-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UCjN9fNnXw6avE8zqv2xbaMLhaBDnZVWbeqgxgRcyLzFPO3RBSHfSL3BXgnPZc1E PJMgZSAT8KIfCmOvuGhdsg== 0000891020-97-001612.txt : 19971229 0000891020-97-001612.hdr.sgml : 19971229 ACCESSION NUMBER: 0000891020-97-001612 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19971223 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHLAND CABLE NEWS INC CENTRAL INDEX KEY: 0001051919 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 911638891 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-43157 FILM NUMBER: 97743768 BUSINESS ADDRESS: STREET 1: 1201 THIRD AVE STREET 2: SUITE 3600 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066211351 MAIL ADDRESS: STREET 1: 1201 THIRD AVE STREET 2: SUITE 3600 CITY: SEATTLE STATE: WA ZIP: 96101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHLAND CABLE TELEVISION INC CENTRAL INDEX KEY: 0001051920 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 911311836 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-43157-01 FILM NUMBER: 97743769 BUSINESS ADDRESS: STREET 1: 1201 THIRD AVE STREET 2: SUITE 3600 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066211351 MAIL ADDRESS: STREET 1: 1201 THIRD AVE STREET 2: SUITE 3600 CITY: SEATTLE STATE: WA ZIP: 96101 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NORTHLAND CABLE TELEVISION, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WASHINGTON 91-1311836 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
AND SUBSIDIARY GUARANTOR: NORTHLAND CABLE NEWS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WASHINGTON 91-1638891 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4841 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) 1201 THIRD AVE., SUITE 3600 JAMES A. PENNEY SEATTLE, WA 98101 VICE PRESIDENT AND SECRETARY (206) 621-1351 NORTHLAND CABLE TELEVISION, INC. (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE 1201 THIRD AVE., SUITE 3600 NUMBER, SEATTLE, WA 98101 INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL (206) 621-1351 EXECUTIVE OFFICE) (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO: SCOTT T. BELL JOHN P. STOKKE CAIRNCROSS & HEMPELMANN P.S. 701 FIFTH AVE., SUITE 7000 SEATTLE, WA 98104 (206) 587-0700 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF AMOUNT TO AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED REGISTRATION FEE - ---------------------------------------------------------------------------------------------- Senior Subordinated Notes................................. $100,000,000 $29,500.00 ==============================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. SUBJECT TO COMPLETION, DATED , 1997 PROSPECTUS - ---------------- NORTHLAND CABLE TELEVISION, INC. OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 ------------------------ Northland Cable Television, Inc., a Washington corporation (the "Company"), hereby offers to exchange (the "Exchange Offer") up to $100,000,000 in aggregate principal amount of its 10 1/4% Senior Subordinated Notes due 2007 (the "Exchange Notes") for up to $100,000,000 in aggregate principal amount of their outstanding 10 1/4% Senior Subordinated Notes due 2007 (the "Original Notes" and, together with the Exchange Notes, the "Notes") that were issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). As used herein, the "Company" refers to Northland Cable Television, Inc. and its wholly-owned subsidiary, Northland Cable News, Inc., unless the context otherwise indicates. There will be no cash proceeds to the Company from the Exchange Offer. The terms of the Exchange Notes are substantially identical (including principal amount, interest rate, maturity, security and ranking) to the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes (i) are freely transferable by holders thereof (except as provided below) and (ii) are not entitled to certain registration rights and certain additional interest provisions which are applicable to the Original Notes under the Registration Rights Agreement (as defined). The Exchange Notes will be issued under the indenture governing the Original Notes. For a complete description of the terms of the Exchange Notes, see "Description of the Notes." The Original Notes were originally issued and sold (the "Offering") on November 12, 1997 in a transaction not registered under the Securities Act, in reliance upon the exemption provided in Section 4(2) of the Securities Act and Rule 144A promulgated under the Securities Act. Accordingly, the Original Notes may not be reoffered, resold or otherwise pledged, hypothecated or transferred in the United States unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. Based upon its view of interpretations provided to third parties by the Staff (the "Staff") of the Securities and Exchange Commission (the "Commission"), the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Original Notes directly from the Company or (iii) a broker-dealer who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of Exchange Notes. The Letter of Transmittal that is filed as an exhibit to the Registration Statement of which this Prospectus is a part (the "Letter of Transmittal") states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers who acquired Original Notes as a result of market making or other trading activities may use this Prospectus, as supplemented or amended, in connection with resales of the Exchange Notes. The Company has agreed that, for a period of 180 days after the Registration Statement of which this Prospectus is a part is declared effective by the Commission, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any holder who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes and any other holder that cannot rely upon interpretations must comply with the registration and prospectus requirements of the Securities Act in connection with a secondary resale transaction. (Cover continued on next page) SEE "RISK FACTORS" BEGINING ON PAGE 15 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS TO CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1997. LOGO 3 (Continued from cover page) Original Notes initially purchased by qualified institutional buyers were initially represented by a single, global Note in registered form, registered in the name of a nominee of the Depository Trust Company ("DTC"), as depository. The Exchange Notes exchanged for Original Notes represented by the global Note will be represented by one or more global Exchange Notes in registered form, registered in the name of the nominee of DTC. See "Description of the Notes -- Book-Entry; Delivery and Form." Exchange Notes issued to non-qualified institutional buyers in exchange for Original Notes held by such investors will be issued only in certificated, fully registered, definitive form. Except as described herein, Exchange Notes in definitive certificated form will not be issued in exchange for the global Note(s) or interests therein. The Exchange Notes constitute new issues of securities with no established public trading market. The Original Notes, however, have traded on the National Association of Securities Dealers, Inc.'s PORTAL market. Any Original Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent that Original Notes are not tendered or are tendered but not accepted in the Exchange Offer, a holder's ability to sell such Original Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of any remaining Original Notes will continue to be subject to the existing restrictions on transfer thereof and the Company will have no further obligation to such holders to provide for the registration under the Securities Act of the Original Notes except under certain limited circumstances. See "Original Notes Registration Rights." No assurance can be given as to the liquidity of the trading market for either the Original Notes or the Exchange Notes. The Original Notes are not listed on any securities exchange and the Company does not intend to apply for a listing of the Exchange Notes on a Securities Exchange. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered or accepted for exchange. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998, unless extended (the "Expiration Date"). The date of acceptance for exchange of the Original Notes (the "Exchange Date") will be the first business day following the Expiration Date, upon surrender of the Original Notes. Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date; otherwise such tenders are irrevocable. 4 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act with respect to the Exchange Notes being offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company, the Guarantor and the Exchange Notes, reference is hereby made to the Registration Statement. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, where such contract or other document is an exhibit to the Registration Statement, each such statement is qualified in all respects by the provisions in such exhibit, to which reference is hereby made. The Company is not currently subject to the informational requirements of the Exchange Act. Upon the effectiveness of the Registration Statement or, if earlier, the Shelf Registration Statement (as defined herein), the Company will become subject to the informational requirements of the Exchange Act and, in accordance therewith, will file all reports and other information required by the Commission. The Registration Statement, as well as periodic reports, proxy statements and other information filed by the Company with the Commission, may be inspected at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W, Washington, D.C. 20549, or at its regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Company upon request. Any such request should be addressed to the Company's principal offices at 1201 Third Ave., Suite 3600, Seattle, WA 98101 (telephone number (206) 674-3900). The Commission maintains a Web site that contains reports, proxy and information statements and other materials that are filed through the Commission's Electronic Data Gathering, Analysis and Retrieval System. This Web site can be accessed at http://www.sec.gov. The Company's obligation to file periodic reports with the Commission pursuant to the Exchange Act may be suspended if the Notes are held of record by fewer than 300 holders at the beginning of any fiscal year of the Company, other than the fiscal year in which the Registration Statement or the Shelf Registration Statement becomes effective. However, the Company has agreed, pursuant to the indenture dated as of November 12, 1997 (the "Indenture") governing the Notes, that, whether or not it is then subject to Section 13 or 15(d) of the Exchange Act, it will file with the Commission and furnish to the holders of the Notes and the Trustee (and, if filing such documents with the Commission is prohibited, to prospective holders of the Notes upon request) copies of the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject to such Sections. In addition, the Company will furnish, upon the request of any holder of a Note, such information as is specified in paragraph (d)(4) of Rule 144A, to such holder or to a prospective purchaser of such Note which such holder reasonably believes is a qualified institutional buyer within the meaning of Rule 144A, in order to permit compliance by such holder with Rule 144A in connection with the resale of such Note by such holder unless, at the time of such request, the Company are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2 5 NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS (THE "PROSPECTUS") DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY NOTES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------------ The Northland Cable Television, Inc. logo and the Northland Cable News name and logo are registered trademarks of Northland Telecommunications Corporation. All other product and service names referenced herein are the trademarks or registered trademarks of their respective owners. 3 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and consolidated financial statements and pro forma financial information (including the notes thereto) appearing elsewhere in this Prospectus. The Company has executed a definitive agreement to acquire six cable television systems in South Carolina (the "Acquisition"), subject to customary closing conditions. Unless otherwise indicated: (i) all references in this Prospectus to the Company's business on a pro forma basis give effect to the offering of the Original Notes (the "Offering"), the application of the net proceeds therefrom, and the Acquisition; and (ii) all references herein to the "Company" refer to Northland Cable Television, Inc. and its consolidated subsidiary, Northland Cable News, Inc. THE COMPANY OVERVIEW Northland Cable Television, Inc. owns and operates 35 cable television systems serving small cities, towns and rural communities (i.e., non-urban markets) in California, Georgia, Oregon, South Carolina, Texas and Washington (the "Existing Systems"). The Company is a wholly owned subsidiary of Northland Telecommunications Corporation ("NTC") which, together with the Company and its other affiliates, has specialized in providing cable television and related services in non-urban markets since 1981. As of September 30, 1997, without giving effect to the Acquisition, NTC and its affiliates operated a total of 99 cable television systems serving approximately 215,115 subscribers in 245 communities in 10 states. See "Certain Transactions." Since closing its initial acquisition in 1986, Northland Cable Television, Inc. has demonstrated a strong and consistent ability to target, negotiate and complete acquisitions of cable systems and integrate the operation of such systems. The Company believes it has created a loyal relationship with the communities it serves by maintaining local offices, hiring staff predominantly from these communities and providing high quality customer service. In many communities, the Company offers its exclusive local news and information programming, produced by the Company's wholly owned subsidiary, Northland Cable News, Inc. The Company has increased its basic and premium subscribers through strategic acquisitions, selective system upgrades and extensions of its cable systems. Additionally, the Company believes its subscriber growth and revenue per subscriber have been enhanced by consistent economic growth and favorable demographics in its markets. As a result of these factors, from December 31, 1992 through September 30, 1997, the Company experienced compound annual growth in basic subscribers and EBITDA (as defined) on an annualized basis of 21.2% and 22.8%, respectively. As of September 30, 1997, the Existing Systems passed approximately 135,180 homes and served 92,800 basic subscribers, representing a basic penetration rate of 68.6%. The Existing Systems achieved average monthly revenue per basic subscriber of $34.63 for the nine months ended September 30, 1997. The Company has executed a definitive agreement to acquire six cable television systems in South Carolina (the "Acquisition Systems") from InterMedia Partners of Carolina, L.P. and Robin Cable Systems, L.P. (collectively, the "Sellers"). The Acquisition Systems are clustered in close proximity to several of the Existing Systems in South Carolina, which the Company believes will allow it to achieve certain economies of scale and operating efficiencies. As of September 30, 1997, the Acquisition Systems passed an estimated 59,260 homes and served approximately 35,705 basic subscribers, representing a basic penetration rate of 60.3%. The Acquisition Systems achieved average monthly revenue per basic subscriber of $34.43 for the nine months ended September 30, 1997. Historically, the Company has successfully assimilated acquired systems into its existing operations, which has resulted in increased revenues and EBITDA. Management's strategy to enhance the financial performance of the Company's systems includes: (i) customizing programming services to the local market; (ii) upgrading its cable systems to increase signal quality, 4 7 improve technical reliability and expand channel capacity; (iii) offering more diversified packages of programming services and pricing; and (iv) leveraging its local presence for both marketing and community-focused customer service. The Company expects this strategy to increase basic penetration in the Acquisition Systems and the revenues and EBITDA generated by those systems. As of September 30, 1997, after giving pro forma effect to the Acquisition, the Company's systems passed an estimated 194,440 homes and served approximately 128,505 basic subscribers, for a basic penetration rate of 66.1%. For the nine months ended September 30, 1997 and the year ended December 31, 1996, on a pro forma basis, the Company had revenues of approximately $39.7 million and $49.4 million, respectively, and EBITDA of approximately $17.8 million and $22.3 million, respectively. The Company believes it is well positioned to capitalize on favorable competitive and economic characteristics associated with owning and operating cable television systems in non-urban markets. These attractive characteristics as compared to urban and suburban markets, include: (i) lower population densities which lead to a higher likelihood of only one cable television provider; (ii) lower churn rates; (iii) greater subscriber penetration rates; (iv) limited reception of over-the-air television stations; and (v) fewer alternative entertainment sources. By clustering systems, the Company is able to take advantage of certain economies of scale, such as reduced payroll, billing and technical costs on a per subscriber basis, and consolidated regional advertising. The Company intends to continue to pursue its clustering strategy through the acquisition of additional systems in or near its current operating regions. John S. Whetzell is the founder, Chairman of the Board and President of NTC and the Company. Mr. Whetzell has assembled a senior management team of six individuals who have an average of approximately 21 years of experience in the cable industry to execute the Company's business strategy. The Company's senior management team has been in place for over 10 years. The Company believes that the depth and experience of its senior management, together with their history of managing the Company as a team, is a key asset which significantly enhances the Company's operating performance. See "Management." BUSINESS STRATEGY The Company's objective is to increase its revenues and EBITDA by utilizing its experience and expertise in acquiring and operating cable television systems. Elements of the Company's business strategy are discussed below. Target Non-Urban Markets. The Company operates clusters of cable television systems serving non-urban markets. The Company believes non-urban markets provide attractive and stable subscriber demographics and opportunities for clustering systems. As a result of the Company's experience in operating cable systems in non-urban markets, management believes it can continue to increase subscriber penetration in its Existing Systems while pursuing strategic acquisitions which complement the Company's Existing Systems. Pursue Strategic Acquisitions. The Company actively considers opportunities to acquire additional cable systems in non-urban markets and generally targets markets with limited off-air broadcast signal reception, few entertainment alternatives and strong community identity. In general, the Company seeks to acquire stand-alone systems, or groups of systems, with an emphasis on those in close proximity to its Existing Systems. In addition, the Company considers acquisitions in other geographic areas where the Company believes it can leverage its experience in operating cable systems in non-urban markets. From time to time the Company may divest itself, through asset exchanges or outright sales, of cable systems that do not readily lend themselves to the Company's philosophy of clustering systems or for other reasons. Among the factors the Company considers in evaluating the desirability of a potential acquisition or asset exchange opportunity are price and terms, subscriber densities, plant quality, availability of off-air broadcast signals, growth potential (in terms of homes passed, revenues and EBITDA) and whether the target system can be readily integrated into the Company's operations. The Company's management team has a history of successfully integrating acquisitions and intends to continue to acquire systems which will further improve revenues and EBITDA. 5 8 Strategically Upgrade Systems. The Company strategically upgrades its cable systems as part of its goal to satisfy current and future customer demand and maximize return on investment. The centerpiece of this strategy is the systematic deployment of fiber optic technology. The Company believes that construction of fiber optic backbones significantly enhances picture quality and system reliability and expands channel capacity, such that the Company is able to offer a product that is competitive or superior to other potential video providers competing in the same markets. Typically, the Company utilizes a 550 MHz system architecture for new trunk and feeder lines, with the flexibility to upgrade to 750 MHz capacity in those specific districts of a service area where future demand for such capacity may develop. The Company believes this strategy enables it to be more responsive, in a cost-efficient manner, to fast changing technologies and local demand for new services, such as data transfer services and digital tiers. As of September 30, 1997, on a pro forma basis, 65.9% of the Company's subscribers were served by systems with fiber optic backbones. The Company plans to invest approximately $14.1 million in system upgrades prior to December 31, 1999, at which time, on a pro forma basis, the Company anticipates that over 70% of the Company's subscribers will be served by systems with fiber optic backbones. Pursue New Business Opportunities. The Company has identified several business opportunities which complement its core video delivery operations. In many systems, the Company has begun utilizing its own advertising sales force to market spot advertising availabilities and production to area merchants. Advertising revenue has grown rapidly and constituted 5.6% of the Company's revenues for the year ended December 31, 1996. In addition, the Company is seeking to construct fiber optic wide area networks in certain communities to be leased to local governments, schools and businesses for various telecommunications applications, such as remote classrooms, voice networks and data transfer. The Company is also exploring the launch of enhanced digital video, such as Headend In the Sky(R) ("HITS"), a digital video compression service. Digital video services such as HITS will enable the Company to significantly expand its program offering by more efficiently utilizing current analog channel capacity. The Company also believes that high speed data services delivered via a hybrid fiber and coaxial plant may provide the Company with opportunities for new revenue sources, such as Internet access, in selected communities. Focus on the Community. A significant component of the Company's business strategy is to bring all aspects of its programming and operations to a local focus in order to increase revenues, EBITDA and subscriber loyalty and to provide key competitive advantages in the markets it serves. Customize Programming and Expand Service Offerings. The Company believes that a system-by-system, decentralized approach to programming is required as each area served has unique demographic and economic characteristics. A primary focus of the Company's programming strategy is the offering of specialty tiers of service which typically contain eight to ten channels of programming such as family, sports, or movie channels that target particular niches of subscribers. The Company's tier subscribers have grown at a compound annual growth rate of 27.2% from December 31, 1992 through September 30, 1997. The Company intends to implement a similar strategy in the Acquisition Systems. Provide Local News. The Company, through its wholly owned subsidiary, Northland Cable News, Inc., provides local news, sports and information to several of the Company's cable systems, serving 42.2% of the Company's current subscribers. This news service, Northland Cable News(R), is available exclusively to systems owned by the Company and its affiliates, and serves to differentiate the Company's programming from any potential competitors. Maintain Local Offices and Personnel. Because the Company specializes in operating cable systems in small cities and towns, the Company emphasizes locally focused customer service. Key aspects of the Company's customer service commitment include local offices and a decentralized management structure. Conveniently accessible offices in or near each of the communities served by the Company are staffed predominantly by locally hired employees who are generally familiar with the community's customer base. 6 9 THE ACQUISITION The Company has executed a definitive agreement pursuant to which it will acquire the Acquisition Systems for approximately $70.0 million. The Company anticipates that the Acquisition will be consummated on or prior to early January 1998, subject to the satisfaction of customary closing conditions and the receipt of certain third party and governmental approvals. However, there can be no assurance that the Acquisition will be consummated. See "Risk Factors -- Risks Associated with the Acquisition" and "Description of the Notes -- Repurchase at the Option of Holders -- Special Repurchase Offer." The Acquisition is part of a transaction among the Company and certain affiliates of the Company and the Sellers and an affiliate of the Sellers, whereby 12 cable television systems serving approximately 54,400 subscribers will be purchased by the Company and certain Company affiliates for approximately $101.8 million. Allocation of the systems among the Company and its affiliates was based on NTC's analysis of geographic concentration, ease of technical and administrative integration and the financial and local management capacities of the Company and its affiliates. The approximately $70.0 million purchase price to be paid by the Company for the Acquisition Systems was arrived at by negotiations between the Company and the Sellers, independent of the negotiations of the purchase price for the other systems. See "Risk Factors -- Conflicts of Interest; Transactions with Affiliates." ------------------------------ The Company is a Washington corporation with its principal executive offices located at 1201 Third Avenue, Suite 3600, Seattle, Washington 98101, and its telephone number is (206) 621-1351. THE EXCHANGE OFFER The Exchange Offer......... The Company is offering to exchange (the "Exchange Offer") up to $100,000,000 aggregate principal amount of its 10 1/4% Senior Subordinated Notes due 2007 (the "Exchange Notes") for up to $100,000,000 aggregate principal amount of its outstanding 10 1/4% Senior Subordinated Notes due 2007 that were issued and sold in a transaction exempt from registration under the Securities Act ((the "Original Notes") and, together with the Exchange Notes, the "Notes"). The form and terms of the Exchange Notes are substantially identical (including principal amount, interest rate, maturity, security and ranking) to the form and terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes are freely transferable by holders thereof except as provided herein (see "The Exchange Offer -- Terms of the Exchange" and "-- Terms and Conditions of the Letter of Transmittal") and are not entitled to certain registration rights and certain additional interest provisions which are applicable to the Original Notes under a registration rights agreement dated as of November 12, 1997 (the "Registration Rights Agreement") among the Company, the Guarantor and BancAmerica Robertson Stephens and First Chicago Capital Markets, Inc. as initial purchasers (collectively, the "Initial Purchasers"). Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an Affiliate of the Company, (ii) a broker-dealer who acquired Original Notes directly from the Company or (iii) a broker-dealer who acquired Original Notes as a result of market-making or other trading activities), without compliance 7 10 with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Minimum Condition.......... The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered or accepted for exchange. Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998, unless extended (the "Expiration Date"). Exchange Date.............. The first date of acceptance for exchange for the Original Notes will be the first business day following the Expiration Date. Conditions to the Exchange Offer.................... The obligation of the Company to consummate the Exchange Offer is subject to certain conditions. See "The Exchange Offer -- Conditions to the Exchange Offer." The Company reserves the right to terminate or amend the Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition. Withdrawal Rights.......... Tenders of Original Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Original Notes not accepted for any reason will be returned without expense to the tendering holders thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Procedures for Tendering Original Notes........... See "The Exchange Offer -- How to Tender." Federal Income Tax Consequences............. The exchange of Original Notes for Exchange Notes by tendering holders will not be a taxable exchange for federal income tax purposes, and such holders should not recognize any taxable gain or loss as a result of such exchange. See "The Exchange Offer -- Federal Income Tax Consequences." Use of Proceeds............ There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. Effects on Holders of Original Notes........... As a result of the making of this Exchange Offer, and upon acceptance for exchange of all validly tendered Original Notes pursuant to the terms of this Exchange Offer, the Company will have fulfilled a covenant contained in the terms of the Original Notes and the Registration Rights Agreement, and, accordingly, the holders of the Original Notes will have no further registration or other rights under the Registration Rights Agreement, except under certain limited circumstances. See "Original Notes Registration Rights." Holders of the Original Notes who do not tender their Original Notes in the Exchange Offer will continue to hold such Original Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture. All untendered, and tendered but unaccepted, Original Notes will continue to be subject to the restrictions on transfer provided for in the Original 8 11 Notes and the Indenture. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes not so tendered could be adversely affected. See "Risk Factors -- Consequences of Failure to Exchange Original Notes." TERMS OF THE EXCHANGE NOTES The Exchange Offer applies to $100,000,000 aggregate principal amount of Original Notes. The form and terms of the Exchange Notes are substantially identical to the form and terms of the Original Notes, except that the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof. The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. Unless the context otherwise requires, all references to the "Notes" shall include the Original Notes and the Exchange Notes. See "Description of the Notes." Issuer..................... Northland Cable Television, Inc. Securities Offered......... $100,000,000 aggregate principal amount of 10 1/4% Senior Subordinated Notes due 2007. Maturity Date.............. November 15, 2007. Interest Payment Dates..... The Exchange Notes will bear interest from and including their respective dates of issuance. Holders whose Original Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the Exchange Notes, such interest to be payable with the first interest payment on the Exchange Notes, but will not receive any payment in respect of interest on the Original Notes accrued after the issuance of the Exchange Notes. Interest on the Notes will be payable in cash semi-annually in arrears on May 15 and November 15 of each year, commencing May 15, 1998. Mandatory Sinking Fund or Redemption............... None. Optional Redemption........ The Notes may be redeemed, in whole or in part, at any time on or after November 15, 2002 at the option of the Company, at the redemption prices set forth herein, plus, in each case, accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to November 15, 2000, the Company may, at its option, redeem up to 30% of the aggregate principal amount of the Notes issued under the Indenture at a redemption price of 110.25% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, with the Net Cash Proceeds of one or more Public Equity Offerings, provided that at least 70% of the Notes remains outstanding immediately after the occurrence of such redemption. Change of Control.......... In the event of a Change of Control, each Holder will have the right to require the Company to make an offer to repurchase such Holder's Notes, in whole or in part, at a price of 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of repurchase. Special Repurchase Offer... In the event the Acquisition has not been consummated prior to March 1, 1998, the Notes will be subject to a special repurchase offer (the "Special Repurchase Offer") at an offer price equal to 9 12 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, to the date of repurchase. Ranking.................... The Notes will be general unsecured obligations of the Company, subordinated in right of payment to all present and future Senior Debt of the Company, including the Company's obligations under the Senior Credit Facility. The Notes will rank pari passu with any future senior subordinated indebtedness of the Company and will rank senior to any other subordinated indebtedness of the Company. As of September 30, 1997, on a pro forma basis, the Company would have had approximately $77.3 million of Senior Debt outstanding. Subsidiary Guarantees...... The Notes will be unconditionally guaranteed jointly and severally, on a senior subordinated basis as to the payment of principal and interest, if any, by the Company's existing subsidiary, Northland Cable News, Inc., and each of the Company's future subsidiaries. Each Subsidiary Guarantee will be a general unsecured obligation of such Guarantor, subordinated in right of payment to all present and future senior indebtedness of such Guarantor. Certain Covenants.......... The Indenture pursuant to which the Notes will be issued will, among other things, limit the ability of the Company and its Subsidiaries to: (i) incur additional indebtedness or issue preferred stock; (ii) make certain Restricted Payments; (iii) grant Liens on assets; (iv) merge, consolidate or transfer substantially all of their assets; (v) enter into transactions with Related Persons; (vi) make certain payments affecting Subsidiaries; (vii) sell assets; and (viii) issue capital stock of Subsidiaries. Original Notes; Registration Rights........ The Company and the Guarantor have agreed to file on or prior to January 26, 1998 and to use their respective best efforts to cause to become effective on or prior to April 11, 1998 a registration statement under the Securities Act with respect to an offer to Holders to exchange the Original Notes (and the related guarantees) for the Exchange Notes (and the related guarantees). In the event that the Exchange Offer is not consummated on or before May 11, 1998, or, under certain circumstances, if the Initial Purchasers so request, the Company will file and use its best efforts to cause to become effective under the Securities Act a Shelf Registration Statement on or before May 11, 1998 with respect to the resale of the Notes and keep such Shelf Registration Statement effective generally until two years after the effective date thereof. In the event any of the registration requirements are not met, a Registration Default shall be deemed to have occurred and Additional Interest will accrue on the Original Notes over and above the accrued interest at a rate of 0.50% per annum during the 90-day period immediately following the occurrence of any Registration Default and shall increase by 0.25% per annum at the end of each subsequent 90-day period until such Registration Default has been cured, but in no event shall such rate exceed 2.00% per annum. Use of Proceeds............ There will be no cash proceeds. See "Use of Proceeds" and "Capitalization." 10 13 PORTAL Listing............. The Notes are eligible for trading in the PORTAL Market. Risk Factors............... See "Risk Factors" for a discussion of certain factors that should be considered in connection with The Exchange Notes, including factors affecting forward-looking statements. A description of the terms of the Notes, including definitions of terms which are capitalized above, is set forth herein under "Description of the Notes." 11 14 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following table sets forth certain summary historical and pro forma consolidated financial data for the Company for each of the years in the three-year period ended December 31, 1996 and for the nine-month period ended September 30, 1997. The summary historical consolidated financial data for the years ended December 31, 1994, 1995 and 1996 have been derived from the consolidated financial statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants. The pro forma financial data for the year ended December 31, 1996 and as of and for the nine-month period ended September 30, 1997 have also been adjusted for financial information derived from the historical carve-out financial statements of Aiken II Cable Systems (a component of Robin Cable Systems, L.P.) and Greenwood Cable System (a component of InterMedia Partners of Carolina, L.P.), audited by Price Waterhouse LLP, independent accountants. In the opinion of the Company, the unaudited summary historical and pro forma consolidated financial data presented as of and for the nine-month period ended September 30, 1997 reflect all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of such data. Actual and pro forma results for the nine-month period ended September 30, 1997 are not necessarily indicative of the future financial position or future results of operations of the Company for any other interim period or the year as a whole. The following information should be read in conjunction with, and is qualified in its entirety by, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and accompanying notes of the Company and the Acquisition Systems and the Pro Forma Unaudited Consolidated Combined Financial Statements and accompanying discussion and notes included herein. The pro forma financial data is derived from the Company's Pro Forma Unaudited Consolidated Combined Financial Statements and the notes thereto contained elsewhere in this Offering Memorandum which have not been audited by the independent auditors of the Company or the Sellers. Such pro forma financial data are intended for informational purposes only and are not necessarily indicative of the future financial position or future results of operations of the combined Company or of the financial position or the results of operations of the combined Company that would have been realized had the Moses Lake Acquisition (as defined), the Offering, and the application of the net proceeds therefrom, and the Acquisition occurred as of the dates or for the periods presented. 12 15 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
FISCAL YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- PRO FORMA(1) NINE MONTHS ENDED SEPTEMBER 30, -------------------------- --------------------------------------- FOR THE PRO FORMA(2) FOR THE MOSES LAKE ------------------------- MOSES LAKE ACQUISITION, FOR THE ACQUISITION THE OFFERING OFFERING AND THE AND THE FOR THE AND THE OFFERING ACQUISITION OFFERING ACQUISITION 1994 1995 1996 1996 1996 1997 1997 1997 ---------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA) STATEMENT OF OPERATIONS DATA: Service revenues... $ 15,345 $ 26,395 $ 32,561 $ 35,751 $ 49,370 $ 28,700 $ 28,700 $ 39,671 Operating expenses: Operating......... 4,183 7,515 9,448 10,342 14,499 8,626 8,626 12,047 General and administrative.. 2,782 4,710 5,955 6,598 9,653 5,332 5,332 7,492 Management fees... 332 1,320 1,625 1,785 2,466 1,433 1,433 1,982 Depreciation and amortization.... 5,307 9,022 10,727 12,910 20,076 9,653 9,653 15,028 ------- ------- ------- -------- -------- ------- -------- -------- Total operating expenses...... 12,604 22,567 27,755 31,635 46,694 25,044 25,044 36,549 ------- ------- ------- -------- -------- ------- -------- -------- Income from operations........ 2,741 3,828 4,806 4,116 2,676 3,656 3,656 3,122 Interest expense......... (3,226) (7,215) (8,263) (11,924) (17,986) (7,378) (8,853) (13,400) Other income (expense), net............. 100 (371) (772) (772) (774) (240) (240) (220) ------- ------- ------- -------- -------- ------- -------- -------- Net loss........... $ (385) $ (3,758) $ (4,229) $ (8,580) $(16,084) $ (3,962) $ (5,437) $ (10,498) ======= ======= ======= ======== ======== ======= ======== ======== FINANCIAL RATIOS AND OTHER DATA: EBITDA(3).......... $ 8,094 $ 12,426 $ 15,101 $ 16,594 $ 22,320 $ 12,997 $ 12,997 $ 17,838 Annualized EBITDA(4)................................................................................. $ 17,656 $ 23,548 Capital expenditures...... $ 1,825 $ 2,731 $ 2,843 $ 2,843 $ 4,581 $ 3,230 $ 3,230 $ 4,249 Ratio of pro forma total debt to Annualized EBITDA(4)........................................................................................... 6.1x 7.5x Ratio of pro forma Annualized EBITDA to cash interest expense(4)(5).............................................................................. 1.6x 1.4x Deficiency of earnings to fixed charges(6)........ $ (385) $ (3,758) $ (4,229) $ (3,962) OPERATING STATISTICAL DATA: Homes passed....... 93,245 115,421 132,905 132,905 191,553 135,180 135,180 194,440 Basic subscribers....... 64,130 79,848 90,327 90,327 125,442 92,800 92,800 128,505 Basic penetration....... 68.8% 69.2% 68.0% 68.0% 65.5% 68.6% 68.6% 66.1% Premium units...... 20,219 23,924 27,406 27,406 45,253 28,972 28,972 47,035 Premium penetration....... 31.5% 30.0% 30.3% 30.3% 36.1% 31.2% 31.2% 36.6% Average monthly revenue per subscriber(7)..... $ 29.59 $ 31.12 $ 33.22 $ 32.70 $ 32.59 $ 34.63 $ 34.63 $ 34.57 EBITDA per subscriber(8)..... $ 187.34 $ 175.80 $ 184.87 $ 182.11 $ 176.81 $ 191.75 $ 191.75 $ 184.70
AS OF SEPTEMBER 30, --------------------------------------- PRO FORMA(2) ------------------------- FOR THE OFFERING FOR THE AND THE OFFERING ACQUISITION 1997 1997 1997 ----------- ----------- ----------- BALANCE SHEET DATA: Total assets........................................................................... $ 89,118 $ 94,118 $ 163,747 Total debt............................................................................. 102,968 107,968 177,253 Shareholder's deficit.................................................................. (20,632) (20,632) (20,632)
13 16 - --------------- (1) The unaudited pro forma consolidated combined statement of operations data for the year ended December 31, 1996 give effect to the acquisition of three cable systems in Moses Lake, Ephrata and Othello, Washington on October 11, 1995 (the "Moses Lake Acquisition"), the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on the first day of such period. See "Pro Forma Unaudited Consolidated Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) The unaudited pro forma consolidated combined statement of operations data for the nine-month period ended September 30, 1997 give effect to the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on the first day of such period. The unaudited pro forma consolidated combined balance sheet data as of September 30, 1997 give effect to the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on September 30, 1997. See "Pro Forma Unaudited Consolidated Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." (3) EBITDA represents income before interest expenses, income taxes, depreciation and amortization and other non-cash income (expenses). EBITDA is not intended to represent cash flow from operations or net income (loss) as defined by generally accepted accounting principles and should not be considered as a measure of liquidity or an alternative to, or more meaningful than, operating income or operating cash flow as an indication of the Company's operating performance. EBITDA is included herein because management believes that certain investors find it a useful tool for measuring the Company's ability to service its indebtedness. For the fiscal years ended December 31, 1994, 1995 and 1996 and the nine-month period ended September 30, 1997, EBITDA includes the net operating results of Northland Cable News, Inc. of $46, $(424), $(432) and $(312), respectively. Northland Cable News, Inc., a wholly owned subsidiary of the Company, began operations in fiscal year 1994. (4) Annualized EBITDA represents EBITDA for the quarter ended September 30, 1997 multiplied by four. (5) Cash interest expense represents total interest expense as reduced for interest expense relating to the amortization of deferred financing costs. (6) For purposes of this calculation, "earnings" is defined as earnings before extraordinary items and accounting changes, interest expense, amortization of deferred financing costs, taxes and the portion of rent expense under operating leases representative of interest. Fixed charges consist of interest expense, amortization of deferred financing costs and a portion of rent expense under operating leases representative of interest. (7) Reflects revenues for the applicable period divided by the average number of basic subscribers for the applicable period, divided by the number of months in the applicable period. (8) Reflects EBITDA for the applicable period divided by the average number of basic subscribers for the applicable period. For purposes of this calculation, EBITDA for the quarter ended September 30, 1997 was multiplied by four. 14 17 RISK FACTORS In addition to the other information contained in this Prospectus, before tendering their Original Notes for the Exchange Notes offered hereby, holders of Original Notes should consider carefully the following factors, which (other than "Consequences of Failure to Exchange Original Notes" and "Absence of Public Market for the Exchange Notes") are generally applicable to the Original Notes as well as to the Exchange Notes: CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES Holders of Original Notes who do not exchange their Original Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Original Notes, as set forth in the legend thereon, as a consequence of the issuance of the Original Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Original Notes may not be offered or sold, unless registered under the Securities Act and applicable state securities laws, or pursuant to an exemption therefrom. Except under certain limited circumstances, the Company does not intend to register the Original Notes under the Securities Act. In addition, any holder of Original Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. To the extent Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Original Notes not so tendered could be adversely affected. See "The Exchange Offer" and "Original Notes Registration Rights." ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES The Exchange Notes are being offered to the holders of the Original Notes. The Original Notes were offered and sold in November 1997 to a small number of institutional and accredited investors and are eligible for trading in the Private offerings, Resale and Trading through Automatic Linkages (PORTAL) Market. The Company does not intend to apply for a listing of the Exchange Notes on a securities exchange. There is currently no established market for the Exchange Notes and there can be no assurance as to the liquidity of markets that may develop for the Exchange Notes, the ability of the holders of the Exchange Notes to sell their Exchange Notes or the price at which such holders would be able to sell their Exchange Notes. If such markets were to exist, the Exchange Notes could trade at prices that may be lower than the initial market values thereof, depending on many factors, including prevailing interest rates, the markets for similar securities, and the financial performance of the Company. The Initial Purchasers have made a market for the Original Notes. Although there is currently no market for the Exchange Notes, the Initial Purchasers advised the Company that they currently intend to make a market in the Exchange Notes. However, the Initial Purchasers are not obligated to do so, and any such market making with respect to the Original Notes or the Exchange Notes may be discontinued at any time without notice. In addition, such market making activities will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer or the pendency of an applicable Shelf Registration Statement (as defined herein). The liquidity of, and trading market for, the Exchange Notes also may be adversely affected by general declines in the market for similar securities. Such a decline may adversely affect such liquidity and trading market independent of the financial performance of, and prospects for, the Company. 15 18 SUBSTANTIAL LEVERAGE AND DEBT SERVICE The Company has incurred a substantial amount of indebtedness prior to giving effect to the indebtedness incurred in connection with the Offering and its earnings have been insufficient to cover fixed charges for each of the years ended December 31, 1992 to 1996. The Company will incur substantial additional indebtedness in connection with the Offering and the financing of the Acquisition. As of September 30, 1997, on a pro forma basis, the Company would have had total indebtedness of $177.3 million and shareholder's deficit of $20.6 million. Furthermore, the Company's earnings would have been insufficient to cover fixed charges by $16.1 million for the year ended December 31, 1996. The Company may incur additional indebtedness in the future, subject to limitations imposed by the Indenture, the Senior Credit Facility and such other borrowing arrangements the Company may, from time to time, be a party to. See "Capitalization," "Description of the Notes" and "Description of the Senior Credit Facility." The Company's ability to make scheduled payments of principal or interest, or to refinance its indebtedness, including the Notes, depends on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. Based upon the current level of operations and anticipated growth, the Company believes that cash flow from operations, together with available borrowings under the Senior Credit Facility and other sources of liquidity, will be adequate to meet the Company's anticipated future requirements for working capital, capital expenditures and scheduled payments of principal and interest on its indebtedness including the Notes. There can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or to make necessary capital expenditures, or, if required, to refinance indebtedness, including the Notes, on commercially reasonable terms or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The degree to which the Company will be leveraged following the Offering could have important consequences to Holders of the Notes, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to debt service payments and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future could be limited; (iii) certain of the Company's borrowings are at variable rates of interest, which could result in higher interest expenses in the event of an increase in interest rates; and (iv) the Indenture and the Senior Credit Facility will contain financial and restrictive covenants that limit the ability of the Company to, among other things, incur additional indebtedness, borrow additional funds, dispose of assets or pay cash dividends. Failure by the Company to comply with such covenants could result in an event of default, which, if not cured or waived, would have a material adverse effect on the Company, its financial condition, prospects and debt service ability. In addition, the degree to which the Company is leveraged, as well as restrictions under the Senior Credit Facility, would prevent it from repurchasing all Notes tendered to it upon the occurrence of a Change of Control. See "Description of the Notes -- Repurchase at the Option of Holders -- Change of Control," and "Description of the Senior Credit Facility." HISTORICAL AND ANTICIPATED LOSSES Since commencing operations in 1986, the Company has reported a net loss in each year, including net losses of approximately $385,000, $3.8 million, $4.2 million and $4.0 million (unaudited) for the fiscal years ended December 31, 1994, 1995, 1996 and the nine months ended September 30, 1997, respectively. These losses are primarily attributable to: (i) depreciation, amortization and interest expenses associated with the acquisitions of the Existing Systems; and (ii) the depreciation expenses relating to subsequent capital expenditures. The Acquisition Systems likewise generally have reported net losses on a historical basis. The Company expects to experience continued net losses for the foreseeable future. 16 19 RANKING OF NOTES; SUBORDINATION The Notes will be subordinated in right of payment to all existing and future Senior Debt, including principal, premium, if any, and interest and all other amounts due on or payable in connection with Senior Debt. As of September 30, 1997, on a pro forma basis, there would have been outstanding approximately $77.3 million of Senior Debt. By reason of such subordination, in the event of the insolvency, liquidation, reorganization, dissolution or other winding-up of the Company or upon a default in payment with respect to, or the acceleration of, any Senior Debt, the holders of such Senior Debt must be paid in full before the Holders of the Notes may be paid. If the Company incurs any additional pari passu debt, the holders of such debt would be entitled to share ratably with the Holders of the Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of the Company. This may have the effect of reducing the amount of proceeds paid to Holders of the Notes. In addition, no payments may be made with respect to principal, premium, if any, or interest on the Notes if a payment default exists with respect to Designated Senior Debt (as defined) and, under certain circumstances, no payments may be made with respect to principal, premium, if any, or interest on the Notes for a period of up to 179 days if a non-payment default exists with respect to Designated Senior Debt. In addition, the Indenture will permit the Company and its Subsidiaries to incur additional indebtedness if certain conditions are met. See "Description of the Notes -- Subordination." Under the Senior Credit Facility, the senior lenders receive: (i) a first perfected security interest in substantially all of the current and future assets of the Company and any subsidiaries of the Company; (ii) a first perfected security interest in all of the issued and outstanding shares of capital stock of the Company; (iii) a first perfected security interest in all of the issued and outstanding capital stock of Northland Cable News, Inc.; and (iv) guarantees by all current and future subsidiaries. In the event of a default on secured indebtedness (whether as a result of the failure to comply with a payment or other covenant, a cross-default, or otherwise), such lenders will have a prior secured claim on the capital stock of the Company and the assets of the Company and any subsidiary of the Company. If such lenders should attempt to foreclose on their collateral, the Company's financial condition and the value of the Notes would be materially adversely affected. See "Description of the Senior Credit Facility." COMPETITION; LITIGATION Cable television systems face competition from alternative methods of receiving and distributing television signals and from other sources of news, information and entertainment. Because the Company's franchises are non-exclusive, there is the potential for competition with the Company's systems from other operators of cable television systems, including systems operated by local governmental authorities, and from other distribution systems capable of delivering video and other programming to homes or businesses, including direct broadcast satellite ("DBS") systems and multichannel, multipoint distribution systems ("MMDS"). In recent years, there has been significant growth in the number of subscribers to DBS and MMDS services. Additionally, recent changes in federal law have removed certain of the restrictions that have limited entry into the cable television business by potential competitors such as telephone companies and registered utility holding companies and their subsidiaries. Such developments will enable local telephone companies to provide a wide variety of video services in the telephone company's own service area which will be directly competitive with services provided by cable television systems. Some local telephone companies already have begun offering their competitive services in limited areas. Many of the Company's potential competitors have substantially greater resources than the Company, and the Company cannot predict the extent to which competition will materialize in its franchise areas from other cable television operators and other distribution systems, or, if such competition materializes, the extent of its effect on the Company. See "Business -- Competition" and "Legislation and Regulation." 17 20 In 1993, North Willamette Telecom, Inc., an affiliate of Canby Telephone Association, petitioned to obtain a franchise from the City of Woodburn, Oregon to operate a cable system which would compete with the Company's Woodburn system. Such franchise has not been granted. On March 20, 1996, the Company was served with a complaint in a suit commenced in the United States District Court for the District of Oregon by North Willamette Telecom, Inc. and Canby Telephone Association. The suit alleges the Company violated federal antitrust laws, intentionally interfered with plaintiffs' prospective business relationships with potential cable customers, and intentionally interfered with plaintiffs' business relationships with the Canby Telephone Association's members. The complaint seeks actual damages ranging from $1.2 million to $10.2 million, punitive damages of $10.0 million and other relief. The Company denies the allegations of the complaint and is vigorously defending the case. The Company has filed summary judgment motions and no trial date has been set. An adverse ruling could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. See "Business -- Litigation." SIGNIFICANT CAPITAL EXPENDITURES; RAPID TECHNOLOGICAL ADVANCEMENTS The business of delivering and producing televised news, information and entertainment are characterized by new market entrants, increasingly rapid technological change and evolving industry standards. There can be no assurance that the Company will be able to fund the capital expenditures necessary to keep pace with technological developments or that the Company will successfully predict the technical demand of its subscribers. The Company's inability to provide enhanced services in a timely manner or to predict the demands of the marketplace could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. See "Business -- Competition." NON-EXCLUSIVE FRANCHISES; NON-RENEWAL OR TERMINATION OF FRANCHISES Cable television companies operate under non-exclusive franchises granted by local authorities which are subject to renewal and renegotiation from time to time. The Company's business is dependent upon the retention and renewal of its local franchises. A franchise is generally granted for a fixed term ranging from five to 15 years but in many cases is terminable if the franchisee fails to comply with the material provisions thereof. The Company's franchises typically impose conditions relating to the use and operation of the cable television system, including requirements relating to the payment of fees, system bandwidth capacity, customer service requirements, franchise renewal and termination. On a pro forma basis, the Company has 17 franchises (representing 21.4% of the Company's basic subscribers) expiring prior to 2000 and 24 franchises (representing 37.1% of its basic subscribers) expiring between 2000 and 2004. The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") prohibits franchising authorities from granting exclusive cable television franchises and from unreasonably refusing to award additional competitive franchises; it also permits municipal authorities to operate cable television systems in their communities without franchises. The Cable Communications Policy Act of 1984 (the "1984 Cable Act"), provides, among other things, for an orderly franchise renewal process in which franchise renewal will not be unreasonably withheld or, if renewal is denied and the franchising authority acquires ownership of the system or effects a transfer of the system to another person or entity, the previous operator generally is entitled to the "fair market value" for the system covered by such franchise. Although the Company believes that it generally has good relationships with its franchising authorities, no assurance can be given that the Company will be able to retain or renew such franchises or that the terms of any such renewals will be on terms as favorable to the Company as the Company's existing franchises. The non-renewal or termination of franchises relating to a significant portion of the Company's subscribers could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. See "Business -- Franchises" and "Legislation and Regulation." 18 21 RISKS ASSOCIATED WITH THE ACQUISITION There can be no assurance that the Acquisition will be consummated or that conditions will not be imposed by third parties in connection with such closing. Moreover, although the Company has attempted to minimize the risks of unexpected liabilities or contingencies associated with the Acquisition, there can be no assurance that such contingencies will not arise. Unanticipated contingencies could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. In addition, the Acquisition is subject to certain express material conditions, including approval by the Federal Communications Commission (the "FCC") of the transfers of certain licenses and the consent of local franchising authorities. Although to date the Company has not experienced material difficulties in obtaining required approvals in connection with its acquisitions of cable television systems, no assurance can be given that it will be able to obtain the required approvals to complete the Acquisition or that conditions will not be imposed in connection with obtaining any such approval. Moreover, consummation of the Acquisition is contingent on certain of the Company's affiliates consummating related acquisitions with the Sellers. There can be no assurance that such related acquisitions will be consummated. In addition, the Company may elect to waive certain express conditions intended to benefit the Company and proceed with the closing of the Acquisition. Closing the Acquisition notwithstanding the failure of such conditions could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. In the event the Acquisition has not been consummated prior to March 1, 1998, the Notes will be subject to the Special Repurchase Offer at an offer price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, to the date of repurchase. See "Description of the Notes -- Repurchase at the Option of Holders -- Special Repurchase Offer." NO ASSURANCE OF SUCCESSFUL FUTURE ACQUISITIONS An element of the Company's acquisition strategy is to achieve operational efficiencies by providing cable television and related services over an expanded subscriber base within a concentrated geographic area. Consequently, the Company seeks to acquire or exchange Existing Systems for additional cable systems and expects that it will require additional financing to fund such acquisitions. There can be no assurance that the Company will in the future be able to successfully complete acquisitions or exchanges of additional cable systems consistent with its business strategy. Further, there can be no assurance that the Company will successfully obtain financing to complete such acquisitions, if needed, or that the terms thereof will be favorable to the Company. In addition, any acquisition or exchange could have an adverse effect upon the Company's results of operations or cash flow, particularly acquisitions of new systems which must be integrated with the Company's existing operations. There can be no assurance that the Company will be able to integrate successfully any acquired systems with its existing operations or realize any efficiencies from any acquisition or exchange. There can also be no assurance that any acquisition or exchange, if consummated, will improve operating results. In addition, any acquisition or exchange will be subject to, among other things, the satisfaction of customary closing conditions and the receipt of certain third-party, or governmental approvals, including the consents of franchising authorities. In carrying out its acquisition strategy, the Company attempts to minimize the risk of unexpected liabilities and contingencies associated with acquired businesses through planning, investigation and negotiation, but such liabilities and contingencies may nevertheless accompany acquisitions. See "Business -- Business Strategy." CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES The Company has engaged in and expects to continue to engage in certain transactions with its affiliates. These transactions have involved management agreements related to supervisory and 19 22 managerial services as well as day-to-day technical, computer, financial and administrative services provided to the Company by affiliates and investments in and/or the acquisition of assets from affiliated companies. For the year ended December 31, 1996, approximately $619,000 or 1.9% of the Company's revenues and approximately $2.2 million or 14.2% of its total operating, general and administrative expenses involved related party transactions. In addition, in 1996 the Company paid NTC $1.6 million for management fees. Because officers and directors of the Company are also officers and directors of certain affiliated companies, the terms of any agreements between the Company and such affiliates are not and will not be the result of arm's-length negotiations. Although the Company believes the overall terms of each such agreement are no less favorable than those available from unrelated parties, there can be no assurance that the terms of any transactions between the Company and its affiliates have been or will be as favorable as the Company could obtain from unrelated parties. See "Certain Transactions." SUBSTANTIAL REGULATION IN THE CABLE TELEVISION INDUSTRY The cable television industry generally, and the rates charged for cable television services in particular, are subject to extensive governmental regulation on the federal, state and local levels (but principally by the FCC and by local franchising authorities). Many aspects of such regulation have recently been extensively revised and are currently the subject of judicial proceedings and administrative rulemakings, which are potentially significant to the Company. The Company believes that the regulation of cable television systems, including the rates charged for cable services, remains a matter of interest to Congress, the FCC and local regulatory officials. Accordingly, no assurance can be given as to what future actions such parties or the courts may take or the effect thereof on the Company. See "Legislation and Regulation." The principal federal statute governing cable television is the Communications Act of 1934, as amended (the "Communications Act"). Amendments to the Communications Act in 1984 and 1992 and amendments in 1996 (codified as the 1996 Telecommunications Act) have had particular impact on the way in which cable systems are regulated. The 1984 and 1992 amendments created a new regulatory framework for cable operators, particularly in the areas of: (i) cable system rates for both basic and certain non-basic services; (ii) programming access and exclusivity arrangements; (iii) leased access terms and conditions; (iv) horizontal and vertical ownership of cable systems; (v) customer service requirements; (vi) franchise renewals; (vii) television broadcast signal carriage and retransmission consent; (viii) technical standards; (ix) customer privacy; (x) consumer protection issues; (xi) cable equipment compatibility; (xii) obscene or indecent programming; and (xiii) requiring subscribers to subscribe to tiers of service other than basic service as a condition of purchasing premium services. The 1996 Telecommunications Act substantially amended the Communications Act by, among other things, removing barriers to competition in the cable television and telephone markets and reducing the regulation of cable television rates. Under the FCC's rate regulations, most cable systems were required to reduce their basic service tier and cable programming service tier ("CPST") rates in 1993 and 1994, and have since had their rate increases governed by a complicated price cap scheme. However, operators also have the opportunity of bypassing this "benchmark" regulatory scheme in favor of traditional "cost- of-service" regulation in cases where the latter methodology appears favorable. The 1996 Telecommunications Act provided substantial rate relief for the cable industry generally and small cable operators in particular. Under the new law, large operators will not be subject to rate regulation of their optional CPSTs as of April 1, 1999, while small operators had that regulation end immediately. The Company qualifies as a "small operator" under the statutory definition and, thus, today remains subject to rate regulation only as to "basic service tier" or lowest level of programming service. With regard to continuing regulation of the basic service tier, all of the Existing Systems and all of the Acquisition Systems except the systems serving Greenwood and Aiken, South Carolina 20 23 qualify for the favorable "cost-of-service" treatment afforded "small systems" under existing FCC rules. The Company has elected to rely on the favorable "small system" cost-of-service rules when its systems are required to justify their rates for regulated services and, therefore, has not implemented the rate reductions that would otherwise have been required if it were subject to the FCC's benchmarks. Under the cost-of-service rules applicable to small cable companies, eligible systems can establish permitted rates under a simple formula that considers total operating expenses (including depreciation and amortization expenses), net rate base, rate of return, channel count and subscribers. If the monthly per channel rate resulting from these inputs for a cable system is no more than $1.24, the cable system's rates will be presumed reasonable. If the formula-generated rate exceeds $1.24, the burden is on the cable operator to establish the reasonableness of its calculations. Certain of the Acquisition Systems in Greenwood and Aiken, South Carolina, by virtue of their size, are required to comply with the cost-of-service rules applicable to larger systems; however, the Company believes it is eligible for a waiver of the FCC's rate regulation rules such that these systems may qualify for the simplified rate regulations afforded to smaller systems. Substantially all of the Company's basic service rates are currently under the $1.24 per channel level, and the Company believes that all of its rates for such systems in excess of the $1.24 per channel level are reasonable using the cost-of-service methodology described above. However, FCC rules permit local franchise authorities to review basic service rates. An adverse ruling in any such proceeding could require the Company to reduce its rates and pay refunds. A reduction in the rates it charges for regulated services or the requirement that it pay refunds could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. Once the Company charges the maximum permitted rate allowed by FCC rules in regulated communities, future rate increases may not exceed an inflation-indexed amount, plus increases in certain costs beyond the cable operator's control, such as taxes, franchise fees and increased programming costs. Other provisions of the Communications Act could in the future have a material adverse effect on the Company, its financial condition, prospects and debt service ability. In particular, the 1992 Cable Act conveyed to broadcasters the right generally to require either that the cable operator: (i) carry their signal; or (ii) obtain their consent before doing so. To date, compliance with these provisions has not had a material effect on the Company, although this result may change in the future depending on such factors as market conditions, channel capacity and similar matters when such arrangements are renegotiated. See "Legislation and Regulation." PAYMENT UPON CHANGE OF CONTROL In the event of a Change of Control, each Holder will have the right to require the Company to make an offer to repurchase such Holder's Notes, in whole or in part, at a price of 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of repurchase. Prior to commencing such an offer to repurchase, the Company may be required to: (i) repay in full all Debt (as defined) of the Company that would prohibit the repurchase of the Notes, including indebtedness under the Senior Credit Facility; or (ii) obtain the consent of the senior lender and any other consent required to make the repurchase. If the Company is unable to repay all of such Debt or is unable to obtain the necessary consents, the Company will be unable to offer to repurchase the Notes and such failure would constitute an Event of Default under the Indenture. There is no assurance that the Company will have sufficient financial resources available to satisfy all of its obligations under the Senior Credit Facility and the Notes in the event of a Change of Control. The events that require a repurchase upon a Change of Control under the Indenture may also constitute events of default under the Senior Credit Facility or subsequently incurred indebtedness of the Company. See "Description of the Notes -- Repurchase at the Option of Holders -- Change of Control." 21 24 FRAUDULENT TRANSFER STATUTES Substantially all of the net proceeds from the Offering will be used by the Company to repay a portion of the Company's indebtedness under the Senior Credit Facility. The incurrence by the Company of indebtedness such as the Notes may be subject to review under relevant state and federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of the Company. Under these laws, if a court were to find that, after giving effect to the sale of the Notes and the application of the net proceeds therefrom, either (a) the Company incurred such indebtedness with the intent of hindering, delaying or defrauding creditors or (b) the Company received less than reasonably equivalent value or consideration for incurring such indebtedness and: (i) was insolvent or was rendered insolvent by reason of such transactions; (ii) was engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital; or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court may subordinate such indebtedness to presently existing and future indebtedness of the Company, as the case may be, avoid the issuance of such indebtedness and direct the repayment of any amounts paid thereunder to the Company's creditors or take other action detrimental to the holders of such indebtedness. The measure of insolvency for purposes of determining whether a transfer is avoidable as a fraudulent transfer varies depending upon the law of the jurisdiction which is being applied. Generally, however, a debtor would be considered insolvent if the sum of all its liabilities, including contingent liabilities, were greater than the value of all its property at a fair valuation, or if the present fair saleable value of the debtor's assets were less than the amount required to repay its probable liabilities on its debts, including contingent liabilities, as they become absolute and matured. The Company believes that it will receive equivalent value at the time the indebtedness under the Notes is incurred. In addition, the Company does not believe that it, after giving effect to the Offering, and the application of the net proceeds therefrom: (i) was or will be insolvent or rendered insolvent; (ii) was or will be engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or (iii) intends or intended to incur, or believes or believed that it will or would incur, debts beyond its ability to pay such debts as they mature. These beliefs are based on the Company's operating history and analysis of internal cash flow projections and estimated values of assets and liabilities of the Company at the time of the Offering. There can be no assurance, however, that a court passing on these issues would make the same determination. RELIANCE ON MANAGEMENT; RESPONSIBILITY TO AFFILIATES The Company's business is substantially dependent upon the performance of the senior managers of NTC, who provide management services to the Company pursuant to a Management Agreement (as defined) between NTC and the Company. Through NTC, the Company maintains a strong management team, and the loss of any of these individuals could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. Moreover, each of these senior managers devotes a substantial amount of his time to the affairs of affiliates of the Company. See "Management" and "Certain Transactions." CONTROL BY PRINCIPAL SHAREHOLDER The Company is a wholly owned subsidiary of NTC. John S. Whetzell, Chairman of the Board and President of NTC, beneficially owns 22.8% of the outstanding common stock of NTC and he effectively may be able to control all matters requiring approval by the shareholders of the Company, including the election of directors. 