to the
Limited Partners in the event of a change of address by the General Partners, or
to the General Partners in the event of change of address by a Limited Partner;
provided, that in the event of a transfer of interest hereunder, no notice to
any such transferee shall be required, nor shall such transferee have any rights
hereunder, until notice
B-22
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thereof shall have been given to the General Partners. Any transfer of interests
hereunder shall not increase the duty to give notice, and in the event of a
transfer of less than all of a party's interest hereunder or the transfer of
interest hereunder to more than one party, notice to any owner of any portion of
such transferred interests shall be notice to all owners thereof.
(b) Applicable Law. Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed under the internal laws of the
State of Washington and that the Washington Uniform Limited Partnership Act as
now adopted or as may be hereafter amended shall govern the partnership aspects
of this Agreement.
(c) Captions. Headings used herein are for reference purposes only and do
not affect the meaning or interpretation of this Agreement.
(d) Execution in Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if the parties hereto had all signed the
same document, and all of such counterparts shall constitute one and the same
document.
(e) Successors in Interest. Subject to the restrictions against assignment
as herein contained, this Agreement shall inure to the benefit of and shall be
binding upon successors in interest, personal representatives, estates, heirs,
or assignees hereto.
(f) Power of Attorney. Each Partner, including the Administrative General
Partner, hereby makes, constitutes and appoints the Managing General Partner,
with full power of substitution and resubstitution, his or her true and lawful
attorney-in-fact, for him or her and in his or her name, place and stead and for
his or her use and benefit, to sign, acknowledge, file and record: (a) this
Agreement, as well as amendments thereto, under the laws of the State of
Washington or the laws of any other state in which such Agreement or amendment
is required to be filed; (b) any other instrument or document which may be
required to be filed by the Partnership under the laws of any state or of any
governmental agency, or which the General Partners deem it advisable to file;
(c) any instruments or documents which may be required to effect the
continuation of the Partnership, or the dissolution and termination of the
Partnership, provided such continuation or dissolution and termination are in
accordance with the terms of this Agreement; (d) any instrument or documents
relating to the acquisition of Partnership properties, including, but not
limited to, purchase and sale agreements and loan documents relating to the
financing of the acquisition of Partnership properties; (e) any instruments or
documents relating to operating, management or agency agreements; (f) contracts,
instruments, agreements or other documents with utilities, franchise or similar
operating authorities; and (g) all agreements or other instruments required or
deemed beneficial to implement the power granted to the General Partners under
this Agreement.
Each of the Partners, including the Administrative General Partner, does
hereby further agree, whenever requested to do so, personally to sign, swear or
affirm under oath, acknowledge and deliver any such instrument or document
provided for under this paragraph (f), and to sign, swear or affirm under oath,
acknowledge and deliver whatever further documents or instruments may be
required by the Managing General Partner.
The power of attorney granted hereunder to the Managing General Partner:
(i) Is a special power of appointment coupled with an interest, is
irrevocable, and shall (to the extent permitted by applicable law) survive
the death or disability of the Partner;
(ii) Shall survive the delivery of an assignment by a Limited Partner
of all or any portion of his or her Units; except where the assignee
thereof has been approved by the Managing General Partner for admission to
the Partnership as a Substitute Limited Partner, the power of attorney
shall survive the delivery of such assignment for the sole purpose of
enabling the Managing General Partner to execute, acknowledge and file any
instrument necessary to effect such substitution; and
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143
(iii) May be exercised by the Managing General Partner for each
Partner by a facsimile signature or by listing all of the Partners
executing any instrument with a single signature as attorney-in-fact for
all of them.
(g) Meetings. At any time, or from time to time, Limited Partners owning
ten percent (10%) or more of the Units may require, by written notice to the
General Partners specifying in general terms the subjects to be considered, the
General Partners to call, or the General Partners may on their own motion call,
a special meeting of the Limited Partners; and the General Partners, within ten
(10) days after any such notice is received, shall give notice of such special
meeting to all Limited Partners whose addresses are on record with the
Partnership, including in such notice a copy of the notice requiring the call.
Meetings may be held within or without the state of Washington and not sooner
than five nor more than twenty days after the giving of such notice, and votes
at such meetings may be accomplished either in person or by proxy.
(h) Gender and Headings. The use of any gender herein shall be deemed to be
or include the other and the use of the singular herein shall be deemed to be or
include the plural (and vice versa) wherever appropriate.
(i) Arbitration. Any controversy between the parties hereto arising out of
this Agreement shall be submitted to arbitration before any arbitrator or
arbitrators chosen in accordance with the rules of the American Arbitration
Association. Such arbitration shall take place in Seattle, Washington unless the
parties mutually agree otherwise.
(j) No Third Party Beneficiaries. Unless explicitly stated to the contrary
herein, there shall be no third party beneficiaries to this Agreement.
21. Addresses. The addresses of the General Partners, the Original Limited
Partner and the additional Limited Partners are as follows:
Managing General Partner
Northland Communications Corporation
3500 One Union Square Building
Seattle, Washington 98101
Administrative General Partner:
FN Equities Joint Venture
3858 Carson Street, Suite 300
Torrance, California 90503
Original Limited Partner:
Richard I. Clark
3500 One Union Square Building
Seattle, Washington 98101
Limited Partners:
(Set forth on attached Schedule A)
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DATED as of the 3rd day of
November, 1986.
Managing General Partner: NORTHLAND COMMUNICATIONS CORPORATION
By:
---------------------------------
John S. Whetzell, President
Administrative General Partner: FN EQUITIES JOINT VENTURE
By: FN Equities, Inc., General
Partner
----------------------------------
By:
---------------------------------
Its Executive Vice
President
Original Limited Partner,
hereby withdrawing: ------------------------------------
Richard I. Clark
By: NORTHLAND COMMUNICATIONS
CORPORATION,
Limited Partners (as set as attorney-in-fact
forth on the attached
Schedule A): By:
----------------------------------
John S. Whetzell, President
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EXHIBIT C
PROPOSED AMENDMENT NO. 1 TO THE AMENDED AND RESTATED
CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
This amendment to the Amended and Restated Certificate and Agreement of
Limited Partnership (the "Amendment") of Northland Cable Properties Six Limited
Partnership, a Washington limited partnership ("NCP-Six"), is entered into by
and between Northland Communications Corporation, a Washington corporation, as
the managing general partner of NCP-Six, and a majority in interest of all of
the limited partners of NCP-Six. The parties agree as follows:
1. Amendment. The Amended and Restated Certificate and Agreement of
Limited Partnership of Northland Cable Properties Six Limited Partnership,
dated November 3, 1986 (the "Agreement"), is hereby amended by replacing
Article 7 in its entirety with the following new Article 7:
"7. Term of Partnership. The Partnership commenced as of the date
of filing and recording the original certificate of limited partnership
of the Partnership and shall continue until the date of the first of the
following events:
(a) December 31, 2007; or
(b) Dissolution as provided in Article 16 of this Agreement."
2. Effect of Amendment. Except as expressly amended by this Amendment,
the Agreement shall remain in full force and effect.
DATED this day of , 2001.
NORTHLAND COMMUNICATIONS CORPORATION,
as both managing general partner of
Northland Cable Properties Six Limited
Partnership, and as attorney-in-fact
for a majority in interest of the
limited partners of Northland Cable
Properties Six Limited Partnership.
By:
------------------------------------
John S. Whetzell, CEO
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EXHIBIT D
PROPOSED AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
This amendment to the Amended and Restated Certificate and Agreement of
Limited Partnership (the "Amendment") of Northland Cable Properties Six Limited
Partnership, a Washington limited partnership ("NCP-Six"), is entered into by
and between Northland Communications Corporation, a Washington corporation
("Northland"), as the managing general partner of NCP-Six, and a majority in
interest of all of the limited partners of NCP-Six. The parties agree as
follows:
1. Amendment Authorizing Certain Sales to Affiliates of the Managing
General Partner. The Amended and Restated Certificate and Agreement of
Limited Partnership of Northland Cable Properties Six Limited Partnership,
dated November 3, 1986 (the "Agreement"), is hereby amended by adding a new
Article 22 as follows:
"22. Authorization of Specific Sales and Distributions to
Affiliates of Northland Communications Corporation.
"(a) Authority for Agreements. The General Partners are hereby
authorized to enter into asset purchase agreements with Northland
Cable Networks LLC, Northland Cable Properties, Inc. and Northland
Cable Television, Inc. (the "Northland Purchase Agreements") to (i)
sell the undivided portion of the franchises and operating assets of
the Partnership (collectively, the "Assets") that are attributable to
the Limited Partners' collective interest in the Partnership, and
(ii) distribute in-kind to Northland Communications Corporation the
undivided portion of the Assets that are attributable to the General
Partner's interest in the Partnership. The terms and conditions of
the Northland Purchase Agreements shall be substantially as described
in the proxy statement of the Partnership dated July 31, 2001 (the
"Proxy Statement"). This Article 22 relates only to the acquisition
of the Assets pursuant to one or more of the Northland Purchase
Agreements and shall not be construed as authorization for the
Partnership to sell its assets to the General Partners or their
Affiliates except pursuant to the Northland Purchase Agreements. This
Article 22 shall not restrict or otherwise affect the authority of
the General Partners to sell or otherwise dispose of the Assets to
unaffiliated third parties in accordance with Article 11.
"(b) Allocation of Gain and Cash Distributions. Gain from the
sale by the Partnership resulting from the Northland Purchase
Agreements of the undivided portion of the Assets that are
attributable to the Limited Partners' collective interest in the
Partnership shall be allocated solely to the Limited Partners in
accordance with paragraph 16(c) of this Agreement. Distributions on
and following the Closing Date(s) of each purchase shall be made in
accordance with paragraph 16(d) of this Agreement, except that any
liquidating distributions to the Managing General Partner shall be
in-kind and shall include the in-kind distribution to Northland
Communications Corporation of the undivided portion of the Assets
that are attributable to the Managing General Partner's interest in
the Partnership, and any liquidating distributions to the Limited
Partners shall be monetary and shall include the net proceeds from
the sales. The promissory notes to be delivered by the purchasers at
closing pursuant to the Northland Purchase Agreements as part of the
purchase price for the Assets shall be distributed to a liquidating
trust upon the final sale of the Assets as set forth in the Proxy
Statement. All other allocations of income, gain or loss and
distributions of cash shall be made to all the Partners in accordance
with this Agreement.
"(c) Expiration of Authorization. The authorization provided by
Paragraph 22(a) above shall expire with respect to any sale to be
made pursuant to a Northland Purchase Agreement that is not closed
within 180 days of the September 11, 2001 special meeting of limited
partners at which the proposals presented in the Proxy Statement were
voted upon."
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2. Amendment Authorizing Sales to Non-Affiliates Without Further
Limited Partner Approval. The Agreement is further amended by adding a new
Article 23 as follows:
"23. Sale of Partnership Assets to Non-Affiliates After September 11,
2001. Notwithstanding any provision(s) to the contrary in this Agreement,
including but not limited to the provisions of Paragraph 11(a)(ii), at any
time after September 11, 2001 the General Partners are authorized without
further Limited Partner approval to sell any or all of the Partnership's
assets that are not sold pursuant to a Northland Purchase Agreement (as
such term is defined in Article 22) at prices and or terms established by
the General Partners provided such assets are only sold to parties that are
neither the General Partners nor their Affiliates.
3. Amendment Regarding Reports Following Dissolution. The Agreement is
further amended by adding a new Paragraph 18(h) as follows:
"(h) Reports Upon Dissolution. The General Partners shall not be
obligated to furnish semi-annual or annual reports pursuant to paragraph
18(c) or (d) of this Agreement for the year in which dissolution of the
Partnership occurs or for any years thereafter.
4. Further Authorization of the General Partners. The General Partners
are authorized to take all action deemed by them necessary or appropriate
to effect the foregoing, including but not limited to the creation of a
liquidating trust for purposes of collecting note payments, taking all
other actions generally described in the Proxy Statement, and carrying on
other appropriate business following dissolution of NCP-Six.
5. Effect of Amendment. Except as expressly amended by this Amendment,
the Agreement shall remain in full force and effect.
DATED this day of , 2001.
NORTHLAND COMMUNICATIONS CORPORATION,
as both managing general partner of
Northland Cable Properties Six Limited
Partnership, and as attorney-in-fact
for a majority in interest of the
limited partners of Northland Cable
Properties Six Limited Partnership.
By:
------------------------------------
John S. Whetzell, CEO
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EXHIBIT E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET PURCHASE AND CONTRIBUTION AGREEMENT
AMONG
NORTHLAND CABLE PROPERTIES SIX
LIMITED PARTNERSHIP
NORTHLAND COMMUNICATIONS CORPORATION
AND
NORTHLAND CABLE NETWORKS LLC
DATED
MAY 29, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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ASSET PURCHASE AND CONTRIBUTION AGREEMENT
THIS ASSET PURCHASE AND CONTRIBUTION AGREEMENT is dated May 29, 2001, among
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP, a Washington limited
partnership ("Seller"), NORTHLAND COMMUNICATIONS CORPORATION, a Washington
corporation ("NCC"), (Solely for the limited purpose of Article 3A, Sections 5.3
and 5.4, and Article 9), and NORTHLAND CABLE NETWORKS LLC, a Delaware limited
liability company ("Buyer").
RECITALS:
A. Seller owns and operates cable television systems in the following
communities in the State of Mississippi: Starkville, Maben, Philadelphia,
Kosciusko, Carthage, Forest and Raleigh (collectively referred to as the
"Systems" and individually as a "System");
B. Seller desires to sell, and Buyer wishes to acquire, substantially all
of Seller's assets used in the operation of the Systems and the cable television
business related thereto for the price and on the terms and conditions set forth
in this Agreement;
C. Simultaneously with the Closing (as such term is defined below), Seller
will make an in-kind distribution to NCC of an undivided interest in the Assets
(as such term is defined below) (the "Distribution"), and the Distributed Assets
(as such term is defined below) shall be contributed by NCC to Buyer as NCC's
capital contribution thereto (the "Contribution"); and
D. This Agreement sets forth the terms and conditions pursuant to which the
transactions contemplated hereby shall be consummated.
AGREEMENTS:
In consideration of the above recitals and the covenants and agreements
contained herein, Buyer and Seller agree as follows:
1. Defined Terms
The following terms shall have the following meanings in this Agreement:
1.1. "Accounts Receivable" means the rights of Seller to payment for
services billed by Seller (including, without limitation, those billed to
subscribers of the Systems and those for services and advertising time provided
by Seller) and unpaid prior to the Closing Date as reflected on the billing
records of Seller relating to the Systems.
1.2. "Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with, such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
1.3. "Agreement" means this Asset Purchase and Contribution Agreement.
1.4. "Assets" means all the tangible and intangible assets owned, used or
held for use by Seller in connection with the conduct of the business or
operations of the Systems, including, without limitation, those specified in
detail in Section 2.1 but excluding those specified in Section 2.2. Assets
consist of the Purchased Assets and the Distributed Assets.
1.5. "Basic Cable Service" means the tier of cable television service
described on Schedule 3.9 hereto.
1.6. "Cable Act" means Title VI of the Communications Act of 1934, as
amended, 47 U.S.C. sec. 151, et seq., and all other provisions of the Cable
Communications Policy Act of 1984, Pub. L. No. 98-549, and the Cable Television
Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, and the
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Telecommunications Act of 1996, Pub. L. No. 104-104, as such statutes may be
amended from time to time, and the rules and regulations thereunder, as in
effect from time to time.
1.7. "Closing" means the consummation of the transactions contemplated by
this Agreement in accordance with the provisions of Section 7.
1.8. "Closing Date" means the date of the Closing specified in Section 7.
1.9. "Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, or any subsequent legislative enactment thereof, as in
effect from time to time.
1.10. "Communications Act" means the Communications Act of 1934, as amended
by the Cable Communications Policy Act of 1984, the Cable Television Consumer
Protection and Completion Act of 1992 and the provisions of the
Telecommunications Act of 1996 amending Title VI of the Communications Act of
1934, and as may be further amended, and the Rules and Regulations, policies and
published decisions of the FCC thereunder, as in effect from time to time.
1.11. "Compensation Arrangement" means any written plan or compensation
arrangement other than an Employee Plan or a Multiemployer Plan that provides to
employees of Seller employed at the Systems any compensation or other benefits,
whether deferred or not, including, but not limited to, any bonus or incentive
plan, deferred compensation arrangement, stock option plan, stock appreciation
right, stock purchase plan, severance pay plan and any other perquisites and
employee fringe benefit plan.
1.12. "Consents" means the consents, permits, approvals (or in the case of
a right of first refusal, a written waiver) of or notice to Governmental
Authorities and any other Person (including Seller's lenders) listed in Schedule
3.8).
1.13. "Contracts" means any written or oral agreement, mortgage, deed of
trust, bond, indenture, lease, license, note, franchise, certificate, option,
warrant, right or other instrument or document other than Governmental
Authorizations that are used in the Systems and included in the Assets,
including, without limitation, the agreements listed in Schedule 3.7, but
excluding the agreements listed in Schedule 2.2.
1.14. "Copyright Act" means Title 17 of the United States Code, as amended,
and rules and regulations, orders, and policies of the U.S. Copyright Office, in
each case as amended and in effect from time to time.
1.15. "Discounted Subscriber" means those customers in single family
households that pay less than their applicable System's regular monthly
subscription rate for the service to which such customer subscribes.
1.16. "Distributed Asset Value" means $2,000,000, representing the value of
the Distributed Assets.
1.17. "Distributed Assets" means the undivided portion of the Assets
attributable to the interest of NCC in Seller pursuant to and in accordance with
the limited partnership agreement of Seller, as amended, and which when combined
with the Purchased Assets encompass all the Assets.
1.18. "Employee Plan" means any material pension, retirement,
profit-sharing, deferred compensation, vacation, severance, bonus, incentive,
medical, vision, dental, disability, life insurance or any other employee
benefit plan as defined in Section 3(3) of ERISA (other than a Multiemployer
Plan) to which Seller contributes or which Seller sponsors or maintains or by
which Seller otherwise is bound, that provides benefits to employees of Seller
employed at the Systems.
1.19. "Environmental Laws" shall mean the following: (a) Clean Air Act (42
U.S.C. sec. 7401, et seq.); (b) Clean Water Act (33 U.S.C. sec. 1251, et seq.);
(c) Resource Conservation and Recovery Act (42 U.S.C. sec. 6901, et seq.); (d)
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. sec. 9601, et seq.); (e) Safe Drinking Water Act (42 U.S.C. sec. 300f, et
seq.); (f) Toxic Substances Control Act (15 U.S.C. sec. 2601, et seq.); (g)
Rivers and Harbors Act of 1899 (33 U.S.C. sec. 401, et seq.); (h) Endangered
Species Act of 1973 (16 U.S.C. sec. 1531, et seq.); (i) Occupational Safety and
Health Act of 1970 (29 U.S.C. sec. 651, et seq.); and (j) all other applicable
federal, state and local
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statutes, regulations, ordinances, orders and decrees regulating human health
and safety and the environment; all as amended.
1.20. "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder, as in effect from time to time.
1.21. "Expanded Basic Service" means the tier of cable television services
described on Schedule 3.9.
1.22. "FAA" means the Federal Aviation Administration, or its successor
agency.
1.23. "FCC" means the Federal Communications Commission, or its successor
agency.
1.24. "Franchises" means all municipal and county franchises and similar
agreements, instruments and resolutions and franchise related statutes
(including enabling ordinances) that are necessary or required to construct,
own, maintain or operate the Systems, including all amendments thereto and
modifications thereof.
1.25. "Governmental Authority" means the United States of America, any
state, commonwealth, territory or possession thereof and any political
subdivision or quasi-governmental authority of any of the same, including but
not limited to courts, tribunals, departments, commissions, boards, bureaus,
agencies, counties, municipalities, provinces, parishes and other
instrumentalities.
1.26. "Governmental Authorizations" means, collectively, all Franchises and
other authorizations, agreements, licenses and other permits for and with
respect to the construction, ownership and operation of any of the Systems
obtained from any Governmental Authority.
1.27. "Hazardous Substances" means any pollutant, contaminant, chemical,
industrial, toxic, hazardous or noxious substance or waste that is regulated by
any Governmental Authority, including but not limited to any "hazardous waste"
as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C.A.
sec. 6901, et seq.) (RCRA), as amended, and rules and regulations promulgated
thereunder, as amended, and any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C.A. sec. 9601, et seq.) (CERCLA), as amended, and rules and regulations
promulgated thereunder, as amended.
1.28. "Holdback" means $2,000,000 of the Purchase Price that will be
deposited at Closing with the escrow agent by Seller and held pursuant to the
Holdback Escrow Agreement.
1.29. "Holdback Escrow Agreement" means that certain Holdback Escrow
Agreement to be executed immediately prior to Closing by Seller, the escrow
agent and Buyer, in a form mutually acceptable to the parties.
1.30. "Judgment" means any judgment, writ, order, injunction, award or
decree of any court, judge, justice or magistrate, including any bankruptcy
court or judge, and any order of or by any Governmental Authority.
1.31. "Knowledge" with respect to Seller, means the actual knowledge of a
particular matter by any of the following individuals after reasonable
investigation of the Systems: John Whetzell, Gary S. Jones, Laura N. Williams,
H. Lee Johnson and Richard J. Dyste.
1.32. "Legal Requirements" means applicable common law and any applicable
statute, ordinance, code or other law, rule, regulation, order, technical or
other written standard, requirement, or procedure enacted, adopted, promulgated,
applied or followed by any Governmental Authority, including Judgments.
1.33. "Lien" means any security agreement, financing statement filed with
any Governmental Authority, conditional sale or other title retention agreement,
any lease, consignment or bailment given for purposes of security, any lien,
mortgage, indenture, pledge, option, encumbrance, charge, assessment,
restrictions, adverse claim, voting agreement, adverse interest, constructive
trust or other trust, attachment, exception to or defect in title or other
ownership interest (including but not limited to reservations, rights of entry,
possibilities of reverter, encroachments, easements, rights-of-way, restrictive
covenants, leases and
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licenses) of any kind, which otherwise constitutes an interest in or claim
against property, whether arising pursuant to any Legal Requirement, Contract,
or otherwise.
1.34. "Litigation" means any claim, action, suit, proceeding, arbitration,
investigation, hearing or other activity or procedure that could result in a
Judgment.
1.35. "LLC Agreement" means that certain Limited Liability Company
Agreement of Buyer, dated as of the date hereof, among NCC, Northland
Telecommunications Corporation and Providence Growth Northland Cable L.P.
1.36. "Management Agreement" means that certain Management Agreement, dated
as of the Closing Date, between NCC and Buyer, the form of which is attached as
an exhibit to the Securities Purchase Agreement.
1.37. "Material Adverse Effect" means a material adverse effect on the
business, results of operations, assets, liabilities or financial condition of
Seller or the Systems, taken as a whole, other than (a) matters affecting the
cable television industry generally (including, without limitation, legislative,
regulatory or litigation matters), and (b) matters related to or arising from
national economic conditions (including, without limitation, financial and
capital markets).
1.38. "Multiemployer Plan" means a plan, as defined in ERISA Section 3(37)
or Section 4001(a)(3), to which Seller or any trade or business which would be
considered a single employer with Seller under Section 4001(b)(1) of ERISA
contributed, contributes or is required to contribute.
1.39. "Permitted Encumbrances" means any of the following Liens: (a)
landlord's or lessor's liens with respect to leased Assets and liens for current
taxes, assessments and governmental charges not yet due or being contested in
good faith; (b) liens of carriers, warehousemen, mechanics, laborers, and
materialmen and other similar statutory liens incurred in the ordinary course of
business for sums not yet due or identified to Buyer as being contested
diligently in good faith by appropriate proceedings; (c) leased interests in
property leased to others; (d) restrictions set forth in, or rights granted to
Governmental Authorities as set forth in, the Franchises; (e) the Assumed
Liabilities; (f) zoning, building or similar restrictions, easements,
rights-of-way, reservations of rights, conditions or other restrictions or
encumbrances relating to or affecting the Real Property, that do not materially
interfere, individually or in the aggregate, with the use of such Real Property
in the operation of the Systems as presently conducted or affect or impair the
value or merchantability of such parcel of Real Property; (g) as to Real
Property, all matters of record other than mortgages and (h) any other Liens
that are described on Schedule 3.5 and that relate to liabilities and
obligations that are to be discharged in full at Closing or that will be removed
prior to or at Closing.
1.40. "Person" means any natural person, Governmental Authority,
corporation, limited liability company, general or limited partnership, joint
venture, trust, association, or unincorporated entity of any kind.
1.41. "Personal Property" means all tangible and intangible personal
property including all machinery, equipment, tools, vehicles, furniture,
leasehold improvements, office equipment, plant, inventory, spare parts,
supplies, the Franchises, the Contracts, and other tangible and intangible
personal property owned or leased by Seller and used or held for use as of the
date hereof in the conduct of the business or operations of the Systems, plus
such additions thereto and deletions therefrom arising in the ordinary course of
business and as permitted by this Agreement between the date hereof and the
Closing Date.
1.42. "Purchased Assets" means the undivided portion of the Assets
attributable to the collective interest of the limited partners and the
administrative general partner of Seller pursuant to and in accordance with the
limited partnership agreement of Seller, as amended, and when combined with the
Distributed Assets encompass all the Assets.
1.43. "Real Property" means all of the real property interests of Seller,
including, without limitation, fee interests in real estate (together with the
buildings and other improvements located thereon), leasehold
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interests in real estate, easements, licenses, rights to access, rights-of-way
and other real property interests that are (a) leased by Seller and used or held
for use in the business or operations of the Systems, or (b) owned by Seller and
used, useful or held for use in the business or operations of the Systems, plus
such additions thereto and deletions therefrom arising in the ordinary course of
business and as permitted by this Agreement between the date hereof and the
Closing Date.
1.44. "Registration Rights Agreement" means that Registration Rights
Agreement among Buyer, NCC and Providence Growth Northland Cable L.P. in a form
mutually acceptable to the parties.
1.45. "Securities Purchase Agreement" means that certain Securities
Purchase Agreement, dated May 29, 2001, among Buyer, NCC and Providence Growth
Northland Cable L.P.
1.46. "Services Agreements" means those certain Services Agreements, dated
as of the Closing Date, between NCC or its Affiliates and Buyer with respect to
the provision of services by NCC or its Affiliates after Closing.
1.47. "Subscriber" means an active customer of one of the Systems who
subscribes for Basic Cable Service in a single household (excluding "second
connections", as such term is commonly understood in the cable television
industry, and any account duplication), in a commercial establishment or in a
multi-unit dwelling (including motels and hotels), and has paid the applicable
full non-discounted rate for at least one month's Basic Cable Service including
applicable deposit and installation charges; provided, however, that the number
of customers in a multi-unit dwelling or commercial establishment or other bulk
accounts (e.g. a hospital) that obtain service on a "bulk-rate" basis shall be
determined on a System-by-System basis by dividing the gross bulk-rate revenue
or, in the case of a Discounted Subscriber, the gross revenue (but in either
case not revenues from tier or premium services, passed-through sales taxes, and
other passed-through charges and nonrecurring charges such as installation or
converter rental) attributable to each bulk agreement or Discounted Subscriber,
as appropriate, in each such System by (x) for each such bulk agreement or
Discounted Subscriber, as appropriate, for Basic Cable Service, the non-
discounted, regular monthly subscription rate for individual households within
such System for the Basic Cable Service and (y) for each such bulk agreement or
Discounted Subscriber, as appropriate, for Expanded Basic Service, the
non-discounted, regular monthly subscription rate for individual households
within such System for Expanded Basic Service. For purposes of this definition,
an "active customer" shall mean any customer (i) who has not given or been given
notice of termination and who, consistent with Seller's past practice, should
not have been given notice of termination; provided that the number of customers
referred to in this clause (i) shall be net of the number of new customers who
have recently been connected to a System but who have not yet been required to
pay for at least one month's Basic Cable Service (excluding from this condition
any subscribers covered under the bulk agreement with Mississippi State
University at Starkville) and the number of prospective customers whose
connection to a System is pending; and (ii) whose account does not have an
outstanding balance (other than an amount of $7.50 or less) more than 60 days
past due (with an account being past due one day after the first day of the
period to which the applicable billing relates).
1.48. "Taxes" means all levies and assessments of any kind or nature
imposed by any Governmental Authority, including but not limited to all income,
sales, use, ad valorem, value added, transfer, franchise, severance, net or
gross proceeds, withholding, payroll, employment, excise, or property taxes,
together with any interest thereon and any penalties, additions to tax, or
additional amounts applicable thereto.
1.49. "Transaction Documents" means all written agreements, instruments,
affidavits, certificates and other documents, other than this Agreement, that
are executed and delivered by Seller or Buyer pursuant to this Agreement
(including, without limitation, the Holdback Escrow Agreement) or any other
transactions contemplated by this Agreement solely in connection with the
acquisition of the Assets, regardless of whether such agreements, assignments,
instruments, affidavits, certificates and other documents are expressly referred
to in this Agreement (and expressly excluding all agreements, assignments,
instruments, affidavits, certificates and other documents between NCC and Buyer
or any of their Affiliates, including, without limitation, the LLC Agreement of
Seller, the Services Agreements, the Management Agreement, the Securities
Purchase Agreement, and the Registration Rights Agreement).
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1.50. "University Subscriber Disconnects" means that number of Subscribers
that are students at Mississippi State University at Starkville ("Starkville
Students") and that have been disconnected during the months of May, June or
July less the number of Starkville Students who become Subscribers in May, June,
July or August.
1.51. List of Additional Definitions. The following is a list of some
additional terms used in this Agreement and a reference to the Section hereof in
which such term is defined:
TERM SECTION
---- -------
Adjustment Time................................. 2.4.1
Alternative Financing........................... 5.1.11
Amplifier Upgrade Process....................... 3.6
Assumed Liabilities............................. 2.5
Buyer........................................... Preamble
Buyer Counsel Opinion........................... 6.2.10
Buyer's Note.................................... 2.3.2
Buyer's 401(k) Plan............................. 5.10.6
Claimant........................................ 9.4.1
Competing Services.............................. 3.9.5
Contribution.................................... Recitals
Deductible...................................... 9.5.1
Deposits........................................ 2.1.6
Distribution.................................... Recitals
DOJ............................................. 5.5
Excluded Assets................................. 2.2
Excluded Liabilities............................ 2.5
Final Report.................................... 2.4.6
FTC............................................. 5.5
HSR Act......................................... 5.5
Indemnifying Party.............................. 9.4.1
Losses.......................................... 9.2
NCC............................................. Preamble
NCC Representations............................. Section 3A Preamble
Outside Closing Date............................ 8.1.2
Owned Real Property............................. 3.5.1
Preliminary Report.............................. 2.4.5
Purchase Price.................................. 2.3.1
Real Property Leases............................ 3.5.2
Seller.......................................... Preamble
Seller Counsel Opinion.......................... 6.1.12
Seller FCC Counsel Opinion...................... 6.1.13
Seller's 401(k) Plan............................ 5.10.6
Short Term Franchises........................... 5.19
Systems......................................... Recitals
Systems' Financial Statements................... 3.10
Title Defect.................................... 5.12
Transferred Employees........................... 5.10.1
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2. Sale, Purchase and Contribution of Assets
2.1. Agreement to Sell, Purchase and Contribute. Subject to the terms and
conditions set forth in this Agreement, on the Closing Date Seller hereby agrees
to sell, transfer and deliver to Buyer, and Buyer agrees to purchase from
Seller, all of the Purchased Assets. In addition, on the Closing Date Seller
agrees to make the Distribution to NCC. In consideration of the issuance at
Closing of Preferred Units by Buyer to NCC as provided in the Securities
Purchase Agreement, and subject to the terms and conditions set forth in this
Agreement, at Closing NCC shall make the Contribution to Buyer. The Assets
(including those transferred to Buyer pursuant to the Contribution) shall be, on
the Closing Date, free and clear of any Liens except for Permitted Encumbrances,
which Assets include, without limitation, the following:
2.1.1. the Personal Property, including, but not limited to, those
items listed on Schedule 2.1.1;
2.1.2. the Real Property;
2.1.3. the Franchises;
2.1.4. the Contracts;
2.1.5. all of Seller's proprietary information, technical information
and data, machinery and equipment warranties, maps, computer discs and
tapes, plans, diagrams, blueprints and schematics, including filings with
the Governmental Authorities, FCC and FAA relating to the Systems (other
than the materials described in Section 2.2 hereof);
2.1.6. all payments and sums deposited or advanced by Seller to a
landlord, utility, Governmental Authority or any other party as a security
deposit or in exchange for initiation of a service related to the Systems
("Deposits");
2.1.7. subject to Section 2.2.2, all books and records relating
primarily to the business or operations of the Systems, including executed
copies of the Contracts, customer records and all records required by any
Governmental Authority to be kept, subject to the right of Seller to have
such books and records made available to Seller for copying for a
reasonable period, not to exceed three years from the Closing Date; and
2.1.8. the going concern value and, subject to Section 2.2.5, any
other intangible assets generated by Seller with respect to the Systems.
2.2. Excluded Assets. The Assets shall exclude the following assets (the
"Excluded Assets"):
2.2.1. Seller's cash on hand as of the Closing Date and all other cash
in any of Seller's bank or savings accounts (other than the Deposits),
including, without limitation, customer advance payments and deposits; any
and all bonds, surety instruments, insurance policies and all rights and
claims thereunder, letters of credit or other similar items and any cash
surrender value in regard thereto, and any stocks, bonds, certificates of
deposit and similar investments;
2.2.2. Any books and records that Seller is required by law to retain
and any correspondence, memoranda, books of account, tax reports and
returns and the like related to the Systems other than those described in
Section 2.1.7, subject to the right of Buyer to have access to and to copy
for a reasonable period, not to exceed three years from the Closing Date,
and Seller's partnership books and records and other books and records
primarily related to internal partnership matters and financial
relationships with Seller's lenders and Affiliates, including, without
limitation, those books and records relating to the Systems and listed on
Schedule 2.2;
2.2.3. Any claims, rights and interest in and to any refunds of
federal, state or local franchise, income or other taxes or fees of any
nature whatsoever for periods prior to the Closing Date including, without
limitation, fees paid to the U.S. Copyright Office or any chooses in action
owned by Seller relating to such refunds;
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2.2.4. All programming agreements and retransmission consent
agreements of Seller not listed on Schedule 3.7, including those relating
to or benefiting the Systems, all of which are listed on Schedule 2.2;
2.2.5. Subject to the Services Agreements, trademarks, trade names,
service marks, service names, logos and similar proprietary rights of
Seller or its Affiliates, whether or not used in the business of the
Systems;
2.2.6. Except as specifically set forth on Schedule 3.11, any Employee
Plan, Compensation Arrangement or Multiemployer Plan;
2.2.7. All rights to receive fees or services from any Affiliate of
Seller arising from services provided by or to Seller prior to Closing;
2.2.8. Any and all assets and rights of Seller unrelated to the
Systems;
2.2.9. All software relating to the customer billing system used by
Seller for the Systems and listed on Schedule 2.2;
2.2.10. Any contracts, agreements or other arrangements between Seller
and any Affiliate of Seller and listed on Schedule 2.2;
2.2.11. All choses in action of Seller arising from events or
circumstances occurring prior to Closing, including, without limitation,
those relating to the Systems and listed on Schedule 2.2;
2.2.12. The Accounts Receivable;
2.2.13. Any other cable systems owned by Seller and not included
within the Assets; and
2.2.14. The assets and contracts listed on Schedule 2.2.
2.3. Purchase Price.
2.3.1. The purchase price for the Purchased Assets ("Purchase Price") shall
be (i) $46,250,000, as adjusted pursuant to Section 2.4 below, less (ii) the
Distributed Asset Value.
2.3.2. The Purchase Price shall be paid by Buyer at the Closing as follows:
(a) By Buyer's subordinated promissory note to Seller in the principal
amount of $6,075,000, to be paid in three equal installments, the first
installment of which shall be paid on or prior to the first anniversary of
the Closing Date and the second and third installments on or prior to the
second and third anniversaries of the Closing Date, bearing interest at an
annual interest rate of 8.0% and subject to offset as provided herein,
which shall be in substantially the form attached hereto as Exhibit B
("Buyer's Note");
(b) Pursuant to Seller's instruction to Buyer, the Holdback will be
paid to the escrow agent at Closing pursuant to the Holdback Escrow
Agreement; and
(c) The balance of the Purchase Price by wire transfer in immediately
available funds to Seller.
2.3.3. All Purchase Price net proceeds shall be distributed by Seller to
the partners of Seller (other than NCC) pursuant to and in accordance with the
limited partnership agreement of Seller, as amended. NCC shall not be entitled
to receive any payments described in Section 2.3.2 and shall be entitled to
receive from Seller only the Distributed Assets, which will be contributed to
Buyer on the Closing Date in exchange for Preferred Units in Buyer as provided
in the Securities Purchase Agreement.
2.4. Adjustments and Prorations.
2.4.1. All income, expenses and other liabilities arising from the Systems
up until midnight on the Closing Date ("Adjustment Time"), including franchise
fees, pole and other rental charges payable with respect to cable television
service, utility charges, real and personal property taxes and assessments
levied against the Assets, accrued and unpaid vacation and sick pay of
employees, salesperson advances, property
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and equipment rentals, applicable copyright or other fees, sales and service
charges, Taxes (except for Taxes arising from the transfer of the Assets
hereunder), and similar prepaid and deferred items and all other expenses and
liabilities whether or not known as of the Closing Date, shall be prorated
between Buyer and Seller in accordance with the principle that Seller shall
receive the benefit of all income and shall be responsible for all expenses,
costs and liabilities allocable to the ownership and conduct of the business and
operations of the Systems for the period prior to the Adjustment Time, and Buyer
shall receive the benefit of all income and shall be responsible for all
expenses, costs and obligations allocable to the ownership and conduct of the
business and operations of the Systems after the Adjustment Time. All such
prorations shall be determined in accordance with generally accepted accounting
principles.
2.4.2. The Purchase Price shall be increased by an amount equal to the
Deposits.
2.4.3. The Purchase Price shall be reduced by an amount equal to (a) any
customer advance payments (i.e., customer payments received by Seller prior to
the Closing but relating to service to be provided by Buyer after the Closing)
and deposits (including any interest owing thereon) related to the Systems, and
(b) any other advance payments (i.e., advertising payments received by Seller
prior to the Closing but relating to service to be provided by Buyer after the
Closing) related to the Systems, all of which are Excluded Assets.
2.4.4. Notwithstanding the foregoing, there shall be no proration of any
item of income, expense or liability that relates to any Excluded Asset or
Excluded Liability.