22 25 UNCERTAINTY OF ADEQUATE INSURANCE The Company's equipment and its physical plant are subject to casualty from a variety of sources. Although the Company has obtained commercial insurance against certain risks, there can be no assurance that such insurance will be adequate. The Company began self-insuring its aerial and underground plant in 1996. The Company has recently begun to make monthly contributions into an insurance fund maintained by NTC. The fund, which currently has an insignificant balance, is maintained for the collective benefit of the Company and its affiliates. If an uninsured loss was incurred by the Company or any of its affiliates, the fund would be applied to defray a portion of such loss. If the Company was to sustain a material uninsured loss, such reserves would be insufficient to fully fund such loss. To the extent the Company's uninsured losses exceed the fund's balance or the fund is depleted from losses incurred by affiliates of the Company, the resulting reduction in cash flow caused by interrupted service, together with the capital cost of replacing such equipment and/or physical plant, could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. See "Business -- Insurance." FORWARD LOOKING STATEMENTS Statements contained in this Prospectus that are not based on historical fact, including without limitation statements containing the words "believes," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and in the regions in which the Company operates; technology changes; competition; changes in business strategy or development plans; the high leverage of the Company; the ability to attract and retain qualified personnel; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; liability and other claims asserted against the Company; and other factors referenced in this Prospectus, including without limitation under the captions "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments. 23 26 USE OF PROCEEDS There will be no cash proceeds to the Company resulting from the Exchange Offer. The Company used the gross proceeds from the sale of the Original Notes to: (i) repay a portion of the Senior Credit Facility (as defined) and (ii) pay fees and expenses related to the offering of Original Notes. The indebtedness repaid under the Senior Credit Facility bore interest at a weighted average rate of approximately 8.6919% per annum as of December 16, 1997, and had a maturity date of December 31, 2005. The Company has executed a definitive agreement pursuant to which it will acquire the Acquisition Systems for approximately $70.0 million. The Company intends to draw on the Senior Credit Facility to finance the purchase price of the Acquisition. See "Business -- The Acquisition." THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The sole purpose of the Exchange Offer is to fulfill the obligations of the Company and the Guarantor under the Registration Rights Agreement. The Original Notes were originally issued and sold on November 12, 1997 (the "Issue Date"). Such sales were not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act and Rule 144A promulgated under the Securities Act. In connection with the sale of the Original Notes, the Company agreed to file with the Commission a registration statement relating to the Exchange Offer (the "Registration Statement"), pursuant to which the Exchange Notes, consisting of another series of senior subordinated notes of the Company covered by such Registration Statement and containing substantially identical terms to the Original Notes, except as set forth in this Prospectus, would be offered in exchange for Original Notes tendered at the option of the holders thereof. If (i) the Company determines in reasonably good faith that (x) because of any changes in the law or the applicable interpretations of the Staff of the Commission, the Commission is not likely to permit the Company to effect the Exchange Offer prior to the 150th day after the Issue Date (the "Effectiveness Date"), or (y) that the Exchange Notes would not be tradable upon receipt by the holders of Original Notes that participate in the Exchange Offer without restriction under state and federal securities laws (other than due solely to the status of a holder of Original Notes as an Affiliate of the Company or by breach by such holder of its representation to the Company as described in the last paragraph under "-- Terms and Conditions of the Letter of Transmittal" below), (ii) the Exchange Offer is not consummated within 180 days after the Issue Date, (iii) in certain circumstances, certain holders of unregistered Exchange Notes so request or (iv) in the case of any holder of Original Notes that participates in the Exchange Offer, such holder of Original Notes does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder of Original Notes as an Affiliate of the Company or by breach by such holder of its representation to the Company as described in the last paragraph under "-- Terms and Conditions of the Letter of Transmittal" below) and so notifies the Company within 60 days after such holder of Original Notes first becomes aware of such restriction and concurrently therewith provides the Company with a reasonable basis for its conclusion, then, in the case of each of clauses (i) through (iv) of this sentence, the Company will file with the Commission a registration statement (the "Shelf Registration Statement") to cover resales of the Original Notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. In the event that (i) the Company fail to file the Registration Statement, (ii) the Registration Statement or, if applicable, the Shelf Registration Statement, is not declared effective by the Commission, or (iii) the Exchange Offer is not consummated or the Shelf Registration Statement ceases to be effective, in each case within specified time periods, the interest rate borne by the Original Notes will be increased. See "Original Notes Registration Rights." 24 27 TERMS OF THE EXCHANGE The Company hereby offers to exchange, upon the terms and subject to the conditions set forth herein and in the Letter of Transmittal accompanying the Registration Statement of which this Prospectus is a part (the "Letter of Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in principal amount of Original Notes. The terms of the Exchange Notes are substantially identical to the terms of the Original Notes for which they may be exchanged pursuant to this Exchange Offer, except that the Exchange Notes will generally be freely transferable by holders thereof, and the holders of the Exchange Notes (as well as remaining holders of any Original Notes) are not entitled to certain registration rights and certain additional interest provisions which are applicable to the Original Notes under the Registration Rights Agreement. The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. See "Description of the Notes." The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered or accepted for exchange. Based on their view of interpretations set forth in no-action letters issued by the Staff to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an Affiliate of the Company, (ii) a broker-dealer who acquired Original Notes directly from the Company or (iii) a broker-dealer who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business, and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. Broker-dealers who acquired Original Notes as a result of market making or other trading activities may use this Prospectus, as supplemented or amended, in connection with resales of the Exchange Notes. The Company has agreed that, for a period of 180 days after the Registration Statement is declared effective, they will make this Prospectus available to any broker-dealer for use in connection with any such resale. Any holder who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes or any other holder that cannot rely upon such interpretations must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Tendering holders of Original Notes will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Original Notes pursuant to the Exchange Offer. The Exchange Notes will bear interest from and including their respective dates of issuance. Holders whose Original Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the Exchange Notes, such interest to be payable with the first interest payment on the Exchange Notes, but will not receive any payment in respect of interest on the Original Notes accrued after the issuance of the Exchange Notes. Interest on the Notes is payable semiannually in arrears on May 15 and November 15 of each year, commencing May 15, 1998 at a rate of 10 1/4% per annum. 25 28 EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The Exchange Offer expires on the Expiration Date. The term "Expiration Date" means 5:00 p.m., New York City time, on , 1998 unless the Company in its sole discretion extend the period during which the Exchange Offer is open, in which event the term "Expiration Date" means the latest time and date on which the Exchange Offer, as so extended by the Company, expires. The Company reserves the right to extend the Exchange Offer at any time and from time to time prior to the Expiration Date by giving written notice to Harris Trust Company of California (the "Exchange Agent") and by timely public announcement communicated by no later than 5:00 p.m. on the next business day following the Expiration Date, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service. During any extension of the Exchange Offer, all Original Notes previously tendered pursuant to the Exchange Offer will remain subject to the Exchange Offer. The initial Exchange Date will be the first business day following the Expiration Date. The Company expressly reserves the right to (i) terminate the Exchange Offer and not accept for exchange any Original Notes for any reason, including if any of the events set forth below under "Conditions to the Exchange Offer" shall have occurred and shall not have been waived by the Company and (ii) amend the terms of the Exchange Offer in any manner, whether before or after any tender of the Original Notes. If any such termination or amendment occurs, the Company will notify the Exchange Agent in writing and will either issue a press release or give written notice to the holders of the Original Notes as promptly as practicable. Unless the Company terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date, the Company will exchange the Exchange Notes for Original Notes on the Exchange Date. This Prospectus and the related Letter of Transmittal and other relevant materials will be mailed by the Company to record holders of Original Notes and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the lists of holders for subsequent transmittal to beneficial owners of Original Notes. HOW TO TENDER The tender to the Company of Original Notes by a holder thereof pursuant to one of the procedures set forth below will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. GENERAL PROCEDURES A holder of an Original Note may tender the same by (i) properly completing and signing the Letter of Transmittal or a facsimile thereof (all references in this Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the Original Notes being tendered and any required signature guarantees (or a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") pursuant to the procedure described below), to the Exchange Agent at its address set forth on the back cover of this Prospectus on or prior to the Expiration Date or (ii) complying with the guaranteed delivery procedures described below. If tendered Original Notes are registered in the name of the signer of the Letter of Transmittal and the Exchange Notes to be issued in exchange therefor are to be issued (and any untendered Original Notes are to be reissued) in the name of the registered holder, the signature of such signer need not be guaranteed. In any other case, the tendered Original Notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to the Company and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by a bank, broker, dealer, credit union, savings association, clearing agency or other institution (each an "Eligible Institution") that is a member of a recognized signature 26 29 guarantee medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the Original Notes, the signature on the Letter of Transmittal must be guaranteed by an Eligible Institution. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Original Notes should contact such holder promptly and instruct such holder to tender Original Notes on such beneficial owner's behalf. If such beneficial owner wishes to tender such Original Notes himself, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering such Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such beneficial owner's name or follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Original Notes at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after receipt of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with the BookEntry Transfer Facility's procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address specified on the back cover of this Prospectus on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. Unless an exemption applies under the applicable law and regulations concerning "backup withholding" of federal income tax, the Exchange Agent will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to a holder pursuant to the Exchange Offer if the holder does not provide his taxpayer identification number (social security number or employer identification number, as applicable) and certify that such number is correct. Each tendering holder should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal, so as to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to the Company and the Exchange Agent. GUARANTEED DELIVERY PROCEDURES If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or Original Notes to reach the Exchange Agent before the Expiration Date, a tender may be effected if the Exchange Agent has received at its office listed on the Letter of Transmittal on or prior to the Expiration Date a letter, telegram or facsimile transmission from an Eligible Institution setting forth the name and address of the tendering holder, the principal amount of the Original Notes being tendered, the names in which the Original Notes are registered and, if possible, the certificate numbers of the Original Notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission by the Eligible Institution, the Original Notes, in 27 30 proper form for transfer, will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless Original Notes being tendered by the above-described method (or a timely Book-Entry Confirmation) are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Company may, at their option, reject the tender. Copies of a Notice of Guaranteed Delivery which may be used by Eligible Institutions for the purposes described in this paragraph are available from the Exchange Agent. A tender will be deemed to have been received as of the date when the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the Original Notes (or a timely Book-Entry Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Original Notes (or a timely Book-Entry Confirmation). All questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Original Notes will be determined by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all tenders not in proper form or the acceptances for exchange of which may, in the opinion of counsel to the Company, be unlawful. The Company also reserves the absolute right to waive any of the conditions of the Exchange Offer or any defect or irregularities in tenders of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. Neither the Company, the Exchange Agent nor any other person will be under any duty to give notification of any defects or irregularities in tenders or shall incur any liability for failure to give any such notification. The Company' interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL The Letter of Transmittal contains, among other things, the following terms and conditions, which are part of the Exchange Offer. The party tendering Original Notes for exchange (the "Transferor") exchanges, assigns and transfers the Original Notes to the Company and irrevocably constitutes and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to cause the Original Notes to be assigned, transferred and exchanged. The Transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Original Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Original Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Original Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The Transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the exchange, assignment and transfer of tendered Original Notes. The Transferor further agrees that acceptance of any tendered Original Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of their obligations under the Registration Rights Agreement and that the Company shall have no further obligations or liabilities thereunder (except in certain limited circumstances). All authority conferred by the Transferor will survive the death or incapacity of the Transferor and every obligation of the Transferor shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of such Transferor. By tendering Original Notes and executing the Letter of Transmittal, the Transferor certifies that (a) it is not an Affiliate of the Company, that it is not a broker-dealer that owns Original Notes 28 31 acquired directly from the Company or an Affiliate of the Company, that it is acquiring the Exchange Notes offered hereby in the ordinary course of such Transferor's business and that such transferor has no arrangement with any person to participate in the distribution of such Exchange Notes, (b) that it is an Affiliate of the Company or of the initial purchaser of the Original Notes in the Offering and that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it, or (c) that it is a participating Broker-Dealer (as defined in the Registration Rights Agreement) and that it will deliver a prospectus in connection with any resale of such Exchange Notes. By tendering Original Notes and executing the Letter of Transmittal, the Transferor further certifies that it is not engaged in and does not intend to engage in a distribution of the Exchange Notes. WITHDRAWAL RIGHTS Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at its address set forth on the back cover of this Prospectus prior to the Expiration Date. Any such notice of withdrawal must specify the person named in the Letter of Transmittal as having tendered Original Notes to be withdrawn, the certificate numbers of Original Notes to be withdrawn, the principal amount of Original Notes to be withdrawn, a statement that such holder is withdrawing his election to have such Original Notes exchanged, and the name of the registered holder of such Original Notes, and must be signed by the holder in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to the Company that the person withdrawing the tender has succeeded to the beneficial ownership of the Original Notes being withdrawn. The Exchange Agent will return the properly withdrawn Original Notes promptly following receipt of notice of withdrawal. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Company, and such determination will be final and binding on all parties. ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon the terms and subject to the conditions of the Exchange Offer, the acceptance for exchange of Original Notes validly tendered and not withdrawn and the issuance of the Exchange Notes will be made on the Exchange Date. The Exchange Agent will act as agent for the tendering holders of Original Notes for the purposes of receiving Exchange Notes from the Company and causing the Original Notes to be assigned, transferred and exchanged. Upon the terms and subject to conditions of the Exchange Offer, delivery of Exchange Notes to be issued in exchange for accepted Original Notes will be made by the Exchange Agent promptly after acceptance of the tendered Original Notes. Original Notes not accepted for exchange by the Company will be returned without expense to the tendering holders (or in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the procedures described above, such non-exchanged Original Notes will be credited to an account maintained with such Book- Entry Transfer Facility) promptly following the Expiration Date or, if the Company terminates the Exchange Offer prior to the Expiration Date, promptly after the Exchange Offer is so terminated. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, or any extension of the Exchange Offer, the Company will not be required to issue Exchange Notes in respect of any properly tendered Original Notes not previously accepted and may terminate the Exchange Offer (by oral or written notice to the Exchange Agent and by timely public announcement communicated by no later than 5:00 p.m. on the next business day following the Expiration Date, unless otherwise required by 29 32 applicable law or regulation, by making a release to the Dow Jones News Service) or, at their option, modify or otherwise amend the Exchange Offer, if (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a result thereof or (iii) resulting in a material delay in the ability of the Company to accept for exchange some or all of the Original Notes pursuant to the Exchange Offer; (b) any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the reasonable judgment of the Company might directly or indirectly result in any of the consequences referred to in clauses (a)(i) or (ii) above or, in the reasonable judgment of the Company, might result in the holders of Exchange Notes having obligations with respect to resales and transfers of Exchange Notes which are greater than those described in the interpretations of the Staff referred to on the cover page of this Prospectus, or would otherwise make it inadvisable to proceed with the Exchange Offer; or (c) a material adverse change shall have occurred in the business, condition (financial or otherwise), operations, or prospects of the Company. The foregoing conditions are for the sole benefit of the Company and may be asserted by them with respect to all or any portion of the Exchange Offer regardless of the circumstances (including any action or inaction by the Company) giving rise to such condition or may be waived by the Company in whole or in part at any time or from time to time in their sole discretion. The failure by the Company at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, and each right will be deemed an ongoing right which may be asserted at any time or from time to time. In addition, the Company have reserved the right, notwithstanding the satisfaction of each of the foregoing conditions, to terminate or amend the Exchange Offer. Any determination by the Company concerning the fulfillment or nonfulfillment of any conditions will be final and binding upon all parties. In addition, the Company will not accept for exchange any Original Notes tendered and no Exchange Notes will be issued in exchange for any such Original Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). 30 33 EXCHANGE AGENT Harris Trust Company of California (the "Exchange Agent") has been appointed as the Exchange Agent for the Exchange Offer. Letters of Transmittal must be addressed or transmitted to the Exchange Agent at the mailing address, hand delivery address or facsimile numbers set forth on the back cover of this Prospectus. Delivery to an address other than as set forth herein, or transmissions of instructions via a facsimile or telex number other than the ones set forth herein, will not constitute a valid delivery. SOLICITATION OF TENDERS; EXPENSES The Company has not retained any dealer-manager or similar agent in connection with the Exchange Offer and will not make any payments to brokers, dealers or others for soliciting acceptances of the Exchange Offer. The Company will, however, pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for reasonable out-of-pocket expenses in connection therewith. The Company will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding tenders for their customers. The expenses to be incurred in connection with the Exchange Offer, including the fees and expenses of the Exchange Agent and printing, accounting, investment banking and legal fees, will be paid by the Company and are estimated to be approximately $120,000. No person has been authorized to given any information or to make any representations in connection with the Exchange Offer other than those contained in this Prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Neither the delivery of this Prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Original Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Company may, at their discretion, take such action as they may deem necessary to make the Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders of Original Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is being made on behalf of the Company by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. DISSENTER AND APPRAISAL RIGHTS HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER. FEDERAL INCOME TAX CONSEQUENCES The exchange of Original Notes for Exchange Notes by tendering holders will not be a taxable exchange for federal income tax purposes, and such holders should not recognize any taxable gain or loss as a result of such exchange. OTHER Participation in the Exchange Offer is voluntary and holders of Original Notes should carefully consider whether to accept the terms and conditions thereof. Holders of the Original Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the Exchange Offer. 31 34 As a result of the making of and upon acceptance for exchange of all validly tendered Original Notes pursuant to the terms of this Exchange Offer, the Company will have fulfilled a covenant contained in the terms of the Original Notes and the Registration Rights Agreement. Holders of the Original Notes who do not tender their Original Notes in the Exchange Offer will continue to hold such Original Notes and will be entitled to all the rights, and limitations applicable thereto under the Indenture, except for any such rights under the Registration Rights Agreement which by their terms terminate or cease to have further effect as a result of the making of this Exchange Offer. See "Description of the Notes." All untendered Original Notes will continue to be subject to the restriction on transfer set forth in the Indenture. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for any remaining Original Notes could be adversely affected. See "Risk Factors-- Consequences of Failure to Exchange Original Notes." The Company may in the future seek to acquire untendered Original Notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Company have no present plan to acquire any Original Notes which are not tendered in the Exchange Offer. 32 35 CAPITALIZATION The following table sets forth: (i) the Company's actual consolidated capitalization as of September 30, 1997; (ii) the Company's consolidated capitalization, on a pro forma basis to give effect to the Offering, and the application of the net proceeds therefrom, as if each had occurred on September 30, 1997; and (iii) the Company's capitalization on a pro forma basis to give effect to the Offering, and the application of the net proceeds therefrom, and the Acquisition as if each had occurred on September 30, 1997. This table should be read in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Historical and Pro Forma Consolidated Financial Data," and the Company's unaudited actual consolidated and pro forma financial statements, including the related notes thereto included elsewhere in this Offering Memorandum.
AS OF SEPTEMBER 30, 1997 --------------------------------------------- PRO FORMA FOR PRO FORMA FOR THE OFFERING AND ACTUAL THE OFFERING THE ACQUISITION -------- ------------- ---------------- (DOLLARS IN THOUSANDS) Long-term debt (including current portion): Senior Credit Facility(1)........................... $102,822 $ 7,822 $ 77,107 Notes offered hereby................................ -- 100,000 100,000 Other indebtedness.................................. 146 146 146 -------- -------- -------- Total long-term debt........................ 102,968 107,968 177,253 Shareholder's deficit................................. (20,632) (20,632) (20,632) -------- -------- -------- Total capitalization........................ $ 82,336 $ 87,336 $156,621 ======== ======== ========
- --------------- (1) Concurrently with the closing of the Offering, the Company and The First National Bank of Chicago ("First Chicago"), as lender and managing agent, amended and restated the Senior Credit Facility to, among other things, adjust covenants to reflect the new capital structure and to increase revolving credit availability. The Senior Credit Facility consists of a $25.0 million reducing revolving credit facility and a $75.0 million term loan with availability subject to certain borrowing conditions. The Company has received a commitment from First Chicago for the Supplemental Credit Facility with maximum borrowings of $115.0 million which will provide any additional financing necessary to consummate the Special Repurchase Offer in the event the Acquisition is not consummated. See "Description of the Senior Credit Facility" and "Description of the Notes -- Repurchase at the Option of Holders -- Special Repurchase Offer." 33 36 SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following table sets forth certain selected historical and pro forma consolidated financial data for the Company for each of the years in the five-year period ended December 31, 1996 and for the nine-month periods ended September 30, 1996 and 1997. The selected historical consolidated financial data for the years ended December 31, 1992 to 1996 have been derived from the consolidated financial statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants. The pro forma financial data for the year ended December 31, 1996 and as of and for the nine-month period ended September 30, 1997 have also been adjusted for financial information derived from the historical carve-out financial statements of Aiken II Cable Systems (a component of Robin Cable Systems, L.P.) and Greenwood Cable System (a component of InterMedia Partners of Carolina, L.P.), audited by Price Waterhouse LLP, independent accountants. In the opinion of the Company, the unaudited selected historical and pro forma consolidated financial data presented as of and for the nine-month periods ended September 30, 1996 and 1997 reflect all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of such data. Actual and pro forma results for the nine-month period ended September 30, 1997 are not necessarily indicative of the future financial position or future results of operations of the Company for any other interim period or the year as a whole. The following information should be read in conjunction with, and is qualified in its entirety by, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and accompanying notes of the Company and the Acquisition Systems and the Pro Forma Unaudited Consolidated Combined Financial Statements and accompanying discussion and notes included herein. The pro forma financial data is derived from the Company's Pro Forma Unaudited Consolidated Combined Financial Statements and the notes thereto contained elsewhere in this Offering Memorandum, which have not been audited by the independent auditors of the Company or the Sellers. Such pro forma financial data are intended for informational purposes only and are not necessarily indicative of the future financial position or future results of operations of the combined Company or of the financial position or the results of operations of the combined Company that would have been realized had the Moses Lake Acquisition, the Offering, and the application of the net proceeds therefrom, and the Acquisition occurred as of the dates or for the periods presented. 34 37 SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
NINE FISCAL YEAR ENDED DECEMBER 31, MONTHS ---------------------------------------------------------------------------------- ENDED PRO FORMA(1) SEPTEMBER ---------------------- 30, FOR THE -------- FOR THE MOSES LAKE MOSES ACQUISITION, LAKE THE ACQUISITION OFFERING AND THE AND THE OFFERING ACQUISITION 1992 1993 1994 1995 1996 1996 1996 1996 -------- -------- -------- -------- -------- -------- ---------- -------- (DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA) STATEMENT OF OPERATIONS DATA: Service revenues............. $ 11,957 $ 13,191 $ 15,345 $ 26,395 $ 32,561 $35,751 $ 49,370 $ 23,443 Operating expenses: Operating................... 3,202 3,639 4,183 7,515 9,448 10,342 14,499 6,884 General and administrative.. 2,232 2,496 2,782 4,710 5,955 6,598 9,653 4,230 Management fees............. -- -- 332 1,320 1,625 1,785 2,466 1,170 Depreciation and amortization.............. 5,490 5,337 5,307 9,022 10,727 12,910 20,076 7,591 ------- ------- ------- -------- -------- -------- -------- -------- Total operating expenses.. 10,924 11,472 12,604 22,567 27,755 31,635 46,694 19,875 ------- ------- ------- -------- -------- -------- -------- -------- Income from operations....... 1,033 1,719 2,741 3,828 4,806 4,116 2,676 3,568 Interest expense............ (3,051) (2,592) (3,226) (7,215) (8,263) (11,924) (17,986) (5,884) Other income (expense), net....................... (5) 112 100 (371) (772) (772) (774) (210) ------- ------- ------- -------- -------- -------- -------- -------- Net loss..................... $ (2,023) $ (761) $ (385) $ (3,758) $ (4,229) $(8,580) $(16,084) $ (2,526) ======= ======= ======= ======== ======== ======== ======== ======== FINANCIAL RATIOS AND OTHER DATA: EBITDA(3).................... $ 6,523 $ 7,056 $ 8,094 $ 12,426 $ 15,101 $16,594 $ 22,320 $ 10,845 Annualized EBITDA (4)........ Capital expenditures......... $ 1,908 $ 1,709 $ 1,825 $ 2,731 $ 2,843 $ 2,843 $ 4,581 $ 2,024 Ratio of pro forma total debt to Annualized EBITDA(4)..... Ratio of pro forma Annualized EBITDA to cash interest expense(4)(5)............... Deficiency of earnings to fixed charges(6)............ $ (2,023) $ (761) $ (385) $ (3,758) $ (4,229) $ (2,526) OPERATING STATISTICAL DATA: Homes passed................. 47,488 48,200 93,245 115,421 132,905 132,905 191,553 117,905 Basic subscribers............ 37,210 38,631 64,130 79,848 90,327 90,327 125,442 77,835 Basic penetration............ 78.4% 80.1% 68.8% 69.2% 68.0% 68.0% 65.5% 66.0% Premium units................ 11,581 12,021 20,219 23,924 27,406 27,406 45,253 21,893 Premium penetration.......... 31.1% 31.1% 31.5% 30.0% 30.3% 30.3% 36.1% 28.1% Average monthly revenue per subscriber(7)............... $ 27.70 $ 29.23 $ 29.59 $ 31.12 $ 33.22 $ 32.70 $ 32.59 $ 33.06 EBITDA per subscriber(8)..... $ 181.37 $ 187.58 $ 187.34 $ 175.80 $ 184.87 $182.11 $ 176.81 $ 182.98 PRO FORMA(2) ----------------------- FOR THE OFFERING FOR THE AND THE OFFERING ACQUISITION 1997 1997 1997 -------- -------- ----------- STATEMENT OF OPERATIONS DATA: Service revenues............. $ 28,700 $28,700 $ 39,671 Operating expenses: Operating................... 8,626 8,626 12,047 General and administrative.. 5,332 5,332 7,492 Management fees............. 1,433 1,433 1,982 Depreciation and amortization.............. 9,653 9,653 15,028 -------- -------- -------- Total operating expenses.. 25,044 25,044 36,549 -------- -------- -------- Income from operations....... 3,656 3,656 3,122 Interest expense............ (7,378) (8,853) (13,400) Other income (expense), net....................... (240) (240) (220) -------- -------- -------- Net loss..................... $ (3,962) $(5,437) $ (10,498) ======== ======== ======== FINANCIAL RATIOS AND OTHER DATA: EBITDA(3).................... $ 12,997 $12,997 $ 17,838 Annualized EBITDA (4)........ $17,656 $ 23,548 Capital expenditures......... $ 3,230 $ 3,230 $ 4,249 Ratio of pro forma total debt to Annualized EBITDA(4)..... 6.1 x 7.5x Ratio of pro forma Annualized EBITDA to cash interest expense(4)(5)............... 1.6 x 1.4x Deficiency of earnings to fixed charges(6)............ $ (3,962) OPERATING STATISTICAL DATA: Homes passed................. 135,180 135,180 194,440 Basic subscribers............ 92,800 92,800 128,505 Basic penetration............ 68.6% 68.6% 66.1% Premium units................ 28,972 28,972 47,035 Premium penetration.......... 31.2% 31.2% 36.6% Average monthly revenue per subscriber(7)............... $ 34.63 $ 34.63 $ 34.57 EBITDA per subscriber(8)..... $ 191.75 $191.75 $ 184.70
BALANCE SHEET DATA: Total assets................. $ 35,403 $ 31,793 $ 61,695 $ 75,755 $ 91,559 Total debt................... 41,869 38,728 65,531 83,145 102,155 Shareholder's deficit........ (16,876) (17,637) (18,022) (21,780) (26,009) AS OF SEPTEMBER 30, ----------------------------------- PRO FORMA(2) ----------------------- FOR THE OFFERING FOR THE AND THE OFFERING ACQUISITION 1997 1997 1997 -------- -------- ----------- BALANCE SHEET DATA: Total assets................. $ 89,118 $94,118 $ 163,747 Total debt................... 102,968 107,968 177,253 Shareholder's deficit........ (20,632) (20,632) (20,632)
35 38 - --------------- (1) The unaudited pro forma consolidated combined statement of operations data for the year ended December 31, 1996 give effect to the Moses Lake Acquisition, the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on the first day of such period. See "Pro Forma Unaudited Consolidated Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) The unaudited pro forma consolidated combined statement of operations data for the nine-month period ended September 30, 1997 give effect to the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on the first day of such period. The unaudited pro forma consolidated combined balance sheet data as of September 30, 1997 give effect to the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on September 30, 1997. See "Pro Forma Unaudited Consolidated Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." (3) EBITDA represents income before interest expenses, income taxes, depreciation and amortization and other non-cash income (expenses). EBITDA is not intended to represent cash flow from operations or net income (loss) as defined by generally accepted accounting principles and should not be considered as a measure of liquidity or an alternative to, or more meaningful than, operating income or operating cash flow as an indication of the Company's operating performance. EBITDA is included herein because management believes that certain investors find it a useful tool for measuring the Company's ability to service its indebtedness. For the fiscal years ended December 31, 1994, 1995 and 1996 and the nine-month periods ended September 30, 1996 and 1997, EBITDA includes the net operating results of Northland Cable News, Inc. of $46, $(424), $(432), $(314) and $(312), respectively. Northland Cable News, Inc., a wholly owned subsidiary of the Company, began operations in fiscal year 1994. (4) Annualized EBITDA represents EBITDA for the quarter ended September 30, 1997 multiplied by four. (5) Cash interest expense represents total interest expense as reduced for interest expense relating to the amortization of deferred financing costs. (6) For purposes of this calculation, "earnings" is defined as earnings before extraordinary items and accounting changes, interest expense, amortization of deferred financing costs, taxes and the portion of rent expense under operating leases representative of interest. Fixed charges consist of interest expense, amortization of deferred financing costs and a portion of rent expense under operating leases representative of interest. (7) Reflects revenues for the applicable period divided by the average number of basic subscribers for the applicable period, divided by the number of months in the applicable period. (8) Reflects EBITDA for the applicable period divided by the average number of basic subscribers for the applicable period. For purposes of this calculation, EBITDA for the quarter ended September 30, 1997 was multiplied by four. 36 39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion provides additional information regarding the financial condition and results of operations of the Company for the nine-month periods ended September 30, 1996 and 1997 and for each of the years ended December 31, 1994, 1995 and 1996. This discussion should be read in conjunction with "Selected Historical and Pro Forma Consolidated Financial Data" and the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Offering Memorandum. The Company has executed a definitive agreement pursuant to which it will acquire the Acquisition Systems for approximately $70.0 million. If consummated, the purchase of the Acquisition Systems will result in a substantial increase in the number of subscribers and the revenue and expenses of the Company. Accordingly, the discussion and analysis of historical periods does not reflect the significant impact the Acquisition will have on the Company. See "Business -- The Acquisition." GENERAL Both the Company and the Acquisition Systems generate substantially all of their revenues from monthly subscriber fees for basic, premium, optional programming tiers and other cable television services. The balance of the revenues generated by the Company and the Acquisition Systems are attributable to various ancillary sources, including installation charges, advertising, in-home wiring maintenance contracts, converter rentals, and commissions from home shopping networks. During the past three fiscal years the Company has engaged in significant acquisition activity which has accounted for the majority of the increases in revenues, operating expenses and EBITDA during this period. These acquisitions have been primarily financed through borrowings under the Senior Credit Facility which have resulted in substantial increases in interest expense. The Company has consistently reported and the Acquisition Systems have experienced net losses due to the high level of depreciation and amortization expenses associated with cable systems. Additionally, the Company has incurred significant interest expense associated with the financing of acquisitions. The Company expects to experience continued net losses for the foreseeable future. EBITDA as a percentage of revenue ("EBITDA Margin") for the Company has declined over the past three fiscal years and for the nine months ended September 30, 1997. In August 1994, the Company entered into a Management Agreement with its parent, NTC, under which it agreed to pay to NTC a management fee equal to 5.0% of the Company's gross revenues and to reimburse certain of NTC's expenses. The initiation of this agreement in late 1994 had a significant impact on the 1995 EBITDA Margin compared to 1994. Additionally, the Company's acquisition activity since 1994 has resulted in the integration of cable television operations which had significantly varying operating characteristics and EBITDA Margins. The operating characteristics of acquired systems that affected EBITDA Margins included rates charged to subscribers and the amount of programming offered which directly relates to programming costs incurred. As the Company pursues its acquisition strategy, including the Acquisition Systems, it is expected that fluctuations in EBITDA Margins will continue which may not be reflective of the year to year operating performance of the Existing Systems. See "Pro Forma Unaudited Consolidated Combined Financial Statements." 37 40 HISTORICAL RESULTS OF OPERATIONS The following table sets forth certain statement of operations data expressed as a percentage of revenues.
NINE MONTHS ENDED FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------- --------------------- 1994 1995 1996 1996 1997 -------- -------- -------- -------- -------- Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses: Operating............................. 27.3 28.5 29.0 29.4 30.1 General and administrative............ 18.1 17.8 18.3 18.0 18.6 Management fees....................... 2.2 5.0 5.0 5.0 5.0 Depreciation and amortization......... 34.6 34.2 32.9 32.4 33.6 ------- ----- ------- ----- ------- Total operating expenses....... 82.2 85.5 85.2 84.8 87.3 Income from operations.................. 17.8 14.5 14.8 15.2 12.7 Interest expense...................... (21.0) (27.3) (25.4) (25.1) (25.7) Other income (expense), net........... 0.7 (1.4) (2.4) (0.9) (0.8) ------- ----- ------- ----- ------- Net loss................................ (2.5%) (14.2%) (13.0%) (10.8%) (13.8%) ======= ===== ======= ===== ======= EBITDA(1)............................... 52.7% 47.1% 46.4% 46.3% 45.3% ======= ===== ======= ===== =======
- --------------- (1) EBITDA represents income (loss) before interest expenses, income taxes, depreciation and amortization and other non-cash income (expenses). EBITDA is not intended to represent cash flow from operations or net income as defined by generally accepted accounting principles and should not be considered as a measure of liquidity or an alternative to, or more meaningful than, operating income or operating cash flow as an indication of the Company's operating performance. EBITDA is included herein because management believes that certain investors find it a useful tool for measuring the Company's ability to service its indebtedness. For the fiscal years ended December 31, 1994, 1995 and 1996 and the nine-month periods ended September 30, 1996 and 1997, EBITDA includes the net operating results of Northland Cable News, Inc. of $46,000, $(424,000), $(432,000), $(314,000) and $(312,000), respectively. Northland Cable News, Inc., a wholly owned subsidiary of the Company, began operations in fiscal year 1994. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 Basic subscribers increased 14,965 or 19.2%, from 77,835 to 92,800 for the nine months ended September 30, 1997. Revenues. Revenues increased $5.3 million or 22.7%, from $23.4 million to $28.7 million for the nine months ended September 30, 1997. Such increase was primarily attributable to a full period inclusion of the three Moses Lake area systems serving approximately 12,580 subscribers which were acquired in October 1996 (the "Moses Lake Acquisition"). Average monthly revenue per basic subscriber increased $1.57 or 4.7%, from $33.06 to $34.63 for the nine months ended September 30, 1997. Such increase was attributable to: (i) rate increases, which averaged 6.7%, implemented in a majority of the Company's systems effective August 1, 1996; and (ii) revenue from the increase in penetration of new product tiers. Basic revenue per average basic subscriber increased $1.31 or 5.9%, from $22.39 to $23.70 for the nine months ended September 30, 1997. Tier revenue per average basic subscriber increased $0.56 or 23.9%, from $2.34 to $2.90 for the nine months ended September 30, 1997. Excluding the impact of the Moses Lake Acquisition, for the nine months ended September 30, 1997: (i) revenues would have increased $1.9 million or 8.1%, from $23.4 million to $25.3 million; and (ii) revenue per average basic subscriber would have increased $2.09 or 6.3%, from $33.06 to $35.15. Operating Expenses. Operating expenses, which include costs related to programming, technical personnel, repairs and maintenance and advertising sales, increased $1.7 million or 24.6%, from $6.9 million to $8.6 million for the nine months ended September 30, 1997. Operating expenses as a percentage of revenues increased from 29.4% to 30.1% for the nine months ended September 30, 38 41 1997. A substantial portion of these increases was due to the Moses Lake Acquisition, which included approximately 12,580 subscribers. Excluding the impact of the Moses Lake Acquisition, operating expenses would have increased approximately $600,000 or 8.7%, from $6.9 million to $7.5 million for the nine months ended September 30, 1997. Such increase would have been attributable to: (i) annual wage and benefit increases; and (ii) higher programming costs resulting from rate increases by certain programming vendors and the launch of new programming services in various systems. General and Administrative Expenses. General and administrative expenses, which include on-site office and customer service personnel costs, customer billing, postage and marketing expenses and franchise fees increased approximately $1.1 million or 26.2%, from $4.2 million to $5.3 million for the nine months ended September 30, 1997. General and administrative expenses, as a percentage of revenues, increased from 18.0% to 18.6% for the nine months ended September 30, 1997. These increases were attributable primarily to the Moses Lake Acquisition. Excluding the impact of the Moses Lake Acquisition, general and administrative expenses would have increased approximately $300,000 or 7.1%, from $4.2 million to $4.5 million for the nine months ended September 30, 1997. This increase was attributable to: (i) annual wage and benefit increases; and (ii) increases in revenue-based expenses such as franchise fees. Management Fees. Management fees increased $200,000 or 16.7%, from $1.2 million to $1.4 million for the nine months ended September 30, 1997. Such increase was directly attributable to the revenue increases discussed above. Management fees are calculated at 5.0% of gross revenues. Depreciation and Amortization Expense. Depreciation and amortization expense increased $2.1 million or 27.6%, from $7.6 million to $9.7 million for the nine months ended September 30, 1997. Such increase was due to the Moses Lake Acquisition and the Company's capital expenditures. Interest Expense. Interest expense increased by $1.5 million or 25.4%, from $5.9 million to $7.4 million for the nine months ended September 30, 1997. Such increase was primarily attributable to increased borrowings incurred in connection with the Moses Lake Acquisition which increased average outstanding indebtedness $21.9 million or 26.6%, from $82.2 million to $104.1 million for the nine months ended September 30, 1997. EBITDA. EBITDA increased approximately $2.2 million or 20.4%, from $10.8 million to $13.0 million for the nine months ended September 30, 1997. EBITDA Margin decreased from 46.3% to 45.3% for the nine months ended September 30, 1997. These changes were attributable primarily to the Moses Lake Acquisition, which contributed approximately $1.4 million of EBITDA for the nine months ended September 30, 1997. The EBITDA Margin for the Moses Lake area systems was 39.7% for the nine months ended September 30, 1997. Excluding the effects of the Moses Lake Acquisition, EBITDA would have increased $800,000 or 7.4%, from $10.8 million to $11.6 million for the nine months ended September 30, 1997. FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1995 The Company served 90,327 basic subscribers as of December 31, 1996, an increase of 13.1%. In 1996, the net number of subscribers added through system acquisitions was approximately 12,582. Excluding such acquired subscribers, the Company served 77,745 basic subscribers as of December 31, 1996. Revenues. Revenues increased $6.2 million or 23.5%, from $26.4 million to $32.6 million in 1996. Such increase was due primarily to: (i) the full period inclusion of systems acquired in 1995; and (ii) results for the Moses Lake area systems acquired in October 1996. Average monthly revenue per basic subscriber increased $2.10 or 6.7%, from $31.12 to $33.22 in 1996. Such increase 39 42 was attributable to: (i) increases in rates charged for subscriptions to basic and tier services; (ii) an increase in the average number of tier subscribers from 21,682 to 28,964 in 1996; and (iii) increases in advertising revenue. Revenues, from systems owned as of January 1, 1995, increased $2.0 million or 8.3%, from $24.0 million to $26.0 million in 1996. Average monthly revenue per basic subscriber, for systems owned as of January 1, 1995, increased $2.50 or 8.0%, from $31.22 to $33.72 in 1996. Operating Expenses. Operating expenses increased $1.9 million or 25.3%, from $7.5 million to $9.4 million in 1996. Such increase was primarily attributable to the Company's acquisition activities. Operating expenses as a percentage of revenues increased from 28.5% to 29.0% in 1996. Such increase was attributable to increased: (i) programming costs; and (ii) costs associated with the Company's expanding advertising efforts. The average monthly programming costs per subscriber increased 9.5% from 1995 to 1996 as a result of the launch of new programming services and increases in rates charged by program providers. General and Administrative Expenses. General and administrative expenses increased $1.3 million or 27.7%, from $4.7 million to $6.0 million in 1996. Such increase was primarily attributable to the Company's acquisition activities. General and administrative expenses, as a percentage of revenues, increased from 17.8% to 18.3% in 1996. Such increase was primarily attributable to increases in: (i) property tax expense; and (ii) consulting fees. Management Fees. Management fees increased approximately $300,000 or 23.1%, from $1.3 million to $1.6 million in 1996. Such increase was attributable to the revenue increases discussed above. Management fees are calculated at 5.0% of gross revenues. EBITDA. EBITDA increased $2.7 million or 21.8%, from $12.4 million to $15.1 million in 1996. Such increase was primarily attributable to the Company's acquisition activities. EBITDA Margin declined from 47.1% to 46.4% in 1996. Such decrease was attributable to: (i) the acquisition of certain systems with lower EBITDA Margins; and (ii) the resulting increase in operating and general and administrative expenses as a percentage of revenues. FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1994 The Company served 79,848 basic subscribers as of December 31, 1995, an increase of 15,718 or 24.5%. In 1995, the net number of subscribers added through system acquisitions was approximately 14,415. Excluding such acquired subscribers, the Company served 65,433 basic subscribers as of December 31, 1995. Revenues. Revenues increased $11.1 million or 72.5%, from $15.3 million to $26.4 million in 1995. Such increase was due primarily to the acquisition of systems in late 1994 and in 1995. Average monthly revenue per basic subscriber increased $1.53 or 5.2%, from $29.59 to $31.12 in 1995. Such increase was attributable to: (i) increases in rates charged for subscriptions to basic and tier services; (ii) an increase in the average number of tier subscribers from 14,171 to 21,682; and (iii) a 32.5% increase in average monthly advertising revenue per basic subscriber. Revenues from systems owned as of January 1, 1994, increased $1.2 million or 8.6%, from $14.0 million to $15.2 million in 1995. Average monthly revenue per basic subscriber, for systems owned as of January 1, 1994, increased $1.98 or 6.6%, from $29.80 to $31.78 in 1995. These increases for systems owned as of January 1, 1994 were attributable to: (i) a 1.8% growth in basic subscribers served; (ii) increases in revenues from launches of new product tiers; and (iii) the Company's expanding advertising sales efforts. Operating Expenses. Operating expenses increased $3.3 million or 78.6%, from $4.2 million to $7.5 million in 1995. Such increase was primarily attributable to system acquisitions in late 1994 and in 1995. Operating expenses as a percentage of revenues increased from 27.3% to 28.5% in 1995. Such increase was attributable to increases in: (i) pole attachment fees; and (ii) costs associated with the Company's expanding advertising sales efforts. 40 43 General and Administrative Expenses. General and administrative expenses increased $1.9 million or 67.9%, from $2.8 million to $4.7 million in 1996. Such increase was primarily attributable to system acquisitions in late 1994 and 1995. These costs declined as a percentage of revenues from 18.1% to 17.8% in 1995. Such decrease was primarily attributable to a decrease in wage and benefit costs as a percentage of revenues from 2.9% to 2.5% in 1995. Management Fees. Management fees increased $968,000 or 291.6%, from $332,000 to $1.3 million in 1995. Such increase was attributable to the initiation of a management fee payable to the Company's parent, effective August 1994, calculated at 5.0% of the Company's gross revenue. EBITDA. EBITDA increased $4.3 million or 53.1%, from $8.1 million to $12.4 million in 1995. Such increase was primarily attributable to the system acquisitions. EBITDA Margin declined from 52.7% to 47.1% in 1995. Such decrease was attributable to: (i) the initiation of a management fee payable to the Company's parent in August 1994; and (ii) increases in operating expenses as a percentage of revenues. LIQUIDITY AND CAPITAL RESOURCES The cable television business generally requires substantial capital for the construction, expansion and maintenance of the signal distribution system. In addition, the Company has pursued, and intends to pursue, a business strategy which includes selective acquisitions. The Company has financed these expenditures through a combination of cash flow from operations and borrowings under the Senior Credit Facility. For the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and 1997, the Company's net cash provided from operations was $5.8 million, $5.6 million, $8.0 million, $4.9 million and $6.9 million, respectively, all of which were sufficient to meet the Company's debt service obligations, working capital and capital expenditure requirements for the respective periods, excluding acquisitions. Acquisitions of cable television systems during these periods primarily were financed through bank borrowings. The Company believes that cash flow from operations will be adequate to meet the Company's short-term and long-term liquidity requirements, excluding acquisitions, prior to the maturity of its long-term indebtedness, although no assurance can be given in this regard. Effective June 30, 1997, the Company received a non-cash capital contribution of approximately $9.3 million which replaced, in its entirety, the then outstanding net unsecured advances that had previously been owed to NTC and other affiliates of the Company other than amounts due for normal operations, management fees paid to NCC and for services provided by affiliated entities as discussed above. As of September 30, 1997, the Company had no outstanding unsecured indebtedness to affiliates. See "Certain Transactions -- Capital Contribution." Upon consummation of the Offering, and the application of the proceeds therefrom, and the Acquisition, on a pro forma basis as of September 30, 1997, the Company will increase its total consolidated Debt to approximately $177.3 million from $103.0 million. Following the consummation of the Offering, and the application of proceeds therefrom, and the Acquisition, the Company expects to have unused commitments under the Senior Credit Facility of approximately $22.9 million which will be available for permitted acquisitions (as defined under the Senior Credit Facility) and general corporate purposes subject to the Company's compliance with all covenants under the Senior Credit Facility. The Company has received a commitment from its senior lender for the Supplemental Credit Facility with maximum borrowings of $115.0 million which will provide any additional financing necessary to consummate the Special Repurchase Offer in the event the Acquisition is not consummated. Interest payments under the Notes and interest and principal payments under the Senior Credit Facility will represent significant liquidity requirements for the Company. See "-- Recent Developments," "Description of the Senior Credit Facility" and "Description of the Notes -- Repurchase at the Option of Holders -- Special Repurchase Offer." Borrowings under the Senior Credit Facility will bear interest at floating rates and will require payments on various dates depending on the interest rate options selected by the Company. The 41 44 Company expects that cash provided by operations will be sufficient to cover its future debt service obligations. CAPITAL EXPENDITURES For the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and 1997, the Company had capital expenditures of $1.8 million, $2.7 million, $2.8 million, $2.0 million and $3.2 million, respectively. Capital expenditures included: (i) expansion and improvements of cable properties; (ii) additions to plant and equipment; (iii) maintenance of existing equipment; and (iv) cable line drops and extensions and installations of cable plant facilities. The Company plans to invest approximately $14.1 million in system upgrades prior to December 31, 1999. This represents anticipated expenditures for upgrading and rebuilding certain distribution facilities, new product launches, extensions of distribution facilities to add new subscribers and general maintenance. It is expected that cash flow from operations will be sufficient to fund planned capital expenditures. 42 45 BUSINESS The Company owns and operates 35 cable television systems serving small cities, towns and rural communities (i.e., non-urban markets) in California, Georgia, Oregon, South Carolina, Texas and Washington. The Company is a wholly owned subsidiary of Northland Telecommunications Corporation ("NTC"), which, together with the Company and its other affiliates, has specialized in providing cable television and related services in non-urban markets since 1981. See "Certain Transactions." Since closing its initial acquisition in 1986, Northland Cable Television, Inc. has demonstrated a strong and consistent ability to target, negotiate and complete acquisitions of cable systems and integrate the operation of such systems. The Company believes it has created a loyal relationship with the communities it serves by maintaining local offices, hiring staff predominantly from these communities and providing high quality customer service. In many communities, the Company offers its exclusive local news and information programming, produced by the Company's wholly owned subsidiary, Northland Cable News, Inc. The Company has increased its basic and premium subscribers through strategic acquisitions, selective system upgrades and extensions of its cable systems. Additionally, the Company believes its subscriber growth and revenue per subscriber have been enhanced by consistent economic growth and favorable demographics in its markets. As a result of these factors, from December 31, 1992 through September 30, 1997, the Company experienced compound annual growth in basic subscribers and EBITDA on an annualized basis of 21.2% and 22.8%, respectively. As of September 30, 1997, the Existing Systems passed approximately 135,180 homes and served 92,800 basic subscribers, representing a basic penetration rate of 68.6%. The Existing Systems achieved average monthly revenue per basic subscriber of $34.63 for the nine months ended September 30, 1997. The Company has executed a definitive agreement to acquire the Acquisition Systems from the Sellers. The Acquisition Systems are clustered in close proximity to several of the Existing Systems in South Carolina, which the Company believes will allow it to achieve certain economies of scale and operating efficiencies. As of September 30, 1997, the Acquisition Systems passed an estimated 59,260 homes and served approximately 35,705 basic subscribers, representing a basic penetration rate of 60.3%. The Acquisition Systems achieved average monthly revenue per basic subscriber of $34.43 for the nine months ended September 30, 1997. Historically, the Company has successfully assimilated acquired systems into its existing operations, which has resulted in increased revenues and EBITDA. Management's strategy to enhance the financial performance of the Company's systems includes: (i) customizing programming services to the local market; (ii) upgrading its cable systems to increase signal quality, improve technical reliability and expand channel capacity; (iii) offering more diversified packages of programming services and pricing; and (iv) leveraging its local presence for both marketing and community-focused customer service. The Company expects this strategy to increase basic penetration in the Acquisition Systems and the revenues and EBITDA generated by those systems. As of September 30, 1997, after giving pro forma effect to the Acquisition, the Company's systems passed an estimated 194,440 homes and served approximately 128,505 basic subscribers, for a basic penetration rate of 66.1%. For the nine months ended September 30, 1997 and the year ended December 31, 1996, on a pro forma basis, the Company had revenues of approximately $39.7 million and $49.4 million, respectively, and EBITDA of approximately $17.8 million and $22.3 million, respectively. The Company believes it is well positioned to capitalize on favorable competitive and economic characteristics associated with owning and operating cable television systems in non-urban markets. These attractive characteristics as compared to urban and suburban markets, include: (i) lower population densities which lead to a higher likelihood of only one cable television provider; (ii) lower churn rates; (iii) greater subscriber penetration rates; (iv) limited reception of over-the-air television stations; and (v) fewer alternative entertainment sources. 43 46 By clustering systems, the Company is able to take advantage of certain economies of scale, such as reduced payroll, billing and technical costs on a per subscriber basis, and consolidated regional advertising. The Company intends to continue to pursue its clustering strategy through the acquisition of additional systems in or near its current operating regions. John S. Whetzell is the founder, Chairman of the Board and President of NTC and the Company. Mr. Whetzell has assembled a senior management team of six individuals who have an average of approximately 21 years of experience in the cable industry to execute the Company's business strategy. The Company's senior management team has been in place for over 10 years. The Company believes that the depth and experience of its senior management, together with their history of managing the Company as a team, is a key asset which significantly enhances the Company's operating performance. See "Management." BUSINESS STRATEGY The Company's objective is to increase its revenue and EBITDA by utilizing its experience and expertise in acquiring and operating cable television systems. Elements of the Company's operating and acquisition strategy are discussed below. Target Non-Urban Markets. The Company operates clusters of cable television systems serving non-urban markets. The Company believes non-urban markets provide attractive and stable subscriber demographics and opportunities for clustering systems. As a result of the Company's experience in operating cable systems in non-urban markets, management believes it can continue to increase subscriber penetration in its Existing Systems while pursuing strategic acquisitions which complement the Company's Existing Systems. Pursue Strategic Acquisitions. The Company actively considers opportunities to acquire additional cable systems in non-urban markets and generally targets markets with limited off-air broadcast signal reception, few entertainment alternatives and strong community identity. In general, the Company seeks to acquire stand-alone systems, or groups of systems, with an emphasis on those in close proximity to its Existing Systems. In addition, the Company considers acquisitions in other geographic areas where the Company believes it can leverage its experience in operating cable systems in non-urban markets. From time to time the Company may divest itself, through asset exchanges or outright sales, of cable systems that do not readily lend themselves to the Company's philosophy of clustering systems or for other reasons. Among the factors the Company considers in evaluating the desirability of a potential acquisition or asset exchange opportunity are price and terms, subscriber densities, plant quality, availability of off-air broadcast signals, growth potential (in terms of homes passed, revenue and EBITDA) and whether the target system can be readily integrated into the Company's operations. The Company's management team has a history of successfully integrating acquisitions and intends to continue to acquire systems which will further improve revenues and EBITDA. Strategically Upgrade Systems. The Company strategically upgrades its cable systems as part of its goal to satisfy current and future customer demand and maximize return on investment. The centerpiece of this strategy is the systematic deployment of fiber optic technology. The Company believes that construction of fiber optic backbones significantly enhances picture quality and system reliability and expands channel capacity, such that the Company is able to offer a product that is competitive or superior to other potential video providers competing in the same markets. Typically, the Company utilizes a 550 MHz system architecture for new trunk and feeder lines, with the flexibility to upgrade to 750 MHz capacity in those specific districts of a service area where future demand for such capacity may develop. The Company believes this strategy enables it to be more responsive, in a cost-efficient manner, to fast changing technologies and local demand for new services, such as data transfer services and digital tiers. As of September 30, 1997, on a pro forma basis, 65.9% of the Company's subscribers were served by systems with fiber optic backbones. The Company plans to invest approximately $14.1 million in system upgrades prior to December 31, 44 47 1999, at which time, on a pro forma basis the Company anticipates that over 70% of the Company's subscribers will be served by systems with fiber optic backbones. Pursue New Business Opportunities. The Company has identified several business opportunities which complement its core video delivery operations. In many systems, the Company has begun utilizing its own advertising sales force to market spot advertising availabilities and production to area merchants. Advertising revenue has grown rapidly and constituted 5.6% of the Company's revenues for the year ended December 31, 1996. In addition, the Company is seeking to construct fiber optic wide area networks in certain communities to be leased to local governments, schools and businesses for various telecommunications applications, such as remote classrooms, voice networks and data transfer. The Company is also exploring the launch of enhanced digital video, such as Headend In the Sky(R) ("HITS"), a digital video compression service. Digital video service such as HITS will enable the Company to significantly expand its program offering by more efficiently utilizing current analog channel capacity. The Company also believes that high speed data services delivered via hybrid fiber and coaxial plant may provide the Company with opportunities for new revenue sources, such as Internet access, in selected communities. Focus on the Community. A significant component of the Company's business strategy is to bring all aspects of its programming and operations to a local focus in order to increase revenues, EBITDA and subscriber loyalty and to provide key competitive advantages in the markets it serves. Customize Programming and Expand Service Offerings. The Company believes that a system-by-system, decentralized approach to programming is required as each area served has unique demographic and economic characteristics. A primary focus of the Company's programming strategy is the offering of specialty tiers of service which typically contain eight to ten channels of programming such as family, sports or movie channels that target particular niches of subscribers. The Company's tier subscribers have grown at a compound annual growth rate of 27.2% from December 31, 1992 through September 30, 1997. Upon acquiring a system, the Company analyzes the system's current programming and tier structure and, in most cases, takes prompt action to increase the menu of services and channels provided. For example, after acquiring a system in Moses Lake, Washington in October 1996, the Company increased the number of channels offered from 39 to 53, including one additional basic channel and the addition of a new nine-channel optional tier and four new pay services. Average monthly revenue per subscriber in the Moses Lake system grew by approximately 15.9%, increasing from $28.26 per month at the time of acquisition (for the first full month of operations) to a monthly average of $32.74 in the third quarter of 1997. The Company intends to implement a similar strategy in the Acquisition Systems. Provide Local News. The Company, through its wholly owned subsidiary, Northland Cable News, Inc., provides local news, sports and information to several of the Company's cable systems, serving 42.2% of the Company's current subscribers. This news service, Northland Cable News is available exclusively to systems owned by the Company and its affiliates with a total of approximately 96,966 subscribers served as of September 30, 1997. Northland Cable News focuses on stories of particular interest to the residents of each community, including local news, sports, weather, features and coverage of local people and events. The Company believes that Northland Cable News serves to differentiate the Company's programming from any potential competitors and strengthens the Company's ties with the community. Northland Cable News also enables systems to expand local advertising sales. As part of its operational strategy, the Company intends to introduce Northland Cable News in certain of the Acquired Systems. Maintain Local Offices and Personnel. Because the Company specializes in operating cable systems in small cities and towns, the Company emphasizes locally focused customer service. Key aspects of the Company's customer service commitment include local offices 45 48 and a decentralized management structure. Conveniently accessible offices in or near each of the communities it serves are staffed predominantly by locally hired employees who are generally familiar with the community's customer base. Local employees and managers have authority to quickly resolve customer-related problems and serve to put a local "face" to the Northland Cable Television name. Personnel at local offices implement the Northland Quality Assurance Program, which was introduced in 1989 and entails random telephonic customer surveys and telephonic follow-up within 48 hours of any service call. In addition, local offices integrate themselves into the communities they serve, purchasing such items as vehicles, uniforms and office supplies from local merchants, conducting charity food drives and utilizing Company "bucket trucks" for civic purposes. THE SYSTEMS The Company's systems are divided into four geographical regions. Unless otherwise indicated, all operating statistical data set forth in the following table and the region-by-region description of the Company's Existing Systems and the Acquisition Systems which follows is as of September 30, 1997.
AVERAGE MONTHLY REVENUE PERCENT OF PREMIUM PER HOMES BASIC BASIC BASIC SERVICE PREMIUM BASIC EBITDA REGION PASSED(1) SUBSCRIBERS(2) PENETRATION SUBSCRIBERS(3) UNITS(4) PENETRATION SUBSCRIBER MARGIN - ------------------- --------- -------------- ----------- -------------- ------- ----------- ---------- ------ EXISTING SYSTEMS So. Car./Georgia... 35,815 24,362 68.0% 19.0% 7,470 30.7% $38.12 47.7% Washington....... 34,670 25,847 74.6% 20.1% 7,767 30.0% $34.26 43.3% Texas............ 46,385 29,834 64.3% 23.2% 9,038 30.3% $32.83 49.0% Oregon/Calif..... 18,310 12,757 69.7% 9.9% 4,697 36.8% $32.87 44.1% ------- ------- ------ ----- ------ ----- ------ ----- Total Existing Systems(5)....... 135,180 92,800 68.6% 72.2% 28,972 31.2% $34.63 45.3% ACQUISITION SYSTEMS South Carolina... 59,260 35,705 60.3% 27.8% 18,063 50.6% $34.43 44.1% ------- ------- ----- ------ Total Systems(5)... 194,440 128,505 66.1% 100.0% 47,035 36.6% $34.57 45.0% ======= ======= ===== ======
- --------------- (1) Homes passed refers to estimates of the number of dwelling units in a particular community that can be connected to the distribution system without any further extension of principal transmission lines. Such estimates are based upon a variety of sources, including billing records, house counts, city directories and other local sources. (2) The number of basic subscribers has been computed by adding the actual number of subscribers for all non-bulk accounts and the equivalent subscribers for all bulk accounts. The number of such equivalent subscribers has been calculated by dividing aggregate basic service revenue for bulk accounts by the full basic service rate for the community in which the account is located. (3) Percentage of all basic subscribers based on an aggregate of the Existing Systems and the Acquisition Systems. (4) Premium service units represents the number of subscriptions to premium channels. (5) EBITDA Margin for the Existing Systems and "Total Systems" includes Northland Cable News, Inc.'s net operating results. The South Carolina/Georgia Region. Prior to giving effect to the Acquisition, the South Carolina/Georgia Region consists of four headends serving 24,362 subscribers. Two headends, located in Clemson, South Carolina and Statesboro, Georgia, serve 21,451 subscribers or 88.1% of the total subscribers in the region. The region is currently operated from two local offices located in Clemson and Statesboro. After giving effect to the Acquisition, the South Carolina/Georgia region will consist of 10 headends serving 60,067 subscribers. Two of the headends are expected to be interconnected by year-end 1999. 46 49 Clemson, South Carolina. The Clemson area systems serve 15,586 subscribers from three headends, one of which is expected to be eliminated through interconnection. The Clemson system, which is home to Clemson University, is the largest system, serving 12,675 subscribers, and is in the final stages of a 400 MHz rebuild project, in which approximately 90% of the subscribers are expected to benefit from expanded channel capacity by spring 1998. The Company is culminating an intensive five-year capital plan for the Clemson area systems which includes the installation of a fiber optic backbone designed to support a 750 MHz trunk and feeder architecture. Additionally, the Clemson area systems offer Northland Cable News, have a strong advertising sales effort and their principal office and headend sites are owned by the Company. Statesboro, Georgia. The Statesboro system serves 8,776 subscribers from a single headend and is in the final phase of a 400 MHz upgrade scheduled for completion by early 1998. The Statesboro system offers Northland Cable News, has a strong advertising sales effort and owns its office and headend site. Statesboro, which is home to Georgia Southern University, has experienced steady population growth, with a compound annual growth rate for the period 1990 through 1995 of 2.4%, more than double the national average of 1.1%, in each case according to the U.S. Bureau of the Census. The Acquisition Systems. The six Acquisition Systems serve portions of Aiken, Greenwood, McCormick, Laurens, Abbeville, Saluda and Edgefield Counties in western South Carolina. The Acquisition Systems passed an estimated 59,260 homes and served approximately 35,705 basic subscribers. Over 89% of the subscribers in the Acquisition Systems are served by cable plant with 400 MHz or better capacity. The Company expects to upgrade the Greenwood system to 550 MHz capacity by year-end 1999, which will result in approximately 93% of subscribers in the Acquisition Systems being served by cable plant with 550 MHz capacity. Although this system currently employs fiber optic technology, the Company plans to design and construct an expanded fiber optic backbone designed to support a 750 MHz trunk and feeder architecture by year-end 1999. The Aiken and Greenwood systems serve approximately 15,794 and 16,301 subscribers, respectively, constituting approximately 89.9% of the subscribers served by the Acquisition Systems. Aiken and Greenwood counties have a diversified industrial base consisting of local, national and foreign manufacturing companies covering such diverse industries as pharmaceuticals, textiles, industrial robotics, gardening seeds and prefabricated homes. Specific employers in the region include Greenwood Mills, Fuji Photo, Monsanto, Sara Lee, Schlumberger Industries, Tarma MidAtlantic and Velux-Greenwood. Piedmont Technical College, located in Greenwood, has 3,000 regular students and 15,000 continuing education students further diversifying the local economy. The largest employer in the Aiken area is the Westinghouse Savannah River Company. The Washington Region. The Washington Region serves 25,847 subscribers from five headends and is operated from three offices located in Port Angeles, Bainbridge Island, and Moses Lake, Washington. The three largest headends serve 21,097 subscribers or 81.6% of the total subscribers in the region. Port Angeles, Washington. The Port Angeles system serves 8,622 subscribers from one headend. The system utilizes a fiber optic backbone designed to support a 750 MHz trunk and feeder architecture with 30.0% of the subscribers served by 450 MHz capacity plant and the remainder of subscribers served by 330 MHz capacity plant. A 450 MHz upgrade is in process. The system provides Northland Cable News, which acts as a major news source for the area. Port Angeles is located near the Olympic National Park and is the county seat for Clallam County. The system's office and headend sites are owned by the Company. Bainbridge Island, Washington. The Bainbridge Island system serves 5,220 subscribers from one headend. Although physically close to Seattle, hilly terrain makes for poor off-air 47 50 reception in many areas of the island. Current channel capacity is 330 MHz. The construction of a fiber optic backbone designed to support a 750 MHz trunk and feeder architecture is 50.0% accomplished, with completion expected by early 1998. A 550 MHz design upgrade is now 25.0% accomplished, with completion expected by year-end 1999. The system's combination office and headend site is owned. Northland Cable News is offered to subscribers, which has helped develop a successful advertising sales business. Bainbridge Island had a compound annual growth rate for the period 1990 through 1995 of 3.6%, far exceeding the national average. Moses Lake, Washington. The Moses Lake area systems serve 12,005 subscribers from three headends. The Moses Lake headend serves 60.4% of the subscribers and has 400 MHz channel capacity including a recently constructed fiber optic backbone designed to support a 750 MHz trunk and feeder architecture. With the resulting increased channel capacity, the Company added 14 new channels, including a new product tier that it believes will enhance the financial performance of that system. The office, three headend sites and a microwave site are owned by the Company. The three headends are interconnected via microwave for the delivery of certain off-air broadcast signals imported from the Seattle and Spokane, Washington markets. Each system maintains a separate headend facility for reception and distribution of satellite signals. The Othello system recently was upgraded to 400 MHz capacity, and the Ephrata System is intended to be upgraded to 550 MHz capacity by year-end 1999. The Moses Lake area, located in central Washington state, has experienced a compound annual growth rate of its population for the period 1990 through 1995 of 3.3%, well above the national average. The Texas Region. The Texas Region is characterized by smaller systems, with 19 headends serving 29,834 subscribers. Three of the region's headends are scheduled to be interconnected by year-end 1999. Six headends currently serve 64.0% of the subscribers. Additionally, the Company's management structure allows it to achieve operating efficiencies, as only five local offices are required to service the region. Stephenville, Texas. The Stephenville area systems serve 6,183 subscribers from a cluster of three headends. Stephenville is home to Tarleton State College, an affiliate of Texas A&M University. Approximately 78.4% of subscribers currently are served by plant with 400 MHz capacity, and due to the systems size and household density, the systems will not require fiber optic technology to achieve 550 MHz capacity. The systems have experienced steady growth in their tier subscriptions and advertising sales revenue. The office and headend site are owned by the Company. Mexia, Texas. The Mexia area systems serve 6,871 subscribers from a cluster of five headends, with the two largest headends, Mexia and Fairfield/Teague, serving 89.8% of the subscribers. The Mexia and Fairfield/Teague systems currently have channel capacity of 400 MHz, with Mexia utilizing a fiber optic backbone. The Company recently launched a new product tier in Fairfield/Teague which the Company believes will enhance the financial performance of that system. The Mexia area has a diversified economy with Nucor Steel, Inc. as a major employer. Marble Falls, Texas. The Marble Falls area systems serve 8,685 subscribers from a cluster of five headends. The Company recently completed a fiber optic interconnect of the Horseshoe Bay system to the Marble Falls system, thereby eliminating the Horseshoe Bay headend. Over the next two years, the Company plans to continue its strategy to interconnect headends by completing a fiber optic interconnect of the Kingsland system to the Marble Falls system, thereby eliminating an additional headend. At the completion of the Kingsland interconnect, approximately 66.0% of the subscribers in the area will be served from a single headend. The combination office and headend site in Marble Falls is owned by the Company. The Burnet system is currently at 450 MHz capacity and over the 48 51 next three to five years the remaining systems in the Marble Falls area are scheduled to be upgraded to 400 MHz or 450 MHz capacity. The Marble Falls region is a popular outdoor recreation and retirement area for families from nearby Austin and San Antonio. The population growth rate in the area is 3.7%, in excess of three times the national average. The remaining six headends in the Texas region serve 8,095 subscribers, with 89.0% of subscribers served by plant with 330 MHz capacity or better. The Oregon/California Region. The Oregon/California Region serves 12,757 subscribers from seven headends, which are operated from three offices located in Woodburn, Oregon, and Yreka and Oakhurst, California. Three headends serve 10,980 subscribers or 86.1% of the total subscribers in the region. Woodburn, Oregon. Located between Portland and Salem, Oregon, the Woodburn system serves 4,170 subscribers from one headend with a 450 MHz capacity system. The office and headend site are owned. The system's Northland Cable News production was a key factor in its recently being named the Business of the Year by the Woodburn Chamber of Commerce. Woodburn is located in the Willamette Valley, a major agricultural area, and has historically enjoyed strong population growth. See "-- Competition" and "-- Litigation." Oakhurst, California. The Oakhurst, California area is one of the entrances to Yosemite National Park. The Oakhurst area systems serve 4,949 subscribers from a cluster of five headends. The Oakhurst headend serves 64.1% of the subscribers in the area and is currently 330 MHz capacity. An upgrade of the Oakhurst system to 450 MHz capacity is in process, and the Company anticipates that 32.0% of Oakhurst system's subscribers will be served by 450 MHz capacity plant by mid-1998, and the entire Oakhurst system upgrade will be completed by 1999. The current upgrade plan includes the construction of a fiber optic backbone, with the interconnect and subsequent elimination of one headend. Yreka, California. The Yreka, California system, located near Mt. Shasta National Park, serves 3,638 subscribers from a single headend. Yreka is the county seat of Siskiyou County. The majority of the system currently has 330 MHz capacity. An upgrade of the system to 450 MHz capacity is now underway. Portions of the system serving 64.2% of the subscribers already have been designed to 450 MHz capacity, with completion projected by year-end 1999. The Yreka office and headend sites are owned by the Company. THE ACQUISITION The Company has executed a definitive agreement pursuant to which it will acquire the Acquisition Systems for $69,975,000. The Company anticipates that the Acquisition will be consummated on or prior to early January 1998, subject to the satisfaction of customary closing conditions and the receipt of certain third party and governmental approvals. However, there can be no assurance that the Acquisition will be consummated. See "Risk Factors -- Risks Associated with the Acquisition" and "Description of the Notes -- Redemption at the Option of Holders -- Special Repurchase Offer." The Acquisition is part of a transaction among the Company and certain affiliates of the Company and the Sellers and an affiliate of the Sellers, whereby 12 cable television systems serving approximately 54,400 subscribers will be purchased by the Company and certain Company affiliates for approximately $101.8 million. Allocation of the systems among the Company and its affiliates was based on NTC's analysis of geographic concentration, ease of technical and administrative integration and the financial and local management capacities of the Company and its affiliates. The approximately $70.0 million purchase price to be paid by the Company for the Acquisition Systems was arrived at by negotiations between the Company and the Sellers, independent of the negotiations of the purchase price for the other systems. See "Risk Factors -- Conflicts of Interest; Transactions with Affiliates." 49 52 INDUSTRY OVERVIEW A cable television system receives television, radio and data signals at the system's "headend" site by means of off-air antennas, microwave relay systems and satellite earth stations. These signals are then modulated, amplified and distributed, primarily through coaxial and fiber optic distribution systems, to deliver a wide variety of channels of television programming, primarily entertainment and informational video programming, to the homes of subscribers who pay fees for this service, generally on a monthly basis. A cable television system may also produce its own television programming and other information services for distribution through the system. See "Business -- Northland Cable News." Cable television systems generally are constructed and operated pursuant to non-exclusive franchises or similar licenses granted by local governmental authorities for a specified period of time. The cable television industry developed in the United States in the late 1940s and early 1950s in response to the needs of residents in predominantly rural and mountainous areas of the country where the quality of off-air television reception was inadequate due to factors such as topography and remoteness from television broadcast towers. In the 1960s, cable systems also developed in small and medium-sized cities and suburban areas that had a limited availability of clear off-air television station signals. All of these markets are regarded within the cable industry as "classic" cable television system markets. In more recent years, cable television systems have been constructed in large urban cities and nearby suburban areas, where good off-air reception from multiple television stations usually is already available, in order to offer customers the numerous satellite-delivered channels typically carried by cable systems that are not otherwise available through broadcast television reception. Cable television systems offer customers various levels (or "tiers") of cable services consisting of broadcast television signals of local network affiliates, independent and educational television stations, a limited number of broadcast television signals from so-called "super stations" originating from distant cities (such as WGN), various satellite-delivered, non-broadcast channels (such as Cable News Network ("CNN"), MTV: Music Television ("MTV"), the USA Network ("USA"), ESPN and Turner Network Television ("TNT")), programming originated locally by the cable television system (such as public, educational and governmental access programs) and informational displays featuring news, weather and public service announcements. Cable television systems also offer "premium" television services to customers on a per-channel basis and sometimes on a pay-per-view basis. These services (such as Home Box Office ("HBO") and Showtime and selected regional sports networks) are satellite channels that consist principally of feature films, live sporting events, concerts and other special entertainment features, usually presented without commercial interruption. A customer generally pays an initial installation charge and fixed monthly fees for basic, tier and premium television services and for other services (such as the rental of converters and remote control devices). Such monthly service fees constitute the primary source of revenue for cable television systems. In addition to customer revenue, cable television systems also frequently offer to their customers home shopping services, which pay such systems a share of revenue from products sold in the systems' service areas. Some cable television systems also receive revenue from the sale of available spots on advertiser-supported programming. PROGRAMMING AND SUBSCRIBER RATES The Company has various contracts to obtain basic, satellite and premium programming for the systems from program suppliers, including, in limited circumstances, some broadcast stations, with compensation generally based on a fixed fee per customer or a percentage of the gross receipts for the particular service. Some program suppliers provide volume discount pricing structures and/or offer marketing support. In addition, the Company is a member of the National Cable Television Cooperative (the "NCTC"), a programming consortium consisting of small to medium sized cable 50 53 operators and individual cable systems serving, in the aggregate, over eight million cable subscribers. The consortium helps create efficiencies in the areas of securing and administering certain billing related aspects of programming contracts, as well as to establish more favorable programming rates and contract terms for small and medium sized cable operators. The Company contracts for approximately 25.6% of its programming through the NCTC. The Company does not have long-term programming contracts for the supply of a substantial amount of its programming, due in part to ongoing negotiations with a number of its programming suppliers, but also due to the Company's belief that it is in its best interests to enter into long-term programming contracts only if additional benefits are derived from the contractual arrangements. In cases where the Company does have such contracts, they are generally for fixed periods of time ranging from one to five years and are subject to negotiated renewal. While management believes that the Company's relations with its programming suppliers are generally good, the loss of contracts with certain of its programming suppliers could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. Cable programming costs are expected to continue to increase due to additional programming being provided to customers, inflationary increases and other factors. In 1995, 1996 and the first nine months of 1997, programming costs as a percentage of the Company's revenues were 20.9%, 20.7% and 20.1%, respectively. Cable television systems offer their customers programming that includes the local network, independent and educational broadcast television stations, a limited number of broadcast television signals from distant cities, numerous satellite-delivered, non-broadcast channels and in some systems local information and public, educational and governmental access channels. Depending upon each system's channel capacity and viewer interests, the Company offers up to four tiers of cable television programming: a basic programming tier (consisting generally of network, independent and public television signals available over-the-air), an "expanded basic" programming tier (consisting generally of satellite-delivered programming services with broad based viewership appealing to a wide variety of subscriber tastes), a specialty tier (consisting of satellite-delivered programming, services tailored to particular niche subscriber groups such as the Sci-Fi Channel, Home & Garden, The Cartoon Network, American Movie Classics, ESPN2 and regional sports programming) and a fourth tier consisting of premium services purchased from content suppliers such as HBO, Cinemax and The Disney Channel. In certain systems, the Company, through its subsidiary Northland Cable News, produces a local news program which is cablecast in a variety of time slots. See "Business -- Northland Cable News." Monthly customer rates for services vary from market to market, primarily according to the amount of programming provided. As of September 30, 1997, the Company's monthly full basic service rates for residential customers ranged from $21.25 to $28.20, per-channel premium service rates ranged from $2.95 to $13.50 per service and tier service rates ranged from $5.95 to $9.95. As of September 30, 1997, the weighted average price for the Company's monthly full basic service rate was approximately $25.46. In addition to subscriber fees, the Company derived 5.6% of its revenues in fiscal 1996 from the sale of local spot advertising time on locally produced and satellite-delivered programming. The Company also derives modest amounts of revenue from affiliations with home shopping services (which offer merchandise for sale to customers and compensate system operators with a percentage of their sales receipts) and from offering in-home wiring maintenance contracts to subscribers. A one-time installation fee, which the Company may wholly or partially waive during limited promotional periods, is usually charged to new customers. The Company charges monthly fees for converters and remote control tuning devices, although these devices are typically only installed when the customer's television is not capable of delivering the number of channels included in the programming tier purchased. The Company also charges administrative fees for delinquent payments for service. Customers are free to discontinue service at any time without additional charge 51 54 but may be charged a reconnection fee to resume service. Multiple dwelling unit accounts typically are offered a bulk rate in exchange for single-point billing and basic service to all units. NORTHLAND CABLE NEWS The Company, through its wholly owned subsidiary, Northland Cable News, Inc., provides local news and information to several of the Company's cable systems, serving 42.2% of the Company's current subscribers. This news service, Northland Cable News, also is provided to the Company's affiliates, resulting in a total of approximately 96,966 subscribers served as of September 30, 1997. Northland Cable News focuses on stories of particular interest to the residents of each community, including local news, sports, weather, features and coverage of local people and events. Northland Cable News is available exclusively to systems owned by the Company and its affiliates, and serves to differentiate the Company's programming from any potential competitors. The Company believes that Northland Cable News increases the number of subscribers where offered by enhancing the appeal of the Company's cable services and strengthens the Company's ties with the community. Northland Cable News also enables systems to expand local advertising sales. In addition, Northland Cable News, Inc. has introduced radio programming on AM radio stations owned by affiliates of the Company in Statesboro, Georgia and Corsicana, Texas. The Company believes such crossmarketing techniques will foster synergistic revenue and promotional opportunities as well as significant cost efficiencies in the reporting of local news and sports. See "Certain Transactions -- Arrangements Between Northland Cable News and Affiliates." CUSTOMER SERVICE AND MARKETING The Company emphasizes customer service, which it believes is important to the successful operation of its business. By specializing in operating cable television systems in small towns and cities, the Company focuses on adopting business approaches which permit it to provide high-quality locally focused service to each community served. The Company believes that a system-by-system, decentralized approach to operations is required as each area served has distinct characteristics such as demographics, economic diversity and geographic setting. The Company's local management strives to become an integral part of the communities served. These efforts enable the Company periodically to adjust its local service offerings so that the needs of a particular community can be met on a timely basis. To ensure the successful execution of the Company's local customer service and marketing strategies, the Company maintains conveniently accessible local offices in many of its service areas. In the communities it serves, the Company has found that many customers prefer to personally visit the local office to pay their bills or ask questions about their service. The Company's local staff, who are typically native to the areas they serve, are familiar with the community's customer base. The Company believes that this combination of local offices and local staffing helps the Company to provide the highest level of customer service. Additionally, the Company believes its familiarity with the communities it serves allows it to customize its menu of services and respective pricing to provide its customers with products that are both diverse and affordable. Since 1989, the Company has operated under a Quality Assurance Program which seeks to ensure that quality and consistent service is provided to each customer. The Quality Assurance Program focuses on both customer satisfaction and system technical performance. To evaluate customer satisfaction at each system, on an annual basis, Company employees at the corporate, regional and local levels make an aggregate of over 500 telephone calls to customers chosen on a random basis. Additionally, local customer service representatives call each customer within 48 hours after a service call to determine whether all problems have been resolved. System technical performance is also monitored by random telephone calls to customers and system tests which exceed the FCC's minimum requirements. 52 55 Finally, the Company believes that highly trained and motivated employees with sound technical and interpersonal skills are essential in providing quality service to its customers. In 1995, the Company developed a comprehensive training and certification program which provides specific technical training as well as wage increases and career advancement incentives. The training program is multi-leveled, offering specific structured steps of company-paid courses, monitored on the job training for specialized tasks, and periodic scheduled performance evaluations. The Company believes that this training program will help to ensure the continued successful implementation of its Quality Assurance Program. TECHNICAL OVERVIEW The following table sets forth certain information regarding the analog channel capacities and miles of plant of the Company's systems after giving effect to the Acquisition as if it had occurred as of September 30, 1997:
220 TO 270 330 TO 350 400 TO 550 MHZ 300 MHZ MHZ MHZ 22 TO 31 UP TO 37 UP TO 47 UP TO 77 CHANNELS CHANNELS CHANNELS CHANNELS TOTAL ---------- -------- ---------- ---------- ------- Number of headends................... 7 10 11 13 41 Subscribers as of September 30, 2,173 14,447 36,866 75,019 128,505 1997............................... % of total subscribers............... 1.7% 11.2% 28.7% 58.4% 100.0% Miles of plant....................... 155 524 1,208 2,448 4,335 % of total plant..................... 3.5% 12.1% 27.9% 56.5% 100.0%
The Company has completed rebuilds and upgrades to 400 MHz or better on nine cable systems. These systems represent over 1,100 miles of coaxial plant and serve over 38.0% of the total subscribers of the Existing Systems. In addition, the Company has begun plans to upgrade 890 miles of plant, improving its 300 MHz, 330 MHz and 350 MHz systems to 400 MHz or better. On average these plans are more than 35.0% complete. The Company expects to invest $800,000, $5.9 million and $7.3 million, in the fourth quarter of 1997, 1998 and 1999, respectively, to continue to upgrade its plant. The Company systematically deploys fiber optic technology to accomplish its near and long-term service and operating capacity objectives. This strategy provides for future capacity expansion to 750 MHz and beyond due to fiber optic capability of carrying hundreds of video, data, and voice channels over extended distances without the extensive signal amplification typically required for coaxial cable. The Company's plans include the use of fiber optic technology to interconnect headends and installation of fiber optic backbones to reduce amplifier cascades, thereby gaining operational efficiencies and improved picture quality and system reliability. On a pro forma basis, 65.9% of the Company's subscribers are served by systems that have deployed fiber optic technology. Furthermore, due to their compact geographic nature, systems serving 15.6% of subscribers will not require fiber optic technology to achieve operating capacities of 550 MHz. The Company utilizes a "trap" system whereby a technician installs filters, or traps, at each cabled home enabling the technician to configure the programming received by each subscriber. As compared to converters, traps allow subscribers benefits such as full use of their remote controls and VCR recording of any channel while watching any other channel at the same time. This method also enables the Company to reduce piracy of cable services by placing the signal interdiction device outside the customer's premises. 53 56 FRANCHISES Cable television systems are generally constructed and operated under non-exclusive franchises granted by local governmental authorities. These franchises typically contain many conditions, including: (i) time limitations on commencement and completion of construction; (ii) conditions of service including customer response requests, technical standards, compliance with FCC regulations and the provision of free service to schools and certain other public institutions; and (iii) the maintenance of insurance and indemnity bonds. Certain provisions of local franchises are subject to federal regulation under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecommunications Act. Certain localities, including unincorporated areas in Texas where certain of the Company's Existing Systems are located, do not require franchises to operate cable systems. As of September 30, 1997, on a pro forma basis, the Company held 82 franchises. These franchises, all of which are non-exclusive, generally provide for the payment of fees to the issuing authority. Annual franchise fees typically range from 3.0% to 5.0% of the gross revenue generated by a system. For the past three years, franchise fee payments made by the Company have averaged approximately 3.0% of total gross system revenue. Franchise fees are generally passed directly through to the customers on their monthly bills. General business or utility taxes may also be imposed in various jurisdictions. As amended by the 1996 Telecommunications Act, the 1984 Cable Act prohibits franchising authorities from imposing franchise fees in excess of 5.0% of gross revenue from the provision of cable services and also permits the cable operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances. Most of the Company's franchises can be terminated prior to their stated expirations for uncured breaches of material provisions. See "Legislation and Regulation." The following table sets forth the number of franchises by year of franchise expiration and the number and percentage of basic subscribers as of September 30, 1997, after giving pro forma effect to the Acquisition:
NUMBER PERCENTAGE NUMBER PERCENTAGE OF OF TOTAL OF BASIC OF BASIC YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS - ------------------------------------------------- ---------- ---------- ----------- ----------- Prior to 2000.................................... 17 20.7% 27,536 21.4% 2000 - 2004...................................... 24 29.3% 47,707 37.1% 2005 - 2008...................................... 22 26.8% 27,272 21.2% 2009 and after................................... 19 23.2% 22,434 17.5% -- ----- ------- ----- Subtotal....................................... 82 100.0% 124,949 97.2% No franchise required............................ 3,556 2.8% ------- ----- Total.......................................... 128,505 100.0% ======= =====
The Company believes that it has good relationships with its franchising authorities. To date, the Company has never had a franchise revoked for any of its systems, and no request of the Company for franchise renewals or extensions has been denied. However, such renewed or extended franchises have sometimes resulted in more rigorous franchise requirements. The 1984 Cable Act provides for, among other things, procedural and substantive safeguards for cable operators and creates an orderly franchise renewal process in which renewal of franchise licenses issued by governmental authorities cannot be unreasonably withheld, or, if renewal is withheld and the franchise authority chooses to acquire the system or transfer ownership to another person, such franchise authority or other person must pay the operator either: (i) the "fair market value" (without value assigned to the franchise) for the system if the franchise was granted after the effective date of the 1984 Cable Act (December 1984) or the franchise was pre-existing but the franchise agreement did not provide a buyout; or (ii) the price set in franchise agreements predating the 1984 Cable Act. In addition, the 1984 Cable Act established comprehensive renewal 54 57 procedures which require that an incumbent franchisee's renewal application be assessed on its own merits and not as part of a comparative process with competing applications. See "Legislation and Regulation." The 1984 Cable Act also establishes buyout rates in the event the franchise is terminated "for cause" and the franchise authority desires to acquire the system. For franchises which post-date the existence of the 1984 Cable Act or pre-date the 1984 Cable Act but do not specify buyout terms, the franchise authority must pay the operator an "equitable" price. To date, none of the Company's franchises has been terminated. The 1992 Cable Act prohibits the award of exclusive franchises, prohibits franchising authorities from unreasonably refusing to award additional franchises and permits them to operate cable systems themselves without franchises. The 1996 Telecommunications Act 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. State and local authorities retain authority to manage the public rights of way and "competitively neutral" requirements concerning right of way fees, universal service, public safety and welfare, service quality, and consumer protection are permitted with respect to telecommunications services. See "Legislation and Regulation" and "Risk Factors -- Non-Exclusive Franchises; Non-Renewal or Termination of Franchises." COMPETITION Cable television systems face competition from alternative methods of receiving and distributing television signals and from other sources of news, information and entertainment such as off-air television broadcast programming, satellite master antenna television services, DBS services, wireless cable services, newspapers, movie theaters, live sporting events, online computer services and home video products, including videotape cassette recorders. The extent to which a cable communications system is competitive depends, in part, upon the cable system's ability to provide, at a reasonable price to customers, a greater variety of programming and other communications services than those which are available off-air or through other alternative delivery sources and upon superior technical performance and customer service. Cable television systems generally operate pursuant to franchises granted on a non-exclusive basis. The 1992 Cable Act prohibits franchising authorities from unreasonably denying requests for additional franchises and permits franchising authorities to operate cable television systems without a franchise. It is possible that a franchising authority might grant a second franchise to another company containing terms and conditions more favorable than those afforded the Company. Well-financed businesses from outside the cable industry (such as the public utilities and other companies that own the poles to which cable is attached) may become competitors for franchises or providers of competing services. Congress has repealed the prohibition against national television networks owning cable systems, and telephone companies may now enter the cable industry, as described below. Such new entrants may become competitors for franchises or providers of competitive services. In general, a cable system's financial performance will be adversely affected when a competing cable service exists (referred to in the cable industry as an "overbuild"). In 1993, a potential competitor petitioned to obtain a franchise from the City of Woodburn, Oregon to operate a cable system which would compete with the Company's Woodburn system. Such franchise has not been granted. The Company's Woodburn system serves 4,170 subscribers, constituting approximately 3.2% of the Company's total subscribers on a pro forma basis. See "-- Litigation" and "Risk Factors -- Competition; Litigation." In recent years, the FCC and the Congress have adopted policies providing a more favorable operating environment for new and existing technologies that provide, or have the potential to provide, substantial competition to cable television systems. These technologies include, among 55 58 others, DBS, whereby signals are transmitted by satellite to small receiving dishes located on subscribers' homes. Programming is currently available to DBS subscribers through conventional, medium- and high-powered satellites. Existing DBS systems offer in excess of seventy-five channels of programming and pay-per-view services and are expected to increase channel capacity to 100 or more channels, enabling them to provide program service comparable to and in some instances, superior to those of cable television systems. At least four well-financed companies currently offer DBS services and have undertaken extensive marketing efforts to promote their products. The FCC has implemented regulations under the 1992 Cable Act to enhance the ability of DBS systems to make available to home satellite dish owners certain satellite delivered cable programming at competitive costs. Programming offered by DBS systems has certain advantages over cable systems with respect to number of channels offered, programming capacity and digital quality, as well as disadvantages that include high upfront and monthly costs and a lack of local programming, service and equipment distribution. DBS systems will provide increasing competition to cable systems as the cost of DBS reception equipment continues to decline. At least one DBS provider is undertaking the technical and legislative steps necessary to enhance its service by adding local broadcast signals which could further increase competitive pressures from DBS systems. Cable television systems also compete with wireless program distribution services such as MMDS which uses low power microwave to transmit video programming over the air to customers. Additionally, the FCC recently adopted new regulations allocating frequencies in the 28 GHz band for a new multichannel wireless video service similar to MMDS, known as Local Multipoint Distribution Service ("LMDS"). LMDS is also suited for providing wireless data services, including the possibility of Internet access. Wireless distribution services generally provide many of the programming services provided by cable systems, although current technology limits the number of channels which may be offered. Moreover, because MMDS service generally requires unobstructed "line of sight" transmission paths, the ability of MMDS systems to compete may be hampered in some areas by physical terrain and foliage. The 1996 Telecommunications Act eliminated the previous prohibition on the provision of video programming by local exchange telephone companies ("LECs") in their telephone service areas. Various LECs currently are providing and seeking to provide video programming services within their telephone service areas through a variety of distribution methods, primarily through the deployment of broadband wire facilities, wireless transmission and installation of traditional cable systems alongside existing telephone equipment. Cable television systems could be placed at a competitive disadvantage if the delivery of video programming services by LECs becomes widespread, since LECs may not be required, under certain circumstances, to obtain local franchises to deliver such video services or to comply with the variety of obligations imposed upon cable television systems under such franchises. Issues of cross subsidization by LECs of video and telephony services also pose strategic disadvantages for cable operators seeking to compete with LECs that provide video services. The Company believes, however, that the small to medium markets in which it provides or expects to provide cable services are unlikely to support competition in the provision of video and telecommunications broadband services given the lower population densities and higher costs per subscriber of installing plant. The 1996 Telecommunications Act's provisions promoting facilities-based broadband competition are primarily targeted at larger systems and markets. The 1996 Telecommunications Act includes certain limited exceptions to the general prohibition on buy outs and joint ventures between incumbent cable operators and LECs for smaller non-urban cable systems and carriers meeting certain criteria. See "Legislation and Regulations." Other new technologies may become competitive with non-entertainment services that cable television systems can offer. The FCC has authorized television broadcast stations to transmit textual and graphic information useful both to consumers and businesses. The FCC also permits commercial and noncommercial FM stations to use their subcarrier frequencies to provide non- 56 59 broadcast services including data transmissions. The FCC has established an over-the-air Interactive Video and Data Service that will permit two-way interaction with commercial and educational programming along with informational and data services. The expansion of fiber optic systems by LECs and other common carriers, and electric utilities is providing facilities for the transmission and distribution to homes and businesses of video services, including interactive computer-based services like the Internet, data and other nonvideo services. The business of delivering and producing televised news, information and entertainment are characterized by new market entrants, increasingly rapid technological change and evolving industry standards. There can be no assurance that the Company will be able to fund the capital expenditures necessary to keep pace with technological developments or that the Company will successfully predict the technical demand of its subscribers. The Company's inability to provide enhanced services in a timely manner or to predict the demands of the marketplace could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. Advances in communications technology as well as changes in the marketplace and the regulatory and legislative environments are constantly occurring. Thus, it is not possible to predict the effect that ongoing or future developments might have on the cable industry or on the operations of the Company. See "Risk Factors -- Competition; Litigation" and "Significant Capital Expenditures; Rapid Technological Advancements in the Cable Television Business." EMPLOYEES As of September 30, 1997, the Company had approximately 170 full-time employees and nine part-time employees. Ten of the Company's employees at its Moses Lake, Washington system are represented by a labor union. The Company considers its relations with its employees to be good. PROPERTIES A cable television system consists of three principal operating components. The first component, known as the headend, receives television, radio and information signals generally by means of special antennas and satellite earth stations. The second component, the distribution network, which originates at the headend and extends throughout the system's service area, consists of microwave relays, coaxial or fiber optic cables and associated electronic equipment placed on utility poles or buried underground. The third component of the system is a "drop cable," which extends from the distribution network into each customer's home and connects the distribution system to the customer's television set. An additional component used in certain systems is the home terminal device, or converter, that expands channel capacity to permit reception of more than twelve channels of programming on a non-cable ready television set. The Company's principal physical assets consist of cable television systems, including signal-receiving, encoding and decoding apparatus, headends, distribution systems and subscriber house drop equipment for each of its systems. The signal receiving apparatus typically includes a tower, antennas, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, typically are located near the receiving devices. The Company's distribution systems consist primarily of coaxial cable and related electronic equipment. As upgrades are completed, the systems will generally incorporate fiber optic cable. Subscriber equipment consists of traps, house drops and, in some cases, converters. The Company owns its distribution systems, various office fixtures, test equipment and certain service vehicles. The physical components of the systems require maintenance and periodic upgrading to keep pace with technological advances. The Company's cables are generally attached to utility poles under pole rental agreements with local public utilities, although in some areas the distribution cable is buried in trenches or placed in 57 60 underground ducts. The FCC regulates most pole attachment rates under the federal Pole Attachment Act although in certain cases attachment rates are regulated by state law. The Company owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave complexes and business offices. The Company believes that its properties, both owned and leased, are in good condition and are suitable and adequate for the Company's business operations as presently conducted. INSURANCE With certain exceptions, the Company has insurance covering risks incurred in the ordinary course of business, including general liability, property coverage and business interruption insurance. As is typical in the cable television industry, the Company does not maintain insurance covering its underground plant. Furthermore, due to significant industry wide insurance increases in premiums, the Company elected not to renew its aerial plant casualty insurance effective June 30, 1996. A cable system's "aerial plant" consists of its transmission lines, equipment attached to utility poles and other above-ground fixtures. Such equipment is subject to damage from a variety of factors, notably hurricanes and ice and wind storms. Although none of the Company's Systems are located in coastal areas, and thus not likely to be severely damaged by hurricanes, many are subject to risks from ice and wind storms. To attempt to mitigate these risks, the Company has entered into a "self-insurance" arrangement with certain of its affiliates. See "Certain Transactions -- Insurance." However, if the Company's aerial plant sustains significant damage, or if the self-insurance program is inadequate to cover such losses, the resulting reduction in cash flow caused by interrupted service, together with the capital cost of replacing damaged equipment, could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. See "Risk Factors -- Uncertainty of Adequate Insurance." Notwithstanding the foregoing, the Company believes that the amounts and types of its insurance coverage are commercially reasonable for its current needs. LITIGATION In 1993, North Willamette Telecom, Inc., an affiliate of Canby Telephone Association, petitioned to obtain a franchise from the City of Woodburn, Oregon to operate a cable system which would compete with the Company's Woodburn system. Such franchise has not been granted. On March 20, 1996, the Company was served with a complaint in a suit commenced in the United States District Court for the District of Oregon by North Willamette Telecom, Inc. and Canby Telephone Association. The suit alleges the Company violated federal antitrust laws, intentionally interfered with plaintiffs' prospective business relationships with potential cable customers, and intentionally interfered with plaintiffs' business relationships with the Canby Telephone Association's members. The complaint seeks actual damages ranging from $1.2 million to $10.2 million, punitive damages of $10.0 million and other relief. The Company denies the allegations of the complaint and is vigorously defending the case. The Company has filed summary judgment motions and no trial date has been set. An adverse ruling could have a material adverse effect on the Company, its financial condition, prospects and debt service ability. In addition, the Company is a party to ordinary and routine litigation proceedings that are incidental to the Company's business. Management believes that the outcome of all pending legal proceedings will not, individually or in the aggregate, have a material adverse effect on the Company, its financial condition, prospects and debt service ability. See "Risk Factors -- Competition; Litigation." 58 61 LEGISLATION AND REGULATION INTRODUCTION The operation of cable television systems is extensively regulated by the FCC, some state governments and most local governments. The Telecommunications Act of 1996 alters the regulatory structure governing the nation's telecommunications providers. The Telecommunications Act of 1996 is intended to remove barriers to competition in both the cable television market and the local telephone market. It also reduces the scope of cable rate regulation. The 1996 Telecommunications Act requires the FCC to undertake a host of implementing rulemakings, the final outcome of which cannot yet be determined. Moreover, Congress and the FCC have frequently revisited the subject of cable regulation. Future legislative and regulatory changes could adversely affect the Company's operations. This section briefly summarizes key laws and regulations affecting the operation of the Company's systems and does not purport to describe all present, proposed, or possible laws and regulations affecting the Company or its systems. See "Risk Factors -- Substantial Regulation in the Cable Television Industry." CABLE RATE REGULATION The 1992 Cable Act imposed an extensive rate regulation regime on the cable television industry. Under that regime, all cable systems are subject to rate regulation, unless they face "effective competition" in their local franchise area. Federal law now defines "effective competition" on a community-specific basis as requiring either low penetration (less than 30%) by the incumbent cable operator, appreciable penetration (more than 15%) by competing multichannel video providers ("MVPs"), or the presence of a competing MVP affiliated with a local telephone company. Although the FCC rules control, local government units (commonly referred to as "local franchising authorities" or "LFAs") are primarily responsible for administering the regulation of the lowest level of cable, the basic service tier ("BST"), which typically contains local broadcast stations and public, educational, and government access channels. Before an LFA begins BST rate regulation, it must certify to the FCC that it will follow applicable federal rules, and many LFAs have voluntarily declined to exercise this authority. LFAs also 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. The 1996 Telecommunications Act allows operators to aggregate costs for broad categories of equipment across geographic and functional lines. The FCC itself directly administers rate regulation of an operator's cable programming service tiers ("CPST"), which typically contain satellite-delivered programming. Under the 1996 Telecommunications Act, the FCC can regulate CPST rates only if an LFA first receives at least two rate complaints from local subscribers and then files a formal complaint with the FCC. When new CPST rate complaints are filed, the FCC now considers only whether the incremental increase is justified and will not reduce the previously established CPST rate. Under the FCC's rate regulations, most cable systems were required to reduce their BST and CPST 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 carnage. The FCC 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 of bypassing this "benchmark" regulatory scheme in favor of traditional "cost-of-service," regulation in cases where the latter methodology appears favorable. Premium cable services offered on a per-channel or per-program basis remain unregulated, as do affirmatively marketed packages consisting entirely of new programming product. Federal law requires that the BST be offered to all cable subscribers, but limits the ability of 59 62 operators to require purchase of any CPST before purchasing premium services offered on a per-channel or per-program basis. In an effort to ease the regulatory burden on small cable systems, the FCC has created special rate rules applicable for systems with fewer than 15,000 subscribers owned by an operator with fewer than 400,000 subscribers. The special rate rules allow for a simplified cost-of-service showing. All of the Company's Existing Systems are eligible for these simplified cost-of-service rules, and have calculated rates generally in accordance with those rules. All of the Acquisition Systems, except the systems serving Greenwood and Aiken, South Carolina, are also eligible for the simplified cost-of-service rules. The Company believes, however, it is eligible for a waiver of the FCC's rate regulation rules such that the Greenwood and Aiken systems may qualify for the simplified rate regulations afforded to smaller systems. The 1996 Telecommunications Act provides additional relief for small cable operators. For franchising units with less than 50,000 subscribers and owned by an operator with less than one percent of the nation's cable subscribers (i.e., approximately 600,000 subscribers) that is not affiliated with any entities with aggregate annual gross revenue exceeding $250 million, CPST rate regulation is automatically eliminated. The Company and all of its Existing Systems qualify for this CPST deregulation. The 1996 Cable Act sunsets FCC regulation of CPST rates for all systems (regardless of size) on March 31, 1999. It also relaxes existing uniform rate requirements by specifying that uniform rate requirements do not apply where the operator faces "effective competition," and by exempting bulk discounts to multiple dwelling units, although complaints about predatory pricing still may be made to the FCC. CABLE ENTRY INTO TELECOMMUNICATIONS The 1996 Cable Act 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. 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 extent to which state and local governments may impose requirements in such situations recently has been, and will continue to be, the subject of litigation. The outcome of that litigation, and its effect on the Company, cannot be predicted. The favorable pole attachment rates afforded cable operators under federal law can be gradually increased by utility companies owning the poles (beginning on February 8, 2001) if the operator provides telecommunications service, as well as cable service, over its plant. Cable entry into telecommunications will be affected by the regulatory landscape now being fashioned by the FCC and state regulators. One critical component of the 1996 Cable Act to facilitate the entry of new telecommunications providers (including cable operators) is the interconnection obligation imposed on all telecommunications carriers. Certain aspects of the FCC's initial interconnection order were rejected by the Eighth Circuit Court of Appeals on July 18, 1997, on the ground that the states, not the FCC, have statutory authority to set the prices that incumbent local exchange carriers may charge for interconnection. It is expected that the FCC will seek review by the United States Supreme Court of the ruling. TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION The 1996 Cable Act allows telephone companies to compete directly with cable operators by repealing the historic telephone company/cable cross-ownership ban. Local exchange carriers ("LECs"), including the Bell Operating Companies, can now compete with cable operators both inside and outside their telephone service areas. Because of their resources, LECs could be 60 63 formidable competitors to traditional cable operators, and certain LECs have begun offering cable service. Under the 1996 Cable Act, a LEC providing video programming to subscribers generally will be regulated as a traditional cable operator (subject to local franchising and federal regulatory requirements), unless the LEC elects to provide its programming via an "open video system" ("OVS"). To qualify for OVS status, the LEC must reserve two-thirds of the system's activated channels for unaffiliated entities. Although LECs and cable operators can now expand their offerings across traditional service boundaries, the general prohibition remains on LEC buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable systems, cable operator buyouts of co-located LEC systems, and joint ventures between cable operators and LECs in the same market. The 1996 Telecommunications Act provides a few limited exceptions to this buyout prohibition, including a carefully circumscribed "rural exemption." The 1996 Telecommunications Act also provides the FCC with the limited authority to grant waivers of the buyout prohibition (subject to LFA approval). ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS/CABLE TELEVISION The 1996 Cable Act provides that registered utility holding companies and subsidiaries may provide telecommunications services (including cable television) notwithstanding the Public Utilities Holding Company Act. Electric utilities must establish separate subsidiaries, known as "exempt telecommunications companies" and must apply to the FCC for operating authority. Because of their resources, electric utilities could be formidable competitors to traditional cable systems, and a few electric utilities have announced plans to offer video programming. Recent technological advances have increased the likelihood that electric utilities may become competitive with the Company. ADDITIONAL OWNERSHIP RESTRICTIONS The 1996 Cable Act eliminates statutory restrictions on broadcast/cable cross-ownership (including broadcast network/cable restrictions), but leaves in place existing FCC regulations prohibiting local cross-ownership between co-located television stations and cable systems. The 1996 Cable Act also eliminates the three year holding period required under the 1992 Cable Act's "anti-trafficking" provision. The 1996 Cable Act leaves in place existing restrictions on cable cross-ownership with satellite master antenna television ("SMATV") and MMDS facilities, but lifts those restrictions where the cable operator is subject to effective competition. FCC regulations permit cable operators to own and operate SMATV systems within their franchise area, provided that such operation is consistent with local cable franchise requirements. Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system from devoting more than 40% of its activated channel capacity to the carriage of affiliated national program services. A companion rule establishing a nationwide ownership cap on any cable operator equal to 30% of all domestic cable subscribers has been stayed pending further judicial review. There are no federal restrictions on non-U.S. entities having an ownership interest in cable television systems or the FCC licenses commonly employed by such systems. MUST CARRY/RETRANSMISSION CONSENT The 1992 Cable Act conveyed to a commercial broadcaster the right generally to elect every three years either to require: (i) that the local cable operator carry its signals ("must carry"); or (ii) that such operator obtain the broadcaster's retransmission consent before doing so. The Company has been able to reach agreements with all of the broadcasters who elected retransmission consent and has not been required by broadcasters to remove any broadcast stations from the cable television channel line-ups. To date, compliance with the "retransmission consent" and "must 61 64 carry" provisions of the 1992 Cable Act has not had a material effect on the Company, although this result may change in the future depending on such factors as market conditions, the introduction of digital broadcasts, channel capacity and similar matters when such arrangements are renegotiated. CHANNEL SET-ASIDES LFAs 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 FCC has adopted rules regulating the terms, conditions and maximum rates a cable operator may charge for use of this designated channel capacity, but use of commercial leased access channels has been relatively limited. The FCC recently modified its leased access rules, making leased access somewhat more favorable to potential users. The changes, however, were not as dramatic as leased access users had hoped, and should not significantly infringe on the Company's control over its channel line-up. The revised maximum rate formula has been challenged by one leased access applicant in an appeal to the D.C. Circuit Court. ACCESS TO PROGRAMMING To spur the development of independent cable programmers and competition to incumbent cable operators, the 1992 Cable Act imposed restrictions on dealings between cable operators and cable programmers. The 1992 Cable Act precludes video programmers affiliated with cable companies from favoring cable operators over competitors and requires such programmers to sell their programming to other multichannel video distributors. This provision limits the ability of vertically integrated cable programmers to offer exclusive programming arrangements to cable companies. OTHER FCC REGULATIONS In addition to the FCC regulations noted above, there are other FCC regulations covering such areas as equal employment opportunity, subscriber privacy, programming practices (including, among other things, syndicated program exclusivity, network program non-duplication, local sports blackouts, indecent programming, lottery programming, political programming, sponsorship identification, and children's programming advertisements), registration of cable systems and facilities licensing, maintenance of various records and public inspection files, frequency usage, lockbox availability, antenna structure notification, tower marking and lighting, consumer protection and customer service standards, technical standards, and consumer electronics equipment compatibility. The FCC recently adopted rules relating to the ownership of cable wiring located inside multiple dwelling unit complexes. The FCC has concluded that such wiring can, in certain cases, be unilaterally acquired by the complex owner, making it easier for complex owners to terminate service from the incumbent cable operator in favor of a new entrant. The FCC recently imposed new Emergency Alert System requirements on cable operators which will be phased in over several years. The FCC recently adopted "closed captioning" rules that the Company does not expect to have an adverse effect on its operations. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations. PENDING PROCEEDING The FCC has initiated a rulemaking proceeding involving whether cable customers must be allowed to purchase cable converters from third party vendors. If the FCC concludes that such distribution is required, and does not make appropriate allowances for signal piracy concerns, it may become more difficult for cable operators to combat theft of service. 62 65 COPYRIGHT Cable television systems are subject to federal copyright licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenue to a federal copyright royalty pool (which varies depending on the size of the system and the number of distant broadcast television signals carried), cable operators can obtain blanket permission to retransmit copyrighted material on broadcast signals. The possible modification or elimination of this compulsory copyright license is the subject of continuing legislative review and could adversely affect the Company's ability to obtain desired broadcast programming. In addition, the cable industry pays music licensing fees to BMI and is negotiating a similar arrangement with ASCAP. Copyright clearances for non-broadcast programming services are arranged through private negotiations. STATE AND LOCAL REGULATION Cable television systems generally are operated pursuant to nonexclusive franchises granted by a municipality or other state or local government entity in exchange for the use of public rights-of-way. Federal law now prohibits franchise authorities from granting exclusive franchises or from unreasonably refusing to award additional 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 terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Each franchise generally contains provisions governing cable operations, service rates, franchise fees, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, and indemnification protections. Although LFAs have considerable discretion in establishing franchise terms, there are certain federal limitations. For example, LFAs cannot require the payment of franchise fees exceeding 5% of the system's gross revenue, cannot dictate the particular technology used by the system, and cannot specify video programming other than identifying broad categories of programming. Federal law contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. Even if a franchise is renewed, the franchise authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and services or increased franchise fees as a condition of renewal. Similarly, if a franchise authority's consent is required for the purchase or sale of a cable system or franchise, such authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for consent. Historically, franchises have been renewed for cable operators that have provided satisfactory services and have complied with the terms of their franchises. However, there can be no assurance that renewal will be granted or that renewals will be made on similar terms and conditions. Various proposals have been introduced at the state and local levels with regard to the regulation of cable television systems, and a number of states have adopted legislation subjecting cable television systems to the jurisdiction of state governmental agencies. 63 66 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning directors and executive officers of the Company, none of whom are compensated by the Company for their respective services to the Company and each of whom devotes a substantial amount of his time to the affairs of affiliated entities other than the Company. Each director holds office until the next annual meeting of shareholders or until his successor is elected or appointed and qualified.
NAME AGE POSITION - -------------------------- --- ------------------------------------------------------------ John S. Whetzell.......... 56 Director, Chairman of the Board and President Richard I. Clark.......... 40 Director, Vice President, Treasurer and Assistant Secretary James A. Penney........... 43 Vice President and Secretary Gary S. Jones............. 40 Vice President Richard J. Dyste.......... 52 Vice President, Technical Services James E. Hanlon........... 64 Divisional Vice President H. Lee Johnson............ 54 Divisional Vice President John E. Iverson........... 61 Director and Assistant Secretary
John S. Whetzell. Mr. Whetzell has been President, Chairman of the Board and a director of the Company since its inception in 1985. He also serves as President, Chairman of the Board and a director of Northland Telecommunications Corporation, Northland Communications Corporation (which is the general partner of each of the Company's five affiliated limited partnerships), Northland Cable Services Corporation, Cable Ad-Concepts, Inc., Northland Cable News, Inc. and Northland Cable Properties, Inc. (collectively, the "Northland Affiliates"). He has been involved with the cable television industry for over 21 years and currently serves as a director on the board of the Cable Telecommunications Association, a national cable television association. Between 1979 and 1982, he was in charge of the Ernst & Whinney 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 FCC from 1974 to 1979. He provided economic studies which support the deregulation of cable television both in federal and state arenas. Mr. Whetzell also participated in the formulation of accounting standards for the industry and assisted the FCC 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. Mr. Clark has served as Vice President and Treasurer of the Company since 1985, as Assistant Secretary since 1987 and as a director since 1985. Mr. Clark also serves as Vice President, Treasurer, Assistant Secretary and a director of each of the Northland Affiliates. Mr. Clark was an original incorporator of Northland Telecommunications Corporation and is responsible for the administration and investor relations activities of Northland Telecommunications Corporation, including financial planning and corporate development. 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 has prepared documents for major cable television companies in franchising and budgeting projects through the application of these programs. From 1979 to 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 17 years. In 1979, Mr. Clark graduated cum laude from Pacific Lutheran University with a Bachelor of Arts degree in accounting. James A. Penney. Mr. Penney has served as Vice President and General Counsel of the Company since 1985, and as Secretary since 1987. Mr. Penney also serves as Vice President, General Counsel and Secretary of each of the Northland Affiliates. Mr. Penney is responsible for 64 67 advising all Northland systems with regard to legal and regulatory matters, and also is involved in the acquisition and financing of new cable systems. From 1983 until 1985 he was associated with the law firm of Ryan, Swanson & Cleveland. Mr. Penney holds a Bachelor of Arts degree from the University of Florida and a Juris Doctor from The College of William and Mary, where he was a member of The William and Mary Law Review. Gary S. Jones. Mr. Jones has been Vice President of the Company since 1986. He also serves as Vice President of each of the Northland Affiliates. Mr. Jones is responsible for cash management, financial reporting and banking relations for the Company and each of the Northland Affiliates, and is involved in the acquisition and financing of new cable systems. Prior to joining the Company, Mr. Jones was employed as a Certified Public Accountant with 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. Mr. Dyste has been Vice President-Technical Services of the Company since 1988. Mr. Dyste also serves as Vice President-Technical Services of each of the Northland Affiliates. Mr. Dyste joined the Company in 1986, originally as an engineer and operations consultant. From 1977 to 1985, Mr. Dyste owned and operated Bainbridge TV Cable, which owned the Bainbridge Island, Washington system now owned by the Company. Mr. Dyste is a past President and a current member of the Mount Rainier Chapter of the Society of Cable Television Engineers, Inc. He is a graduate of Washington Technology Institute. James E. Hanlon. Mr. Hanlon has served as Divisional Vice President of the Company since 1985. Mr. Hanlon also serves as Divisional Vice President of each of the Northland Affiliates. Prior to his association with the Company, he served as Chief Executive of M.C.T. Communications from 1981 to 1985. His responsibilities included supervision of the franchise, construction and operation of a cable television system located near Tyler, Texas. From 1979 to 1981, Mr. Hanlon was President of the CATV Division of Buford Television, Inc., and from 1973 to 1979, he served as President and General Manager of Suffolk Cablevision in Suffolk County, New York. Mr. Hanlon has also served as Vice President and Corporate Controller of Viacom International, Inc. and Division Controller of New York Yankees, Inc. Mr. Hanlon has a Bachelor of Science degree in Business Administration from St. Johns University. H. Lee Johnson. Mr. Johnson has been Divisional Vice President of the Company since 1994. Mr. Johnson also serves as Divisional Vice President of each of the Northland Affiliates. Mr. Johnson served as Regional Manager for several systems of the Company and its affiliates from 1986 to 1994 until his promotion to Divisional Vice President. Prior to his association with the Company, Mr. Johnson 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, which owned the Statesboro, Georgia system now owned by the Company. Mr. Johnson has been involved in the cable television industry for nearly 27 years and is a current member of the Society of Cable Television Engineers. He is a graduate of Swainsboro Technical Institute. John E. Iverson. Mr. Iverson has served as Assistant Secretary and a director of the Company since 1985. He also serves as Assistant Secretary and a director of each of the Northland Affiliates. Mr. Iverson is currently a member of the law firm of Ryan, Swanson & Cleveland. He is a member of the Washington State Bar Association and American Bar Association and has been practicing law for more than 33 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. 65 68 EXECUTIVE COMPENSATION None of the employees of the Company are deemed to be executive officers of the Company. Services of the executive officers and other employees of NTC are provided to the Company for which the Company pays NTC a fee pursuant to the Management Agreement and overhead reimbursements. The executive officers and other employees of NTC who provide services to the Company are compensated in their capacity as executive officers and employees of NTC and therefore receive no compensation from the Company. No portion of the management fee paid by the Company is allocated to specific employees for the services performed by such employees. See "Certain Transactions -- Management Agreement with NTC." DIRECTOR COMPENSATION The Company does not currently compensate members of its Board of Directors for their services as directors. 66 69 PRINCIPAL SHAREHOLDERS The Company is a wholly owned subsidiary of Northland Telecommunication Corporation, a Washington corporation. The following table sets forth certain information with respect to the beneficial ownership of common stock of NTC as of the date of this Prospectus by: (i) each person who is known by the Company to beneficially own 5% or more of the outstanding shares of common stock of NTC; (ii) each director of the Company; (iii) each executive officer of the Company; and (iv) the Company's executive officers and directors as a group. The address of each such person is in care of the Company, 1201 Third Avenue, Suite 3600, Seattle, Washington 98101.