2.4.5. At least ten business days prior to the Closing, Seller will prepare
a report with respect to the Systems (the "Preliminary Report"), showing in
detail the preliminary determination of the (a) number of University Subscriber
Disconnects; provided that Closing is occurring during the months of June, July
or August and (b) the other adjustments referred to in this Section 2.4,
calculated in accordance with such Section as of the Closing Date (or as of any
other date(s) agreed to by the parties) together with (i) any documents
substantiating the determination of the adjustments to the Purchase Price
proposed in the Preliminary Report, and (ii) a certificate executed by Seller
certifying the information contained in the Preliminary Report as being accurate
and prepared in good faith. The adjustment shown in the Preliminary Report will
be reflected as an adjustment to the Purchase Price payable at the Closing.
2.4.6. Within 90 days after the Closing Date, Buyer shall prepare a report
with respect to the Systems (the "Final Report"), showing in detail the final
determination of any adjustments which were not calculated as of the Closing
Date and containing any corrections to the Preliminary Report, together with (i)
any documents substantiating the final calculation of the adjustments proposed
in the Final Report, and (ii) a certificate executed by an officer of Buyer
certifying the information contained in the Final Report as being accurate and
prepared in good faith. Seller shall provide Buyer reasonable access during
normal hours of operation to all records in its possession and control
(including without limitation, all records that are necessary for Buyer's audit
of the number of University Subscriber Disconnects, if any) that were used in
the preparation of the Preliminary Report, relating to the Systems. If Seller
shall conclude that the Final Report does not accurately reflect the adjustments
and prorations to be made to the Purchase Price in accordance with this Section
2.4, Seller shall, within 30 days after its receipt of the Final Report, provide
to Buyer written notice of its objections. Buyer and Seller shall use good faith
efforts to jointly resolve any discrepancies within 15 days of Buyer's receipt
of Seller's written notice, which resolution, if achieved, shall be binding upon
all parties to this Agreement and not subject to dispute or judicial review. If
Buyer and Seller cannot resolve the discrepancies to their mutual satisfaction
within such 15-day period, Buyer and Seller shall, within the following 10 days,
jointly designate a national independent public accounting firm to be retained
to review the Final Report together with Seller's notice of objections and any
other relevant documents. Such firm shall report its conclusions as to
adjustments pursuant to this Section 2.4, which shall be conclusive on all
parties to this Agreement and not subject to dispute or judicial review. If,
after adjustment as appropriate with respect to the amount of the aforesaid
adjustments paid or credited at the Closing, Buyer or Seller is determined to
owe an amount to the other, the appropriate party shall pay such amount thereof
to the other, within three days after receipt of such determination. The cost of
retaining such independent accounting firm shall be borne equally by Buyer and
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Seller; provided, however, that if such independent accounting firm concludes
that the Final Report as proposed by Buyer is inaccurate, then Buyer shall bear
the cost of retaining such independent accounting firm.
2.4.7. In addition to the foregoing adjustments, the Purchase Price shall
be adjusted down in an amount equal to the product of (x) $2,447 and (y) 18,638
less, if the Closing occurs prior to September 1, 2001, the number of University
Subscriber Disconnects, and less the aggregate number of Subscribers in the
Systems as of the Closing (to the extent that such product is a positive
number).
2.5. Assumption of Liabilities and Obligations. As of the Adjustment Time
(provided Closing has occurred) and subject to applicable prorations and
adjustments set forth in Section 2.4, Buyer shall assume and pay, discharge and
perform only the following (collectively, the "Assumed Liabilities"): (a) all
obligations and liabilities of Seller under the Governmental Authorizations and
the Contracts which accrue and relate to the period after the Adjustment Time;
(b) all obligations and liabilities of Seller to all customers and advertisers
of the Systems for any advance payments or deposits for which Buyer received an
adjustment to the Purchase Price pursuant to Section 2.4; (c) all obligations
and liabilities arising out of events occurring on or after the Closing Date
related to Buyer's ownership of the Assets or its conduct of the business or
operations of the Systems; and (d) the obligations and liabilities listed on
Schedule 2.5. All other obligations and liabilities of Seller (including any
liabilities assumed by NCC by virtue of the Distribution) shall remain and be
the obligations and liabilities solely of Seller or NCC, as appropriate (the
"Excluded Liabilities").
3. Representations and Warranties of Seller
Seller represents and warrants to Buyer as follows:
3.1. Organization, Standing and Authority. Seller is a limited partnership
duly organized and validly existing under the laws of the State of Washington,
and is qualified to conduct business as a foreign limited partnership in each
jurisdiction in which the property owned, leased or operated by it and included
in the Assets requires it to be so qualified. Seller has the requisite
partnership power and authority (a) to own, lease and use the Assets as
presently owned, leased and used by it, and (b) to conduct the business and
operations of the Systems as presently conducted by it. A true and complete copy
of Seller's limited partnership agreement (including all modifications and
amendments thereto) has been previously delivered to Buyer. Such limited
partnership agreement is in full force and effect, and legally enforceable in
accordance with its terms.
3.2. Authorization and Binding Obligation. Seller has the requisite power
and authority to execute and deliver this Agreement and the Transaction
Documents to which it is a party and to carry out and perform all of its
obligations under the terms of this Agreement and the Transaction Documents to
which it is a party. Except for the approval of a majority in interest of the
limited partners of Seller, all partnership action by Seller necessary for the
authorization, execution, delivery and performance by it of this Agreement and
the Transaction Documents to which it is a party have been taken. This Agreement
has been, and each Transaction Document to which Seller is a party, when
executed will be, duly executed and delivered by Seller, and this Agreement
constitutes, and the Transaction Documents to which Seller is a party, when
executed and delivered will constitute, the valid and legally binding obligation
of Seller, enforceable against it in accordance with its terms, except (a) as
rights to indemnity, if any, thereunder may be limited by federal or state
securities laws or the public policies embodied therein, (b) as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally, and (c) as the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.3. Absence of Conflicting Agreements. Subject to obtaining the Consents
listed on Schedule 3.8 and the approval of a majority in interest of the limited
partners of Seller, the execution, delivery and performance of this Agreement
and the Transaction Documents to which Seller is a party, by Seller will not:
(a) violate the certificate of limited partnership and limited partnership
agreement, as amended, of
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Seller; (b) violate any Legal Requirement applicable to Seller, or the Assets or
Systems; or (c) conflict with, constitute grounds for termination of, result in
a breach of, constitute a default under, or permit or result in a termination,
suspension, modification or acceleration of any performance required by the
terms of, any Franchise or material Governmental Authorization or material
Contract.
3.4. Governmental Authorizations. Schedule 3.4 lists all Franchises and
material Governmental Authorizations that are used or held for use in connection
with the ownership and operations of the Systems. True and complete copies of
such Governmental Authorizations (together with any and all material
correspondence to or from a Governmental Authority relating thereto) have been
delivered to Buyer. Except as listed on Schedule 3.4, each of the Franchises
and, to the Knowledge of Seller, the other material Governmental Authorizations
is valid and in full force and effect in accordance with its terms. No
proceedings or, to the Knowledge of Seller, investigations are pending or, to
the Knowledge of Seller, threatened, to revoke, suspend, modify, terminate or
cancel any of the Governmental Authorizations. Except as listed on Schedule 3.4,
the Seller and the operations of the Systems by Seller are in compliance with
the material terms and conditions of such Governmental Authorizations, and
neither Seller nor, to the Seller's Knowledge, any third party, is in default
thereunder. No event or circumstance exists that with the passage of time or
giving of notice would result in a material default under any Governmental
Authorizations. Since January 1, 2001, Seller has not received any notice of
suspension, cancellation or termination of any of the Governmental
Authorizations from any other party thereto. The Governmental Authorizations
listed on Schedule 3.4 (i) are all of the material Governmental Authorizations
necessary to operate the Systems as they are currently being operated, and (ii)
reflect all of the material non-statutory commitments and obligations of Seller
to the applicable Governmental Authority. With respect to the Franchises listed
on Schedule 3.4, such Schedule lists the area covered by such Franchise, whether
such Franchise is still in effect and, if so, the remaining term thereunder, the
approximate number of customers covered by such Franchise, the date the Section
626 notice was filed, if applicable, the franchise fee payable thereunder, and
whether any Consent is required thereunder to transfer such Franchise or control
thereof to Buyer.
3.5. Real Property.
3.5.1. Schedule 3.5 contains a list (categorized by System) of the parcels
of Real Property owned by Seller ("Owned Real Property") which Schedule also
sets forth the location (including street address if available) and use of each
such parcel. Except as set forth on Schedule 3.5, Seller has good, marketable
and indefeasible fee simple title to each such parcel of Owned Real Property and
all buildings, structures and other improvements thereon, in each case free and
clear of all Liens other than Permitted Encumbrances.
3.5.2. Schedule 3.5 contains a list (categorized by System) of the leases
under which Seller is lessee of any Real Property ("Real Property Leases") which
Schedule sets forth the owner thereof and the location (including street address
if available) and use of each such leased premises. True and complete copies of
all written Real Property Leases listed in Schedule 3.5 have been delivered to
Buyer. Except as set forth on Schedule 3.5, such leases are free and clear of
all Liens other than Permitted Encumbrances.
3.5.3. Schedule 3.5 contains a list of all other material Real Property
interests held by Seller in the operation of the Systems, which list constitutes
all of the material Real Property interests used by Seller in the operation of
the Systems.
3.5.4. Each parcel of Owned or leased Real Property, each parcel of Real
Property that is the subject of a Real Property Lease, and any improvements
thereon (i) has access to and over public streets or private streets for which
Seller has a valid right of ingress and egress, (ii) conforms in its current use
and occupancy to all material zoning requirements without reliance upon a
variance issued by a Governmental Authority or a classification of the parcel in
question as a nonconforming use, and (iii) conforms in its current use to all
restrictive covenants, if any affecting all or part of such parcel.
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3.5.5. To Seller's Knowledge (subject to the qualification that it has not
conducted any surveys of the Real Property), all buildings and improvements on
each parcel of Real Property are situated solely within the boundaries of such
Real Property and do not encroach on the property of third Persons.
3.5.6. Seller has no Knowledge that any portion of the Real Property is
subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Authority, with or without
payment therefor.
3.6. Personal Property. Seller has, or will have on the Closing Date, good
title to all Personal Property owned by Seller (and valid and enforceable rights
to use all Personal Property leased to Seller), and as of the Closing Date none
of the Personal Property will be subject to any Liens, except for Permitted
Encumbrances. Except with respect to the amplifier upgrade process that is more
specifically addressed in Section 5.20 ("Amplifier Upgrade Process"), and except
as set forth in Schedule 3.6, the Personal Property is in good operating
condition and repair (subject to normal wear and tear). Except for the Excluded
Assets, the Assets constitute all assets necessary to operate the Systems
substantially as they are currently being operated, and in substantial
compliance with the Franchises and, to Seller's Knowledge, all other applicable
Legal Requirements. All of the buildings, towers, antenna, fixtures and
improvements owned or leased by Seller and included in the Assets, and all
heating and air conditioning equipment, plumbing, electrical and other
mechanical facilities and the roof, walls and other structural components of the
real property which are part of, or located in such buildings, towers, antenna
or improvements that are owned or leased by Seller and included in the Assets,
have been maintained in a manner consistent with good engineering practice
(ordinary wear and tear excepted).
3.7. Contracts. Schedule 3.7 lists all pole attachment and conduit
agreements, subscription agreements with commercial customers for cable services
provided by the Systems, retransmission consent agreements and other Contracts,
written or oral (including any amendments and other modifications thereto) to
which Seller is a party and that relate to the Assets or the business or
operations of the Systems (other than the Governmental Authorizations, contracts
relating to Real Property listed on Schedule 3.5 and any Contracts that are
Excluded Assets) except for: (a) subscription agreements with individual
households for the cable services provided by the Systems; (b) oral employment
contracts and miscellaneous service contracts terminable at will on not more
than ninety (90) days notice without penalty; and (c) other Contracts not
involving liabilities under such Contracts exceeding, in the aggregate, $20,000.
Seller has delivered to Buyer true and complete copies of all written Contracts
disclosed on Schedule 3.7. All of the Contracts listed on Schedule 3.7 are valid
and binding and in full force and effect and legally enforceable in accordance
with their terms upon the other parties thereto. There is not under any Contract
listed on Schedule 3.7 any breach or default by Seller or, to the Knowledge of
Seller, any other party thereto, and Seller and, to the Knowledge of Seller, the
other party thereto is in material compliance with the terms of such Contract.
No event or circumstance exists that with the passage of time or giving of
notice would result in a material default by Seller or, to Seller's Knowledge,
any third party. Since January 1, 2001, except as set forth on Schedule 3.7,
Seller has not received any notice of cancellation or termination of any of the
Contracts listed on Schedule 3.7. No Person upon whose property is located any
portion of the Systems has informed Seller of any intent to challenge the
continued location, maintenance, installation or operation of such portion of
the Systems. To the Knowledge of Seller, except as set forth on Schedule 3.7,
each of the pole attachment agreements properly reflect all of the poles to
which Seller has made attachments.
3.8. Consents. Except for the Consents described in Schedule 3.8 (other
than any FCC consent to any business radio license or any microwave transmit or
receive license that Seller reasonably expects can be obtained within 120 days
after the Closing and so long as temporary authorization is available to Buyer
under FCC rules with respect thereto), no Consent is required for Seller or NCC
to be able to consummate this Agreement, the Transaction Documents and the
transactions contemplated hereby and thereby.
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3.9. Information on Systems.
3.9.1. Schedule 3.9 lists as of January 1, 2001: (a) the approximate number
of dwellings passed by each System (distinguishing between single family homes
and multiple dwelling units); (b) the total number of customers served by each
of the Systems at the end of the preceding four months, including a breakdown by
System of the number of Discounted Subscribers and customers in multiple
dwelling units and others who obtain service on a "bulk rate" basis, as set
forth in Seller's internal billing reports; (c) as measured at the end of the
plant of a System, the currently activated bandwidth capacity of each System
specified in MHz, (d) the number of channels activated throughout each System
(i.e., over 100% of the plant miles); (e) the channel line-up for each System;
(f) the approximate number of aerial and underground miles of plant included in
the Assets, (g) the rate card for each System, including a description of the
Basic Cable Service, Expanded Basic Service and pay TV available from each
System, and (h) the cities, towns, villages, boroughs and counties served by
each System.
3.9.2. The rates charged as of the date of this Agreement to customers for
each class of service and categories of customers for the Systems are set forth
in Schedule 3.9.
3.9.3. Each System duly and properly carries and delivers the respective
channels indicated in Schedule 3.9. Seller has obtained all required FCC
clearances for the operation of the Systems in all necessary aeronautical
frequency bands.
3.9.4. Seller has made available to Buyer true and complete copies of all
existing system engineering drawings and "as built" maps with respect to the
Systems that are in the possession or control of Seller and that have been
requested by Buyer or its representatives for review.
3.9.5. Except as listed on Schedule 3.9, no third party (except for
nationally recognized providers of direct broadcast or direct to home satellite
services) (i) is currently providing wireline or wireless cable television
service, multi-point microwave distribution services or other video programming
services which compete with the services offered by the Systems (collectively,
"Competing Services") within any of the areas currently served or authorized to
be served by any of the Systems or has taken any overt action evidencing an
intention to provide Competing Services within any of the areas currently served
or authorized to be served by any of the Systems, (ii) has been granted or to
the Knowledge of Seller, filed a formal application to be granted or applied for
a franchise which would allow it to provide any Competing Services in any of the
communities or unincorporated areas currently served or authorized to be served
by the Systems, (iii) has taken any overt action to commence any overbuild
operations in any of the communities or unincorporated areas currently served,
or (iv) to Seller's Knowledge is intending to provide any Competing Services in
such areas or plans to commence any overbuild operations in such communities or
areas.
3.10. Financial Statements. Schedule 3.10 contains true and complete copies
of the unaudited statements of income for the Systems for the period from
January 1, 1998 through March 31, 2001 (the "Systems' Financial Statements").
The Systems' Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied, are in accordance
with the books and records of Seller and present fairly in all material respects
the Systems', results of operations for the period(s) then ended. Without
limiting the foregoing, the statements of income included in the Financial
Statements reflect in all material respects at fair market value all goods and
services provided by Seller and its Affiliates with respect to the ownership and
operation of the Systems. The statements of income included in the Financial
Statements properly reflected expenses for all material liabilities for the
period(s) then ended. Seller has previously provided to Buyer a true and
accurate list of the adjusted tax basis as of December 31, 2000, of the Assets.
Schedule 3.10 also sets forth a true and accurate list of the capital
expenditures (broken down by System and by project within each System) and
working capital expended by Seller with respect to the Systems for the first
calendar quarter of 2001.
3.11. Employee Benefit Plans.
3.11.1. All of Seller's Employee Plans and Compensation Arrangements
providing benefits to employees of the Systems as of the date of this Agreement
are listed in Schedule 3.11, and copies of any
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such Employee Plans and Compensation Arrangements (or related insurance
policies) and any amendments thereto have been made available to Buyer, along
with copies of any currently available employee handbooks or similar documents
describing such Employee Plans and Compensation Arrangements. Except as
disclosed in Schedule 3.11, there is not now in effect or to become effective
after the date of this Agreement and until the Closing Date, any new Employee
Plan or Compensation Arrangement or any amendment to an existing Employee Plan
or Compensation Arrangement which will affect the benefits of employees or
former employees of the Systems.
3.11.2. Each of Seller's Employee Plans and Compensation Arrangements has
been administered without material exception in compliance with its own terms
and, where applicable, with ERISA, the Code, the Age Discrimination in
Employment Act and any other applicable federal or state laws.
3.11.3. None of the Seller's Employee Plans or Compensation Arrangements is
subject to Title IV of ERISA (including, without limitation, any Multiemployer
Plan), and neither Seller nor any entity that is treated as a single employer
with Seller, determined under Section 414(b), (c), (m), or (o) of the Code, has
incurred any liability under Title IV of ERISA which remains unsatisfied as of
the Closing Date.
3.11.4. Seller is not a party to any contract, agreement, plan or
arrangement covering any employee that, individually or collectively, would give
rise to the payment of any amount that would not be deductible pursuant to the
terms of Section 280G of the Code.
3.12. Labor Relations. Schedule 3.12 lists the names and dates of hire of
all persons employed by Seller directly and principally in connection with the
operation of the Systems. Seller is not a party to or subject to any collective
bargaining agreements with respect to the Systems. Seller has no written or oral
contracts of employment with any employee of the Systems, other than oral
employment agreements terminable at will without penalty.
3.13. Taxes, Returns and Reports. All federal, state and local tax returns
required to be filed by Seller through the date hereof in connection with the
ownership and operation of the Systems with respect to any taxes have been
filed. Except as set forth in Schedule 3.13, all Taxes which are due and payable
have been paid or are being contested in good faith by appropriate proceedings,
and no liability exists for deficiencies that affect the Systems or Assets. A
list of such contested taxes is set forth on Schedule 3.13. There are no tax
audits pending nor outstanding agreements or waivers extending the statutory
period of limitations applicable to any federal, state or local income tax
return for any period. Seller has received no notice of any tax deficiencies
having been determined or proposed tax assessments being charged against Seller.
3.14. Claims and Legal Actions. Except as set forth in Schedule 3.14, and
except for (i) any investigations and rule-making proceedings affecting the
cable industry generally, and (ii) routine collection actions with respect to
the payment by customers for services rendered by the Systems, there is no
Litigation in progress or, to Seller's Knowledge, pending or threatened, or any
Judgment against or relating to the Assets or the business or operations of the
Systems or that would hinder or prohibit either the Distribution or the
Contribution.
3.15. Environmental Matters. Except as disclosed in Schedule 3.15, Seller
has not generated, used, transported, treated, stored, released or disposed of,
or suffered or permitted anyone else to generate, use, transport, treat, store,
release or dispose of any Hazardous Substance with respect to the Assets or its
ownership or operation of the Systems in violation of any Environmental Laws;
(ii) there has not been any generation, use, transportation, treatment, storage,
release or disposal of any Hazardous Substance in connection with Seller's
ownership or use of the Assets, the operation of the Systems or on, in or under
any property or facility used, owned or leased by Seller with respect to its
operation of the Systems or to Sellers' Knowledge, any adjacent properties or
facilities, which has created or might reasonably be expected to create any
liability under any Environmental Laws or which would require reporting to or
notification of any Governmental Authority; (iii) no friable asbestos or
polychlorinated biphenyl, and no underground storage tank, is contained in or
located on or under any property or facility owned, used or leased by Seller
with respect to its operation of the Systems; (iv) any Hazardous Substance
handled or
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dealt with in any way with respect to the Assets or Seller's operations of the
Systems has been and is being handled or dealt with in compliance with all
Environmental Laws, (v) Seller is not subject to any Judgment or other
arrangement with any Governmental Authority or any indemnity or other agreement
with any Person relating to any Environmental Law or Hazardous Substance and
(vi) there are no other circumstances or conditions involving Seller that could
reasonably be expected to result in any claim, liability, investigation, cost or
restriction on the ownership, use or transfer of the Assets pursuant to any
Environmental Law.
3.16. Compliance with Laws.
3.16.1. The ownership, leasing and use of the Assets as they are currently
owned, leased and used and the operation of the Systems as they are currently
conducted and operated do not violate or infringe in any material respect any
Legal Requirements currently in effect including (a) the Copyright Act and
applicable rules and regulations of the U.S. pertaining to the Copyright Office;
(b) the Communications Act including provisions thereof pertaining to signal
leakage; (c) the must-carry and retransmission consent provisions of the Cable
Act as they relate to the Systems; and (d) all other applicable Legal
Requirements relating to the construction, maintenance, ownership and operation
of the Assets and the Systems, including Legal Requirements pertaining to
utility pole make ready and to grounding and bonding of cable television systems
(in each case as the same is currently in effect). Except as disclosed on
Schedule 3.16, neither NCC nor Seller has received any notice of violation by
Seller or NCC of any Legal Requirement applicable to Seller's or NCC's operation
of the Systems as currently operated, and to its Knowledge, no Person has
alleged any such violation.
3.16.2. Except as listed on Schedule 3.16, all Franchises are in full force
and effect, and a valid request for renewal has been duly and timely filed under
Section 626 of the Communications Act with the proper Governmental Authority
with respect to all Franchises that have expired or will expire within thirty
months after the date of this Agreement.
3.16.3. Seller has deposited with the U.S. Copyright Office all statements
of account and other documents and instruments, and has paid all royalties,
supplemental royalties, fees and other sums to the U.S. Copyright Office under
the Copyright Act with respect to the business and operations of the Systems as
are required to obtain, hold and maintain the compulsory license for cable
television systems prescribed in Section 111 of the Copyright Act. Neither
Seller nor NCC has received notice of any inquiry, claim, action or demand
pending, or threatened, before the U.S. Copyright Office or from any other
Person which questions the copyright filings or payments made by Seller with
respect to the Systems. Complete and correct copies of all current reports and
filings for the last six reporting periods, made or filed by Seller pursuant to
the Copyright Act and the rules and regulations of the U.S. Copyright Office
with respect to Seller's operation of the Systems, have been delivered to Buyer.
3.16.4. Except as set forth in Schedule 3.16, (a) neither Seller nor NCC
has received any written notices or demands from the FCC, from any television
station, or from any other Person or Governmental Authority (i) challenging the
right of the Systems to carry any television broadcast station or deliver the
same or (ii) claiming that any System has failed to carry a television broadcast
station required to be carried pursuant to the Communications Act or has failed
to carry a television broadcast station on a channel designated by such station
consistent with the requirements of the Communications Act; (b) all necessary
FAA and FCC approvals have been obtained with respect to the height and location
of towers used in connection with the operation of the Systems, and such towers
are being operated in compliance with applicable FCC and FAA rules; (c) neither
Seller nor NCC has received notice from any Governmental Authority with respect
to an intention to enforce customer service standards pursuant to the Cable Act;
and (d) neither Seller nor NCC has agreed with any Governmental Authority to
establish customer service standards that materially exceed the FCC standards
promulgated pursuant to the Cable Act.
3.16.5. Except as disclosed on Schedule 3.16, each System is in compliance
with the provisions of the Cable Act as such Legal Requirements relate to the
rates and other charges of the Systems, and Seller has used reasonable good
faith efforts to establish rates charged to subscribers, effective since January
1,
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1999, that are or were allowable under the Cable Act and any authoritative
interpretation thereof now or then in effect, for each System to the extent such
rates (on any tier) are presently subject to regulation or, as of the date such
rates were implemented, were subject to regulation, by any Governmental
Authority. The Systems qualify as small systems pursuant to Section 76.934 of
the FCC's rules. Seller has delivered to Buyer complete and correct copies of
all FCC Forms 1230 and, if any, 1235 and 1240, filed by Seller with respect to
the Systems, copies of all other FCC Forms filed by Seller and of all
correspondence with any Governmental Authority relating to rate regulation
generally or specific rates charged to subscribers with respect to the Systems,
including copies of any pending complaints filed with the FCC (of which Seller
has received notice) with respect to any rates charged to subscribers of the
Systems, and any other documentation supporting an exemption from the rate
regulation provisions of the Cable Act claimed by Seller with respect to any of
the Systems. Seller has not made any election with respect to any cost of
service proceeding conducted in accordance with Part 76.922 of Title 47 of the
Code of Federal Regulations or any similar proceeding with respect to any of the
Systems. Schedule 3.16 also lists all Governmental Authorities that are
certified to regulate the Systems' rates for Basic Cable Service.
3.16.6. Notwithstanding the foregoing, Seller makes no representation or
warranty with respect to the effect of the cable television industry-wide
dispute concerning music licensing fees.
3.17. Conduct of Business in Ordinary Course. Except as set forth on
Schedule 3.17, since January 1, 2001, Seller has conducted the business and
operations of the Systems only in the ordinary course, consistent with past
practice and has not:
(a) made any sale, assignment, lease or other transfer of assets used
or usable in connection with the Systems other than in the ordinary course
of business, consistent with past practice;
(b) made or promised any increase in the salary or other compensation
payable or to become payable to System employees other than increases not
in excess of 5% of the applicable employee's base salary or as contemplated
under any employment Contract currently in effect, true and complete copies
of which have been delivered to Buyer;
(c) experienced any occurrence or been involved in any transaction
which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect;
(d) incurred any obligation or liability other than in the normal
course of business.
3.18. Bonds, Insurance and Letters of Credit. Each insurance policy,
performance bond and letter of credit required (including the amount of any such
bond or letter of credit) to be maintained, or which is maintained covering the
property comprising the Systems and the Assets is set forth in Schedule 3.18.
Each such policy, letter of credit and bond is current and, to Seller's
Knowledge, in full force and effect. Seller has received no notice of default
under or intended cancellation or nonrenewal of any such policy, letter of
credit or bond. Seller has not failed to give any material notice or present any
material claim under any insurance policy or bond in a due and timely manner,
nor has Seller made a material claim under any insurance policy or bond or
requested the insurer to defend Seller under a duty to defend provision which
coverage the insurer denied. There are no pending or to Seller's Knowledge
threatened requests to make a draw under any such letter of credit. During the
past three (3) years, no application for any insurance, letter of credit or bond
with respect to the Assets or the Systems has been denied to Seller for any
reason. Seller will continue to maintain in effect up to the Adjustment Time
those bonds, letters of credit and insurance policies in connection with the
Systems as may be required. During such period, Seller will not take any action
or refrain from taking any commercially reasonable action with respect to such
bonds, letters of credit or insurance policies which would adversely affect the
insurability of the Assets or the Systems.
3.19. Transactions with Affiliates and Employees. There is no Contract or
other arrangement of any kind entered into by Seller or any Affiliate of Seller
with respect to any of the Systems with any employee, Affiliate or partner of
Seller which will be an Assumed Liability except for the Management Agreement,
the Services Agreements or as listed on Schedule 3.7.
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3.20. Good Title following Distribution and Contribution. As of the Closing
Date and after giving effect to the Distribution and Contribution, Buyer will
have good and marketable title to the Assets, free and clear of all Liens except
for Permitted Encumbrances.
3.21. Disclosures. No representation or warranty by Seller in this
Agreement or any Transaction Document to which Seller is a party or schedule or
exhibit, or any statement, list or certificate furnished or to be furnished by
Seller hereunder or thereunder, contains or will contain any untrue statement of
a material fact, or omits or will omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading.
3A. Representations and Warranties of NCC
NCC represents and warrants to Buyer, solely on its own behalf and not in
its capacity as general partner or on behalf of Seller, as follows (the "NCC
Representations"):
3A.1. Organization, Standing and Authority. NCC is a corporation duly
incorporated and validly existing under the laws of the State of Washington, and
is qualified to conduct business as a foreign corporation in the State of
Mississippi. NCC has the requisite corporate power and authority to effect the
Distribution and Contribution. NCC is a wholly-owned subsidiary of Northland
Telecommunications Corporation, a Washington corporation, and is the managing
general partner of Seller.
3A.2. Authorization and Binding Obligation. NCC has the requisite power and
authority to execute and deliver this Agreement and to carry out and perform all
of its obligations under the terms of this Agreement. All corporate action by
NCC necessary for the authorization, execution, delivery and performance by it
of this Agreement have been taken. This Agreement has been duly executed and
delivered by NCC, and this Agreement constitutes the valid and legally binding
obligation of NCC enforceable against it in accordance with its terms, except
(a) as rights to indemnity, if any, thereunder may be limited by federal or
state securities laws or the public policies embodied therein, (b) as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting the enforcement
of creditors' rights generally, and (c) as the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
3A.3. Absence of Conflicting Agreements. The execution, delivery and
performance of this Agreement by NCC will not: (a) violate the charter or
by-laws of NCC; (b) violate any Legal Requirement applicable to NCC; or (c)
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, or permit or result in a termination, suspension,
modification or acceleration of any performance required by the terms of, any
Franchise or material Governmental Authorization or material Contract to which
NCC is a party or subject.
3A.4. Transactions with Affiliates and Employees. There is no Contract or
other arrangement of any kind entered into by NCC or any Affiliate (other than
Seller) with respect to any of the Systems with any employee, Affiliate or
partner of NCC which will be an Assumed Liability except for the Management
Agreement, the Services Agreements or as listed on Schedule 3A.4.
4. Representations and Warranties of Buyer
Buyer represents and warrants to Seller as follows:
4.1. Organization, Standing and Authority. Buyer is a limited liability
company, duly formed and validly existing under the laws of the State of
Delaware. Buyer has the requisite power and authority to execute and deliver
this Agreement and the Transaction Documents and to perform and comply with all
of the terms, covenants and conditions to be performed and complied with by
Buyer hereunder and thereunder.
4.2. Authorization and Binding Obligation. Buyer has full power and
authority to execute and deliver this Agreement and the Transaction Documents
and to carry out and perform all of its obligations
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under the terms of this Agreement and the Transaction Documents. All company
action by Buyer necessary for the authorization, execution, delivery and
performance by Buyer of this Agreement and the Transaction Documents has been
taken. This Agreement has been, and each Transaction Document when executed will
be, duly executed and delivered by Buyer and this Agreement constitutes, and
each Transaction Document when executed and delivered will constitute, the valid
and legally binding obligation of Buyer, enforceable against it in accordance
with its terms, except (a) as rights to indemnity, if any, thereunder may be
limited by federal or state securities laws or the public policies embodied
therein, (b) as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect affecting
the enforcement of creditors' rights generally, and (c) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.3. Absence of Conflicting Agreements. Subject to obtaining the Consents
listed on Schedule 3.8, the execution, delivery and performance of this
Agreement by Buyer will not: (a) require the consent, approval, or authorization
of, or declaration to or filing with any Governmental Authority or Person; (b)
violate the governing documents of Buyer; (c) violate any Legal Requirement or
Judgment applicable to Buyer; or (d) conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, or accelerate
or permit the acceleration of any performance required by the terms of, any
agreement, instrument, license or permit to which Buyer is a party or by which
Buyer may be bound, such that Buyer could not perform hereunder and acquire or
operate the Assets.
4.4. Buyer Qualification. Upon receipt of the Consents by Closing, Buyer
knows of no valid reason why it cannot, as of Closing, become the franchisee
pursuant to the Franchises and has, or will have at Closing, the requisite
qualifications to own and operate the Systems.
5. Covenants of the Parties
5.1. Conduct of the Business of the Systems. Except as contemplated by this
Agreement, disclosed on Schedule 5.1 or with the prior written consent of Buyer
(which consent shall not be unreasonably withheld or delayed), between the date
hereof and the Closing Date, Seller shall:
5.1.1. (i) operate the Systems in the ordinary course of business in
accordance with past practices (including but not limited to completing
line extensions, placing conduit or cable in new developments, fulfilling
installation requests and disconnection orders, continuing work on existing
construction projects) and in compliance with the terms of the Franchises
and Governmental Authorizations and all applicable Legal Requirements, (ii)
make operating and capital expenditures in the ordinary course and in
accordance with past practices, and (iii) to the extent consistent with
such operation, use its commercially reasonable efforts to (w) preserve the
current business organization of the Systems intact, including preserving
existing relationships with Governmental Authorities, suppliers, customers,
and others having business dealings with the Systems, unless Buyer requests
otherwise in writing, (x) keep available the services of the System
employees, (y) continue normal marketing, advertising, and promotional
expenditures with respect to the Systems consistent with past practices;
and (z) subject to Section 5.20, maintain inventories of equipment and
supplies at historic levels;
5.1.2. maintain (i) the tangible Assets in good operating condition
and repair, ordinary wear excepted, (ii) in full force and effect, using
its commercially reasonable efforts, the Franchises, Governmental
Authorizations and material Contracts, except with respect to Contracts
expiring by their terms, and (iii) in full force and effect all currently
effective policies of insurance with respect to such Assets and the
operation of the Systems, in such amounts and with respect to such risks as
are currently maintained for the Systems;
5.1.3. maintain its books, records, and accounts with respect to the
Assets and the operation of the Systems in the usual, regular, and ordinary
manner on a basis consistent with past practices;
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5.1.4. promptly deliver to Buyer true and complete copies of all
monthly and quarterly financial statements and operating reports and any
reports with respect to the operation of the Systems regularly prepared by
or for Seller at any time from the date hereof until Closing, and any other
similar materials that Buyer may reasonably request;
5.1.5. upon reasonable request, furnish to Buyer, its financing
sources, and its counsel, accountants and other representatives, (i) such
financial, operational and other information, books and records as may
exist concerning the Assets and the Systems, and (ii) full access, during
normal business hours in a manner that minimizes interference with the
operation of such Systems, to the Systems' personnel, Assets and premises;
provided that no investigation by or knowledge of Buyer or its
representatives shall affect or limit the scope of any of the
representations and warranties of Seller or NCC in this Agreement or limit
the liability of Seller or, with respect to the NCC Representations, NCC
for any breach of such representations and warranties;
5.1.6. not amend, modify, terminate, renew, extend, suspend, or
abrogate any Contract, Franchise, interest in Real Property or Governmental
Authorization, or enter into any new Contract (which would bind Buyer after
the Closing Date), other than in the ordinary course of business consistent
with past practices and where such new contracts would not result in a
liability or obligation of Buyer exceeding $100,000 in the aggregate;
5.1.7. not sell, assign, lease or otherwise dispose of or transfer any
of the Assets, except for assets consumed or disposed of in the ordinary
course of business, where no longer used or useful in the business or
operations of the Systems or in conjunction with the acquisition of
replacement property of equivalent kind and value;
5.1.8. not change the compensation or benefits payable, or to become
payable, to the System employees, except in the ordinary course of business
consistent with past practices;
5.1.9. not solicit any offer or conduct discussions with any other
Person relating to a sale of all or any substantial part of the Assets;
5.1.10. not fail to pay on a timely basis, in accordance with past
practices, its accounts payable and other debts relating to the Assets and
Systems; provided, however, that nothing herein shall be deemed to preclude
the contesting in good faith of any accounts payable or other debts;
5.1.11. not accept or arrange for any equity capital or other
financing for Seller or any Affiliate from any Person other than by or
through Buyer or its lenders which may be used, directly or indirectly, to
acquire any material portion of the Assets or the Systems ("Alternative
Financing") or discuss or provide any Person any information in connection
with any Alternative Financing;
5.1.12. not create, assume or permit to exist any Lien on the Assets,
except for Permitted Encumbrances; and
5.1.13. subject to the scheduled rate increases set forth on Schedule
5.1 or as required by Legal Requirements, not change customer rates for any
tier of service or charges for remotes or installation, or change billing,
disconnect or marketing practices (other than customary marketing practices
conducted in the ordinary course of business).
5.2. Access to Information. Seller shall allow Buyer and its authorized
representatives reasonable access upon reasonable advance notice and at Buyer's
expense during normal business hours to the Assets and to all other properties,
equipment, books, records, Contracts and documents relating to the Systems for
the purpose of inspection, and furnish or cause to be furnished to Buyer or its
authorized representatives all information ordinarily prepared by Seller and
available with respect to the affairs and business of the Systems as Buyer may
reasonably request, it being understood that the rights of Buyer hereunder shall
not be exercised in such a manner as to unreasonably interfere with the
operations of Seller's business.
5.3. Confidentiality. Each party shall keep secret and hold in confidence
for a period of three years following the date hereof, any and all information
relating to the other party that is proprietary to such
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other party, other than the following: (a) information that has become generally
available to the public other than as a result of a disclosure by such party in
breach of this Agreement; (b) information that becomes available to such party
or an agent of such party on a nonconfidential basis from a third party having,
to the recipient's knowledge, after inquiry, no obligation of confidentiality to
a party to this Agreement; (c) information that is required to be disclosed by
applicable law, judicial order or pursuant to any listing agreement with, or the
rules or regulations of, any securities exchange on which securities of such
party or any such affiliate are listed or traded; and (d) disclosures made by
any party as shall be reasonably necessary in connection with obtaining the
Consents; provided, however, that with respect to any such proprietary
information relating to the Systems, Buyer's obligations hereunder shall
terminate upon the earlier of Closing or one year following the date hereof. In
connection with disclosure of confidential information under (c) and (d) above,
the disclosing party shall give the other party hereto timely prior notice of
the anticipated disclosure and the parties shall cooperate in designing
reasonable procedural and other safeguards to preserve, to the maximum extent
possible, the confidentiality of such material. Buyer hereby acknowledges
Seller's public filing obligations with respect to the solicitation of the
approval of a majority in interest of Seller's limited partners to the
consummation of the transactions contemplated hereby.