NUMBER OF PERCENTAGE OF SHARES BENEFICIALLY SHARES BENEFICIALLY BENEFICIAL OWNER OWNED(1) OWNED - ---------------------------------------------------------- ------------------- ------------------- John S. Whetzell.......................................... 1,006,826 22.8% Adele P. Butler........................................... 530,000 12.1% Pamela B. McCabe.......................................... 510,144 11.6% Robert M. Arnold.......................................... 384,000 8.7% Richard I. Clark.......................................... 306,826 7.0% Robert A. Mandich......................................... 278,400 6.3% James E. Hanlon........................................... 56,826 1.3% John E. Iverson........................................... 50,000 1.1% Gary S. Jones............................................. 43,493 * James A. Penney........................................... 43,026 * Richard J. Dyste.......................................... 42,826 * H. Lee Johnson............................................ 9,826 * All executive officers and directors as a group (eight persons)................................................ 1,561,649 35.4%
- --------------- * Represents less than 1% of the shares beneficially owned. (1) This table is based on information supplied by executive officers and directors of the Company and the shareholders of NTC. Subject to applicable community property laws, each shareholder named in the table has sole voting and investment power with respect to the shares set forth opposite such shareholder's name. 67 70 CERTAIN TRANSACTIONS GENERAL The Company is part of an affiliated group of corporations and limited partnerships controlled, directly or indirectly, by NTC. NTC, in turn, is owned by the individuals and in the percentages set forth under the caption "Principal Shareholders" appearing elsewhere in this Prospectus. The Company's officers and directors are also officers and directors of NTC and certain of the Company's other affiliates. MANAGEMENT AGREEMENT WITH NTC NTC currently supervises all aspects of the business and operations of the Company pursuant to an Operating Management Agreement between the Company and NTC dated August 23, 1994 (the "Management Agreement"). The Management Agreement continues in effect until terminated by either party on 30-days' written notice. The Management Agreement provides that NTC shall render or cause to be rendered supervisory services to the Company, including, among other things supervising and monitoring: (i) the affairs, management and operations of the Company and its systems; (ii) the accounting and other financial books and records of the Company and its systems; (iii) the hiring, training and supervision of the Company's employees; and (iv) the Company's fulfillment of its contractual obligations in connection with its systems. In return for its management services, NTC receives a management fee, payable quarterly, equal to 5.0% of the Company's gross revenues (the "Management Fee"). For the years ended December 31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997, the Company paid a Management Fee of $331,602, $1.3 million, $1.6 million and $1,432,783, respectively. In addition to the Management Fee, the Management Agreement provides that NTC is entitled to reimbursement from the Company for various expenses incurred by it or its affiliates on behalf of the Company allocable to its management of the Company, 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. These expenses are generally allocated among the Company and other managed affiliates based upon relative subscriber counts and revenues. NTC historically has assigned its right to reimbursement from the Company to its affiliate, Northland Communications Corporation, and expects to continue to do so in the future. For the years ended December 31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997, the Company reimbursed Northland Communications Corporation approximately $622,486, $1.4 million, $1.7 million and $1,480,167, respectively, for such expenses. ARRANGEMENTS BETWEEN NORTHLAND CABLE NEWS, INC. AND AFFILIATES Pursuant to an arrangement commenced in July 1994, Northland Cable News, Inc. receives monthly program license fees from certain affiliates of the Company as payment for Northland Cable News programming provided to such affiliates. The aggregate amount of such fees is based upon costs incurred in providing such programming, and is allocated among participating affiliates based upon relative subscriber counts. Total license fees received from affiliates for the years ended December 31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997, were $342,462, $602,263, $619,466 and $559,026, respectively. ARRANGEMENTS WITH CABLE AD-CONCEPTS, INC. Cable Ad-Concepts, Inc. ("CAC") is a wholly owned indirect subsidiary of NTC engaged in the business of developing and producing video commercial advertisements for cablecast on systems 68 71 owned by the Company and its affiliates. The aggregate amount of the fees charged by CAC to its affiliates is based upon costs incurred in providing such advertisements, and is allocated among participating affiliates based upon relative subscriber counts. Total fees paid to CAC by the Company for the years ended December 31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997, were $33,790, $161,627, $196,491 and $183,102, respectively. ARRANGEMENTS WITH CABLE TELEVISION BILLING, INC. Cable Television Billing, Inc. ("CTB") is a wholly owned indirect subsidiary of NTC engaged in the business of providing billing services to the Company and its affiliates. The aggregate amount of the fees charged by CTB to its affiliates is based upon costs incurred in providing such billing services, and is allocated among participating affiliates based upon relative subscriber counts and revenues. Fees paid by the Company to CTB for billing services for the years ended December 31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997, were $105,779, $175,632, $231,756 and $192,776, respectively. OPERATING AGREEMENTS WITH AFFILIATES The Company is party to certain operating agreements with affiliates pursuant to which, in certain instances, the Company serves as the local managing agent for certain of such affiliates' systems and, in other instances, certain affiliates serve as the local managing agent for certain of the Company's systems. In addition, the Company and its affiliates render miscellaneous services to one another on a cost-of-service basis. For the year ended December 31, 1996 and the nine months ended September 30, 1997, the Company paid affiliates an aggregate of $184,952 and $91,770, respectively, for such services and received $100,800 and $94,681, respectively, for performing such services for affiliates. INSURANCE The Company is part of a self-insurance program with its affiliates to provide casualty coverage for their respective aerial and underground plants. Commencing in 1997, the Company began making monthly contributions into an insurance fund maintained by NTC, which fund is maintained for the collective benefit of the Company and its affiliates. If an uninsured loss were incurred by the Company or any of its affiliates, the fund would be applied to defray a portion of such loss. To the extent the Company's losses exceed the fund's balance or the fund is depleted from losses incurred by affiliates of the Company, the Company must bear such losses directly. For the nine months ended September 30, 1997, the Company contributed $41,469 to the self insurance fund. As of September 30, 1997, the balance available under the fund was $96,445. See "Risk Factors -- Uncertainty of Adequate Insurance" and "Business -- Insurance." CAPITAL CONTRIBUTION Effective June 30, 1997, the Company received a non-cash capital contribution of approximately $9.3 million which replaced, in its entirety, the then outstanding net unsecured advances that had previously been owed to NTC and other affiliates of the Company other than amounts due for normal operations, management fees paid to NCC and for services provided by affiliated entities as discussed above. As of September 30, 1997 the Company had no outstanding unsecured indebtedness to affiliates. See Note 2 of the Company's consolidated financial statements. 69 72 DESCRIPTION OF THE SENIOR CREDIT FACILITY The Company has amended and restated the Company's Senior Credit Facility with First Chicago, as lender and managing agent. The Senior Credit Facility, as amended, establishes an eight-year reducing revolving loan facility in the initial aggregate principal amount of $25.0 million (the "Reducing Revolving Facility") and an eight-year term loan in the aggregate principal amount of $75.0 million (the "Term Loan"). The Company has received a commitment from First Chicago for the Supplemental Credit Facility with maximum borrowings of $115.0 million which will provide any additional financing necessary to consummate the Special Repurchase Offer in the event the Acquisition is not consummated. See "Description of the Notes -- Repurchase at the Option of Holders -- Special Repurchase Offer." Purpose. Proceeds from borrowings under the Senior Credit Facility will be utilized to finance the Acquisition, for working capital purposes and other permitted uses as described in the Senior Credit Facility. Availability and Repayment. The Company anticipates that the Reducing Revolving Facility will be undrawn at the time of the Acquisition. It is anticipated that borrowings under the Term Loan will be approximately $74.9 million upon consummation of the Acquisition. Under the terms of the Senior Credit Facility, the Company has the ability to borrow on a revolving basis under the Term Loan until March 31, 1998 at which time the balances drawn under the Term Loan shall convert to a term loan and be subject to quarterly principal reductions aggregating $1.0 million, $2.4 million, $3.0 million, $7.0 million, $11.0 million, $14.9 million, $18.0 million, and $18.0 million for the years ending December 31, 1998 through 2005, respectively. Availability under the Reducing Revolving Facility is subject to compliance with all covenants contained in the Senior Credit Facility including the interest coverage ratio and leverage ratio described below. Security; Guaranty. Obligations under the Senior Credit Facility are secured by: (i) a first perfected security interest in substantially all of the current and future assets of the Company and its subsidiaries; (ii) a first perfected security interest in all of the issued and outstanding shares of capital stock of the Company; (iii) a first perfected security interest in all of the issued and outstanding capital stock of Northland Cable News, Inc.; and (iv) guarantees by all current and future Subsidiaries. Interest. At the Company's election, the interest rate per annum applicable to the Senior Credit Facility is a fluctuating rate of interest measured by reference to either: (i) an adjusted London inter-bank offered rate ("LIBOR") plus a borrowing margin; or (ii) the base rate of First Chicago the "Base Rate," which Base Rate is equal to the greater of the Federal Funds Effective Rate plus 0.50% or the corporate base rate announced by First Chicago, plus a borrowing margin. The applicable borrowing margin vary, based upon the Company's leverage ratio, from 1.00% to 3.00% for LIBOR loans and from 0.00% to 1.75% for Base Rate loans. Fees. The Company has agreed to pay certain fees with respect to the Senior Credit Facility, including: (i) quarterly commitment fees in the amount of 0.50% on the average daily unborrowed amounts; (ii) upfront amendment fees; and (iii) agent, administrative and other similar fees. Covenants. The Senior Credit Facility contains a number of covenants that, among other things, restrict the ability of the Company to: (i) dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee obligations; (iv) prepay other indebtedness; (v) pay dividends or management fees; (vi)create liens on assets; (vii) make investments, loans or advances; (viii)make acquisitions, engage in mergers or consolidations; (ix) change the business conducted by the Company; (x) change control of the Company; or (xi) engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, the Company is required to comply with specified financial ratios and tests, including continuing maintenance, as tested on a quarterly basis, of: (A) an interest coverage ratio (the ratio of annualized operating cash flow to interest expense, as such terms are defined) of at least 1.25 to 1.00 initially, increasing over time to 70 73 2.25 to 1.00; and (B) a leverage ratio (the ratio of total debt to annualized operating cash flow, as such terms are defined) of not more than 7.00 to 1.00 initially, decreasing over time to 4.00 to 1.00 in accordance with the following schedule.
PERIOD RATIO ------------------------------------------------------------ ------ Through 12/31/98............................................ 7.00:1 1/1/99 through 12/31/99..................................... 6.75:1 1/1/00 through 12/31/00..................................... 6.25:1 1/1/01 through 12/31/01..................................... 5.75:1 1/1/02 through 12/31/02..................................... 5.00:1 1/1/03 through 12/31/03..................................... 4.50:1 1/1/04 and thereafter....................................... 4.00:1
The Senior Credit Facility also contains provisions that will prohibit any modification of the Indenture in any manner adverse to the lenders thereunder and that will limit the Company's ability to refinance the Notes without the consent of such lenders. Events of Default. The Senior Credit Facility contains customary events of default, including: (i) nonpayment of principal, interest or fees; (ii) violation of covenants; (iii) inaccuracy of representations or warranties in any material respect; (iv) change of control; (v) revocation of franchises or other material licenses; (vi) cross default and cross acceleration to certain other indebtedness; and (vii) noncompliance with ERISA (as defined) and applicable environmental laws and regulations. Supplemental Credit Facility. The Senior Credit Facility will specifically permit the Company, without first obtaining any consents or waivers, to make the Special Repurchase Offer and to make the Special Repurchase Payment, whether through the drawing by the Company of committed lines thereunder or otherwise. Additionally, the Company will covenant with the Holders of the Notes that the Company will exercise or extend, on or before January 15, 1998, its commitment under the Supplemental Credit Facility to have available for drawing an amount equal to 100% of the Special Repurchase Payment in the event all of the Notes were tendered for repurchase. See "Description of the Notes -- Repurchase at the Option of Holders -- Special Repurchase Offer." 71 74 DESCRIPTION OF THE NOTES The Exchange Notes will be issued, and the Original Notes were issued, under an indenture (the "Indenture"), dated as of November 12, 1997, by and among the Company, the Subsidiary Guarantor and Harris Trust Company of California, as Trustee (the "Trustee"). The terms of the Exchange Notes are the same in all respects (including principal amount, interest rate, maturity, security and ranking) as the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes (1) are freely transferable by holders thereof (except as provided below) and (ii) are not entitled to certain registration rights and certain additional interest provisions which are applicable to the Original Notes under the Registration Rights Agreement. The following is a summary of certain provisions of the Notes and the Indenture. This summary does not purport to be complete and is subject to the detailed provisions of, and is qualified in its entirety by reference to, the Notes and the Indenture. A copy of the Indenture may be obtained from the Company or the Initial Purchasers. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." Reference is made to the Indenture for the full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. Unless the context otherwise requires, all references herein to the "Notes" shall include the Original Notes and the Exchange Notes. The Original Notes and the Exchange Notes will be considered collectively to be a single class for all purposes under the Indenture, including without limitation, waivers, amendments, redemptions and for purposes of this Description of the Notes. For purposes of this summary, the term "Company" refers only to Northland Cable Television, Inc., a Washington corporation, and not to its Subsidiary, Northland Cable News, Inc., a Washington corporation. GENERAL The Exchange Notes will be issued and the Original Notes were issued pursuant to the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. Copies of the Indenture available as set forth below under "-- Additional Information." The Original Notes are, and the Exchange Notes will be, general unsecured obligations of the Company and the Original Notes are, and the Exchange Notes will be, subordinated in right of payment to all current and future Senior Debt. The Company's payment obligations under the Original Notes are, and the Exchange Notes will be, jointly and severally guaranteed (the "Subsidiary Guarantees") on a senior subordinated basis by the Guarantors. See "-- Subsidiary Guarantees." As of September 30, 1997, on a pro forma basis giving effect to the Acquisition and the Offering and the application of the net proceeds therefrom, the Company would have had Senior Debt of approximately $77.3 million. The Indenture will permit the incurrence of additional Senior Debt in the future. PRINCIPAL, MATURITY AND INTEREST The Notes will be limited in aggregate principal amount to $150.0 million, $100.0 million of which were issued on the Issue Date, and will mature on November 15, 2007. Interest on the Notes will accrue at the rate of 10 1/4% per annum and will be payable semi-annually in arrears on May 15 and November 15, commencing on May 15, 1998, to Holders of record on the immediately preceding May 1 and November 1. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest on the Notes will be payable at the office or agency of the Company maintained for 72 75 such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of the Notes; provided that all payments of principal, premium, interest with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. SUBORDINATION The payment of principal, premium, if any, and interest on the Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Debt, whether outstanding on the Issue Date or thereafter incurred. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the Holders of the Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of the Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of the Notes may receive Permitted Junior Securities and payments made from the trust described under "-- Legal Defeasance and Covenant Defeasance"). The Company also may not make any payment upon or in respect of the Notes (except in Permitted Junior Securities or from the trust described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal, premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. As a result of the subordination provisions described above, in the event of the insolvency, liquidation, reorganization or other winding up of the Company, the lenders under the Senior Credit Facility and other creditors who are holders of Senior Debt, as well as creditors with secured obligations that are not defined as Debt under the Indenture, must be paid in full before payment of amounts due on the Notes. Accordingly, there may be insufficient assets remaining after such payments to pay amounts due on the Notes. See "-- Certain Covenants -- Incurrence of Debt and Issuance of Preferred Stock." 73 76 The Indenture will further require that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. SUBSIDIARY GUARANTEES The Company's payment obligations under the Original Notes are, and the Exchange Notes will be, jointly and severally guaranteed on a senior subordinated basis by the Guarantors. As of the date of this Prospectus, the Company's sole Subsidiary, Northland Cable News, Inc., is the Guarantor of the Notes, and all future Subsidiaries of the Company are expected to become Guarantors of the Notes. The Subsidiary Guarantee of each Guarantor will be subordinated to the prior payment in full of all senior debt of such Guarantor (as of September 30, 1997 the Guarantor had no senior debt outstanding), and the amounts for which the Guarantors will be liable under the guarantees issued from time to time with respect to Senior Debt. The obligations of each Guarantor under its Subsidiary Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable law. See, however, "Risk Factors -- Fraudulent Transfer Statutes." The Indenture provides that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor unless: (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee under the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth immediately after giving effect to such transaction equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction; and (iv) the Company would be permitted by virtue of the Company's pro forma Debt to Operating Cash Flow Ratio, at the time of such transaction and immediately after giving pro forma effect thereto, be permitted to incur at least $1.00 of additional Debt pursuant to the Debt to Operating Cash Flow Ratio test set forth in the first paragraph of the covenant described below under the caption "-- Certain Covenants -- Incurrence of Debt and Issuance of Preferred Stock." The Indenture provides that in the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Cash Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "-- Repurchase at the Option of Holders -- Asset Sales" and "-- Special Repurchase Offer." OPTIONAL REDEMPTION The Original Notes are, and the Exchange Notes will not be redeemable at the Company's option prior to November 15, 2002. Thereafter, the Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus 74 77 accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on November 15 of the years indicated below:
YEAR PERCENTAGE --------------------------------------------------------- ---------- 2002..................................................... 105.125% 2003..................................................... 103.417% 2004..................................................... 101.708% 2005 and thereafter...................................... 100.000%
Except as set forth below under "Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. Notwithstanding the foregoing, at any time prior to November 15, 2000, the Company may redeem up to 30% of the aggregate principal amount of the Notes issued under the Indenture at a redemption price of 110.25% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date, with the Net Cash Proceeds of a Public Equity Offering; provided that at least 70% of the Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of such Public Equity Offering. SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of the Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. The Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on the Notes or portions of them called for redemption. REPURCHASE AT THE OPTION OF HOLDERS Change of Control Upon the occurrence of a Change of Control, each Holder of the Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder of the Notes describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 90 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, 75 78 (ii) deposit with the Trustee an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of the Notes or portions thereof being purchased by the Company. The Trustee will promptly mail to each Holder of the Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of the Notes required by this covenant and the Company's failure to comply with this covenant shall constitute an Event of Default under the Indenture. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Senior Credit Facility currently prohibits the Company from purchasing any Notes except as described below under "-- Special Redemption Offer," and also provides that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit facility or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of the Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Senior Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of the Notes. Finally, the Company's ability to pay cash to the Holders of the Notes upon a repurchase may be limited by the Company's then existing financial resources. See "Risk Factors -- Payment Upon Change of Control." The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Asset Sales The Indenture provides that the Company will not, and will not permit any Subsidiary to, consummate an Asset Sale unless: (i) the Company (or such Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of; and (ii) at least 75% of the consideration therefor received by the Company or such Subsidiary is in the form of (a) cash or Cash Equivalents or (b) properties and capital assets (including franchises and licenses required to own and operate such properties) to be used in the same lines of business being conducted by the Company or any Subsidiary at such time, or Equity Interests in one or more 76 79 Persons which thereby become Wholly Owned Subsidiaries of the Company whose assets consist primarily of such properties and capital assets; provided that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are immediately converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 365 days after an Asset Sale, the Company may, at its option, (a) apply such Net Cash Proceeds to repay Senior Debt (and to correspondingly reduce commitments with respect thereto in the case of revolving borrowings), or (b) commit in writing to apply such Net Cash Proceeds to a Related Business Investment. Pending the final application of any such Net Cash Proceeds, the Company may temporarily reduce Senior Debt outstanding under the Senior Credit Facility or otherwise invest such Net Cash Proceeds in any manner that is not prohibited by the Indenture. Any Net Cash Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of the Notes (an "Asset Sale Offer") to purchase the maximum principal amount of the Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of the Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of the Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Special Repurchase Offer In the event the Acquisition is not consummated by March 1, 1998, each Holder of the Original Notes has, and each Holder of the Exchange Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Special Repurchase Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Special Repurchase Payment"). The Company will mail a notice to each Holder of the Notes no later than March 31, 1998 describing the reasons the Acquisition was not consummated by such date and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Special Repurchase Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with any Special Repurchase Offer. On the Special Repurchase Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Special Repurchase Offer, (ii) deposit with the Trustee an amount equal to the Special Repurchase Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Trustee will promptly mail to each Holder of the Notes so tendered the Special Repurchase Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; 77 80 provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Special Repurchase Offer on or as soon as practicable after the Special Repurchase Payment Date. The Senior Credit Facility specifically permits the Company, without first obtaining any consents or waivers, to make the Special Repurchase Offer and to make the Special Repurchase Payment, whether through the drawing by the Company of committed lines thereunder or otherwise. Additionally, the Company has covenanted with the Holders of the Notes that the Company will exercise or extend, on or before January 15, 1998, its commitment under the Supplemental Credit Facility to have available for drawing an amount equal to 100% of the Special Repurchase Payment in the event all of the Notes were tendered for repurchase. CERTAIN COVENANTS Incurrence of Debt and Issuance of Preferred Stock The Indenture provides that the Company will not, and will not permit any Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise (collectively, "incur"), with respect to any Debt (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any Subsidiary to issue any shares of preferred stock; provided, however, that if no Default or Event of Default with respect to the Notes shall have occurred and be continuing, or shall occur as a consequence of the incurrence of such Debt, the Company or any Subsidiary may incur Debt (including Acquired Debt), and the Company may issue Disqualified Stock and its Subsidiaries may issue shares of preferred stock if, at the time of such incurrence or issuance and after giving effect to the incurrence of such Debt (and any other Debt incurred since the end of the last full fiscal quarter or fiscal year for which internal financial statements are available and the application of the proceeds thereof), the Debt to Operating Cash Flow Ratio would be less than or equal to 7.00 to 1.0, if such Debt is incurred or such Disqualified Stock or preferred stock is issued on or prior to December 31, 1998, or would be less than or equal to 6.75 to 1.0, if such Debt is incurred or such Disqualified Stock or preferred stock is issued on or prior to December 31, 2000, or would be less than or equal to 6.50 to 1.0, if such Debt is incurred or such Disqualified Stock or preferred stock is issued thereafter; provided that this covenant shall not apply to the incurrence of Debt by the Company so long as all of the proceeds of such Debt are applied to the repurchase of outstanding Notes by the Company pursuant to an offer to purchase Notes pursuant to (x) the provisions of the Indenture described under the first paragraph of "-- Optional Redemption" or "Repurchase at the Option of Holders -- Special Repurchase Offer" or (y) a tender offer made to all Holders of the Notes effected in accordance with all federal and state securities laws, including, without limitation, Rule 14e-1 under the Exchange Act and any other applicable federal or state regulations. The provisions of the first paragraph of this covenant do not apply to the incurrence of any of the following items of Debt (collectively, "Permitted Debt"): (i) the incurrence by the Company of Debt and letters of credit (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) under Credit Agreements; provided that the aggregate principal amount of all revolving credit Debt outstanding under all Credit Agreements after giving effect to such incurrence, including all Permitted Refinancing Debt incurred to refund, refinance or replace any other Debt incurred pursuant to this clause (i), does not exceed an amount equal to $100.0 million less the aggregate amount of all Net Cash Proceeds of Asset Sales applied to repay any such Debt pursuant to the covenant described above under the caption "-- Asset Sales"; (ii) the incurrence by the Company and its Subsidiary of Existing Debt; (iii) the incurrence by the Company of Debt represented by the Notes; 78 81 (iv) the incurrence by the Company or any of its Subsidiaries of Debt represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount not to exceed $3.0 million at any time outstanding; (v) the incurrence by the Company or any Subsidiary of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Debt that was permitted by the Indenture to be incurred; (vi) the incurrence by the Company or any Subsidiary of intercompany Debt between or among the Company and any of its Wholly Owned Subsidiaries; provided, however, that (i) if the Company is the obligor on such Debt, such Debt is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Debt being held by a Person other than the Company or a Wholly Owned Subsidiary and (B) any sale or other transfer of any such Debt to a Person that is not either the Company or a Wholly Owned Subsidiary shall be deemed, in each case, to constitute an incurrence of such Debt by the Company or such Subsidiary, as the case may be; (vii) the incurrence by the Company or any Subsidiary of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Debt that is permitted by the terms of this Indenture to be outstanding; (viii) the guarantee by the Company of Debt of a Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; (ix) the guarantee by the Company or any of the Guarantors of Debt of the Company or a Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; and (x) the incurrence by the Company or any Subsidiary of additional Debt in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Debt incurred to refund, refinance or replace any other Debt incurred pursuant to this clause (x), not to exceed $5.0 million. For purposes of determining compliance with this covenant, in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Debt in any manner that complies with this covenant and such item of Debt will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Debt for purposes of this covenant. Restricted Payments The Indenture provides that the Company will not, and will not permit any Subsidiary to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any Subsidiary's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any Subsidiary's Equity Interests in their capacity as such (other than dividends or distributions made to the Company or a Wholly Owned Subsidiary of the Company and dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned 79 82 Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Debt that is subordinated to the Notes (other than Notes), except a payment of interest or principal at Stated Maturity; (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company, immediately after giving effect to such Restricted Payment, would have been permitted to incur at least $1.00 of additional Debt pursuant to the Debt to Operating Cash Flow Ratio test set forth in the first paragraph of the covenant described above under caption "-- Incurrence of Debt and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Subsidiaries after the Issue Date (excluding Restricted Payments permitted by clause (ii) of the next succeeding paragraph), is less than the sum of (i) the difference between (x) 100% of cumulative Consolidated Operating Cash Flow for the period (taken as one accounting period) from the end of the first fiscal quarter during which the Issue Date occurs to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available and (y) 140% of cumulative Consolidated Interest Expense for the period (taken as one accounting period) from the end of the first fiscal quarter during which the Issue Date occurs to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available, plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the Issue Date of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the Issue Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment. The foregoing provisions do not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Debt or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Debt with the net cash proceeds from an incurrence of Permitted Refinancing Debt; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (v) the payment for services rendered by affiliates, in the ordinary course of the Company's business and consistent with past practices, pursuant to the terms of those arrangements currently in effect on the Issue Date (including extensions of such arrangements on terms substantially the same as those in existence on the Issue Date), (vi) for such time that none of the officers of the Company receive direct compensation for services rendered to, for or on behalf of the Company other than as provided under the Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date), the payment of annual fees for management services to NTC not to exceed in any fiscal year 5% of the Company's annual total revenues pursuant to the terms of the 80 83 Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date); and (vii) the making and consummation of (A) a Asset Sale Offer in accordance with the provisions of the Indenture with any Excess Proceeds or (B) a Change of Control Offer with respect to the Notes in accordance with the provisions of the Indenture as in effect on the date of the Indenture. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $1.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. Liens The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien that secures obligations under any Pari Passu Debt or Subordinated Debt on any asset or property of the Company or such Subsidiary, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Notes are equally and ratably secured with the obligations so secured or until such time as such obligations are no longer secured by a Lien. Merger, Consolidation, or Sale of Assets The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction, no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) would have Consolidated Net Worth immediately after giving effect to the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) immediately after giving pro forma effect thereto, would be permitted to incur at least $1.00 of additional Debt pursuant to the Debt to Operating Cash Flow Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Debt and Issuance of Preferred Stock." 81 84 Transactions with Affiliates The Indenture provides that the Company will not, and will not permit any Subsidiary to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction taken as a whole is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; (ii) such Affiliate Transaction relates to and is in furtherance of the lines of business the Company was engaged in on the Issue Date or as the Company's business has thereafter evolved in the fields of cable television systems, enhanced video services and advanced telecommunications services, such as Internet access and network data services, and telephony; and (iii) the Company delivers to the Trustee (A)(1) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million prior to a Public Equity Offering, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clauses (i) and (ii) above and that such Affiliate Transaction has been approved by the Board of Directors and (2) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million after the consummation of a Public Equity Offering, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clauses (i) and (ii) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of the Notes of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The provisions described in the foregoing paragraph do not apply to (u) the payment for services rendered by affiliates, in the ordinary course of the Company's business and consistent with past practices, pursuant to the terms of those arrangements currently in effect on the Issue Date (including extensions of such arrangements on terms substantially the same as those in existence on the Issue Date), (v) customary directors' fees, indemnification and similar arrangements with directors and officers, (w) for such time that none of the officers of the Company receive direct compensation for services rendered to, for or on behalf of the Company other than as provided under the Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date), the payment of annual fees for management services to NTC not to exceed in any fiscal year 5% of the Company's annual total revenues pursuant to the terms of the Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date); (x) any employment agreement entered into by the Company or any Subsidiary in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (y) transactions between or among the Company and/or its Subsidiaries and (z) Restricted Payments that are permitted by the provisions of the Indenture described above under the caption " -- Restricted Payments." Additional Subsidiary Guarantees The Indenture provides that if the Company or any Subsidiary shall acquire or create another Subsidiary after the date of the Indenture, then such newly acquired or created Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the terms of the Indenture. 82 85 Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture provides that the Company will not, and will not permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any Subsidiary (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any Subsidiary, (ii) make loans or advances to the Company or any Subsidiary or (iii) transfer any of its properties or assets to the Company or any Subsidiary, except for such encumbrances or restrictions existing under or by reason of (a) existing Debt as in effect on the Issue Date, (b) the Senior Credit Facility as in effect as of the Issue Date, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Senior Credit Facility as in effect on the Issue Date, (c) the Indenture and the Notes, (d) applicable law, (e) any instrument governing Debt or Capital Stock of a Person acquired by the Company or any Subsidiary as in effect at the time of such acquisition (except to the extent such Debt was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Debt, such Debt was permitted by the terms of the Indenture to be incurred, (f) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (g) Capital Lease Obligations and purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (h) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Debt being refinanced. Restrictions on Preferred Stock of Subsidiaries The Indenture provides that the Company will not permit any Subsidiary to issue any preferred stock (except preferred stock to the Company or a Subsidiary), or permit any Person (other than the Company or a Subsidiary) to own or hold an interest in any preferred stock unless the Company or such Subsidiary would be entitled to incur Debt (other than Permitted Debt) under the Debt to Operating Cash Flow Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Debt and Issuance of Preferred Stock" in the aggregate principal amount equal to the aggregate liquidation value of the preferred stock to be issued. Limitation on Incurrence of Senior Subordinated Debt The Indenture provides that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Debt that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes and (ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Debt that is subordinate or junior in right of payment to any senior guarantees and senior in any respect in right of payment to the Subsidiary Guarantees. Payments for Consent The Indenture provides that neither the Company nor any Subsidiary will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or 83 86 is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Reports The Indenture provides that, whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company will furnish or caused to be furnished promptly to the Holders of the Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders of the Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply with the provisions described under the captions "-- Repurchase at the Option of Holders -- Change of Control," "-- Asset Sales," "-- Special Repurchase Offer," "-- Certain Covenants -- Restricted Payments" or "-- Incurrence of Debt and Issuance of Preferred Stock"; (iv) failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Debt for money borrowed by the Company or any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary) whether such Debt or guarantee now exists, or is created after the Issue Date, which default results in the acceleration of such Debt prior to its express maturity and the principal amount of any such Debt, together with the principal amount of any other such Debt or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any Subsidiary to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain 84 87 limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium payable that the Company would have had to pay if the Company then had elected to redeem the Notes on November 15, 2002 pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to November 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to November 15, 2002, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of the outstanding Notes to receive payments in respect of the principal, premium, if any, and interest on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be 85 88 sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder of the Notes may transfer or exchange Notes in accordance with the Indenture. The Trustee may require a Holder of the Notes, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder of the Notes to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). 86 89 Without the consent of each Holder of the Notes affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder of the Notes): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of the Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders") or (viii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of the Indenture (which relate to subordination) will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of the Notes. Without the consent of at least 75% in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for Notes), no waiver or amendment to the Indenture may make any change in the provisions described above under the caption "-- Repurchase at the Option of Holders" that adversely affect the rights of any Holder of the Notes. Notwithstanding the foregoing, without the consent of any Holder of the Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of the Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. 87 90 ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture without charge by writing to Northland Cable Television, Inc., 1201 Third Avenue, Suite 3600, Seattle, Washington 98101, Attention: Vice President and General Counsel. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Debt of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Debt incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Debt secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Asset Acquisition" means (i) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Subsidiary in any other Person, or any acquisition or purchase of Equity Interests of any other Person by the Company or any Subsidiary, in either case pursuant to which such Person shall become a Subsidiary or shall be consolidated, merged with or into the Company or any Subsidiary or (ii) any acquisition by the Company or any Subsidiary of the assets of any Person which constitute substantially all of an operating unit or line of business of such Person or which is otherwise outside of the ordinary course of business. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any Subsidiary of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary and (iii) a Restricted Payment that is permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments" will not be deemed to be Asset Sales. 88 91 "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) any Person other than a Related Party or any Person owned or controlled, directly or indirectly, by any Related Party (an "Unrelated Person"), together with any Affiliates thereof that are also Unrelated Persons, (A) acquires or acquire (whether through legal or beneficial ownership, by contract or otherwise), directly or indirectly, the right to vote more than 45% of the total voting power of all classes of Voting Stock of the either the Company or NTC or (B) shall have elected, or caused to be elected, a sufficient number of its or their nominees to the Board of Directors of the Company or NTC such that the nominees so elected (regardless of when elected) shall collectively constitute a majority of the Board of Directors of either the Company or NTC; (ii) the first day on which NTC ceases to own a majority of the outstanding Equity Interests of the Company, (iii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iv) the Company consolidates with, or merges with or into, any Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of the Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. For purposes of this definition, "Person" includes any "group" as that term is used in Section 13(d)(3) or 14(d)(2) of the Exchange Act, and "beneficial ownership" shall have the meaning provided in Rule 13d-3 under the Exchange Act. 89 92 "Consolidated Interest Expense" means, for any given period and Person, the aggregate of the interest expense in respect of all Debt of such Person and its Subsidiaries for such period, on a consolidated basis, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to such Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its shareholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common shareholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Issue Date in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Consolidated Operating Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period: plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income); plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income; plus (iii) Consolidated Interest Expense of such Person and its Subsidiaries for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other noncash expenses of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Credit Agreements" means, with respect to the Company, one or more debt facilities (including, without limitation, the Senior Credit Facility) or commercial paper facilities with banks or other 90 93 institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Debt under Credit Agreements outstanding on the date on which Notes are first issued and authenticated under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) of the definition of Permitted Debt. "Debt" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense (including any deferred management fees pursuant to the Management Agreement) or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Debt outstanding as of any date shall be (i) the accreted value thereof, in the case of any Debt that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Debt. "Debt to Operating Cash Flow Ratio" means the ratio of (i) the Total Consolidated Debt as of the date of calculation (the "Determination Date") to (ii) four times the Pro Forma Consolidated Operating Cash Flow for the latest fiscal quarter for which financial information is available immediately preceding such Determination Date (the "Measurement Period"). For purposes of calculating Consolidated Operating Cash Flow for the Measurement Period immediately prior to the relevant Determination Date, if the Company or any Subsidiary shall have in any manner (a) acquired (including through an Asset Acquisition or the commencement of activities constituting such operating business) or (b) disposed of (including by way of an Asset Sale or the termination or discontinuance of activities constituting such operating business) any operating business during such Measurement Period or after the end of such period and on or prior to such Determination Date, such calculation will be made on a pro forma basis in accordance with GAAP as if, in the case of an Asset Acquisition or the commencement of activities constituting such operating business, all such transactions had been consummated on the first day of such Measurement Period and, in the case of an Asset Sale or termination or discontinuance of activities constituting such operating business, all such transactions had been consummated prior to the first day of such Measurement Period. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means (i) any Debt outstanding under the Senior Credit Facility, (ii) any other Senior Debt permitted under the Indenture the principal amount of which is $5.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Equity Interest" means any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable, at the option of the holder thereof, in whole or in part, or exchangeable into Debt on or prior to the earlier of the maturity date of the Notes or the date on which no Notes remain outstanding. 91 94 "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Debt" means up to $1.0 million in aggregate principal amount of Debt of the Company and its Subsidiaries (other than Debt under the Senior Credit Facility) in existence on the Issue Date, until such amounts are repaid. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Debt. "Guarantors" means (i) Northland Cable News, Inc., a Washington corporation, and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Debt or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Debt, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." "Issue Date" means the date of first issuance of the Notes under the Indenture. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). 92 95 "Management Agreement" means that certain agreement dated as of August 23, 1994, as the same may from time to time be amended, by and between the Company and NTC, relating to the retention by the Company of NTC as its managing agent in connection with the overall affairs and operations of the Company's systems. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (A) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (B) the disposition of any securities by such Person or any Subsidiary or the extinguishment of any Debt of such Person or any Subsidiary and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Cash Proceeds" means the aggregate cash proceeds received by the Company or any Subsidiary in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, (ii) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Debt secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NTC" means Northland Telecommunications Corporation, a Washington corporation and parent company of the Company. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Debt. "Pari Passu Debt" means (i) any Debt of the Company that is pari passu in right of payment to the Notes and (ii) with respect to any Guarantee of the Notes, Debt which ranks pari passu in right of payment to such Guarantee. "Permitted Investments" means (a) any Related Business Investment; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company that is engaged in the same or a similar line of business as the Company and its Subsidiaries were engaged in on the Issue Date or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company that is engaged in the same or a similar line of business as the Company and its Subsidiaries were engaged in on the Issue Date; (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; and (f) other Investments in any Person (other than NTC or an Affiliate of NTC that is not also a Subsidiary of the Company) having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $2.0 million. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to 93 96 substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to Article 10 of the Indenture. "Permitted Refinancing Debt" means any Debt of the Company or any Subsidiary issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Company or any Subsidiary; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of the Notes as those contained in the documentation governing the Debt being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Debt is incurred either by the Company or by the Subsidiary who is the obligor on the Debt being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, limited liability limited partnership, trust, unincorporated organization or government or any agency or political subdivision thereof. "Principal" means John S. Whetzell. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of the Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act. "Pro Forma Consolidated Operating Cash Flow" of any Person means for any period the Consolidated Operating Cash Flow of such Person for such period calculated on a pro forma basis to give effect to any Asset Sale or acquisition of assets not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during such period as if such Asset Sale or acquisition of assets had taken place on the first day of such period. For purposes of making the computations referred to pursuant to the provisions of the Indenture described under "Certain Covenants -- Incurrence of Debt and Issuance of Preferred Stock," any Asset Sale or acquisition of assets not in the ordinary course of business made by the Company, including all mergers and acquisitions subsequent to the last full fiscal quarter, shall be calculated on a pro forma basis as if such Asset Sale or acquisition of assets had taken place on the first day of such fiscal quarter. "Public Equity Offering" means a public offering of any Equity Interests (other than Disqualified Stock) of (i) the Company or (ii) NTC to the extent the net proceeds thereof are contributed to the Company as a capital contribution, that, in each case, results in the net proceeds to the Company of at least $25.0 million. "Related Business Investment" means (i) any capital expenditure or Investment, in each case related to the business of the Company and its Subsidiary as conducted on the Issue Date and as such business may thereafter evolve in the fields of cable television systems, enhanced video services and advanced telecommunications services, such as Internet access and network data services, and telephony; and (ii) any Investment in any other Person primarily engaged in the same business as provided in the foregoing subparagraph (i). "Related Party" with respect to the Principal means (A) any controlling shareholder, 80% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal or (B) or trust, corporation, partnership or other entity, the beneficiaries, sharehold- 94 97 ers, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "Restricted Investment" means an Investment other than a Permitted Investment. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Facility" means that certain Credit Agreement dated November 12, 1997, by and among the Company and The First National Bank of Chicago, as lender and managing agent and the other lenders party thereto, providing for up to $100.0 million of credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Senior Debt" means (i) all Debt outstanding under Credit Agreements and all Hedging Obligations with respect thereto, (ii) any other Debt permitted to be incurred by the Company under the terms of the Indenture, unless the instrument under which such Debt is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Debt of the Company to any Subsidiary or other Affiliate, (y) any trade payables or Capital Lease Obligations or (z) any Debt that is incurred in violation of the Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the Issue Date. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Debt, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Debt, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Debt" means any Debt of the Company which is by its terms subordinated in right of payment to the Notes. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Supplemental Credit Facility" means that certain Senior Credit Facility described in a commitment letter from The First National Bank of Chicago dated October 15, 1997, as lead agent and a lender, to the Company setting forth a commitment for up to $115.0 of revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, to which Facility the Company may elect to convert the Senior Credit Facility (in which case, all references in this Offering Memorandum to the "Senior Credit Facility," from and after the date of such election by the Company, shall be deemed to refer to the Supplemental Credit Facility). 95 98 "Total Consolidated Debt" means, as at the date of determination, an amount equal to the aggregate amount of all such Debt and Disqualified Equity Interests of the Company and its Subsidiaries outstanding as of such date of determination. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Debt at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Debt. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. 96 99 ORIGINAL NOTES REGISTRATION RIGHTS Pursuant to a registration rights agreement (the "Registration Rights Agreement"), the Company and the Guarantor have agreed with the Initial Purchasers, for the benefit of the Holders, that the Company and the Guarantors will, at their cost, (i) not later than 75 days after the Issue Date file a registration statement (the "Exchange Offer Registration Statement") with the Commission with respect to a registered offer to exchange the Original Notes for new notes of the Company (the "Exchange Notes") having terms substantially identical in all material respects to the Original Notes (except that the Exchange Notes will not contain terms with respect to transfer restrictions) and (ii) use their respective best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act not later than 150 days after the Issue Date. Upon the effectiveness of the Exchange Offer Registration Statement, the Company will promptly offer the Exchange Notes in exchange for surrender of the Original Notes (the "Registered Exchange Offer"). The Company will keep the Registered Exchange Offer open for not less than 30 days (or longer if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders of the Original Notes. For each Original Note surrendered to the Company pursuant to the Registered Exchange Offer, the Holder of such Original Note will receive an Exchange Note having a principal amount equal to that of the surrendered Note. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the Note surrendered in exchange thereof or, if no interest has been paid on such Note, from the date of its original issue. A Holder of Original Notes (other than certain specified holders) who wishes to exchange such Notes for Exchange Notes in the Registered Exchange Offer will be required to represent that any Exchange Notes to be received by it will be acquired in the ordinary course of its business, and that at the time of the commencement of the Registered Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and that it is not an "affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. In the event that applicable laws, regulations or interpretations of the staff of the Commission do not permit the Company to effect such a Registered Exchange Offer, or if for any reason the Registered Exchange Offer is not consummated within 180 days after the Issue Date, or if the Initial Purchasers so request with respect to Notes not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer, or if any Holder of the Notes is not eligible to participate in the Registered Exchange Offer or participates in but does not receive freely tradable (except for prospectus delivery requirements) Exchange Notes in the Registered Exchange Offer, the Company will, at its cost, (i) as promptly as practicable, file a shelf registration statement ("Shelf Registration Statement") covering resales of the Notes or the Exchange Notes, as the case may be, (ii) use its best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within 180 days after the Issue Date; and (iii) keep the Shelf Registration Statement effective until two years after its effective date (or such shorter period that will terminate when all Notes or Exchange Notes, as the case may be, covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement). The Company will, in the event a Shelf Registration Statement is filed, among other things, provide to each holder for whom such Shelf Registration Statement was filed copies of the prospectus which is part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Notes or the Exchange Notes, as the case may be. A holder selling such Notes or Exchange Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations). 97 100 If (i) within 75 days after the Issue Date, neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the Commission; (ii) within 150 days after the Issue Date, the Exchange Offer Registration Statement has not been declared effective; (iii) within 180 days after the Issue Date, the Registered Exchange Offer has not been consummated; (iv) within 180 days after the Issue Date, the Shelf Registration Statement has not been declared effective if a Shelf Registration Statement is required to be filed; or (v) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such Registration Statement thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of Notes or Exchange Notes in accordance with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (v), a "Registration Default"), interest ("Additional Interest") will accrue on the Notes and the Exchange Notes (in addition to the stated interest on the Notes and the Exchange Notes) from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Additional Interest will accrue at a rate of 0.50% per annum during the 90-day period immediately following the occurrence of any Registration Default and shall increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event shall such rate exceed 2.00% per annum. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is available upon request to the Company. 98 101 CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS The following is a general discussion of certain United States federal income and estate tax consequences of the acquisition, ownership and disposition of Notes by a beneficial owner of Notes that, for United States federal income tax purposes, is not a "United States person" (a "Non-United States Holder"). This discussion is based upon the United States federal tax law now in effect, which is subject to change, possibly retroactively. For purposes of this discussion, a "United States person" means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in the United States or under the laws of the United States or of any political subdivision thereof, an estate whose income is includible in gross income for United States federal income tax purposes regardless of its source or a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. The tax treatment of the holders of the Notes may vary depending upon their particular situations. U.S. persons acquiring the Notes are subject to different rules than those discussed below. In addition, certain other holders (including insurance companies, tax exempt organizations, financial institutions and broker-dealers) may be subject to special rules not discussed below. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION. Interest Interest paid by the Company to a Non-United States Holder will not be subject to United States federal income or withholding tax if such interest is not effectively connected with the conduct of a trade or business within the United States by such Non-United States Holder and such Non-United States Holder: (i) does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company; (ii) is not a controlled foreign corporation with respect to which the Company is a "related person" within the meaning of the United States Internal Revenue Code of 1986, as amended (the "Code"); and (iii) certifies, under penalties of perjury, that such holder is not a United States person and provides such holder's name and address. Gain on Disposition A Non-United States Holder will generally not be subject to United States federal income tax on gain recognized on a sale, redemption or other disposition of a Note unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder or (ii) in the case of a Non-United States Holder who is a nonresident alien individual and holds the Note as a capital asset, such holder is present in the United States for 183 or more days in the taxable year and certain other requirements are met. Federal Estate Taxes If interest on the Notes is exempt from withholding of United States federal income tax under the rules described above, the Notes will not be included in the estate of a deceased Non-United States Holder for United States federal estate tax purposes. Information Reporting and Backup Withholding The Company will, where required, report to the holders of the Notes and the Internal Revenue Service the amount of any interest paid on the Notes in each calendar year and the amounts of tax withheld, if any, with respect to such payments. 99 102 In the case of payments of interest to Non-United States Holders, temporary Treasury regulations provide that the 31% backup withholding tax and certain information reporting will not apply to such payments with respect to which either the requisite certification, as described above, has been received or an exemption has otherwise been established; provided that neither the Company not its payment agents has actual knowledge that the holder is a United States person or that the conditions of any other exemption are not in fact satisfied. Under temporary Treasury regulations, these information reporting and backup withholding requirements will apply, however, to the gross proceeds paid to a Non-United States Holder on the disposition of the Notes by or through a United States office of a United States or foreign broker, unless the holder certifies to the broker under penalties of perjury as to its name, address and status as a foreign person or the holder otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also apply to a payment of the proceeds of a disposition of the Notes by or through a foreign office of a United States broker or foreign brokers will certain types of relationships to the United States unless such broker has documentary evidence in its file that the holder of the Notes is not a United States person, and such broker has not actual knowledge to the contrary, or the holder establishes an exception. Neither information reporting nor backup withholding generally will apply to a payment of the proceeds or a disposition of the Notes by or through a foreign office of a foreign broker not subject to the preceding sentence. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the Non-United States Holder's United States federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. The Treasury Department recently promulgated final regulations regarding the withholding and information reporting rules discussed above. In general, the final regulations do not significantly alter the substantive withholding and information reporting requirements but rather unify current certification procedures and forms and clarify reliance standards. The final regulations are generally effective for payments made after December 31, 1998, subject to certain transition rules. NON-UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE IMPACT, IF ANY, OF THE NEW FINAL REGULATIONS. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The summary is based on current law and certain proposed regulations and is for general information only. Forthcoming legislative, regulatory, judicial or administrative changes or interpretations could affect the federal income tax consequences to holders of Notes. The tax treatment of a holder may vary depending upon whether the holder is a cash-method or accrual-method taxpayer and upon the holder's particular status. For example, certain holders, including insurance companies, tax-exempt organizations, financial institutions, broker-dealers and foreign persons may be subject to special rules not discussed below. EXCHANGE OFFER The exchange of Exchange Notes for Original Notes pursuant to the Exchange Offer will not be treated as a taxable exchange for federal income tax purposes because, other than the fact that the Exchange Notes will be registered, the terms of the Exchange Notes will be identical in all material respects to the terms of the Original Notes. The holder must continue to include stated interest in income as if the exchange had not occurred. SALE OR OTHER DISPOSITION OF NOTES A holder of a Note will have a tax basis in the Note equal to the holder's purchase price for the Note. A holder of a Note will generally recognize gain or loss on the sale, exchange, redemption or retirement of the Note equal to the difference (if any) between the amount realized from such sale, 100 103 exchange, redemption or retirement and the holder's basis in the Note. Such gain or loss will generally be long-term capital gain (except to the extent attributable to market discount) or loss if the Note has been held more than one year. BACKUP WITHHOLDING A noncorporate holder of Notes that either (a) is (i) a citizen or resident of the United States, (ii) a partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof or (iii) an estate or trust the income of which is subject to United States federal income taxation regardless of its source or (b) is not described in the preceding clause (a), but whose income from interest with respect to the Notes or proceeds from the disposition of the Notes is effectively connected with such holder's conduct of a United States trade or business, and that receive interest with respect to the Notes or proceeds from the disposition of the Notes will generally not be subject to backup withholding on such payments or distributions if it certifies, under penalty of perjury, that it has furnished a correct Taxpayer Identification Number ("TIN") and it is not subject to backup withholding either because it has not been notified by the Service that is subject to backup withholding or because the Service has notified it that it is no longer subject to backup withholding. Such certification may be made on an Internal Revenue Service Form W-9 or substantially similar form. However, backup withholding will apply to such a holder if the holder (i) fails to furnish its TIN, (ii) furnishes an incorrect TIN, (iii) is notified by the Service that it has failed to properly report payments of interest or dividends or (iv) under certain circumstances, fails to make such certification. The Company will withhold (at a rate of 31%) all amounts required by law to be withheld from reportable payments made and with respect to the Notes. Any amounts withheld from a payment to a holder under the backup withholding rules will be allowed as a credit against such holder's United States federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the Service. Holders of the Notes should consult their tax advisors regarding the application of backup withholding in their particular situations, the availability of an exemption therefrom, and the procedure for obtaining such an exemption, if available. THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF HOLDING, EXCHANGING OR SELLING THE NOTES INCLUDING THE APPLICATION AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN APPLICABLE TAX LAWS. ORIGINAL NOTES TRANSFER RESTRICTIONS Because the following restrictions will apply to any Original Notes held by holders who do not participate in the Exchange Offer, holders of Original Notes are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of any of the Original Notes. None of the Original Notes have been registered under the Securities Act and they may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Original Notes were sold only (A) to a limited number of "qualified institutional buyers" (as defined in Rule 144A) ("QIBs") in compliance with Rule 144A, (B) to a limited number of other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("Accredited Investors") that, prior to their purchase of any Original Notes, delivered to the Initial Purchasers a letter containing certain representations and agreements, and (C) outside the United States to person other than U.S. persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)) in 101 104 reliance upon Regulation S under the Securities Act ("Regulation S"). As used herein, the terms "United States" and "U.S. person" have the meanings given to them in Regulation S. Each purchaser of Original Notes has been deemed to have represented and agreed as follows: 1. It purchased the Original Notes for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is either (A) a QIB, and is aware that the sale to it was made in reliance on Rule 144A, (B) an Accredited Investor, or (C) a foreign purchaser that is outside the United States (or a foreign purchaser that is a dealer or other fiduciary as referred to above). 2. It acknowledged that the Original Notes (and the related guarantees) have not been registered under the Securities Act and that they may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as set forth below. 3. It shall not resell or otherwise transfer any of such Original Notes within three years after the original issuance of the Original Notes except (A) to the Company or any of its subsidiaries, (B) inside the United States to a QIB in compliance with Rule 144A, (C) inside the United States to an Accredited Investor that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker dealer) to the Trustee a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Original Notes (the form of which letter can be obtained from the Trustee), (D) outside the United States in compliance with Rule 904 under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (F) pursuant to an effective registration statement under the Securities Act. 4. It agreed that it will give to each person to whom it transfers the Original Notes notice of any restrictions on transfer of such Original Notes. 5. It understands that all of the Original Notes bear, and if not exchanged pursuant to the Exchange Offer will continue to bear, a legend substantially to the following effect unless otherwise agreed by the Company and the holder thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO 102 105 THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. 6. It shall not sell or otherwise transfer such Original Notes to, and each purchaser represented and covenanted that it did not acquire the Original Notes for or on behalf of, and will not transfer the Original Notes to, any pension or welfare plan (as defined in Section 3 of the Employee Retirement Income Security Act of 1974 ("ERISA"), except that such a purchase for or on behalf of a pension or welfare plan shall be permitted: a. to the extent such purchase is made by or on behalf of a bank collective investment fund maintained by the purchaser in which, at any time while the Original Notes are held by the purchaser, no plan (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10% of the total assets in such collective investment fund and the conditions of Section III of Prohibited Transaction Class Exemption 91-38 issued by the Department of Labor are satisfied; b. to the extent such purchase is made by or on behalf of an insurance company pooled separate account maintained by the purchaser in which, at any time while the Original Notes are held by the purchaser, no plan (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10% of the total of all assets in such pooled separate account and the conditions of Section III of Prohibited Transaction Class Exemption 90-1 issued by the Department of Labor are satisfied; c. to the extent such purchase is made on behalf of a plan by (i) an investment adviser registered under the Investment Advisers Act of 1940 that had as of the last day of its most recent fiscal year total assets under its management and control in excess of $50,000,000 and had stockholders' or partners' equity in excess of $750,000, as shown in its most recent balance sheet prepared in accordance with generally accepted accounting principles, (ii) a bank as defined in Section 202(a)(2) of the Investment Advisers Act of 1940 with equity capital in excess of $1,000,000 as of the last day of its most recent fiscal year, (iii) an insurance company which is qualified under the laws of more than one state to manage, acquire or dispose of any assets of a plan, which insurance company has, as of the last day of its most recent fiscal year, net worth in excess of $1,000,000 and which is subject to supervision and examination by a state authority having supervision over insurance companies, or (iv) a savings and loan association, the accounts of which are insured by the Federal Savings and Loan Insurance Corporation, that has made application for and been granted trust powers to manage, acquire or dispose of assets of a plan by a State or Federal authority having supervision over savings and loan associations, which savings and loan association has, as of the last day of its most recent fiscal year, equity capital or net worth in excess of $1,000,000 and, in any case, such investment adviser, bank, insurance company or savings and loan is otherwise a qualified professional asset manager, as such term is used in Prohibited Transaction Exception 84-14 issued by the Department of Labor, and the assets of such plan when combined with the assets of other plans established or maintained by the same employer (or affiliate thereof) or employee organization and managed by such investment adviser, bank, insurance company or savings and loan do not represent more than 20% of the total client assets managed by 103 106 such investment adviser, bank, insurance company or savings and loan and the conditions of Section I of such exemption are otherwise satisfied; or d. to the extent such plan is a governmental plan (as defined in Section 3 of ERISA) which is not subject to the provisions of Title I of ERISA or Section 4975 of the Internal Revenue Code. 7. It acknowledged that the Trustee for the Original Notes will not be required to accept for registration of transfer any Original Notes acquired by it, except upon presentation of evidence satisfactory to the Company and the Trustee that the restrictions set forth herein have been complied with. 8. It acknowledged that the Company, the Initial Purchasers and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agreed that if any of the acknowledgements, representations or agreements deemed to have been made by its purchase of the Original Notes are no longer accurate, it shall promptly notify the Company and the Initial Purchasers. If it acquired the Original Notes as a fiduciary or agent for one or more investor accounts, it represented that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each account. 104 107 PLAN OF DISTRIBUTION Based on interpretation by the Staff set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an affiliate of the Company, (ii) a broker-dealer who acquired Original Notes directly from the Company or (iii) a broker-dealer who acquired Original Notes as a result of market-making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business, and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes; provided that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such Exchange Notes. To date, the Staff has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as the exchange pursuant to the Exchange Offer (other than a resale of an unsold allotment from the sale of the Original Notes to the Initial Purchasers) with the prospectus contained in the Registration Statement. Pursuant to the Registration Rights Agreement, the Company have agreed to permit Participating Broker Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus in connection with the resale of such Exchange Notes. The Company have agreed that, for a period of 180 days after the Exchange Date, they will make this Prospectus, and any amendment or supplement to this Prospectus, available to any broker-dealer that requests such documents in the Letter of Transmittal. Each holder of the Original Notes who wishes to exchange its Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations to the Company as set forth in "The Exchange Offer -- Terms and Conditions of the Letter of Transmittal." In addition, each holder who is a broker-dealer and who receives Exchange Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making activities or other trading activities will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such Exchange Notes. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company have agreed to pay all expenses incidental to the Exchange Offer other than commissions and concession of any brokers or dealers and will indemnify holders of the Notes (including any brokers-dealers) against certain liabilities, including liabilities under the Securities Act, as set forth in the Registration Rights Agreement. 105 108 LEGAL MATTERS The validity of the Exchange Notes offered hereby will be passed upon on behalf of the Company by Cairncross & Hempelmann, P.S., Seattle, Washington. EXPERTS The audited consolidated financial statements of the Company as of July 31, 1997, December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996 and for the seven months ended July 31, 1997, included in this Offering Memorandum to the extent and for the periods in their reports have been audited by Arthur Andersen LLP, independent public accountants and are included herein upon the authority of said firm as experts in giving said reports. The financial statements of (i) Aiken II Cable Systems (a component of Robin Cable Systems, L.P.) and (ii) Greenwood Cable System (a component of InterMedia Partners of Carolina, L.P.) as of December 31, 1995 and 1996 and for the three years in the period ended December 31, 1996 included in this Offering Memorandum, have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 106 109 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- THE COMPANY: Northland Cable Television, Inc. and subsidiary Report of Independent Public Accountants........................................... F-2 Consolidated Balance Sheets as of September 30, 1997 (unaudited) and as of December 31, 1996 and 1995............................................................... F-3 Consolidated Statements of Operations for the nine-month periods ended September 30, 1997 and 1996 (unaudited) and for the years ended December 31, 1996, 1995 and 1994........................................................................ F-4 Consolidated Statements of Changes in Shareholder's Deficit for the nine-month period ended September 30, 1997 (unaudited) and for the years ended December 31, 1996, 1995 and 1994............................................................. F-5 Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 1997 and 1996 (unaudited) and for the years ended December 31, 1996, 1995 and 1994........................................................................ F-6 Notes to Consolidated Financial Statements......................................... F-7 Northland Cable Television, Inc. and subsidiary Report of Independent Public Accountants........................................... F-17 Consolidated Balance Sheet as of July 31, 1997..................................... F-18 Consolidated Statement of Operations for the seven-month period ended July 31, 1997............................................................................ F-19 Consolidated Statement of Changes in Shareholder's Deficit for the seven-month period ended July 31, 1997...................................................... F-20 Consolidated Statement of Cash Flows for the seven-month period ended July 31, 1997............................................................................ F-21 Notes to Consolidated Financial Statements......................................... F-22 ACQUISITION SYSTEMS: Aiken II Cable Systems (a component of Robin Cable Systems, L.P.) Report of Independent Accountants.................................................. F-30 Balance Sheet as of December 31, 1996 and 1995 and as of September 30, 1997 (unaudited)..................................................................... F-31 Statement of Operations for the years ended December 31, 1996, 1995 and 1994 and for the nine-month periods ended September 30, 1997 and 1996 (unaudited)........ F-32 Statement of Changes in Equity for the years ended December 31, 1996, 1995 and 1994 and for the nine-month period ended September 30, 1997 (unaudited).............. F-33 Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and for the nine-month periods ended September 30, 1997 and 1996 (unaudited)........ F-34 Notes to Financial Statements...................................................... F-35 Greenwood Cable System (a component of InterMedia Partners of Carolina, L.P.) Report of Independent Accountants.................................................. F-42 Balance Sheet as of December 31, 1996 and 1995 and as of September 30, 1997 (unaudited)..................................................................... F-43 Statement of Operations for the years ended December 31, 1996, 1995 and 1994 and for the nine-month periods ended September 30, 1997 and 1996 (unaudited)........ F-44 Statement of Changes in Equity for the years ended December 31, 1996, 1995 and 1994 and for the nine-month period ended September 30, 1997 (unaudited).............. F-45 Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and for the nine-month periods ended September 30, 1997 and 1996 (unaudited)........ F-46 Notes to Financial Statements...................................................... F-47
F-1 110 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholder of Northland Cable Television, Inc.: We have audited the accompanying consolidated balance sheets of Northland Cable Television, Inc. (a Washington corporation and a wholly owned subsidiary of Northland Telecommunications Corporation) and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholder's deficit and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northland Cable Television, Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Seattle, Washington, March 31, 1997 F-2 111 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, SEPTEMBER 30, ----------------------------- 1997 1996 1995 ------------- ------------ ----------- (UNAUDITED) CURRENT ASSETS: Cash............................................. $ 1,156,123 $ 2,486,237 $ 982,295 Due from limited partnerships.................... 26,487 36,129 82,940 Accounts receivable.............................. 1,161,814 1,289,840 906,780 Prepaid expenses................................. 499,070 273,246 306,968 ------------ ------------ ------------ Total current assets...................... 2,843,494 4,085,452 2,278,983 ------------ ------------ ------------ UNSECURED ADVANCES TO PARENT....................... -- 1,003,457 1,003,457 ------------ ------------ ------------ INVESTMENT IN MANAGED LIMITED PARTNERSHIP.......... -- -- 7,778 ------------ ------------ ------------ INVESTMENT IN CABLE TELEVISION PROPERTIES: Property and equipment, at cost.................. 67,174,497 61,891,985 55,241,912 Less -- Accumulated depreciation................. (27,495,056) (23,167,487) (18,444,806) ------------ ------------ ------------ 39,679,441 38,724,498 36,797,106 Franchise agreements (net of accumulated amortization of $27,985,880, $23,222,978 and $18,334,932, respectively).................. 37,255,505 38,553,555 27,374,524 Goodwill (net of accumulated amortization of $1,830,883, $1,701,050 and $1,527,939, respectively)............................... 5,093,550 5,223,383 5,396,494 Other intangible assets (net of accumulated amortization of $1,856,962, $1,196,286 and $641,346, respectively)..................... 3,556,248 4,008,918 2,896,248 Fund deposited in escrow for purchase of cable television system........................... 690,000 -- -- ------------ ------------ ------------ 86,274,744 86,510,354 72,464,372 ------------ ------------ ------------ Total assets.............................. $ 89,118,238 $ 91,599,263 $75,754,590 ============ ============ ============ LIABILITIES AND SHAREHOLDER'S DEFICIT CURRENT LIABILITIES: Accounts payable................................. $ 81,219 $ 779,724 $ 597,427 Subscriber prepayments........................... 1,028,998 868,030 680,513 Other current liabilities........................ 4,249,697 3,056,425... 1,906,574 Due to affiliates................................ 1,421,844 407,692 863,477 Current portion of notes payable................. 7,538,444 5,550,314 3,928,263 ------------ ------------ ------------ Total current liabilities................. 14,320,202 10,662,185 7,976,254 NOTES PAYABLE...................................... 95,429,971 96,604,418 79,216,648 UNSECURED ADVANCES FROM AFFILIATES................. -- 10,341,650 10,341,650 ------------ ------------ ------------ Total liabilities......................... 109,750,173 117,608,253 97,534,552 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 8) SHAREHOLDER'S DEFICIT: Common stock (par value $1.00 per share, authorized 50,000 shares; 10,000 shares issued and outstanding) and additional paid-in capital........................................ 11,560,527 2,222,334 2,222,334 Accumulated deficit.............................. (32,192,462) (28,231,324) (24,002,296) ------------ ------------ ------------ Total shareholder's deficit............... (20,631,935) (26,008,990) (21,779,962) ------------ ------------ ------------ Total liabilities and shareholder's deficit................................. $ 89,118,238 $ 91,599,263 $75,754,590 ============ ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. F-3 112 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------------- --------------------------------------- 1997 1996 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) SERVICE REVENUES.................... $28,700,196 $23,442,978 $32,560,981 $26,395,398 $15,344,842 ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES: Cable system operations (including $155,647 (unaudited), $203,197 (unaudited) $284,896, $177,976 and $111,471, net paid to affiliates, respectively)....... 8,625,876 6,883,463 9,448,391 7,515,488 4,182,827 General and administrative (including $1,701,082 (unaudited), $1,452,906 (unaudited), $1,902,405, $1,665,688 and $692,066 paid to affiliates, respectively)....... 5,331,900 4,230,072 5,955,139 4,709,765 2,782,381 Management fees paid to affiliate....................... 1,432,783 1,169,963 1,625,118 1,320,492 331,602 Depreciation and amortization..... 9,652,832 7,591,399 10,727,032 9,022,367 5,307,010 ----------- ----------- ----------- ----------- ----------- Total operating expenses... 25,043,391 19,874,897 27,755,680 22,568,112 12,603,820 ----------- ----------- ----------- ----------- ----------- Income from operations..... 3,656,805 3,568,081 4,805,301 3,827,286 2,741,022 OTHER INCOME (EXPENSE): Interest expense.................. (7,377,783) (5,884,442) (8,263,318) (7,214,737) (3,225,721) Other, net (Note 6)............... (240,160) (209,649) (771,011) (370,666) 100,184 ----------- ----------- ----------- ----------- ----------- Loss before provision for income taxes............. (3,961,138) (2,526,010) (4,229,028) (3,758,117) (384,515) PROVISION FOR INCOME TAXES.......... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- NET LOSS............................ $(3,961,138) $(2,526,010) $(4,229,028) $(3,758,117) $ (384,515) ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. F-4 113 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL ---------------------- ACCUMULATED SHARES AMOUNT DEFICIT TOTAL ------- ----------- ------------ ------------ BALANCE, December 31, 1993........... 10,000 $ 2,222,334 $(19,859,664) $(17,637,330) Net loss........................... -- -- (384,515) (384,515) ------ ----------- ------------ ------------ BALANCE, December 31, 1994........... 10,000 2,222,334 (20,244,179) (18,021,845) Net loss........................... -- -- (3,758,117) (3,758,117) ------ ----------- ------------ ------------ BALANCE, December 31, 1995........... 10,000 2,222,334 (24,002,296) (21,779,962) Net loss........................... -- -- (4,229,028) (4,229,028) ------ ----------- ------------ ------------ BALANCE, December 31, 1996........... 10,000 2,222,334 (28,231,324) (26,008,990) Net loss (unaudited)............... -- -- (3,961,138) (3,961,138) Capital contribution (unaudited)... -- 9,338,193 -- 9,338,193 ------ ----------- ------------ ------------ BALANCE, September 30, 1997 (unaudited)........................ 10,000 $11,560,527 $(32,192,462) $(20,631,935) ====== =========== ============ ============
The accompanying notes are an integral part of these consolidated statements. F-5 114 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------------------- ------------------------------------------- 1997 1996 1996 1995 1994 ------------ ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................... $ (3,961,138) $(2,526,010) $(4,229,028) $(3,758,117) $ (384,515) Adjustments to reconcile net loss to net cash provided by operating activities -- Depreciation and amortization................ 9,907,077 7,747,093 10,967,474 9,224,474 5,373,480 Other.......................... (72,177) (51,831) 320,513 79,295 153,083 Decrease (increase) in operating assets: Due from limited partnerships.............. 15,195 69,642 116,164 (57,956) 12,641 Accounts receivable......... 128,026 (61,460) (383,060) (302,663) (108,056) Prepaid expenses............ (225,824) (144,912) 33,722 (62,597) (94,231) (Decrease) increase in operating liabilities: Accounts payable............ (246,561) (443,606) (120,904) 328,781 (41,897) Subscriber prepayments...... 160,968 125,249 187,517 98,394 269,268 Other current liabilities... 1,193,272 168,243 1,149,851 1,231 643,484 ------------ ----------- ------------ ------------ ------------ Net cash provided by operating activities...... 6,898,838 4,882,408 8,042,249 5,550,842 5,823,257 ------------ ----------- ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of cable systems....... (6,203,141) (637,737) (22,180,347) (21,717,081) (26,362,691) Investment in cable television properties....................... (3,230,270) (2,023,538) (2,843,391) (2,731,117) (1,824,681) Funds deposited in escrow for purchase of cable television system........................... (690,000) -- -- -- -- Insurance proceeds................. 72,177 100,000 372,280 -- -- Franchise fees and other intangibles...................... -- (103,387) (183,211) (41,279) (11,785) Other.............................. -- -- 4,350 9,582 4,727 ------------ ----------- ------------ ------------ ------------ Net cash used in investing activities................ (10,051,234) (2,664,662) (24,830,319) (24,479,895) (28,194,430) ------------ ----------- ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable........ 5,000,000 -- 21,995,000 19,655,298 65,500,000 Principal payments on notes payable.......................... (4,186,317) (2,582,673) (2,589,354) (2,437,231) (38,696,796) Loan fees.......................... -- (50,000) (1,063,118) (55,573) (1,811,295) Advances from (payments to) affiliates....................... 1,008,599 50,406 (50,516) 201,358 (1,116,682) ------------ ----------- ------------ ------------ ------------ Net cash provided by (used in) financing activities........... 1,822,282 (2,582,267) 18,292,012 17,363,852 23,875,227 ------------ ----------- ------------ ------------ ------------ (DECREASE) INCREASE IN CASH.......... (1,330,114) (364,521) 1,503,942 (1,565,201) 1,504,054 CASH, beginning of year.............. 2,486,237 982,295 982,295 2,547,496 1,043,442 ------------ ----------- ------------ ------------ ------------ CASH, end of period.................. $ 1,156,123 $ 617,774 $ 2,486,237 $ 982,295 $ 2,547,496 ============ =========== ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest......................... $ 6,986,059 $ 5,845,741 $ 7,673,330 $ 7,360,315 $ 2,986,799 ============ =========== ============ ============ ============ Cash paid (received) during the period for state income taxes.... $ 10,601 $ 23,745 $ 21,592 $ 5,610 $ (19,443) ============ =========== ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. F-6 115 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: FORMATION AND BUSINESS Northland Cable Television, Inc. (NCTV), a Washington corporation, was formed to own and operate cable television systems. As of September 30, 1997, NCTV had 65 nonexclusive franchises to operate cable television systems. These franchises expire at various dates through 2020. Northland Cable News, Inc. (NCN), a Washington corporation which was formed to develop and distribute programming to certain of the Company's affiliated entities, is a wholly owned subsidiary of NCTV. NCTV and NCN are collectively referred to as the Company. RELATED COMPANIES The Company and its affiliates, Northland Communications Corporation and subsidiary (NCC); Northland Cable Services Corporation and subsidiaries (NCSC); and Northland Media, Inc. and subsidiary (NMI) are wholly owned subsidiaries of Northland Telecommunications Corporation (NTC or Parent). NCC is the managing general partner of six limited partnerships, which own and operate cable television systems. Additionally, NCC owns and operates cable systems through Northland Cable Properties, Inc. (NCP, Inc.), its wholly owned subsidiary. NCSC is the parent company for Cable Television Billing, Inc. (CTB) and Cable Ad-Concepts, Inc. (CAC). CTB provides billing services to cable systems owned by managed limited partnerships of NCC and wholly owned systems of the Company and NCC. CAC develops and produces video commercial advertisements to be cablecast on Northland affiliated cable systems. NMI was formed as a holding company to own certain noncable related assets. BASIS OF INTERIM FINANCIAL STATEMENT PRESENTATION The financial statements as of and for the nine-month periods ended September 30, 1997 and September 30, 1996 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto. The financial information included herein reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to a fair presentation of the results of interim periods. The results of operations for the nine-month period ended September 30, 1997 are not necessarily indicative of the results to be expected for the full year. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation -- The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, NCN. Significant intercompany accounts and transactions have been eliminated. The Company merged Cal-Nor Cableview, Inc., a former subsidiary, into the Company during 1994. F-7 116 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) Acquisition of Cable Television Systems -- Cable television system acquisitions are accounted for as purchase transactions and their cost is allocated to the estimated fair market value of net tangible assets acquired and to the franchise and other determinable intangible costs. Any excess is allocated to goodwill. Cash and Cash Equivalents -- Cash and cash equivalents include cash and investments in short-term, highly liquid securities, which have maturities when purchased of three months or less. 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 Company 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. To the extent the estimated future cash inflows attributable to the asset, less estimated future cash outflows, is less than the carrying amount, an impairment loss is recognized. Intangible Assets -- Costs assigned to goodwill, franchise agreements and loan fees and other intangible assets are amortized using the straight-line method over the following estimated useful lives: Goodwill............................................... 40 years Franchise agreements................................... 10-20 years Loan fees and other intangible assets.................. 1-10 years
Revenue Recognition -- Cable television service revenue is recognized in the month service is provided to customers. Advance payments on cable services to be rendered are recorded as subscriber prepayments. Revenue from management services provided to Clemson-Seneca during 1995 and 1994 was recorded on the accrual method in the month service was provided. License fee revenue is recognized in the period service is provided. Estimates Used in Financial Statement Presentation -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. TRANSACTIONS WITH MANAGED LIMITED PARTNERSHIP AND OTHER RELATED PARTIES: Management Fees -- Prior to the acquisition of the assets of Clemson-Seneca (see Note 9), the Company received a fee for its services equal to 6.75% of Clemson-Seneca's gross revenues, excluding revenues from the sale of cable television systems or franchises. F-8 117 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) In August 1994, NCTV began paying management fees to NTC equal to 5% of NCTV's gross revenues, excluding revenues from the sale of cable television systems or franchises. The Company paid $1,625,118, $1,320,492 and $331,603 to NTC in 1996, 1995 and 1994, respectively. Program License Fees -- In July 1994, NCN began receiving monthly program license fees from affiliated entities for programming produced by NCN. Total license fees earned from affiliates during 1996, 1995 and 1994 were $619,466, $602,263 and $342,462, respectively. Unsecured Advances to Parent and Advances from Affiliates -- The Company's advances from affiliates are intended to be repaid through future cash flow generated by the Company. Under the terms of an intercompany borrowing arrangement, the Company had agreed to repay all outstanding advances due to affiliates by December 31, 2002; effective June 30, 1997, the Company received a non-cash capital contribution of $9,338,193 from NTC which replaced the net unsecured advances that had previously been owed to NTC and other affiliates of the Company. Reimbursements -- NTC provides or causes to be provided certain centralized services to the Company and other affiliated entities. NTC is entitled to reimbursement from the Company for various expenses incurred by it or its affiliates on behalf of the Company allocable to its management of the Company, 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. NTC has historically assigned its reimbursement rights to NCC. The amounts billed to the Company are based on costs incurred by affiliates in rendering the services. The costs of certain services are charged directly to the Company, based upon the personnel time spent by the employees rendering the service. The cost of other services is allocated to the Company and affiliates based upon relative size and revenue. Amounts charged for these services were $1,670,409, $1,425,316 and $622,486 for 1996, 1995 and 1994, respectively. In 1996, 1995 and 1994, the Company was charged billing service fees by CTB of $231,756, $175,632 and $105,779, respectively. CAC billed the Company $196,491, $161,627 and $33,790, respectively, for advertising services in 1996, 1995 and 1994. The Company has operating management agreements with limited partnerships managed by NCC. Under the terms of these agreements, the Company or an affiliate serves as the managing agent for certain cable television systems and is reimbursed for certain operating, administrative and programming expenses. The Company paid $84,151, $65,921 and $25,087, net, under the terms of these agreements during 1996, 1995 and 1994, respectively. Accumulated Deficit in Managed Limited Partnership -- NCTV was a general partner in Clemson-Seneca, which owned and operated a cable television system. During 1995, NCTV purchased the assets of Clemson-Seneca. All items of income, loss, deduction and credit generated by this limited partnership were allocated 99% to the limited partners and 1% to NCTV as managing general partner until the limited partners had received aggregate cash distributions in an amount equal to aggregate capital contributions. Thereafter, the general partners received 25% and the limited partners were allocated 75% of partnership income, losses and distributions. Distributions from the sale of the system have been determined according to its partnership agreement. F-9 118 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) 3. PROPERTY AND EQUIPMENT:
DECEMBER 31, SEPTEMBER 30, ----------------------------- 1997 1996 1995 ------------- ------------ ------------ (UNAUDITED) Land and buildings...... $ 2,053,834 $ 1,803,610 $ 1,935,828 Distribution plant...... 60,753,567 56,471,372 50,293,667 Other equipment......... 3,637,927 3,360,770 2,940,600 Leasehold improvements.......... 39,805 39,805 38,451 Construction-in- progress.............. 689,364 216,428 33,366 ------------ ------------ ------------ $ 67,174,497 $ 61,891,985 $ 55,241,912 Less: Accumulated Depreciation....... (27,495,056) (23,167,487) (18,444,806) ------------ ------------ ------------ $ 39,679,441 $ 38,724,498 $ 36,797,106 ============ ============ ============
4. OTHER CURRENT LIABILITIES:
DECEMBER 31, SEPTEMBER 30, ------------------------- 1997 1996 1995 ------------- ---------- ---------- (UNAUDITED) Programmer license fees...... $ 1,363,486 $1,000,147 $ 455,348 Accrued franchise fees....... 607,868 647,619 548,503 Accrued interest............. 702,783 565,704 222,908 Other........................ 1,575,560 842,955 679,815 ---------- ---------- ---------- $ 4,249,697 $3,056,425 $1,906,574 ========== ========== ==========
5. NOTES PAYABLE:
SEPTEMBER DECEMBER 31, 30, ---------------------------- 1997 1996 1995 ------------ ------------ ----------- (UNAUDITED) Revolving credit and term loan................... $102,821,769 $101,999,998 $82,569,998 Other.................... 146,646 154,734 574,913 ------------ ------------ ----------- $102,968,415 $102,154,732 $83,144,911 ============ ============ ===========
The revolving credit and term loan is collateralized by a first lien position on all present and future assets and stock of the Company. Interest rates vary based on certain financial covenants; 8.91% as of October 22, 1997 (weighted average). Graduated principal and interest payments are due quarterly until maturity on September 30, 2004. F-10 119 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) Annual maturities of notes payable are as follows: 1997 (October 1 through December 31)........... $ 1,363,996 1998........................................... 8,232,650 1999........................................... 9,900,000 2000........................................... 12,600,000 2001........................................... 15,300,000 2002........................................... 23,000,000 Thereafter..................................... 32,571,769 ------------ 102,968,415 Less -- Current portion........................ (7,538,444) ------------ $ 95,429,971 ============
Under the revolving credit and term loan agreement, the Company has agreed to restrictive covenants which require the maintenance of certain ratios, including a Pro Forma Debt Service Ratio of 1.15 to 1 and a Leverage Ratio of 5.50 to 1 as of September 30, 1997, among other restrictions. The Company submits quarterly debt compliance reports to its creditor under this arrangement. The Company has entered into interest-rate swap agreements to reduce the impact of changes in interest rates. At December 31, 1996, the Company had seven interest-rate swap agreements with its bank, having a notional principal amount outstanding of $85,715,000. These agreements effectively change the Company's interest rate exposure on the swapped portion of the loan to a fixed rate of 6.24% (weighted average), plus an applicable margin based on certain financial covenants (the margin at December 31, 1996, was 2.75%). The maturity date, the fixed interest rate and the notional amount of each swap are as follows:
MATURITY DATE FIXED RATE AMOUNT -------------------------------------------------- ---------- ----------- June 12, 1997..................................... 5.63% $13,500,000 June 30, 1997..................................... 5.97% 12,900,000 August 23, 1997................................... 6.65% 25,115,000 September 30, 1997................................ 6.00% 4,200,000 October 15, 1997.................................. 6.15% 21,000,000 March 9, 1998..................................... 7.25% 5,500,000 November 6, 1998.................................. 5.89% 3,500,000 ----------- $85,715,000 ===========
At December 31, 1996, the Company would have been required to pay approximately $410,000 to settle these agreements based on fair value estimates received from financial institutions. The carrying value of the Company's notes payable approximate fair value due to their variable interest rate nature. F-11 120 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) 6. OTHER, NET: Other, net in other income (expense) in the consolidated statements of operations consists of:
NINE-MONTH PERIOD ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------- 1997 1996 1996 1995 1994 ----------- ----------- ----------- ----------- --------- (UNAUDITED) (UNAUDITED) NORTHLAND CABLE NEWS PROGRAMMING OPERATIONS: License fees from affiliates................ $ 559,026 $ 462,366 $ 619,466 $ 602,263 $ 342,462 Operating expenses........... (870,651) (776,299) (1,051,556) (1,026,501) (296,778) --------- --------- ----------- ----------- --------- Income (loss) from Programming Operations.. (311,625) (313,933) (432,090) (424,238) 45,684 MANAGEMENT OPERATIONS: Management fees from affiliate................. -- -- -- 120,618 226,043 General and administrative expense................... -- -- -- (27,683) (45,872) GAIN (LOSS) ON DISPOSAL OF ASSETS....................... 72,177 51,831 (365,614) (80,045) (23,876) INTEREST INCOME................ 17,038 36,225 54,331 65,158 33,038 OTHER.......................... (17,750) 16,228 (27,638) (24,476) (134,833) --------- --------- ----------- ----------- --------- $ (240,160) $ (209,649) $ (771,011) $ (370,666) $ 100,184 ========= ========= =========== =========== =========
7. INCOME TAXES: The operations of the Company and its affiliates are included for federal income tax purposes in a consolidated federal income tax return filed by NTC. For financial reporting purposes, the provision (benefit) for income taxes is computed as if the Company filed a separate federal income tax return utilizing the tax rate applicable to NTC on a consolidated basis. Deferred income taxes are determined on the asset and liability method in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The asset and liability method requires the recognition of deferred income taxes for the expected future tax consequences of temporary differences between the carrying amounts on the financial statements and the tax bases of assets and liabilities. F-12 121 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) The primary components of deferred income taxes are as follows:
DECEMBER 31, SEPTEMBER 30, --------------------------- 1997 1996 1995 ------------- ----------- ----------- (UNAUDITED) Deferred tax assets: Net operating loss carryforward................ $12,410,000 $11,035,000 $ 8,762,000 Valuation allowance............ (8,123,000) (6,686,000) (5,230,000) ----------- ----------- ----------- 4,287,000 4,349,000 3,532,000 Deferred tax liabilities: Property and equipment......... 4,287,000 4,349,000 3,532,000 ----------- ----------- ----------- $ -- $ -- $ -- =========== =========== ===========
The federal income tax net operating loss carryforward of approximately $36,500,000 (unaudited) as of September 30, 1997 expires beginning in the years 2003 through 2012. Management believes that the available objective evidence creates sufficient uncertainty regarding the realization of the net deferred tax assets due to the recurring operating losses being incurred by the Company. Accordingly, a valuation allowance has been provided for the net deferred tax assets of the Company. The change in the valuation allowance was $1,437,000 (unaudited) for the nine-month period ended September 30, 1997 and $1,456,000, $1,250,000 and $185,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The difference between the statutory tax rate of approximately 40% (34% federal and 6% state, net of federal benefits) and the tax benefit of zero recorded by the Company is primarily due to the Company's full valuation allowance against its net deferred tax asset. 8. COMMITMENTS AND CONTINGENCIES: Lease Arrangements -- The Company leases certain tower sites, office facilities and pole attachments under leases accounted for as operating leases. Rental expense (including month-to-month leases) was $439,261, $434,101 and $214,401 in 1996, 1995 and 1994, respectively. Minimum lease payments to the end of the lease terms are as follows: 1997 (October 1 through December 31)..................... $ 18,352 1998..................................................... 51,455 1999..................................................... 36,209 2000..................................................... 19,299 2001..................................................... 17,571 2002..................................................... 15,997 Thereafter............................................... 79,299 -------- $238,182 ========
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 F-13 122 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) 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 NCTV's operations cannot be determined at this time. A summary of the provisions affecting the cable television industry, more specifically those affecting NCTV'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). NCTV qualifies as a small cable company and all of the Company'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; 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. Self-Insurance: The Company began self-insuring for aerial and underground plant in 1996. NCTV makes monthly contributions into an insurance fund maintained by NTC which covers all Northland entities and would defray a portion of any loss should the Company be faced with a significant uninsured loss. To the extent the Company's losses exceed the fund's balance, the Company would absorb any such loss. 9. ACQUISITION OF SYSTEMS: On October 11, 1996, the Company acquired substantially all of the operating assets and franchise rights of cable systems serving approximately 12,500 basic subscribers in or around the communities of Moses Lake, Othello, Ephrata and certain unincorporated areas of Grant and Adams counties, all in the state of Washington from Marcus Cable Associates, L.P. (Marcus). The purchase price of the system was $21,031,760, which Marcus received at closing. F-14 123 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) During 1995, the Company purchased the assets of Clemson-Seneca and the operating assets of cable television systems in Oconee County, South Carolina; Madera County, California; and communities in and around Mexia, Texas, adding approximately 15,000 basic subscribers. The aggregate purchase price of the assets was approximately $21,600,000. As of December 31, 1995, the Company had paid approximately $20,582,000 of the aggregate purchase price through borrowings under its revolving credit and term loan and cash on hand. As of December 31, 1995, $870,447 remained payable under the holdback provisions of the respective purchase agreements, which reflect reductions for certain postclosing adjustments. At December 31, 1995, $474,622 of this amount was included in due to limited partnership on the consolidated balance sheet. During 1996, the amount outstanding pursuant to the holdback provisions of the purchase agreement was paid. Pro forma operating results of the Company for 1996 and 1995, assuming the acquisitions described above had been made at the beginning of 1995, follow:
FOR THE YEARS ENDED DECEMBER 31, --------------------------- 1996 1995 ----------- ----------- (UNAUDITED) (UNAUDITED) Service revenues....................... $36,275,438 $34,185,193 ----------- ----------- Net loss............................... $(5,986,181) $(7,379,377) =========== ===========
During 1994, the Company purchased the assets of three partnerships which were managed by NCC, an affiliate of the Company, adding approximately 24,000 basic subscribers, or an increase of 59%. The aggregate purchase price of the partnerships was $30,100,000. As of December 31, 1994, the Company had paid approximately $26,400,000 of the aggregate purchase price through borrowings under its term loan, had outstanding approximately $900,000 of amounts to be paid under the holdback provisions of the purchase agreements and had an outstanding payable to an affiliate of approximately $2,800,000. For purposes of the consolidated statement of cash flows, amounts due under the holdback and amounts due to the Company's affiliate have been treated as noncash transactions. During 1995, the amounts outstanding pursuant to the holdback provisions of the purchase agreements were paid. 10. TRANSACTIONS FROM DECEMBER 31, 1996 TO SEPTEMBER 30, 1997 (UNAUDITED): On January 31, 1997, the Company acquired substantially all of the operating assets and franchise rights of the cable television system in and around the community of Waterwood, Texas. This system serves approximately 400 basic subscribers. The total purchase price was approximately $580,000. On March 31, 1997, the Company acquired substantially all operating assets and franchise rights of the cable television systems in or around the communities of Marlin, Madisonville and Buffalo, Texas. These systems serve approximately 3,600 subscribers. The total purchase price was approximately $5,269,000 of which approximately $5,019,000 was paid on the closing date. The balance of $250,000 was deposited into an escrow account which will be released to the seller, net of any purchase price adjustments. The acquisition was financed by borrowings under the Company's term-loan facility. F-15 124 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 ---------------------------------------------------- (AMOUNTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED) In April 1997, the Company acquired substantially all of the operating assets and franchise rights of the cable television system serving approximately 300 basic subscribers in Oconee County, South Carolina. The aggregate purchase price of the assets was $370,000. As of September 1997, the Company owed approximately $8,000 under the holdback provision of the purchase agreement. Pro forma operating results of the Company for the nine-month period ended September 1997, assuming the acquisitions described above had been made at the beginning of 1997, would not be materially different than reported results. 11. EVENT SUBSEQUENT TO SEPTEMBER 30, 1997 (UNAUDITED): In October 1997, the Company executed a definitive agreement to acquire six cable television systems for an aggregate purchase price of $69,975,000. The systems are located in South Carolina and serve approximately 35,300 basic subscribers. The Company privately placed $100 million of senior subordinated notes and renegotiated the terms of its bank credit facility to provide up to $115 million of borrowing capacity, subject to certain borrowing conditions. Management intends that proceeds from the notes and initial bank borrowings of approximately $76 million will be utilized to fund the acquisitions, repay amounts outstanding under the existing bank credit facility and pay transaction costs. The unused capacity under the renegotiated bank credit facility will be utilized for future acquisitions and working capital. F-16 125 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholder of Northland Cable Television, Inc.: We have audited the accompanying consolidated balance sheet of Northland Cable Television, Inc. (a Washington corporation and a wholly owned subsidiary of Northland Telecommunications Corporation) and subsidiary as of July 31, 1997, and the related consolidated statements of operations, changes in shareholder's deficit and cash flows for the seven-month period ended July 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Television, Inc. and subsidiary as of July 31, 1997, and the results of their operations and their cash flows for the seven-month period ended July 31, 1997, in conformity with generally accepted accounting principles. Arthur Andersen LLP Seattle, Washington, September 29, 1997 F-17 126 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED BALANCE SHEET JULY 31, 1997 ASSETS CURRENT ASSETS: Cash....................................................................... $ 1,887,808 Due from limited partnerships.............................................. 68,356 Accounts receivable........................................................ 1,033,593 Prepaid expenses........................................................... 455,218 ------------ Total current assets............................................... 3,444,975 ------------ INVESTMENT IN CABLE TELEVISION PROPERTIES: Property and equipment, at cost............................................ 66,647,343 Less -- Accumulated depreciation........................................... (26,518,444) ------------ 40,128,899 Franchise agreements (net of accumulated amortization of $26,954,988)...... 38,286,397 Goodwill (net of accumulated amortization of $1,802,032)................... 5,122,401 Loan fees and other intangible assets (net of accumulated amortization of $1,704,664)............................................................. 3,702,969 ------------ 87,240,666 ------------ Total assets....................................................... $ 90,685,641 ============ LIABILITIES AND SHAREHOLDER'S DEFICIT CURRENT LIABILITIES: Accounts payable........................................................... $ 113,489 Subscriber prepayments..................................................... 1,127,190 Other current liabilities.................................................. 4,028,735 Due to affiliates.......................................................... 969,224 Current portion of notes payable........................................... 6,834,351 ------------ Total current liabilities.......................................... 13,072,989 NOTES PAYABLE................................................................ 97,488,094 ------------ Total liabilities.................................................. 110,561,083 ------------ COMMITMENTS AND CONTINGENCIES (Note 8) SHAREHOLDER'S DEFICIT: Common stock (par value $1.00 per share, authorized 50,000 shares; 10,000 shares issued and outstanding) and additional paid-in capital........... 11,560,527 Accumulated deficit........................................................ (31,435,969) ------------ Total shareholder's deficit........................................ (19,875,442) ------------ Total liabilities and shareholder's deficit........................ $ 90,685,641 ============
The accompanying notes are an integral part of this consolidated balance sheet. F-18 127 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997 SERVICE REVENUES.............................................................. $22,056,434 ----------- OPERATING EXPENSES: Operating (including $143,358, net paid to affiliates)...................... 6,628,385 General and administrative (including $1,279,674, paid to affiliates)....... 4,141,012 Management fees paid to affiliate........................................... 1,101,085 Depreciation and amortization............................................... 7,520,495 ----------- Total operating expenses............................................ 19,390,977 ----------- Income from operations.............................................. 2,665,457 OTHER EXPENSE: Interest expense............................................................ (5,697,240) Other, net (Note 6)......................................................... (172,862) ----------- Loss before provision for income taxes.............................. (3,204,645) PROVISION FOR INCOME TAXES.................................................... -- ----------- NET LOSS...................................................................... $(3,204,645) ===========
The accompanying notes are an integral part of this consolidated statement. F-19 128 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S DEFICIT FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL -------------------- ACCUMULATED SHARES AMOUNT DEFICIT TOTAL ------ ----------- ------------ ------------ BALANCE, December 31, 1996................ 10,000 $ 2,222,334 $(28,231,324) $(26,008,990) Net loss................................ -- -- (3,204,645) (3,204,645) Capital contribution.................... -- 9,338,193 -- 9,338,193 ------ ----------- ------------ ------------ BALANCE, July 31, 1997.................... 10,000 $11,560,527 $(31,435,969) $(19,875,442) ====== =========== ============ ============
The accompanying notes are an integral part of this consolidated statement. F-20 129 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................................... $(3,204,645) Adjustments to reconcile net loss to net cash provided by operating activities- Depreciation and amortization............................................ 7,718,241 Other.................................................................... (1,559) (Increase) decrease in operating assets: Due from limited partnerships.......................................... 40,619 Accounts receivable.................................................... 256,247 Prepaid expenses....................................................... (181,972) Increase (decrease) in operating liabilities: Accounts payable....................................................... (214,291) Subscriber prepayments................................................. 259,160 Other current liabilities.............................................. 972,310 ----------- Net cash provided by operating activities........................... 5,644,110 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of cable systems................................................ (6,203,141) Investment in cable television properties................................... (2,685,729) Other....................................................................... (24,717) ----------- Net cash used in investing activities............................... (8,913,587) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable................................................. 5,000,000 Principal payments on notes payable......................................... (2,839,646) Advances from affiliates.................................................... 510,694 ----------- Net cash provided by financing activities........................... 2,671,048 ----------- NET DECREASE IN CASH.......................................................... (598,429) CASH, beginning of year....................................................... 2,486,237 ----------- CASH, end of period........................................................... $ 1,887,808 =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest................................. $ 5,221,108 =========== Cash paid during the period for state income taxes....................... $ 6,010 ===========
The accompanying notes are an integral part of this consolidated statement. F-21 130 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1997 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: FORMATION AND BUSINESS Northland Cable Television, Inc. (NCTV), a Washington corporation, was formed to own and operate cable television systems. As of July 31, 1997, NCTV had 65 nonexclusive franchises to operate cable television systems. These franchises expire at various dates through 2020. In 1997, the Madera County, California and Anderson County, South Carolina franchises expired. Less than 1% of NCTV's basic subscribers are in these franchise areas at July 31, 1997. The Company has undertaken the franchise renewal process in accordance with the Telecommunications Act of 1996 (the 1996 Act) and expects that these franchises will be renewed; however, there are no assurances that the franchises will be renewed. During fourth quarter 1997, the franchises for Adams county and Soap Lake, Washington are due to expire. Approximately 1% of NCTV's basic subscribers at July 31, 1997, are in these franchise areas. NCTV has undertaken the franchise renewal process in accordance with the 1996 Act and expects that the franchise will be renewed; however, there are no assurances that the franchises will be renewed. Northland Cable News, Inc. (NCN), a Washington corporation which was formed to develop and distribute programming to certain of the Company's affiliated entities, is a wholly owned subsidiary of NCTV. NCTV and NCN are collectively referred to as the Company. The Company and its affiliates, Northland Communications Corporation and subsidiary (NCC); Northland Cable Services Corporation and subsidiaries (NCSC); and Northland Media, Inc. and subsidiary (NMI) are wholly owned subsidiaries of Northland Telecommunications Corporation (NTC or Parent). NCC is the managing general partner of six limited partnerships, which own and operate cable television systems. Additionally, NCC owns and operates cable systems through Northland Cable Properties, Inc. (NCP, Inc.), its wholly owned subsidiary. NCSC is the parent company for Cable Television Billing, Inc. (CTB) and Cable Ad-Concepts, Inc. (CAC). CTB provides billing services to cable systems owned by managed limited partnerships of NCC and wholly owned systems of the Company and NCC. CAC develops and produces video commercial advertisements to be cablecast on Northland affiliated cable systems. NMI was formed as a holding company to own certain noncable related assets. These financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and regulations relating to the acquisition of significant businesses. On October 11, 1996, the Company acquired substantially all of the operating assets and franchise rights of cable systems in or around the communities of Moses Lake, Othello, Ephrata and certain unincorporated areas of Grant and Adams County, all in the state of Washington. See Note 9. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation -- The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, NCN. Significant intercompany accounts and transactions have been eliminated. Acquisition of Cable Television Systems -- Cable television system acquisitions are accounted for as purchase transactions and their cost is allocated to the estimated fair market value of net F-22 131 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1997 tangible assets acquired and to the franchise agreements and other determinable intangible costs. Any excess is allocated to goodwill. Cash and Cash Equivalents -- Cash and cash equivalents include cash and investments in short-term, highly liquid securities, which have maturities when purchased of three months or less. 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 Company 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. To the extent the estimated future cash inflows attributable to the asset, less estimated future cash outflows, is less than the carrying amount, an impairment loss is recognized. Intangible Assets -- Costs assigned to franchise agreements, goodwill and organization costs and other intangible assets are amortized using the straight-line method over the following estimated useful lives: Goodwill............................................. 40 years Franchise agreements................................. 10 - 20 years Loan fees and other intangible assets................ 1 - 10 years
Revenue Recognition -- Cable television service revenue is recognized in the month service is provided to customers. Advance payments on cable services to be rendered are recorded as subscriber prepayments. License fee revenue and production revenue are recognized in the period service is provided. Estimates Used in Financial Statement Presentation -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. TRANSACTIONS WITH MANAGED LIMITED PARTNERSHIP AND OTHER RELATED PARTIES: Management Fees -- In August 1994, NCTV began paying management fees to NTC equal to 5% of NCTV's gross revenues, excluding revenues from programming, production and the sale of cable television systems or franchises. The Company paid $1,101,085 to NTC for the seven-month period ended July 31, 1997. Program License Fees -- In July 1994, NCN began receiving monthly program license fees from affiliated entities for programming produced by NCN. Total license fees earned from affiliates for the seven-month period ended July 31, 1997 were $331,044. F-23 132 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1997 Production Fees -- In January 1997, NCN began receiving monthly production fees from affiliated entities for production of advertising run tapes. Total production fees earned from affiliates for the seven-month period ended July 31, 1997 were $99,334. Unsecured Advances to Parent and Advances from Affiliates -- The Company's advances from affiliates are intended to be repaid through future cash flow generated by the Company. Under the terms of an intercompany borrowing arrangement, the Company had agreed to repay all outstanding advances due to affiliates by December 31, 2002; effective June 30, 1997, however, the Company received a non-cash capital contribution of $9,338,193 from NTC which replaced the net unsecured advances that had previously been owed to NTC and other affiliates of the Company. Under the terms of a separate intercompany borrowing arrangement, NTC has similarly agreed to repay all outstanding advances due to the Company by December 31, 2002. Reimbursements -- NTC provides or causes to be provided certain centralized services to the Company and other affiliated entities. NTC is entitled to reimbursement from the Company for various expenses incurred by it or its affiliates on behalf of the Company allocable to its management of the Company, 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. NTC has historically assigned its reimbursement rights to NCC. The amounts billed to the Company are based on costs incurred by affiliates in rendering the services. The costs of certain services are charged directly to the Company, based upon the personnel time spent by the employees rendering the service. The cost of other services is allocated to the Company and affiliates based upon relative size and revenue. Amounts charged for these services were $1,131,118 for the seven-month period ended July 31, 1997. For the seven-month period ended July 31, 1997, the Company was charged billing service fees by CTB of $148,556. CAC billed the Company $146,230 for advertising services for the seven-month period ended July 31, 1997. The Company has operating management agreements with affiliates managed by NCC. Under the terms of these agreements, the Company or an affiliate serves as the managing agent for certain cable television systems and is reimbursed for certain operating, administrative and programming expenses. The Company received $1,472, net under the terms of these agreements for the seven-month period ended July 31, 1997. 3. PROPERTY AND EQUIPMENT: Land and buildings.................................... $ 2,053,833 Distribution plant.................................... 60,576,687 Other equipment....................................... 3,637,927 Leasehold improvements................................ 39,805 Construction-in-progress.............................. 339,091 ----------- $66,647,343 ===========
F-24 133 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1997 4. OTHER CURRENT LIABILITIES: Programmer license fees............................... $ 1,695,365 Accrued franchise fees................................ 421,400 Accrued interest...................................... 844,090 Other................................................. 1,067,880 ----------- $ 4,028,735 ===========
5. NOTES PAYABLE: Notes payable consists of: Revolving credit and term loan, collateralized by a first lien position on all present and future assets and stock of the Company. Interest rates vary based on certain financial covenants; currently 9.17% (weighted average). Graduated principal and interest payments are due quarterly until maturity on September 30, 2004............. $104,171,769 Other................................................................ 150,676 ------------ $104,322,445 ============
Annual maturities of notes payable for the years ending December 31, are as follows: 1997 (August 1 through December 31).................. $ 2,718,026 1998................................................. 8,232,650 1999................................................. 9,900,000 2000................................................. 12,600,000 2001................................................. 15,300,000 2002................................................. 23,000,000 Thereafter........................................... 32,571,769 ----------- 104,322,445 Less -- Current portion.............................. (6,834,351) ----------- $ 97,488,094 ===========
Under the revolving credit and term loan agreement, the Company has agreed to restrictive covenants which require the maintenance of certain ratios, including a Pro Forma Debt Service Ratio of 1.15 to 1 and a Leverage Ratio of 6.00 to 1, among other restrictions. The Company submits quarterly debt compliance reports to its creditor under this arrangement. The Company has entered into interest-rate swap agreements to reduce the impact of changes in interest rates. At July 31, 1997, the Company had seven interest-rate swap agreements with its bank, having a notional principal amount outstanding of $83,307,500. These agreements effectively change the Company's interest rate exposure on the swapped portion of the loan to a fixed rate of 6.26% (weighted average), plus an applicable margin based on certain financial covenants (the margin at July 31, 1997, was 2.75%). The Company has entered into an additional interest rate swap that becomes effective August 25, 1997, and expires August 25, 1998, that locks in a fixed rate of F-25 134 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1997 5.765% on a notional principal of $22,700,000. The maturity date, the fixed interest rate and the notional amount of each swap at July 31, 1997, are as follows:
MATURITY DATE FIXED RATE AMOUNT -------------------------------------------------- ---------- ----------- August 23, 1997................................... 6.65% $22,707,500 September 30, 1997................................ 6.00% 4,200,000 October 15, 1997.................................. 6.15% 21,000,000 March 9, 1998..................................... 7.25% 5,500,000 June 12, 1998..................................... 5.90% 13,500,000 June 30, 1998..................................... 5.90% 12,900,000 November 6, 1998.................................. 5.89% 3,500,000 ----------- $83,307,500 ===========
At July 31, 1997, the Company would have been required to pay approximately $148,000 to settle these agreements based on fair value estimates received from financial institutions. The carrying value of the Company's notes payable approximates fair value due to the variable interest rate nature of the notes. 6. OTHER, NET: Other, net in other expense in the consolidated statements of operations consists of the following:
FOR THE SEVEN- MONTH PERIOD ENDED JULY 31, 1997 -------------- NORTHLAND CABLE NEWS PROGRAMMING OPERATIONS: License fees from affiliates................................ $ 331,044 Operating expenses.......................................... (535,584) --------- (Loss) from Programming Operations....................... (204,540) PRODUCTION OPERATIONS: Production revenues......................................... 99,334 Operating expenses.......................................... (136,330) INTEREST INCOME............................................... 13,540 OTHER......................................................... 55,134 --------- $ (172,862) =========
7. INCOME TAXES: The operations of the Company and its affiliates are included for federal income tax purposes in a consolidated federal income tax return filed by NTC. For financial reporting purposes, the provision for income taxes is computed as if the Company filed a separate federal income tax return utilizing the tax rate applicable to NTC on a consolidated basis. Deferred income taxes are determined on the asset and liability method in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The asset and liability method requires the recognition of deferred income taxes for the expected F-26 135 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1997 future tax consequences of temporary differences between the carrying amounts on the financial statements and the tax bases of assets and liabilities. The primary components of deferred income taxes, as of July 31, 1997 are as follows: Deferred tax assets: Net operating loss carryforward..................... $12,138,000 Valuation allowance................................. (7,877,000) ----------- 4,261,000 Deferred tax liabilities: Property and equipment.............................. 4,261,000 ----------- $ -- ===========