5.4. Publicity. Neither party hereto will issue any press release or
otherwise make any public statement with respect to this Agreement, any
Transaction Document and the transactions contemplated hereby or thereby without
the prior consent of the other, except as may be required by applicable laws, in
which event the party required to make the release or announcement shall allow
the other party reasonable time to comment on such release or announcement in
advance of such issuance. Notwithstanding the foregoing, Buyer acknowledges and
agrees that this Agreement and the transactions contemplated hereby will be
disclosed in Seller's proxy statement filed with the Securities and Exchange
Commission and distributed to all partners of Seller.
5.5. Premerger Notification. Buyer and Seller agree that as soon as
practicable, but no later than 45 days after the date of this Agreement, Buyer
and Seller shall each make any and all filings which are required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
with respect to the transactions contemplated hereby. The parties shall each
furnish to the other such necessary information and reasonable assistance as the
other may request in connection with its preparation of necessary filings or
submissions pursuant to the provisions of the HSR Act. Subject to the last
sentence of Section 5.6, if the Federal Trade Commission ("FTC") or the
Department of Justice ("DOJ") requests additional information from the parties
or imposes any condition upon the transactions contemplated hereby, the parties
will cooperate with each other, the FTC and the DOJ.
5.6. Consents. Following the execution hereof, Seller shall promptly, but
in no event later than 20 days after the date of this Agreement, make such
applications to the Governmental Authorities and Persons for the Consents
described on Schedule 3.8, and shall otherwise use its commercially reasonable
efforts to obtain such Consents as expeditiously as possible. In no event shall
Seller or Buyer be required, as a condition of obtaining such Consents, to
expend any monies on, before or after the Closing Date (other than professional
fees and expenses typically incurred in connection with the efforts to obtain
such Consents), or to offer or grant any accommodations or concessions
materially adverse to Seller or Buyer, as appropriate, or to engage in
litigation or other adversarial proceedings. Buyer shall use its commercially
reasonable efforts to promptly assist Seller and shall take such prompt and
affirmative actions as may reasonably be necessary in obtaining such Consents
and shall cooperate with Seller in the preparation, filing and prosecution of
such applications as may reasonably be necessary, including, without limitation,
making management and other personnel of Buyer available to assist in obtaining
such Consents. The parties agree to use commercially reasonable efforts to
obtain the Consents in a form and substance reasonably satisfactory to Buyer,
provided, however, that Seller shall afford Buyer the opportunity to review,
approve and revise the general form in which said Consents will be requested,
prior to delivery to the parties for which such general form has been prepared.
Seller shall not agree to any adverse change or modification to, or any
conditions to the transfer of, any Consent or Governmental Authorization as a
condition to obtaining any Consent unless Buyer shall have otherwise previously
consented (which shall
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not be unreasonably withheld); provided, however, that Buyer, and not Seller
shall bear the cost and expense of any conditions imposed by Governmental
Authorities on Franchise transfers to which Buyer has consented. Buyer
acknowledges that Governmental Authorities and third-parties to Contracts may
impose bond, letter of credit, indemnity and insurance requirements as a
condition to giving their consent to assignment or transfer thereof. Buyer
agrees that it shall not, without the prior written consent of Seller (which may
be withheld at Seller's sole discretion), seek amendments or modifications to
Franchises or Contracts that would adversely affect Seller or Seller's operation
of the Systems prior to Closing. Buyer shall, at Seller's request, promptly
furnish Seller with copies of such documents and information with respect to
Buyer, including financial information and information relating to the cable and
other operations of Buyer and any of its affiliated or related companies, as
Seller may reasonably request in connection with the obtaining of any of the
Consents or as may be reasonably requested by any Person in connection with any
Consent. Notwithstanding anything to the contrary contained in this Section 5.6,
Seller's obligations hereunder with respect to pursuing any Consent shall be
fully satisfied with respect to: (a) the transfer of pole attachment or conduit
contracts, if Buyer has executed a new contract with the respective pole company
or if such pole company has indicated in writing that it is willing to execute a
new contract with Buyer on terms substantially the same as the current terms
thereof; and (b) the transfer of railroad crossing permits or contracts, if
Buyer has executed a new permit or contract with the respective railroad company
or if such railroad company has indicated in writing that it is willing to
execute a new permit or contract with Buyer on terms substantially the same as
the current terms thereof. Nothing in this Agreement shall be construed to
require Buyer to consummate the transactions contemplated by this Agreement or
the Transaction Documents if any Consent by the FCC, FTC or DOJ would require
that it or any of its Affiliates (i) divest or hold separate any of its assets
existing as of the date hereof or (ii) otherwise take or commit to take any
action that limits its freedom of action in any material respect with respect to
any of its businesses, product lines or assets existing as of the date hereof.
5.7. Taxes, Fees and Expenses. Buyer and Seller shall share equally all
Taxes and fees, filing fees, recordation fees and application fees, if any,
arising out of the transactions contemplated herein including, without
limitation, (i) the filing fees for premerger notification under the HSR Act, if
applicable, (ii) the fees associated with obtaining title insurance and surveys
pursuant to Section 5.12 hereof, and (iii) the expenses associated with any
franchise extensions required pursuant to Section 5.19 hereof. Each party shall
pay its own expenses incurred in connection with the authorization, preparation,
execution and performance of this Agreement and the Transaction Documents,
including all fees and expenses of counsel, accountants, agents and other
representatives.
5.8. Brokers. Each of Buyer and Seller represents and warrants that neither
it nor any person or entity acting on its behalf has incurred any liability for
any finders' or brokers' fees or commissions in connection with the transaction
contemplated by this Agreement, except that Seller has retained Daniels &
Associates, L.P., whose fees shall be paid by Seller. Buyer agrees to defend,
indemnify and hold harmless Seller against any fee, commission, loss or expense
arising out of any claim by any broker or finder employed or alleged to have
been employed by Buyer or any Affiliate, and Seller agrees to defend, indemnify
and hold harmless Buyer against any fee, commission, loss or expense arising out
of any claim by Daniels & Associates, L.P. or any other broker or finder
employed or alleged to have been employed by Seller or any Affiliate.
5.9. Risk of Loss. The risk of loss, damage or destruction to the Systems
from fire, theft or other casualty or cause shall be borne by Seller at all
times up to the Adjustment Time. In the event that any such loss or damage shall
be sufficiently substantial so as to preclude and prevent resumption of normal
operations of any of the Systems by a date that is at least 20 days prior to any
scheduled Closing Date, Seller shall immediately notify Buyer in writing of its
inability to resume normal operations or to replace or restore the lost or
damaged property, and Buyer at any time within 10 days after receipt of such
notice, may propose by written notice to Seller to either (i) waive such defect
and proceed toward consummation of the transaction in accordance with terms of
this Agreement, or (ii) terminate this Agreement. If Buyer proposes to so
terminate this Agreement, then this Agreement shall be deemed to be terminated
and all parties shall stand fully released and discharged of any and all
obligations hereunder. If Buyer proposes to
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consummate the transactions contemplated by this Agreement notwithstanding such
loss or damage and does so, at Closing all insurance proceeds payable as a
result of the occurrence of the event resulting in such loss or damage shall be
delivered by Seller to Buyer, or the rights thereto shall be assigned by Seller
to Buyer if not yet paid over to Seller, and Seller also shall contribute to
Buyer in immediately available funds an amount equal to the difference between
the amount of such insurance proceeds and the full replacement cost of such
damaged or lost Assets of Systems. If Seller delivers the insurance proceeds to
Buyer, such delivery will not be considered a capital contribution to Buyer on
the part of NCC but rather a payment in satisfaction of Seller's obligation
hereunder.
5.10. Employee Benefit Matters.
5.10.1. It is clearly understood that Buyer has no obligation to employ any
of Seller's employees employed at the Systems and that Seller shall be
responsible for and shall cause to be discharged and satisfied in full all
amounts owed to any employee, including, without limitation, wages, salaries,
any employment, incentive, compensation or bonus agreements or other benefits
(other than accrued vacation, which Buyer will honor pursuant to Section 5.10.4)
or payments on account of termination. Buyer, which as noted above has no
obligation to hire any of Seller's employees at the Systems, agrees that it will
provide Seller with notice of which employees of the Systems Buyer intends to
hire at least 10 days before the Closing Date. The employees of the Systems that
accept Buyer's offer of employment, which shall become effective as of the
Closing Date, shall be herein referred to as "Transferred Employees."
5.10.2. As of the Closing Date, Seller shall terminate employment of all
Transferred Employees. Seller shall be responsible for providing any
notification that may be required under the Worker Adjustment and Retraining
Notification Act of 1988 (the "WARN Act") and any similar statute with respect
to any Transferred Employees and otherwise complying with any applicable WARN
Act or similar state law requirements in connection with the termination of the
employment of any Transferred Employee by Seller.
5.10.3. Buyer shall offer health plan coverage to all of the full-time
Transferred Employees, on terms and conditions generally applicable to all of
Buyer's full-time employees. For purposes of providing such coverage, Buyer
shall waive all preexisting condition limitations for all such employees of the
Systems covered by the Seller's health care plan as of the Closing Date (other
than preexisting conditions which were excluded by Seller's health care plan)
and shall provide such health care coverage effective as of the Closing Date
without the application of any eligibility period for coverage. In addition,
Buyer shall credit all employee payments toward deductible and co-payment
obligation limits under Seller's health care plans for the plan year which
includes the Closing Date as if such payments had been made for similar purposes
under Buyer's health care plans during the plan year which includes the Closing
Date, with respect to Transferred Employees.
5.10.4. For each Transferred Employee, Buyer shall give past service credit
for all crediting purposes under each of its employee benefit plans (other than
for benefit accrual purposes under any defined benefit plan maintained by Buyer)
that, on or after the Closing Date, provides coverage to Transferred Employees
to the same extent such employment service was credited for similar purposes
under Seller's employee benefit plans prior to the Closing Date. For each
Transferred Employee, Buyer shall honor all accrued vacation not taken by such
employee for the calendar year in which the Closing occurs. After the Closing
Date, each Transferred Employee shall begin to accrue vacation benefits in
accordance with the vacation policy of Buyer.
5.10.5. Seller shall treat all employees (and their beneficiaries) who
terminate employment with Seller as a result of this sale (regardless of whether
the employee becomes a Transferred Employee) as "qualified beneficiaries"
entitled to continuation health coverage as described in Section 4980B of the
Code and Section 601, et seq., of ERISA and shall continue to provide such
continuation coverage for the maximum period required by law to any former
employee (or beneficiary) who is receiving such continuation coverage on the
Closing Date.
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5.10.6. Within a reasonable period of time after the Closing, Seller shall
transfer from the Northland Telecommunications Corporation 401(k) Plan (the
"Seller's 401(k) Plan") to the Buyer's 401(k) Plan, if any, (the "Buyer's 401(k)
Plan") an amount equal to the aggregate account balances held in the Seller's
401(k) Plan as of the date of transfer with respect to all Transferred
Employees. The transfer of assets contemplated by this Section 5.10.6 shall be
in cash or a combination of cash and in kind, as may be mutually agreeable to
Seller and Buyer; provided, that Buyer shall be obligated to accept as a part of
such transfer any promissory notes with respect to Transferred Employees that
have taken participant loans from the Seller's 401(k) Plan that are outstanding
as of the Closing Date. Prior to the date of such transfer, and as a
precondition thereto, Buyer shall deliver to Seller a copy of the most recently
issued IRS determination letter (or other proof reasonably satisfactory to
counsel for the Seller) that the Buyer's 401(k) Plan is qualified under the
Code. Subsequent to the transfer of assets to the Buyer's 401(k) Plan, neither
Seller nor the Seller's 401(k) Plan shall retain any liability with respect to
such Transferred Employees to provide them with benefits in accordance with the
terms of the Seller's 401(k) Plan. On or prior to the Closing Date, Seller shall
deliver to Buyer a list of all Transferred Employees, indicating thereon the
total amount deferred in pre-tax dollars to the Seller's 401(k) Plan by each
Transferred Employee under the terms of Section 402(g) of the Code with respect
to the plan year of the Seller's 401(k) Plan in which the Closing occurs. Seller
and Buyer agree to cooperate with respect to any government filing, including,
but not limited to, the filing of IRS Forms 5310-A, if necessary, to effect the
transfer of assets contemplated by this Section 5.10.6.
5.10.7. Notwithstanding any provision contained herein to the contrary,
nothing in this Agreement is intended to confer upon any employee or his or her
spouse, dependents, successors, assigns, heirs or legal representatives, any
rights or remedies hereunder, including (i) any rights of employment for any
specified period or (ii) any employee benefits, severance or other compensation.
5.11. Bonds, Letters of Credit, Etc. Buyer shall take all commercially
reasonable steps, and execute and deliver all reasonably necessary documents, to
insure that on the Closing Date Buyer has delivered such bonds, letters of
credit and similar instruments in such amounts and in favor of such Governmental
Authorities and other third parties requiring the same in connection with the
Franchises and the Contracts.
5.12. Title Insurance. Seller shall cooperate with Buyer if Buyer elects to
obtain title insurance policies or surveys on any Real Property owned in fee or
leased. Buyer shall have the sole responsibility for obtaining and paying for
such policies and surveys. If any commitment of title insurance obtained by
Buyer reflects any matter, excluding Assumed Liabilities, that materially and
adversely affects the merchantability or insurability of title to any Owned Real
Property or Real Property that is subject to Real Property Leases or which could
materially adversely affect the use of any such parcel for the purposes for
which it is currently used by Seller (in each case, a "Title Defect"), Seller
shall cooperate with Buyer and shall have (i) removed such Title Defect, (ii)
committed in writing to remove such Title Defect as promptly as practicable
after the Closing in a manner satisfactory to Buyer, or (iii) with the prior
written consent of Buyer, caused the title insurance company which issued the
commitment to commit to insure over such Title Defect.
5.13. Accounts Receivable. Buyer shall have the sole right and obligation
for 90 days after Closing to collect, on behalf of Seller, Accounts Receivable
outstanding as of Closing. Buyer shall remit to Seller in cash all amounts
collected by Buyer from account debtors that are paid in satisfaction of such
Accounts Receivable on and up to 90 days after the Closing Date. All such
Accounts Receivable that remain outstanding 90 days after the Closing Date shall
be automatically assigned from Seller to Buyer without further action, and all
amounts collected by Buyer in satisfaction of Accounts Receivable more than 90
days after the Closing Date shall be retained by Buyer. Buyer shall use
commercially reasonable efforts (which shall not include any obligation to
commence litigation) to collect the Accounts Receivable on behalf of Seller.
Buyer shall be entitled to compromise, discount or otherwise make concessions to
account debtors as Buyer may reasonably determine in order to collect the
Accounts Receivable. Seller shall reimburse Buyer for any costs Buyer incurs to
collect Accounts Receivable during such 90-day period, which costs shall be
offset against the remittances to be made by Buyer to Seller.
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5.14. System Upgrades or Rebuilds. Prior to the Closing Date, Seller shall
upgrade or rebuild, as applicable, the Systems, so that the number of plant
miles shall have the following capacity in the following cable television
systems:
TOTAL
STARKVILLE MABEN KOSCIUSKO CARTHAGE PHILADELPHIA FOREST RALEIGH PLANT
- -----------------------------------------------------------------------------------------------------------------
300 MHz -- -- -- -- -- -- 17.0 17.0
% of Total 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 2.6%
- -----------------------------------------------------------------------------------------------------------------
330 MHz 48.0 1.0 -- -- 41.0 76.0 -- 166.0
% of Total 27.4% 5.1% 0.0% 0.0% 24.1% 55.5% 0.0% 25.8%
- -----------------------------------------------------------------------------------------------------------------
400 MHz -- 18.5 -- -- -- -- -- 18.5
% of Total 0.0% 94.9% 0.0% 0.0% 0.0% 0.0% 0.0% 2.9%
- -----------------------------------------------------------------------------------------------------------------
450 MHz -- -- 82.4 43.4 129.0 11.0 -- 265.8
% of Total 0.0% 0.0% 100.0% 100.0% 75.9% 8.0% 0.0% 41.3%
- -----------------------------------------------------------------------------------------------------------------
550 MHz 127.0 -- -- -- -- 50.0 -- 177.0
% of Total 72.6% 0.0% 0.0% 0.0% 0.0% 36.5% 0.0% 27.5%
- -----------------------------------------------------------------------------------------------------------------
Total Plant 175.0 19.5 82.4 43.4 170.0 137.0 17.0 644.3
% of Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- -----------------------------------------------------------------------------------------------------------------
5.15. System Digital Launches. Prior to the Closing Date, Seller shall
install or have installed a "digital headend" and shall have the necessary
billing and support systems in each of the following Systems with sufficient
digital converter box and other necessary inventory such that as of the Closing
Date such Systems will be in "turn key" condition and ready to provide digital
cable services as follows: (i) Starkville (15% penetration); (ii) Philadelphia
(15% penetration); and (iii) Kosciusko (15% penetration). For purposes of this
Section 5.15, "penetration" shall mean the percentage of the basic subscribers
served by the applicable cable television system as of the Closing Date.
5.16. Qualification to Conduct Business. As of the Closing Date, Buyer
shall be duly qualified to conduct business in the State of Mississippi.
5.17. Services Agreements. Prior to Closing, Buyer and NCC shall have
negotiated a mutually satisfactory Services Agreements for post-Closing
provision of services by NCC or an Affiliate (e.g., licensing of trademarks,
billing software, programming, employee benefit programs and insurance) to
Buyer.
5.18. Supplements to Schedules. Seller shall, from time to time prior to
Closing, use its commercially reasonable efforts to supplement the schedules to
this Agreement with additional information that, if existing or known to it on
the date of this Agreement, would have been required to be included in one or
more exhibits to this Agreement. For purposes of determining the satisfaction of
any of the conditions to the obligations of Buyer in Section 6.1, and the
liability of Seller following Closing for breaches of any of its representations
and warranties under this Agreement, the schedules to this Agreement shall be
deemed to include only the information contained therein on the date of this
Agreement or added to the schedules delivered no later than five business days
before Closing by Seller and accepted by Buyer.
5.19. Franchise Extensions. If and to the extent required by Buyer's
lender(s), Seller shall use commercially reasonable efforts to obtain extensions
of any Franchises that are scheduled to expire within a number of years (as
determined by such lenders) after the Closing Date ("Short Term Franchises").
Seller shall not agree, without the prior written consent of Buyer, to any
change in the terms and conditions of any such Short Term Franchise which are
adverse to Buyer as a condition to obtaining any renewal thereof.
5.20. Amplifier Upgrade. In an effort to meet Seller's internal performance
goals, prior to Closing Seller will continue its planned upgrade of the
approximate 125 C-Cor amplifiers contained in the Systems. Additionally, prior
to Closing Seller, at its sole cost and expense, will purchase an additional 90
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new amplifiers which will be included in the Assets at Closing. The inclusion of
such amplifiers in the Assets will not result in a Purchase Price adjustment.
5.21. Buyer's Covenant to Notify Seller. To the extent that any of Michael
J. Angelakis, Carolyn F. Katz or Christopher Gunther obtain actual awareness
prior to Closing of a breach of the representations, warranties and covenants
made by either Seller or NCC in this Agreement or in any Transaction Document,
Buyer will notify Seller of such breach; provided, however, that in no event
will Buyer's notice (or failure to notify) hereunder diminish or otherwise alter
its rights to indemnification from Seller and NCC.
6. Conditions Precedent to Obligations of Buyer and Seller to Close
6.1. Conditions Precedent to Obligations of Buyer to Close. The obligations
of Buyer to consummate the transactions contemplated by this Agreement to occur
at the Closing shall be subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of which may
be waived in writing, in whole or in part, by Buyer for purposes of consummating
such transactions:
6.1.1. Representations and Warranties. All representations and
warranties of Seller and NCC contained in this Agreement shall be true and
complete in all respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time except (i)
to the extent changes are permitted or contemplated pursuant to this
Agreement, (ii) insofar as any such representation and warranty which is
expressly stated to be made only at and as of some other date, such
representation or warranty be true and accurate as of such other date or
(iii) for breaches that in the aggregate would not have a Material Adverse
Effect.
6.1.2. Covenants and Conditions. Seller and NCC shall have in all
material respects performed and complied with all covenants, agreements and
conditions required by this Agreement or any Transaction Document to be
performed or complied with by it prior to or on the Closing Date.
6.1.3. No Injunction, Etc. There shall be no Legal Requirement, and no
Judgment shall have been entered and not vacated, or any Litigation
instituted or threatened, to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated
hereby or that requires separation or divestiture by Buyer of all or any
portion of its assets (including, without limitation, the Assets) after
Closing.
6.1.4. HSR Approvals. The waiting period specified under the HSR Act,
if applicable, shall have expired or been terminated.
6.1.5. Consents. Each of the Consents listed on Schedule 3.8
(including the requisite approval of Seller's limited partners) shall have
been duly obtained and delivered to Buyer, in form and substance reasonably
acceptable to Buyer.
6.1.6. Deliveries. Seller shall have made or stand willing and able to
make all the deliveries to Buyer set forth in Section 7.2.
6.1.7. Material Adverse Change. Between the date of this Agreement and
the Closing Date, there shall have occurred no event or condition which has
had or would be reasonably likely to have a Materially Adverse Effect.
6.1.8. Distribution and Contribution. The Distribution and
Contribution shall be consummated simultaneously with Closing.
6.1.9. Officer's Certificate. Seller shall have delivered to Buyer a
certificate executed on behalf of Seller dated as of Closing, certifying
that the condition specified in Section 6.1.1 and 6.1.2 has been satisfied,
which certificate shall be given by such officers after due inquiry.
6.1.10. Subscribers of Systems. The Systems shall serve not less than
18,110 Subscribers, as adjusted for the University Subscriber Disconnects,
if Closing occurs prior to September 1, 2001, as of
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the Closing Date and Seller shall have delivered to Buyer a certificate to
that effect executed on behalf of Seller by an appropriate officer of
Seller.
6.1.11. Execution and Delivery of Transaction Documents. To the extent
not previously executed and delivered, Buyer shall have received each of
the Transaction Documents, executed by all parties thereto other than
Buyer.
6.1.12. Counsel Opinion. Seller shall have delivered to Buyer and
Providence an opinion of Cairncross & Hempelmann, P.S., counsel to Seller,
dated as of Closing, covering the matters set forth on Exhibit 6.1.12
hereto (the "Seller Counsel Opinion").
6.1.13. FCC Counsel Opinion. Seller shall have delivered to Buyer an
opinion of Cole Raywid and Braverman, special FCC counsel to Seller, dated
as of the Closing, covering the matters set forth on Exhibit 6.1.12 hereto
(the "Seller FCC Counsel Opinion").
6.1.14. Extensions. All Short Term Franchises shall have been
extended, in each case pursuant to the terms of Section 5.19.
6.1.15. Lien Searches. Seller will obtain at its expense and provide
to Buyer, the results of a lien search conducted by a professional search
company of records in the offices of the Secretary of State of the State of
Mississippi and county clerks in each county where there exist any of the
Assets, and in the state and county where Seller's and NCC's principal
offices are located, including copies of all financing statements or
similar notices or filings (and any continuation statements) discovered by
such search company after searching the name of Seller and NCC.
6.1.16. Section 626 Notices. Seller shall have duly and timely filed
with the appropriate Governmental Authority all notices of renewal required
pursuant to Section 626 of the Cable Act with respect to any Franchise that
will expire within thirty-six (36) months after any date between the date
of this Agreement and the Closing Date.
6.1.17. Financing. Buyer shall have secured financing necessary for
the consummation of the transaction in an amount and upon terms reasonably
satisfactory to Buyer.
6.1.18. Execution and Delivery of Management Agreement and the
Services Agreements. To the extent not previously executed and delivered,
Buyer shall have received the Management Agreement and the Services
Agreements, executed by NCC (or, with respect to the Services Agreements,
its Affiliates where appropriate).
6.2. Conditions Precedent to Obligations of Seller to Close. The
obligations of Seller to consummate the transactions contemplated by this
Agreement to occur at the Closing shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions, all
or any of which may be waived in writing, in whole or in part, by Seller for
purposes of consummating such transactions:
6.2.1. Representations and Warranties. All representations and
warranties of Buyer contained in this Agreement shall be true and complete
in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time except to
the extent changes are permitted or contemplated pursuant to this
Agreement.
6.2.2. Covenants and Conditions. Buyer shall have in all material
respects performed and complied with all covenants, agreements and
conditions required by this Agreement to be performed or complied with by
it prior to or on the Closing Date.
6.2.3. No Injunction, Etc. There shall be no Legal Requirement, and no
Judgment shall have been entered and not vacated, or any Litigation
instituted or threatened, to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated
hereby.
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6.2.4. HSR Approvals. The waiting period specified under the HSR Act,
if applicable, shall have expired or been terminated.
6.2.5. Limited Partner Approvals. The limited partners of Seller shall
have consented to the transactions contemplated by this Agreement in
accordance with the terms of Seller's partnership agreement and applicable
securities laws.
6.2.6. Deliveries. Buyer shall have made or stand willing and able to
make all the deliveries set forth in Section 7.3.
6.2.7. Officer's Certificate. Buyer shall have delivered to Seller a
certificate executed on behalf of Buyer dated as of Closing, certifying
that the conditions specified in Section 6.2.1 and 6.2.2 have been
satisfied, which certificate shall be given by such officers after due
inquiry.
6.2.8. Execution and Delivery of Transaction Documents. To the extent
not previously executed and delivered, Seller shall have received each of
the Transaction Documents, executed by Buyer.
6.2.9. Execution and Delivery of Management Agreement and the Services
Agreements. To the extent not previously executed and delivered, Seller
shall have received the Management Agreement and the Services Agreements,
executed by Buyer.
6.2.10. Counsel Opinion. Buyer shall have delivered to Seller an
opinion of Edwards & Angell, LLP, counsel to Buyer, dated as of Closing,
substantially in the form of Exhibit 6.2.10 hereto (the "Buyer Counsel
Opinion").
7. Closing and Closing Deliveries
7.1. Closing. The Closing will be held on the last business day of the
calendar month which is at least three (3) business days after the satisfaction
(or waiver) of the closing conditions described in Article 6 provided, however,
that (i) the Closing will be subject to the deliveries required pursuant to
Sections 7.2 and 7.3 hereto, and (ii) if the last business day of the calendar
month during which such conditions shall have been satisfied is less than three
(3) business days after the satisfaction (or waiver) of such closing condition,
then the Closing shall be held on the last business day of the next succeeding
calendar month, or on such other date as Buyer and Seller may mutually agree
("Closing Date"). The Closing shall be held at 10:00 a.m. local time at the
Seller's offices at 1201 Third Ave., Suite 3600, Seattle, WA 98101, or will be
conducted by mail and/or facsimile or at such other place and time as the
parties may agree. Notwithstanding the foregoing, the parties agree that the
Closing shall be deemed effective as of the Adjustment Time, and all references
herein that relate to the date and time of the Closing, including provisions
dealing with adjustments to the Purchase Price, shall refer to such Adjustment
Time.
7.2. Deliveries by Seller. Prior to or on the Closing Date, Seller (and, to
the extent necessary to effect the Distribution and Contribution, NCC) shall
deliver to Buyer the following, in form and substance reasonably satisfactory to
Buyer and its counsel:
7.2.1. Transfer Documents. Duly executed bills of sale, warranty
deeds, motor vehicle titles (as well as separate bills of sale therefor and
any other transaction documents, if required by the laws of the state in
which such vehicles are titled), assignments and other transfer documents
which shall vest good title to the Assets in the name of Buyer, free and
clear of any Liens except for Permitted Encumbrances;
7.2.2. Consents. The original or copy of each Consent listed on
Schedule 3.8 required by Section 6.1.5; and
7.2.3. Services Agreements. Counterparts by NCC or its Affiliates, as
appropriate, of the Services Agreements.
7.2.4. Holdback Escrow Agreement. The Holdback Escrow Agreement, duly
executed by Seller and the escrow agent.
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7.2.5. Officer's Certificate. The certificate described in Section
6.1.9.
7.2.6. Management Agreement. Counterparts of the Management Agreement.
7.2.7. Counsel Opinion. The Seller Counsel Opinion.
7.2.8. FCC Counsel Opinion. The Seller FCC Counsel Opinion.
7.2.9. Lien Search Result and Lien Releases. Evidence satisfactory to
Buyer that all Liens (other than Permitted Encumbrances) affecting or
encumbering the Assets have been or upon Closing will be terminated,
released, or waived, as appropriate, or original, executed instruments in
form satisfactory to Buyer effecting such terminations, releases, or
waivers.
7.2.10. FIRPTA Certificate. A FIRPTA Certificate certifying that
neither Seller nor NCC is a foreign person within the meaning of Section
1445 of the Code, reasonably satisfactory in form and substance to Buyer.
7.2.11. Evidence of Necessary Actions. Evidence reasonably
satisfactory to Buyer that each of Seller and NCC has taken all actions
necessary to authorize the execution of this Agreement and the consummation
of the transactions contemplated hereby.
7.3. Deliveries by Buyer. Prior to or on the Closing Date, Buyer shall
deliver to Seller the following, in form and substance reasonably satisfactory
to Seller and its counsel:
7.3.1. Purchase Price. The Purchase Price, subject to any adjustments
and reductions in accordance with Section 2.3 and Section 2.4, of which
$6,075,000 shall be satisfied by the delivery of Buyer's Note to Seller;
7.3.2. Assumption Agreements. A duly executed assignment and
assumption agreement pursuant to which Buyer shall assume and undertake to
perform the Assumed Liabilities; and
7.3.3. Holdback Escrow Agreement. The Holdback Escrow Agreement, duly
executed by Buyer.
7.3.4. Officer's Certificate. The certificate described in Section
6.2.7.
7.3.5. Management Agreement and Services Agreements. Counterparts of
the Management Agreement and Services Agreements.
7.3.6. Counsel Opinion. The Buyer Counsel Opinion.
8. Termination
8.1. Method of Termination. This Agreement and the transactions
contemplated hereby may be terminated or abandoned only as follows:
8.1.1. By the mutual written consent of Seller and Buyer at any time;
8.1.2. By either Seller or Buyer in the event of the notification by
the FTC or the DOJ of the intent of either agency to seek to enjoin the
transactions contemplated by this Agreement or if any condition to the
Closing set forth in Sections 6.1. or 6.2. is not fulfilled on or before
September 30, 2001 or any mutually agreed upon later date ("Outside Closing
Date") and the failure of such condition is not a result of a material
breach of a representation or warranty or nonfulfillment of any covenant or
agreement by the party seeking to terminate this Agreement;
8.1.3. By Buyer, at any time, if Seller or NCC is in material breach
or default, of its respective covenants, agreements, or other obligations
herein or in any Transaction Document, or in the Securities Purchase
Agreement, or if any of Seller's or NCC's representations herein or in any
Transaction Document or in the Securities Purchase Agreement are not true
and accurate in all material respects when made or when otherwise required
by this Agreement or any Transaction Document or in the Securities Purchase
Agreement to be true and accurate; provided, however, that (i) the
breaching party is given prompt written notice that provides a reasonably
detailed explanation
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of the facts and circumstances surrounding such breach and (ii) the
breaching party is given 30 days after the receipt of such written notice
within which to cure such breach to the reasonable satisfaction of Buyer;
8.1.4. By Seller, at any time, if the Buyer is in material breach or
default, of its respective covenants, agreements, or other obligations
herein or in any Transaction Document or in the Securities Purchase
Agreement, or if any of Buyer's representations herein or in any
Transaction Document or in the Securities Purchase Agreement are not true
and accurate in all material respects when made or when otherwise required
by this Agreement or any Transaction Document or in the Securities Purchase
Agreement to be true and accurate; provided, however, that (i) the
breaching party is given prompt written notice that provides a reasonably
detailed explanation of the facts and circumstances surrounding such breach
and (ii) the breaching party is given 30 days after the receipt of such
written notice within which to cure such breach to the reasonable
satisfaction of Seller or, if such breach cannot be cured, to agree to
fairly compensate Seller for such breach to the reasonable satisfaction of
Seller; and
8.1.5. By Buyer pursuant to Section 5.9.
8.2. Rights Upon Termination.
8.2.1. In the event of a termination of this Agreement pursuant to Sections
8.1.1, 8.1.2 or 8.1.5 hereof, each party shall pay the costs and expenses
incurred by it in connection with this Agreement, and no party (or any of its
officers, directors, partners, employees, agents, representatives or
stockholders) shall be liable to any other party for any cost, expense, damage
or loss of anticipated profits hereunder.
8.2.2. In the event of a termination of this Agreement pursuant to Section
8.1.3, Buyer shall have the right to seek all remedies available to it as
provided hereunder or at law or equity, including the remedy of specific
performance.
8.2.3. In the event of a termination of this Agreement pursuant to Section
8.1.4, Seller shall have the right to seek all remedies available to it as
provided hereunder or at law or equity, including the remedy of specific
performance.
9. Survival of Representations and Warranties and Indemnification
9.1. Representations and Warranties. All representations, warranties,
covenants and agreements made by any party in this Agreement and any Transaction
Document shall survive the Closing; provided, however that, all unasserted
claims with respect to a breach of any representations or warranties made by any
party in this Agreement or a breach of any covenant or agreement of any party
under this Agreement to be performed prior to or at Closing shall expire on the
third anniversary of the Closing Date. All claims made by virtue of such
representations, warranties, covenants and agreements, or otherwise in
connection with this Agreement shall be made under, and subject to the
limitations set forth in this Article 9 which from and after the Closing Date
shall be the exclusive remedy of any party hereto for any breach of this
Agreement or other claim arising hereunder.
9.2. Indemnification by Seller and NCC. Seller and, with respect to the NCC
Representations, NCC shall severally and not jointly indemnify and hold Buyer
harmless against and with respect to, and shall reimburse Buyer for:
9.2.1. Seller shall indemnify and hold Buyer harmless against and with
respect to, and shall reimburse Buyer for:
(a) Any and all losses, liabilities, damages, costs and expenses
(collectively "Losses") arising out of or related to a breach of any
representation or warranty, or nonfulfillment of any covenant by Seller
contained herein or in the Transaction Documents;
(b) Any and all Excluded Liabilities; and
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(c) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees and expenses, incident to any of the
foregoing or incurred in investigating or attempting to avoid the same
or to oppose the imposition thereof, or in enforcing this indemnity.
9.2.2. NCC shall indemnify and hold Buyer harmless against and with
respect to, and shall reimburse Buyer for:
(a) Any and all Losses arising out of or related to a breach of the
NCC Representations; and
(b) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees and expenses, incident to any of the
foregoing or incurred in investigating or attempting to avoid the same
or to oppose the imposition thereof, or in enforcing this indemnity.
9.3. Indemnification by Buyer. Buyer shall indemnify and hold Seller and
NCC harmless against and with respect to, and shall reimburse Seller for:
9.3.1. Any and all Losses arising from or related to a breach of any
representation or warranty or nonfulfillment of any covenant by Buyer
contained herein or in the Transaction Documents;
9.3.2. Any and all of the Assumed Liabilities; and
9.3.3. Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
reasonable legal fees and expenses, incident to any of the foregoing or
incurred in investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
9.4. Procedure for Indemnification. The procedure for indemnification shall
be as follows:
9.4.1. The party claiming indemnification (the "Claimant") shall
promptly give notice to the party from whom indemnification is claimed (the
"Indemnifying Party") of any claim, whether between the parties or brought
by a third party, specifying (a) the factual basis for such claim and (b)
the estimated amount of the claim; provided that any delay or failure to
promptly notify shall relieve the Indemnifying Party of its obligations
hereunder only to the extent, if at all, that it is materially prejudiced
by such delay or failure. Notwithstanding the immediately preceding
sentence, if the claim relates to an action, suit or proceeding filed by a
third party against Claimant, such notice shall be given by Claimant within
ten business days after written notice of such action, suit or proceeding
was received by Claimant; provided that failure to give such notice within
such ten-day period shall not bar or otherwise prejudice Claimant's rights
to indemnification with respect to such third-party action, suit or
proceeding unless any defense, claim, counterclaim or cross-claim of the
Indemnifying Party is prejudiced thereby and then only to the extent of
such prejudice.
9.4.2. Following receipt of notice from the Claimant of a claim, the
Indemnifying Party shall have 30 days to make such investigation of the
claim as the Indemnifying Party reasonably deems necessary or desirable.
For the purposes of such investigation, the Claimant agrees to make
available to the Indemnifying Party and/or its authorized representative(s)
the information relied upon by the Claimant to substantiate the claim. If
the Claimant and the Indemnifying Party agree at or prior to the expiration
of said 30-day period (or any mutually agreed upon extension thereof) to
the validity and amount of such claim, the Indemnifying Party shall
immediately pay to the Claimant the full amount of the claim subject to the
terms and in accordance with the procedures set forth herein. If the
Claimant and the Indemnifying Party do not agree within said period (or any
mutually agreed upon extension thereof), the Claimant may seek appropriate
legal remedy.
9.4.3. With respect to any claim by a third party as to which the
Claimant is entitled to indemnification hereunder, the Indemnifying Party
shall have the right at its own expense, to participate in or assume
control of the defense of such claim by providing written notice of the
same
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to Claimant within 45 days following receipt of notice from Claimant of a
claim, and the Claimant shall cooperate fully with the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any
third-party claim it shall use counsel reasonably acceptable to Claimant,
the Claimant shall have the right to participate in the defense of such
claim at its own expense. If the Indemnifying Party does not elect to
assume control or otherwise participate in the defense of any third party
claim, it shall be bound by the results obtained by the Claimant with
respect to such claim and the Indemnifying Party shall be responsible and
shall promptly reimburse Claimant for all associated costs, fees and
expenses.
9.4.4. If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
9.4.5. The parties will make appropriate adjustments for any insurance
proceeds in determining the amount of any indemnification obligation under
this Article 9.
9.5. Limitation on Indemnification, Exclusive Remedy.
9.5.1. Seller's liability under Section 9.2 and Buyer's liability under
Section 9.3 for Losses shall not arise until the aggregate Losses of the other
party exceed $100,000 (the "Deductible").
9.5.2. Neither Seller nor Buyer shall have any liability under Article 9
for Losses constituting the Deductible.
9.5.3. Notwithstanding the foregoing, the Deductible shall not be
applicable, and Seller shall indemnify Buyer for all Losses relating to (i)
Excluded Liabilities, (ii) the obligation to adjust the Purchase Price pursuant
to Section 2.4, (iii) the representations set forth in Section 3.20, and (iv)
the covenants set forth in Sections 5.7, 5.8, 5.14 and 5.20.
9.5.4. Seller's liability under Section 9.2 shall be limited to Losses not
exceeding initially the aggregate amount of $6,050,000, provided, however, that
upon the first anniversary of Closing such aggregate limit shall be reduced to
$4,050,000, upon the second anniversary of Closing, such aggregate limit shall
be reduced to $2,050,000, and upon the third anniversary of Closing, such
aggregate limit shall be reduced to $0, and provided further that in the event
that prior to any such anniversary Buyer has asserted claims for indemnification
pursuant to Section 9.4 which would exceed, in the aggregate, the reduced
applicable aggregate limit upon such anniversary, the applicable aggregate limit
shall be reduced to the aggregate amount of the aggregate claims. NCC's
liability under Section 9.2 shall be limited to Losses not exceeding $2,000,000
in the aggregate.
9.5.5. After the Closing Date, the sole and exclusive remedy of any party
for any breach of a representation, warranty or covenant set forth in or made
pursuant to this Agreement shall be a claim for indemnification under and
pursuant to this Article 9.
9.6. Holdback Escrow Agreement and Buyer's Right of Offset. In order to
secure the indemnification obligations of Seller as set forth above, Buyer shall
have the right to offset against any and all amounts owing under the Buyer's
Note the aggregate amount of Losses for which Buyer has asserted a claim for
indemnification pursuant to Section 9.4 hereof.
9.6.1. At Closing, Seller shall deliver to the Escrow Agent the Holdback
for deposit into an escrow account to secure, in part, Seller's indemnification
obligations under this Article 9. The Holdback shall be held in an escrow
account mutually satisfactory to the parties (including, for example an account
meeting the requirements of Treas. Reg. sec. 1.1031(k)-1(g)(3)) and applied
pursuant to the terms of the Holdback Escrow Agreement, executed at Closing by
Seller, Buyer and the escrow agent. On the one-year anniversary of Closing, the
amounts (including earnings) then remaining in the escrow account less the
amount of Losses asserted by Buyer and unpaid shall be delivered to Seller or
its assignee.
9.6.2. In order to secure, in part, the indemnification obligations of
Seller under this Article 9, Buyer shall have the right to offset against any
and all amounts owing under the Buyer's Note the aggregate amount of Losses for
which Buyer has asserted a claim for indemnification pursuant to Section 9.4
hereof;
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provided, however, if the final determined aggregate amount of Losses, for which
Buyer has asserted a claim for indemnification and has exercised its right to
offset from the Buyer's Note, is less than the aggregate amount set-off from the
Buyer's Note, Buyer shall promptly pay to Seller, or its assigns, the amount of
such difference, plus accrued interest at the rate of the Buyer's Note.
9.6.3. Buyer's sole and exclusive remedy for indemnification by Seller
under this Article 9 shall be pursuant to the Holdback Escrow Agreement and the
right of offset against the Buyer's Note.
9.7. Indemnification by NCC. Notwithstanding anything contained herein
(except for the procedural provisions set forth in Section 9.4 which shall apply
mutatis mutandis), NCC hereby agrees to indemnify and hold Buyer harmless
against and with respect to, and shall reimburse Buyer for, any and all Losses
arising out of or related to any Litigation commenced against or naming Buyer or
its members (other than NCC) by any of Seller's present or former partners,
including without limitation Litigation relating to the transaction contemplated
by this Agreement, the solicitation of such partners' approval thereof and any
matter arising out of the provisions of the Seller's limited partnership
agreement. This indemnification obligation of NCC shall continue for the
applicable statute of limitations period and shall not be subject to the
Deductible or any other limitation except as provided in the parenthetical
contained in the first sentence of this Section 9.7.
10. Miscellaneous
10.1. Notices. All notices, demands and requests required or permitted to
be given under the provisions of this Agreement shall be (a) in writing, (b)
delivered by personal delivery, facsimile transmission (to be followed promptly
by written confirmation mailed by certified mail as provided below) or sent by
commercial delivery service or certified mail, return receipt requested, (c)
deemed to have been given on the date of personal delivery, the date of
transmission and receipt of facsimile transmissions, or the date set forth in
the records of the delivery service or on the return receipt, and (d) addressed
as follows:
If to Seller,
or NCC: c/o Northland Communications Corporation
1201 Third Avenue, Suite 3600
Seattle, WA 98101
Attn: John S. Whetzell and Gary S. Jones
Facsimile No.: (206) 623-8034
With a copy to:
Cairncross & Hempelmann, P.S.
524 Second Avenue, Suite 500
Seattle, WA 98104
Attn: Timothy M. Woodland, Esq.
Facsimile No.: (206) 587-2308
If to Buyer: c/o Providence Equity Partners, Inc.
50 Kennedy Plaza, 12th floor
Providence, RI 02903
Attn: Michael J. Angelakis
Facsimile No.: (401) 751-1790
With a copy to:
Edwards & Angell, LLP
2800 Financial Plaza
Providence, RI 02903
Attn: David K. Duffell, Esq.
Facsimile No.: (401) 276-6611
or to any such other persons or addresses as the parties may from time to time
designate in a writing delivered in accordance with this Section 10.1.
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10.2. Benefit and Binding Effect. Neither Seller or NCC on the one hand nor
Buyer on the other hand may assign this Agreement (by operation of law or
otherwise) without the prior written consent of Buyer in the case of a proposed
assignment by any of Seller or NCC, or by Seller in the case of a proposed
assignment by Buyer. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Notwithstanding the foregoing, Buyer acknowledges and agrees that
following the Closing Date Seller may assign this Agreement and its rights
hereunder to a liquidating trust.
10.3. Bulk Transfer. Buyer acknowledges that Seller has not and will not
file any transfer notice or otherwise complied with applicable bulk transfer
laws, and the parties agree to waive compliance with same.
10.4. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Delaware, without regard to
the conflicts of law principles of such state.
10.5. Headings. The headings herein are included for ease of reference only
and shall not control or affect the meaning or construction of the provisions of
this Agreement.
10.6. Gender and Number. Words used herein, regardless of the gender and
number specifically used, shall be deemed and construed to include any other
gender, masculine, feminine or neuter, and any other number, singular or plural,
as the context requires.
10.7. Entire Agreement. This Agreement, all schedules and exhibits hereto,
and all documents and certificates to be delivered by the parties pursuant
hereto (including, without limitation, the Transaction Documents) collectively
represent the entire understanding and agreement between the parties with
respect to the subject matter hereof. All schedules and exhibits attached to
this Agreement shall be deemed part of this Agreement and incorporated herein,
where applicable, as if fully set forth herein. This Agreement supersedes all
prior negotiations between Buyer and Seller with respect to the transactions
contemplated hereby, and all letters of intent and other writings relating to
such negotiations, and cannot be amended, supplemented or modified except by an
agreement in writing which makes specific reference to this Agreement or an
agreement delivered pursuant hereto, as the case may be, and which is signed by
the party against which enforcement of any such amendment, supplement or
modification is sought.
10.8. Further Assurances. Each party covenants that at any time, and from
time to time, after the Closing Date, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
10.9. Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement or condition herein may be waived
by the party entitled to the benefits thereof, but such waiver or failure to
insist upon strict compliance with such obligation, representation, warranty,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
10.10. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law; provided, however, that the
economic and legal substance of the transactions contemplated by this Agreement
is not affected in any manner that is materially adverse to any party affected
by such invalidity or unenforceability.
10.11. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signature on each such counterpart
were upon the same instrument, and a facsimile transmission shall be deemed to
be an original signature.
10.12. No Third-Party Beneficiaries. This Agreement constitutes an
agreement solely among the parties hereto, and, except as otherwise provided
herein, is not intended to and will not confer any rights, remedies, obligations
or liabilities, legal or equitable on any person other than the parties hereto
and their
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respective successors or assigns, or otherwise constitute any person a third
party beneficiary under or by reason of this Agreement.
10.13. Tax Consequences. Except as provided in Section 3.13 of this
Agreement, no party to this Agreement makes any representation or warranty,
express or implied, with respect to the tax implications of any aspect of this
Agreement on any other party to this Agreement, and all parties expressly
disclaim any such representation or warranty with respect to any tax
consequences arising under this Agreement. Each party has relied solely on its
own tax advisors with respect to the tax implications of this Agreement.
10.14. Construction. This Agreement has been negotiated by Buyer and Seller
and their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or any provision of this Agreement
against the party drafting this Agreement shall not apply in any construction or
interpretation of this Agreement.
10.15. Time. If the last day permitted for the giving of any notice or the
performance of any act required or permitted under this Agreement falls on a day
that is not a business day, the time for the giving of such notice or the
performance of such act will be extended to the next succeeding business day.
10.16. Cure. For all purposes under this Agreement, the existence or
occurrence of any event or circumstance that constitutes a breach of a
representation or warranty of the non-fulfillment of any pre-Closing covenant or
agreement by Buyer or Seller contained in this Agreement (including, without
limitation, the schedules hereto) on the date such representation or warranty is
made or the fulfillment of such pre-Closing covenant or agreement is due, shall
not constitute a breach of such representation or warranty or the
non-fulfillment of such pre-Closing covenant or agreement if such event or
circumstance is cured on or before the Closing Date; provided, however, that any
such breach shall not be cured by updating the schedules hereto unless such
update is accepted by Buyer.
[Remainder of Page Intentionally Left Blank]
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EXECUTED as of the date first above written.
Buyer: NORTHLAND CABLE NETWORKS LLC
By: PROVIDENCE GROWTH
NORTHLAND CABLE L.P., a Member
By: Providence Growth Investors
L.P.,
its general partner
By: Providence Growth GP L.P.,
its
general partner
By: Providence Growth
Investors L.L.C.,
its general partner
By:
/s/ MICHAEL J. ANGELAKIS
-----------------------------
Name: Michael J.
Angelakis
Title: Managing
Director
Seller: NORTHLAND CABLE PROPERTIES SIX
LIMITED PARTNERSHIP
By: Northland Communications
Corporation,
Managing General Partner
By: /s/ GARY S. JONES
----------------------------------
Name: Gary S. Jones
Title: President
NCC: Solely for the limited purpose of
Article 3A,
Sections 5.3 and 5.4 and Article 9
NORTHLAND COMMUNICATIONS
CORPORATION
By: /s/ GARY S. JONES
----------------------------------
Name: Gary S. Jones
Title: President
[Signature Page to Asset Purchase and Contribution Agreement]
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EXHIBIT F
NORTHLAND CABLE NETWORKS LLC
C/O PROVIDENCE EQUITY PARTNERS, INC.
50 KENNEDY PLAZA
PROVIDENCE, RI 02903
May 24, 2001
Via Fax & Federal Express
Northland Cable Properties Six Limited Partnership
c/o Northland Communications Corporation, Managing General Partner
Attn: Mr. John S. Whetzell, Chief Executive Officer
1201 Third Avenue, Suite 3600
Seattle, WA 98101
Dear John:
This letter sets forth the intention of Northland Cable Networks LLC
("Purchaser") to purchase from Northland Cable Properties Six Limited
Partnership ("Seller") all of the assets (the "Assets") owned or leased by
Seller and used in the business and operations of the cable television system
owned and operated by Seller in and around Bennettsville, South Carolina serving
approximately 4,820 equivalent basic subscribers (the "Business"). The Assets
shall include all property, tangible or intangible, real, personal or mixed,
owned or leased by Seller and used in the Business, but shall exclude cash and
similar investments, marketable securities, and such other assets as the parties
mutually agree to exclude as specified in the Definitive Agreement (as defined
below). The Assets shall also include a noncompetition covenant covering
Marlboro County, South Carolina to be given by Northland Telecommunications
Corporation ("NTC") and its affiliates.
1. Purchase Price and Adjustments. The total purchase price for the Assets
shall be $7,950,000 (the "Purchase Price"), of which $1,950,000 will be paid
pursuant to a promissory note to be issued by Purchaser to Seller at the Closing
(as defined below), payable in equal annual installments over three years,
together with interest at the rate of 8% per annum. The Purchase Price would be
subject to prorations and adjustments (including an adjustment for a shortfall
in the number of subscribers from a mutually acceptable level) customary in this
type of transaction and would be payable in cash at the closing of the purchase
transaction (the "Closing").
2. Liabilities to be Assumed. In addition to the payment of the Purchase
Price as described in the previous paragraph, Purchaser shall assume and pay,
perform and discharge such liabilities and obligation of Seller with respect to
the Business as are customary in this type of transaction, as shall be provided
in the Definitive Agreement (the "Assumed Liabilities").
3. Definitive Agreement. All the terms and conditions relating to the
purchase transaction described in this letter will be set forth in detail in a
definitive agreement (the "Definitive Agreement"), which will be substantially
similar to that certain Asset Purchase and Contribution Agreement among
Purchaser and Seller related to Seller's cable television systems in
Mississippi. Each of the parties shall endeavor to complete the negotiation and
execution of the Definitive Agreement as soon as possible.
4. Actions Prior to Definitive Agreement. Pending the execution of the
Definitive Agreement, the mutual termination of negotiations, or July 31, 2001,
whichever occurs first, Seller agrees:
(a) Not to directly or indirectly accept or attempt to arrange for any
equity capital or other financing for Seller which may be used, directly or
indirectly, to acquire the Business or any of the Assets ("Alternative
Financing") or discuss or provide any other person, firm, corporation, or
other entity any information in connection with any Alternative Financing;
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185
(b) Not to negotiate or enter into any agreement with any other
person, firm, corporation, or other entity with respect to the sale of the
Business or the Assets, and to negotiate in good faith with the undersigned
with respect to the transactions described in this letter of intent;
(c) Upon reasonable request of Purchaser, to permit Purchaser to
inspect the facilities of the Business;
(d) Upon reasonable request of Purchaser, to provide Purchaser, and
its auditors, attorneys, agents, employees and representatives, with access
to Seller's key management and engineering employees in connection with
Purchaser's due diligence investigation of the affairs, business, and
properties relating to the Business; and
(e) Upon the reasonable request of Purchaser, to provide promptly to
Purchaser and its auditors, attorneys, agents, employees and
representatives, copies of the books, records, papers and documents
relating to the Business.
5. Confidentiality. Purchaser will hold all information obtained from
Seller in connection with this proposed transaction ("Evaluation Material") in
confidence and will not disclose any of such information other than to those
assisting Purchaser in evaluating and closing this transaction and those who
will provide financing for this transaction, but in each case only on a
need-to-know basis, and only to those who have been informed of this
confidentiality obligation. The term "Evaluation Material" does not include
information which (i) is already in the possession of Purchaser through a source
other than Seller or its advisors or any of its affiliates, (ii) becomes
generally available to the public other than as a result of its disclosure by
Purchaser, or (iii) is independently developed by or becomes available to
Purchaser on a non-confidential basis from a source other than Seller or its
advisors or any of its affiliates, provided that such source is not known by
Purchaser to be bound by a confidentiality agreement with or other obligation of
secrecy to Seller or another party. In the event that the transaction
contemplated hereby is not consummated, Purchaser shall destroy or return all
Evaluation Material.
6. Conduct of Business. Pending the execution on the Definitive Agreement,
or mutual termination of negotiations, whichever first occurs, Seller shall
conduct the Business only in the ordinary and usual course and shall not sell or
otherwise dispose of or transfer any of the Assets, except in the ordinary
course of business.
7. Expenses. Except as may otherwise be provided in the Definitive
Agreement, Seller and Purchaser shall each bear its own costs and expenses
incurred in connection with the transactions described in this letter. Except
for Seller's retention of Daniels and Associates (the fees for which shall be
the responsibility of Seller), neither Seller nor Purchaser has engaged any
broker with regard to the proposed transaction.
8. Conditions to Closing. The consummation of the transactions described in
this letter shall be subject to the following conditions precedent, and such
others as shall be included in the Definitive Agreement as conditions precedent
to the Closing: (a) completion by Purchaser of a due diligence investigation
satisfactory to Purchaser of Seller's properties and assets, contracts,
agreements, books, records and documents relating to the Business; (b)
compliance by Seller and Purchaser with the requirements of paragraphs 5, 6 and
7 above; (c) all governmental consents or consents of third parties under
material contracts required for the consummation of the purchase transactions
shall have been granted; (d) the absence of material adverse changes in the
Business, other than changes which affect the cable television generally, since
January 1, 2001; (e) that there exist no security interests, liens, or
encumbrances against the Assets or related to the Business that would extend
after the Closing (except any security interests, liens or encumbrances
permitted by the terms of the Definitive Agreement); (f) that each of Purchaser
and Seller shall have received all necessary approvals (proxy, corporate or
otherwise) for the transactions contemplated hereby; (g) that as of the closing
date the Business serves a minimum number or basic subscribers to be defined in
the Definitive Agreement; (h) the availability of sufficient debt financing to
consummate the acquisition of the Business on terms satisfactory to Purchaser
and Seller; and (i) execution and delivery of the Definitive Agreement and other
necessary documentation
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186
(including management and services agreements) (collectively, "Transaction
Documents") by Seller and Purchaser in forms satisfactory to the parties.
9. Nature of Letter of Intent. This letter of intent is a statement of
present intention and understanding justifying the expenditure of time, effort
and expense in an attempt to negotiate and execute the Transaction Documents,
but will not constitute a contract or binding obligation, except that paragraphs
4, 5, 6 and 7 hereof will be binding from the date of execution hereof to the
date of the Definitive Agreement; provided, however that if no Definitive
Agreement is executed, the provisions hereof shall terminate of July 31, 2001.
The transaction described in this letter is subject to the negotiation,
execution and delivery of the Transaction Documents, which will set forth all
the terms and conditions contemplated between the parties. This letter does not
purport to include all the essential terms of the transactions contemplated
hereby (which would only be contained in the Transaction Documents), and,
accordingly, is not intended in any respect to create enforceable rights or
obligations for either Seller or Purchaser, except to the extent described in
the first sentence of this paragraph 9.
10. Duration. This proposal will expire at 5:00 P.M. EST on June 15, 2001,
unless accepted in writing prior to that time and date.
If the foregoing is acceptable to you, please indicate that by your
execution in the space provided below.
Very truly yours,
NORTHLAND CABLE NETWORKS LLC
By
------------------------------------
Michael J. Angelakis
Member
ACCEPTED AND AGREED TO this day of , 2001.
NORTHLAND CABLE PROPERTIES SIX LIMITED
PARTNERSHIP
By: Northland Communications
Corporation,
Managing General Partner
By
Name:
Title:
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187
EXHIBIT G
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BETWEEN
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
AND
NORTHLAND CABLE PROPERTIES, INC.
DATED
JUNE 14, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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188
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated June 14, 2001, by and between and
Northland Cable Properties Six Limited Partnership, a Washington limited
partnership ("Seller"), and Northland Cable Properties, Inc., a Washington
corporation, or its affiliates or assigns ("Buyer").
RECITALS:
A. Seller owns and operates cable television systems in the following
communities: Barnwell, Allendale, and Bamberg, South Carolina (collectively
referred to as the "Systems");
B. Seller desires to sell, and Buyer wishes to buy, substantially all of
Seller's assets used in the operation of the Systems and the cable television
business related thereto for the price and on the terms and conditions set forth
in this Agreement.
AGREEMENTS:
In consideration of the above recitals and the covenants and agreements
contained herein, Buyer and Seller agree as follows:
1. Defined Terms
The following terms shall have the following meanings in this Agreement and
additional terms shall have the meanings as defined elsewhere in this Agreement:
1.1. "Accounts Receivable" means the rights of Seller to payment for
services provided for and billed by Seller (including, without limitation, those
billed to subscribers of the Systems and those for services and advertising time
provided by Seller) and unpaid prior to the Closing Date as reflected on the
billing records of Seller relating to the Systems.
1.2. "Agreement" means this Asset Purchase Agreement.
1.3. "Assets" means all the tangible and intangible assets owned by Seller
and used solely in connection with the conduct of the business or operation of
the Systems, including, without limitation, those specified in detail in Section
2.1 but excluding those specified in Section 2.2. Assets consist of the
Purchased Assets and the Distributed Assets.
1.4. "Closing" means the consummation of the transactions contemplated by
this Agreement in accordance with the provisions of Section 7.
1.5. "Closing Date" means the date of the Closing specified in Section 7.
1.6. "Compensation Arrangement" means any written plan or compensation
arrangement other than an Employee Plan or a Multi-employer Plan that provides
to employees of Seller employed at the Systems any compensation or other
benefits, whether deferred or not, in excess of base salary or wages and
excluding overtime pay, including, but not limited to, any bonus or incentive
plan, deferred compensation arrangement, stock purchase plan, severance pay plan
and any other perquisites and employee fringe benefit plan.
1.7. "Consents" means the consents, permits or approvals of governmental
authorities and other third parties.
1.8. "Contracts" means all pole attachment and conduit agreements, railway
crossing agreements, leases, easements, rights of way and similar interests in
Real Property, retransmission consent agreements, subscription agreements with
customers for the cable services provided by the Systems, miscellaneous service
agreements, agreements involving material non-monetary obligations, agreements
entered into by Seller in the ordinary course of business of the Systems between
the date hereof and the Closing Date,
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189
and other agreements, written or oral (including any amendments and other
modifications thereto), to which Seller is a party and that relate to the Assets
or the business or operation of the Systems.
1.9 "Distributed Assets" means the undivided portion of the Assets
attributable to the interest of Northland Communications Corporation, the
managing general partner of Seller ("NCC"), pursuant to and in accordance with
the limited partnership agreement of Seller, as amended, and which when combined
with the Purchased Assets constitute all the Assets.
1.10. "Employee Plan" means any written pension, retirement,
profit-sharing, deferred compensation, vacation, severance, bonus, incentive,
medical, vision, dental, disability, life insurance or any other employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, (other than a
Multi-employer Plan) to which Seller contributes or which Seller sponsors or
maintains or by which Seller otherwise is bound, that provides benefits to
employees of Seller employed at the Systems.
1.11. "FCC" means the Federal Communications Commission, or its successor
agency.
1.12. "Franchises" means all municipal and county franchises, and franchise
applications (if any), granted to Seller by any Franchising Authorities,
including all amendments thereto and modifications thereof.
1.13. "Franchising Authorities" means all governmental authorities, which
have issued cable franchises relating to the operation of the Systems or before
which are pending any franchise applications filed by Seller relating to the
operation of the Systems.
1.14. "Material Adverse Effect" means a material adverse effect on the
operations, assets or financial condition of the Systems, taken as a whole,
other than (a) matters affecting the cable television industry generally
(including, without limitation, legislative, regulatory or litigation matters),
(b) matters relating to or arising from local or national economic conditions
(including, without limitation, financial and capital markets) and (c) any
changes resulting from or relating to the taking of any action contemplated by
this Agreement.
1.15. "Multi-employer Plan" means a plan, as defined in ERISA Section 3(37)
or Section 4001(a)(3), to which Seller or any trade or business which would be
considered a single employer with Seller under Section 4001(b)(1) of ERISA
contributed, contributes or is required to contribute that provides benefits to
employees of Seller employed at the Systems.
1.16. "Permitted Encumbrances" means any of the following liens or
encumbrances: (a) landlord's liens and liens for current taxes, assessments and
governmental charges not yet due or being contested in good faith by appropriate
proceedings; (b) statutory liens or other encumbrances that are minor or
technical defects in title that do not in the aggregate materially affect the
value, marketability or utility of the Assets as presently utilized; (c) such
liens, liabilities or encumbrances as are Assumed Liabilities; (d) leased
interests in property leased to others; (e) restrictions set forth in, or rights
granted to Franchising Authorities as set forth in, the Franchises or applicable
laws relating thereto; (f) zoning, building or similar restrictions, easements,
rights-of-way, reservations of rights, conditions or other restrictions or
encumbrances relating to or affecting the Real Property, that do not materially
interfere with the use of such Real Property in the operation of the Systems as
presently conducted; (g) as to Real Property, all matters of record as of the
date hereof other than mortgages; and (h) any other liens or encumbrances that
relate to liabilities and obligations that are to be discharged in full at
Closing or that will be removed prior to or at Closing.
1.17. "Personal Property" means all of the machinery, equipment, tools,
vehicles, furniture, leasehold improvements, office equipment, plant, inventory,
spare parts, supplies and other tangible and intangible personal property,
including, without limitation, the Franchises, the Contracts and the Accounts
Receivable, that are owned or leased by Seller and used, useful or held for use
as of the date hereof solely in the conduct of the business or operation of the
Systems, plus such additions thereto and deletions
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therefrom arising in the ordinary course of business and as permitted by this
Agreement between the date hereof and the Closing Date.
1.18 "Purchased Assets" means the undivided portion of the Assets
attributable to the collective interest of the limited partners and the
administrative general partner of Seller pursuant to and in accordance with the
limited partnership agreement of Seller, as amended, and which when combined
with the Distributed Assets constitute all the Assets.
1.19. "Real Property" means all of the real property interests of Seller,
including, without limitation, fee interests in real estate (together with the
buildings and other improvements located thereon), leasehold interests in real
estate, easements, licenses, rights to access, rights-of-way and other real
property interests that are (a) leased by Seller and used as of the date hereof
solely in the business or operation of the Systems, or (b) owned by Seller and
used as of the date hereof solely in the business or operation of the Systems,
plus such additions thereto and deletions therefrom arising in the ordinary
course of business and as permitted by this Agreement between the date hereof
and the Closing Date.
2. Sale and Purchase of Assets
2.1. Agreement to Sell and Purchase. Subject to the terms and conditions
set forth in this Agreement, on the Closing Date Seller hereby agrees to (i)
sell, transfer and deliver to Buyer, and Buyer agrees to purchase from Seller,
all of the Purchased Assets, and (ii) make an in-kind distribution to NCC of all
of the Distributed Assets pursuant to and in accordance with the limited
partnership agreement of Seller, as amended. On the Closing Date, NCC intends to
simultaneously contribute the Distributed Assets to Buyer. The Assets shall be,
on the Closing Date, free and clear of any claims, liabilities, mortgages,
liens, pledges, conditions, charges or encumbrances of any nature whatsoever
except for Permitted Encumbrances, which Assets include the following:
2.1.1. the Personal Property;
2.1.2. the Real Property;
2.1.3. the Franchises;
2.1.4. the Contracts;
2.1.5. all of Seller's proprietary information, technical information
and data, machinery and equipment warranties, maps, computer discs and
tapes, plans, diagrams, blueprints and schematics, including filings with
the Franchising Authorities and the FCC relating solely to the Systems
(other than the materials described in Section 2.2 hereof);
2.1.6. all payments and sums deposited or advanced by Seller to a
landlord, utility, governmental agency or any other party as a security
deposit or in exchange for initiation of a service;
2.1.7. subject to Section 2.2, all books and records relating to the
business or operation of the Systems, customer records and all records
required by the Franchising Authorities to be kept, subject to the right of
Seller to have such books and records made available to Seller for a period
of three years from the Closing Date; and
2.1.8. the going concern value and any of Seller's other intangible
assets, if any, with respect to the Systems.
2.2. Excluded Assets. The Assets shall exclude the following assets
("Excluded Assets"):
2.2.1. Seller's cash on hand as of the Closing Date and all other cash
in any of Seller's bank or savings accounts, including, without limitation,
customer advance payments and deposits; any and all bonds, surety
instruments, insurance policies and all rights and claims thereunder,
letters of credit or other similar items and any cash surrender value in
regard thereto, and any stocks, bonds, certificates of deposit and similar
investments;
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2.2.2. Any books and records that Seller is required by law to retain
and any correspondence, memoranda, books of account, tax reports and
returns and the like related to the Systems other than those described in
Section 2.1.7, subject to the right of Buyer to have access to and to copy
for a reasonable period, not to exceed three years from the Closing Date,
and Seller's partnership books and records and other books and records
related to internal partnership matters and financial relationships with
Seller's lenders and affiliates;
2.2.3. Any claims, rights and interest in and to any refunds of
federal, state or local franchise, income or other taxes or fees of any
nature whatsoever for periods prior to the Closing Date including, without
limitation, fees paid to the U.S. Copyright Office or any causes of action
relating to such refunds;
2.2.4. Except as specifically set forth herein, any Employee Plan,
Compensation Arrangement or Multi-employer Plan;
2.2.5. All rights to receive fees or services from any affiliate of
Seller;
2.2.6. Any contracts, agreements or other arrangements between Seller
and any affiliate of Seller;
2.2.7. All choses in action of Seller whether or not relating to the
Systems; and
2.2.8. The Accounts Receivable.
2.3. Purchase Price.
2.3.1 The purchase price for the Purchased Assets ("Purchase Price") shall
be (i) $11,400,000, (ii) as adjusted pursuant to Section 2.4 below, and (iii)
reduced by an amount equal to the portion of the Assets represented by the
Distributed Assets.
2.3.2 The Purchase Price shall be paid by Buyer to Seller at the Closing as
follows:
(a) By a promissory note in the principal amount of 3,300,000, to be
paid in three equal annual installments from the Closing Date and bearing
interest at an annual interest rate of 8.0%; and
(b) Subject to the principal amount of the promissory note described
in Section 2.3.2(a), adjustments and prorations set forth in Section 2.4
below, and the reductions set forth in Section 2.3.1(iii) above, by wire
transfer of the balance of the Purchase Price in immediately available
funds to Seller.
2.3.3 All Purchase Price proceeds shall be distributable to the partners of
Seller pursuant to and in accordance with the limited partnership agreement of
Seller, as amended. Notwithstanding the foregoing, NCC, the managing general
partner of Seller, shall not be entitled to receive any payments described in
Section 2.3.2, and shall only be entitled to the Distributed Assets.
2.4. Adjustments and Prorations.
2.4.1. All income, expenses and other liabilities arising from the Systems
up until midnight on the day prior to the Closing Date, including franchise
fees, pole and other rental charges payable with respect to cable television
service, utility charges, real and personal property taxes and assessments
levied against the Assets, salesperson advances, property and equipment rentals,
applicable copyright or other fees, sales and service charges, taxes (except for
taxes arising from the transfer of the Assets hereunder), and similar prepaid
and deferred items, shall be prorated between Buyer and Seller in accordance
with the principle that Seller shall receive the benefit of all income and shall
be responsible for all expenses, costs and liabilities allocable to the conduct
of the business or operation of the Systems for the period prior to the Closing
Date, and Buyer shall receive the benefit of all income and shall be responsible
for all expenses, costs and obligations allocable to the conduct of the business
or operation of the Systems on the Closing Date and for the period thereafter.
All such pro rations shall be determined in accordance with generally accepted
accounting principles.
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2.4.2. The Purchase Price shall be increased by an amount equal to 100% of
the face amount of all payments and sums deposited or advanced by Seller to a
landlord, utility, governmental agency or any other party as a security deposit
or in exchange for initiation of a service.
2.4.3. The Purchase Price shall be reduced by an amount equal to (a) any
customer advance payments (i.e., customer payments received by Seller prior to
the Closing but relating to service to be provided by Buyer after the Closing)
and deposits (including any interest owing thereon), and (b) any other advance
payments (i.e., advertising payments received by Seller prior to the Closing but
relating to service to be provided by Buyer after the Closing).
2.4.4. At least ten business days prior to the Closing, Seller will prepare
a report with respect to the Systems (the "Preliminary Report"), showing in
detail the preliminary determination of the adjustments referred to in this
Section 2.4, calculated in accordance with such Section as of the Closing Date
(or as of any other date(s) agreed to by the parties) together with any
documents substantiating the determination of the adjustments to the Purchase
Price proposed in the Preliminary Report. The adjustment shown in the
Preliminary Report, as adjusted by agreement of the parties, will be reflected
as an adjustment to the Purchase Price payable at the Closing.
2.4.5. Within 90 days after the Closing Date, Buyer shall prepare a report
with respect to the Systems (the "Final Report"), showing in detail the final
determination of any adjustments which were not calculated as of the Closing
Date and containing any corrections to the Preliminary Report, together with any
documents substantiating the final calculation of the adjustments proposed in
the Final Report. If Seller shall conclude that the Final Report does not
accurately reflect the adjustments and prorations to be made to the Purchase
Price in accordance with this Section 2.4, Seller shall, within 30 days after
its receipt of the Final Report, provide to Buyer its written statement of any
discrepancies believed to exist. Buyer and Seller shall use good faith efforts
to jointly resolve the discrepancies within 15 days of Buyer's receipt of
Seller's written statement of discrepancies, which resolution, if achieved,
shall be binding upon all parties to this Agreement and not subject to dispute
or judicial review. If Buyer and Seller cannot resolve the discrepancies to
their mutual satisfaction within such 15-day period, Buyer and Seller shall,
within the following 10 days, jointly designate a national independent public
accounting firm to be retained to review the Final Report together with Seller's
discrepancy statement and any other relevant documents. Such firm shall report
its conclusions as to adjustments pursuant to this Section 2.4 which shall be
conclusive on all parties to this Agreement and not subject to dispute or
judicial review. If, after adjustment as appropriate with respect to the amount
of the aforesaid adjustments paid or credited at the Closing, Buyer or Seller is
determined to owe an amount to the other, the appropriate party shall pay such
amount thereof to the other, within three days after receipt of such
determination. The cost of retaining such independent public accounting firm
shall be borne by Buyer; provided, however, that if such independent public
accounting firm concludes that the Final Report as proposed by Buyer is accurate
and that the discrepancies noted by Seller are inaccurate, then Seller shall
bear the cost of retaining such independent public accounting firm.
2.5. Assumption of Liabilities and Obligations. As of the Closing Date and
subject to applicable pro rations and adjustments set forth in Section 2.4,
Buyer shall assume and pay, discharge and perform the following (collectively,
the "Assumed Liabilities"): (a) all obligations and liabilities of Seller under
the Franchises and the Contracts; (b) all obligations and liabilities of Seller
to all customers and advertisers of the Systems for any advance payments or
deposits; and (c) all obligations and liabilities arising out of events
occurring on or after the Closing Date related to Buyer's ownership of the
Assets or its conduct of the business or operation of the Systems. All other
obligations and liabilities of Seller shall remain and be the obligations and
liabilities solely of Seller.
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3. Representations and Warranties of Seller
Seller represents and warrants to Buyer as of the date of this Agreement
and as of the Closing Date, as follows:
3.1. Organization, Standing and Authority. Seller is a limited partnership
duly organized and validly existing under the laws of the State of Washington,
and is qualified to conduct business as a foreign limited partnership in the
State of South Carolina. Seller has the requisite partnership power and
authority (a) to own, lease and use the Assets as presently owned, leased and
used by it, and (b) to conduct the business and operation of the Systems as
presently conducted by it.
3.2. Authorization and Binding Obligation. Seller has the partnership power
and authority to execute and deliver this Agreement and to carry out and perform
all of its other obligations under the terms of this Agreement. Except for the
approval of a majority in interest of the limited partners of Seller, all
partnership action by Seller necessary for the authorization, execution,
delivery and performance by it of this Agreement has been taken. This Agreement
has been duly executed and delivered by Seller and this Agreement constitutes
the valid and legally binding obligation of Seller, enforceable against it in
accordance with its terms, except (a) as rights to indemnity, if any, thereunder
may be limited by federal or state securities laws or the public policies
embodied therein, (b) as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally, and (c) as the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.3. Absence of Conflicting Agreements. Subject to obtaining the Consents
described in Section 3.4, the execution, delivery and performance of this
Agreement by Seller will not: (a) violate the certificate of limited partnership
and limited partnership agreement, as amended, of Seller; (b) violate any law,
judgment, order, ordinance, injunction, decree, rule or regulation of any court
or governmental instrumentality applicable to Seller with respect to the Assets;
or (c) conflict with, constitute grounds for termination of, result in a breach
of, constitute a default under, accelerate or permit the acceleration of any
performance required by the terms of, any Contract or Franchise, excluding from
the foregoing clauses (b) and (c) such violations, conflicts, terminations,
breaches and defaults, which in the aggregate would not have a Material Adverse
Effect, and such conflicts, terminations, breaches and defaults which would
occur as a result of the specific legal or regulatory status of Buyer.
3.4. Consents. Except for (a) the Consents of Franchising Authorities that
are required by the Franchises prior to Closing, (b) the Consents of landlords
of leased headend or office sites required prior to Closing, (c) the Consents of
the FCC, other than any FCC consent to any business radio license or any
microwave transmit or receive license that Seller reasonably expects can be
obtained within 120 days after the Closing and so long as temporary
authorization is available to Buyer under FCC rules with respect thereto, (d)
the Consent of a majority in interest of the limited partners of Seller and (e)
Consents which if not obtained would not have a Material Adverse Effect, no
consent, approval, permit or authorization of, or declaration to or filing with
any governmental or regulatory authority, or any other third party is required
to consummate this Agreement and the transactions contemplated hereby.
4. Representations and Warranties of Buyer
Buyer represents and warrants to Seller as of the date of this Agreement
and as of the Closing Date, as follows:
4.1. Organization, Standing and Authority. Buyer is a corporation, duly
organized and validly existing under the laws of the State of Washington and is
(or will be on the Closing) qualified to conduct business as a foreign
corporation in the State of South Carolina. Buyer has the requisite power and
authority to execute and deliver this Agreement and to perform and comply with
all of the terms, covenants and conditions to be performed and complied with by
Buyer hereunder.
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4.2. Authorization and Binding Obligation. Buyer has the corporate power
and authority to execute and deliver this Agreement and to carry out and perform
all of its other obligations under the terms of this Agreement. All corporate
action by Buyer necessary for the authorization, execution, delivery and
performance by Buyer of this Agreement has been taken. This Agreement has been
duly executed and delivered by Buyer and this Agreement constitutes the valid
and legally binding obligation of Buyer, enforceable against it in accordance
with its terms, except (a) as rights to indemnity, if any, thereunder may be
limited by federal or state securities laws or the public policies embodied
therein, (b) as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect affecting
the enforcement of creditors' rights generally, and (c) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.3. Absence of Conflicting Agreements. Subject to obtaining the Consents
listed in Section 3.4, the execution, delivery and performance of this Agreement
by Buyer will not: (a) require the consent, approval, permit or authorization
of, or declaration to or filing with any governmental or regulatory authority,
or any other third party, except where if not obtained would not have a Material
Adverse Effect; (b) violate the governing documents of Buyer; (c) violate any
material law, judgment, order, ordinance, injunction, decree, rule or regulation
of any court or governmental instrumentality; or (d) conflict with, constitute
grounds for termination of, result in a breach of, constitute a default under,
or accelerate or permit the acceleration of any performance required by the
terms of, any material agreement, instrument, license or permit to which Buyer
is a party or by which Buyer may be bound, such that Buyer could not perform
hereunder and acquire or operate the Assets.
4.4. Buyer Qualification. Buyer knows of no reason why it cannot become the
franchisee pursuant to the Franchises, and to its knowledge has the requisite
qualifications to own and operate the Systems.