The federal income tax net operating loss carryforward of approximately $35,700,000 expires beginning in the years 2003 through 2012. Management believes that the available objective evidence creates sufficient uncertainty regarding the realization of the net deferred tax assets due to the recurring operating losses being incurred by the Company. Accordingly, a valuation allowance has been provided for the net deferred tax assets of the Company. The change in the valuation allowance is $1,191,000 for the seven-month period ended July 31, 1997. The difference between the statutory tax rate of approximately 40% (34% federal and 6% state, net of federal benefits) and the tax benefit of zero recorded by the Company is primarily due to the Company's full valuation allowance against its net deferred tax asset. 8. COMMITMENTS AND CONTINGENCIES: Lease Arrangements -- The Company leases certain tower sites, office facilities and pole attachments under leases accounted for as operating leases. Rental expense (including month-to-month leases) is $330,057 for the seven-month period ended July 31, 1997. Minimum lease payments to the end of the lease terms are as follows: 1997 (August 1 through December 31).............. $ 30,587 1998............................................. 51,455 1999............................................. 36,209 2000............................................. 19,299 2001............................................. 17,571 2002............................................. 15,997 Thereafter....................................... 79,299 -------- $250,417 ========
EFFECTS OF REGULATION On February 8, 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 NCTV's operations cannot be determined at this time. A summary of the provisions affecting the cable television industry, more specifically those affecting NCTV's operations, follows. F-27 136 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1997 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). NCTV qualifies as a small cable company and all of the Company'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; 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. SELF-INSURANCE The Company self-insures for aerial and underground plant. NCTV makes monthly contributions into an insurance fund maintained by NTC which covers all Northland entities and would defray a portion of any loss should the Company be faced with a significant uninsured loss. To the extent the Company's losses exceed the fund's balance, the Company would absorb any such loss. 9. ACQUISITION OF SYSTEMS: On January 31, 1997, the Company acquired substantially all of the operating assets and franchise rights of the cable television system in and around the community of Waterwood, Texas. This system serves approximately 400 basic subscribers. The total purchase price was approximately $580,000. On March 31, 1997, the Company acquired substantially all of the operating assets and franchise rights of the cable television systems in and around the communities of Marlin, Madisonville and Buffalo, Texas. These systems serve approximately 3,600 subscribers. The total purchase price was approximately $5,250,000 of which approximately $5,000,000 was paid on the closing date. The balance of $250,000 was deposited into an escrow account which will be released to the seller, net of any purchase prices adjustments. The acquisition was financed by borrowings under the Company's term-loan facility. In April 1997, the Company acquired substantially all of the operating assets and franchise rights of the cable television system serving approximately 300 basic subscribers in Oconee County, F-28 137 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A WHOLLY OWNED SUBSIDIARY OF NORTHLAND TELECOMMUNICATIONS CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1997 South Carolina. The aggregate purchase price of the assets was $370,000. As of July 31, 1997, the Company owed approximately $8,000 under the holdback provision of the purchase agreement. Pro forma operating results (unaudited) of the Company for the seven-month period ended July 31, 1997, assuming the acquisitions described above had been made at the beginning of 1997, are not materially different than reported results. 10. SUBSEQUENT EVENT (UNAUDITED): In October 1997, the Company executed a definitive agreement to acquire six cable television systems for an aggregate purchase price of $69,975,000. The systems are located in South Carolina and serve approximately 35,300 basic subscribers. The Company is currently in the process of privately placing $100 million of senior subordinated notes and negotiating the terms of its bank credit facility to provide $100 million of borrowing capacity. Management intends that proceeds from the notes and initial bank borrowings of approximately $77 million will be utilized to fund the acquisitions, repay amounts outstanding under the existing bank credit facility and pay transaction costs. The Company expects to have approximately $25 million of unused capacity under the renegotiated bank credit facility for future acquisitions and working capital. F-29 138 REPORT OF INDEPENDENT ACCOUNTANTS To The Partners of Robin Cable Systems, L.P. In our opinion, the accompanying balance sheet and the related statements of operations, of changes in equity and of cash flows present fairly, in all material respects, the financial position of Aiken II Cable Systems, a component of Robin Cable Systems, L.P., at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Robin Cable Systems, L.P.'s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Francisco, California October 10, 1997 F-30 139 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) BALANCE SHEET (IN THOUSANDS) ASSETS
DECEMBER 31, ------------------- 1996 1995 SEPTEMBER 30, ------- ------- 1997 ------------- (UNAUDITED) Accounts receivable, net of allowance for doubtful accounts of $12 (unaudited), $37 and $20....................... $ 286 $ 262 $ 278 Receivables from related parties........................ -- -- 127 Prepaid expenses........................................ 45 19 4 ------- ------- ------- Total current assets.......................... 331 281 409 Intangible assets, net.................................. 1,336 1,799 2,599 Property and equipment, net............................. 9,547 11,812 13,577 Other assets............................................ 9 26 24 ------- ------- ------- Total assets.................................. $11,223 $13,918 $16,609 ======= ======= ======= LIABILITIES AND EQUITY Accounts payable and accrued liabilities................ $ 912 $ 1,028 $ 877 Deferred revenue........................................ 189 144 130 Payables to related parties............................. 8 37 -- ------- ------- ------- Total current liabilities..................... 1,109 1,209 1,007 Non-current liabilities................................. 142 1 -- ------- ------- ------- Total liabilities............................. 1,251 1,210 1,007 ------- ------- ------- Commitments and contingencies (Note 8) Equity.................................................. 9,972 12,708 15,602 ------- ------- ------- Total liabilities and equity.................. $11,223 $13,918 $16,609 ======= ======= =======
See accompanying notes to financial statements. F-31 140 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------- ---------------------------- 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ (UNAUDITED) REVENUES Basic and cable services................... $4,889 $4,589 $6,126 $5,690 $5,333 Pay services............................... 588 590 783 870 930 Other services............................. 890 762 1,042 1,033 1,154 ------ ------ ------ ------ ------ 6,367 5,941 7,951 7,593 7,417 ------ ------ ------ ------ ------ OPERATING EXPENSES Program fees............................... 1,318 1,119 1,528 1,314 1,145 Other direct expenses...................... 731 665 882 822 986 Depreciation and amortization.............. 2,384 2,801 3,736 3,429 3,771 Selling, general and administrative expenses................................. 1,362 1,464 1,974 1,957 1,787 Management and consulting fees............. 248 249 331 334 239 ------ ------ ------ ------ ------ 6,043 6,298 8,451 7,856 7,928 ------ ------ ------ ------ ------ Income (loss) from operations.............. 324 (357) (500) (263) (511) ------ ------ ------ ------ ------ OTHER INCOME (EXPENSE) Other income............................... 15 9 12 -- -- Other expense.............................. (7) (5) (7) (81) (102) ------ ------ ------ ------ ------ 8 4 5 (81) (102) ------ ------ ------ ------ ------ NET INCOME (LOSS).......................... $ 332 $ (353) $ (495) $ (344) $ (613) ====== ====== ====== ====== ======
See accompanying notes to financial statements. F-32 141 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) STATEMENT OF CHANGES IN EQUITY (IN THOUSANDS)
EQUITY ------- Balance at December 31, 1993...................................................... $14,697 Net loss........................................................................ (613) Net distributions to parent..................................................... (399) ------- Balance at December 31, 1994...................................................... 13,685 Net loss........................................................................ (344) Net contributions from parent................................................... 2,261 ------- Balance at December 31, 1995...................................................... 15,602 Net loss........................................................................ (495) Net distributions to parent..................................................... (2,399) ------- Balance at December 31, 1996...................................................... 12,708 Net income (unaudited).......................................................... 332 Net distributions to parent (unaudited)......................................... (3,068) ------- Balance at September 30, 1997 (unaudited)......................................... $ 9,972 =======
See accompanying notes to financial statements. F-33 142 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, ------------------- ------------------------------- 1997 1996 1996 1995 1994 ------- ------- ------- ------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).................. $ 332 $ (353) $ (495) $ (344) $ (613) Adjustments to reconcile net income (loss) to cash flows from operating activities: Depreciation and amortization... 2,384 2,801 3,736 3,429 3,771 Gain (loss) on disposal of fixed assets........................ 6 -- -- (56) (79) Changes in assets and liabilities: Accounts receivable........... (24) 3 16 (106) 55 Receivables from related parties.................... -- 107 127 (127) 8 Prepaid expenses.............. (26) (48) (15) 6 (3) Other assets.................. 17 (2) (2) -- 8 Accounts payable and accrued liabilities................ (116) (7) 151 77 114 Deferred revenue.............. 45 13 14 20 15 Payables to related parties... (29) -- 37 (78) 78 Non-current liabilities....... 141 2 1 -- -- ------- ------- ------- ------- ------- Cash flows from operating activities...................... 2,730 2,516 3,570 2,821 3,354 ------- ------- ------- ------- ------- CASH FLOWS PROVIDED BY/(USED BY) INVESTING ACTIVITIES -- Sales (purchases) of property and equipment....................... 338 (562) (1,171) (5,082) (2,955) ------- ------- ------- ------- ------- CASH FLOWS (USED BY)/PROVIDED BY FINANCING ACTIVITIES -- Net (distributions) contributions to/from parent.................. (3,068) (1,954) (2,399) 2,261 (399) ------- ------- ------- ------- ------- Net change in cash................... -- -- -- -- -- Cash at beginning of period.......... -- -- -- -- -- ------- ------- ------- ------- ------- Cash at end of period................ $ -- $ -- $ -- $ -- $ -- ======= ======= ======= ======= =======
See accompanying notes to financial statements. F-34 143 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) 1. BASIS OF PRESENTATION TRANSACTION On August 27, 1997, Robin Cable Systems, L.P. ("RCS") and InterMedia Partners of Carolina, L.P. ("IP of Carolina"), together referred to as the "Partnerships," entered into an Asset Purchase and Sale Agreement (the "Agreement") with Northland Cable Television, Inc. ("NCTV"), which provides for the sale of certain of the Partnerships' cable television systems located in South Carolina. The sale is expected to be consummated prior to December 31, 1997. The Partnerships are affiliated through common ownership and management by the Partnerships' parent company, InterMedia Partners ("IP"). None of the systems, either individually or collectively, comprise a separate legal entity, but rather comprise three distinct operating units within the Partnerships. RCS is selling its cable television systems serving subscribers located in Allendale, Barnwell, Bamberg, Aiken, Edgefield, McCormick, Saluda and Ware Shoals (the "Aiken Systems"). IP of Carolina is selling its cable television systems serving subscribers in Bennetsville (the "Bennetsville Cable System") and Greenwood (the "Greenwood Cable System"). NCTV has entered into an assignment agreement (the "Assignment Agreement") with an affiliate, Northland Cable Properties Six Limited Partnership ("NCP Six"). The Assignment Agreement assigns, immediately upon the close of the asset purchase described above, certain assets of the Aiken Systems serving subscribers in Allendale, Barnwell and Bamberg (the "Aiken I Cable Systems") and the Bennetsville Cable System to NCP Six. NCTV will retain the remaining assets of the Aiken Systems serving subscribers in Aiken, Edgefield, McCormick, Saluda and Ware Shoals (the "Aiken II Cable Systems") and the Greenwood Cable System. NCTV and NCP Six require separate financial statements for each of these businesses being acquired. Accordingly, these carve-out financial statements of the Aiken II Cable Systems have been prepared. PRESENTATION The accompanying financial statements represent the results of operations of the business associated with the Aiken II Cable Systems and the related assets used and liabilities incurred in the business. Throughout the periods covered by the financial statements, the operations of the Aiken II Cable Systems were conducted and accounted for as part of the Aiken Systems. These financial statements have been carved-out from the historical accounting records of RCS. CARVE-OUT METHODOLOGY Service revenues, program fees, depreciation and amortization can be directly attributed to the Aiken II Cable Systems, while other direct expenses, selling, general and administrative expenses and management and consulting fees have been allocated to the Aiken II Cable Systems as described below. RCS management believes the bases used for the allocations are reasonable. However, these allocations are not necessarily indicative of the costs and expenses that would have resulted if the Aiken II Cable Systems had been operated as a separate entity and are not necessarily indicative of future operating results. Other direct expenses and selling, general and administrative expenses are directly incurred by the Aiken Systems and have been allocated based principally on relative basic subscriber percentages between the Aiken I Cable Systems and the Aiken II Cable Systems. Such expenses include employee and related employee benefit costs, professional services, supplies, occupancy costs, repair and maintenance and other costs included in other direct expenses and marketing, communi- F-35 144 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) cations, data processing, professional services and overhead expenses included in selling, general and administrative expenses. As more fully described in Note 6, certain administrative services are provided by a related party and are charged to all affiliates based on relative basic subscriber percentages. Management and consulting fees represent an allocation of management fees charged by InterMedia Capital Management, a California limited partnership ("ICM") and the former general partner of RCS's parent company, IP, a California limited partnership (see Note 10 -- "Subsequent Events"). These fees are charged at a fixed amount pursuant to a management agreement, initially determined by reference to IP's total contributed capital. These fees are allocated based upon the allocated contributed capital of the Aiken II Cable Systems as compared to total contributed capital of all of the RCS systems. Generally, assets and liabilities can be directly attributed to the Aiken II Cable Systems. Certain prepaids, other assets and accrued liabilities were allocated based on relative basic subscriber percentages; such amounts will be retained by RCS. CASH AND INTERCOMPANY ACCOUNTS Under RCS's centralized cash management system, cash requirements of its individual operating units were generally provided directly by RCS and the cash generated or used by the Aiken II Cable Systems was transferred to/from RCS, as appropriate, through intercompany accounts. The intercompany account balances between RCS and the individual operating units are not intended to be settled. Accordingly, the balances are included in equity and all net cash generated from operations, investing activities and financing activities has been included in the Aiken II Cable Systems' "net (distributions) contributions to/from parent" in the statement of cash flows. RCS maintains all debt which is used to fund and manage all of its operations on a centralized basis. Debt, unamortized debt issue costs and related interest expense have not been allocated to the Aiken II Cable System. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Cable television service revenue is recognized in the period in which services are provided to customers. Deferred revenue represents revenue billed in advance and deferred until cable service is provided. PROPERTY AND EQUIPMENT Additions to property and equipment, including new customer installations, are recorded at cost. Self-constructed fixed assets include materials, labor and overhead. Costs of disconnecting and reconnecting cable service are expensed. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major renewals and improvements are capitalized. Gains and losses from disposals and retirements are included in earnings. Capitalized fixed assets are written down to recoverable values whenever recoverability through operations or sale of the systems becomes doubtful. F-36 145 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) Depreciation is computed using the double-declining balance method over the following estimated useful lives:
YEARS ------ Cable television plant.............................. 5 - 10 Buildings and improvements.......................... 10 Furniture and fixtures.............................. 3 - 7 Equipment and other................................. 3 - 10
INTANGIBLE ASSETS The Aiken II Cable System has franchise rights to operate cable television systems in various towns and political subdivisions. Franchise rights are being amortized over the lesser of the remaining franchise lives or the base ten-year term of IP. The remaining lives of the franchises range from one to four years. Goodwill represents the excess of acquisition costs over the fair value of net tangible and franchise assets acquired, and liabilities assumed, and is being amortized on a straight-line basis over the base ten-year term of IP. Capitalized intangibles are written down to recoverable values whenever recoverability through operations or sale of the systems assets becomes doubtful. The recoverability of the carrying value of intangible assets is reviewed on an annual basis to determine whether the projected cash flows, including projected cash flows from sale of the systems assets are sufficient to recover the unamortized cost of these assets. LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Aiken II Cable System has adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment losses have been recognized for the years presented. INCOME TAXES No provision or benefit for income taxes is reported in the accompanying financial statements because the tax effects of the Aiken II Cable Systems' results of operations accrue to the partners of RCS. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. F-37 146 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of receivables, payables, deferred revenue and accrued liabilities approximates fair value due to their short maturity. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data for the nine months ended September 30, 1997 and 1996 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. 3. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, --------------------- 1996 1995 -------- -------- Franchise rights..................................... $ 22,778 $ 22,778 Goodwill............................................. 3,351 3,351 -------- -------- 26,129 26,129 Accumulated amortization............................. (24,330) (23,530) -------- -------- $ 1,799 $ 2,599 ======== ========
4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, --------------------- 1996 1995 -------- -------- Land................................................. $ 53 $ 53 Cable television plant............................... 24,838 24,398 Building and improvements............................ 241 242 Furniture and fixtures............................... 200 179 Equipment and other.................................. 793 773 Construction-in-progress............................. 1,113 537 -------- -------- 27,238 26,182 Accumulated depreciation............................. (15,426) (12,605) -------- -------- $ 11,812 $ 13,577 ======== ========
F-38 147 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
DECEMBER 31, --------------- 1996 1995 ------ ---- Accounts payable........................................... $ 161 $ 65 Accrued program costs...................................... 140 112 Accrued franchise fees..................................... 135 139 Accrued copyright fees..................................... 106 97 Accrued payroll costs...................................... 53 63 Accrued property and other taxes........................... 311 270 Other accrued liabilities.................................. 122 131 ------ ---- $1,028 $877 ====== ====
6. RELATED PARTY TRANSACTIONS ICM provides certain management services to RCS (see Note 10 -- "Subsequent Events") for a per annum fixed fee, of which 20% per annum is deferred and is payable in each following year. Due to the fixed nature of the fee, changes in the operating units' allocated contributed capital resulting from acquisitions or dispositions within RCS result in changes in the allocation of the fee to constituent operating units, including the Aiken II Cable Systems. The total fixed, annual fee payable by RCS is $863 of which $331, $334 and $239 has been charged to Aiken II Cable Systems. InterMedia Management, Inc. ("IMI") is wholly-owned by the managing general partner of ICM (see Note 10 -- "Subsequent Events"). IMI entered into an agreement with RCS to provide accounting and administrative services at cost. Under the terms of the agreement, the expenses associated with rendering these services are charged to RCS and other affiliates based upon relative basic subscriber percentages. Management believes this method to be reflective of the actual cost. The costs charged to RCS have been charged to the Aiken II Cable Systems on the same basis. During 1996, 1995 and 1994, related IMI administrative fees charged to the Aiken II Cable Systems totaled $234, $249 and $223, respectively. The accounting and administrative expenses charged are not necessarily indicative of the costs that would have been incurred if the Aiken II Cable Systems had been a separate entity. RCS's parent is owned, in part, by Tele-Communications, Inc. ("TCI"). As an affiliate of TCI, RCS is able to purchase programming services from a subsidiary of TCI. Management believes that the overall programming rates made available through this relationship are lower than the Aiken II Cable Systems could obtain separately. The TCI subsidiary is under no obligation to continue to offer such volume rates. Further, such rates are not available to any entity in which TCI does not have a substantial investment. Accordingly, program fees expense recognized is not necessarily indicative of the cost that would have been incurred if the Aiken II Cable Systems had been a separate entity. During 1996, 1995 and 1994, program fees expense includes services purchased from the TCI subsidiary of $1,121, $976, and $884, respectively. Accounts payable and accrued liabilities include programming fees payable to the TCI subsidiary of $96 and $81 at December 31, 1996 and 1995, respectively. F-39 148 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 7. CABLE TELEVISION REGULATION Cable television legislation and regulatory proposals under consideration from time to time by Congress and various federal agencies have in the past, and may in the future, materially affect RCS and the cable television industry. The cable industry is currently regulated at the federal and local levels under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by the Federal Communications Commission ("FCC") in response to the 1992 Act. FCC regulations govern the determination of rates charged for basic, expanded basic and certain ancillary services, and cover a number of other areas including customer service and technical performance standards, the required transmission of certain local broadcast stations and the requirement to negotiate retransmission consent from major network and certain local television stations. Among other provisions, the 1996 Act will eliminate rate regulation on the expanded basic tier effective March 31, 1999. Current regulations issued in conjunction with the 1992 Act empower the FCC and/or local franchise authorities to order reductions of existing rates which exceed the maximum permitted levels and to require refunds measured from the date a complaint is filed in some circumstances or retroactively for up to one year in other circumstances. Management believes it has made a fair interpretation of the 1992 Act and related FCC regulations in determining regulated cable television rates and other fees based on the information currently available. However, complaints have been filed with the FCC on rates for certain franchises and certain local franchise authorities have challenged existing and prior rates. Further complaints and challenges could be forthcoming, some of which could apply to revenue recorded in 1996 and prior years. Management believes, however, that the effect, if any, of these complaints and challenges will not be material to the Aiken II Cable Systems' financial position or results of operations. Many aspects of regulation at the federal and local levels are currently the subject of judicial review and administrative proceedings. In addition, the FCC is required to conduct rulemaking proceedings during 1997 to implement various provisions of the 1996 Act. It is not possible at this time to predict the ultimate outcome of these reviews or proceedings or their effect on Aiken II Cable Systems. 8. COMMITMENTS AND CONTINGENCIES The Aiken II Cable System is committed to provide cable television services under franchise agreements with the State of South Carolina for the remaining terms of the franchises. Franchise fees of up to 5% of gross basic and cable service revenues are payable under these agreements. The 1992 Act and related FCC regulations require that cable television operators obtain permission to retransmit major network and certain local television station signals. RCS has entered into long-term retransmission agreements with all applicable stations in exchange for in-kind and/or other consideration. The Aiken II Cable System is subject to litigation and other claims in the ordinary course of business. In the opinion of management, the ultimate outcome of any existing litigation or other claims will not have a material adverse effect on the Aiken II Cable Systems' financial position or results of operations. F-40 149 AIKEN II CABLE SYSTEMS (A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) RCS has entered into pole rental agreements and leases certain of its facilities and equipment under non-cancelable operating leases. Minimum rental commitments for the next five years and thereafter under non-cancelable operating leases related to the Aiken II Cable Systems are as follows: 1997.................................................. $ 7 1998.................................................. 7 1999.................................................. 4 2000.................................................. 4 2001.................................................. 3 Thereafter............................................ -- --- $25 ===
Rent expense, including operating rentals under cancelable and short-term lease arrangements, for the years ended December 31, 1996, 1995 and 1994 was $153, $145 and $157, respectively. 9. EMPLOYEE BENEFIT PLANS RCS participates in the InterMedia Partners Tax Deferred Savings Plan which covers all full-time employees who have completed at least one year of employment. The plan provides for a base employee contribution of 1% and a maximum of 15% of compensation. RCS's matching contributions under the plan are at the rate of 50% of the employee's contribution, up to a maximum of 3% of compensation. The Aiken II Cable Systems' allocated portion is included in the statement of operations. 10. SUBSEQUENT EVENTS PARTNERSHIP MODIFICATIONS Effective June 10, 1997, InterMedia Capital Management I, LLC ("ICM-I LLC"), a newly formed limited liability company, became the general partner of IP, and ICM no longer holds an equity interest in IP. ICM-I LLC is owned by IMI, the 95% managing member, and Robert J. Lewis, a 5% member, who is also the sole shareholder of IMI. Also effective June 10, 1997, InterMedia Capital Management, L.P. ("ICM-I"), a newly formed limited partnership, became a 1.1% limited partner in IP, and now provides to RCS the management services that were previously provided by ICM for a per annum fixed fee of $863. ADVERTISING REVENUE (UNAUDITED) During 1997, Aiken II Cable Systems was credited $298 representing its share of payments received by IP from certain programmers to launch and promote their channels. Of the total amount received, the Aiken II Cable Systems has recognized advertising revenue of $71 during the nine months ended September 30, 1997 for advertising provided to promote the new channels. The remaining payments received from the programmers will be amortized over the respective terms of the launch agreements which range between five and ten years. F-41 150 REPORT OF INDEPENDENT ACCOUNTANTS To The Partners of InterMedia Partners of Carolina, L.P. In our opinion, the accompanying balance sheet and the related statements of operations, of changes in equity and of cash flows present fairly, in all material respects, the financial position of the Greenwood Cable System, a component of InterMedia Partners of Carolina, L.P., at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of InterMedia Partners of Carolina, L.P.'s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Francisco, California October 10, 1997 F-42 151 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) BALANCE SHEET (IN THOUSANDS) ASSETS
DECEMBER 31, ------------------ 1996 1995 SEPTEMBER ------ ------- 30, 1997 ----------- (UNAUDITED) Accounts receivable, net of allowance for doubtful accounts of $16 (unaudited), $13 and $13........................... $ 199 $ 141 $ 148 Prepaid expenses............................................ 25 15 6 Receivables from related parties............................ 18 -- -- ------ ------ ------- Total current assets.............................. 242 156 154 Intangible assets, net...................................... 3,979 5,978 8,735 Property and equipment, net................................. 2,734 2,649 2,788 ------ ------ ------- Total assets...................................... $ 6,955 $8,783 $11,677 ====== ====== ======= LIABILITIES AND EQUITY Accounts payable and accrued liabilities.................... $ 611 $ 614 $ 713 Deferred revenue............................................ 155 107 93 Payables to related parties................................. -- 22 133 ------ ------ ------- Total current liabilities......................... 766 743 939 Non-current liabilities..................................... 136 7 7 ------ ------ ------- Total liabilities................................. 902 750 946 ------ ------ ------- Commitments and contingencies (Note 8) Equity...................................................... 6,053 8,033 10,731 ------ ------ ------- Total liabilities and equity...................... $ 6,955 $8,783 $11,677 ====== ====== =======
See accompanying notes to financial statements. F-43 152 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER FOR THE YEAR ENDED 30, DECEMBER 31, ------------------ ------------------------------- 1997 1996 1996 1995 1994 ------ ------- ------- ------- ------- (UNAUDITED) REVENUES Basic and cable services................ $3,591 $ 3,292 $ 4,408 $ 4,099 $ 3,572 Pay services............................ 475 481 638 686 682 Other services.......................... 538 457 622 517 523 ------ ------- ------- ------- ------- 4,604 4,230 5,668 5,302 4,777 ------ ------- ------- ------- ------- OPERATING EXPENSES Program fees............................ 982 876 1,184 984 809 Other direct expenses................... 390 410 563 632 526 Depreciation and amortization........... 2,393 2,585 3,459 3,310 3,399 Selling, general and administrative expenses.............................. 798 807 1,081 1,089 1,052 Management and consulting fees.......... 378 378 504 504 504 ------ ------- ------- ------- ------- 4,941 5,056 6,791 6,519 6,290 ------ ------- ------- ------- ------- Loss from operations.................... (337) (826) (1,123) (1,217) (1,513) ------ ------- ------- ------- ------- OTHER INCOME (EXPENSE) Other income............................ 16 1 13 -- -- Other expense........................... (4) (3) (20) (14) (17) ------ ------- ------- ------- ------- 12 (2) (7) (14) (17) ------ ------- ------- ------- ------- NET LOSS................................ $ (325) $ (828) $(1,130) $(1,231) $(1,530) ====== ======= ======= ======= =======
See accompanying notes to financial statements. F-44 153 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) STATEMENT OF CHANGES IN EQUITY (IN THOUSANDS)
EQUITY ------- Balance at December 31, 1993...................................................... $16,807 Net loss........................................................................ (1,530) Net distributions to parent..................................................... (1,484) ------- Balance at December 31, 1994...................................................... 13,793 Net loss........................................................................ (1,231) Net distributions to parent..................................................... (1,831) ------- Balance at December 31, 1995...................................................... 10,731 Net loss........................................................................ (1,130) Net distributions to parent..................................................... (1,568) ------- Balance at December 31, 1996...................................................... 8,033 Net loss (unaudited)............................................................ (325) Net distributions to parent (unaudited)......................................... (1,655) ------- Balance at September 30, 1997 (unaudited)......................................... $ 6,053 =======
See accompanying notes to financial statements. F-45 154 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------ ------------------------------- 1997 1996 1996 1995 1994 ------- ------ ------- ------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss....................................... $ (325) $ (828) $(1,130) $(1,231) $(1,530) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation and amortization................ 2,393 2,585 3,459 3,310 3,399 (Gain) loss on disposal of fixed assets...... -- (1) 4 3 2 Changes in assets and liabilities: Accounts receivable.......................... (58) (22) 7 (53) (12) Prepaid expenses............................. (10) (20) (9) 4 15 Receivables from related parties............. (18) -- -- 14 (29) Other assets................................. -- -- -- 4 4 Accounts payable and accrued liabilities..... (3) (89) (99) 208 63 Deferred revenue............................. 48 13 14 14 17 Payables to related parties.................. (22) (8) (111) 133 -- Non-current liabilities...................... 129 -- -- 7 -- ------- ------ ------- ------- ------- Cash flows from operating activities......... 2,134 1,630 2,135 2,413 1,929 ------- ------ ------- ------- ------- CASH FLOWS USED BY INVESTING ACTIVITIES -- Purchases of property and equipment............ (479) (474) (567) (582) (445) ------- ------ ------- ------- ------- CASH FLOWS USED BY FINANCING ACTIVITIES -- Net distributions to parent.................... (1,655) (1,156) (1,568) (1,831) (1,484) ------- ------ ------- ------- ------- Net change in cash............................... -- -- -- -- -- Cash at beginning of period...................... -- -- -- -- -- ------- ------ ------- ------- ------- Cash at end of period............................ $ -- $ -- $ -- $ -- $ -- ======= ====== ======= ======= =======
See accompanying notes to financial statements. F-46 155 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) 1. BASIS OF PRESENTATION TRANSACTION On August 27, 1997, Robin Cable Systems, L.P. ("RCS") and InterMedia Partners of Carolina, L.P. ("IP of Carolina"), together referred to as the "Partnerships," entered into an Asset Purchase and Sale Agreement (the "Agreement") with Northland Cable Television, Inc. ("NCTV") which provides for the sale of certain of the Partnerships' cable television systems located in South Carolina. The sale is expected to be consummated prior to December 31, 1997. The Partnerships are affiliated through common ownership and management by InterMedia Partners ("IP"). None of the systems, either individually or collectively, comprise a separate legal entity, but rather comprise three distinct operating units within the Partnerships. RCS is selling its cable television systems serving subscribers located in Allendale, Barnwell, Bamberg, Aiken, Edgefield, McCormick, Saluda and Ware Shoals, (the "Aiken Systems"). IP of Carolina is selling its systems serving subscribers in Bennetsville (the "Bennetsville Cable System") and Greenwood (the "Greenwood Cable System" or "Greenwood"). NCTV has entered into an assignment agreement (the "Assignment Agreement") with an affiliate, Northland Cable Properties Six Limited Partnership ("NCP Six"). The Assignment Agreement assigns immediately upon the close of the asset purchase described above, certain assets of the Aiken Systems serving subscribers in Allendale, Barnwell and Bamberg (the "Aiken I Cable Systems") and the Bennetsville Cable System to NCP Six. NCTV will retain the remaining assets of the Aiken Systems serving subscribers located in Aiken, Edgefield, McCormick, Saluda and Ware Shoals (the "Aiken II Cable Systems") and the Greenwood Cable System. NCTV and NCP Six require separate financial statements for each of these businesses being acquired. Accordingly, these carve-out financial statements of the Greenwood Cable System have been prepared. CARVE-OUT METHODOLOGY The accompanying financial statements represent the results of operations of the business associated with the Greenwood Cable System and the related assets used and liabilities incurred in the business. Throughout the periods covered, operating statements of the Greenwood Cable System were separately maintained. However, as the Greenwood Cable System was not a separate legal entity, these financial statements are carved-out from the historical accounting records of IP of Carolina. Therefore, the results of operations are not necessarily indicative of the costs and expenses which would have resulted if Greenwood was a separate legal entity and are not necessarily indicative of future operating results. Management and consulting fees primarily represent an allocation of management fees charged by InterMedia Capital Management, a California limited partnership ("ICM") and the former general partner of IP of Carolina's parent company, IP, a California limited partnership (see Note 10 -- "Subsequent Events"). These fees are charged at a fixed amount pursuant to a management agreement, initially determined by reference to IP's total contributed capital. These fees are allocated based upon the allocated contributed capital of Greenwood as compared to total contributed capital of all of the IP of Carolina systems. Also, as more fully described in Note 6, certain administrative services are provided by a related party at cost and are charged to all affiliates based on relative basic subscriber percentages. F-47 156 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) CASH AND INTERCOMPANY ACCOUNTS Under IP of Carolina's centralized cash management system, cash requirements of its individual operating units were generally provided directly by IP of Carolina and the cash generated or used by the Greenwood Cable System was transferred to/from IP of Carolina, as appropriate, through intercompany accounts. The intercompany account balances between IP of Carolina and the individual operating units are not intended to be settled. Accordingly, the balances are included in equity and all net cash generated from operations, investing activities and financing activities has been included in Greenwood's "net distributions to parent" in the statement of cash flows. IP of Carolina maintains all debt which is used to fund and manage all of its operations on a centralized basis. Debt, unamortized debt issue costs and related interest expense have not been allocated to Greenwood. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Cable television service revenue is recognized in the period in which services are provided to customers. Deferred revenue represents revenue billed in advance and deferred until cable service is provided. PROPERTY AND EQUIPMENT Additions to property and equipment, including new customer installations, are recorded at cost. Self-constructed fixed assets include materials, labor and overhead. Costs of disconnecting and reconnecting cable service are expensed. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major renewals and improvements are capitalized. Gains and losses from disposals and retirements are included in earnings. Capitalized fixed assets are written down to recoverable values whenever recoverability through operations or sale of the system assets becomes doubtful. Depreciation is computed using the double-declining balance method over the following estimated useful lives:
YEARS ------ Cable television plant...................................... 5 - 10 Buildings and improvements.................................. 10 Furniture and fixtures...................................... 3 - 7 Equipment and other......................................... 3 - 10
INTANGIBLE ASSETS Greenwood has franchise rights granted to operate cable television systems in various towns and political subdivisions. Franchise rights are being amortized over the lesser of the remaining franchise lives or the base ten-year term of IP. The remaining lives of the franchises range from one to four years. Capitalized intangibles are written down to recoverable values whenever recoverability through operations or sale of the system assets becomes doubtful. The recoverability of the carrying value of intangible assets is reviewed on an annual basis to determine whether the projected cash flows, F-48 157 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) including projected cash flows from sale of the system assets, are sufficient to recover the unamortized cost of these assets. LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF Greenwood has adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment losses have been recognized for the years presented. INCOME TAXES No provision or benefit for income taxes is reported in the accompanying financial statements because the tax effects of Greenwood's results of operations accrue to the partners of IP of Carolina. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of receivables, payables, deferred revenue and accrued liabilities approximates fair value due to their short maturity. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data for the nine months ended September 30, 1997 and 1996 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. 3. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, --------------------- 1996 1995 -------- -------- Franchise rights............................. $ 23,996 $ 23,996 Accumulated amortization..................... (18,018) (15,261) -------- -------- $ 5,978 $ 8,735 ======== ========
F-49 158 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, ------------------- 1996 1995 ------- ------- Cable television plant.................... $ 6,549 $ 6,234 Building and improvements................. 1 1 Furniture and fixtures.................... 68 67 Equipment and other....................... 355 298 Construction-in-progress.................. 318 180 ------- ------- 7,291 6,780 Accumulated depreciation.................. (4,642) (3,992) ------- ------- $ 2,649 $ 2,788 ======= =======
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
DECEMBER 31, ------------- 1996 1995 ---- ---- Accounts payable................................ $ 14 $ 65 Accrued program costs........................... 110 93 Accrued franchise fees.......................... 172 156 Accrued copyright fees.......................... 52 52 Accrued payroll costs........................... 30 38 Accrued property and other taxes................ 114 130 Other accrued liabilities....................... 122 179 ---- ---- $614 $713 ==== ====
6. RELATED PARTY TRANSACTIONS ICM provides certain management services to IP of Carolina (see Note 10 -- "Subsequent Events") for a fixed fee of which 20% per annum is deferred and is payable in each following year. The total fixed annual fee payable by IP of Carolina is $930 of which $504 has been charged to Greenwood in each of the years ended December 31, 1996, 1995 and 1994. InterMedia Management, Inc. ("IMI") is wholly-owned by the managing general partner of ICM (see Note 10 -- "Subsequent Events"). IMI has entered into an agreement with IP of Carolina to provide accounting and administrative services at cost. Under the terms of the agreement, the expenses associated with rendering these services are charged to IP of Carolina and other affiliates based upon relative basic subscriber percentages. Management believes this method to be reflective of the actual cost. The costs charged to IP of Carolina have been charged to Greenwood on the same basis. During 1996, 1995 and 1994, related IMI administrative fees charged to Greenwood totaled $193, $201 and $173, respectively. The accounting and administrative expenses charged are not necessarily indicative of the costs that would have been incurred if Greenwood had been a separate entity. F-50 159 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) IP of Carolina's parent is owned, in part, by Tele-Communications, Inc. ("TCI"). As an affiliate of TCI, IP of Carolina is able to purchase programming services from a subsidiary of TCI. Management believes that the overall programming rates made available through this relationship are lower than Greenwood could obtain separately. The TCI subsidiary is under no obligation to continue to offer such volume rates. Further, such rates are not available to an entity in which TCI does not have a substantial investment. Accordingly, program fees expense recognized is not necessarily indicative of the cost that would have been incurred if Greenwood had been a separate entity. During 1996, 1995 and 1994, program fees expense includes services purchased from the TCI subsidiary of $925, $803, and $700, respectively. Accounts payable and accrued liabilities include programming fees payable to the TCI subsidiary of $81 and $68 at December 31, 1996 and 1995, respectively. 7. CABLE TELEVISION REGULATION Cable television legislation and regulatory proposals under consideration from time to time by Congress and various federal agencies have in the past, and may in the future, materially affect IP of Carolina and the cable television industry. The cable industry is currently regulated at the federal and local levels under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by the Federal Communications Commission ("FCC") in response to the 1992 Act. FCC regulations govern the determination of rates charged for basic, expanded basic and certain ancillary services, and cover a number of other areas including customer service and technical performance standards, the required transmission of certain local broadcast stations and the requirement to negotiate retransmission consent from major network and certain local television stations. Among other provisions, the 1996 Act will eliminate rate regulation on the expanded basic tier effective March 31, 1999. Current regulations issued in conjunction with the 1992 Act empower the FCC and/or local franchise authorities to order reductions of existing rates which exceed the maximum permitted levels and to require refunds measured from the date a complaint is filed in some circumstances or retroactively for up to one year in other circumstances. Management believes it has made a fair interpretation of the 1992 Act and related FCC regulations in determining regulated cable television rates and other fees based on the information currently available. However, complaints have been filed with the FCC on rates for certain franchises and certain local franchise authorities have challenged existing and prior rates. Further complaints and challenges could be forthcoming, some of which could apply to revenue recorded in 1996 and prior years. Management believes, however, that the effect, if any, of these complaints and challenges will not be material to Greenwood's financial position or results of operations. Many aspects of regulation at the federal and local levels are currently the subject of judicial review and administrative proceedings. In addition, the FCC is required to conduct rulemaking proceedings during 1997 to implement various provisions of the 1996 Act. It is not possible at this time to predict the ultimate outcome of these reviews or proceedings or their effect on Greenwood. 8. COMMITMENTS AND CONTINGENCIES Greenwood is committed to provide cable television services under franchise agreements for the remaining terms of the franchises. Franchise fees of up to 5% of gross basic and cable service revenues are payable under these agreements. F-51 160 GREENWOOD CABLE SYSTEM (A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) The 1992 Act and related FCC regulations require that cable television operators obtain permission to retransmit major network and certain local television station signals. IP of Carolina has entered into long-term retransmission agreements with all applicable stations in exchange for in-kind and/or other consideration. Greenwood is subject to litigation and other claims in the ordinary course of business. In the opinion of management, the ultimate outcome of any existing litigation or other claims will not have a material adverse effect on Greenwood's financial position or results of operations. IP of Carolina has entered into pole rental agreements and leases certain of its facilities and equipment under noncancelable operating leases. Minimum rental commitments for the next five years and thereafter under non-cancelable operating leases related to Greenwood are as follows: 1997....................................... $ 49 1998....................................... 49 1999....................................... 50 2000....................................... 50 2001....................................... 50 Thereafter................................. 151 ---- $ 399 ====
Rent expense, including operating rentals under cancelable and short-term lease arrangements, for the years ended December 31, 1996, 1995 and 1994 was $53, $53 and $71, respectively. 9. EMPLOYEE BENEFIT PLANS IP of Carolina participates in the InterMedia Partners Tax Deferred Savings Plan which covers all full-time employees who have completed at least one year of employment. The plan provides for a base employee contribution of 1% and a maximum of 15% of compensation. IP of Carolina's matching contributions under the plan are at the rate of 50% of the employee's contribution, up to a maximum of 3% of compensation. Greenwood's allocated portion is included in the statement of operations. 10. SUBSEQUENT EVENTS PARTNERSHIP MODIFICATIONS Effective June 10, 1997, InterMedia Capital Management I, LLC ("ICM-I LLC"), a newly formed limited liability company, became the general partner of IP, and ICM no longer holds an equity interest in IP. ICM-I LLC is owned by IMI, the 95% managing member, and Robert J. Lewis, a 5% member, who is also the sole shareholder of IMI. Also effective June 10, 1997, InterMedia Capital Management, L.P. ("ICM-I"), a newly formed limited partnership, became a 1.1% limited partner in IP, and now provides to IP of Carolina the management services that were previously provided by ICM for a per annum fixed fee of $930. ADVERTISING REVENUE (UNAUDITED) During 1997, Greenwood Cable Systems was credited $164 representing its share of payments received by IP from certain programmers to launch and promote their channels. The payments received from the programmers have been deferred and will be amortized over the respective terms of the launch agreements which range between five and ten years. F-52 161 INDEX TO PRO FORMA UNAUDITED CONSOLIDATED COMBINED FINANCIAL STATEMENTS
PAGE ---- Pro Forma Unaudited Consolidated Combined Statement of Operations for the nine months ended September 30, 1997............................................................. P-3 Pro Forma Unaudited Consolidated Combined Balance Sheet as of September 30, 1997....... P-4 Pro Forma Unaudited Consolidated Combined Statement of Operations for the year ended December 31, 1996.................................................................... P-5 Notes to Pro Forma Unaudited Consolidated Combined Financial Statements................ P-6
P-1 162 PRO FORMA UNAUDITED CONSOLIDATED COMBINED FINANCIAL STATEMENTS The Pro Forma Unaudited Consolidated Combined Statements of Operations data for the nine months ended September 30, 1997 give effect to the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on the first day of such period. The Pro Forma Unaudited Consolidated Combined Balance Sheet data as of September 30, 1997 give effect to the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on that date. The Pro Forma Unaudited Consolidated Combined Statements of Operations data for the year ended December 31, 1996 give effect to the Moses Lake Acquisition, the Offering, and the application of the net proceeds therefrom, and the Acquisition as if they had occurred on the first day of such period. The pro forma information is based upon (i) the Company's and (ii) Aiken II Cable Systems' and Greenwood Cable System's, together, (the "Acquisition Systems") Statements of Operations for the year ended December 31, 1996 and for the nine months ended September 30, 1997, and the Company's and the Acquisition Systems' Balance Sheet as of September 30, 1997, after giving effect to the Acquisition under the purchase method of accounting and the assumptions and adjustments in the accompanying notes to the Pro Forma Unaudited Consolidated Combined Financial Statements. The following information should be read in conjunction with and is qualified in its entirety by "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and accompanying notes of the Company and the Acquisition Systems. The Pro Forma Unaudited Consolidated Combined Financial Statements have not been audited by the independent auditors of the Company or the Sellers, are intended for informational purposes only and are not necessarily indicative of the future financial position or future results of operations of the combined company or of the financial position or the results of operations of the combined company that would have been realized had the Moses Lake Acquisition, the Offering, and the application of the net proceeds therefrom, and the Acquisition occurred as of the dates or for the periods presented. P-2 163 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY PRO FORMA UNAUDITED CONSOLIDATED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMBINED PRO FORMA COMPANY FOR THE PRO FORMA OFFERING OFFERING FOR THE ACQUISITION ACQUISITION AND THE COMPANY ADJUSTMENTS OFFERING SYSTEMS ADJUSTMENTS ACQUISITION ------- ----------- --------- ----------- ----------- ------------ (DOLLARS IN THOUSANDS) Service revenues............. $28,700 $ -- $28,700 $10,971 $ -- $ 39,671 Operating expenses: Operating.................. 8,626 -- 8,626 3,421 -- 12,047 General and administrative........... 5,332 -- 5,332 2,160 -- 7,492 Management fees............ 1,433 -- 1,433 626 (77)(a) 1,982 Depreciation and amortization............. 9,653 -- 9,653 4,777 (1,811)(b) 15,028 2,409 (c) ------- ------ -------- -------- ------- -------- Total operating expenses............... 25,044 -- 25,044 10,984 521 36,549 ------- ------ -------- -------- ------- -------- Income from operations....... 3,656 -- 3,656 (13) (521) 3,122 Interest expense........... (7,378) (1,077)(d) (8,853) -- (4,547)(e) (13,400) (398)(f) Other income (expense), net...................... (240) -- (240) 20 -- (220) ------- ------ -------- -------- ------- -------- Net income (loss)............ $(3,962) $(1,475) $(5,437) $ 7 $(5,068) $(10,498) ======= ======= ======== ======== ======= ========
P-3 164 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY PRO FORMA UNAUDITED CONSOLIDATED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997
COMBINED PRO FORMA COMPANY FOR THE PRO FORMA OFFERING OFFERING FOR THE ACQUISITION ACQUISITION AND THE COMPANY ADJUSTMENTS OFFERING SYSTEMS ADJUSTMENTS ACQUISITION -------- ----------- --------- ----------- ----------- ------------ (DOLLARS IN THOUSANDS) Cash............................... $ 1,156 $ 75 (g) $ 1,231 $ -- $ 69,285 (e) $ 1,090 (69,426)(h) Accounts receivable................ 1,162 -- 1,162 485 -- 1,647 Prepaids and other................. 525 -- 525 88 (88)(h) 525 ------- ------ -------- -------- --------- -------- Total current assets........... 2,843 75 2,918 573 (229) 3,262 Property and equipment, net........ 39,679 -- 39,679 12,281 6,509 (h) 58,469 Intangibles, net................... 45,906 4,925 (g) 50,831 5,315 45,870 (h) 102,016 Other assets....................... 690 -- 690 9 (699)(h) -- ------- ------ -------- -------- --------- -------- Total assets................... $89,118 $ 5,000 $ 94,118 $18,178 $ 51,451 $163,747 ======= ====== ======== ======== ========= ======== Accounts payable and other current liabilities...................... $ 4,331 $ -- $ 4,331 $ 1,523 $ (1,523)(h) $ 4,331 Subscriber prepayments............. 1,029 -- 1,029 344 -- 1,373 Due to affiliates.................. 1,422 -- 1,422 8 (8)(h) 1,422 Current portion of notes payable... 7,538 (6,454)(g) 1,084 -- -- 1,084 ------- ------ -------- -------- --------- -------- Total current liabilities...... 14,320 (6,454) 7,866 1,875 (1,531) 8,210 Notes payable...................... 95,430 11,454 (g) 106,884 -- 69,285 (e) 176,169 Other liabilities.................. -- -- -- 278 (278)(h) -- ------- ------ -------- -------- --------- -------- Total liabilities.............. 109,750 5,000 114,750 2,153 67,476 184,379 Shareholder's equity (deficit)..... (20,632) -- (20,632) 16,025 (16,025)(h) (20,632) ------- ------ -------- -------- --------- -------- Total liabilities and shareholder's equity (deficit).................... $89,118 $ 5,000 $ 94,118 $18,178 $ 51,451 $163,747 ======= ====== ======== ======== ========= ========
P-4 165 NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY PRO FORMA UNAUDITED CONSOLIDATED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
COMBINED PRO FORMA COMPANY FOR THE COMPANY PRO FORMA OFFERING AND ----------------------- OFFERING FOR THE ACQUISITION ACQUISITION THE ACTUAL MOSES LAKE(I) ADJUSTMENTS OFFERING SYSTEMS ADJUSTMENTS ACQUISITION ------- ------------- ----------- -------------- ----------- ----------- ------------- (DOLLARS IN THOUSANDS) Service revenues...... $32,561 $ 3,190 $ -- $ 35,751 $13,619 $ -- $ 49,370 Operating expenses: Operating........... 9,448 894 -- 10,342 4,157 -- 14,499 General and administrative.... 5,955 643 -- 6,598 3,055 -- 9,653 Management fees..... 1,625 160 -- 1,785 835 (154)(j) 2,466 Depreciation and amortization...... 10,727 2,183 -- 12,910 7,195 (1,732)(k) 20,076 1,703 (l) ------- ------- ------- -------- -------- --------- --------- Total operating expenses.......... 27,755 3,880 -- 31,635 15,242 (183) 46,694 ------- ------- ------- -------- -------- --------- --------- Income (loss) from operations.......... 4,806 (690) -- 4,116 (1,623) 183 2,676 Interest expense.... (8,263) (1,502) (2,159)(m) (11,924) -- (6,062)(n) (17,986) Other income (expenses), net... (772) -- -- (772) (2) -- (774) ------- ------- ------- -------- -------- --------- --------- Net loss.............. $(4,229) $(2,192) $(2,159) $ (8,580) $(1,625) $ (5,879) $ (16,084) ======= ======= ======= ======== ======== ========= =========
P-5 166 NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (a) To eliminate historical management fees of the Acquisition Systems and record management fees based on the Company's Management Agreement of 5.0% of gross revenues. (b) To eliminate the Acquisition Systems' historical depreciation expense and record depreciation expense, for the nine months ended September 30, 1997, based upon the allocation of purchase price to various categories of property and equipment using methods and terms consistent with those utilized by the Company. Adjustments for each of the Acquisition Systems are as follows:
ELIMINATE RECORD --------- ------ Aiken II Cable Systems........................... $ 1,868 $ 901 Greenwood Cable System........................... 1,373 529 -------- ---- $ 3,241 $1,430 ======== ====
(c) To eliminate the Acquisition Systems' historical amortization expense and record amortization expense, for the nine months ended September 30, 1997, based upon the allocation of purchase price to various categories of intangible assets using methods and terms consistent with those utilized by the Company. Adjustments for each of the Acquisition Systems are as follows:
ELIMINATE RECORD --------- ------ Aiken II Cable Systems........................... $ 516 $2,189 Greenwood Cable System........................... 1,020 1,756 -------- ------ $ 1,536 $3,945 ======== ======
(d) To eliminate historical interest expense totaling $7,378 and record estimated interest expenses of $8,455, for the nine months ended September 30, 1997, based upon the Offering and amounts outstanding under the Senior Credit Facility of $7,822. (e) To record borrowings under the Senior Credit Facility of $69,285 in connection with the Acquisition and the related interest expense. (f) To record amortization of debt issue costs for the nine months ended September 30, 1997. Total issuance costs are estimated at $3,375 in conjunction with the Offering and loan fees and costs are estimated at $1,550 in conjunction with the Senior Credit Facility. (g) To record the gross proceeds from the Offering of $100,000, repayments of outstanding indebtedness totaling $95,000 and payment of debt issuance costs and fees incurred in conjunction with the Offering and the Senior Credit Facility estimated at $4,925. (h) To record the cost of the Acquisition Systems totaling $69,975, including step-ups in historical property and equipment basis to $18,790, and franchise and other intangible costs to $51,185, based upon the Company's allocation of purchase price. An Escrow deposit of $690 is released as partial payment for the Acquisition Systems. Net accounts receivable over subscriber prepayments are assumed to be acquired for an additional $141. The Acquisition Systems' historical basis in assets not acquired or liabilities not assumed are eliminated including prepaids and other assets, accounts payable and other current liabilities, due to affiliates and shareholders' equity. P-6 167 NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (i) Service revenues, operating and general and administrative expenses reflect historical results for the period January 1, 1996 to October 11, 1996, the date on which the Company consummated the Moses Lake Acquisition. Depreciation and amortization expense reflects the recording of expense for the period January 1, 1996 to October 11, 1996, based upon the allocation of purchase price to various categories of property and equipment using methods and terms consistent with those utilized by the Company. The adjustments are as follows:
HISTORICAL RESTATED --------- ------ Depreciation expense............................ $ 240 $ 454 Amortization expense............................ 683 1,729 ------- ------ $ 923 $2,183 ======= ======
Interest expense represents the elimination of historical interest expense in the amount of $867 and the recording of $1,502 of interest expense for the period January 1, 1996 to October 11, 1996 on acquisition borrowings of $21,995 under the Company's revolving credit and term loan facility. Management fees are recorded at 5.0% of revenues based on the Company's Management Agreement. (j) To eliminate historical management fees of $835 for the Acquisition Systems and record management fees based on the Company's Management Agreement of 5.0% of revenues. (k) To eliminate the Acquisition Systems' historical depreciation expense and record depreciation expense for 1996 based upon the allocation of purchase price to various categories of property and equipment using methods and terms consistent with those utilized by the Company. Adjustments for each of the Acquisition Systems are as follows:
ELIMINATE RECORD --------- ------ Aiken II Cable Systems.......................... $ 2,937 $1,200 Greenwood Cable System.......................... 701 706 ------- ------ $ 3,638 $1,906 ======= ======
(l) To eliminate the Acquisition Systems' historical amortization expense and record amortization expense for 1996 based upon the allocation of purchase price to various categories of intangible assets using methods and terms consistent with those utilized by the Company. Adjustments for each of the Acquisition Systems are as follows:
ELIMINATE RECORD --------- ------ Aiken II Cable Systems.......................... $ 799 $2,918 Greenwood Cable System.......................... 2,758 2,342 ---- ------ $ 3,557 $5,260 ==== ======
P-7 168 NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (m) To eliminate historical interest expense of the Company of $9,765 and to record estimated interest expense of $11,924 for 1996, including amortization of debt issuance costs and loan fees based upon the Offering and amounts outstanding under the Senior Credit Facility totaling $9,565 determined as follows: Indebtedness at January 1, 1996........................ $ 82,570 Borrowings in connection with the Moses Lake Acquisition.......................................... 21,995 Repayment from net proceeds of the Notes............... (96,550) Amounts borrowed for loan fees and costs on the Senior Credit Facility...................................... 1,550 -------- $ 9,565 ========
(n) To record interest on borrowings under the Senior Credit Facility of $69,285 in connection with the Acquisition. P-8 169 PROSPECTUS ------------------------ $100,000,000 NORTHLAND CABLE TELEVISION, INC. OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR [LOGO] EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: HARRIS TRUST AND SAVINGS BANK BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER OR HAND: HARRIS TRUST AND SAVINGS BANK HARRIS TRUST AND SAVINGS BANK C/O HARRIS TRUST COMPANY OF NEW YORK C/O HARRIS TRUST COMPANY OF NEW YORK P.O. BOX 1010 88 PINE STREET WALL STREET STATION 19TH FLOOR NEW YORK, NY 10268-1010 NEW YORK, NY 10005 BY FACSIMILE: (212) 701-7336 CONFIRM BY TELEPHONE: (212) 701-7624
170 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Capitalized terms used but not defined in Part II have the meanings ascribed to them in the Prospectus contained in this Registration Statement. ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 23B.08.510 of the Revised Code of Washington authorizes Washington corporations to indemnify their officers and directors under certain circumstances against expenses and liabilities incurred in legal proceedings involving such persons because of their being or having been an officer or director. Each of the Company's and NCN's Articles of Incorporation and Bylaws require indemnification of the Company's and NCN's respective officers and directors to the fullest extent permitted by Washington law. The Company also maintains directors' and officers' liability insurance. Each of the Company's and NCN's By-laws and Articles of Incorporation provide that the Company and NCN, respectively, shall, to the full extent permitted by the Washington Business Corporation Act (the "Washington Business Act") of the State of Washington, as amended from time to time, indemnify all directors and officers of the Company. In addition, each of the Company's and NCN's articles of Incorporation contains a provision eliminating the personal liability of directors to the Company or NCN or either of their respective shareholders or its shareholders for monetary damages arising out of a breach of fiduciary duty. Under Washington law, this provision eliminates the liability of a director for breach of fiduciary duty but does not eliminate the personal liability of any director for (i) acts or omissions of a director that involve intentional misconduct or a knowing violation of law, (ii) conduct in violation of Section 23B.08.310 of the Revised Code of Washington (which section relates to unlawful distributions) or (iii) any transaction from which a director personally received a benefit in money, property or services to which the director was not legally entitled. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company or NCN pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended (the "Securities Act") and is, therefore, unenforceable. Reference is made to the Purchase Agreement, a copy of which is filed as Exhibit 10.4 hereto, which provides for indemnification of the directors and officers of the Company and NCN against certain liabilities, including those arising under the Securities Act, the Securities Exchange Act of 1934, as amended or otherwise in certain circumstances. II-1 171 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS: The following exhibits are filed pursuant to Item 601 of Regulation S-K.
EXHIBIT NUMBER DESCRIPTION - ------- ------------------------------------------------------------------------ 3.1 Articles of Incorporation of Northland Cable Television, Inc., as Amended 3.2 Articles of Incorporation of Northland Cable News, Inc. 3.3 Bylaws of Northland Cable Television, Inc. 3.4 Bylaws of Northland Cable News, Inc. 4.1 Indenture among Northland Cable Television, Inc., Northland Cable News, Inc. and Harris Trust Company of California dated as of November 12, 1997. 5.1 Opinion of Cairncross & Hempelmann, P.S.* 10.1 Amended and Restated Credit Agreement between Northland Cable Television, Inc. and the First National Bank of Chicago as agent dated as of November 12, 1997. 10.2 Management Agreement dated August 23, 1994 between Northland Cable Television, Inc. and Northland Telecommunication Corporation. 10.3 Asset Purchase and Sale Agreement dated as of August 17, 1997 between InterMedia Partners of Carolina, L.P. and Robin Cable Systems, L.P. as Sellers and Northland Cable Television, Inc. 10.4 Purchase Agreement between Northland Cable Television, Inc., Northland Cable News, Inc., BancAmerica Robertson Stephens and First Chicago Capital Markets, Inc., dated November 6, 1997. 10.5 Registration Rights Agreement among Northland Cable Television, Inc., Northland Cable News, Inc., BancAmerica Robertson Stephens and First Chicago Capital Markets, Inc. dated as of November 12, 1997. 12.1 Computation of Deficiency of Ratio of Earnings to Fixed Charges. 21.1 Subsidiaries. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Cairncross & Hempelmann, P.S. (See Exhibit 5.1) 23.3 Consent of Price Waterhouse LLP. 24.1 Power of Attorney (See II-4 and II-5) 25.1 Statement of Eligibility of Trustee. 99.1 Form or Letter of Transmittal to Exchange 10 1/4% Senior Subordinated Notes due 2007. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.4 Form of Letter to Clients.