4.5. Availability of Funds. Buyer will have available on the Closing Date
sufficient unrestricted funds to enable it to consummate the transactions
contemplated hereby.
5. Covenants of the Parties
5.1. Consents. Following the execution hereof, Seller shall make such
applications to the Franchising Authorities and other third parties for the
Consents, and shall otherwise use its commercially reasonable efforts to obtain
the Consents as expeditiously as possible. In no event shall Seller be required,
as a condition of obtaining such Consents, to expend any monies on, before or
after the Closing Date (other than expenses typically incurred in connection
with the efforts to obtain such Consents), or to offer or grant any
accommodations or concessions adverse to Seller or to engage in litigation or
other adversarial proceedings. Buyer shall use its commercially reasonable
efforts to promptly assist Seller and shall take such prompt and affirmative
actions as may reasonably be necessary in obtaining such Consents and shall
cooperate with Seller in the preparation, filing and prosecution of such
applications as may reasonably be necessary, including, without limitation,
making management and other personnel of Buyer available to assist in obtaining
such Consents. The parties agree to use commercially reasonable efforts to
obtain consents to the transfer of the Franchises. Seller shall not agree to any
materially adverse change in any Franchise as a condition to obtaining any
authorization, consent, order or approval necessary for the transfer of such
Franchise unless Buyer shall otherwise consent; provided, however, that Buyer,
and not Seller, shall bear the cost and expense of any conditions imposed by
Franchising Authorities on Franchise transfers to which Buyer has consented.
Buyer acknowledges that Franchising Authorities and third parties to Contracts
may impose bond, letter of credit, indemnity and insurance requirements and may
modify or impose penalty provisions and other similar provisions to the
appropriate Franchise or Contract as a condition to giving their consent to
assignment or transfer thereof. Notwithstanding anything to the contrary
contained in this Section 5.1, Buyer shall be obligated to accept any such
conditions as long as the requirements are reasonable and customary in the
industry for similarly situated cable Systems operators in terms of size and
financial and operating qualifications. Buyer agrees that it shall not, without
the prior written consent of Seller (which may be withheld at Seller's sole
discretion), seek amendments or modifications to Franchises or Contracts. Buyer
shall, at Seller's request, promptly furnish Seller with
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copies of such documents and information with respect to Buyer, including
financial information and information relating to the cable and other operations
of Buyer and any of its affiliated or related companies, as Seller may
reasonably request in connection with the obtaining of any of the Consents or as
may be reasonably requested by any person in connection with any Consent.
Notwithstanding anything to the contrary contained in this Section 5.1, Seller's
obligations hereunder with respect to pursuing any Consent shall be fully
satisfied with respect to: (a) the transfer of pole attachment or conduit
contracts, if Buyer has executed a new contract with the respective pole company
or if such pole company has indicated in writing that it is willing to execute a
new contract with Buyer; and (b) the transfer of railroad crossing permits or
contracts, if Buyer has executed a new permit or contract with the respective
railroad company or if such railroad company has indicated in writing that it is
willing to execute a new permit or contract with Buyer.
5.2. Taxes, Fees and Expenses. Buyer shall pay all sales, use, transfer,
purchase taxes and fees, filing fees, recordation fees and application fees, if
any, arising out of the transactions contemplated herein. Each party shall pay
its own expenses incurred in connection with the authorization, preparation,
execution and performance of this Agreement, including all fees and expenses of
counsel, accountants, agents and other representatives.
5.3. Brokers. Each of Buyer and Seller represents and warrants that neither
it nor any person or entity acting on its behalf has incurred any liability for
any finders' or brokers' fees or commissions in connection with the transaction
contemplated by this Agreement, except that Seller has retained Daniels &
Associates, L.P., whose fees shall be paid by Seller. Buyer agrees to defend,
indemnify and hold harmless Seller against any fee, commission, loss or expense
arising out of any claim by any broker or finder employed or alleged to have
been employed by Buyer.
5.4. Risk of Loss. The risk of loss, damage or destruction to the Systems
from fire, theft or other casualty or cause shall be borne by Seller at all
times up to completion of the Closing. It is expressly understood and agreed
that in the event of any material loss or damage to any material portion of the
Assets from fire, casualty or other cause prior to the Closing, Seller shall
promptly notify Buyer of same in writing. Such notice shall report the loss or
damage incurred, the cause thereof, if known, and any insurance coverage related
thereto.
5.5. Bonds, Letters of Credit, Etc. Buyer shall take all reasonably
necessary steps, and execute and deliver all reasonably necessary documents, to
insure that on the Closing Date Buyer has delivered such bonds, letters of
credit, indemnity agreements and similar instruments in such amounts and in
favor of such Franchising Authorities and other third parties requiring the same
in connection with the Franchises and the Contracts.
5.6. Accounts Receivable. Buyer shall have the sole right and obligation to
collect, on behalf of Seller, outstanding Accounts Receivable after Closing.
Buyer shall remit to Seller in cash all amounts collected by Buyer in
satisfaction of Accounts Receivable on and up to 90 days after the Closing Date.
All Accounts Receivable that remain outstanding 90 days after the Closing Date
shall be automatically assigned from Seller to Buyer without further action, and
all amounts collected by Buyer in satisfaction of Accounts Receivable more than
90 days after the Closing Date shall be retained by Buyer. Buyer shall use
reasonable efforts to collect the Accounts Receivable on behalf of Seller. Buyer
shall be entitled to compromise, discount or otherwise make concessions to
account debtors as Buyer may reasonably determine in order to collect the
Accounts Receivable. Seller shall reimburse Buyer for any costs Buyer incurs to
collect Accounts Receivable, which costs shall be offset against the remittances
to be made by Buyer to Seller.
6. Conditions Precedent to Obligations of Buyer and Seller to Close
6.1. Conditions Precedent to Obligations of Buyer to Close. The obligations
of Buyer to consummate the transactions contemplated by this Agreement to occur
at the Closing shall be subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of
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which may be waived in writing, in whole or in part, by Buyer for purposes of
consummating such transactions:
6.1.1. Representations and Warranties. All representations and
warranties of Seller contained in this Agreement shall be true and complete
in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time except to
the extent changes are permitted or contemplated pursuant to this
Agreement.
6.1.2. Covenants and Conditions. Seller shall have in all material
respects performed and complied with all material covenants, agreements and
conditions required by this Agreement to be performed or complied with by
it prior to or on the Closing Date.
6.1.3. No Injunction, Etc. No action, suit or other proceeding shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated
hereby which if successful would have a Material Adverse Effect.
6.1.4. Consents. Each of the following Consents shall have been duly
obtained and delivered to Buyer: (a) the Consents of the Franchising
Authorities; and (b) the Consents of the FCC, except for any FCC consent to
any business radio license or any microwave transmit or receive license
that Seller reasonably expects can be obtained within 120 days after the
Closing and so long as a temporary authorization is available to Buyer
under FCC rules with respect thereto.
6.1.5. Deliveries. Seller shall have made or stand willing and able to
make all the deliveries to Buyer set forth in Section 7.2.
6.1.6. Material Adverse Change. Between the date of this Agreement and
the Closing Date, there shall have been no material adverse change in the
financial condition of the Systems, taken as a whole, other than matters
affecting the cable television industry generally (including, without
limitation, legislative, regulatory or litigation matters) and matters
relating to or arising from local or national economic conditions
(including financial and capital markets).
6.1.7 Closing of Sale of Other Systems of Seller. The sale of the
other cable television Systems owned and operated by Seller shall have been
consummated prior to or simultaneously with Closing, as described in
Seller's proxy statement filed with the Securities and Exchange Commission.
6.2. Conditions Precedent to Obligations of Seller to Close. The
obligations of Seller to consummate the transactions contemplated by this
Agreement to occur at the Closing shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions, all
or any of which may be waived in writing, in whole or in part, by Seller for
purposes of consummating such transactions:
6.2.1. Representations and Warranties. All representations and
warranties of Buyer contained in this Agreement shall be true and complete
in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time except to
the extent changes are permitted or contemplated pursuant to this
Agreement.
6.2.2. Covenants and Conditions. Buyer shall have in all material
respects performed and complied with all material covenants, agreements and
conditions required by this Agreement to be performed or complied with by
it prior to or on the Closing Date.
6.2.3. No Injunction, Etc. No action, suit or other proceeding shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated
hereby.
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6.2.4. Limited Partner Approvals. A majority in interest of the
limited partners of Seller shall have consented to the transactions
contemplated by this Agreement in accordance with the terms of Seller's
partnership agreement and applicable securities laws.
6.2.5. Deliveries. Buyer shall have made or stand willing and able to
make all the deliveries set forth in Section 7.3.
7. Closing and Closing Deliveries
7.1. Closing. If practicable, the Closing will be held on the last business
day of the calendar month during which the conditions set forth in Sections
6.1.5 and 6.2.5 hereof shall have been satisfied; provided, however, that if the
Closing is not held on the last business day of the calendar month during which
such conditions shall have been satisfied, the Closing shall be held on the last
business day of the next succeeding calendar month, or on such other date as
Buyer and Seller may mutually agree ("Closing Date"). The Closing shall be held
at 10:00 a.m. local time at the Seller's offices at 1201 Third Ave., Suite 3600,
Seattle, WA 98101, or will be conducted by mail or at such other place and time
as the parties may agree. Notwithstanding the foregoing, the parties agree that
the Closing shall be deemed effective as of 12:01 a.m. on the Closing Date, and
all references herein that relate to the date and time of the Closing, including
provisions dealing with adjustments to the Purchase Price, shall refer to such
effective date and time.
7.2. Deliveries by Seller. Prior to or on the Closing Date, Seller shall
deliver to Buyer the following, in form and substance reasonably satisfactory to
Buyer and its counsel:
7.2.1. Transfer Documents. A duly executed bill of sale, limited or
special (but not general) warranty deeds (subject to all matters of
record), motor vehicle titles, assignments and other transfer documents
which shall be sufficient to vest good title to the Assets in the name of
Buyer or its permitted assignees, free and clear of any claims,
liabilities, mortgages, liens, pledges, conditions, charges or encumbrances
of any nature whatsoever except for Permitted Encumbrances; and
7.2.2. Consents. The original of each Consent required by Section
6.1.4;
7.3. Deliveries by Buyer. Prior to or on the Closing Date, Buyer shall
deliver to Seller the following, in form and substance reasonably satisfactory
to Seller and its counsel:
7.3.1. Purchase Price. The Purchase Price, subject to any adjustments
and reductions in accordance with Section 2.3 and Section 2.4; and
7.3.2. Assumption Agreements. A duly executed assignment and
assumption agreement pursuant to which Buyer shall assume and undertake to
perform the Assumed Liabilities.
8. Termination
8.1. Method of Termination. This Agreement constitutes the binding and
irrevocable agreement of the parties to consummate the transactions contemplated
hereby, subject to and in accordance with the terms hereof, the consideration
for which is (a) the covenants, representations, warranties and agreements set
forth in this Agreement; and (b) the expenditures and obligations incurred and
to be incurred by Buyer on the one hand, and by Seller, on the other hand, in
respect of this Agreement, and this Agreement may be terminated or abandoned
only as follows:
8.1.1. By the mutual consent of Seller and Buyer, or by either Seller
or Buyer in the event of the notification by the Federal Trade Commission
or the Department of Justice of the intent of either agency to seek to
enjoin the transactions contemplated by this Agreement or if any condition
to the Closing set forth in Section 6.1.3 or 6.2.3 is not fulfilled and the
failure of such condition is not a result of a breach of warranty or
nonfulfillment of any covenant or agreement by Buyer or Seller contained in
this Agreement;
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8.1.2. By Buyer, if any of the conditions set forth in Section 6.1
hereof to which the obligations of Buyer are subject (other than the
conditions set forth in Section 6.1.3) have not been fulfilled or waived,
and provided that the failure to fulfill such condition is not a result of
a breach of warranty or nonfulfillment of any covenant or agreement by
Buyer contained in this Agreement; or
8.1.3. By Seller, if any of the conditions set forth in Section 6.2
hereof to which the obligations of Seller are subject (other than the
conditions set forth in Section 6.2.3) have not been fulfilled or waived,
and provided that the failure to fulfill such condition is not a result of
a breach of warranty or nonfulfillment of any covenant or agreement by
Seller contained in this Agreement.
8.2. Rights Upon Termination.
8.2.1. In the event of a termination of this Agreement pursuant to Section
8.1.1 hereof, each party shall pay the costs and expenses incurred by it in
connection with this Agreement, and no party (or any of its officers, directors,
partners, employees, agents, representatives or stockholders) shall be liable to
any other party for any cost, expense, damage or loss of anticipated profits
hereunder.
8.2.2. In the event of a termination of this Agreement pursuant to Section
8.1.2 hereof, if Seller is in material breach of this Agreement, Buyer shall
have the right to seek all remedies available to it as provided hereunder or at
law or equity, including the remedy of specific performance. In the event of any
action to enforce this Agreement, Seller hereby waives the defense that there is
an adequate remedy at law.
8.2.3. In the event of a termination of this Agreement pursuant to Section
8.1.3 hereof, if Buyer is in material breach of this Agreement by Buyer, Seller
shall have the right to seek all remedies available to it as provided hereunder
or at law or equity, including the remedy of specific performance. In the event
of any action to enforce this Agreement, Buyer hereby waives the defense that
there is an adequate remedy at law.
9. Survival of Representations and Warranties and Indemnification
9.1. Representations and Warranties. All representations, warranties,
covenants and agreements contained in this Agreement or in documents or
instruments delivered pursuant hereto shall be deemed continuing
representations, warranties, covenants and agreements, and shall survive the
Closing Date for a period ending on the one-year anniversary of the Closing
Date.
9.2. Indemnification by Buyer. Buyer shall defend, indemnify and hold
Seller harmless against and with respect to, and shall reimburse Seller for:
9.2.1. Any and all losses, liabilities or damages resulting from any
untrue representation, breach of warranty or nonfulfillment of any covenant
by Buyer contained herein;
9.2.2. Any and all of the Assumed Liabilities;
9.2.3. Any and all losses, liabilities or damages resulting from
Buyer's operation or ownership of the Systems or Assets on and after the
Closing Date; and
9.2.4. Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
reasonable legal fees and expenses, incident to any of the foregoing or
incurred in investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
9.3. Procedure for Indemnification. The procedure for indemnification shall
be as follows:
9.3.1. The party claiming indemnification ("Claimant") shall promptly
give notice to the party from whom indemnification is claimed
("Indemnifying Party") of any claim, whether between the parties or brought
by a third party, specifying (a) the factual basis for such claim and (b)
the estimated amount of the claim. If the claim relates to an action, suit
or proceeding filed by a third party against Claimant, such notice shall be
given by Claimant within ten business days after written
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notice of such action, suit or proceeding was given to Claimant; provided
that failure to give such notice within such ten-day period shall not bar
or otherwise prejudice Claimant's rights to indemnification with respect to
such third-party action, suit or proceeding unless any defense, claim,
counterclaim or cross-claim of the Indemnifying Party is prejudiced
thereby.
9.3.2. Following receipt of notice from the Claimant of a claim, the
Indemnifying Party shall have 30 days to make such investigation of the
claim as the Indemnifying Party deems necessary or desirable. For the
purposes of such investigation, the Claimant agrees to make available to
the Indemnifying Party and/or its authorized representative(s) the
information relied upon by the Claimant to substantiate the claim. If the
Claimant and the Indemnifying Party agree at or prior to the expiration of
said 30-day period (or any mutually agreed upon extension thereof) to the
validity and amount of such claim, the Indemnifying Party shall immediately
pay to the Claimant the full amount of the claim subject to the terms and
in accordance with the procedures set forth herein. If the Claimant and the
Indemnifying Party do not agree within said period (or any mutually agreed
upon extension thereof), the Claimant may seek appropriate legal remedy.
9.3.3. With respect to any claim by a third party as to which the
Claimant is entitled to indemnification hereunder, the Indemnifying Party
shall have the right at its own expense, to participate in or assume
control of the defense of such claim, and the Claimant shall cooperate
fully with the Indemnifying Party. If the Indemnifying Party elects to
assume control of the defense of any third-party claim, the Claimant shall
have the right to participate in the defense of such claim at its own
expense. If the Indemnifying Party does not elect to assume control or
otherwise participate in the defense of any third party claim, it shall be
bound by the results obtained by the Claimant with respect to such claim,
and the Indemnifying Party shall be responsible and shall promptly
reimburse Claimant for all associated costs, fees and expenses.
9.3.4. If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
9.4. Exclusive Remedy. After the Closing Date, the sole and exclusive
remedy of any party for any misrepresentation or any breach of a warranty or
covenant set forth in or made pursuant to this Agreement shall be a claim for
indemnification under and pursuant to this Article 9.
10. Miscellaneous
10.1. Benefit and Binding Effect. Seller may not assign this Agreement
without the prior written consent of the Buyer. Buyer may assign its rights and
obligations under this Agreement to any of its affiliates or assigns upon notice
to Seller. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
10.2. Bulk Transfer. Buyer acknowledges that Seller has not and will not
file any transfer notice or otherwise complied with applicable bulk transfer
laws, and the parties agree to waive compliance with same.
10.3. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Washington, without regard
to the conflicts of law principles of such state. The parties agree that this
Section 10.3 serves as a material inducement for Seller to enter into this
Agreement.
10.4. Gender and Number. Words used herein, regardless of the gender and
number specifically used, shall be deemed and construed to include any other
gender, masculine, feminine or neuter, and any other number, singular or plural,
as the context requires.
10.5. Entire Agreement. This Agreement, and all documents and certificates
to be delivered by the parties pursuant hereto collectively represent the entire
understanding and agreement between Buyer and Seller with respect to the subject
matter hereof. This Agreement supersedes all prior negotiations between Buyer
and Seller with respect to the transactions contemplated hereby, and all letters
of intent and other writings relating to such negotiations, and cannot be
amended, supplemented or modified except by an
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agreement in writing which makes specific reference to this Agreement or an
agreement delivered pursuant hereto, as the case may be, and which is signed by
the party against which enforcement of any such amendment, supplement or
modification is sought.
10.6. Further Assurances. Each party covenants that at any time, and from
time to time, after the Closing Date, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
10.7. Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement or condition herein may be waived
by the party entitled to the benefits thereof, but such waiver or failure to
insist upon strict compliance with such obligation, representation, warranty,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
10.8. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law; provided, however, that the
economic and legal substance of the transactions contemplated by this Agreement
is not affected in any manner that is materially adverse to any party affected
by such invalidity or unenforceability.
10.9. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signature on each such counterpart
were upon the same instrument, and a facsimile transmission shall be deemed to
be an original signature.
10.10. No Third-Party Beneficiaries. This Agreement constitutes an
agreement solely among the parties hereto, and, except as otherwise provided
herein, is not intended to and will not confer any rights, remedies, obligations
or liabilities, legal or equitable on any person other than the parties hereto
and their respective successors or assigns, or otherwise constitute any person a
third party beneficiary under or by reason of this Agreement.
10.11. Tax Consequences. No party to this Agreement makes any
representation or warranty, express or implied, with respect to the tax
implications of any aspect of this Agreement on any other party to this
Agreement, and all parties expressly disclaim any such representation or
warranty with respect to any tax consequences arising under this Agreement. Each
party has relied solely on its own tax advisors with respect to the tax
implications of this Agreement.
10.12. Construction. This Agreement has been negotiated by Buyer and Seller
and their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or any provision of this Agreement
against the party drafting this Agreement shall not apply in any construction or
interpretation of this Agreement.
10.13. Time of the Essence. Time is of the essence under this Agreement. If
the last day permitted for the giving of any notice or the performance of any
act required or permitted under this Agreement falls on a day that is not a
business day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding business day.
10.14. Cure. For all purposes under this Agreement, the existence or
occurrence of any event or circumstance that constitutes a breach of a
representation or warranty or the nonfulfillment of any pre-Closing covenant or
agreement of Buyer or Seller contained in this Agreement on the date such
representation or warranty is made or the fulfillment of such pre-Closing
covenant or agreement is due, shall not constitute a breach of such
representation or warranty or the nonfulfillment of such pre-Closing covenant or
agreement if such event or circumstance is cured on or prior to the Closing
Date.
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10.15. Covenant Not To Sue and Nonrecourse to Partners.
10.15.1. Buyer agrees that notwithstanding any other provision in this
Agreement, any agreement, instrument, certificate or document entered into
pursuant to or in connection with this Agreement or the transactions
contemplated herein or therein (each a "Transaction Document") and any rule of
law or equity to the contrary, to the fullest extent permitted by law, Seller's
obligations and liabilities under all Transaction Documents and in connection
with the transactions contemplated therein shall be nonrecourse to all general
and limited partners of Seller. As used herein, the term "nonrecourse" means
that the obligations and liabilities are limited in recourse solely to the
assets of Seller (for those purposes, any capital contribution obligations of
the general and limited partners of Seller or any negative capital account
balances of such partners shall not be deemed to be assets of Seller) and are
not guaranteed directly or indirectly by, or the primary obligations of, any
general or limited partner of Seller, and neither Seller nor any general or
limited partner or any incorporator, stockholder, officer, director, partner,
employee or agent of Seller or of any general or limited partner of any
successor partnership, either directly or indirectly, shall be personally liable
in any respect for any obligation or liability of Seller under any Transaction
Document or any transaction contemplated therein.
10.15.2. Buyer hereby covenants for itself, its successors and assigns that
it, its successors and assigns will not make, bring, claim, commence, prosecute,
maintain, cause or permit any action to be brought, commenced, prosecuted,
maintained, either at law or equity, in any court of the United States or any
state thereof against any general or limited partner of Seller or any
incorporator, stockholder, officer, director, partner, employee or agent of
Seller or of any general or limited partner of Seller for (i) the payment of any
amount or the performance of any obligation under any Transaction Document or
(ii) the satisfaction of any liability arising in connection with any such
payment or obligation or otherwise, including without limitation, liability
arising in law for tort (including, without limitation, for active and passive
negligence, negligent misrepresentation and fraud), equity (including, without
limitation, for indemnification and contribution) and contract (including,
without limitation, monetary damages for the breach of representation or
warranty or performance of any of the covenants or obligations contained in any
Transaction Document or with the transactions contemplated herein or therein).
10.16. Headings. The headings herein are included for ease of reference
only and shall not control or affect the meaning or construction of the
provisions of this Agreement.
[Remainder of Page Intentionally Blank; Signature Page Follows]
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EXECUTED as of the date first above written.
Buyer: NORTHLAND CABLE PROPERTIES, INC.
By: /s/ RICHARD I. CLARK
------------------------------------
Richard I. Clark
Executive Vice President
Seller: NORTHLAND CABLE PROPERTIES SIX
LIMITED PARTNERSHIP
By: Northland Communications
Corporation,
Managing General Partner
By: /s/ RICHARD I. CLARK
------------------------------------
Richard I. Clark
Executive Vice President
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EXHIBIT H
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ASSET PURCHASE AGREEMENT
BETWEEN
NORTHLAND CABLE PROPERTIES SIX
LIMITED PARTNERSHIP
AND
NORTHLAND CABLE TELEVISION, INC.
DATED
JUNE 14, 2001
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- --------------------------------------------------------------------------------
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated June 14, 2001, by and between and
Northland Cable Properties Six Limited Partnership, a Washington limited
partnership ("Seller"), and Northland Cable Television, Inc., a Washington
corporation, or its affiliates or assigns ("Buyer").
RECITALS:
A. Seller owns and operates a cable television system in the following
community: Highlands, North Carolina (the "System");
B. Seller desires to sell, and Buyer wishes to buy, substantially all of
Seller's assets used in the operations of the System and the cable television
business related thereto for the price and on the terms and conditions set forth
in this Agreement.
AGREEMENTS:
In consideration of the above recitals and the covenants and agreements
contained herein, Buyer and Seller agree as follows:
1. Defined Terms
The following terms shall have the following meanings in this Agreement and
additional terms shall have the meanings as defined elsewhere in this Agreement:
1.1. "Accounts Receivable" means the rights of Seller to payment for
services provided for and billed by Seller (including, without limitation, those
billed to subscribers of the System and those for services and advertising time
provided by Seller) and unpaid prior to the Closing Date as reflected on the
billing records of Seller relating to the System.
1.2. "Agreement" means this Asset Purchase Agreement.
1.3. "Assets" means all the tangible and intangible assets owned by Seller
and used solely in connection with the conduct of the business or operations of
the System, including, without limitation, those specified in detail in Section
2.1 but excluding those specified in Section 2.2. Assets consist of the
Purchased Assets and the Distributed Assets.
1.4. "Closing" means the consummation of the transactions contemplated by
this Agreement in accordance with the provisions of Section 7.
1.5. "Closing Date" means the date of the Closing specified in Section 7.
1.6. "Compensation Arrangement" means any written plan or compensation
arrangement other than an Employee Plan or a Multi-employer Plan that provides
to employees of Seller employed at the System any compensation or other
benefits, whether deferred or not, in excess of base salary or wages and
excluding overtime pay, including, but not limited to, any bonus or incentive
plan, deferred compensation arrangement, stock purchase plan, severance pay plan
and any other perquisites and employee fringe benefit plan.
1.7. "Consents" means the consents, permits or approvals of governmental
authorities and other third parties.
1.8. "Contracts" means all pole attachment and conduit agreements, railway
crossing agreements, leases, easements, rights of way and similar interests in
Real Property, retransmission consent agreements, subscription agreements with
customers for the cable services provided by the System, miscellaneous service
agreements, agreements involving material non-monetary obligations, agreements
entered into by Seller in the ordinary course of business of the System between
the date hereof and the Closing Date, and other agreements, written or oral
(including any amendments and other modifications thereto), to which Seller is a
party and that relate to the Assets or the business or operations of the System.
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1.9 "Distributed Assets" means the undivided portion of the Assets
attributable to the interest of Northland Communications Corporation, the
managing general partner of Seller ("NCC"), pursuant to and in accordance with
the limited partnership agreement of Seller, as amended, and which when combined
with the Purchased Assets constitute all the Assets.
1.10. "Employee Plan" means any written pension, retirement,
profit-sharing, deferred compensation, vacation, severance, bonus, incentive,
medical, vision, dental, disability, life insurance or any other employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, (other than a
Multi-employer Plan) to which Seller contributes or which Seller sponsors or
maintains or by which Seller otherwise is bound, that provides benefits to
employees of Seller employed at the System.
1.11. "FCC" means the Federal Communications Commission, or its successor
agency.
1.12. "Franchises" means all municipal and county franchises, and franchise
applications (if any), granted to Seller by any Franchising Authorities,
including all amendments thereto and modifications thereof.
1.13. "Franchising Authorities" means all governmental authorities, which
have issued cable franchises relating to the operations of the System or before
which are pending any franchise applications filed by Seller relating to the
operations of the System.
1.14. "Material Adverse Effect" means a material adverse effect on the
operations, assets or financial condition of the System, taken as a whole, other
than (a) matters affecting the cable television industry generally (including,
without limitation, legislative, regulatory or litigation matters), (b) matters
relating to or arising from local or national economic conditions (including,
without limitation, financial and capital markets) and (c) any changes resulting
from or relating to the taking of any action contemplated by this Agreement.
1.15. "Multi-employer Plan" means a plan, as defined in ERISA Section 3(37)
or Section 4001(a)(3), to which Seller or any trade or business which would be
considered a single employer with Seller under Section 4001(b)(1) of ERISA
contributed, contributes or is required to contribute that provides benefits to
employees of Seller employed at the System.
1.16. "Permitted Encumbrances" means any of the following liens or
encumbrances: (a) landlord's liens and liens for current taxes, assessments and
governmental charges not yet due or being contested in good faith by appropriate
proceedings; (b) statutory liens or other encumbrances that are minor or
technical defects in title that do not in the aggregate materially affect the
value, marketability or utility of the Assets as presently utilized; (c) such
liens, liabilities or encumbrances as are Assumed Liabilities; (d) leased
interests in property leased to others; (e) restrictions set forth in, or rights
granted to Franchising Authorities as set forth in, the Franchises or applicable
laws relating thereto; (f) zoning, building or similar restrictions, easements,
rights-of-way, reservations of rights, conditions or other restrictions or
encumbrances relating to or affecting the Real Property, that do not materially
interfere with the use of such Real Property in the operations of the System as
presently conducted; (g) as to Real Property, all matters of record as of the
date hereof other than mortgages; and (h) any other liens or encumbrances that
relate to liabilities and obligations that are to be discharged in full at
Closing or that will be removed prior to or at Closing.
1.17. "Personal Property" means all of the machinery, equipment, tools,
vehicles, furniture, leasehold improvements, office equipment, plant, inventory,
spare parts, supplies and other tangible and intangible personal property,
including, without limitation, the Franchises, the Contracts and the Accounts
Receivable, that are owned or leased by Seller and used, useful or held for use
as of the date hereof solely in the conduct of the business or operations of the
System, plus such additions thereto and deletions therefrom arising in the
ordinary course of business and as permitted by this Agreement between the date
hereof and the Closing Date.
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1.18. "Purchased Assets" means the undivided portion of the Assets
attributable to the collective interest of the limited partners and the
administrative general partner of Seller pursuant to and in accordance with the
limited partnership agreement of Seller, as amended, and which when combined
with the Distributed Assets constitute all the Assets.
1.19. "Real Property" means all of the real property interests of Seller,
including, without limitation, fee interests in real estate (together with the
buildings and other improvements located thereon), leasehold interests in real
estate, easements, licenses, rights to access, rights-of-way and other real
property interests that are (a) leased by Seller and used as of the date hereof
solely in the business or operations of the System, or (b) owned by Seller and
used as of the date hereof solely in the business or operations of the System,
plus such additions thereto and deletions therefrom arising in the ordinary
course of business and as permitted by this Agreement between the date hereof
and the Closing Date.
2. Sale and Purchase of Assets
2.1. Agreement to Sell and Purchase. Subject to the terms and conditions
set forth in this Agreement, on the Closing Date Seller hereby agrees to (i)
sell, transfer and deliver to Buyer, and Buyer agrees to purchase from Seller,
all of the Purchased Assets, and (ii) make an in-kind distribution to NCC of all
of the Distributed Assets pursuant to and in accordance with the limited
partnership agreement of Seller, as amended. On the Closing Date, NCC intends to
simultaneously contribute the Distributed Assets to Buyer. The Assets shall be,
on the Closing Date, free and clear of any claims, liabilities, mortgages,
liens, pledges, conditions, charges or encumbrances of any nature whatsoever
except for Permitted Encumbrances, which Assets include the following:
2.1.1. the Personal Property;
2.1.2. the Real Property;
2.1.3. the Franchises;
2.1.4. the Contracts;
2.1.5. all of Seller's proprietary information, technical information
and data, machinery and equipment warranties, maps, computer discs and
tapes, plans, diagrams, blueprints and schematics, including filings with
the Franchising Authorities and the FCC relating solely to the System
(other than the materials described in Section 2.2 hereof);
2.1.6. all payments and sums deposited or advanced by Seller to a
landlord, utility, governmental agency or any other party as a security
deposit or in exchange for initiation of a service;
2.1.7. subject to Section 2.2, all books and records relating to the
business or operations of the System, customer records and all records
required by the Franchising Authorities to be kept, subject to the right of
Seller to have such books and records made available to Seller for a period
of three years from the Closing Date; and
2.1.8. the going concern value and any of Seller's other intangible
assets, if any, with respect to the System.
2.2. Excluded Assets. The Assets shall exclude the following assets
("Excluded Assets"):
2.2.1. Seller's cash on hand as of the Closing Date and all other cash
in any of Seller's bank or savings accounts, including, without limitation,
customer advance payments and deposits; any and all bonds, surety
instruments, insurance policies and all rights and claims thereunder,
letters of credit or other similar items and any cash surrender value in
regard thereto, and any stocks, bonds, certificates of deposit and similar
investments;
2.2.2. Any books and records that Seller is required by law to retain
and any correspondence, memoranda, books of account, tax reports and
returns and the like related to the System other than those described in
Section 2.1.7, subject to the right of Buyer to have access to and to copy
for a
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reasonable period, not to exceed three years from the Closing Date, and
Seller's partnership books and records and other books and records related
to internal partnership matters and financial relationships with Seller's
lenders and affiliates;
2.2.3. Any claims, rights and interest in and to any refunds of
federal, state or local franchise, income or other taxes or fees of any
nature whatsoever for periods prior to the Closing Date including, without
limitation, fees paid to the U.S. Copyright Office or any causes of action
relating to such refunds;
2.2.4. Except as specifically set forth herein, any Employee Plan,
Compensation Arrangement or Multi-employer Plan;
2.2.5. All rights to receive fees or services from any affiliate of
Seller;
2.2.6. Any contracts, agreements or other arrangements between Seller
and any affiliate of Seller;
2.2.7 All choses in action of Seller whether or not relating to the
System; and
2.2.8. The Accounts Receivable.
2.3. Purchase Price.
2.3.1 The purchase price for the Purchased Assets ("Purchase Price") shall
be (i) $4,600,000.00, (ii) as adjusted pursuant to Section 2.4 below, and (iii)
reduced by an amount equal to the portion of the Assets represented by the
Distributed Assets.
2.3.2 The Purchase Price shall be paid by Buyer to Seller at the Closing as
follows:
(a) By a promissory note in the principal amount of $500,000.00, to be
paid in three equal annual installments from the Closing Date and bearing
interest at an annual interest rate of 8.0%; and
(b) Subject to the principal amount of the promissory note described
in Section 2.3.2(a), adjustments and prorations set forth in Section 2.4
below, and the reductions set forth in Section 2.3.1(iii) above, by wire
transfer of the balance of the Purchase Price in immediately available
funds to Seller.
2.3.3 All Purchase Price proceeds shall be distributable to the partners of
Seller pursuant to and in accordance with the limited partnership agreement of
Seller, as amended. Notwithstanding the foregoing, NCC, the managing general
partner of Seller, shall not be entitled to receive any payments described in
Section 2.3.2, and shall only be entitled to the Distributed Assets.
2.4. Adjustments and Prorations.
2.4.1. All income, expenses and other liabilities arising from the System
up until midnight on the day prior to the Closing Date, including franchise
fees, pole and other rental charges payable with respect to cable television
service, utility charges, real and personal property taxes and assessments
levied against the Assets, salesperson advances, property and equipment rentals,
applicable copyright or other fees, sales and service charges, taxes (except for
taxes arising from the transfer of the Assets hereunder), and similar prepaid
and deferred items, shall be prorated between Buyer and Seller in accordance
with the principle that Seller shall receive the benefit of all income and shall
be responsible for all expenses, costs and liabilities allocable to the conduct
of the business or operations of the System for the period prior to the Closing
Date, and Buyer shall receive the benefit of all income and shall be responsible
for all expenses, costs and obligations allocable to the conduct of the business
or operations of the System on the Closing Date and for the period thereafter.
All such pro rations shall be determined in accordance with generally accepted
accounting principles.
2.4.2. The Purchase Price shall be increased by an amount equal to 100% of
the face amount of all payments and sums deposited or advanced by Seller to a
landlord, utility, governmental agency or any other party as a security deposit
or in exchange for initiation of a service.
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2.4.3. The Purchase Price shall be reduced by an amount equal to (a) any
customer advance payments (i.e., customer payments received by Seller prior to
the Closing but relating to service to be provided by Buyer after the Closing)
and deposits (including any interest owing thereon), and (b) any other advance
payments (i.e., advertising payments received by Seller prior to the Closing but
relating to service to be provided by Buyer after the Closing).
2.4.4. At least ten business days prior to the Closing, Seller will prepare
a report with respect to the System (the "Preliminary Report"), showing in
detail the preliminary determination of the adjustments referred to in this
Section 2.4, calculated in accordance with such Section as of the Closing Date
(or as of any other date(s) agreed to by the parties) together with any
documents substantiating the determination of the adjustments to the Purchase
Price proposed in the Preliminary Report. The adjustment shown in the
Preliminary Report, as adjusted by agreement of the parties, will be reflected
as an adjustment to the Purchase Price payable at the Closing.
2.4.5. Within 90 days after the Closing Date, Buyer shall prepare a report
with respect to the System (the "Final Report"), showing in detail the final
determination of any adjustments which were not calculated as of the Closing
Date and containing any corrections to the Preliminary Report, together with any
documents substantiating the final calculation of the adjustments proposed in
the Final Report. If Seller shall conclude that the Final Report does not
accurately reflect the adjustments and prorations to be made to the Purchase
Price in accordance with this Section 2.4, Seller shall, within 30 days after
its receipt of the Final Report, provide to Buyer its written statement of any
discrepancies believed to exist. Buyer and Seller shall use good faith efforts
to jointly resolve the discrepancies within 15 days of Buyer's receipt of
Seller's written statement of discrepancies, which resolution, if achieved,
shall be binding upon all parties to this Agreement and not subject to dispute
or judicial review. If Buyer and Seller cannot resolve the discrepancies to
their mutual satisfaction within such 15-day period, Buyer and Seller shall,
within the following 10 days, jointly designate a national independent public
accounting firm to be retained to review the Final Report together with Seller's
discrepancy statement and any other relevant documents. Such firm shall report
its conclusions as to adjustments pursuant to this Section 2.4 which shall be
conclusive on all parties to this Agreement and not subject to dispute or
judicial review. If, after adjustment as appropriate with respect to the amount
of the aforesaid adjustments paid or credited at the Closing, Buyer or Seller is
determined to owe an amount to the other, the appropriate party shall pay such
amount thereof to the other, within three days after receipt of such
determination. The cost of retaining such independent public accounting firm
shall be borne by Buyer; provided, however, that if such independent public
accounting firm concludes that the Final Report as proposed by Buyer is accurate
and that the discrepancies noted by Seller are inaccurate, then Seller shall
bear the cost of retaining such independent public accounting firm.
2.5. Assumption of Liabilities and Obligations. As of the Closing Date and
subject to applicable pro rations and adjustments set forth in Section 2.4,
Buyer shall assume and pay, discharge and perform the following (collectively,
the "Assumed Liabilities"): (a) all obligations and liabilities of Seller under
the Franchises and the Contracts; (b) all obligations and liabilities of Seller
to all customers and advertisers of the System for any advance payments or
deposits; and (c) all obligations and liabilities arising out of events
occurring on or after the Closing Date related to Buyer's ownership of the
Assets or its conduct of the business or operations of the System. All other
obligations and liabilities of Seller shall remain and be the obligations and
liabilities solely of Seller.