- --------------- * To be filed by Amendment. (b) FINANCIAL STATEMENT SCHEDULES: None. ITEM 22. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange II-2 172 Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the adjudication of such issue. With respect to the Securities registered on this form pursuant to Rule 415, the undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the Prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 173 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, as of December 23, 1997. NORTHLAND CABLE TELEVISION, INC. By: /s/ JOHN S. WHETZELL ----------------------------------- Its: Chairman of the Board and President KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John S. Whetzell and Gary S. Jones, and each of them, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE - ----------------------------------------------- ----------------------- ------------------ /s/ JOHN S. WHETZELL Chairman of the Board, December 23, 1997 - ----------------------------------------------- President and Director John S. Whetzell (Principal Executive Officer) /s/ GARY S. JONES Vice President December 23, 1997 - ----------------------------------------------- (Principal Financial Gary S. Jones and Accounting Officer) /s/ RICHARD I. CLARK Director December 23, 1997 - ----------------------------------------------- Richard I. Clark /s/ Director - ----------------------------------------------- John E. Iverson
II-4 174 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, as of December 23, 1997. NORTHLAND CABLE NEWS, INC. By: /s/ JOHN S. WHETZELL ------------------------------------ Its: Chairman of the Board and President KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John S. Whetzell and Gary S. Jones, and each of them, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE - ----------------------------------------------- ----------------------- ------------------ /s/ JOHN S. WHETZELL Chairman of the Board, December 23, 1997 - ----------------------------------------------- President and Director John S. Whetzell (Principal Executive Officer) /s/ GARY S. JONES Vice President December 23, 1997 - ----------------------------------------------- (Principal Financial Gary S. Jones and Accounting Officer) /s/ RICHARD I. CLARK Director December 23, 1997 - ----------------------------------------------- Richard I. Clark /s/ Director - ----------------------------------------------- John E. Iverson
II-5 EX-3.1 2 AMENDED/RESTATED ARTICLES OF INCORPORATION FOR TV 1 EXHIBIT 3.1 FILED STATE OF WASHINGTON FEB 17 1995 RALPH MUNRO SECRETARY OF STATE ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION OF NORTHLAND CABLE TELEVISION, INC. Articles of Amendment of the Articles of Incorporation of NORTHLAND CABLE TELEVISION, INC. are herein executed by said corporation, pursuant to the provisions of RCW 23B.10.010 and RCW 23B.10.060, as follows: 1. The name of the corporation is Northland Cable Television, Inc. 2. The amendment to the Articles of Incorporation of said corporation is as follows: a) The fourth paragraph of Article V shall be deleted in its entirety. b) New Articles IX and X shall be added to the Articles of Incorporation and shall read as follows: ARTICLE IX LIMITATION OF DIRECTORS' LIABILITY A director shall have no liability to the corporation or its shareholders for monetary damages for conduct as a director, except for acts or omissions that involve intentional misconduct by the director, or a knowing violation of law by the director, or for conduct violating RCW 2313.08.310 (as may hereafter be amended or supplemented), or for any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. If the Washington Business Corporation Act is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the full extent permitted by the Washington Business Corporation Act, as so amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification for or with respect to an act or omission of such director occurring prior to such repeal or modification. Amendment to Articles of Incorporation Page 1 of Northland Cable Television, Inc. 2 ARTICLE X. INDEMNIFICATION OF DIRECTORS AND OFFICERS Right to Indemnification. Any individual who is, was, or is threatened to be made a party to or is otherwise involved in (including without limitation as a witness) any threatened, pending, or completed action, suit, or other proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, by reason of the fact that he or she is or was a director or officer of the corporation or that, while a director or officer, he or she is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan, or other enterprise, shall be indemnified and held harmless by the corporation, to the full extent permissible by applicable law as then in effect, against all expenses and liabilities (including without limitation any obligation to pay any judgment, settlement, penalty, fine, including without limitation an excise tax assessed with respect to an employee benefit plan, or expense incurred with respect to the proceeding, including without limitation attorneys' fees) actually and reasonably incurred or suffered by such individual in connection therewith; provided, however, that the corporation shall not indemnify any director from or on account of (a) any act or omission of the director finally adjudged to be intentional misconduct or a knowing violation of law, (b) any conduct of the director finally adjudged to be in violation of RCW 23B.08.310 (as may hereafter be amended or supplemented), or (c) any transaction with respect to which it is finally adjudged that the director personally received a benefit in money, property, or services, to which the director was not legally entitled; and further provided that except as provided in the following paragraph with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such individual seeking indemnification in connection with a proceeding (or part thereof) initiated by such individual only if such proceeding (or part thereof) was, prior to its initiation, authorized by the board of directors of the corporation. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be paid by the corporation for the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of a written undertaking, by or on behalf of the director or officer, in the form of a general unlimited obligation to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this paragraph or otherwise. The right to indemnification as provided herein shall continue as to an individual who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators. Amendment to Articles of Incorporation Page 2 of Northland Cable Television, Inc. 3 Right of Claimant to Apply for Court Order. If a claim made on the corporation for indemnification under the preceding paragraph of this Article is not paid in full by the corporation within sixty (60) days after a written claim has been received by the corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter commence an action or otherwise petition a court to order the corporation to pay the unpaid amount of such claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of obtaining such a court order. A claimant shall be presumed to be entitled to indemnification under this Article upon submission of a written claim to the corporation or, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking has been tendered to the corporation; and thereafter the corporation shall have the burden of proof to overcome the presumption that the claimant is not so entitled. Neither the failure of the corporation (including its board of directors, independent legal counsel or its shareholders) to have made a determination prior to the filing of such petition that indemnification or reimbursement or advancement of expenses to the claimant is proper in the circumstances, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses, shall be a defense to the action or create a presumption that the claimant is not so entitled. Nonexclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any individual may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise. Insurance, Contracts and Funding. The corporation may maintain insurance, at its expense, to protect itself and any director, trustee, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such individual against such expense, liability or loss under the Washington Business Corporation Act. Without further shareholder action, the corporation may enter into contracts with any director or officer of the corporation in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. Indemnification of Employees and Agents of the Corporation. From time to time by action of its board of directors, the corporation may provide to employees and agents Amendment to Articles of Incorporation Page 3 of Northland Cable Television, Inc. 4 of the corporation indemnification and payment of expenses in advance of the final disposition of a proceeding to the same extent provided to officers of the corporation by the provisions of this Article or pursuant to rights granted in or provided by the Washington Business Corporation Act." 3. The above amendment was approved and adopted by the shareholder of said corporation in accordance with the applicable provisions of RCW 23B. 10.030 and RCW 23B.10.040 on Feb. 15, 1995. DATED: February 15, 1995. NORTHLAND CABLE TELEVISION, INC. By: /s/ RICHARD I. CLARK -------------------------------- Richard I. Clark, Vice President Attest: /s/ JAMES A. PENNEY ------------------------------------ James A. Penney, Secretary Amendment to Articles of Incorporation Page 4 of Northland Cable Television, Inc. 5 FILED OCT 25, 1985 SECRETARY OF STATE STATE OF WASHINGTON ARTICLES OF INCORPORATION OF NORTHLAND CABLE TELEVISION, INC. Richard I. Clark, being over the age of eighteen (18) years, and for the purpose of forming a corporation under the Washington Business Corporation Act hereby certifies and adopts in duplicate the following Articles of Incorporation: ARTICLE I. Name and Period of Duration The name of this corporation shall be "Northland Cable Television, Inc." and its existence shall be perpetual. ARTICLE II. Purpose The purpose and objects of this corporation are as follows: First: To engage in the business of the acquisition, ownership, expansion, operation and maintenance of cable television systems and any and all things necessary, suitable, convenient and proper for, or in connection with, or incidental to, the accomplishment of any object or purpose designed directly or indirectly to promote the interests of the corporation or enhance the value of any of its assets; in general to carry on and undertake any lawful business, either within or without the United States of America, which may from time to time appear to the directors of the corporation capable of being carried on conveniently in connection with such objects and purposes. Second: To have and exercise all the powers now or hereafter 1 6 conferred by the laws of the State of Washington upon corporations. ARTICLE III. Registered Office and Agent The location and post office address of the initial registered office of the corporation in this state shall be 32nd Floor, Bank of California Center, Seattle, WA 98164, and the initial registered agent of the corporation shall be John E. Iverson. ARTICLE IV. Capital Stock The total number of shares of stock authorized and which may be issued by this corporation is fifty thousand (50,000) shares, all of which shall be common shares of the same class and having a par value of One Dollar ($1.00) per share. All of said common stock may be issued from time to time for such consideration in property, labor, services, money or profits of any kind as shall be fixed by the Board of Directors, and each share, when issued, shall be fully paid and forever nonassessable. The holders of shares of the corporation shall have no preemptive rights to subscribe or purchase from the corporation any shares authorized but unissued or any newly authorized shares. The holders of shares of the corporation shall not have the right to cumulative voting. ARTICLE V. 2 7 Officers and Directors The number of directors of the corporation shall be fixed as provided by the Bylaws and may be changed from time to time by amending the Bylaws as therein provided. No contract or other transaction between the corporation and any other corporation and no acts of the corporation shall be in any way affected or invalidated by the fact that (i) any of the directors or officers of the corporation are pecuniarily or otherwise interest in, or are directors or officers of such other corporation; any director individually, or (ii) any firm of which any director may be a member, may be a party to or may be pecuniarily or otherwise interested in any contract or transaction of the corporation; provided that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors or such members thereof as shall be present at any meeting of the Board at which action upon any such contract or transaction shall be taken; and any director of such other corporation or who is so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize any such contract or transaction, with like force and effect as if he were not such director or officer of such other corporation or not so interested. Any contract, transaction or act of the corporation or of the directors of any committee which shall be ratified by the majority of a quorum of the stockholders of the corporation at any annual 3 8 meeting or at any special meeting called for such purpose, shall, insofar as permitted by law, be as valid and as binding as though ratified by every stockholder of the corporation. The corporation agrees to indemnify and save harmless any and all officers or directors of the corporation against any and all liabilities, judgments, sums of money and expenses (including herein any and all amount or amounts paid in settlement) reasonably incurred by them, or any of them, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether in law, equity or otherwise, to which they, or any of them, may be a party, or may be threatened by reason of being or having been an officer or director of the corporation, or by reason of serving or having served at the request of the corporation as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise to the full extent permitted by the Washington Business Corporation Act. The names and post office addresses of the first directors of the corporation who shall hold office until the first annual meeting of shareholders or until their successors shall have been elected and qualified are as follows: 4 9 Name Address John S. Whetzell 3500 One Union Square Seattle, WA 98101 Richard I. Clark 3500 One Union Square Seattle, WA 98101 John E. Iverson 32nd Floor, Bank of California Center Seattle, WA 98164 ARTICLE VI. Incorporated The name and post office address of the incorporator are Richard I. Clark, 3500 One Union Square, Seattle, WA 98101. ARTICLE VII. Stockholders' Meeting The annual meeting of stockholders of this corporation shall be fixed by the Bylaws and may be changed from time to time by amending the Bylaws as therein provided. ARTICLE VIII Bylaws The authority to make, alter and repeal the Bylaws of the corporation is hereby expressly vested in its Board of Directors, subject to the power of the stockholders of the corporation to change or repeal such Bylaws. IN WITNESS WHEREOF, the incorporator has hereunto set his hand on October 23, 1985. /s/ RICHARD I. CLARK ----------------------------- Richard I. Clark 5 10 CONSENT TO SERVE AS REGISTERED AGENT I, John E. Iverson, hereby consent to serve as Registered Agent, in the State of Washington, for NORTHLAND CABLE TELEVISION, INC. I understand that as agent for the corporation, it will be my responsibility to receive service of process in the name of the corporation; to forward all mail to the corporation; and to immediately notify the office of the Secretary of State in the event of my resignation, or of any changes in the registered office address of the corporation for which I am agent. DATED: October 23, 1985 /s/ JOHN E. IVERSON --------------------------- John E. Iverson Address: 32nd Floor, Bank of California Center Seattle, WA 98164 6 EX-3.2 3 ARTICLES OF INCORPORATION OF NORTHLAND CABLE NEWS 1 EXHIBIT 3.2 FILED STATE OF WASHINGTON MAY 2 1994 RALPH MUNRO SECRETARY OF STATE ARTICLES OF INCORPORATION OF NORTHLAND CABLE NEWS, INC. ARTICLE 1. NAME The name of this corporation is "Northland Cable News, Inc." ARTICLE 2. PURPOSES This corporation is organized for the following purposes: 2.1 To engage in the business of developing and producing news programming. 2.2 To hold interests in other businesses and to engage in any business, trade or activity which may be conducted lawfully by a corporation organized under the Washington Business Corporation Act. ARTICLE 3. SHARES The corporation is authorized to issue One Thousand (1,000) shares of common stock and each share shall have a par value of One Dollar ($1.00). ARTICLE 4. NO PREEMPTIVE RIGHTS Except as may otherwise be provided by the board of directors, no preemptive rights shall exist with respect to shares of stock or securities convertible into shares of stock of this corporation. ARTICLE 5. NO CUMULATIVE VOTING At each election for directors, every shareholder entitled to vote at such election has the right to vote in person or by proxy the number of shares held by such shareholder for as many persons as there are directors to be elected. No cumulative voting for directors shall be permitted. Articles of Incorporation Page 1 of Northland Cable News, Inc. 2 ARTICLE 6. BYLAWS The board of directors shall have the power to adopt, amend or repeal the Bylaws or adopt new Bylaws. Nothing herein shall deny the concurrent power of the shareholders to adopt, alter, amend or repeal the Bylaws. ARTICLE 7. REGISTERED AGENT AND OFFICE The name of the initial registered agent of this corporation and the address of its initial registered office are as follows: RSC Corporation 1201 Third Avenue, Suite 3400 Seattle, WA 98101 ARTICLE 8. DIRECTORS The number of directors of this corporation shall be fixed by the Bylaws and may be increased or decreased from time to time in the manner specified therein. The initial board of directors shall consist of three (3) directors, and the names and addresses of the persons who shall serve as directors until the first annual meeting of shareholders and until their successors are elected and qualified, unless one or more of such persons resigns or is removed, are: John S. Whetzell 1201 Third Avenue, Suite 3600 Seattle, WA 98101 Richard I. Clark 1201 Third Avenue, Suite 3600 Seattle, WA 98101 John E. Iverson 1201 Third Avenue, Suite 3400 Seattle, WA 98101 Articles of Incorporation Page 2 of Northland Cable News, Inc. 3 ARTICLE 9. SHAREHOLDER VOTING REQUIREMENT FOR CERTAIN TRANSACTIONS In order to be adopted by the shareholders, an amendment of the Articles of Incorporation, a plan of merger or share exchange, the sale, lease, exchange, or other disposition of all, or substantially all, of the corporation's assets other than in the usual and regular course of business, or the dissolution of the corporation must be approved by the shareholders entitled to vote thereon by sixty-six percent (66%) of all the votes entitled to be cast. ARTICLE 10. LIMITATION OF DIRECTORS' LIABILITY A director shall have no liability to the corporation or its shareholders for monetary damages for conduct as a director, except for acts or omissions that involve intentional misconduct by the director, or a knowing violation of law by the director, or for conduct violating RCW 23B.08.310 (as may hereafter be amended or supplemented), or for any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. If the Washington Business Corporation Act is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the full extent permitted by the Washington Business Corporation Act as so amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification for or with respect to an act or omission of such director occurring prior to such repeal or modification. ARTICLE 11. INDEMNIFICATION OF DIRECTORS AND OFFICERS 11.1 Right to Indemnification. Any individual who is, was, or is threatened to be made a party to or is otherwise involved in (including without limitation as a witness) any threatened, pending, or completed action, suit, or other proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, by reason of the fact that he or she is or was a director or officer of the corporation or that, while a director or officer, he or she is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan, or other enterprise, shall be indemnified and held harmless by the corporation, to the full extent permissible by applicable law as then in effect, against all expenses and liabilities (including without limitation any obligation to pay any judgment, settlement, penalty, fine, including without limitation an excise tax assessed with respect to an employee benefit plan, or expense incurred with respect to the proceeding, including without limitation attorneys' fees) actually and reasonably incurred or suffered by such individual in connection therewith; provided, however, that the corporation shall not indemnify any director from or on account of: (a) any act or omission of the director finally adjudged to be intentional misconduct or a knowing violation of law, (b) any conduct of the director finally adjudged to be in Articles of Incorporation Page 3 of Northland Cable News, Inc. 4 violation of RCW 23B.08.310 (as may hereafter be amended or supplemented), or (c) any transaction with respect to which it is finally adjudged that the director personally received a benefit in money, property, or services, to which the director was not legally entitled; and further provided that except as provided in the following paragraph with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such individual seeking indemnification in connection with a proceeding (or part thereof) initiated by such individual only if such proceeding (or part thereof) was, prior to its initiation, authorized by the board of directors of the corporation. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be paid by the corporation for the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of a written undertaking, by or on behalf of the director or officer, in the form of a general unlimited obligation to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this paragraph or otherwise. The right to indemnification as provided herein shall continue as to an individual who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators. 11.2 Right of Claimant to Apply for Court Order. If a claim made on the corporation for indemnification under the preceding paragraph of this Article is not paid in full by the corporation within sixty (60) days after a written claim has been received by the corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter commence an action or otherwise petition a court to order the corporation to pay the unpaid amount of such claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of obtaining such a court order. A claimant shall be presumed to be entitled to indemnification under this Article upon submission of a written claim to the corporation or, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking has been tendered to the corporation; and thereafter the corporation shall have the burden of proof to overcome the presumption that the claimant is not so entitled. Neither the failure of the corporation (including its board of directors, independent legal counsel or its shareholders) to have made a determination prior to the filing of such petition that indemnification or reimbursement or advancement of expenses to the claimant is proper in the circumstances, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses, shall be a defense to the action or create a presumption that the claimant is not so entitled. 11.3 Nonexclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any individual may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise. Articles of Incorporation Page 4 of Northland Cable News, Inc. 5 11.4 Insurance, Contracts and Funding. The corporation may maintain insurance, at its expense, to protect itself and any director, trustee, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such individual against such expense, liability or loss under the Washington Business Corporation Act. Without further shareholder action, the corporation may enter into contracts with any director or officer of the corporation in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. 11.5 Indemnification of Employees and Agents of the Corporation. From time to time by action of its board of directors, the corporation may provide to employees and agents of the corporation indemnification and payment of expenses in advance of the final disposition of a proceeding to the same extent provided to officers of the corporation by the provisions of this Article or pursuant to rights granted in or provided by the Washington Business Corporation Act. ARTICLE 12. TRANSACTIONS WITH INTERESTED SHAREHOLDERS This corporation elects to be covered by the provisions of the Washington Business Corporation Act concerning transactions with interested shareholders, as therein defined, whether or not this corporation may at any time have fewer than three hundred (300) holders of record of its shares. ARTICLE 13. INCORPORATOR The name and address of the incorporator are: James A. Penney 1201 Third Avenue, Suite 3600 Seattle, WA 98101 EXECUTED this 24th day of April, 1994. /s/ JAMES A. PENNEY ------------------------------- James A. Penney, Incorporator Articles of Incorporation Page 5 of Northland Cable News, Inc. 6 CONSENT TO SERVE AS REGISTERED AGENT RSC Corporation hereby consents to serve as Registered Agent, in the State of Washington, for Northland Cable News, Inc. It understands that as agent for the corporation, it will be its responsibility to receive service of process in the name of the corporation; to forward all mail to the corporation; and to immediately notify the office of the Secretary of State in the event of its resignation, or of any changes in the registered office address of the corporation for which it is agent. RSC Corporation April 29, 1994 By /s/ KEVIN J. COLLETTE - ------------------------- ------------------------------------- Date Print Name Kevin J. Collette --------------------------- Its Vice President --------------------------------- 1201 Third Avenue, Suite 3400 Seattle, Washington 98101 Articles of Incorporation Page 6 of Northland Cable News, Inc. EX-3.3 4 BYLAWS OF NORTHLAND CABLE TELEVISION, INC. 1 EXHIBIT 3.3 BYLAWS OF NORTHLAND CABLE TELEVISION, INC. ARTICLE I. NAME AND LOCATION Section 1. Name. This corporation shall be known and designated NORTHLAND CABLE TELEVISION, INC. Section 2. Offices. The corporation may have offices at such places, either within or without the State of Washington, as the Board of Directors may from time to time designate or the business of the corporation may require. The Board of Directors shall designate one such office as the principal office in the State of Washington. Section 3. Registered Office and Registered Agent. The registered office of the corporation required by the Washington Business Corporation Act to be maintained in the State of Washington may be, but need not be, identical with the principal office of the State of Washington, and the address of the registered office and the designated registered agent may be changed from time to time by the Board of Directors. ARTICLE II. SEAL If the corporation has a corporate seal, it may merely consist of the words "corporate seal" or it may have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Washington." Said seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or reproduced or otherwise. One or more duplicate dies for impressing such seal may be kept and used. ARTICLE III. STOCKHOLDERS MEETINGS Section 1. Place of Meeting. All meetings of the stockholders shall be held at the registered office of the corporation or at such other location as the Board of Directors may determine. 2 Section 2. Annual Meeting. The annual meeting of the stockholders of the corporation for the election of directors to succeed those whose terms expire and for the transaction of such other business as may come before the meeting shall be held within one hundred eighty (180) days of the end of the fiscal year of the corporation. The meeting shall not be held on a legal holiday in the State of Washington. If for any reason an annual meeting shall not be held at the time herein specified, the same may be held at any time thereafter upon notice as hereinafter provided, or the business thereof may be transacted at any special meeting called for the purpose. Section 3. Special Meetings. Special meetings of the stockholders may be called by the President or the Vice President whenever the one so calling the meeting deems it necessary or advisable, and shall be called by the President or a Vice President whenever so directed by order or resolution of a majority of the Board of Directors, or a majority of the Executive Committee, and whenever the holders of one-fourth (1/4) of the capital stock of the corporation entitled to vote at such meeting shall request the same in writing. Section 4. Notice of Meeting. Written or printed notice stating the time and place of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called shall be delivered not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Section 5. Closing of Transfer Books and Fixing Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, fifty (50) days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such stockholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be no more than fifty (50) days and, in case of a meeting of stockholders, no less than ten (10) days prior to the -2- 3 date on which the particular action, requiring such determination of stockholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired. Section 6. Voting Lists. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to the inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. Section 7. Quorum and Adjournment. The holders of record for the time being of a majority of the total number of shares of stock issued and outstanding and entitled to vote at a meeting of stockholders, present in person or represented by proxy, shall be requisite to and shall constitute a quorum for the transaction of business at such meeting. If, however, a quorum shall not be present or represented at a meeting of stockholders, the stockholders present in person or by proxy shall have power to adjourn the meeting from time to time without notice, other than announcement at the meeting, until holders of record of the requisite amount of stock shall be present or represented. At such adjourned meeting at which the holders of the requisite amount of stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 8. Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed -3- 4 with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. Section 9. Voting of Shares. Subject to any provisions of Washington law, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of stockholders. Section 10. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so be contained in an appropriate order of the court by which such receiver was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the corporation or held by it in a fiduciary capacity shall not be voted directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. Section 11. Electronic Presence. Shareholders may participate in a meeting of the shareholders by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and the participation by such means shall constitute presence in person at a meeting. Section 12. Informal Action by Stockholders. Any action required to be taken at a meeting of the stockholders, or any other action which may be taken at a meeting of the stockholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the stockholders entitled to vote with respect to the subject matter thereof. -4- 5 ARTICLE IV. BOARD OF DIRECTORS Section 1. General Powers. The business, affairs and property of the corporation shall be managed by the Board of Directors in accordance with the Articles of Incorporation, these Bylaws and the provisions of the Washington Business Corporation Act not inconsistent with these Articles and Bylaws. In addition to the powers and authorities expressly conferred upon them by these Bylaws, the Board of Directors may exercise all such powers of the corporation and do all such lawful acts and things except those acts that are required to be exercised or done by the stockholders by statute, the Articles of Incorporation or these Bylaws. Section 2. Duties. A director shall perform the duties of a director, including the duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or represented by: (1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matter presented; (2) Counsel, public accountants or other persons as to matters which the director believes to be within such person's professional or expert competence; or (3 ) A committee of the board upon which the director does not serve, duly designated in accordance with a provision in the Articles of Incorporation or Bylaws, as to matters within its designated authority, which committee the director believes to merit confidence; so long as, in any such case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted. Section 3. Number. The Board of Directors shall consist of one or more members, and stockholders at each annual meeting preceding the election of directors shall determine the number of directors to be elected for the ensuing term of office; provided, however, the Board of Directors may increase the maximum number at any time. The directors need not be stockholders or residents of the -5- 6 State of Washington and shall be elected annually in the manner provided in these Bylaws, and each director shall hold office until the annual meeting held next after his election and his successor is qualified, or until his death, or until he shall resign or shall be removed. Section 4. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Washington, for the holding of additional regular meetings without other notice than such resolution. Section 5. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President, a Vice President or Secretary or any two directors when and if there are three or more directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Washington, as the place of holding any special meeting of the Board of Directors called by them. Section 6. Notice. Notice of any special meeting shall be given at least two (2) days previous thereto by written notice delivered personally or mailed to each director at his business address or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 7. Quorum and Adjournment. At all meetings of the Board, the presence of a majority of the directors shall be requisite to and shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. In the absence of a quorum, the directors present at the time and place at which a meeting shall have been duly called may adjourn the meeting from time to time and place to place until a quorum shall be present. -6- 7 Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 9. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of the directors shall be filled by the Board of Directors for a term of office continuing on until the next election of directors by the stockholders. Section 10. Compensation. By resolution of the Board of Directors, the directors may be paid their expenses, if any, for attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity in receiving compensation therefor. Section 11. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 12. Electronic Presence. Except as may be otherwise restricted by the Articles of Incorporation or by these Bylaws, members of the Board of Directors or any committee designated by these Bylaws or appointed by the Board of Directors may participate in a meeting of such board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting. Section 13. Action Without Meeting. Whenever the vote of the directors is required to be taken in connection with any corporate action, the meeting and vote may be dispensed with if all the directors who would be entitled to vote if such meeting were held shall consent in writing to such action being taken. Such consent shall have the same effect as a unanimous vote. -7- 8 Section 14. Ratification of Contracts, Transactions and Other Acts of the Board of Directors. Any contract, transaction or act of the corporation or of the directors or any committee, which shall be ratified by a majority of a quorum of the stockholders of the corporation at any annual meeting, or at any special meeting called for such purposes, shall, insofar as permitted by law, be as valid and as binding as though ratified by every stockholder of the corporation. Section 15. Personal Interest of a Director in Act of Board. No contract or other transaction between the corporation and any other corporation and no act of the corporation shall in any way be affected or invalidated by the fact that any of the directors or officers of the corporation are pecuniarily or otherwise interested in or are directors of such other corporation; any director individually or any firm of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the corporation; provided that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors or such members thereof as shall be present at any meeting of the Board at which action shall be taken upon any such contract or transaction; and any director of the corporation who is also a director or officer of such other corporation or who is interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize such contract or transaction, and may vote thereat to authorize any such contract or transaction, with like force and effect as if he were not such director of officer of such other corporation or not so interested. Section 16. Dividends and Finance. The Board of Directors shall have power to fix and determine and to vary from time to time, where not inconsistent with the Articles of Incorporation of this corporation, the amount of the working capital of the corporation, the use and disposition of any surplus or net profits over and above the capital stock paid in, the date or dates for the declaration and payment of dividends, the amount of any dividend, the amount of any reserves necessary in their judgment before declaring any dividends among its stockholders, and the amount of the net profits of the corporation from time to time available for dividends. ARTICLE V. OFFICERS Section 1. Designation; Term; Vacancies. The officers of the corporation shall be a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers as the Board of Directors may deem necessary from time to time. Such officers shall have and perform the powers and duties usually pertaining to their respective offices, the powers and duties respectively prescribed -8- 9 by law and by these Bylaws and such additional powers and duties as may be prescribed by the Board of Directors from time to time. The officers shall be elected by the Board of Directors, and the President, Vice Presidents, Secretary and Treasurer shall hold office until the regular annual meeting of the Board of Directors following their election, or until their successors are elected and qualified; provided that they, or any of them, may be removed at any time by the affirmative vote of a majority of the whole board. All other officers, agents and employees of the corporation shall hold office during the pleasure of the board. Vacancies occurring among the officers of the corporation shall be filled by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary. However, when all of the issued and outstanding stock of the corporation is owned by one shareholder, one person may hold all or any combination of offices, including the offices of President and Secretary. Section 2. President. The President shall preside at all meetings of the stockholders and, in the absence of a Chairman of the Board, at all meetings of the Board of Directors at which he (unless some other meaning and intent is apparent from the context, masculine, feminine and neuter words shall be used interchangeably) may be present. Subject to the Board of Directors, he shall have general charge of the entire business of the corporation. He may sign certificates of stock and sign and seal bonds, debentures, contracts or other obligations authorized by the Board and may, without previous authority of the Board, make such contracts as the ordinary conduct of the corporation's business requires. He shall have the usual powers and duties vested in the President of a corporation. He shall have power to select and appoint all necessary officers and employees of the corporation, except those selected by the Board of Directors, and to remove all such officers and employees, except those selected by the Board of Directors, and make new appointments to vacancies. He may delegate any of his powers to a Vice President of the corporation. He shall at all times be subject to the direction of the Board of Directors. Section 3. Vice President. Each Vice President shall have the same powers and duties as the President in the event of the latter's absence or disability, and also such of the President's powers and duties as the President may delegate to him from time to time, and shall have such other duties as may be assigned to him by the Board of Directors. Section 4. Secretary. The Secretary shall have custody of the seal of the corporation and, when required by the Board of Directors or when any instrument shall have been signed by the President or a Vice President, duly authorized to sign the same, or when necessary to attest any proceedings of the stockholders and directors, shall affix it to any instrument requiring the same and shall attest the same with his signature; provided that the seal may -9- 10 be affixed by the President or Vice President or other officer of the corporation to any document executed by either of them respectively on behalf of the corporation which does not require the attestation of the Secretary. He shall attend to the giving and serving of notices of meeting. He shall have charge of such books and papers as properly belong to his office or as may be committed to his care by the Board of Directors. He shall perform such other duties as appertain to his office or as may be required by the Board of Directors. Section 5. Treasurer. The Treasurer shall have custody of such funds and securities of the corporation as may come to his hands or be committed to his care by the Board of Directors. Whenever necessary or proper, he shall endorse, on behalf of the corporation, for collection, checks, notes or other obligations, and shall deposit the same to the credit of the corporation in such bank or banks or depositories as the Board of Directors or the President may designate. He may sign receipts or vouchers for payments made to the corporation, and the Board of Directors may require that such receipts or vouchers shall also be signed by some other officer to be designated by them. Whenever required by the Board of Directors, he shall render a statement of his cash accounts and such other statements respecting the affairs of the corporation as may be required. He shall keep proper and accurate books of account. He shall perform all acts incident to the office of Treasurer, subject to the control of the Board of Directors. At the time of electing anyone to the office of Treasurer of the corporation, or thereafter, the Board of Directors may waive any requirements of the statute that the Treasurer give a bond for the faithful discharge of his duties. Section 6. Assistant Officers. Each Assistant Officer shall be vested with such powers and duties as may be delegated to him by the President or his direct superior officer, and any act may be done or duty performed by an Assistant Officer with like effect as though done or performed by the officer for which he is an assistant, and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors. Section 7. Salaries. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. ARTICLE VI. INDEMNIFICATION Section l. (a) Every person (and the heirs and personal representatives of such person) who is or was a director or officer of the corporation or of any other corporation in which he served as such at -10- 11 the request of the corporation and of which the corporation directly or indirectly is a stockholder or creditor, or in which, or in the stocks, bonds, securities, or other obligations of which, it is in anyway interested, may be indemnified by the corporation in accordance with the provision of this Article VI against any and all liability and reasonable expense (including, without limitation, counsel-fees and disbursements, and amounts of judgment, fines or penalties against, or amounts paid in settlement by, a director or officer) that may be incurred by him in connection with or resulting from any claim, action, suit, or proceeding, whether civil, criminal or administrative or in connection with any appeal relating thereto, in which he may become involved, as a party or otherwise or with which he may be threatened, by reason of his being or having been a director or officer of the corporation or such other corporation, or by reason of any action taken or omitted by him in his capacity as such director or officer, whether or not he continues to be such at the time such liability or expense shall have been incurred, provided that said person has not been adjudged liable on the basis that personal benefit was improperly received by him. (b) Every person (and the heirs and personal representatives of such person) referred to in paragraph (a), who has been wholly successful on the merits with respect to any claim, action, suit or proceeding of the character described in paragraph (a), shall be entitled to indemnification as of right. (c) Except as provided in paragraph (b), any indemnification shall be made: (1) In the case of a claim, action, suit or proceedings other than by or in the right of the corporation to procure a judgment in its favor, only if the Board of Directors or the Executive Committee of such Board, acting by a quorum consisting of directors who are not parties to such claim, action, suit or proceeding, shall find, or independent legal counsel (who may be the regular counsel of the corporation) shall render an opinion, that the director or officer acted in good faith in what he reasonably believed to be the best interests of the corporation or such other corporation, as the case may be, and, in addition, in any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful; and (2) In the case of a claim, action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor, only if the Board of Directors or the Executive Committee of such Board, acting by a quorum consisting of directors who are not parties of such claim, action, suit or proceeding, shall find, or independent legal counsel (who may be the regular counsel of the corporation) shall render an opinion, that the director or officer acted in good faith in what he reasonably believed to be the best interests of the corporation or such other corporation, as the case -11- 12 may be; provided, however, that no indemnification under this subsection (2) shall be made with regard to (i) matters as to which any such director or officer shall be finally adjudged to be liable for negligence or misconduct in the performance of duty, or (ii) amounts paid, or expenses incurred, in connection with the settlement of any such claim, action, suit or proceeding, without approval of a court of competent jurisdiction. For the purpose of subsection (1), the termination of any claim, action, suit or proceeding, civil, criminal or administrative, by judgment, settlement (either with or without court approval) or conviction, or upon a plea of guilty or of nolo contendere, or its equivalent, shall not create a presumption that a director or officer did not meet the standards of conduct set forth in such subsection. (d) Expenses incurred with respect to any claim, action, suit or proceeding of the character described in paragraph (a) may be advanced by the corporation prior to the final disposition thereof upon receipt of any undertaking by or on behalf of the recipient to repay such amount unless it shall be ultimately determined that he is entitled to indemnification hereunder. The rights of indemnification provided in this Article VI shall be in addition to any rights to which any such director, officer or other person may otherwise be entitled by contract or as a matter of law. Each person who shall act as a director or officer of the corporation or of any other corporation referred to in paragraph (a) shall be deemed to be doing so in reliance upon the right of indemnification provided for herein. (e) The corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. ARTICLE VII. COMMITTEES Section 1. Executive Committee. The Board of Directors may appoint two or more of their members as an-Executive Committee, which shall have and may execute, to the full extent permitted by law, all of the powers of the Board of Directors when the Board of Directors is not in session, except that no such committee shall have the authority to: (1) declare dividends or distributions, except at a rate or in a periodic amount determined by the Board of -12- 13 Directors, (2) approve or recommend to shareholders actions or proposals required by statute to be approved by shareholders, (3) fill vacancies on the Board of Directors or any committee thereof, (4) amend the Bylaws, (5) authorize or approve the reacquisition of shares unless pursuant to general formula or method specified by the Board of Directors, (6) fix compensation of any director for serving on the Board of Directors or on any committee, (7) approve a plan of merger, consolidation or exchange of shares not requiring shareholder approval, (8) reduce earned or capital surplus, or (9) appoint other committees of the Board of Directors or the members thereof. The Executive Committee shall elect one of its members to act as Chairman thereof. Vacancies in the Executive Committee shall be filled by the Board of Directors. Meetings of the Executive Committee shall be held at any time and place on unanimous consent of all of the members thereof, or which shall be fixed in a notice of meeting thereof signed by the Chairman of the Executive Committee, given in person, by mail, or by telegraph twenty-four (24) hours in advance of the meeting to all members of the Executive Committee who have not signed the notice and who are not present at the meeting. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board of Directors from time to time. During the temporary absence of a member of the Executive Committee, the remaining members of the Executive Committee may appoint a member of the Board of Directors to act in the place and stead of such member of the Executive Committee temporarily absent, and the acts of such member of the Board of Directors so appointed shall be of the same force and effect as if such member had originally been appointed on such Executive Committee. Section 2. Other Committees. The Board of Directors may also appoint such other and further committees and subcommittees as they may determine, and delegate such duties as may be determined and are not inconsistent with law. ARTICLE VIII. STOCK Section 1. Certificates Representing Shares. The shares of the corporation shall be represented by certificates signed by the President or a Vice President and the Secretary or an Assistant Secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. The signatures of the President or Vice President and the Secretary or Assistant Secretary upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. -13- 14 Every certificate representing shares issued by the corporation, if it is authorized to issue shares of more than one class, shall set forth upon the face or back of the certificate, or shall state that the corporation will furnish to any stockholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and, if the corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series. Each certificate representing shares shall state upon the face thereof: (1) That the corporation is organized under the laws of this state; (2) The name of the person to whom issued; (3) The number and class of shares, and the designation of the series, if any, which such certificate represents; and (4) The par value of each share represented by such certificate, or a statement that the shares are without par value. No certificate shall be issued for any share until such share is fully paid. Section 2. Certificate Identification and Transfer. All certificates for shares shall be consecutively numbered or otherwise identified, and all evidence of issue as provided in Section 1 above shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that, in case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. Section 3. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of the record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation and the transfer agent of the corporation, and on surrender for cancellation of the certificate for such shares. The -14- 15 person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. Section 4. Addresses of Stockholders. Every stockholder shall furnish the corporation with an address to which notices of meetings and all other notices may be served upon or mailed to him, and in default thereof, notices may be addressed to him at his last known address or at the principal office of the corporation. ARTICLE IX. CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS Section 1. Contracts. The Board of Directors or the Executive Committee may authorize any officer or officers, fiscal agent or other agent or employee of the corporation to enter into any contract or execute or deliver any instrument in the name of or behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors, the Executive Committee or these Bylaws, no officer, fiscal or other agent or employee of the corporation shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose. Section 2. Loans. Any officer or agent of the corporation hereafter authorized by the Board of Directors or the Executive Committee may negotiate loans and advances for the corporation from any bank, trust company or other institution or from any firm, corporation or individual, and for such loans and advances, when authorized by the Board of Directors, may make, execute and deliver promissory notes or other evidence of indebtedness of the corporation, and pledge, hypothecate or transfer, as security for the payment thereof, securities or other property at any time held by the corporation. No loans shall be contracted on behalf of the corporation, and no notes or other evidences of the indebtedness shall be issued in its behalf unless and except as authorized by the Board of Directors or the Executive Committee. Section 3. Deposits. All funds of the corporation shall be deposited from time to time to the credit of the corporation in such bank or trust companies or with such bankers or other depositories in the United States or elsewhere as the Board of Directors or the Executive Committee may approve. Section 4. Checks, Drafts, Etc. All notes, drafts, acceptances, checks, endorsements or other evidences of indebtedness shall be signed by such individuals or agents as may be designated from time to time by resolution of the Board of Directors or the Executive Committee for that purpose. Endorsements for -15- 16 deposit to the credit of the corporation in any of its duly authorized depositories may be made by an individual or agent who may be designated by resolution of the Board of Directors or the Executive Committee for that purpose. ARTICLE X. WAIVER OF NOTICE Whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Washington Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI. AMENDMENTS The Board of Directors shall have the power to alter, amend or repeal Bylaws, except with respect to Bylaws for which stockholder approval is required by law; and, subject to the power of stockholders owning a majority of the stock issued or outstanding and entitled to vote at any regular or special meeting of stockholders, to change or repeal such Bylaws. ARTICLE XII. FISCAL YEAR The fiscal year of the corporation shall begin on the first day of January and end on the last day of December N/5C14 -16- EX-3.4 5 BYLAWS OF NORTHLAND CABLE NEWS, INC. 1 EXHIBIT 3.4 BYLAWS OF NORTHLAND CABLE NEWS, INC. ARTICLE I Principal Office The principal office of the corporation shall be at such location as the board of directors may designate from time to time. The corporation may have such other offices, either within or without the state of Washington, as the business of the corporation may require from time to time. ARTICLE II Shareholders' Meetings Section 1. Annual Meetings. The annual meeting of the shareholders of this corporation, for the purpose of election of directors and for such other business as may come before it, shall be held at the principal office of the corporation, or such other place as may be designated by the notice of the meeting, within one hundred eighty (180) days of the end of the corporation's fiscal year, at such a time as may be designated by the notice of the meeting. Section 2. Special Meetings. Special meetings of the shareholders of this corporation may be called at any time by the holders of sixty-six percent (66%) of the voting shares of the corporation, or by the president, or by a majority of the board of directors. No business shall be transacted at any special meeting of shareholders except as is specified in the notice calling for said meeting. The board of directors may designate any place as the place of any special meeting. Section 3. Notice of Meetings. Written notice of annual or special meetings of shareholders stating the place, day, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by the secretary or persons authorized to call the meeting to each shareholder of record entitled to vote at the meeting and, if and to the extent required by law, to each other shareholder of the corporation. Such notice shall be given not less than ten (10) nor more than sixty (60) days prior to the date of the meeting, except that notice of a meeting to act on an amendment to the Articles of Incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange or other disposition of all or substantially all of the assets of the corporation other than in the usual or regular course of business, or the dissolution of corporation shall be given no fewer than twenty (20) days nor more than sixty (60) days before the meeting date. Notice may be transmitted by: Bylaws of Northland Cable News, Inc. Page 1 2 mail, private carrier or personal delivery; telegraph or teletype; or telephone, wire or wireless equipment which transmits a facsimile of the notice. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the stock transfer books of the corporation. Section 4. Waiver of Notice. Notice of the time, place, and purpose of any meeting may be waived in writing (either before or after such meeting) and will be waived by any shareholder by his or her attendance thereat in person or by proxy, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting. Any shareholder so waiving shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 5. Quorum and Adjourned Meetings. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. A majority of the shares represented at a meeting, even if less than a quorum, may adjourn the meeting from time to time without further notice. At such reconvened meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business at such meeting and at any adjournment of such meeting (unless a new record date is or must be set for the adjourned meeting pursuant to Section 9 of this Article II), notwithstanding the withdrawal of enough shareholders from either meeting to leave less than a quorum. Section 6. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 7. Voting Record. After fixing a record date for a shareholders' meeting, the corporation shall prepare an alphabetical list of the names of all shareholders on the record date who are entitled to notice of the shareholders' meeting. The list shall be arranged by voting group, and within each voting group by class or series of shares, and show the address of and number of shares held by each shareholder. A shareholder, a shareholder's agent, or a shareholder's attorney may inspect the shareholders' list, beginning ten (10) days prior to the shareholders' meeting and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held, during regular business hours and at the shareholder's expense. The shareholders' list shall be kept open for inspection during such meeting or any adjournment. Section 8. Voting of Shares. Except as otherwise provided in the Articles of Incorporation or in these Bylaws, every shareholder of record shall have the right at every Bylaws of Northland Cable News, Inc. Page 2 3 shareholders' meeting to one vote for every share standing in his or her name on the books of the corporation, and the affirmative vote of a majority of the shares represented at a meeting and entitled to vote thereat shall be necessary for the adoption of a motion or for the determination of all questions and business which shall come before the meeting. Section 9. Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, the board of directors may fix in advance a record date for any such determination of shareholders, such date to be not more than seventy (70) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the day before the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date is fixed for the original meeting. Section 10. Election of Directors. Each shareholder entitled to vote at an election of directors may vote in person or by proxy the number of shares owned by him or her for as many persons as there are directors to be elected and for whose election he or she has a right to vote. ARTICLE III Directors Section 1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors except as otherwise provided by the laws under which this corporation is formed or in the Articles of Incorporation. Section 2. Number. The board shall be composed of three (3) directors, provided that the number of directors may be increased or decreased from time to time by amending this Section 2. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Section 3. Tenure and Qualifications. Each director shall hold office until the next annual meeting of shareholders and until his or her successor shall have been elected and qualified. Directors need not be residents of the state or shareholders of the corporation. Section 4. Election. The directors shall be elected by the shareholders at their annual meeting each year; and if, for any cause, the directors shall not have been elected at an annual Bylaws of Northland Cable News, Inc. Page 3 4 meeting, they may be elected at a special meeting of shareholders called for that purpose in the manner provided by these Bylaws. Section 5. Vacancies. Any vacancy occurring on the board may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board. A director elected to fill a vacancy due to resignation or removal shall be elected for the unexpired term of his or her predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled for a term extending only until the next annual meeting of shareholders. Section 6. Resignation. Any director may resign at any time by delivering written notice to the board of directors, its chairperson, the president or the secretary of the corporation. A resignation shall be effective when the notice is delivered unless the notice specifies a later effective date. Section 7. Removal of Directors. At a meeting of shareholders called expressly for that purpose, the entire board of directors, or any member thereof, may be removed, with or without cause, by a vote of the holders of a majority of shares then entitled to vote at an election of such directors. Section 8. Meetings (a) The annual meeting of the board of directors shall be held immediately after the annual shareholders' meeting at the same place as the annual shareholders' meeting or at such other place and at such time as may be determined by the directors. No notice of the annual meeting of the board of directors shall be necessary. (b) Special meetings may be called at any time and place upon the call of the president, secretary, or any two (2) directors; provided, however, that in the event there is only one (1) director, he or she may call a special meeting. Notice of the time and place of each special meeting shall be given by the secretary, or the persons calling the meeting, by mail, private carrier, radio, telegraph, telegram, facsimile transmission, personal communication by telephone or otherwise at least two (2) days in advance of the time of the meeting. The purpose of the meeting need not be given in the notice. Notice of any special meeting may be waived in writing or by telegram (either before or after such meeting) and will be waived by any director by attendance thereat. Written notice shall be in a comprehensible form and effective at the earliest of the following: (1) when dispatched by telegraph, teletype, or facsimile equipment; or (ii) when received; or (iii) if mailed, five (5) days after its deposit in the United States mail, as evidenced by the postmark if mailed with first-class postage, prepaid and correctly addressed; or on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. Bylaws of Northland Cable News, Inc. Page 4 5 (c) Regular meetings of the board of directors shall be held at such place and on such day and hour as shall from time to time be fixed by resolution of the board of directors. No notice of regular meetings of the board of directors shall be necessary. (d) At any meeting of the board of directors, any business may be transacted, and the board may exercise all of its powers. Section 9. Quorum and Voting (a) A majority of the directors presently in office shall constitute a quorum, but a lesser number may adjourn any meeting from time to time until a quorum is obtained, and no further notice thereof need be given. (b) At each meeting of the board at which a quorum is present, the act of a majority of the directors present at the meeting shall be the act of the board of directors. The directors present at a duty organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. Section 10. Compensation. By resolution of the board of directors, the directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 11. Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action an any corporate matter is taken shall be presumed to have assented to the action taken unless: (a) The director objects at the beginning of the meeting, or promptly upon the director's arrival, to holding it or transacting business at the meeting; (b) The director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) The director delivers written notice of the director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. Section 12. Committees. The board of directors, by resolution adopted by a majority of the full board of directors, may designate from among its members one or more committees, each of which must have two or more members and, to the extent provided in such resolution, shall Bylaws of Northland Cable News, Inc. Page 5 6 have and may exercise all the authority of the board of directors, except that no such committee shall have the authority to: authorize or approve a distribution except according to a general formula or method prescribed by the board of directors; approve or propose to shareholders action that the Washington Business Corporation Act requires to be approved by shareholders; fill vacancies on the board of directors or on any of its committees; amend any Articles of Incorporation not requiring shareholder approval; adopt, amend, or repeal Bylaws; approve a plan of merger not requiring shareholder approval; or authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee, or a senior executive officer of the corporation, to do so within limits specifically prescribed by the board of directors. ARTICLE IV Special Measures for Corporate Action Section 1. Actions by Written Consent. Any corporate action required or permitted by the Articles of Incorporation, Bylaws, or the laws under which this corporation is formed, to be voted upon or approved at a duly called meeting of the directors, committee of directors, or shareholders may be accomplished without a meeting if one or more unanimous written consents of the respective directors or shareholders, setting forth the actions so taken, shall be signed, either before or after the action taken, by all the directors, committee members, or shareholders, as the case may be. Action taken by unanimous written consent is effective when the last director or committee member signs the consent, unless the consent specifies a later effective date. Action taken by unanimous written consent of the shareholders is effective when all consents are in possession of the corporation, unless the consent specifies a later effective date. Section 2. Meetings by Conference Telephone. Members of the board of directors, members of a committee of directors, or shareholders may participate in their respective meetings by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation in a meeting by such means shall constitute presence in person at such meeting. ARTICLE V Officers Section 1. Officers Designated. The officers of the corporation shall be a president, one or more vice presidents (the number thereof to be determined by the board of directors), a secretary, and a treasurer, each of whom shall be elected by the board of directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the board of directors. Any two or more offices may be held by the same person. The board of directors may, in its discretion, elect a chairperson of the board of directors; and, if a chairperson Bylaws of Northland Cable News, Inc. Page 6 7 has been elected, the chairperson shall, when present, preside at all meetings of the board of directors and the shareholders and shall have such other powers as the board may prescribe. Section 2. Election, Qualification and Term of Office. Each of the officers shall be elected by the board of directors at each annual meeting of the board of directors. Except as hereinafter provided, each of said officers shall hold office from the date of his or her election until the next annual meeting of the board of directors and until his or her successor shall have been duly elected and qualified. Section 3. Powers and Duties (a) President. The president shall be the chief executive officer of the corporation and, subject to the direction and control of the board of directors, shall have general charge and supervision over its property, business, and affairs. He or she shall, unless a chairperson of the board of directors has been elected and is present, preside at meetings of the shareholders and the board of directors. (b) Vice President. In the absence of the president or in the event of the president's inability to act, the senior vice president shall act in the president's place and stead and shall have all the powers and authority of the president, except as limited by resolution of the board of directors. (c) Secretary. The secretary shall: (1) be responsible for preparing minutes of the shareholders' and of the board of directors' meetings and keeping all such minutes in one or more books provided for that purpose; (2) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (3) be custodian of the corporate records (4) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (5) sign with the president, or a vice president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (6) have general charge of the stock transfer books of the corporation; (7) authenticate records of the corporation; and (8) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him or her by the president or by the board of directors. (d) Treasurer. Subject to the direction and control of the board of directors, the treasurer shall have the custody, control, and disposition of the funds and securities of the corporation and shall account for the same. At the expiration of his or her term of office, the treasurer shall turn over to his or her successor all property of the corporation in his or her possession. Section 4. Assistant Secretaries and Assistant Treasurers. The assistant secretaries, when authorized by the board of directors, may sign with the president, or a vice president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors. The assistant treasurers shall, respectively, if required by the board of Bylaws of Northland Cable News, Inc. Page 7 8 directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer respectively, or by the president or the board of directors. Section S. Removal. The board of directors shall have the right to remove any officer whenever in its judgment the best interests of the corporation will be served thereby. Section 6. Vacancies. The board of directors shall fill any office which becomes vacant with a successor who shall hold office for the unexpired term and until his or her successor shall have been duly elected and qualified. Section 7. Salaries. The salaries of all officers of the corporation shall be fixed by the board of directors. ARTICLE VI Share Certificates Section 1. Issuance, Form and Execution of Certificates. No shares of the corporation shall be issued unless authorized by the board. Such authorization shall include the maximum number of shares to be issued, the consideration to be received for each share, and a statement that the board has determined that such consideration is adequate. Certificates for shares of the corporation shall be in such form as is consistent with the provisions of the Washington Business Corporation Act and shall state: (a) The name of the corporation and that the corporation is organized under the laws of this state; (b) The name of the person to whom issued; and (c) The number and class of shares and the designation of the series, if any, which such certificate represents. They shall be signed by the president or vice president and by the secretary of the corporation. Certificates may be issued for fractional shares. No certificate shall be issued for any share until the consideration established for its issuance has been paid. Section 2. Transfers. Shares may be transferred by delivery of the certificate therefor, accompanied either by an assignment in writing on the back of the certificate or by a written power of attorney to assign and transfer the same, signed by the record holder of the certificate. The board of directors may, by resolution, provide that beneficial owners of shares shall be deemed holders of record for certain specified purposes. Except as otherwise specifically Bylaws of Northland Cable News, Inc. Page 8 9 provided in these Bylaws, no shares shall be transferred on the books of the corporation until the outstanding certificate therefor has been surrendered to the corporation. Section 3. Loss or Destruction of Certificates. In case of loss or destruction of any certificate of shares, another may be issued in its place upon proof of such loss or destruction and upon the giving of a satisfactory indemnity bond to the corporation. A new certificate may be issued without requiring any bond, when in the judgment of the board of directors it is proper to do so. ARTICLE VII Books and Records Section 1. Books of Accounts, Minutes and Share Register. The corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors exercising the authority of the board of directors on behalf of the corporation. The corporation shall maintain appropriate accounting records. The corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each. The corporation shall keep a copy of the following records at its principal office: the Articles or Restated Articles of Incorporation and all amendments to them currently in effect; the Bylaws or Restated Bylaws and all amendments to them currently in effect; the minutes of all shareholders' meetings, and records of all actions taken by shareholders without a meeting, for the past three years; its financial statements for the past three years, including the balance sheets and income statements prepared pursuant to Section 3 of this Article VII; a written communications to shareholders generally within the past three years; a list of the names and business addresses of its current directors and officers; and its most recent annual report delivered to the Secretary of State of the State of Washington. Section 2. Copies of Resolutions. Any person dealing with the corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the board of directors or shareholders, when certified by the president or secretary. ARTICLE VIII Corporate Seal The board of directors may provide for a corporate seal. Bylaws of Northland Cable News, Inc. Page 9 10 ARTICLE IX Amendment of Bylaws The power to alter, amend, or repeal these Bylaws and adopt new Bylaws is vested in the board, subject to repeal or change by action of the shareholders. ARTICLE IX Amendment of Bylaws The power to alter, amend, or repeal these Bylaws and adopt new Bylaws is vested in the board, subject to repeal or change by action of the shareholders; provided that the power to adopt, amend, or repeal any provision in these Bylaws relating to the size, powers, term, or composition of the board is vested solely in the shareholders of the corporation. ARTICLE X Fiscal Year The fiscal year of the corporation shall be the twelve (12) month period ending on December 31 in each year. CERTIFICATE OF ADOPTION The undersigned, being the secretary of Northland Cable News, Inc., hereby certifies that the foregoing is a true and correct copy of the Bylaws adopted by resolution of the Board of Directors of Northland Cable News, Inc. on May 12, 1994. /s/ JAMES A. PENNEY, SECRETARY ----------------------------------- James A. Penney, Secretary Bylaws of Northland Cable News, Inc, Page 10 EX-4.1 6 INDENTURE WITH HARRIS TRUST COMPANY OF CALIFORNIA 1 EXHIBIT 4.1 CONFORMED COPY ================================================================================ NORTHLAND CABLE TELEVISION, INC. 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 -------------------------------- INDENTURE Dated as of November 12, 1997 -------------------------------- -------------------------------- HARRIS TRUST COMPANY OF CALIFORNIA -------------------------------- Trustee ================================================================================ 2 CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310 (a)................................................................. (1) 7.10 (a)(2)............................................................. 7.10 (a)(3)............................................................. N.A. (a)(4)............................................................. N.A. (a)(5)............................................................. 7.10 (b)................................................................ 7.03; 7.10 (c)................................................................ N.A. 311 (a)................................................................. 7.11 (b)................................................................ 7.11 (c)................................................................ N.A. 312 (a)................................................................. 2.05 (b)................................................................ 12.03 (c)................................................................ 12.03 313 (a)................................................................. 7.06 (b)(1)............................................................. N.A. (b)(2)............................................................. 7.06; 7.07 (c)................................................................ 7.06; 12.02 (d)................................................................ 7.06 314 (a)................................................................. 4.03;12.02 (b)................................................................ N.A. (c)(1)............................................................. 12.04 (c)(2)............................................................. 12.04 (c)(3)............................................................. N.A. (d)................................................................ N.A. (e)................................................................ 12.05 (f)................................................................ N.A. 315 (a)................................................................. 7.01 (b)................................................................ 7.05,12.02 (c)................................................................ 7.01 (d)................................................................ 7.01 (e)................................................................ 6.11 316 (a)(last sentence).................................................. 2.09 (a)(1)(A).......................................................... 6.05 (a)(1)(B).......................................................... 6.04 (a)(2)............................................................. N.A. (b)................................................................ 6.07 (c)................................................................ 2.12 317 (a)(1).............................................................. 6.08 (a)(2)............................................................. 6.09 (b)................................................................ 2.04 318 (a)................................................................. 12.01 (b)................................................................ N.A. (c)................................................................ 12.01
N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. 3 TABLE OF CONTENTS
Page ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE........................................1 Section 1.01. Definitions.................................................................1 Section 1.02. Other Definitions..........................................................13 Section 1.03. Incorporation by Reference of Trust Indenture Act..........................13 Section 1.04. Rules of Construction......................................................14 ARTICLE 2. THE NOTES........................................................................14 Section 2.01. Form and Dating............................................................14 Section 2.02. Execution and Authentication...............................................15 Section 2.03. Registrar and Paying Agent.................................................16 Section 2.04. Paying Agent to Hold Money in Trust........................................16 Section 2.05. Holder Lists...............................................................16 Section 2.06. Transfer and Exchange......................................................17 Section 2.07. Replacement Notes..........................................................28 Section 2.08. Outstanding Notes..........................................................29 Section 2.09. Treasury Notes.............................................................29 Section 2.10. Temporary Notes............................................................29 Section 2.11. Cancellation...............................................................30 Section 2.12. Defaulted Interest.........................................................30 ARTICLE 3. REDEMPTION AND PREPAYMENT........................................................30 Section 3.01. Notices to Trustee.........................................................30 Section 3.02. Selection of Notes to Be Redeemed..........................................30 Section 3.03. Notice of Redemption.......................................................31 Section 3.04. Effect of Notice of Redemption.............................................31 Section 3.05. Deposit of Redemption Price................................................31 Section 3.06. Notes Redeemed in Part.....................................................32 Section 3.07. Optional Redemption........................................................32 Section 3.08. Mandatory Redemption.......................................................32 Section 3.09. Offer to Purchase by Application of Excess Proceeds........................33 ARTICLE 4. COVENANTS........................................................................34 Section 4.01. Payment of Notes...........................................................34 Section 4.02. Maintenance of Office or Agency............................................34 Section 4.03. Reports....................................................................35 Section 4.04. Compliance Certificate.....................................................35 Section 4.05. Taxes......................................................................36 Section 4.06. Stay, Extension and Usury Laws.............................................36 Section 4.07. Restricted Payments........................................................36 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.............38 Section 4.09. Incurrence of Debt and Issuance of Preferred Stock.........................38 Section 4.10. Asset Sales................................................................40 Section 4.11. Transactions with Affiliates...............................................41 Section 4.12. Liens......................................................................42 Section 4.13. Special Repurchase Offer...................................................42 Section 4.14. Corporate Existence........................................................43
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Page ---- Section 4.15. Offer to Repurchase Upon Change of Control.................................44 Section 4.16. Limitation on Incurrence of Senior Subordinated Debt.......................44 Section 4.17. Dividend and Other Payment Restrictions Affecting Subsidiaries.............44 Section 4.18. Additional Subsidiary Guarantees...........................................45 Section 4.19. Restriction on Preferred Stock of Subsidiaries.............................45 Section 4.20. Payments for Consent.......................................................45 ARTICLE 5. SUCCESSORS.......................................................................46 Section 5.01. Merger, Consolidation or Sale of Assets....................................46 Section 5.02. Successor Corporation Substituted..........................................46 ARTICLE 6. DEFAULTS AND REMEDIES............................................................46 Section 6.01. Events of Default..........................................................46 Section 6.02. Acceleration...............................................................48 Section 6.03. Other Remedies.............................................................49 Section 6.04. Waiver of Past Defaults....................................................49 Section 6.05. Control by Majority........................................................49 Section 6.06. Limitation on Suits........................................................49 Section 6.07. Rights of Holders of Notes to Receive Payment..............................50 Section 6.08. Collection Suit by Trustee.................................................50 Section 6.09. Trustee May File Proofs of Claim...........................................50 Section 6.10. Priorities.................................................................50 Section 6.11. Undertaking for Costs......................................................51 ARTICLE 7. TRUSTEE..........................................................................51 Section 7.01. Duties of Trustee..........................................................51 Section 7.02. Rights Of Trustee..........................................................52 Section 7.03. Individual Rights of Trustee...............................................53 Section 7.04. Trustee's Disclaimer.......................................................53 Section 7.05. Notice of Defaults.........................................................53 Section 7.06. Reports by Trustee to Holders of the Notes.................................53 Section 7.07. Compensation and Indemnity.................................................53 Section 7.08. Replacement of Trustee.....................................................54 Section 7.09. Successor Trustee by Merger, etc...........................................55 Section 7.10. Eligibility; Disqualification..............................................55 Section 7.11. Preferential Collection of Claims Against Company..........................56 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.........................................56 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance...................56 Section 8.02. Legal Defeasance and Discharge.............................................56 Section 8.03. Covenant Defeasance........................................................56 Section 8.04. Conditions to Legal or Covenant Defeasance.................................57 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.................................................................58 Section 8.06. Repayment to Company.......................................................58 Section 8.07. Reinstatement..............................................................59 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.................................................59 Section 9.01. Without Consent of Holders of Notes........................................59 Section 9.02. With Consent of Holders of Notes...........................................60
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Page ---- Section 9.03. Compliance with Trust Indenture Act........................................61 Section 9.04. Revocation and Effect of Consents..........................................61 Section 9.05. Notation on or Exchange of Notes...........................................61 Section 9.06. Trustee to Sign Amendments, etc............................................61 ARTICLE 10. SUBORDINATION...................................................................62 Section 10.01. Agreement to Subordinate..................................................62 Section 10.02. [Intentionally Omitted.]..................................................62 Section 10.03. Liquidation; Dissolution; Bankruptcy......................................62 Section 10.04. Default on Designated Senior Debt.........................................62 Section 10.05. Acceleration of Securities................................................63 Section 10.06. When Distribution Must Be Paid Over.......................................63 Section 10.07. Notice by Company.........................................................63 Section 10.08. Subrogation...............................................................64 Section 10.09. Relative Rights...........................................................64 Section 10.10. Subordination May Not Be Impaired by Company..............................64 Section 10.11. Distribution or Notice to Representative..................................64 Section 10.12. Rights of Trustee and Paying Agent........................................64 Section 10.13. Authorization to Effect Subordination.....................................65 Section 10.14. Amendments................................................................65 ARTICLE 11. SUBSIDIARY GUARANTEES...........................................................65 Section 11.01. Subsidiary Guarantees.....................................................65 Section 11.02. Limitation of Guarantor's Liability.......................................66 Section 11.03. Execution and Delivery of Subsidiary Guarantees...........................66 Section 11.04. Guarantors May Consolidate, etc., on Certain Terms........................67 Section 11.05. Releases Following Sale of Assets.........................................68 Section 11.06. "Trustee" to Include Paying Agent.........................................68 Section 11.07. Subordination of Subsidiary Guarantees....................................68 ARTICLE 12. MISCELLANEOUS...................................................................69 Section 12.01. Trust Indenture Act Controls..............................................69 Section 12.02. Notices...................................................................69 Section 12.03. Communication by Holders of Notes with Other Holders of Notes.............70 Section 12.04. Certificate and Opinion as to Conditions Precedent........................70 Section 12.05. Statements Required in Certificate or Opinion.............................70 Section 12.06. Rules by Trustee and Agents...............................................71 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders..71 Section 12.08. Governing Law.............................................................71 Section 12.09. No Adverse Interpretation of Other Agreements.............................71 Section 12.10. Successors................................................................71 Section 12.11. Severability..............................................................71 Section 12.12. Counterpart Originals.....................................................71 Section 12.13. Table of Contents, Headings, etc..........................................72
EXHIBITS Exhibit A-1 FORM OF NOTE iii 6 Exhibit A-2 FORM OF REGULATION S TEMPORARY NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF SUBSIDIARY GUARANTEE iv 7 INDENTURE dated as of November 12, 1997 among Northland Cable Television, Inc., a Washington corporation (the "Company"), Northland Cable News, Inc., a Washington corporation (the "Guarantor"), and Harris Trust Company of California, as trustee (the "Trustee"). The Company, the Guarantor, and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 10 1/4% Series A Senior Subordinated Notes due 2007 (the "Series A Notes") and the 10 1/4% Series B Senior Subordinated Notes due 2007 (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "144A Global Note" means the global note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person, (i) Debt of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Debt incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Debt secured by a Lien encumbering any asset acquired by such specified Person. "Additional Interest" means all additional interest then owing pursuant to Section 5 of the Registration Rights Agreement. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Asset Acquisition" means (i) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Subsidiary in any other Person, or any acquisition or purchase of Equity Interests of any other Person by the Company or any Subsidiary, in either case pursuant to which such Person shall become a Subsidiary or shall be consolidated, merged with or into the Company or any Subsidiary or (ii) any acquisition by the Company or any Subsidiary of the assets of any Person which constitute substantially all of an operating unit or line of business of such Person or which is otherwise outside of the ordinary course of business. 8 "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of Section 4.15 hereof and the provisions of Article 5 hereof and not by Section 4.10 hereof, and (ii) the issue or sale by the Company or any Subsidiary of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary and (iii) a Restricted Payment that is permitted by Section 4.07 hereof will not be deemed to be Asset Sales. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moodys Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Cedel" means Cedel Bank, societe anonyme. "Change of Control" means the occurrence of any of the following: (i) any Person other than a Related Party or any Person owned or controlled, directly or indirectly, by any Related Party (an "Unrelated Person"), together with any Affiliates thereof that are also Unrelated Persons, (A) acquires or 2 9 acquire (whether through legal or beneficial ownership, by contract or otherwise), directly or indirectly, the right to vote more than 45% of the total voting power of all classes of Voting Stock of the either the Company or NTC or (B) shall have elected, or caused to be elected, a sufficient number of its or their nominees to the Board of Directors of the Company or NTC such that the nominees so elected (regardless of when elected) shall collectively constitute a majority of the Board of Directors of either the Company or NTC; (ii) the first day on which NTC ceases to own a majority of the outstanding Equity Interests of the Company, (iii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iv) the Company consolidates with, or merges with or into, any Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). For purposes of this definition, "Person" includes any "group" as that term is used in Section 13(d)(3) or 14(d)(2) of the Exchange Act, and "beneficial ownership" shall have the meaning provided in Rule 13d-3 under the Exchange Act. "Company" means Northland Cable Television, Inc., a Washington corporation, and any and all successors thereto. "Consolidated Interest Expense" means, for any given period and Person, the aggregate of the interest expense in respect of all Debt of such Person and its Subsidiaries for such period, on a consolidated basis, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to such Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its shareholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common shareholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year 3 10 of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Issue Date in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Consolidated Operating Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period: plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income); plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income; plus (iii) Consolidated Interest Expense of such Person and its Subsidiaries for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other noncash expenses of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreements" means, with respect to the Company, one or more debt facilities (including, without limitation, the Senior Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Debt under Credit Agreements outstanding on the date on which Notes are first issued and authenticated under this Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) of the definition of Permitted Debt. "Debt" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense (including any deferred management fees pursuant to the Management Agreement) or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Debt outstanding as of any date shall be (i) the accreted value thereof, in the case of any Debt that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Debt. 4 11 "Debt to Operating Cash Flow Ratio" means the ratio of (i) the Total Consolidated Debt as of the date of calculation (the "Determination Date") to (ii) four times the Pro Forma Consolidated Operating Cash Flow for the latest fiscal quarter for which financial information is available immediately preceding such Determination Date (the "Measurement Period"). For purposes of calculating Consolidated Operating Cash Flow for the Measurement Period immediately prior to the relevant Determination Date, if the Company or any Subsidiary shall have in any manner (a) acquired (including through an Asset Acquisition or the commencement of activities constituting such operating business) or (b) disposed of (including by way of an Asset Sale or the termination or discontinuance of activities constituting such operating business) any operating business during such Measurement Period or after the end of such period and on or prior to such Determination Date, such calculation will be made on a pro forma basis in accordance with GAAP as if, in the case of an Asset Acquisition or the commencement of activities constituting such operating business, all such transactions had been consummated on the first day of such Measurement Period and, in the case of an Asset Sale or termination or discontinuance of activities constituting such operating business, all such transactions had been consummated prior to the first day of such Measurement Period. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Senior Debt" means (i) any Debt outstanding under the Senior Credit Facility, (ii) any other Senior Debt permitted under this Indenture the principal amount of which is $5.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Equity Interest" means any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable, at the option of the holder thereof, in whole or in part, or exchangeable into Debt on or prior to the earlier of the maturity date of the Notes or the date on which no Notes remain outstanding. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. 5 12 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f). "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Debt" means up to $1.0 million in aggregate principal amount of Debt of the Company and its Subsidiaries (other than Debt under the Senior Credit Facility) in existence on the Issue Date, until such amounts are repaid. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b), 2.06(d) or 2.06(f) hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Debt. "Guarantors" means (i) Northland Cable News, Inc., a Washington corporation, and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means the Global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indenture" means this Indenture, as amended or supplemented from time to time. 6 13 "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Debt or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Debt, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07 hereof. "Issue Date" means the date of first issuance of the Notes under this Indenture. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Management Agreement" means that certain agreement dated as of August 23, 1994, as the same may from time to time be amended, by and between the Company and NTC, relating to the retention by the Company of NTC as its managing agent in connection with the overall affairs and operations of the Company's systems. "Net Cash Proceeds" means the aggregate cash proceeds received by the Company or any Subsidiary in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, (ii) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Debt secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. 7 14 "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (A) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (B) the disposition of any securities by such Person or any Subsidiary or the extinguishment of any Debt of such Person or any Subsidiary and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Non-U.S. Person" means a person who is not a U.S. Person. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Notes" has the meaning assigned to it in the preamble to this Indenture. "NTC" means Northland Telecommunications Corporation, a Washington corporation and parent company of the Company. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Debt. "Offering" means the Offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, the Secretary or any Vice-President of such Person, or any Guarantor, as applicable. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company (or any Guarantor, if applicable), any Subsidiary of the Company or the Trustee. "Pari Passu Debt" means (i) any Debt of the Company that is pari passu in right of payment to the Notes and (ii) with respect to any Subsidiary Guarantee of the Notes, Debt which ranks pari passu in right of payment to such Subsidiary Guarantee. "Participant" means, with respect to DTC, Euroclear or Cedel, a Person who has an account with DTC, Euroclear or Cedel, respectively (and, with respect to DTC, shall include Euroclear and Cedel). "Permitted Investments" means (a) any Related Business Investment; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company that is engaged in the same or a similar line of business as the Company and its Subsidiaries were engaged in on the Issue Date or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company that is engaged in the same or a similar line of business as the Company and its Subsidiaries were engaged in on the Issue Date; (d) any Restricted Investment made as a result of the 8 15 receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; and (f) other Investments in any Person (other than NTC or an Affiliate of NTC that is not also a Subsidiary of the Company) having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $2.0 million. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to Article 10 of this Indenture. "Permitted Refinancing Debt" means any Debt of the Company or any Subsidiary issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Company or any Subsidiary; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of the Notes as those contained in the documentation governing the Debt being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Debt is incurred either by the Company or by the Subsidiary who is the obligor on the Debt being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, limited liability limited partnership, trust, unincorporated organization or government or any agency or political subdivision thereof. "Principal" means John S. Whetzell. "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act. "Pro Forma Consolidated Operating Cash Flow" of any Person means for any period the Consolidated Operating Cash Flow of such Person for such period calculated on a pro forma basis to give effect to any Asset Sale or acquisition of assets not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during such period as if such Asset Sale or acquisition of assets had taken place on the first day of such period. For purposes of making the computations referred to pursuant to the provisions of Section 4.09 hereof, any Asset Sale or acquisition of assets not in the ordinary course of business made by the Company, including all mergers 9 16 and acquisitions subsequent to the last full fiscal quarter, shall be calculated on a pro forma basis as if such Asset Sale or acquisition of assets had taken place on the first day of such fiscal quarter. "Public Equity Offering" means a public offering of any Equity Interests (other than Disqualified Stock) of (i) the Company or (ii) NTC to the extent the net proceeds thereof are contributed to the Company as a capital contribution, that, in each case, results in the net proceeds to the Company of at least $25.0 million. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of November 12, 1997, by and among the Company, the Guarantor and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Related Business Investment" means (i) any capital expenditure or Investment, in each case related to the business of the Company and its Subsidiary as conducted on the Issue Date and as such business may thereafter evolve in the fields of cable television systems, enhanced video services and advanced telecommunications services, such as Internet access and network data services, and telephony; and (ii) any Investment in any other Person primarily engaged in the same business as provided in the foregoing subparagraph (i). "Related Party" with respect to the Principal means (A) any controlling shareholder, 80% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal or (B) or trust, corporation, partnership or other entity, the beneficiaries, shareholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "Representative" means this Indenture trustee or other trustee, agent or representative for any Senior Debt. "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated 10 17 officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day restricted period as defined in Regulation S. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Facility" means that certain Credit Agreement dated August 23, 1994, by and among the Company and The First National Bank of Chicago, as lender and managing agent and the other lenders party thereto, as the same shall be amended and restated as of the date of this Indenture, providing for up to $100.0 million of credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Senior Debt" means (i) all Debt outstanding under Credit Agreements and all Hedging Obligations with respect thereto, (ii) any other Debt permitted to be incurred by the Company under the terms of this Indenture, unless the instrument under which such Debt is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Debt of the Company to any Subsidiary or other Affiliate, (y) any trade payables or Capital Lease Obligations or (z) any Debt that is incurred in violation of this Indenture. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the Issue Date. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Debt, the date on which such payment of interest or principal was scheduled to be paid in the original 11 18 documentation governing such Debt, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Debt" means any Debt of the Company which is by its terms subordinated in right of payment to the Notes. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantee" means, individually and collectively, the guarantees given by the Guarantors pursuant to Article 11 hereof, including a notation in the Notes substantially in the form attached hereto as Exhibit E. "Supplemental Credit Facility" means that certain Senior Credit Facility described in a commitment letter from The First National Bank of Chicago dated October 15, 1997, as lead agent and a lender, to the Company setting forth a commitment for up to $115.0 of revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, to which Facility the Company may elect to enter convert the Senior Credit Facility (in which case, all references in this Indenture to the "Senior Credit Facility," from and after the date of such election by the Company, shall be deemed to refer to the Supplemental Credit Facility). "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Total Consolidated Debt" means, as at the date of determination, an amount equal to the aggregate amount of all such Debt and Disqualified Equity Interests of the Company and its Subsidiaries outstanding as of such date of determination. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Global Note" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. 12 19 "Weighted Average Life to Maturity" means, when applied to any Debt at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Debt. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS.