3. Representations and Warranties of Seller
Seller represents and warrants to Buyer as of the date of this Agreement
and as of the Closing Date, as follows:
3.1. Organization, Standing and Authority. Seller is a limited partnership
duly organized and validly existing under the laws of the State of Washington,
and is qualified to conduct business as a foreign limited partnership in the
State of North Carolina. Seller has the requisite partnership power and
authority
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(a) to own, lease and use the Assets as presently owned, leased and used by it,
and (b) to conduct the business and operations of the System as presently
conducted by it.
3.2. Authorization and Binding Obligation. Seller has the partnership power
and authority to execute and deliver this Agreement and to carry out and perform
all of its other obligations under the terms of this Agreement. Except for the
approval of a majority in interest of the limited partners of Seller, all
partnership action by Seller necessary for the authorization, execution,
delivery and performance by it of this Agreement has been taken. This Agreement
has been duly executed and delivered by Seller and this Agreement constitutes
the valid and legally binding obligation of Seller, enforceable against it in
accordance with its terms, except (a) as rights to indemnity, if any, thereunder
may be limited by federal or state securities laws or the public policies
embodied therein, (b) as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally, and (c) as the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.3. Absence of Conflicting Agreements. Subject to obtaining the Consents
described in Section 3.4, the execution, delivery and performance of this
Agreement by Seller will not: (a) violate the certificate of limited partnership
and limited partnership agreement, as amended, of Seller; (b) violate any law,
judgment, order, ordinance, injunction, decree, rule or regulation of any court
or governmental instrumentality applicable to Seller with respect to the Assets;
or (c) conflict with, constitute grounds for termination of, result in a breach
of, constitute a default under, accelerate or permit the acceleration of any
performance required by the terms of, any Contract or Franchise, excluding from
the foregoing clauses (b) and (c) such violations, conflicts, terminations,
breaches and defaults, which in the aggregate would not have a Material Adverse
Effect, and such conflicts, terminations, breaches and defaults which would
occur as a result of the specific legal or regulatory status of Buyer.
3.4. Consents. Except for (a) the Consents of Franchising Authorities that
are required by the Franchises prior to Closing, (b) the Consents of landlords
of leased headend or office sites required prior to Closing, (c) the Consents of
the FCC, other than any FCC consent to any business radio license or any
microwave transmit or receive license that Seller reasonably expects can be
obtained within 120 days after the Closing and so long as temporary
authorization is available to Buyer under FCC rules with respect thereto, (d)
the Consent of a majority in interest of the limited partners of Seller and (e)
Consents which if not obtained would not have a Material Adverse Effect, no
consent, approval, permit or authorization of, or declaration to or filing with
any governmental or regulatory authority, or any other third party is required
to consummate this Agreement and the transactions contemplated hereby.
4. Representations and Warranties of Buyer
Buyer represents and warrants to Seller as of the date of this Agreement
and as of the Closing Date, as follows:
4.1. Organization, Standing and Authority. Buyer is a corporation, duly
organized and validly existing under the laws of the State of Washington and is
(or will be on the Closing) qualified to conduct business as a foreign
corporation in the State of North Carolina. Buyer has the requisite power and
authority to execute and deliver this Agreement and to perform and comply with
all of the terms, covenants and conditions to be performed and complied with by
Buyer hereunder.
4.2. Authorization and Binding Obligation. Buyer has the corporate power
and authority to execute and deliver this Agreement and to carry out and perform
all of its other obligations under the terms of this Agreement. All corporate
action by Buyer necessary for the authorization, execution, delivery and
performance by Buyer of this Agreement has been taken. This Agreement has been
duly executed and delivered by Buyer and this Agreement constitutes the valid
and legally binding obligation of Buyer, enforceable against it in accordance
with its terms, except (a) as rights to indemnity, if any, thereunder may be
limited by federal or state securities laws or the public policies embodied
therein, (b) as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws from
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time to time in effect affecting the enforcement of creditors' rights generally,
and (c) as the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
4.3. Absence of Conflicting Agreements. Subject to obtaining the Consents
listed in Section 3.4, the execution, delivery and performance of this Agreement
by Buyer will not: (a) require the consent, approval, permit or authorization
of, or declaration to or filing with any governmental or regulatory authority,
or any other third party, except where if not obtained would not have a Material
Adverse Effect; (b) violate the governing documents of Buyer; (c) violate any
material law, judgment, order, ordinance, injunction, decree, rule or regulation
of any court or governmental instrumentality; or (d) conflict with, constitute
grounds for termination of, result in a breach of, constitute a default under,
or accelerate or permit the acceleration of any performance required by the
terms of, any material agreement, instrument, license or permit to which Buyer
is a party or by which Buyer may be bound, such that Buyer could not perform
hereunder and acquire or operate the Assets.
4.4. Buyer Qualification. Buyer knows of no reason why it cannot become the
franchisee pursuant to the Franchises, and to its knowledge has the requisite
qualifications to own and operate the System.
4.5. Availability of Funds. Buyer will have available on the Closing Date
sufficient unrestricted funds to enable it to consummate the transactions
contemplated hereby.
5. Covenants of the Parties
5.1. Consents. Following the execution hereof, Seller shall make such
applications to the Franchising Authorities and other third parties for the
Consents, and shall otherwise use its commercially reasonable efforts to obtain
the Consents as expeditiously as possible. In no event shall Seller be required,
as a condition of obtaining such Consents, to expend any monies on, before or
after the Closing Date (other than expenses typically incurred in connection
with the efforts to obtain such Consents), or to offer or grant any
accommodations or concessions adverse to Seller or to engage in litigation or
other adversarial proceedings. Buyer shall use its commercially reasonable
efforts to promptly assist Seller and shall take such prompt and affirmative
actions as may reasonably be necessary in obtaining such Consents and shall
cooperate with Seller in the preparation, filing and prosecution of such
applications as may reasonably be necessary, including, without limitation,
making management and other personnel of Buyer available to assist in obtaining
such Consents. The parties agree to use commercially reasonable efforts to
obtain consents to the transfer of the Franchises. Seller shall not agree to any
materially adverse change in any Franchise as a condition to obtaining any
authorization, consent, order or approval necessary for the transfer of such
Franchise unless Buyer shall otherwise consent; provided, however, that Buyer,
and not Seller, shall bear the cost and expense of any conditions imposed by
Franchising Authorities on Franchise transfers to which Buyer has consented.
Buyer acknowledges that Franchising Authorities and third parties to Contracts
may impose bond, letter of credit, indemnity and insurance requirements and may
modify or impose penalty provisions and other similar provisions to the
appropriate Franchise or Contract as a condition to giving their consent to
assignment or transfer thereof. Notwithstanding anything to the contrary
contained in this Section 5.1, Buyer shall be obligated to accept any such
conditions as long as the requirements are reasonable and customary in the
industry for similarly situated cable system operators in terms of size and
financial and operating qualifications. Buyer agrees that it shall not, without
the prior written consent of Seller (which may be withheld at Seller's sole
discretion), seek amendments or modifications to Franchises or Contracts. Buyer
shall, at Seller's request, promptly furnish Seller with copies of such
documents and information with respect to Buyer, including financial information
and information relating to the cable and other operations of Buyer and any of
its affiliated or related companies, as Seller may reasonably request in
connection with the obtaining of any of the Consents or as may be reasonably
requested by any person in connection with any Consent. Notwithstanding anything
to the contrary contained in this Section 5.1, Seller's obligations hereunder
with respect to pursuing any Consent shall be fully satisfied with respect to:
(a) the transfer of pole attachment or conduit contracts, if Buyer has executed
a new contract with the respective pole company or if such pole company has
indicated in writing that it is willing to execute a new contract with Buyer;
and (b) the transfer of railroad
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crossing permits or contracts, if Buyer has executed a new permit or contract
with the respective railroad company or if such railroad company has indicated
in writing that it is willing to execute a new permit or contract with Buyer.
5.2. Taxes, Fees and Expenses. Buyer shall pay all sales, use, transfer,
purchase taxes and fees, filing fees, recordation fees and application fees, if
any, arising out of the transactions contemplated herein. Each party shall pay
its own expenses incurred in connection with the authorization, preparation,
execution and performance of this Agreement, including all fees and expenses of
counsel, accountants, agents and other representatives.
5.3. Brokers. Each of Buyer and Seller represents and warrants that neither
it nor any person or entity acting on its behalf has incurred any liability for
any finders' or brokers' fees or commissions in connection with the transaction
contemplated by this Agreement, except that Seller has retained Daniels &
Associates, L.P., whose fees shall be paid by Seller. Buyer agrees to defend,
indemnify and hold harmless Seller against any fee, commission, loss or expense
arising out of any claim by any broker or finder employed or alleged to have
been employed by Buyer.
5.4. Risk of Loss. The risk of loss, damage or destruction to the System
from fire, theft or other casualty or cause shall be borne by Seller at all
times up to completion of the Closing. It is expressly understood and agreed
that in the event of any material loss or damage to any material portion of the
Assets from fire, casualty or other cause prior to the Closing, Seller shall
promptly notify Buyer of same in writing. Such notice shall report the loss or
damage incurred, the cause thereof, if known, and any insurance coverage related
thereto.
5.5. Bonds, Letters of Credit, Etc. Buyer shall take all reasonably
necessary steps, and execute and deliver all reasonably necessary documents, to
insure that on the Closing Date Buyer has delivered such bonds, letters of
credit, indemnity agreements and similar instruments in such amounts and in
favor of such Franchising Authorities and other third parties requiring the same
in connection with the Franchises and the Contracts.
5.6. Accounts Receivable. Buyer shall have the sole right and obligation to
collect, on behalf of Seller, outstanding Accounts Receivable after Closing.
Buyer shall remit to Seller in cash all amounts collected by Buyer in
satisfaction of Accounts Receivable on and up to 90 days after the Closing Date.
All Accounts Receivable that remain outstanding 90 days after the Closing Date
shall be automatically assigned from Seller to Buyer without further action, and
all amounts collected by Buyer in satisfaction of Accounts Receivable more than
90 days after the Closing Date shall be retained by Buyer. Buyer shall use
reasonable efforts to collect the Accounts Receivable on behalf of Seller. Buyer
shall be entitled to compromise, discount or otherwise make concessions to
account debtors as Buyer may reasonably determine in order to collect the
Accounts Receivable. Seller shall reimburse Buyer for any costs Buyer incurs to
collect Accounts Receivable, which costs shall be offset against the remittances
to be made by Buyer to Seller.
6. Conditions Precedent to Obligations of Buyer and Seller to Close
6.1. Conditions Precedent to Obligations of Buyer to Close. The obligations
of Buyer to consummate the transactions contemplated by this Agreement to occur
at the Closing shall be subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of which may
be waived in writing, in whole or in part, by Buyer for purposes of consummating
such transactions:
6.1.1. Representations and Warranties. All representations and
warranties of Seller contained in this Agreement shall be true and complete
in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time except to
the extent changes are permitted or contemplated pursuant to this
Agreement.
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6.1.2. Covenants and Conditions. Seller shall have in all material
respects performed and complied with all material covenants, agreements and
conditions required by this Agreement to be performed or complied with by
it prior to or on the Closing Date.
6.1.3. No Injunction, Etc. No action, suit or other proceeding shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated
hereby which if successful would have a Material Adverse Effect.
6.1.4. Consents. Each of the following Consents shall have been duly
obtained and delivered to Buyer: (a) the Consents of the Franchising
Authorities; and (b) the Consents of the FCC, except for any FCC consent to
any business radio license or any microwave transmit or receive license
that Seller reasonably expects can be obtained within 120 days after the
Closing and so long as a temporary authorization is available to Buyer
under FCC rules with respect thereto.
6.1.5. Deliveries. Seller shall have made or stand willing and able to
make all the deliveries to Buyer set forth in Section 7.2.
6.1.6. Material Adverse Change. Between the date of this Agreement and
the Closing Date, there shall have been no material adverse change in the
financial condition of the System, taken as a whole, other than matters
affecting the cable television industry generally (including, without
limitation, legislative, regulatory or litigation matters) and matters
relating to or arising from local or national economic conditions
(including financial and capital markets).
6.1.7. Closing of Sale of Other System of Seller. The sale of the
other cable television System owned and operated by Seller shall have been
consummated prior to or simultaneously with Closing, as described in
Seller's proxy statement filed with the Securities and Exchange Commission.
6.2. Conditions Precedent to Obligations of Seller to Close. The
obligations of Seller to consummate the transactions contemplated by this
Agreement to occur at the Closing shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions, all
or any of which may be waived in writing, in whole or in part, by Seller for
purposes of consummating such transactions:
6.2.1. Representations and Warranties. All representations and
warranties of Buyer contained in this Agreement shall be true and complete
in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time except to
the extent changes are permitted or contemplated pursuant to this
Agreement.
6.2.2. Covenants and Conditions. Buyer shall have in all material
respects performed and complied with all material covenants, agreements and
conditions required by this Agreement to be performed or complied with by
it prior to or on the Closing Date.
6.2.3. No Injunction, Etc. No action, suit or other proceeding shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to, or arising out
of, this Agreement or the consummation of the transactions contemplated
hereby.
6.2.4. Limited Partner Approvals. A majority in interest of the
limited partners of Seller shall have consented to the transactions
contemplated by this Agreement in accordance with the terms of Seller's
partnership agreement and applicable securities laws.
6.2.5. Deliveries. Buyer shall have made or stand willing and able to
make all the deliveries set forth in Section 7.3.
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7. Closing and Closing Deliveries
7.1. Closing. If practicable, the Closing will be held on the last business
day of the calendar month during which the conditions set forth in Sections
6.1.5 and 6.2.5 hereof shall have been satisfied; provided, however, that if the
Closing is not held on the last business day of the calendar month during which
such conditions shall have been satisfied, the Closing shall be held on the last
business day of the next succeeding calendar month, or on such other date as
Buyer and Seller may mutually agree ("Closing Date"). The Closing shall be held
at 10:00 a.m. local time at the Seller's offices at 1201 Third Ave., Suite 3600,
Seattle, WA 98101, or will be conducted by mail or at such other place and time
as the parties may agree. Notwithstanding the foregoing, the parties agree that
the Closing shall be deemed effective as of 12:01 a.m. on the Closing Date, and
all references herein that relate to the date and time of the Closing, including
provisions dealing with adjustments to the Purchase Price, shall refer to such
effective date and time.
7.2. Deliveries by Seller. Prior to or on the Closing Date, Seller shall
deliver to Buyer the following, in form and substance reasonably satisfactory to
Buyer and its counsel:
7.2.1. Transfer Documents. A duly executed bill of sale, limited or
special (but not general) warranty deeds (subject to all matters of
record), motor vehicle titles, assignments and other transfer documents
which shall be sufficient to vest good title to the Assets in the name of
Buyer or its permitted assignees, free and clear of any claims,
liabilities, mortgages, liens, pledges, conditions, charges or encumbrances
of any nature whatsoever except for Permitted Encumbrances; and
7.2.2. Consents. The original of each Consent required by Section
6.1.4;
7.3. Deliveries by Buyer. Prior to or on the Closing Date, Buyer shall
deliver to Seller the following, in form and substance reasonably satisfactory
to Seller and its counsel:
7.3.1. Purchase Price. The Purchase Price, subject to any adjustments
and reductions in accordance with Section 2.3 and Section 2.4; and
7.3.2. Assumption Agreements. A duly executed assignment and
assumption agreement pursuant to which Buyer shall assume and undertake to
perform the Assumed Liabilities.
8. Termination
8.1. Method of Termination. This Agreement constitutes the binding and
irrevocable agreement of the parties to consummate the transactions contemplated
hereby, subject to and in accordance with the terms hereof, the consideration
for which is (a) the covenants, representations, warranties and agreements set
forth in this Agreement; and (b) the expenditures and obligations incurred and
to be incurred by Buyer on the one hand, and by Seller, on the other hand, in
respect of this Agreement, and this Agreement may be terminated or abandoned
only as follows:
8.1.1. By the mutual consent of Seller and Buyer, or by either Seller
or Buyer in the event of the notification by the Federal Trade Commission
or the Department of Justice of the intent of either agency to seek to
enjoin the transactions contemplated by this Agreement or if any condition
to the Closing set forth in Section 6.1.3 or 6.2.3 is not fulfilled and the
failure of such condition is not a result of a breach of warranty or
nonfulfillment of any covenant or agreement by Buyer or Seller contained in
this Agreement;
8.1.2. By Buyer, if any of the conditions set forth in Section 6.1
hereof to which the obligations of Buyer are subject (other than the
conditions set forth in Section 6.1.3) have not been fulfilled or waived,
and provided that the failure to fulfill such condition is not a result of
a breach of warranty or nonfulfillment of any covenant or agreement by
Buyer contained in this Agreement; or
8.1.3. By Seller, if any of the conditions set forth in Section 6.2
hereof to which the obligations of Seller are subject (other than the
conditions set forth in Section 6.2.3) have not been fulfilled or
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waived, and provided that the failure to fulfill such condition is not a
result of a breach of warranty or nonfulfillment of any covenant or
agreement by Seller contained in this Agreement.
8.2. Rights Upon Termination.
8.2.1. In the event of a termination of this Agreement pursuant to
Section 8.1.1 hereof, each party shall pay the costs and expenses incurred
by it in connection with this Agreement, and no party (or any of its
officers, directors, partners, employees, agents, representatives or
stockholders) shall be liable to any other party for any cost, expense,
damage or loss of anticipated profits hereunder.
8.2.2. In the event of a termination of this Agreement pursuant to
Section 8.1.2 hereof, if Seller is in material breach of this Agreement,
Buyer shall have the right to seek all remedies available to it as provided
hereunder or at law or equity, including the remedy of specific
performance. In the event of any action to enforce this Agreement, Seller
hereby waives the defense that there is an adequate remedy at law.
8.2.3. In the event of a termination of this Agreement pursuant to
Section 8.1.3 hereof, if Buyer is in material breach of this Agreement by
Buyer, Seller shall have the right to seek all remedies available to it as
provided hereunder or at law or equity, including the remedy of specific
performance. In the event of any action to enforce this Agreement, Buyer
hereby waives the defense that there is an adequate remedy at law.
9. Survival of Representations and Warranties and Indemnification
9.1. Representations and Warranties. All representations, warranties,
covenants and agreements contained in this Agreement or in documents or
instruments delivered pursuant hereto shall be deemed continuing
representations, warranties, covenants and agreements, and shall survive the
Closing Date for a period ending on the one-year anniversary of the Closing
Date.
9.2. Indemnification by Buyer. Buyer shall defend, indemnify and hold
Seller harmless against and with respect to, and shall reimburse Seller for:
9.2.1. Any and all losses, liabilities or damages resulting from any
untrue representation, breach of warranty or nonfulfillment of any covenant
by Buyer contained herein;
9.2.2. Any and all of the Assumed Liabilities;
9.2.3. Any and all losses, liabilities or damages resulting from
Buyer's operations or ownership of the System or Assets on and after the
Closing Date; and
9.2.4. Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
reasonable legal fees and expenses, incident to any of the foregoing or
incurred in investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
9.3. Procedure for Indemnification. The procedure for indemnification shall
be as follows:
9.3.1. The party claiming indemnification ("Claimant") shall promptly
give notice to the party from whom indemnification is claimed
("Indemnifying Party") of any claim, whether between the parties or brought
by a third party, specifying (a) the factual basis for such claim and (b)
the estimated amount of the claim. If the claim relates to an action, suit
or proceeding filed by a third party against Claimant, such notice shall be
given by Claimant within ten business days after written notice of such
action, suit or proceeding was given to Claimant; provided that failure to
give such notice within such ten-day period shall not bar or otherwise
prejudice Claimant's rights to indemnification with respect to such
third-party action, suit or proceeding unless any defense, claim,
counterclaim or cross-claim of the Indemnifying Party is prejudiced
thereby.
9.3.2. Following receipt of notice from the Claimant of a claim, the
Indemnifying Party shall have 30 days to make such investigation of the
claim as the Indemnifying Party deems necessary or
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desirable. For the purposes of such investigation, the Claimant agrees to
make available to the Indemnifying Party and/or its authorized
representative(s) the information relied upon by the Claimant to
substantiate the claim. If the Claimant and the Indemnifying Party agree at
or prior to the expiration of said 30-day period (or any mutually agreed
upon extension thereof) to the validity and amount of such claim, the
Indemnifying Party shall immediately pay to the Claimant the full amount of
the claim subject to the terms and in accordance with the procedures set
forth herein. If the Claimant and the Indemnifying Party do not agree
within said period (or any mutually agreed upon extension thereof), the
Claimant may seek appropriate legal remedy.
9.3.3. With respect to any claim by a third party as to which the
Claimant is entitled to indemnification hereunder, the Indemnifying Party
shall have the right at its own expense, to participate in or assume
control of the defense of such claim, and the Claimant shall cooperate
fully with the Indemnifying Party. If the Indemnifying Party elects to
assume control of the defense of any third-party claim, the Claimant shall
have the right to participate in the defense of such claim at its own
expense. If the Indemnifying Party does not elect to assume control or
otherwise participate in the defense of any third party claim, it shall be
bound by the results obtained by the Claimant with respect to such claim,
and the Indemnifying Party shall be responsible and shall promptly
reimburse Claimant for all associated costs, fees and expenses.
9.3.4. If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
9.4. Exclusive Remedy. After the Closing Date, the sole and exclusive
remedy of any party for any misrepresentation or any breach of a warranty or
covenant set forth in or made pursuant to this Agreement shall be a claim for
indemnification under and pursuant to this Article 9.
10. Miscellaneous
10.1. Benefit and Binding Effect. Seller may not assign this Agreement
without the prior written consent of the Buyer. Buyer may assign its rights and
obligations under this Agreement to any of its affiliates or assigns upon notice
to Seller. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
10.2. Bulk Transfer. Buyer acknowledges that Seller has not and will not
file any transfer notice or otherwise complied with applicable bulk transfer
laws, and the parties agree to waive compliance with same.
10.3. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Washington, without regard
to the conflicts of law principles of such state. The parties agree that this
Section 10.3 serves as a material inducement for Seller to enter into this
Agreement.
10.4. Gender and Number. Words used herein, regardless of the gender and
number specifically used, shall be deemed and construed to include any other
gender, masculine, feminine or neuter, and any other number, singular or plural,
as the context requires.
10.5. Entire Agreement. This Agreement, and all documents and certificates
to be delivered by the parties pursuant hereto collectively represent the entire
understanding and agreement between Buyer and Seller with respect to the subject
matter hereof. This Agreement supersedes all prior negotiations between Buyer
and Seller with respect to the transactions contemplated hereby, and all letters
of intent and other writings relating to such negotiations, and cannot be
amended, supplemented or modified except by an agreement in writing which makes
specific reference to this Agreement or an agreement delivered pursuant hereto,
as the case may be, and which is signed by the party against which enforcement
of any such amendment, supplement or modification is sought.
10.6. Further Assurances. Each party covenants that at any time, and from
time to time, after the Closing Date, it will execute such additional
instruments and take such actions as may be reasonably
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requested by the other parties to confirm or perfect or otherwise to carry out
the intent and purposes of this Agreement.
10.7. Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement or condition herein may be waived
by the party entitled to the benefits thereof, but such waiver or failure to
insist upon strict compliance with such obligation, representation, warranty,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
10.8. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law; provided, however, that the
economic and legal substance of the transactions contemplated by this Agreement
is not affected in any manner that is materially adverse to any party affected
by such invalidity or unenforceability.
10.9. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signature on each such counterpart
were upon the same instrument, and a facsimile transmission shall be deemed to
be an original signature.
10.10. No Third-Party Beneficiaries. This Agreement constitutes an
agreement solely among the parties hereto, and, except as otherwise provided
herein, is not intended to and will not confer any rights, remedies, obligations
or liabilities, legal or equitable on any person other than the parties hereto
and their respective successors or assigns, or otherwise constitute any person a
third party beneficiary under or by reason of this Agreement.
10.11. Tax Consequences. No party to this Agreement makes any
representation or warranty, express or implied, with respect to the tax
implications of any aspect of this Agreement on any other party to this
Agreement, and all parties expressly disclaim any such representation or
warranty with respect to any tax consequences arising under this Agreement. Each
party has relied solely on its own tax advisors with respect to the tax
implications of this Agreement.
10.12. Construction. This Agreement has been negotiated by Buyer and Seller
and their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or any provision of this Agreement
against the party drafting this Agreement shall not apply in any construction or
interpretation of this Agreement.
10.13. Time of the Essence. Time is of the essence under this Agreement. If
the last day permitted for the giving of any notice or the performance of any
act required or permitted under this Agreement falls on a day that is not a
business day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding business day.
10.14. Cure. For all purposes under this Agreement, the existence or
occurrence of any event or circumstance that constitutes a breach of a
representation or warranty or the nonfulfillment of any pre-Closing covenant or
agreement of Buyer or Seller contained in this Agreement on the date such
representation or warranty is made or the fulfillment of such pre-Closing
covenant or agreement is due, shall not constitute a breach of such
representation or warranty or the nonfulfillment of such pre-Closing covenant or
agreement if such event or circumstance is cured on or prior to the Closing
Date.
10.15. Covenant Not To Sue and Nonrecourse to Partners.
10.15.1. Buyer agrees that notwithstanding any other provision in this
Agreement, any agreement, instrument, certificate or document entered into
pursuant to or in connection with this Agreement or the transactions
contemplated herein or therein (each a "Transaction Document") and any rule of
law or equity to the contrary, to the fullest extent permitted by law, Seller's
obligations and liabilities under all Transaction Documents and in connection
with the transactions contemplated therein shall be nonrecourse to all general
and limited partners of Seller. As used herein, the term "nonrecourse" means
that the obligations and liabilities are limited in recourse solely to the
assets of Seller (for those purposes, any
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217
capital contribution obligations of the general and limited partners of Seller
or any negative capital account balances of such partners shall not be deemed to
be assets of Seller) and are not guaranteed directly or indirectly by, or the
primary obligations of, any general or limited partner of Seller, and neither
Seller nor any general or limited partner or any incorporator, stockholder,
officer, director, partner, employee or agent of Seller or of any general or
limited partner of any successor partnership, either directly or indirectly,
shall be personally liable in any respect for any obligation or liability of
Seller under any Transaction Document or any transaction contemplated therein.
10.15.2. Buyer hereby covenants for itself, its successors and assigns that
it, its successors and assigns will not make, bring, claim, commence, prosecute,
maintain, cause or permit any action to be brought, commenced, prosecuted,
maintained, either at law or equity, in any court of the United States or any
state thereof against any general or limited partner of Seller or any
incorporator, stockholder, officer, director, partner, employee or agent of
Seller or of any general or limited partner of Seller for (i) the payment of any
amount or the performance of any obligation under any Transaction Document or
(ii) the satisfaction of any liability arising in connection with any such
payment or obligation or otherwise, including without limitation, liability
arising in law for tort (including, without limitation, for active and passive
negligence, negligent misrepresentation and fraud), equity (including, without
limitation, for indemnification and contribution) and contract (including,
without limitation, monetary damages for the breach of representation or
warranty or performance of any of the covenants or obligations contained in any
Transaction Document or with the transactions contemplated herein or therein).
10.16. Headings. The headings herein are included for ease of reference
only and shall not control or affect the meaning or construction of the
provisions of this Agreement.
[Remainder of Page Intentionally Blank; Signature Page Follows]
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218
EXECUTED as of the date first above written.
Buyer: NORTHLAND CABLE TELEVISION, INC.
By: /s/ RICHARD I. CLARK
------------------------------------
Richard I. Clark
Executive Vice President
Seller: NORTHLAND CABLE PROPERTIES SIX
LIMITED PARTNERSHIP
By: Northland Communications
Corporation,
Managing General Partner
By: /s/ RICHARD I. CLARK
------------------------------------
Richard I. Clark
Executive Vice President
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219
EXHIBIT I
PROMISSORY NOTE
$6,075,000 , 2001
Seattle, Washington
FOR VALUE RECEIVED, NORTHLAND CABLE NETWORKS LLC (the "Maker"), promises to
pay to NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP, a Washington limited
partnership ("NCP-Six"), upon the terms and conditions stated herein, the
principal sum of Six Million Seventy-Five Thousand Dollars ($6,075,000), which
sum shall be payable in three equal payments of principal, plus accrued
interest, due annually commencing on the first anniversary of the date of this
Note. Payments shall be made in lawful money of the United States, at such place
as NCP-Six may designate in writing. Maker shall have the privilege of prepaying
all or any portion of this Note without premium or penalty. Any such prepayment
shall first be applied to accrued and unpaid interest and then to principal, in
the order of maturity.
This Note is issued in connection with that certain Asset Purchase and
Contribution Agreement among the Maker, Northland Communications Corporation and
NCP-Six dated as of May 29, 2001 (the "Agreement"). The Maker may be entitled to
the right of offset, as provided in Section 9.6.2 of the Agreement, and may,
without being in default under this Note, effect such offset against any amounts
payable under this Note.
The principal sum of this Note shall bear interest at a per annum rate of
eight percent (8%). If any portion of this Note shall not be paid when due, then
the principal balance of the Note shall thereafter bear interest at a per annum
rate that is the lesser of ten percent (10%) and the highest possible rate
allowable under applicable law, from the date of such default. A default shall
exist as to any failure of the Maker to make any payment required hereunder in a
timely manner; provided, however, there shall be no default and no payment shall
be due hereunder if (x) the Maker is effecting an offset to account for any
prorations, claims or other adjustments provided for pursuant to the Agreement
or (y) as a result of the subordination provisions set forth in paragraph five
of this Note.
In the event a suit is commenced to enforce the payment of this Note, the
Maker hereby agrees to pay all costs of collection, including a reasonable sum
as the fees of attorneys, if the holder prevails in such enforcement proceeding.
The indebtedness and all other obligations evidenced by this Note are
subordinated to the prior payment in full in cash of all obligations of the
Maker from time to time outstanding in respect of all other indebtedness of the
Maker, other than any indebtedness which by its terms is expressly subordinated
to this Note, including, without limitation, amounts that would become due
except for the operation of the automatic stay under sec. 362(a) of the
Bankruptcy Code, 11 U.S.C. sec. 362(a), and interest, fees, charges and other
amounts that, but for the filing of a petition in bankruptcy with respect to the
Maker, would accrue on such indebtedness whether or not a claim is allowed
against the Maker for the same in such proceeding (collectively, "Senior Debt").
Maker agrees that upon the occurrence and during the continuance of any default
under any Senior Debt or upon any distribution of the assets or readjustment of
the obligations of the Maker whether by reason of voluntary or involuntary
liquidation, dissolution, winding up, composition, bankruptcy, reorganization,
arrangement, receivership, assignment for the benefit of creditors or any
marshalling of its assets or the readjustment of its liabilities, whether
partial or total, the holders of the Senior Debt shall be entitled to receive
cash payment in full of lawful money of the United States of America of all of
the Senior Debt in accordance with their respective terms prior to payment of,
or other distribution in respect of, all or any part of the indebtedness or
other obligations hereunder. NCP-Six agrees, by its acceptance of this Note,
that at any time that payment under this Note is prohibited by operation of this
paragraph, it shall not take any action to enforce or otherwise collect any such
payment and in the event that, notwithstanding the foregoing, NCP-Six shall have
received any payment under or in respect of this Note at a time when such
payment is prohibited, then such payment
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shall be received and held in trust for the benefit of the holders of the Senior
Debt and shall be paid over and delivered to such holders or their agent to the
extent necessary to pay the Senior Debt in full in cash after giving effect to
any other concurrent payment or distribution to such holders in respect of the
Senior Debt.
THIS NOTE IS AND SHALL FOR ALL PURPOSES BE DEEMED NONASSIGNABLE AND
NONNEGOTIABLE; provided, however, that NCP-Six may assign its rights and
delegate its duties and obligations under this Note, including without
limitation the right to receive payment hereunder, to a liquidating trust
established for the purpose of distributing amounts due hereunder for the
benefit of the beneficiaries of such liquidating trust.
This Note is to be construed in all respects and enforced according to the
laws of the State of Washington.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
Maker: NORTHLAND CABLE NETWORKS LLC
By: NORTHLAND COMMUNICATIONS
CORPORATION
Its: Member
By:
--------------------------------------
Its:
--------------------------------------
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221
EXHIBIT J
PROMISSORY NOTE
$3,300,000 , 2001
Seattle, Washington
FOR VALUE RECEIVED, NORTHLAND COMMUNICATIONS CORPORATION (the "Maker"),
promises to pay to NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP, a
Washington limited partnership ("NCP-Six"), upon the terms and conditions stated
herein, the principal sum of Three Million Three Hundred Thousand Dollars
($3,300,000), which sum shall be payable in three equal payments of principal,
plus accrued interest, due annually commencing on the first anniversary of the
date of this Note. Payments shall be made in lawful money of the United States,
at such place as NCP-Six may designate in writing. Maker shall have the
privilege of prepaying all or any portion of this Note without premium or
penalty. Any such prepayment shall first be applied to accrued and unpaid
interest and then to principal, in the order of maturity.
This Note is issued in connection with that certain Asset Purchase
Agreement between Northland Cable Properties, Inc., a wholly-owned subsidiary of
Maker ("NCPI"), and NCP-Six dated as of June , 2001 (the "Agreement"). As
described in that certain Proxy Statement dated , 2001, Maker has
assumed the obligations of NCPI under the Agreement with respect to the Note.
Maker may be entitled to the right of offset, as provided in the Agreement and
the Proxy Statement, and may, without being in default under this Note, effect
such offset against any amounts payable under this Note.
The principal sum of this Note shall bear interest at a per annum rate of
eight percent (8%). If any portion of this Note shall not be paid when due, then
the principal balance of the Note shall thereafter bear interest at the rate of
twelve percent (12%) per annum, from the date of such default. A default shall
exist as to any failure of the Maker to make any payment required hereunder in a
timely manner; provided, however, there shall be no default and no payment shall
be due hereunder if (x) the Maker is effecting an offset to account for any
prorations, claims or other adjustments provided for pursuant to the Agreement
or (y) as a result of the subordination provisions set forth in paragraph five
of this Note.
In the event a suit is commenced to enforce the payment of this Note, the
Maker hereby agrees to pay all costs of collection, including a reasonable sum
as the fees of attorneys, if the holder prevails in such enforcement proceeding.
The indebtedness and all other obligations evidenced by this Note are
subordinated to the prior payment in full in cash of all obligations of the
Maker from time to time outstanding in respect of all other indebtedness of the
Maker, other than any indebtedness which by its terms is expressly subordinated
to this Note, including, without limitation, amounts that would become due
except for the operation of the automatic stay under sec. 362(a) of the
Bankruptcy Code, 11 U.S.C. sec. 362(a), and interest, fees, charges and other
amounts that, but for the filing of a petition in bankruptcy with respect to the
Maker, would accrue on such indebtedness whether or not a claim is allowed
against the Maker for the same in such proceeding (collectively, "Senior Debt").
Maker agrees that upon the occurrence and during the continuance of any default
under any Senior Debt or upon any distribution of the assets or readjustment of
the obligations of the Maker whether by reason of voluntary or involuntary
liquidation, dissolution, winding up, composition, bankruptcy, reorganization,
arrangement, receivership, assignment for the benefit of creditors or any
marshalling of its assets or the readjustment of its liabilities, whether
partial or total, the holders of the Senior Debt shall be entitled to receive
cash payment in full of lawful money of the United States of America of all of
the Senior Debt in accordance with their respective terms prior to payment of,
or other distribution in respect of, all or any part of the indebtedness or
other obligations hereunder. NCP-Six agrees, by its acceptance of this Note,
that at any time that payment under this Note is prohibited by operation of this
paragraph, it shall not take any action to enforce or otherwise collect any such
payment and in the event that, notwithstanding the foregoing, NCP-Six shall have
received any payment under or in respect of this Note at a time when such
payment is prohibited, then such payment
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shall be received and held in trust for the benefit of the holders of the Senior
Debt and shall be paid over and delivered to such holders or their agent to the
extent necessary to pay the Senior Debt in full in cash after giving effect to
any other concurrent payment or distribution to such holders in respect of the
Senior Debt.
THIS NOTE IS AND SHALL FOR ALL PURPOSES BE DEEMED NONASSIGNABLE AND
NONNEGOTIABLE; provided, however, that NCP-Six may assign its rights and
delegate its duties and obligations under this Note, including without
limitation the right to receive payment hereunder, to a liquidating trust
established for the purpose of distributing amounts due hereunder for the
benefit of the beneficiaries of such liquidating trust.
This Note is to be construed in all respects and enforced according to the
laws of the State of Washington.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
Maker: NORTHLAND COMMUNICATIONS
CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
By:
--------------------------------------
Its:
--------------------------------------
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EXHIBIT K
PROMISSORY NOTE
$500,000 , 2001
Seattle, Washington
FOR VALUE RECEIVED, NORTHLAND COMMUNICATIONS CORPORATION (the "Maker"),
promises to pay to NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP, a
Washington limited partnership ("NCP-Six"), upon the terms and conditions stated
herein, the principal sum of Five Hundred Thousand Dollars ($500,000), which sum
shall be payable in three equal payments of principal, plus accrued interest,
due annually commencing on the first anniversary of the date of this Note.
Payments shall be made in lawful money of the United States, at such place as
NCP-Six may designate in writing. Maker shall have the privilege of prepaying
all or any portion of this Note without premium or penalty. Any such prepayment
shall first be applied to accrued and unpaid interest and then to principal, in
the order of maturity.
This Note is issued in connection with that certain Asset Purchase
Agreement between Northland Cable Television, Inc., an affiliate of Maker
("NCTV"), and NCP-Six dated as of , 2001 (the "Agreement"). As
described in that certain Proxy Statement dated , 2001, Maker has
assumed the obligations of NCTV under the Agreement with respect to the Note.
Maker may be entitled to the right of offset, as provided in the Agreement and
the Proxy Statement, and may, without being in default under this Note, effect
such offset against any amounts payable under this Note.
The principal sum of this Note shall bear interest at a per annum rate of
eight percent (8%). If any portion of this Note shall not be paid when due, then
the principal balance of the Note shall thereafter bear interest at the rate of
twelve percent (12%) per annum, from the date of such default. A default shall
exist as to any failure of the Maker to make any payment required hereunder in a
timely manner; provided, however, there shall be no default and no payment shall
be due hereunder if (x) the Maker is effecting an offset to account for any
prorations, claims or other adjustments provided for pursuant to the Agreement
or (y) as a result of the subordination provisions set forth in paragraph five
of this Note.
In the event a suit is commenced to enforce the payment of this Note, the
Maker hereby agrees to pay all costs of collection, including a reasonable sum
as the fees of attorneys, if the holder prevails in such enforcement proceeding.
The indebtedness and all other obligations evidenced by this Note are
subordinated to the prior payment in full in cash of all obligations of the
Maker from time to time outstanding in respect of all other indebtedness of the
Maker, other than any indebtedness which by its terms is expressly subordinated
to this Note, including, without limitation, amounts that would become due
except for the operation of the automatic stay under sec. 362(a) of the
Bankruptcy Code, 11 U.S.C. sec. 362(a), and interest, fees, charges and other
amounts that, but for the filing of a petition in bankruptcy with respect to the
Maker, would accrue on such indebtedness whether or not a claim is allowed
against the Maker for the same in such proceeding (collectively, "Senior Debt").
Maker agrees that upon the occurrence and during the continuance of any default
under any Senior Debt or upon any distribution of the assets or readjustment of
the obligations of the Maker whether by reason of voluntary or involuntary
liquidation, dissolution, winding up, composition, bankruptcy, reorganization,
arrangement, receivership, assignment for the benefit of creditors or any
marshalling of its assets or the readjustment of its liabilities, whether
partial or total, the holders of the Senior Debt shall be entitled to receive
cash payment in full of lawful money of the United States of America of all of
the Senior Debt in accordance with their respective terms prior to payment of,
or other distribution in respect of, all or any part of the indebtedness or
other obligations hereunder. NCP-Six agrees, by its acceptance of this Note,
that at any time that payment under this Note is prohibited by operation of this
paragraph, it shall not take any action to enforce or otherwise collect any such
payment and in the event that, notwithstanding the foregoing, NCP-Six shall have
received any payment under or in respect of this Note at a time when such
payment is prohibited, then such payment
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224
shall be received and held in trust for the benefit of the holders of the Senior
Debt and shall be paid over and delivered to such holders or their agent to the
extent necessary to pay the Senior Debt in full in cash after giving effect to
any other concurrent payment or distribution to such holders in respect of the
Senior Debt.
THIS NOTE IS AND SHALL FOR ALL PURPOSES BE DEEMED NONASSIGNABLE AND
NONNEGOTIABLE; provided, however, that NCP-Six may assign its rights and
delegate its duties and obligations under this Note, including without
limitation the right to receive payment hereunder, to a liquidating trust
established for the purpose of distributing amounts due hereunder for the
benefit of the beneficiaries of such liquidating trust.
This Note is to be construed in all respects and enforced according to the
laws of the State of Washington.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
Maker: NORTHLAND COMMUNICATIONS
CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
By:
--------------------------------------
Its:
--------------------------------------
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EXHIBIT L
APPRAISAL OF DANIELS & ASSOCIATES
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
APPRAISAL ANALYSIS SUMMARY
INTRODUCTION
Northland Cable Properties Six Limited Partnership (the "Partnership") is a
Washington limited partnership consisting of two general partners (the "General
Partners") and approximately 1,865 limited partners. Northland Communications
Corporation ("Northland"), a Washington corporation, is the Managing General
Partner of the Partnership. The Partnership was formed on January 22, 1986 and
began operations in 1986 with the acquisition of the cable television systems
serving the communities surrounding Starkville, Maben and Mathiston,
Mississippi, six additional communities in central Mississippi and the community
of and areas surrounding Highlands, North Carolina. As the result of subsequent
acquisitions made between July 1988 and January 1998 as well as sales of certain
systems, the Partnership currently owns and operates seven cable television
system groups ("System Operating Groups"), comprised of twelve headends, serving
numerous communities in Mississippi, South Carolina and North Carolina (referred
to in the aggregate as the "Systems"). As of March 31, 1999, the Systems passed
an estimated 50,060 homes and served approximately 32,963 equivalent basic
subscribers ("EBUs").
Based on information provided by Northland for the three month period ended
March 31, 1999, annualized run-rate revenue and operating cash flow for the
Systems are estimated to be approximately $14.3 million and $6.7 million,
respectively. This equates to average monthly revenue per EBU of $36.07 and
average annual cash flow per EBU of $203.15.
A summary of the Partnership's System Operating Groups is presented in the
following table.
EST.
3/31/99 ESTIMATED ANNUALIZED
MILES OF PLANT/ EST. ESTIMATED 3/31/99 3/31/99 ANNUALIZED RUN-RATE
NUMBER OF HOMES/ HOMES EBUS/ PAY UNITS/ RUN-RATE CASH FLOW/
SYSTEM OPERATING GROUP HEADENDS MILE PASSED PENETRATION PENETRATION REVENUE MARGIN
---------------------- --------------- ------ --------- ----------- ----------- ----------- ---------------
Starkville, MS.............. 194.5/2 57 11,085 8,097/73.0% 2,930/36.2% $ 3,680,744 $1,895,951/51.5%
Philadelphia, MS............ 170/1 26 4,395 3,851/87.6% 1,450/37.7% 1,617,933 731,306/45.2%
Kosciusko, MS............... 125.8/2 43 5,440 4,350/80.0% 1,371/31.5% 1,854,490 952,651/51.4%
Forest, MS.................. 154/2 24 3,735 3,222/86.3% 1,442/44.8% 1,390,976 689,646/49.6%
Subtotal, MS.............. 644.3/7 38 24,655 19,520/79.2% 7,193/36.9% 8,544,143 4,269,554/50.0%
Highlands, NC............... 128/1 33 4,190 2,584/61.7% 482/18.7% 1,036,879 459,752/44.3%
Barnwell, SC................ 308.5/3 39 12,125 5,941/49.0% 4,301/72.4% 2,694,265 1,079,592/40.1%
Bennettsville, SC........... 145/1 63 9,090 4,918/54.1% 3,628/73.8% 1,993,654 887,575/44.5%
Subtotal, SC.............. 453.5/4 47 21,215 10,859/51.2% 7,929/73.0% 4,687,919 1,967,167/42.0%
Total All Systems........... 1,225.8/12 41 50,060 32,963/65.8% 15,604/47.3% $14,268,941 $6,696,473/46.9%
Daniels was retained by Northland to appraise the fair market value of the
assets of the Partnership as of July 1, 1999 (the "Valuation Date"). The
appraisal was performed in conjunction with the anticipated dissolution and
liquidation of the Partnership. This report summarizes Daniels' conclusions and
provides an outline of the scope of the engagement, the process used, an
overview of the Systems by System Operating Group, the valuation methodology,
the assumptions relied upon and an explanation of the values derived.
PROCESS
Daniels prepared an independent appraisal analysis to determine the fair
market value of the operating assets of the Partnership. The Systems were
appraised on a going-concern basis, in conformance with standard appraisal
techniques, utilizing a ten-year discounted net cash flow analysis and applying
relevant market and economic factors. The appraisal assumes that the Systems
have been and will continue to be
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operated as efficiently as comparable cable television systems and that the
franchises and leases of assets used in the operation of the Systems will be
renewed indefinitely without material changes, other than upgrade and/or rebuild
requirements (see "The Systems").
The appraisal process included discussions with the Partnership's
management, due diligence visits to substantially all of the Systems by Daniels'
personnel, research of demographic information concerning the various
communities served by the Partnership and analyses of historical and forecasted
financial and operating information, as well as Daniels' general knowledge about
the cable television industry. From such due diligence, summaries of the
relevant operating, technical, financial and demographic characteristics were
prepared for each of the seven System Operating Groups. These characteristics
were instrumental in determining value.
In order to assess the fair market value of the Partnership's operating
assets, Daniels prepared detailed operating and financial forecasts for each of
the seven System Operating Groups, incorporating the critical elements of
operating revenues and expenses as well as capital expenditure requirements.
These financial forecasts then formed the basis for determining a discounted
cash flow value for each System Operating Group, a standard valuation
methodology used within the cable television industry (the "DCF" valuation
methodology). The combined values of the Systems, by System Operating Group,
pursuant to the DCF, provide a value of the operating assets of the Partnership.
In addition, using the private market transaction multiples methodology, an
aggregate value for the Partnership's cable television assets was derived by
applying value per subscriber and operating cash flow multiples obtained in
private market sales of comparable cable television systems to the respective
statistics of the Systems. The results of the DCF and the private market
transaction multiples valuation methodologies were then analyzed to determine a
final appraised value for the Partnership's operating assets.
THE SYSTEMS
The Systems are comprised of seven System Operating Groups, four of which
are located in Mississippi, two of which are located in South Carolina and one
of which is located in North Carolina. The largest System Operating Group is
Starkville, Mississippi with 8,097 EBUs as of March 31, 1999. The smallest
System Operating Group is Highlands, North Carolina with 2,584 EBUs as of the
same period. As of March 31, 1999, the System Operating Groups had EBU
penetration rates ranging from 49.0% to 87.6%, and a weighted average EBU
penetration level of 65.8%. Subscriber growth rates for the Systems have been
essentially flat to modest for the past several years.
In the seven System Operating Groups, there are a total of 12 headends and
1,226 plant miles, of which approximately 89% is aerial and 11% is underground.
Based on information provided by Northland, approximately 10% of the plant miles
are at 300 MHz; 42% are at 330 MHz; 1% are at 400 MHz; 36% are at 450 MHz; and
11% are at 550 MHz. According to Northland, none of the Systems are currently
addressable, and pay-per-view service is offered on an event-only basis.
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TECHNICAL SUMMARY
MILES OF PLANT AT VARIOUS BANDWIDTHS AS OF MARCH 31, 1999
300 MHZ 330 MHZ 400 MHZ 450 MHZ 550 MHZ TOTAL
SYSTEM OPERATING MILES MILES MILES MILES MILES MILES
---------------- ------- ------- ------- ------- ------- -------
Starkville, MS................... 194.5 194.5
Philadelphia, MS................. 51 119 170
Kosciusko, MS.................... 125.8 125.8
Forest, MS....................... 17 137 154
Subtotal, MS................... 17 382.5 244.8 644.3
Highlands, NC.................... 128 128
Barnwell, SC..................... 111.2 197.3 308.5
Bennettsville, SC................ 6 139 145
Subtotal, SC................... 111.2 6 197.3 139 453.5
TOTAL ALL SYSTEMS................ 128.2 510.5 6 442.1 139 1,225.8
Percent of Total............ 10.5% 41.6% 0.5% 36.1% 11.3% 100.0%
The reality of competition from DBS, SMATV and MMDS and the lack of excess
channel capacity in certain of the Partnership's Systems suggest that a rebuild
or upgrade of all of the Systems with a current capacity of less than 450 MHz
would be prudent over the next several years. The Partnership plans to upgrade
substantially all of the Systems to a bandwidth of at least 450 MHz over the
next three years; however, there are no current franchise requirements to
rebuild or upgrade any of the Systems. None of the Systems are currently
addressable.
The quality of broadcast signals that can be received off-air varies among
the different System Operating Groups from good to poor, and the communities
that receive good off-air signals typically have a lower subscriber penetration
rate. Selected subscribers in the Starkville System Operating Group have the
option of receiving service from Wireless One, a MMDS operator. Management of
the Partnership does not believe that MMDS operators will have a further
material negative effect on the Systems in the future. Additionally, selected
homes in the community of Sapphire Valley in the Highlands system have been
overbuilt by a small operator. Although competition from DBS providers exists in
areas served by the Systems, such competition has not had a material effect on
the Partnership's operations to date.
On May 5, 1995, the Federal Communications Commission ("FCC") announced the
adoption of a simplified set of rate regulation rules that will apply to "small"
cable systems, defined as a system serving 115,000 or fewer subscribers, that
are owned by "small" companies, defined as a company serving 400,000 or fewer
subscribers. Under the FCC's definition, the Partnership is a "small" company
and each of the Partnership's Systems are "small" systems. Maximum permitted
rates under these revised rules are dependent on several factors including the
number of regulated channels offered, net asset basis of plant and equipment
used to deliver regulated services, the number of subscribers served and a
reasonable rate of return.
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
became law. The 1996 Act eliminated all rate controls on cable programming
service tiers ("CPSTs") of "small" cable systems, defined by the 1996 Act as
systems serving fewer than 50,000 subscribers owned by operators serving fewer
than 1% of all subscribers in the United States (approximately 600,000
subscribers). Under the 1996 Act, all of the Partnership's Systems qualify as
"small" cable systems.
As of March 31, 1999, six of the Partnership's Systems have received
notification that local franchising authorities have elected to certify to
regulate basic rates. Based on Northland's analysis, the rates charged by the
Systems are within the maximum rates allowed under FCC rate regulations.
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STARKVILLE, MISSISSIPPI
The Starkville, Mississippi System Operating Group is the largest of the
seven System Operating Groups with subscribers located in Oktibbeha County,
Mississippi, which is approximately 125 miles northeast of Jackson, Mississippi.
The City of Starkville serves as the County Seat and is the home of Mississippi
State University, which has an enrollment of approximately 12,000 students and
features a leading, nationally recognized veterinary medicine program. The
University is the largest employer in Starkville. Also located in Starkville is
the Mississippi Research and Technology Park, a long-range economic development
project initiated through the joint efforts of the City of Starkville, Oktibbeha
County, Mississippi State University and local businesses.
As noted previously, the Starkville system faces limited competition from
Wireless One, a MMDS operator. Additionally, the City of Starkville has formed
an exploratory committee to assess the feasibility of building a cable system.
In consideration of the fact that the City also owns the local power company,
there is at least a potential threat that the City will move forward with a
hardwire overbuild of the Starkville system with a bundled telecommunications
strategy. Additionally, there is a small independent cable operator who has
overbuilt approximately 12 homes in a low density area of Oktibbeha County.
As of March 31, 1999, the Starkville System Operating Group passed 11,085
estimated homes and served 8,097 equivalent basic subscribers, for a penetration
rate of 73.0%. This penetration rate is the fourth highest of the seven System
Operating Groups. There are currently five franchises covering this group, with
franchise expiration dates ranging from November 7, 2005 to June 30, 2010. The
Starkville System Operating Group accounts for approximately 25% of the
Partnership's equivalent basic units.
The Starkville System Operating Group is comprised of two systems, each
with one headend, located in Starkville and Maben, Mississippi. The Starkville
System Operating Group was acquired in 1986 and has approximately 195 miles of
plant, 97% of which is aerial. Currently, 100% of the plant is capable of
passing 330 MHz. Within a period of two years, the Partnership will complete its
rebuild of the Starkville system to 550 MHz and the Maben system to 400 MHz. The
financial forecasts prepared by Daniels take into account such capital projects,
among others.
The Starkville system offers three levels of non-premium service: Economy
Basic service, consisting of 11 primarily broadcast and local origination
channels, for $14.00; Standard Basic service, consisting of the 11 Economy Basic
channels plus an additional 21 satellite channels, for $25.95; and Specialty
Tier service, consisting of the 32 Standard Basic channels plus an additional
eight satellite channels, for $34.45. The Maben system offers 29 channels of
Standard Basic service for $25.50. Both systems offer HBO and Showtime, while
the Starkville system also offers Cinemax and The Disney Channel. The last rate
increase was implemented on August 1, 1998.
BARNWELL, SOUTH CAROLINA
The Barnwell System Operating Group was acquired by the Partnership in
January 1998. Barnwell is the second largest System Operating Group, passing
12,125 estimated homes in the communities of Barnwell, Allendale and Bamberg,
South Carolina and serving 5,941 equivalent basic subscribers as of March 31,
1999. The areas served by the Barnwell System Operating Group are located in
Southern South Carolina, approximately 60 miles south of Columbia, South
Carolina. The economy is based primarily on manufacturing and agricultural
activities. The largest employer in the area is the Savannah River Site nuclear
plant. Other major employers that employ in excess of 500 people include Sara
Lee, Ducane Heating Corporation and Dixie Narco, a soft drink vending machine
manufacturer. The overall penetration rate in this System Operating Group is
49.0%. The Barnwell System Operating Group is covered by 12 franchises which
expire between January 8, 2000 and July 16, 2012. The Barnwell System Operating
Group accounts for approximately 18% of the Partnership's equivalent basic
subscribers.
The Barnwell System Operating Group is comprised of three systems, each
with one headend, located in Barnwell, Allendale and Bamberg, South Carolina.
The Barnwell System Operating Group includes 309 miles of plant, of which
approximately 84% is aerial. Approximately 64% of the plant is capable of
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passing 450 MHz, and approximately 36% can pass 300 MHz. Over the next two
years, the Partnership will complete its rebuild of the entire System Operating
Group to 450 MHz. The financial forecasts prepared by Daniels take into account
such capital projects, among others.
The Barnwell system offers two levels of non-premium service: Economy Basic
service, consisting of 13 primarily broadcast and local origination channels,
for $10.26; and Standard Basic service, consisting of the 13 Economy Basic
channels plus an additional 15 satellite channels, for $29.65. Both the
Allendale and Bamberg systems offer Economy Basic service, comprised of 12
channels, for $10.40; and Standard Basic service, comprised of 12 Economy Basic
channels plus an additional 24 channels, for $30.58. The Barnwell system offers
HBO, The Disney Channel, Showtime and The Movie Channel. The Allendale and
Bamberg systems offer the four aforementioned premium channels plus Cinemax. The
last rate increase was implemented on March 1, 1998.
BENNETTSVILLE, SOUTH CAROLINA
The Bennettsville System Operating Group was acquired by the Partnership in
January 1998. The city of Bennettsville is located approximately 100 miles
northeast of Columbia, South Carolina and is the county seat of Marlboro County.
The economy is based primarily on manufacturing and agricultural activities,
with the three largest employers being Mohawk Carpet, United Technologies
Automotive and Williamette Industries. As of March 31, 1999, the Bennettsville
System Operating Group passed 9,090 estimated homes and served 4,918 equivalent
basic subscribers, for a penetration rate of 54.1%. The Bennettsville System
Operating Group represents a single headend located in Bennettsville, South
Carolina, and covers five franchised areas. The five franchises covering this
System Operating Group expire between June 10, 2006 and August 30, 2007. The
Bennettsville System Operating Group accounts for approximately 15% of the
Partnership's equivalent basic subscribers.
The Bennettsville System Operating Group includes 145 miles of plant, of
which approximately 81% is aerial. Approximately 96% of the plant is capable of
passing 550 MHz and approximately 4% can pass 400 MHz. By the end of 2000, the
Partnership is planning to upgrade the small portion of the system that is
currently not capable of passing 550 MHz. The financial forecasts prepared by
Daniels take into account this capital project, among others.
The Bennettsville system offers three levels of non-premium service:
Economy Basic service, consisting of 11 primarily broadcast and local
origination channels, for $7.57; Standard Basic service, consisting of the 11
Economy Basic channels plus an additional 18 satellite channels, for $19.10; and
Super Basic service, consisting of the 29 Standard Basic channels plus an
additional 19 satellite channels, for $26.67. The Bennettsville system offers
HBO, Cinemax, The Disney Channel, Showtime, The Movie Channel and Encore. The
last rate increase was effective May 1, 1998. Service rates at Bennettsville are
lower than the average rates charged by the Systems due to the aggressive
pricing strategy effected by the system's prior owner in response to entry into
the market by an overbuilder, who has subsequently ceased operating in the
market. Northland indicates that significant rate adjustments will be
implemented over the next few years to get the Bennettsville system more in line
with average rates charged by the Systems.
KOSCIUSKO, MISSISSIPPI
Kosciusko is the fourth largest of the seven System Operating Groups,
consisting of two systems, each with one headend, located in Kosciusko and
Carthage, Mississippi, approximately 70 miles northeast of Jackson, Mississippi.
The local economy is based primarily on manufacturing and agricultural
activities with three of the largest employers being Choctaw Maid Farms, Inc.,
Choctaw Manufacturing Enterprise and Interstate Industries, Inc. The Kosciusko
System passes 5,440 estimated homes and serves 4,350 equivalent basic
subscribers as of March 31, 1999, for a penetration rate of 80.0%. There are
three franchise agreements covering the Kosciusko System Operating Group,
expiring between March 13, 2003 and April 4, 2010. The Kosciusko System
Operating Group accounts for approximately 13% of the Partnership's equivalent
basic subscribers.
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The Kosciusko System Operating Group consists of 126 miles of plant, of
which approximately 94% is aerial. Both the Kosciusko and Carthage plants are
capable of passing 450 MHz. The Partnership currently has no plans for a rebuild
of the systems.
The Kosciusko and Carthage systems offer three levels of non-premium
service: Economy Basic service, consisting of 12 primarily broadcast and local
origination channels, for $15.00; Standard Basic service, consisting of the 12
Economy Basic channels plus an additional 19 satellite channels, (18 for
Carthage), for $25.95 in Kosciusko and $25.50 in Carthage; and Specialty Tier
service, consisting of the 31 Standard Basic channels (30 for Carthage) plus an
additional 10 satellite channels, for $34.45 in Kosciusko and $34.00 in
Carthage. Both Systems offer HBO, Cinemax, The Disney Channel and Showtime. The
last rate increase was implemented on August 1, 1998.
PHILADELPHIA, MISSISSIPPI
The Philadelphia System Operating Group serves communities in central
Mississippi through a single headend located in Philadelphia, Mississippi. The
city of Philadelphia is located approximately 80 miles northeast of Jackson,
Mississippi and is the County Seat. Philadelphia's economy is based primarily on
manufacturing with the largest employer being U.S. Electrical Motors.
Additionally, the gaming industry, highlighted by the Silver Star Casino and
Hotel (500+ rooms), owned by the Choctaw Indian Reservation, has added growth to
the local economy. As of March 31, 1999, the Philadelphia System Operating Group
passed 4,395 estimated homes and served 3,851 equivalent basic subscribers, for
a penetration rate of 87.6%. This penetration rate is the highest of the seven
System Operating Groups. The Philadelphia System Operating Group includes a
single headend located in Philadelphia, Mississippi, and has four franchise
agreements expiring between March 20, 2009 and June 3, 2017. The Philadelphia
System Operating Group accounts for approximately 12% of the Partnership's
equivalent basic subscribers, resulting largely from the Silver Star Casino
Hotel.
The Philadelphia System Operating Group includes 170 miles of plant, of
which approximately 96% is aerial. Approximately 70% of the plant is capable of
passing 450 MHz and approximately 30% can pass 330 MHz. Over the next two years,
the Partnership is planning to complete a rebuild of the entire system to 450
MHz. The financial forecasts prepared by Daniels take into account this capital
project, among others.
The Philadelphia system offers three levels of non-premium service: Economy
Basic service, consisting of 12 primarily broadcast and local origination
channels, for $15.00; Standard Basic service, consisting of the 12 Economy Basic
channels plus an additional 16 satellite channels, for $25.50; and Specialty
Tier service, consisting of the 28 Standard Basic channels plus an additional 10
satellite channels, for $34.75. The Philadelphia system offers HBO, Cinemax,
Showtime, Starz and Encore. The last rate increase was implemented on August 1,
1998 for all services and the Specialty Tier service rate was increased again on
May 1, 1999.
FOREST, MISSISSIPPI
The Forest, Mississippi System Operating Group serves communities in
central Mississippi. The local economy is primarily based on agricultural and
manufacturing activities. One of the largest industries in the area is poultry.
Nearly two million birds are dressed per week in Forest, which ranks as the
second-largest producer of broilers in the nation. As of March 31, 1999, the
Forest System Operating Group passed 3,735 estimated homes and served 3,222
equivalent basic subscribers for a penetration rate of 86.3%. This penetration
rate is the second highest of the seven System Operating Groups. There are
currently four franchises covering this System Operating Group, with franchise
expiration dates ranging from February 20, 2003 to October 17, 2010. The Forest
System Operating Group accounts for approximately 10% of the Partnership's
equivalent basic subscribers.
The Forest System Operating Group includes two systems, each with one
headend, located in Forest and Raleigh, Mississippi. The Forest System Operating
Group includes 154 miles of plant, 95% of which is aerial. Currently, 89% of the
plant is capable of passing 330 MHz and 11% is capable of passing
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300 MHz. Over the next two years, the Partnership is planning to rebuild the
Forest system to 550 MHz. The small Raleigh system currently has no plans for
further upgrade. The financial forecasts prepared by Daniels take into account
such capital projects, among others.
The Forest system offers three levels of non-premium service: Economy Basic
service, consisting of 13 primarily broadcast and local origination channels,
for $15.00; Standard Basic service, consisting of the 13 Economy Basic channels
plus an additional 17 satellite channels, for $25.95; and Specialty Tier
service, consisting of the 30 Standard Basic channels plus an additional eight
satellite channels, for $33.90. The Raleigh system offers 25 channels of
Standard Basic service for $23.95. The Forest system offers HBO, Cinemax,
Showtime, Encore and Starz, while the Raleigh system offers only HBO. The last
rate increase was implemented on August 1, 1998.
HIGHLANDS, NORTH CAROLINA
The Highlands System Operating Group is the smallest of the seven System
Operating Groups and serves the community of and areas surrounding Highlands,
North Carolina. The city of Highlands is located on a plateau of the Blue Ridge
Mountains where Georgia, North Carolina and South Carolina meet. The Highlands
region has long been a vacation destination for affluent families from many
Southern cities. The area is encircled by 200,000 acres of the End National
Forest. One of the main attractions of Highlands is the area's exclusive golf
clubs. As of March 31, 1999, the Highlands System Operating Group passed 4,190
estimated homes and served 2,584 equivalent basic subscribers, for a penetration
rate of 61.7%. The Highlands System Operating Group includes a single headend
located in Highlands, North Carolina, and has four franchise agreements expiring
between October 3, 1999 and June 2, 2013. The Highlands System Operating Group
accounts for approximately 8% of the Partnership's equivalent basic subscribers.
In keeping with the fluctuating occupancy of the area's homes throughout the
year, the system experiences seasonality in its subscriber base.
The Highlands System Operating Group includes 128 miles of plant, of which
approximately 78% is aerial. Currently, 100% of the plant is capable of passing
330 MHz. Over the next two years, the Partnership is planning to rebuild the
system to 450 MHz. The financial forecasts prepared by Daniels take into account
this capital project, among others.
The Highlands system offers two levels of non-premium service: Economy
Basic service, consisting of 17 primarily broadcast and local origination
channels, for $17.50; and Standard Basic service, consisting of the 17 Economy
Basic channels plus an additional 19 satellite channels, for $33.20. The
Highlands system offers HBO, Cinemax, The Disney Channel and Encore. The last
rate increase was effective February 1, 1999.
VALUATION METHODOLOGY
In order to appraise the fair market value of the assets of the
Partnership, Daniels applied two valuation methodologies to each of the seven
System Operating Groups: (i) discounted cash flow valuation; and (ii) comparable
private market transaction multiples analysis. The respective aggregate fair
market values of the Partnership's operating assets derived from each valuation
methodology were then compared, and a final value was derived.
DISCOUNTED CASH FLOW
The discounted cash flow valuation methodology ("DCF") measures the present
value of an entity's forecasted free cash flow from operations, defined as
pre-tax earnings before interest, taxes, depreciation and amortization
("EBITDA"), less capital expenditures ("Free Cash Flow"). The forecasted Free
Cash Flow was determined through a 10-year financial forecast prepared by
Daniels for each of the seven System Operating Groups, which provides for
detailed forecasts of revenue and operating expenses. In addition to Free Cash
Flow, and based upon the 10-year financial forecasts discussed above, a terminal
enterprise value was estimated for each of the seven System Operating Groups
assuming a sale at the end of year 10 (the "Terminal Enterprise Value"). This
Terminal Enterprise Value was based on a multiple of
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terminal EBITDA which Daniels determined to be reasonable in light of comparable
private market transaction multiples of EBITDA.
The revenue forecasts for each of the seven System Operating Groups were
based upon Daniels' forecasts of homes passed, subscriber penetration levels and
rates and non-subscriber based revenue sources. Expense forecasts were based
primarily on assumed rates of inflation over the forecast period and were
adjusted for particular growth characteristics of each of the seven System
Operating Groups. Capital expenditure forecasts were based upon costs associated
with the construction of new miles of plant, plant maintenance and rebuild/
upgrade requirements. Daniels did not include telephony or commercial data
services revenue, expenses or capital costs in its forecasts. Daniels did,
however, include residential data services revenue and expenses in its forecast
where warranted.
The forecasted Free Cash Flow and the Terminal Enterprise Value (together,
the "Forecasted Net Cash Flows") resulting from the 10-year financial forecasts
prepared by Daniels were discounted back to the present at a discount rate
representing the weighted average cost of capital for an array of entities
within the cable television industry that are capable of consummating an
acquisition similar in size to the acquisition of the Systems. The weighted
average cost of capital is a company's required rate of return necessary to
satisfy the expectations of both the debt and equity investors of a company.
Theoretically, an entity will be willing to pay a price for an investment as
high as the value that will allow it to equal or exceed its weighed average cost
of capital requirements.
Borrowing costs are different for every entity, depending primarily upon
the overall credit quality of the borrower and the quality of the collateral, if
any. In the cable television industry, many lending institutions often use the
prime rate as a benchmark for determining loan interest rates. Some borrowers
pay interest rates above the prime rate, while others are able to borrow at more
favorable rates below the prime rate. Daniels, therefore, has assumed that the
prime rate is a fair benchmark, within a margin of 25 to 50 basis points, of the
average cost of debt of an array of entities willing and financially able to
consummate an acquisition similar in size to an acquisition of the Systems. The
cost of equity was determined by sampling the current estimated private market
cost of equity for cable television investments and blending that with equity
return objectives of large publicly traded companies in this industry. Such
equity returns are those which would be required by experienced private equity
investors and publicly traded companies in cable television investments with
characteristics similar to those of the Systems. The weighted average cost of
capital Daniels derived for each of the discounted cash flow analyses was
13.50%. Listed below are the estimates of the costs of debt and equity in the
capitalization structure as of the Valuation Date used to determine the discount
rate.
ASSUMED CAPITAL STRUCTURE % OF TOTAL CAPITAL COST OF CAPITAL
------------------------- ------------------ ---------------
Debt............................................ 60.0% 7.5%
Equity.......................................... 40.0% 22.5%
Estimated Weighted Average Cost of Capital...... 100.0% 13.5%
The combined aggregate fair market value of the Systems derived from this
analysis is $73.3 million, which is equal to 10.9x estimated annualized run-rate
cash flow and $2,200 per equivalent basic subscriber.(1)
MULTIPLE OF ANNUALIZED
DISCOUNTED CASH FLOW RUN-RATE CASH
VALUATION FLOW(1) VALUE PER EBU(1)
- -------------------- ---------------------- ----------------
$73,300,000 10.9x $2,200
- ---------------
(1) Annualized run-rate cash flow for the three months ended 3/31/99 and EBUs as
of 3/31/99 have been adjusted for seasonality of the Highlands system. The
adjusted annualized run-rate cash flow for the Systems is estimated to be
$6.7 million and the adjusted EBU for the Systems is estimated to be 33,313.
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COMPARABLE PRIVATE MARKET TRANSACTION MULTIPLES
In addition to the DCF valuation methodology, Daniels also utilized the
comparable private market transaction multiples methodology, which is another
generally accepted valuation methodology used to correlate and validate the
findings of the DCF with the realities of the private market. Under this
methodology, Daniels has compared selected market multiples reported in sales of
cable television systems of similar size, markets and technical condition as the
Systems to selected operating statistics of the Systems. In the case of cable
television system transactions, the most commonly used market multiples are: (i)
a multiple of trailing three or six months annualized operating cash flow; and
(ii) the price per subscriber. The Systems' annualized operating cash flow for
the quarter ended March 31, 1999 will be used as a comparable statistic to the
annualized statistics reported in the comparable group of transactions.
COMPARABLE CABLE TELEVISION SYSTEM SALES
AGGREGATE VALUE/ CLOSE
SYSTEM BUYER SELLER SUBS. VALUE(SM) SUB. VALUE/CF DATE
- ----------------------- ------------ -------------- ------ --------- ------ -------- --------
Riverside Co., CA Century Act 5 19,000 $ 33.0 $1,737 9.2x Contract
Various, SD Mediacom Zylstra 14,300 21.5 1,500 9.4 Contract
Nitro, WV & Various TX Fanch Harmon 18,300 50.0 2,732 14.0 Jun-99
Various, MI Millennium Horizon 43,000 112.0 2,605 11.2 May-99
Buffalo, MN Bresnan Jones 14,550 27.0 1,856 9.8 Mar-99
CA-based MSO USA Media WestStar Comm. 45,000 84.0 1,867 9.0 Mar-99
Livingston County, MI Fanch Multi- 16,000 42.0 2,625 10.0 Feb-99
Cablevision
Various, LA, TX Star Cable Illini 12,000 18.0 1,500 10.9 Feb-99
Cablevision
Hotsprings, Deadwood, TCl Duhamel 16,400 28.3 1,726 9.0 Feb-99
Blackhawk, SD Cable Frc.
Hanover, PA Susquehanna Hanover Cable 16,700 33.4 2,000 11.5 Jan-99
Various, MI Bresnan Omega 25,900 40.0 1,545 9.0 Jan-99
Various, GA Jones Bresnan 24,000 50.0 2,083 10.0 Dec-98
Communications
Payson, AZ NPG Cable/AZ Mark Twain 12,350 21.6 1,750 9.2 Sep-98
Various, TX, OK, KS, MO Classic CableOne 28,000 44.0 1,600 9.0 Aug-98
Communications
Total/Average 21,821 $604.8 $1,940 10.0x
The comparable private market transactions analysis yields a cash flow
multiple range of 9.0x to 14.0x cash flow, with a weighted average of 10.0x cash
flow. Value per subscriber ranges from $1,500 to $2,732, with a weighted average
of $1,940 per subscriber.
MATERIAL RELATIONSHIPS
Daniels has no ownership position in Northland or the Partnership; however,
Daniels has at various times sold cable television systems to Northland while
representing other cable television operators and has sold cable television
systems on behalf of Northland. Daniels does not believe that these prior
relationships in any way affect its ability to fairly and impartially render the
opinion of value expressed herein.
VALUATION SUMMARY
Based on the analysis using the valuation methodologies described above,
the estimated fair market value of the Systems as of the Valuation Date is
$73,300,000, representing 10.9x estimated annualized run-rate operating cash
flow and value per equivalent basic subscriber of $2,200.
THE CASH FLOW MULTIPLE IS SLIGHTLY HIGHER THAN THE WEIGHTED AVERAGE
MULTIPLE BUT WELL WITHIN THE RANGE OF MULTIPLES DERIVED FROM THE COMPARABLE
PRIVATE MARKET TRANSACTIONS ANALYSIS, AND EQUAL TO THE MULTIPLE DERIVED FROM THE
DCF ANALYSIS. THE VALUE PER EQUIVALENT BASIC
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SUBSCRIBER IS ALSO ABOVE THE WEIGHTED AVERAGE VALUE BUT WELL WITHIN THE RANGE OF
VALUES DERIVED FROM THE COMPARABLE PRIVATE MARKET TRANSACTIONS ANALYSIS, AND
EQUAL TO THE VALUE PER SUBSCRIBER DERIVED FROM THE DCF ANALYSIS. IT IS WORTH
NOTING THAT DANIELS IS CURRENTLY ACTING AS AN ADVISOR ON SEVERAL COMPARABLE,
NON-PUBLIC TRANSACTIONS WITH IMPLIED VALUATION STATISTICS THAT SUPPORT OUR
ANALYSIS OF VALUE OF THE SYSTEMS.
OUR OPINION OF VALUE EXPRESSED IN THIS APPRAISAL IS BASED ON FINANCIAL AND
OPERATING INFORMATION PROVIDED TO DANIELS BY THE PARTNERSHIP, AS WELL AS
PUBLISHED DEMOGRAPHIC INFORMATION PERTAINING TO THE PARTNERSHIP'S SERVICE AREAS.
WHILE DANIELS BELIEVES SUCH SOURCES TO BE RELIABLE AND ACCURATE, IT HAS NOT
INDEPENDENTLY VERIFIED ANY SUCH INFORMATION. THE VALUATION IS BASED ON
INFORMATION AVAILABLE TO DANIELS AS OF THE LATEST PRACTICABLE DATE. DANIELS
UNDERTAKES NO RESPONSIBILITY FOR UPDATING THIS OPINION TO REFLECT CHANGES IN THE
VALUE OF THE ASSETS SUBSEQUENT TO THE DATE OF THIS APPRAISAL, SUCH AS MARKET,
ECONOMIC, TECHNOLOGICAL, OPERATIONAL, GOVERNMENTAL AND OTHER CHANGES.
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EXHIBIT M
APPRAISAL OF
COMMUNICATIONS EQUITY ASSOCIATES
JULY 1, 1999
Northland Cable Properties Six Limited Partnership
1201 Third Avenue, Suite 3600
Seattle, WA 98101
Communications Equity Associates, Inc. ("CEA") is pleased to submit the
results of our valuation analysis of the assets of the cable television systems
(the "Cable Systems") owned by Northland Cable Properties Six Limited
Partnership ("NCP-Six" or the "Partnership") as of the date of this report. It
is our understanding that the values determined by this analysis will be used in
connection with the anticipated dissolution and liquidation of the Partnership.
We hereby express our opinion of the fair market value of the assets of the
Cable Systems, free and clear of all liens, liabilities and encumbrances. "Fair
Market Value" is defined as the price which could be negotiated in an arm's
length free market transaction between a willing seller and a willing buyer,
neither of whom is under undue pressure of compulsion to complete the
transaction. We hereby express no opinion as to the fairness of any transaction
involving the Cable Systems.
Based on the analysis detailed in this report and subject to the limiting
conditions listed in this report, it is the opinion of Communications Equity
Associates that, as of the date of this report the fair market value of the
assets of the Cable Systems is $74,600,000.
This valuation is intended solely for your use for the purpose stated
above, and is not intended for general publication or circulation. Since these
value conclusions are the result of certain specific assumptions, and since
these assumptions may not be relevant for other purposes, these values should
not be used for any other purpose.
In performing this analysis, CEA relied substantially on financial and
operational information provided by management of the Partnership and by Cable
System personnel. CEA did not independently verify this information and can
therefore accept no responsibility as to its accuracy.
The fee CEA has been paid for the valuation services performed is in no way
contingent upon the results of CEA's analysis. CEA is independent of both
Northland and NCP-Six, and neither CEA nor any of its employees involved in this
valuation have a financial interest in Northland nor any of its affiliated
companies, in NCP-Six, nor in the Cable Systems. To the best of CEA's knowledge
and belief, all statements contained in this report are true and correct, and no
important information has been knowingly withheld. This valuation has been
prepared to conform with the Uniform Standards of Professional Appraisal
Practice as promulgated by the American Society of Appraisers.
Respectfully submitted,
/s/ COMMUNICATIONS EQUITY ASSOCIATES, INC.
--------------------------------------------
COMMUNICATIONS EQUITY ASSOCIATES, INC.
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LIMITING CONDITIONS
1. CEA offers no opinions on either the potential effect of current or
future FCC regulations on the cash flow of the Cable Systems, or on the
Partnership's strategy in dealing with these regulations. The value conclusions
derived herein were based on the assumption that the current rates of the Cable
Systems are in compliance with current FCC regulations, and that no future
refund liability is associated with the Cable Systems.
2. This valuation is based on CEA's assessment of market conditions as of
the date of this report, and assumes that market, regulatory and other
conditions remain static. Changes in the economy as well as additional
rule-making by the FCC could have a material effect on the values herein
derived.
3. CEA cannot guarantee that a buyer could be found for the Cable Systems
at the value herein determined, or at any rational price.
4. As part of this analysis, CEA relied substantially on historical and
projected financial and operational information provided by management of the
Partnership. CEA did not independently verify this information and can therefore
accept no responsibility as to its accuracy.
5. CEA hereby expresses no opinion as to the fairness of any transactions
involving the Cable Systems or the shares of the Partnership.
6. CEA specifically prohibits the use of these value conclusions in all
matters related to the solvency of the Partnership. Since we have not undertaken
an analysis of the debt of the Partnership, we can make no representations as to
whether the fair salable value of the Partnership's assets exceeds the
Partnership's debt, whether the Partnership will be able to meet its debt
obligations as they come due, or whether the Partnership is reasonably
capitalized.
7. CEA did not conduct a detailed technical evaluation of the Cable
Systems, but instead relied on information provided by management of the
Partnership and Cable Systems' employees in assessing the technical condition of
the Cable Systems.
8. CEA has assumed that the Cable Systems, as currently operated, are in
material compliance with all franchise, regulatory, and FCC requirements. CEA
did not independently verify compliance with these requirements.
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TABLE OF CONTENTS
PAGE
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SECTION
1. OVERVIEW OF ANALYSIS..................................... M-3
-- BACKGROUND AND DESCRIPTION OF ANALYSIS................ M-3
-- DEFINITION OF FAIR MARKET VALUE....................... M-3
-- DESCRIPTION OF VALUATION METHODOLOGY.................. M-4
2. CABLE SYSTEMS OVERVIEW................................... M-5
-- STARKVILLE, MS........................................ M-5
-- PHILADELPHIA, MS ..................................... M-5
-- KOSCIUSKO, MS......................................... M-6
-- FOREST, MS............................................ M-6
-- HIGHLANDS, NC ........................................ M-6
-- BARNWELL, SC.......................................... M-6
-- BENNETTSVILLE, SC..................................... M-7
-- FINANCIAL SUMMARY..................................... M-7
3. VALUATION................................................ M-8
-- DISCOUNTED CASH FLOW APPROACH......................... M-8
-- MARKET APPROACH....................................... M-8
-- VALUE CONCLUSION...................................... M-9
-- CABLE SYSTEM STATISTICS............................... M-9
1. OVERVIEW OF ANALYSIS
BACKGROUND AND DESCRIPTION OF ANALYSIS
Communications Equity Associates ("CEA") has been retained by Northland
Cable Properties Six Limited Partnership ("NCP-Six" or the "Partnership") to
determine the fair market value of the assets of the cable television systems
(the "Cable Systems") owned by the Partnership as of the date of this report. It
is CEA's understanding that the values determined by this analysis will be used
in connection with the anticipated dissolution and liquidation of the
Partnership.
As part of this analysis, CEA requested and obtained from Partnership
management detailed historical and projected financial and operating information
pertaining to the Cable Systems. Additionally, CEA visited and toured
significant portions of the cable service area and had discussions regarding the
operations of the Cable Systems with Partnership management and employees. CEA
has not conducted a technical analysis of the cable plant, and has therefore
relied on assertions made by Cable Systems' management regarding the technical
performance of the cable plant.
DEFINITION OF FAIR MARKET VALUE
For the purpose of this appraisal, "Fair Market Value" is defined as the
price which could be negotiated in an arm's length free market transaction
between a willing seller and a willing buyer, neither of whom is under undue
pressure of compulsion to complete the transaction.
M-3
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DESCRIPTION OF VALUATION METHODOLOGY
CEA used the discounted cash flow approach and the market approach in
determining the fair market value of the assets of the Cable Systems. In the
discounted cash flow approach, the value of an asset is determined by
calculating the total present value of the future cash flows generated by the
asset. In the case of the assets of cable television systems, the value is
usually calculated as the present value of the free cash flow (operating cash
flow less capital expenditures) of the system, using a weighted average cost of
debt and equity capital as the discount rate, with a terminal value at the end
of the projection period calculated based on a multiple of the operating cash
flow of the cable system. In the market approach, the value of an asset is
determined based on a comparison with market transactions involving comparable
assets. In order to facilitate this comparison, the respective purchase prices
of the comparable assets are expressed as ratios based on a relevant operating
statistic, typically earnings or cash flow. In the case of cable television
systems, the purchase price of a system is usually expressed as a multiple of
the operating cash flow of the system. The appropriate multiple is then applied
to the operating cash flow of the subject system in order to determine its
value.
M-4
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2. CABLE SYSTEMS OVERVIEW
The Partnership owns Cable Systems that serve certain areas of Mississippi
and the Carolinas. In Mississippi, the Partnership owns cable systems that serve
the operating regions of Starkville, Philadelphia, Kosciusko and Forest, as well
as several nearby smaller towns. In the Carolinas, the Partnership's operating
areas serve Highlands, NC; Barnwell, SC and nearby areas, and Bennettsville, SC.
Relevant statistics for each of these system groups as of March 31, 1999 are
displayed in the system statistics table attached to this report.
STARKVILLE, MS
The Starkville, MS operating group consists of two cable systems that serve
the towns of Starkville and Maben, MS. At March 31, 1999, the Starkville group
passed an estimated 11,085 homes with approximately 195 miles of plant, for an
overall estimated home density of 57 homes per mile. At that time, the group
served 8,097 basic subscribers from two headends, for a basic penetration of
73.0%.
The Starkville area is home to Mississippi State University, and the area
benefits from the school's economic impact. Home growth in the Starkville area
has been steady as the growth of the university has led to the need for new
housing for students, teachers and support staff, as well as new roads and other
community growth. In Starkville, the cable system competes in certain areas with
Wireless One, an MMDS operator, and has also seen competition from DBS.
Both the Starkville and the Maben cable systems operate at 330 MHz. The
Starkville system offers 44 channels, while the Maben system offers 31 channels.
The systems are not addressable and do not offer pay-per-view services. The
Partnership plans to upgrade both systems to a minimum of 550 MHz and 400 MHz,
respectively during the next two years.
PHILADELPHIA, MS
The Philadelphia, MS cable system is served from one headend. At March 31,
1999, the Philadelphia system passed an estimated 4,395 homes with approximately
170 miles of plant, for an overall estimated home density of 26 homes per mile.
At that time the cable system served 3,851 basic subscribers, for a basic
penetration of 87.6%.
While the city of Philadelphia is growing moderately, the cable service
area includes the nearby Choctaw Indian reservation, which is experiencing
significant home growth. The area benefits economically from the Silver Star
Casino, which is located on the reservation.
The Philadelphia system currently operates at 330 MHz, but the Partnership
is in the process of upgrading the system to 450 MHz, with about 70% of the
upgrade complete at this time, and the rest to be done within the next few
years. The Philadelphia system currently offers 43 channels of programming, with
no pay-per-view.
M-5
240
KOSCIUSKO, MS
The Kosciusko, MS operating group consists of two cable systems that serve
the towns of Kosciusko and Carthage, MS. At March 31, 1999, the Kosciusko group
passed an estimated 5,440 homes with approximately 126 miles of plant, for an
overall estimated home density of 43 homes per mile. At that time, the group
served 4,350 basic subscribers from two headends, for a basic penetration of
80.0%.
Both the Kosciusko and the Carthage cable systems operate at 450 MHz, and
the systems offer 45 and 44 channels of programming, respectively. The Kosciusko
system is designed at 550 MHz, while the Carthage system is designed at 450 MHz.
Neither system is addressable.
FOREST, MS
The Forest, MS operating group currently consists of two cable systems that
serve the towns of Forest and Raleigh, MS. At March 31, 1999, the Forest group
passed an estimated 3,735 homes with approximately 154 miles of plant, for an
overall estimated home density of 24 homes per mile. At that time, the group
served 3,222 basic subscribers from two headends, for a basic penetration of
86.3%.
Forest is located east of Jackson, MS along interstate 20. The area's
economy includes several large poultry processing plants. Forest and Raleigh are
the county seats of Scott County and Smith County, respectively. The Forest
system also serves the town of Morton, MS.
The Forest and the Raleigh systems operate at 330 MHz and 300 MHz,
respectively. The Forest system offers 43 channels of programming, while the
Raleigh system offers just 25 channels. Neither system is addressable. The
Partnership plans to rebuild the Forest system in the near future to a 550 MHz
design, with activation at 450 MHz. The smaller Raleigh system currently has no
plans for further upgrade.
HIGHLANDS, NC
The Highlands, NC cable system is served from a single headend. At March
31, 1999, the Highlands system passed an estimated 4,190 homes with
approximately 128 miles of plant, for an overall estimated home density of 33
homes per mile. At that time, the system served 2,584 basic subscribers for a
basic penetration of 61.7%.
Highlands is a resort area located in western North Carolina near the
Georgia state line. The system operates at 330 MHz and offers 40 channels of
programming. The Partnership plans to rebuild the Highlands system to 450 MHz,
with the rebuild slated for completion by late in the year 2000.
BARNWELL, SC
The Barnwell, SC operating group includes three cable systems that serve
the towns of Barnwell, Allendale and Bamberg, SC. At March 31, 1999, the
Barnwell operating group passed an estimated 12,125 homes with approximately 309
miles of plant, for an overall estimated home density of 39 homes per mile. At
that time, the group served 5,941 basic subscribers from three headends, for a
basic penetration of 49.0%.
The Barnwell group was purchased by the Partnership in 1998. The towns
served by the group are not growing and some show signs of economic decline. The
service area is located near the Savannah River in Barnwell, Allendale and
Bamberg Counties, with the systems three main towns being the county seats of
those counties.
The cable plant in Allendale and Bamberg has been rebuilt to 450 MHz, with
550 MHz spacing. The Barnwell plant is in the process of being rebuilt, with
about 25 percent of the plant at 450 MHz, and the remainder at 300 MHz. The
Barnwell rebuild is planned to continue through 2001. The Barnwell system
currently offers 32 channels of programming, while the Bamberg and Allendale
systems currently offer 41 channels each.
M-6
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BENNETTSVILLE, SC
The Bennettsville, SC cable system is served from one headend. At March 31,
1999, the Bennettsville system passed an estimated 9,090 homes, with
approximately 145 miles of plant, for an overall estimated home density of 63
homes per mile. At that time the cable system served 4,918 basic subscribers,
for a basic penetration of 54.1%.
Bennettsville is located in northeastern South Carolina near the North
Carolina state line. It is the county seat of Marlboro County and the only town
of its size in the county. The area has experienced economic difficulty lately,
with an unemployment rate in the high teens and a declining downtown area.
The Bennettsville system is in the process of being rebuilt to 550 MHz,
with about 96% of the rebuild completed at this time. The system offers 54
channels of programming.
FINANCIAL SUMMARY
For the three months ended March 31, 1999, the Cable Systems generated
combined annualized revenue of $14,363,656, or $36.31 per basic subscriber. The
Cable Systems for the same period had combined annualized operating cash flow of
$6,731,196, resulting in a 47% operating cash flow margin.
M-7
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3. VALUATION
DISCOUNTED CASH FLOW APPROACH
Financial projections, including all assumptions regarding operations and
future capital expenditures were prepared by CEA based on historical and
projected financial and operational information provided by the Partnership.
The discount rate used in this analysis was derived using a weighted
average cost of capital. Based on CEA's recent experience in the cable system
transaction market, it is CEA's opinion that equity investors in cable systems
would likely require a 25 percent return in order to justify the equity
investment. Additionally, based on CEA's recent experience in raising debt
financing for cable operators, a lender would likely charge an interest rate of
approximately 8 percent and would likely be willing to lend up to 60 percent of
asset value at that rate. Thus, the likely typical weighted average cost of
capital that a buyer would experience in purchasing the assets of the subject
Cable Systems can be calculated as follows:
60 percent debt at a rate of 8% = .60 X 8% = 4.8%
40 percent equity at a rate of
25% = .40 X 25% = 10.0%
Weighted Average Cost of Capital = 14.8%
The terminal value of the Cable Systems was calculated by multiplying the
free cash flow of the Cable Systems in the final year of the projection period
by an appropriate cash flow multiple.
The application of the discounted cash flow approach resulted in a total
present value indication for the Cable Systems of $74,600,000. This value is
equivalent to 11.1 times running rate operating cash flow for the Cable Systems,
or $2,263 per basic subscriber.
MARKET APPROACH
In the first six months of 1999, prices paid for cable television systems
increased dramatically over past prices, as the consolidation of the industry
accelerated rapidly. In recent years, prices paid for cable television systems
have generally ranged from 8 to 12 times operating cash flow. During 1999, this
cash flow multiple range increased and widened to a level of 11 to 19 times cash
flow.
Many of the transactions announced during this time period were very large
transactions involving target companies with over 1 million subscribers. The
increase in prices was attributable to, among other things, the advent of
Internet service, the desire of top players in the industry to increase their
size quickly, and the recent increase in cable public stock values, which gave
these large players an inexpensive currency with which to buy.
With the larger buyers focused on increased size and the smaller potential
buyers unable to pay higher prices, there have been fewer transactions involving
cable systems of comparable size and markets to the subject Cable Systems, and
as a result, the prices paid in such transactions have not increased as
dramatically as the prices paid for the very large cable operators.
M-8
243
The table below highlights several transactions involving systems of
similar size and markets to the subject Cable Systems. In these transactions,
the prices paid range from 9.2 to 12.7 times operating cash flow, with a
weighted average of 10.8 and a median of 11.3. Prices per subscriber range from
$1,500 to $2,755 with a weighted average of $2,313 and a median of $2,134.
PRICE CF VALUE/
DATE SYSTEM SELLER BUYER (MIL) SUBS MULTIPLE SUB
---- ------ ------ ----- ----- ---- -------- ------
May 99 NC, SC, MS, OK, GA Genesis Benchmark $128 51,000 12.1 $2,510
Feb 99 CA, NM, CO, ND, etc. Scott Cable Interlink 165 77,000 9.2 $2,134
Feb 99 Various LA, TX Illini Cablevision Star Cable 18 12,000 10.9 $1,500
Feb 99 MI, IN Michiana Cable Ohio Cablevision 11 6,000 11.3 $1,909
Jan 99 Various PA Raystay Lenfest 92 33,000 12.7 $2,755
Wt. Average 10.8 $2,313
Median 11.3 $2,134
Based on these transactions, as well as on CEA's current experience in the
cable system transaction market, it is CEA's opinion that a cash flow multiple
of 11.0 is appropriate in valuing the Cable Systems. Applying this multiple to
the Cable Systems' annualized operating cash flow of $6,731,196 yields a value
indication from the market approach of $74,043,156. This value, which is
equivalent to $2,246 per subscriber, correlates well with the results of the
discounted cash flow approach.
VALUE CONCLUSION
CEA used the discounted cash flow approach and the market approach to
determine the fair market value of the assets of the Cable Systems. Based on
this analysis and Subject to the limiting conditions listed in this report, it
is the opinion of Communications Equity Associates that, as of the date of this
report the fair market value of the assets of the Cable Systems is $74,600,000.
NCP SIX CABLE SYSTEM STATISTICS
AS OF MARCH 31, 1999
STARKVILLE, PHILADELPHIA, KOSCIUSKO, FOREST, HIGHLANDS, BARNWELL, BENNETTSVILLE,
MS MS MS MS NC SC SC
----------- ------------- ---------- ---------- ---------- ------------- --------------
HOMES PASSED........... 11,085 4,395 5,440 3,735 4,190 12,125 9,090
BASIC SUBSCRIBERS...... 8,097 3,851 4,350 3,222 2,584 5,941 4,918
Basic Pen %........... 73.0% 87.6% 80.0% 86.3% 61.7% 49.0% 54.1%
PAY UNITS.............. 2,930 1,450 1,371 1,442 482 4,301 3,628
Pay Pen %............. 36.2% 37.7% 31.5% 44.8% 18.7% 72.4% 73.8%
MILES OF PLANT......... 194.5 170 125.8 154 128 308.5 145
Home/Mile Density..... 57 26 43 24 33 39 63
HEADENDS............... 2 1 2 2 1 3 1
PLANT CAPACITY:
Headend 1............. 330 MHz 450 MHz - 70% 450 MHz 330 MHz 330 MHz 300 MHz - 75% 550 MHz - 96%
330 MHz - 30% 450 MHz - 35% 440 MHz - 4%
Headend 2............. 330 MHz 450 MHz 300 MHz 450 MHz
Headend 3............. 450 MHz
1ST Q ANNUALIZED.......
REVENUE............... $3,645,756 $1,633,004 $1,848,480 $1,414,784 $1,036,216 $2,706,144 $2,079.272
Rev/Sub/Mo.......... $ 37.51 $ 35.54 $ 35.46 $ 36.59 $ 32.86 $ 38.67 $ 35.59
OCF (PRE CAP.)......... $1,753,776 $ 681,828 $ 885,716 $ 723,800 $ 423,652 $ 990,764 $ 853,812
Margin................ 48.1% 41.8% 47.9% 51.2% 40.9% 36.6% 41.1%
Annual OCF/Sub........ $ 217 $ 178 $ 204 $ 225 $ 161 $ 170 $ 175
OCF (AFTER
CAPITALIZATION).......
Margin................
Annual OCF/Sub........
TOTAL
-----------
HOMES PASSED........... 50,060
BASIC SUBSCRIBERS...... 32,963
Basic Pen %........... 65.8%
PAY UNITS.............. 15,604
Pay Pen %............. 47.3%
MILES OF PLANT......... 1,226
Home/Mile Density..... 41
HEADENDS............... 12
PLANT CAPACITY:
Headend 1.............
Headend 2.............
Headend 3.............
1ST Q ANNUALIZED.......
REVENUE............... $14,363,656
Rev/Sub/Mo.......... $ 36.31
OCF (PRE CAP.)......... $ 6,313,348
Margin................ 44.04%
Annual OCF/Sub........ $ 192
OCF (AFTER
CAPITALIZATION)....... 6,731,196
Margin................ 47%
Annual OCF/Sub........ $ 205
M-9
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EXHIBIT N
[HOULIHAN LOKEY LETTERHEAD]
FAIRNESS OPINION FORM
THIS DRAFT IS FURNISHED SOLELY TO INDICATE THE EXPECTED FORM OF THE FINAL
OPINION AND THE PROCEDURES AND UNDERLYING ASSUMPTIONS EXPECTED TO BE USED. THE
TEXT OF THE FINAL OPINION WILL NECESSARILY DEPEND UPON OUR REVIEW PROCEDURES,
INCLUDING REVIEW BY COUNSEL, WHICH WILL NOT BE COMPLETED UNTIL SHORTLY BEFORE
THE FINAL LETTER IS DELIVERED. THE FINAL OPINION MAY VARY FROM THIS FORM
INCLUDING, BUT NOT LIMITED TO, QUALIFICATIONS TO THE OPINION.
[ , 2001]
John S. Whetzell
President
Northland Communications Corporation
Managing General Partner of Northland Cable Properties Six Limited Partnership
1201 3rd Avenue
Suite 3600
Seattle WA, 98101
John S. Simmers Vice President and Secretary
FN Equities Joint Venture
Administrative General Partner of Northland Cable Properties Six Limited
Partnership
2780 Skypark Drive
Suite 300
Torrance, CA 90505
RE: PROPOSED SALE OF ASSETS BY NORTHLAND CABLE PROPERTIES SIX LIMITED
PARTNERSHIP TO NORTHLAND CABLE TELEVISION, INC., NORTHLAND CABLE
PROPERTIES, INC. AND NORTHLAND CABLE NETWORKS LLC
Dear Sirs:
We understand that Northland Cable Properties Six Limited Partnership
("NCP-Six") is a limited partnership consisting of its limited partners,
Northland Communications Corporation ("Northland"), as its managing general
partner (the "Managing GP"), and FN Equities Joint Venture as its administrative
general partner (the "Administrative GP," with the Managing GP and the
Administrative GP hereinafter referred to as the "General Partners"). NCP-Six
consists of five operating groups of cable assets as follows: the Starkville,
Mississippi operating group; the Philadelphia, Mississippi operating group; the
Highlands, North Carolina operating group; the Barnwell, South Carolina
operating group, and the Bennettsville, South Carolina operating group.
In the second quarter of 1999, NCP-Six retained the services of both
Daniels and Associates, L.P. and Communications Equity Associates to conduct
appraisals of the assets owned by NCP-Six. Each firm appraised the assets with a
valuation date as of July 1, 1999. Daniels & Associates appraised the fair
market value of the NCP-Six assets at $73.3 million. Communications Equity
Associates appraised the fair market value of the NCP-Six assets at $74.6. These
appraisals were obtained by the General Partners as part of an effort to
determine a fair price at the time for the sale of all of the assets of NCP-Six.
N-1
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Northland Communications Corporation
FN Equities Joint Venture
[ , 2001]
In addition to the appraisals, NCP-Six retained Daniels and Associates to
solicit bids from third parties for the purchase of NCP-Six's assets. NCP-Six
received four offers for the purchase of all or portions of the assets. Two of
the offers were to purchase all of the assets. One offer proposed to purchase
all of the assets for $70.4 million, and the other offer proposed to purchase
all of the assets for $76 million. The remaining two offers proposed to purchase
only a portion of the assets. Of these offers, the highest offer of $76 million
required a material break up fee and certain other conditions that were not, in
the opinion of the General Partners, in the best interest of NCP-Six, and each
of the third party offers were rejected. Following rejection of the third party
offers, Northland made an offer to buy all of the assets of NCP-Six, subject to
Northland securing acceptable financing, for a proposed valuation of $76
million, an amount equal to the highest third party bid, without requiring the
break up fee that was part of the highest third party bid.
On December 6, 1999, a proxy solicitation (the "Initial Filing") was filed
by NCP-Six with the Securities and Exchange Commission to solicit approval by
the limited partners of NCP-Six of a proposed sale to Northland, or its
affiliate, of the entirety of the assets of NCP-Six for a purchase price of $76
million. Northland was unable thereafter to secure acceptable financing for the
transaction. As a result, Northland concluded that it could not proceed to make
a formal offer to buy the assets of NCP-Six for the $76 million purchase price,
and the Initial Filing was withdrawn before the transaction was voted upon by
the limited partners of NCP-Six.
In July 2000, NCP-Six again retained Daniels and Associates to solicit
third party bids for the assets of NCP-Six, using a blind bid process, the
results of which were not made available to the General Partners until all bids,
including Northland's, had been received. Northland and three other bidders
submitted offers for the assets of NCP-Six in response to the July, 2000
solicitation, with Northland submitting the only offer to acquire the entirety
of the assets of NCP-Six. After evaluating the second offers, it was determined
that a third-party offer to purchase NCP-Six's Bennetsville, South Carolina
operating group for $8,388,000, and Northland's offer to acquire the remaining
assets of NCP-Six for $62,250,000, were the highest and best offers for the
respective assets covered by those offers and the managing general partner
commenced negotiations towards definitive asset purchase agreements with each
bidder. Subsequently, negotiations were terminated with the third-party bidder.
The general partners then looked to the next highest bid received for NCP-Six's
Bennettsville, South Carolina operating group in the July 2000 solicitation,
which was submitted by Northland in the amount of $7,950,000.
The General Partners now wish to solicit the approval of the limited
partners of NCP-Six for the sale of the assets of NCP-Six to three affiliates of
Northland for a combined purchase price valuation of $70,200,000, subject to
certain adjustments. The specific proposed purchasers include Northland Cable
Networks LLC, Northland Cable Properties, Inc. and Northland Cable Television,
Inc.
You have requested our opinion (the "Opinion") as to whether the aggregate
consideration to be received by NCP-Six in exchange for NCP-Six's assets in the
combined proposed sales is fair to NCP-Six from a financial point of view. The
Opinion does not address NCP-Six's underlying business decision to effect the
proposed sales. We did not solicit third party indications of interest in
acquiring all or any part of NCP-Six. Furthermore, we have not negotiated the
proposed sales or advised you with respect to alternatives to them.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. met with representatives of senior management of Northland
Telecommunications Corporation and Northland Cable Properties Six Limited
Partnership to discuss the operations, financial condition, future
prospects and projected operations and performance of Northland Cable
Properties
N-2
246
Northland Communications Corporation
FN Equities Joint Venture
[ , 2001]
Six Limited Partnership, and held discussions with representatives of
Northland Cable Properties Six Limited Partnership's financial advisors;
2. visited the following cable system operations representing
approximately 92% of NCP-SIX's subscribers:
- Starkville, MS
- Philadelphia, MS
- Barnwell, SC
- Bennettsville, SC
3. reviewed the following documents:
- Northland Telecommunications Corporation 1999 Annual Report;
- Northland Cable Properties Six Limited Partnership Prospectus dated
July 10, 1986;
- Amended and Restated Certificate and Agreement of Limited Partnership
of Northland Cable Properties Six Limited Partnership, executed on
November 3, 1986;
- Northland Cable Properties Six Limited Partnership First Supplement to
Prospectus dated October 23, 1986;
- Northland Cable Properties Six Limited Partnership Second Supplement
to Prospectus dated December 1, 1986;
- Northland Cable Properties Six Limited Partnership Third Supplement to
Prospectus dated January 26, 1987;
- Northland Cable Properties Six Limited Partnership Audited Financial
Statements for the years ended December 31, 2000 and 1999;
- Northland Cable Properties Six Limited Partnership Audited Financial
Statements for the years ended December 31, 1999 and 1998;
- Northland Cable Properties Six Limited Partnership Audited Financial
Statements for the years ended December 31, 1998 and 1997;
- Northland Cable Properties Six Limited Partnership Audited Financial
Statements for the years ended December 31, 1996 and 1995;
- Northland Cable Properties Six Limited Partnership Audited Financial
Statements for the years ended December 31, 1997 and 1996;
- Northland Cable Properties Six Limited Partnership 10-K for the fiscal
year ended December 31, 1997;
- Northland Cable Properties Six Limited Partnership 8-K dated January
2, 1998;
- Northland Cable Properties Six Limited Partnership 10-K/A for the
fiscal year ended December 31, 1998;
- Northland Cable Properties Six Limited Partnership 10-Q for the
quarterly period ended June 30, 1999;
- Northland Cable Properties Six Limited Partnership 10-K for the fiscal
year ended December 31, 1999;
N-3
247
Northland Communications Corporation
FN Equities Joint Venture
[ , 2001]
- Northland Cable Properties Six Limited Partnership 10-Q for the
quarterly period ended June 30, 2000;
- Unaudited detailed financial statements for each operating group for
the year-to-date period ended December 31, 2000;
- Draft audited financial statements for Northland Cable Properties Six
Limited Partnership for the two fiscal years ended December 31, 2000
and 1999;
- Unaudited detailed financial statements for each operating group for
the five months ended May 31, 2001;
- Northland Cable Properties Six Limited Partnership Appraisal Analysis
Summary as of July 1, 1999 prepared by Daniels & Associates, L.P.;
- Northland Cable Properties Six Limited Partnership Asset Valuation
Analysis as of July 1, 1999 prepared by Communications Equity
Associates;
- Northland Cable Properties Six Limited Partnership Confidential
Memorandum prepared by Daniels & Associates, L.P., dated July 1999;
- Northland Cable Properties Six Limited Partnership Bid Instructions
Letters, dated August 6, 1999 from Daniels & Associates, L.P.;
- Northland Cable Properties Six Limited Partnership Buyer List,
prepared by Daniels & Associates, dated August 20, 1999;
- Northland Cable Properties Six Limited Partnership Bid Summary, Dated
August 20, 1999;
- Northland Cable Properties Six Limited Partnership Confidential
Memorandum prepared by Daniels & Associates, L.P., dated June, 2000;
- Northland Cable Properties Six Limited Partnership Bid Instructions
Letters, dated July 27, 2000 from Daniels & Associates, L.P.;
- Bid Procedures Letter from Daniels & Associates, L.P., dated July 18,
2000 and Proposed Asset Purchase Agreement;
- Northland Cable Properties Six Limited Partnership Prospective Buyers
List, prepared by Daniels & Associates, dated July 28, 2000;
- Northland Cable Properties Six Limited Partnership Updated Bid Book,
dated August 16, 2000;
- Follow-up Bid Instruction Letters to Scott Johnson at Adelphia
Communications from Daniels & Associates, L.P., dated July 28, 2000
and August 3, 2000;
- Affidavits from Hubbard & Johnson, P.C., signed August 10, 2000 and
August 17, 2000;
- Proposed Asset Purchase and Sale Agreement by and Between Northland
Cable Properties Six Limited Partnership and Bidder D;
- Draft Asset Purchase Agreement between Northland Cable Properties Six
Limited Partnership and Northland Communications Corporation, or its
Affiliates or Assigns, revised 12/12/00;
- Draft Letter of Intent between Northland Cable Networks LLC and
Northland Cable Properties Six Limited Partnership dated June 8, 2001;
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Northland Communications Corporation
FN Equities Joint Venture
[ , 2001]
- Draft Asset Purchase and Contribution Agreement Among Northland Cable
Properties Six Limited Partnership, Northland Communications
Corporation and Northland Cable Networks LLC dated May 29, 2001;
- Draft Asset Purchase Agreement between Northland Cable Properties Six
Limited Partnership and Northland Cable Properties, Inc. dated June
, 2001;
- Draft Asset Purchase Agreement between Northland Cable Properties Six
Limited Partnership and Northland Cable Television, Inc. dated June
, 2001;
- Northland Cable Networks LLC, Draft Limited Liability Company
Agreement, Dated , 2001;
- BMO Nesbitt Burns Term Sheet for Northland Cable Properties, Inc.,
dated April 3, 2001;
- GE Capital Commercial Finance, Inc. Term Sheet for "Newco" LLC dated
June 21, 2001;
- Northland Cable Properties Six Limited Partnership Preliminary Proxy
Statement filed with the Securities and Exchange Commission on
December 9, 2001;
- Northland Cable Properties Six Limited Partnership Preliminary Proxy
Statement filed with the Securities and Exchange Commission on
December 21, 2000;
- Northland Cable Properties Six Limited Partnership Subscriber History
from January 1998 to September 2000, dated October 25, 2000;
- Northland Cable Properties Six Limited Partnership Subscriber
Report -- End of Month Subs as of December 2000;
- Northland Cable Properties Six Limited Partnership Subscriber
Report -- End of Month Subs as of May 2001;
- NCP-6 Subscriber Summary (1st Quarter 2001);
- Summary of Secondary Trading for units in NCP-Six from inception to
June 25, 2001 from Bloomberg L.P.;
- Franchise Renewal Docket;
- Listing of Property Leases;
- Channel Line-up, printed October 25, 2000;
- NCP-Six Company Summary 3 Year Capital Plan dated January 22, 2001;
and
- Organization Chart for Northland Telecommunications Corporation.
In addition, we reviewed publicly available information on the
industry, NCP-Six and comparable companies and transactions.
4. performed appraisals of the assets proposed to be sold to
Northland, which included, among other things, the following analyses:
- Analysis of comparable transactions;
- Analysis of all previous purchases and sales of cable systems by
NCP-Six;
- Analysis of comparable public companies;
- Discounted cash flow analysis;
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Northland Communications Corporation
FN Equities Joint Venture
[ , 2001]
- Review of the returns to the original limited partners and limited
partners from secondary trading;
- Review of the historical and projected financial performance of the
systems;
- Review of the historical subscriber performance of the systems;
- Review of the historical and projected capacity and other technical
aspects of the systems;
- Review of the implied multiples from the Proposed Transaction;
- Analysis of the change in valuations of cable systems over time; and
- Other studies, analyses and inquiries as we have deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us by NCP-Six have been
reasonably prepared and reflect the best currently available estimates of the
future financial results and condition of NCP-Six, and that there has been no
material change in the assets, financial condition, business or prospects of
NCP-Six since the date of the most recent financial statements made available to
us.
We note that NCP-Six and the Managing GP have agreed to indemnify us for
certain liabilities arising out of our engagement. The fees for our services
were fixed upon our engagement at the same rate regardless of whether the
proposed sales were ever consummated, and regardless of the conclusions reached
in this Opinion.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to NCP-Six and do not assume any
responsibility with respect to it. We have not made an independent appraisal of
any specific individual fixed assets of the Partnership, but we have appraised
the value of NCP-Six as a going concern. Our opinion is necessarily based on
business, economic, market and other conditions as they exist and can be
evaluated by us at the date of this letter.
This Opinion is delivered to each recipient subject to the conditions,
scope of engagement, limitations and understandings set forth in this Opinion,
and subject to the understanding that the obligations of Houlihan Lokey are
solely corporate obligations, and no officer, director, employee, agent,
shareholder or controlling person of Houlihan Lokey shall be subjected to any
personal liability whatsoever to any person, nor will any such claim be asserted
by or on behalf of you or your affiliates. This Opinion does not constitute a
recommendation to any limited partner of NCP-Six as to how such limited partner
should vote on the proposed sales or any matter related thereto.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the aggregate consideration to be received by NCP-Six in connection with the
proposed sales, is fair to NCP-Six from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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EXHIBIT O
NCP-SIX LIQUIDATING TRUST AGREEMENT
THIS AGREEMENT is made and entered into by and among NORTHLAND
COMMUNICATIONS CORPORATION ("NCC"), as agent for the Limited Partners of
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP ("NCP-Six"), a Washington
limited partnership ("Trustors"), and RICHARD I. CLARK ("the Trustee").
1. Transfer of Property. Following the final sale of NCP-Six's assets, the
Trustors are contemporaneously herewith transferring to the Trustee the right to
receive payment and other rights associated with each of the Promissory Notes
delivered to NCP-Six at the closing of one or more sales of NCP-Six's assets as
described in that certain Proxy Statement by NCP-Six dated July 31, 2001 (the
"Proxy Statement"). The Trustors are also contemporaneously herewith
transferring to the Trustee the right to receive all amounts owed NCP-Six from
the "hold back escrow(s)" established pursuant to any Asset Purchase
Agreement(s) contemplated by the Proxy Statement. In addition, the Trustors are
depositing contemporaneously herewith $750,000 cash in accordance with the terms
of the Proxy Statement. These sums, together with other property that may be
added to the trust created herein, shall be held, managed and distributed by the
Trustee as herein provided. This trust shall be known as the NCP-Six Liquidating
Trust. The purpose of the Trust shall be to hold and administer for the benefit
of the beneficiaries the amounts owing to the beneficiaries in accordance with
the terms of the Proxy Statement.
2. Identification of Beneficiaries. The beneficiaries of the Trust (each a
"Beneficiary") are the limited partners of NCP-Six.
3. Allocation of Property. The Trustee shall allocate the property
described in Article 1, and the income and expenses of the Trust, among the
Beneficiaries in proportion to their respective ownership interests in NCP-Six.
4. Distribution of Principal and Income. The Trustee may distribute to each
Beneficiary such portion or all of such Beneficiary's share of the principal and
income of the Trust at such time and in such manner as the Trustee shall
determine, until the termination of the Trust. At least annually, the Trustee
shall distribute to the Beneficiaries any income from investments, net of any
expenses of the Trust.
5. Distribution of Principal and Termination of Trust. To the extent that
each trust has not been distributed sooner, the entire balance of the Trust
shall be distributed to the Beneficiaries no later than December 31, 2005.
6. Death of Beneficiary. In the event of the death of any Beneficiary prior
to that time, the Beneficiary is entitled to receive a full distribution of the
balance of the trust estate, and any part of such trust still being held shall
be distributed as the Beneficiary shall appoint by Last Will and Testament.
7. Purpose of Trust. The purpose of the Trust is solely to hold and invest
temporarily the proceeds attributable to Trustors from the liquidation of
NCP-Six, and to make payment of any claims and/or contingent liabilities arising
from the business formerly conducted by NCP-Six. The Trust is not intended to
continue or engage in the conduct of the business formerly conducted by NCP-Six.
8. Successor Trustee. In the event the Trustee should die, resign or
otherwise become incapable of serving hereunder, a Successor Trustee shall be
appointed by the Board of Directors of Northland Communications Corporation.
9. Spendthrift Provision. Neither the income nor the principal of the
trusts created hereunder, nor any portion thereof, shall be alienable by any
Beneficiary, either by assignment or by any other method, and the same shall not
be subject to be taken by the creditors of any such Beneficiary by any process
whatsoever.
10. Trustee's Powers. In addition to the rights, powers and authority
incident to the office or required in or convenient to the Trust otherwise
vested in or impliedly conferred on the Trustee, the
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Trustee shall have all of the rights, powers and authority with respect to the
Trust created hereunder provided under Washington law.
10.1 Without limiting the generality of the foregoing, the Trustee is
expressly authorized to:
(a) Determine what is principal or income, which authority shall
specifically include the right to make any adjustments between principal
and income for premiums, discounts, depreciation or depletion.
(b) To hold and retain in the same form as received any and all
property transferred to the Trustee for administration hereunder (and
additions thereto), even though such property may not be of a nature or
character authorized under the laws of the State of Washington or of any
other state or jurisdiction for trust investments, or be unsecured,
unproductive, underproductive, overproductive or be of a wasting nature, or
be inconsistent with the usual concepts of diversification of trust assets.
(c) Rely with acquittance on advice of counsel on questions of law.
(d) Employ persons to advise or assist the Trustee in the performance
of his duties, and to pay reasonable compensation therefore.
10.2 Notwithstanding the foregoing, the Trustee is expressly
prohibited from:
(a) Investing trust assets except in demand and time deposits in
banks, or temporary investments such as short-term certificates of deposit
or Treasury bills.
(b) Receiving any transfer of any listed or unlisted stocks or
securities, any general or limited partnership interest, or any operating
assets of a going business.
(c) Receiving or retaining cash in excess of a reasonable amount to
meet claims and contingent liabilities.
11. Accounting. The Trustee shall file income tax returns for the Trust as
a grantor trust pursuant to Section 1.671-4(a) of the Income Tax Regulations.
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12. Governing Law. The validity and construction of any provision of this
trust agreement shall be governed by the internal laws of the State of
Washington, and this trust shall be deemed to have its status in the State of
Washington.
DATED , 200_.
TRUSTORS:
NORTHLAND COMMUNICATIONS CORPORATION,
agent for the Limited Partners of
NORTHLAND CABLE PROPERTIES SIX LIMITED
PARTNERSHIP
By:
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Its:
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TRUSTEE:
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Richard I. Clark
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