Term Defined in Section ---------- "Acquisition"..................................... 4.13 "Affiliate Transaction"........................... 4.11 "Asset Sale Offer"................................ 3.09 "Change of Control Offer"......................... 4.15 "Change of Control Payment"....................... 4.15 "Change of Control Payment Date".................. 4.15 "Covenant Defeasance"............................. 8.03 "DTC"............................................. 2.03 "Event of Default"................................ 6.01 "Excess Proceeds"................................. 4.10 "Incur"........................................... 4.09 "Legal Defeasance"................................ 8.02 "Offer Amount".................................... 3.09 "Offer Period".................................... 3.09 "Paying Agent".................................... 2.03 "Payment Blockage Notice"......................... 10.04 "Permitted Debt".................................. 4.09 "Purchase Date"................................... 3.09 "Registrar"....................................... 2.03 "Restricted Payments"............................. 4.07 "Special Repurchase Offer"........................ 4.13 "Special Repurchase Payment"...................... 4.13 "Special Repurchase Payment Date"................. 4.13
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Subsidiary Guarantees; 13 20 "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company or any Guarantor and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibits A-1 or A-2 hereto. The notation on each Note relating to the Subsidiary Guarantees shall be substantially in the form set forth on Exhibit E, which is a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes (including the Subsidiary Guarantees) shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors, and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend and the "Schedule of Exchanges in the Global Note" attached 14 21 thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by the Agent Members through Euroclear or Cedel Bank. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. 15 22 The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes for original issue in an aggregate principal amount of up to $150,000,000. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company and the Guarantors shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Guarantors may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and will notify the Trustee of any default by the Company or the Guarantors in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Guarantor) shall have no further liability for the money. If the Company or a Guarantor acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company and/or the Guarantors shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company and the Guarantors shall otherwise comply with TIA Section 312(a). 16 23 SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act, it being understood that the Registrar shall have no duty or obligation to verify that any such certificate received by it complies with the requirements of such rule. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.11 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to Section 2.07 or 2.11 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred only to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests (other than a transfer of a beneficial interest in a Global Note to a Person who takes delivery thereof in the form of a beneficial interest in the same Global Note), the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or 17 24 cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act, it being understood that the Registrar shall have no duty or obligation to verify that any such certificate received by it complies with the requirements of such rule. Upon an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture, the Notes and otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of clause (ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver (x) a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion Counsel required by item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of clause (ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, is 18 25 not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; 19 26 (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be (A) exchanged for a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(B) under the Securities Act or (B) transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to the conditions set forth in clause (A) above or unless the transfer is pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Notwithstanding 2.06(c)(i) hereof, a holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may 20 27 transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. (iv) If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(iii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this section 2.06(c)(iv) shall not bear the Private Placement Legend. A beneficial interest in an Unrestricted Global Note cannot be exchanged for a 21 28 Definitive Note bearing the Private Placement Legend or transferred to a Person who takes delivery thereof in the form of a Definitive Note bearing the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (ii) A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: 22 29 (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Definitive Notes are being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above. 23 30 (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, pursuant to the provisions of this Section 2.06(e). (i) Restricted Definitive Notes may be transferred to and registered in the name of Persons who take delivery thereof if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver (x) a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; 24 31 (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Restricted Definitive Note is being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. (iii) A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request for such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. Unrestricted Definitive Notes cannot be exchanged for or transferred to Persons who take delivery thereof in the form of a Restricted Definitive Note. (f) Exchange Offer. (i) Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 and an opinion in accordance with Section 2.06(f)(ii) hereof, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by persons that are not (x) broker-dealers, (y) Persons participating in the distribution of the Exchange Notes or (z) Persons who are affiliates (as defined in Rule 144) of the Company and accepted for exchange in the exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrent with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (ii) Prior to the issuance of any Exchange Notes in the Exchange Offer, upon the Trustee's request, the Trustee shall receive an opinion from counsel for the Company with respect to the following matters: (A) the Series B Notes have been duly authorized, executed and authenticated in accordance with the provisions of the Indenture and delivered in exchange for the Series A Notes in accordance with the Indenture and the Exchange Offer and are entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms; and (B) when the Series B Notes are executed and authenticated in accordance with the provisions of the Indenture and delivered in exchange for the Series A Notes in accordance with the Indenture and Exchange Offer, the Subsidiary Guarantees endorsed 25 32 thereon will be entitled to the benefits of the Indenture and will be the valid and binding obligations of the Guarantors, enforceable in accordance with their terms. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (b) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) BY AN INITIAL PURCHASER (a) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (d) TO THE COMPANY, (e) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (f) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND (2) BY SUBSEQUENT PURCHASERS, AS SET FORTH IN (1)(a) THROUGH (e) ABOVE, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY." 26 33 (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. 27 34 (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes (in each case, accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a transfer or exchange may be submitted by facsimile. Notwithstanding anything herein to the contrary, as to any certifications and certificates delivered to the Registration pursuant to this Section 2.06, the Registrar's duties shall be limited to confirming that any such certifications and certificates delivered to it are in the form of Exhibits B and C attached hereto. The Registrar shall not be responsible for confirming the truth or accuracy of representations made in any such certifications or certificates. SECTION 2.07. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the 28 35 Guarantors) if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and the Guarantors and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, by any Guarantor, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Guarantor, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. 29 36 SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company or any Guarantor defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, 30 37 provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. 31 38 If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to November 15, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on November 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2002........................................... 105.125% 2003........................................... 103.417% 2004........................................... 101.708% 2005 and thereafter............................ 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time prior to November 15, 2000, the Company may redeem up to 30% of the aggregate principal amount of the Notes issued under this Indenture with the Net Cash Proceeds of a Public Equity Offering at a redemption price equal to 110.25% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date; provided that at least 70% of the Notes remain outstanding immediately after the occurrence of such redemption and that such redemption occurs within 45 days of the date of the closing of such Public Equity Offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.15 hereof, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 32 39 SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the Address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; 33 40 (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS SECTION 4.01 PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or any Guarantor thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Additional Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) 34 41 where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company or the Guarantors in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. SECTION 4.03 REPORTS. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish or cause to be furnished promptly to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA Section 314(a). (b) For so long as any Notes remain outstanding, the Company shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 4.04 COMPLIANCE CERTIFICATE. (a) The Company and the Guarantors shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company or such Guarantor, as the case may be, has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company, or such Guarantor, as the case may be, has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a 35 42 description of the event and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four or Article Five hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) Each of the Company and the Guarantors shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer of the Company or any Guarantor becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05 TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.06 STAY, EXTENSION AND USURY LAWS. Each of the Company and the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and each of the Company and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07 RESTRICTED PAYMENTS. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any Subsidiary's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any Subsidiary's Equity Interests in their capacity as such (other than dividends or distributions made to the Company or a Wholly Owned Subsidiary of the Company and dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Debt that is subordinated to the Notes (other than 36 43 Notes), except a payment of interest or principal at Stated Maturity; (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) .the Company, immediately after giving effect to such Restricted Payment, would have been permitted to incur at least $1.00 of additional Debt pursuant to the Debt to Operating Cash Flow Ratio test set forth in the first paragraph of Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Subsidiaries after the Issue Date (excluding Restricted Payments permitted by clause (ii) of the next succeeding paragraph), is less than the sum of (i) the difference between (x) 100% of cumulative Consolidated Operating Cash Flow for the period (taken as one accounting period) from the end of the first fiscal quarter during which the Issue Date occurs to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available and (y) 140% of cumulative Consolidated Interest Expense for the period (taken as one accounting period) from the end of the first fiscal quarter during which the Issue Date occurs to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available, plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the Issue Date of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the Issue Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Debt or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Debt with the net cash proceeds from an incurrence of Permitted Refinancing Debt; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (v) the payment for services rendered by affiliates, in the ordinary course of the Company's business and consistent with past practices, pursuant to the terms of those arrangements currently in effect on the Issue Date (including extensions of such arrangements on terms substantially the same as those in existence on the Issue Date), (vi) for such time that none of the officers of the Company receive direct compensation for services rendered to, for or on behalf of the Company other than as provided under the Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date), the payment of annual fees for management services to NTC not to exceed in any fiscal year 5% of the Company's annual total revenues pursuant to the terms of the Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date); and (vii) the making and consummation of (A) a Asset Sale 37 44 Offer in accordance with the provisions of Sections 3.09 and 4.10 with any Excess Proceeds or (B) a Change of Control Offer with respect to the Notes in accordance with the provisions of Section 4.15. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $1.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the provisions of this Section 4.07 were computed, together with a copy of any fairness opinion or appraisal required by this Indenture. SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any Subsidiary (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any Subsidiary, (ii) make loans or advances to the Company or any Subsidiary or (iii) transfer any of its properties or assets to the Company or any Subsidiary, except for such encumbrances or restrictions existing under or by reason of (a) existing Debt as in effect on the Issue Date, (b) the Senior Credit Facility as in effect as of the Issue Date, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Senior Credit Facility as in effect on the Issue Date, (c) this Indenture and the Notes, (d) applicable law, (e) any instrument governing Debt or Capital Stock of a Person acquired by the Company or any Subsidiary as in effect at the time of such acquisition (except to the extent such Debt was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Debt, such Debt was permitted by the terms of this Indenture to be incurred, (f) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (g) Capital Lease Obligations and purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (h) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Debt being refinanced. SECTION 4.09 INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise (collectively, "incur"), with respect to any Debt (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any Subsidiary to issue any shares of preferred stock; provided, however, that if no Default or Event of Default with respect to the Notes shall have occurred and be continuing, or shall occur as a consequence of the incurrence of such Debt, the Company or any Subsidiary may incur Debt (including Acquired Debt), and the Company may issue Disqualified Stock and 38 45 its Subsidiaries may issue shares of preferred stock if, at the time of such incurrence or issuance and after giving effect to the incurrence of such Debt (and any other Debt incurred since the end of the last full fiscal quarter or fiscal year for which internal financial statements are available and the application of the proceeds thereof), the Debt to Operating Cash Flow Ratio would be less than or equal to 7.00 to 1.0, if such Debt is incurred or such Disqualified Stock or preferred stock is issued on or prior to December 31, 1998, or would be less than or equal to 6.75 to 1.0, if such Debt is incurred or such Disqualified Stock or preferred stock is issued on or prior to December 31, 2000, or would be less than or equal to 6.50 to 1.0, if such Debt is incurred or such Disqualified Stock or preferred stock is issued thereafter; provided that this covenant shall not apply to the incurrence of Debt by the Company so long as all of the proceeds of such Debt are applied to the repurchase of outstanding Notes by the Company pursuant to an offer to purchase Notes pursuant to (x) the provisions of Section 3.07 or 4.13 hereof, or (y) a tender offer made to all Holders of the Notes effected in accordance with all federal and state securities laws, including, without limitation, Rule 14e-1 under the Exchange Act and any other applicable federal or state regulations. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Debt (collectively, "Permitted Debt"): (i) the incurrence by the Company of Debt and letters of credit (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) under Credit Agreements; provided that the aggregate principal amount of all revolving credit Debt outstanding under all Credit Agreements after giving effect to such incurrence, including all Permitted Refinancing Debt incurred to refund, refinance or replace any other Debt incurred pursuant to this clause (i), does not exceed an amount equal to $100.0 million less the aggregate amount of all Net Cash Proceeds of Asset Sales applied to repay any such Debt pursuant to Section 4.10 hereof; (ii) the incurrence by the Company and its Subsidiary of Existing Debt; (iii) the incurrence by the Company of Debt represented by the Notes; (iv) the incurrence by the Company or any of its Subsidiaries of Debt represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount not to exceed $3.0 million at any time outstanding; (v) the incurrence by the Company or any Subsidiary of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Debt that was permitted by this Indenture to be incurred; (vi) the incurrence by the Company or any Subsidiary of intercompany Debt between or among the Company and any of its Wholly Owned Subsidiaries; provided, however, that (i) if the Company is the obligor on such Debt, such Debt is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Debt being held by a Person other than the Company or a Wholly Owned Subsidiary and (B) any sale or other transfer of any such Debt to a Person that is not either the Company or a Wholly Owned Subsidiary shall be deemed, in each case, to constitute an incurrence of such Debt by the Company or such Subsidiary, as the case may be; 39 46 (vii) the incurrence by the Company or any Subsidiary of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Debt that is permitted by the terms of this Indenture to be outstanding; (viii) the guarantee by the Company of Debt of a Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; (ix) the guarantee by the Company or any of the Guarantors of Debt of the Company or a Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; and (x) the incurrence by the Company or any Subsidiary of additional Debt in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Debt incurred to refund, refinance or replace any other Debt incurred pursuant to this clause (x), not to exceed $5.0 million. For purposes of determining compliance with this covenant, in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Debt in any manner that complies with this covenant and such item of Debt will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Debt for purposes of this covenant. SECTION 4.10 ASSET SALES. The Company shall not, and shall not permit any Subsidiary to, consummate an Asset Sale unless: (i) the Company (or such Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of; and (ii) at least 75% of the consideration therefor received by the Company or such Subsidiary is in the form of (a) cash or Cash Equivalents or (b) properties and capital assets (including franchises and licenses required to own and operate such properties) to be used in the same lines of business being conducted by the Company or any Subsidiary at such time, or Equity Interests in one or more Persons which thereby become Wholly Owned Subsidiaries of the Company whose assets consist primarily of such properties and capital assets; provided that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are immediately converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 365 days after an Asset Sale, the Company may, at its option, (a) apply such Net Cash Proceeds to repay Senior Debt (and to correspondingly reduce commitments with respect thereto in the case of revolving borrowings), or (b) commit in writing to apply such Net Cash Proceeds to a Related Business Investment. Pending the final application of any such Net Cash Proceeds, the Company may temporarily reduce Senior Debt outstanding under the Senior Credit Facility or otherwise invest such Net Cash Proceeds in any manner that is not prohibited by this Indenture. Any Net Cash Proceeds from Asset Sales 40 47 that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of the Notes (an "Asset Sale Offer") to purchase the maximum principal amount of the Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of the Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of the Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any Subsidiary to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction taken as a whole is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; (ii) such Affiliate Transaction relates to and is in furtherance of the lines of business the Company was engaged in on the Issue Date or as the Company's business has thereafter evolved in the fields of cable television systems, enhanced video services and advanced telecommunications services, such as Internet access and network data services, and telephony; and (iii) the Company delivers to the Trustee (A)(1) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million prior to a Public Equity Offering, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clauses (i) and (ii) above and that such Affiliate Transaction has been approved by the Board of Directors and (2) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million after the consummation of a Public Equity Offering, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clauses (i) and (ii) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of the Notes of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The provisions described in the foregoing paragraph shall not apply to (u) the payment for services rendered by affiliates, in the ordinary course of the Company's business and consistent with past practices, pursuant to the terms of those arrangements currently in effect on the Issue Date (including extensions of such arrangements on terms substantially the same as those in existence on the Issue Date), (v) customary directors' fees, indemnification and similar arrangements with directors and officers, (w) for such time that none of the officers of the Company receive direct compensation for services rendered to, for or on behalf of the Company other than as provided under the Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date), the payment of annual fees for management services to NTC not to exceed in any fiscal year 5% of the Company's annual total revenues pursuant to the terms of the Management Agreement as currently in effect on the Issue Date (including any extensions of such agreement on terms substantially the same as those in existence on the Issue Date); (x) any employment agreement entered into 41 48 by the Company or any Subsidiary in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (y) transactions between or among the Company and/or its Subsidiaries and (z) Restricted Payments that are permitted by Section 4.07 hereof. SECTION 4.12 LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien that secures obligations under any Pari Passu Debt or Subordinated Debt on any asset or property of the Company or such Subsidiary, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Notes are equally and ratably secured with the obligations so secured or until such time as such obligations are no longer secured by a Lien. SECTION 4.13 SPECIAL REPURCHASE OFFER. In the event the Company's pending acquisition of certain cable television systems of InterMedia Partners of Carolina, L.P. and Robin Cable Systems, L.P. (the "Acquisition") is not consummated by March 1, 1998, each Holder of the Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Special Repurchase Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Special Repurchase Payment"). The Company shall mail a notice to each Holder of the Notes no later than March 31, 1998 describing the reasons the Acquisition was not consummated by such date and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Special Repurchase Payment Date"), pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with any Special Repurchase Offer. On the Special Repurchase Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Special Repurchase Offer, (ii) deposit with the Trustee an amount equal to the Special Repurchase Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Trustee shall promptly mail to each Holder of the Notes so tendered the Special Repurchase Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Special Repurchase Offer on or as soon as practicable after the Special Repurchase Payment Date. The Senior Credit Facility shall specifically permit the Company, without first obtaining any consents or waivers, to make the Special Repurchase Offer and to make the Special Repurchase Payment, whether through the drawing by the Company of committed lines thereunder or otherwise. The Company shall exercise or extend, on or before January 15, 1998, its commitment under the Supplemental Credit Facility to have available for drawing an amount equal to 100% of the Special Repurchase Payment in the event all of the Notes are tendered for repurchase. 42 49 SECTION 4.14 CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. SECTION 4.15 OFFER TO REPURCHASE UPON CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each Holder of the Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder of the Notes describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 90 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by this Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Trustee an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of the Notes or portions thereof being purchased by the Company. The Trustee will promptly mail to each Holder of the Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section 4.15, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of the Notes required by this Section 4.15. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. 43 50 SECTION 4.16 LIMITATION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Debt that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes and no Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Debt that is subordinate or junior in right of payment to any senior guarantees and senior in any respect in right of payment to the Subsidiary Guarantees. SECTION 4.17 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any Subsidiary (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any Subsidiary, (ii) make loans or advances to the Company or any Subsidiary or (iii) transfer any of its properties or assets to the Company or any Subsidiary, except for such encumbrances or restrictions existing under or by reason of (a) existing Debt as in effect on the Issue Date, (b) the Senior Credit Facility as in effect as of the Issue Date, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Senior Credit Facility as in effect on the Issue Date, (c) this Indenture and the Notes, (d) applicable law, (e) any instrument governing Debt or Capital Stock of a Person acquired by the Company or any Subsidiary as in effect at the time of such acquisition (except to the extent such Debt was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Debt, such Debt was permitted by the terms of this Indenture to be incurred, (f) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (g) Capital Lease Obligations and purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (h) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Debt being refinanced. SECTION 4.18 ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any Subsidiary shall acquire or create another Subsidiary after the date of this Indenture, then such newly acquired or created Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the terms of this Indenture. SECTION 4.19 RESTRICTION ON PREFERRED STOCK OF SUBSIDIARIES. The Company shall not permit any Subsidiary to issue any preferred stock (except preferred stock to the Company or a Subsidiary), or permit any Person (other than the Company or a Subsidiary) to own or hold an interest in any preferred stock unless the Company or such Subsidiary would be entitled to incur Debt (other than Permitted Debt) under the Debt to Operating Cash Flow Ratio test set forth in the first paragraph of Section 4.09 hereof in the aggregate principal amount equal to the aggregate liquidation value of the preferred stock to be issued. 44 51 SECTION 4.20 PAYMENTS FOR CONSENT. Neither the Company nor any Subsidiary shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 5. SUCCESSORS SECTION 5.01 MERGER, CONSOLIDATION OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction, no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) would have Consolidated Net Worth immediately after giving effect to the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) immediately after giving pro forma effect thereto, would be permitted to incur at least $1.00 of additional Debt pursuant to the Debt to Operating Cash Flow Ratio test set forth in the first paragraph of Section 4.09 hereof. SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" or the "Guarantor," as the case may be, shall refer instead to the successor corporation and not to the Company or the Guarantor, as the case may be), and may exercise every right and power of the Company or the applicable Guarantor, as the case may be, under this Indenture with the same effect as if such successor Person had been named as the Company or the applicable Guarantor, as the case may be, herein; provided, however, that the predecessor Company and the predecessor Subsidiaries that are Guarantors shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. 45 52 ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01 EVENTS OF DEFAULT. Each of the following constitutes an "Event of Default": (a) a default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by Article 10 hereof); (b) a default in the payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by Article 10 hereof); (c) the Company fails to comply with any of the provisions of Section 4.07, 4.09, 4.10, 4.13 or 4.15 hereof; (d) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Debt for money borrowed by the Company or any of any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary), whether such Debt or guarantee now exists, or is created after the Issue Date, which default results in the acceleration of such Debt prior to its express maturity and, in each case, the principal amount of any such Debt, together with the principal amount of any other such Debt the maturity of which has been so accelerated, aggregates $5.0 million or more; (f) the Company or any Subsidiary fails to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (g) except as provided by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor shall deny or disaffirm its obligations under its Subsidiary Guarantee; (h) the Company, any Guarantor or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 46 53 (i) is for relief against the Company, any Guarantor or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a Custodian of the Company, any Guarantor or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company, any Guarantor or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 6.02 ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (g) or (h) of Section 6.01 hereof with respect to the Company, any Guarantor, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after November 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to November 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on November 15 of the years set forth below, as set forth below (expressed as percentages of principal amount):
YEAR PERCENTAGE ---- ---------- 1997................. 111.958% 1998................. 110.250% 1999................. 108.542% 2000................. 106.833%
47 54 2001................. 105.125% SECTION 6.03 OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04 WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05 CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06 LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. 48 55 A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08 COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company or any of the Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10 PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: 49 56 First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE SECTION 7.01 DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; 50 57 (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02 RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or any Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) Except for (i) a default under Section 6.01(a) or (b) hereof, or (ii) any other event of which the Trustee has "actual knowledge" and which event, with the giving of notice or the passage of time or both, would constitute an Event of Default under this Indenture, the Trustee shall not be deemed to have 51 58 notice of any Default or Event of Default unless specifically notified in writing of such event by the Company or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding. SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledge of Notes and may otherwise deal with the Company, any Guarantors, or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest, as defined in TIA Section 310(b), it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04 TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes, or the Subsidiary Guarantees, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05 NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07 COMPENSATION AND INDEMNITY. The Company and the Guarantors shall pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors shall reimburse the Trustee promptly upon request for all reasonable 52 59 disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 7.07) and defending itself against or investigating any claim (whether asserted by the Company, any Guarantor, or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or willful misconduct. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company and the Guarantors of their obligations hereunder. The Company and the Guarantors shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Guarantors shall pay the reasonable fees and expenses of such counsel. The Company and the Guarantors need not pay for any settlement made or default judgment taken against the Trustee without its consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Guarantors under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08 REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or 53 60 (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's and the Guarantors' obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10 ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation or trust company organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and either (i) that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition or (ii) is a wholly-owned subsidiary of a bank, a trust company or a bank holding company that has a combined capital surplus of at least $100 million as set forth in the most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 54 61 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes and Subsidiary Guarantees on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and the Guarantors shall be deemed to have paid and discharged the entire Debt represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's and the Guarantors' obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13 and 4.15 hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "Outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(f) hereof shall not constitute Events of Default. 55 62 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Debt all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that on the day following the last day of the applicable preference period under Bankruptcy Law following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or the Guarantors or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or the Guarantors; and 56 63 (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company or the Guarantors for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantors' obligations under this Indenture, the Notes, and the Subsidiary Guarantees, as applicable, shall be revived and reinstated as though no deposit 57 64 had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company or the Guarantors make any payment of principal, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company and the Guarantors shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors, and the Trustee may amend or supplement this Indenture, the Notes, or the Subsidiary Guarantees without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article Five hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Guarantors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and each of the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.02, the Company, the Guarantors, and the Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10, 4.13 and 4.15 hereof), the Subsidiary Guarantees, and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Notes, or the Subsidiary Guarantees may be waived with the consent of 58 65 the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Guarantors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and each of the Guarantors in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, except as provided above with respect to Sections 3.09, 4.10, 4.13 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal, premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal, premium, if any, or interest on the Notes; or (g) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants contained in Section 3.09, 4.10, 4.13 or 4.15 hereof); or 59 66 (h) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of this Indenture (which relate to subordination) shall require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of the Notes. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture, the Notes, or the Subsidiary Guarantees shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company and the Guarantors may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company and the Guarantors agree, and each Holder by accepting a Note agrees, that the Debt evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or 60 67 hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. SECTION 10.02. [INTENTIONALLY OMITTED.] SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company or any Guarantor in a liquidation or dissolution of the Company or such Guarantor, or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or such Guarantor or its property, in an assignment for the benefit of creditors or any marshaling of the Company's or such Guarantor's assets and liabilities: (1) holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before Holders of the Notes shall be entitled to receive any payment with respect to the Notes (except that Holders may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof); and (2) until all Obligations with respect to Senior Debt (as provided in subsection (1) above) are paid in full, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof), as their interests may appear. SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT. The Company and the Guarantors may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: (i) a default in the payment of any principal or other Obligations with respect to Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) any other default on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Person who may give it pursuant to Section 10.12 hereof. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (i) at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Securities that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. 61 68 The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (1) the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.04(ii) hereof, 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. SECTION 10.05. ACCELERATION OF SECURITIES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. SECTION 10.08. SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Debt pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made 62 69 under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. SECTION 10.09. RELATIVE RIGHTS. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Debt evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Debt of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. 63 70 The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representative of the Designated Senior Debt is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. SECTION 10.14. AMENDMENTS. The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Debt. ARTICLE 11. SUBSIDIARY GUARANTEES SECTION 11.01. SUBSIDIARY GUARANTEES. Subject to the provisions of this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of, premium, if any, and interest on the Notes will be promptly paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee under this Indenture and the Notes will be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Notes; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions of this Indenture and the Notes, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that the Subsidiary Guarantees will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company or Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or Guarantors, any amount paid by either to the Trustee or such Holder, these Subsidiary 64 71 Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that they shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of these Subsidiary Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of these Subsidiary Guarantees. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under these Subsidiary Guarantees. SECTION 11.02. LIMITATION OF GUARANTOR'S LIABILITY Each Guarantor and, by its acceptance hereof, each Holder hereof, hereby confirm that it is their intention that the Subsidiary Guarantee by such Guarantor not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Subsidiary Guarantees. To effectuate the foregoing intention, each such person hereby irrevocably agrees that the obligation of such Guarantor under its Subsidiary Guarantee under this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any rights to contribution of such Guarantor pursuant to any agreement providing for an equitable contribution among such Guarantor and other Affiliates of the Company of payments made by guarantees by such parties, result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent conveyance. Each Holder, by accepting the benefits hereof, confirms its intention that, in the event of bankruptcy, reorganization or other similar proceeding of the Company or any Guarantor in which concurrent claims are made upon such Guarantor hereunder, to the extent such claims will not be fully satisfied, each such claimant with a valid claim against the Company shall be entitled to a ratable share of all payments by such Guarantor in respect of such concurrent claims. SECTION 11.03. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES. To evidence the Subsidiary Guarantees set forth in Section 11.01 hereof, each Guarantor hereby agrees that a notation of the Subsidiary Guarantees substantially in the form of Exhibit E shall be endorsed by an officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents and attested to by an Officer. Each Guarantor hereby agrees that the Subsidiary Guarantees set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Subsidiary Guarantees. If an officer or Officer whose signature is on this Indenture or on the Subsidiary Guarantees no longer holds that office at the time the Trustee authenticates the Note on which the Subsidiary Guarantees are endorsed, the Subsidiary Guarantees shall be valid nevertheless. 65 72 The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantees set forth in this Indenture on behalf of the Guarantors. SECTION 11.04. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. (a) Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to the Company. (b) Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into a corporation or corporations other than the Company (whether or not affiliated with the Guarantor), or successive consolidations or mergers in which a Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to a corporation other than the Company (whether or not affiliated with the Guarantor) authorized to acquire and operate the same; provided, however, that with respect to such transaction, each Guarantor hereby covenants and agrees that: (i) upon any such consolidation, merger, sale or conveyance, the Subsidiary Guarantee endorsed on the Notes, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Guarantor, shall be expressly assumed (in the event that the Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the corporation formed by such consolidation, or into which the Guarantor shall have been merged, or by the corporation which shall have acquired such property; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth immediately after giving effect to such transaction equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction; and (iv) the Company would be permitted by virtue of the Company's pro forma Debt to Operating Cash Flow Ratio, at the time of such transaction and immediately after giving pro forma effect thereto, be permitted to incur at least $1.00 of additional Debt pursuant to the Debt to Operating Cash Flow Ratio test set for in Section 4.09 hereof. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantees endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. SECTION 11.05. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any sale of assets (including, if applicable, all of the capital stock of any Guarantor), any Liens in favor of the Trustee in the assets sold thereby shall be released; provided that in the event of an Asset Sale, the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.10 hereof. If the assets sold in such sale or other disposition include all or 66 73 substantially all of the assets of any Guarantor or all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of a Guarantor) shall be released and relieved of its obligations under its Subsidiary Guarantee or Section 11.04 hereof, as the case may be; provided that in the event of an Asset Sale, the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantees. Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. SECTION 11.06. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 11 shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Article 11 in place of the Trustee. SECTION 11.07. SUBORDINATION OF SUBSIDIARY GUARANTEES. The obligations of each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall be junior and subordinated to the prior payment in full of all Senior Debt of such Guarantor and the amounts for which the Guarantors will be liable under the guarantees issued from time to time with respect to Senior Debt on the same basis as the Notes are junior and subordinated to Senior Debt. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 11 hereof. ARTICLE 12. MISCELLANEOUS SECTION 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 12.02. NOTICES. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: 67 74 Northland Cable Television, Inc. 1201 Third Avenue, Suite 3600 Seattle, Washington 98101 Telecopier No.: (206) 623-9015 Attention: Vice President and General Counsel With a copy to: Cairncross & Hempelmann, P.S. 70th Floor, Columbia Center 701 Fifth Avenue Seattle, Washington 98104-7016 Telecopier No.: (206) 587-2308 Attention: Scott T. Bell, Esq. If to the Trustee: Harris Trust Company of California 601 South Figueroa, Suite 4900 Los Angeles, California 90017 Telecopier No.: (213) 239-0631 Attention: Corporate Trust Department The Company, any Guarantor, or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). 68 75 SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantors shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 12.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, this Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 12.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES. 69 76 SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture or the Subsidiary Guarantees. SECTION 12.10. SUCCESSORS. All agreements of the Company and the Guarantors in this Indenture, the Notes and the Subsidiary Guarantees shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 12.11. SEVERABILITY. In case any provision in this Indenture, the Notes, or the Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 70 77 SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 71 78 SIGNATURES Dated as of November 12, 1997 NORTHLAND CABLE TELEVISION, INC. By: /s/ GARY S. JONES -------------------------------- Name: Gary S. Jones Title: Chief Financial Officer Attest: /s/ JOHN S. WHETZELL - -------------------------------- Name: John S. Whetzell Title: President NORTHLAND CABLE NEWS, INC. By: /s/ GARY S. JONES -------------------------------- Name: Gary S. Jones Title: Chief Financial Officer Attest: /s/ JOHN S. WHETZELL - -------------------------------- Name: John S. Whetzell Title: President HARRIS TRUST COMPANY OF CALIFORNIA By: /s/ JOHN T. DELERAY -------------------------------- Name: John T. Deleray Title: Assistant Vice President Attest: /s/ JOHN A. CASTELLANOS - -------------------------------- Name: John A. Castellanos Title: Assistant Vice President 72 79 EXHIBIT A-1 (Face of Note) ================================================================================ CUSIP/CINS ____________ 10 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007 No. ___ $__________ NORTHLAND CABLE TELEVISION, INC. promises to pay to _________________________________________________ or registered assigns, the principal sum of ________________________________________________ Dollars on November 15, 2007. Interest Payment Dates: May 15 and November 15 Record Dates: May 1 and November 1 Dated: Northland Cable Television, Inc. By:__________________________________ Name: Title: By:__________________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: Harris Trust Company of California, as Trustee By: __________________________________ Authorized Signatory ================================================================================ A1-1 80 (Back of Note) 10 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007 [Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture] [Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture] Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Northland Cable Television, Inc., a Washington corporation (the "Company"), promises to pay interest on the principal amount of this Note at 10 1/4% per annum from the date hereof until maturity and shall pay the Additional Interest payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Additional Interest semi-annually on May 15 and November 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be May 15, 1998. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Additional Interest, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Additional Interest on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Harris Trust Company of California, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of the Guarantors may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of November 12, 1997 ("Indenture") between the Company, the Guarantors, and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of A1-2 81 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the indenture shall govern and be controlling. The Notes are obligations of the Company limited to $150.0 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to November 15, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on November 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2002......................... 105.125% 2003......................... 103.417% 2004......................... 101.708% 2005 and thereafter.......... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to November 15, 2000, the Company may redeem up to 30% of the aggregate principal amount of the Notes issued under this Indenture with the Net Cash Proceeds of a Public Equity Offering at a redemption price equal to 110.25% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date; provided that at least 70% of the Notes remain outstanding immediately after the occurrence of such redemption and that such redemption occurs within 45 days of the date of the closing of such Public Equity Offering. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase in accordance with the procedures set forth in A1-3 82 the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. (c) If the Acquisition is not consummated by March 1, 1998, each Holder of the Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes (the "Special Repurchase Offer") pursuant to Section 4.13 of the Indenture at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Special Repurchase Payment"). The Company shall mail a notice to each Holder of the Notes no later than March 31, 1998 describing the reasons the Acquisition was not consummated by such date and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Special Repurchase Payment Date"), pursuant to the procedures required by the Indenture. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Notes, or the Subsidiary Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture, the Notes or the Subsidiary Guarantees may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. A1-4 83 12. DEFAULTS AND REMEDIES. Events of Default include: (i) a default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by Article 10 hereof); (ii) a default in the payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by Article 10 hereof); (iii) failure by the Company to comply with Section 4.07, 4.09, 4.10, 4.13 or 4.15 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company to comply with certain other agreements in the Indenture or the Notes; (v) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Debt for money borrowed by the Company or any of any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary), whether such Debt or guarantee now exists, or is created after the Issue Date, which default results in the acceleration of such Debt prior to its express maturity and, in each case, the principal amount of any such Debt, together with the principal amount of any other such Debt the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) except as provided by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company or the Guarantors, as such, shall not have any liability for any obligations of the Company or the Guarantors under the Indenture, the Notes or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). A1-5 84 17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of November 12, 1997, among the Company, the Guarantor, and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Northland Cable Television, Inc. 1201 Third Avenue, Suite 3600 Seattle, Washington 98101 Attention: Vice President and General Counsel A1-6 85 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ___________________ Your Signature: __________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee: _____________________________ A1-7 86 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10, 4.13 or 4.15 of the Indenture, check the box below: [ ] Error! Switch argument not specified. Section 4.10 [ ] Error! Switch argument not specified. Section 4.13 [ ] Error! Switch argument not specified. Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10, Section 4.13 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ Date: ______________________ Your Signature: _______________________________ (Sign exactly as your name appears on the Note) Tax Identification No.: _______________________ Signature Guarantee: __________________________ A1-8 87 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount Amount of Amount of increase [at maturity] of Signature of decrease in in Principal this Global Note authorized Principal Amount Amount following such signatory of [at maturity] of [at maturity] of decrease (or Trustee or Note Date of Exchange this Global Note this Global Note increase) Custodian - ---------------- ---------------- ---------------- ---------------- ---------------
A1-9 88 EXHIBIT A-2 (Face of Regulation S Temporary Global Notes) ================================================================================ CUSIP/CINS ____________ 10 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007 No. ___ $__________ NORTHLAND CABLE TELEVISION, INC. promises to pay to _________________________________________________ or registered assigns, the principal sum of ________________________________________________ Dollars on November 15, 2007. Interest Payment Dates: May 15 and November 15 Record Dates: May 1 and November 1 Dated: Northland Cable Television, Inc. By:___________________________________ Name: Title: By:___________________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: Harris Trust Company of California, as Trustee By: __________________________________ Authorized Signatory ================================================================================ A2-1 89 (Back of Regulation S Temporary Global Note) 10 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (the "SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN OF RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (1) ABOVE. A2-2 90 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Northland Cable Television, Inc., a Washington corporation (the "Company"), promises to pay interest on the principal amount of this Note at 10 1/4% per annum from the date hereof until maturity and shall pay the Additional Interest payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Additional Interest semi-annually on May 15 and November 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be May 15, 1998. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Additional Interest, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Additional Interest on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Harris Trust Company of California, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of the Guarantors may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of November 12, 1997 ("Indenture") between the Company, the Guarantors, and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the indenture shall govern and be controlling. The Notes are obligations of the Company limited to $150.0 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. A2-3 91 (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to November 15, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on November 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2002......................... 105.125% 2003......................... 103.417% 2004......................... 101.708% 2005 and thereafter.......... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to November 15, 2000, the Company may redeem up to 30% of the aggregate principal amount of the Notes issued under this Indenture with the Net Cash Proceeds of a Public Equity Offering at a redemption price equal to 110.25% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date; provided that at least 70% of the Notes remain outstanding immediately after the occurrence of such redemption and that such redemption occurs within 45 days of the date of the closing of such Public Equity Offering. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. A2-4 92 (c) If the Acquisition is not consummated by March 1, 1998, each Holder of the Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes (the "Special Repurchase Offer") pursuant to Section 4.13 of the Indenture at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Special Repurchase Payment"). The Company shall mail a notice to each Holder of the Notes no later than March 31, 1998 describing the reasons the Acquisition was not consummated by such date and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Special Repurchase Payment Date"), pursuant to the procedures required by the Indenture. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Notes, or the Subsidiary Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture, the Notes or the Subsidiary Guarantees may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) a default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by Article 10 hereof); (ii) a default in the payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by Article 10 hereof); (iii) failure by the Company to comply with Section 4.07, 4.09, 4.10, 4.13 or 4.15 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company to comply with certain other agreements in the Indenture or the Notes; (v) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Debt for A2-5 93 money borrowed by the Company or any of any Subsidiary (or the payment of which is guaranteed by the Company or any Subsidiary), whether such Debt or guarantee now exists, or is created after the Issue Date, which default results in the acceleration of such Debt prior to its express maturity and, in each case, the principal amount of any such Debt, together with the principal amount of any other such Debt the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) except as provided by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company or the Guarantors, as such, shall not have any liability for any obligations of the Company or the Guarantors under the Indenture, the Notes or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of November 12, 1997, among the Company, the Guarantor, and the parties named on the signature pages thereof (the "Registration Rights Agreement"). A2-6 94 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Northland Cable Television, Inc. 1201 Third Avenue, Suite 3600 Seattle, Washington 98101 Attention: Vice President and General Counsel A2-7 95 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Debenture to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ______________________ Your Signature: _________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee: ____________________________ A2-8 96 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10, 4.13 or 4.15 of the Indenture, check the box below: [ ] If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10, Section 4.13 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ Date: ______________________ Your Signature: __________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.: _________________________ Signature Guarantee: ____________________________ A2-9 97 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount Amount of Amount of increase [at maturity] of Signature of decrease in in Principal this Global Note authorized Principal Amount Amount following such officer of [at maturity] of [at maturity] of decrease (or Trustee or Note Date of Exchange this Global Note this Global Note increase) Custodian - ---------------- ---------------- ---------------- --------------- ---------------
A2-10 98 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Northland Cable Television, Inc. 1201 Third Avenue, Suite 3600 Seattle, Washington 98101 [Registrar address block] Re: 10 1/4% Senior Subordinated Notes due 2007 of Northland Cable Television, Inc. Reference is hereby made to the Indenture, dated as of November 12, 1997 (the "Indenture"), among Northland Cable Television, Inc. as issuer (the "Company"), Northland Cable News, Inc., as Guarantor, and Harris Trust Company of California, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S TEMPORARY GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration B-1 99 requirements of the Securities Act, and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Regulation S Temporary Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed B-2 100 Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ________________________________________ [Insert Name of Transferor] By: ____________________________________ Name: Title: Dated: __________________, ______ B-3 101 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (A) OR (B)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP ________), or (iii) [ ] IAI Global Note (CUSIP ________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP ________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP ________); or (iv) [ ] Unrestricted Global Note (CUSIP ________); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 102 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Northland Cable Television, Inc. 1201 Third Avenue, Suite 3600 Seattle, Washington 98101 [Registrar address block] Re: 10 1/4% Senior Subordinated Notes due 2007 of Northland Cable Television, Inc. (CUSIP ____________) Reference is hereby made to the Indenture, dated as of November 12, 1997 (the "Indenture"), among Northland Cable Television, Inc. as issuer (the "Company"), Northland Cable News, Inc., as Guarantor and Harris Trust Company of California, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. _____________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. C-1 103 (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]: [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ________________________________________ C-2 104 [Insert Name of Owner] By: ____________________________________ Name: Title: Dated: _________________, ______ C-3 105 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Northland Cable Television, Inc. 1201 Third Avenue, Suite 3600 Seattle, Washington 98101 [Registrar address block] Re: 10 1/4% Senior Subordinated Notes due 2007 OF Northland Cable Television, Inc. Reference is hereby made to the Indenture, dated as of November 12, 1997 (the "Indenture"), among Northland Cable Television, Inc., as issuer (the "Company"), Northland Cable News, Inc., as Guarantor, and Harris Trust Company of California, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144 under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. D-1 106 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. We further understand that any subsequent transfer by us of the Notes or beneficial interest therein acquired by us must be effected through one of the Placement Agents. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. _________________________________________ [Insert Name of Accredited Investor] By: _____________________________________ Name: Title: Dated: _________________, ______ D-2 107 EXHIBIT E FORM OF SUBSIDIARY GUARANTEE ____________________________, a __________________ corporation (hereinafter referred to as the "Guarantor," which term includes any successor or additional Guarantor under the Indenture (the "Indenture") referred to in the Note upon which this notation is endorsed), (i) has unconditionally guaranteed (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity or interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of and (if lawful) interest on the Notes, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee. No stockholder, officer, director or incorporator, as such, past, present or future, of the Guarantor shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. This Subsidiary Guarantee shall be binding upon the Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. The obligations of the Guarantor to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantees and the Indenture are expressly subordinated to the extent set forth in Article 10 of the Indenture and reference is hereby made to such Indenture for the precise terms of such subordination. [NAME OF GUARANTOR] By: _____________________________________ Name: Title: E-1 EX-10.1 7 AMENDED/RESTATED CREDIT AGREEMENT DATED 11/12/97 1 EXHIBIT 10.1 NORTHLAND CABLE TELEVISION, INC. AMENDED AND RESTATED CREDIT AGREEMENT This Agreement, dated as of November 12, 1997, is among NORTHLAND CABLE TELEVISION, INC., the LENDERS and THE FIRST NATIONAL BANK OF CHICAGO, as Agent. The parties hereto agree as follows: WHEREAS, the Borrower (this and other capitalized terms shall have the respective meanings set forth in Article I hereinbelow), the Agent, and certain Lenders (the "Prior Lenders") have entered into that certain Credit Agreement dated as of August 23, 1994, as heretofore amended (as so amended the "Prior Agreement") pursuant to which the Prior Lenders agreed to make extensions of credit available to the Borrower on the terms and conditions set forth therein; and WHEREAS, the Borrower, the Agent, and the Lenders party hereto desire to amend the Prior Agreement in certain respects more fully described hereinafter; and WHEREAS, pursuant to the terms of this Agreement, on the Effective Date, (i) all loans and other obligations of the Borrower to the Prior Lenders outstanding as of such date shall be deemed to be loans and obligations outstanding hereunder, and (ii) all provisions of this Agreement not previously in effect shall become effective; NOW, THEREFORE, in consideration of the undertakings set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree that, effective upon the Effective Date, the Prior Agreement is hereby amended and restated in its entirety to read as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership or membership interests 2 in a limited liability company. "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by the applicable Lenders to the Borrower of the same Type under the same Facility and, in the case of Eurodollar Advances, for the same Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agent" means The First National Bank of Chicago in its capacity as agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "Aggregate Commitment" means the Aggregate Facility A Commitment or the Aggregate Facility B Commitment, as appropriate. "Aggregate Facility A Commitment" means the aggregate of the Facility A Commitments of all the Lenders (including amounts outstanding thereunder), as reduced from time to time pursuant to the terms hereof. "Aggregate Facility B Commitment" means the aggregate of the Facility B Commitments of all the Lenders (including amounts outstanding thereunder), as reduced from time to time pursuant to the terms hereof. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of Federal Funds Effective Rate for such day plus 1/2% per annum. "Annualized Operating Cash Flow" means, as at any date of determination thereof, the product of Operating Cash Flow for the most recently ended fiscal quarter of the Borrower multiplied by four. Page 2 3 "Applicable Margin" means, as appropriate, the applicable margin set forth in Section 2.4. "Arranger" means First Chicago Capital Markets, Inc., a Delaware corporation, and its successors. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of John S. Whetzell, President of the Borrower; Richard I. Clark, Vice President and Treasurer of the Borrower; Gary S. Jones, Vice President of the Borrower; or such other officers of the Borrower as the Borrower may designate in writing to the Agent from time to time, acting singly. "Borrower" means Northland Cable Television, Inc., a Washington corporation and Wholly-Owned Subsidiary of NTC, and its successors and assigns. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.8. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Capital Expenditures" means, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including that portion of Capitalized Leases which is capitalized on the balance sheet of the Borrower) by the Borrower and its Subsidiaries during that period that, determined in accordance with Agreement Accounting Principles, are required to be included in or reflected by the property, plant or equipment or similar fixed asset accounts reflected in the balance sheet of the Borrower, but excluding expenditures in respect of Permitted Acquisitions requiring the consent of the Required Lenders that would otherwise be deemed "Capital Expenditures" hereunder. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the obligations of Page 3 4 such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CATV Franchise" means, collectively, (i) any franchise, license, permit, wire agreement or easement granted by any political jurisdiction or unit or other franchising authority pursuant to which a Person has the right to operate a CATV System, (ii) any pole attachment agreement or underground conduit use agreement entered into in connection with the operation of any CATV System, and (iii) any legislation, regulation, bill, ordinance, agreement or other instrument or document setting forth all or any part of the terms of any FCC License or franchise, license, permit, wire agreement or easement described in clause (i) of this definition. "CATV System" means a system owned by the Borrower or any Subsidiary which transmits audio, video, digital or other signals or information by cable, optical, antennae, microwave, or satellite means, to Persons who pay to receive such transmissions. "Change in Control" means (i) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock of NTC; or (ii) NTC shall cease to own, free and clear of all Liens or other encumbrances, 100% of the outstanding shares of voting stock of the Borrower on a fully diluted basis. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Collateral" means, collectively, "Collateral" as defined in each of the Collateral Documents. "Collateral Documents" means, collectively, the Security Agreement, the Pledge Agreement, any security agreement delivered by a Subsidiary pursuant to Section 6.23.2, and all other agreements, instruments, or documents necessary to effect the purposes of the Security Agreement, the Pledge Agreement, and such other security agreement, including, without limitation, UCC-1 Financing Statements suitable for filing in the appropriate jurisdictions. "Commitment" means a Facility A Commitment or a Facility B Commitment, as appropriate. "Condemnation" is defined in Section 7.8. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or Page 4 5 provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract, or application for a Letter of Credit. "Conversion Balance" means the aggregate principal amount of Advances outstanding under Facility B on the Conversion Date after giving effect to any voluntary Advances repaid under Facility B on such date. "Conversion Date" means March 31, 1998. "Conversion/Continuation Notice" is defined in Section 2.9. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Cumulative Leakage Index" means the permitted index or range of radiation leakage computed in accordance with the rules of the FCC and applicable to CATV Systems. "Debt" of a Person means such Person's (a) (i) indebtedness for borrowed money (including accrued but unpaid interest that is due and owing), (ii) guarantees, (iii) Letters of Credit, (iv) obligations under non-compete agreements and (v) Capitalized Lease Obligations of such Person and its Subsidiaries; but excluding (b) (i) intercompany debt and (ii) solely for purposes of calculating compliance with Section 6.19, Indebtedness represented by Subordinated Seller Notes. "Default" means an event described in Article VII. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Effective Date" means the Business Day on which (a) the Borrower, the Agent and the Lenders have executed this Agreement and (b) all conditions to the effectiveness of this Agreement have been satisfied. "Eurodollar Advance" means an Advance which bears interest at a Eurodollar Rate. Page 5 6 "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the rate determined by the Agent to be the rate at which deposits in U.S. dollars are offered by First Chicago to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of First Chicago's relevant Eurodollar Loan and having a maturity approximately equal to such Interest Period. "Eurodollar Loan" means a Loan which bears interest at a Eurodollar Rate. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, if any, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Excess Cash Flow" means, for any fiscal year, (a) the sum of (i) Operating Cash Flow for such fiscal year and (ii) cash and cash equivalents on hand at the last day of the immediately preceding fiscal year (up to a maximum of $500,000) minus (b) the sum of, without duplication, (i) Capital Expenditures, (ii) payments of interest (including administrative fees payable to the Agent and any commitment fee paid on the unused portion of the Aggregate Commitment) and scheduled principal (exclusive of mandatory prepayments made for Excess Cash Flow during such period), (iii) the increase, as of the last day of such fiscal year from the last day of the immediately preceding fiscal year, in the excess of current assets (less cash and short-term investments) over current liabilities, (iv) taxes paid, and (vi) cash used for Acquisitions and associated transaction costs, all calculated for such fiscal year for Borrower and its Subsidiaries on a consolidated basis. "FCC" means the Federal Communications Commission or any other regulatory body which succeeds to the functions of the Federal Communications Commission. "FCC License" means any community antenna relay service, broadcast auxiliary license, business radio, microwave or special safety radio service license issued by the FCC pursuant to the Communications Act of 1934, as amended. "Facility" means Facility A or Facility B, as appropriate. "Facility A" means a revolving credit facility in the amount of the Aggregate Facility A Commitment utilized under this Agreement pursuant to Section 2.1.1. "Facility A Commitment" means, for each Lender, the obligation of such Lender to make Loans under Facility A not exceeding the amount set forth opposite its name on Schedule Page 6 7 "1" hereto (but subject to Section 2.1.1) or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Facility A Lenders" means, collectively, Lenders having Facility A Commitments. "Facility A Note" means a promissory note, in substantially the form of Exhibit "A" hereto, duly executed by the Borrower and payable to the order of a Lender in the amount of its Facility A Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Facility A Reduction Basis" means the amount of the Aggregate Facility A Commitment on March 31, 1999 after giving effect to any voluntary reduction in the Aggregate Facility A Commitment on such date. "Facility A Termination Date" means December 31, 2005. "Facility B" means a revolving credit facility (converting to a term loan facility on the Conversion Date) in the amount of the Aggregate Facility B Commitment utilized under this Agreement pursuant to Section 2.1.2. "Facility B Commitment" means, for each Lender, the obligation of such Lender to make term Loans under Facility B not exceeding the amount set forth opposite its name on Schedule "1" hereto or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Facility B Lenders" means, collectively, Lenders having Facility B Commitments. "Facility B Note" means a promissory note, in substantially the form of Exhibit "B" hereto, duly executed by the Borrower and payable to the order of a Lender in the amount of its Facility B Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Facility B Termination Date" means December 31, 2005. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized Page 7 8 standing selected by the Agent in its sole discretion. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Fixed Charge Coverage Ratio" means, at any date of determination thereof, the ratio of (i)(a) the sum of (1) Operating Cash Flow for the period of twelve consecutive complete calendar months ending on or most recently ended prior to such date, plus (2) cash and cash equivalents on hand on the last day of the most recently ended fiscal quarter (up to a maximum of $500,000), plus (3) insurance proceeds used to acquire replacement Property in accordance with Section 6.6, minus (b) the sum of taxes and Capital Expenditures during such twelve-month period; to (ii) the payments of interest, fees (including administrative fees payable to the Agent and any commitment fee paid on the unused portion of the Aggregate Commitment but excluding any upfront and structuring fees payable to the Agent or to any underwriters in connection with the Senior Subordinated Notes) and scheduled principal with respect to Indebtedness required to be made during such twelve-month period; all calculated for the Borrower and its Subsidiaries on a consolidated basis. "Floating Rate" means, for any day, a rate per annum equal to (i) the Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which bears interest at the Floating Rate. "Indebtedness" of a Person means such Person's (a) (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease Obligations, and (vi) Contingent Obligations; but excluding (b) (i) intercompany debt and (ii) solely for purposes of calculating compliance with Section 6.19, Indebtedness represented by Subordinated Seller Notes. "Interest Coverage Ratio" means, at any date of determination thereof, the ratio of Operating Cash Flow to interest expense on Debt (including administrative fees payable to the Agent and any commitment fee paid on the unused portion of the Aggregate Commitment), all calculated for the most recently ended fiscal quarter. "Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three, or, six months commencing on a Business Day selected by the Borrower pursuant to this Page 8 9 Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three, or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third, or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third, or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Intermedia Acquisition" means the acquisition by the Borrower of cable television subscribers in or near the communities of Aiken, Greenwood, Wareshoals, Saluda, McCormick, and Edgefield, South Carolina pursuant to that certain Asset Purchase Agreement by and between the Borrower as buyer and Intermedia Partners of Carolina, L.P. and Robin Cable Systems, L.P. as sellers dated as of August 27, 1997, as it may be amended from time to time. "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Agent, any office, branch, subsidiary or affiliate of such Lender or the Agent. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Leverage Ratio" means the ratio of (i) Debt of the Borrower as at the last day of any fiscal quarter of the Borrower to (ii) Annualized Operating Cash Flow as of the end of such fiscal quarter. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). Page 9 10 "Loan" means, with respect to a Lender, such Lender's portion of any Advance. "Loan Documents" means this Agreement, the Notes, the Security Agreement (and any agreements, instruments, or documents executed by the Borrower necessary to effect the purposes of the Security Agreement) and the Subordination Agreement. "Management Fee Report" means a report substantially in the form of Exhibit "I" hereto. "Management Fees" means fees payable to NTC as permitted under Section 6.21. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower or any Subsidiary to perform its obligations under the Transaction Documents, (iii) the ability of NTC to perform its obligations under the Pledge Agreement, or (iv) the validity or enforceability of any of the Transaction Documents or the rights or remedies of the Agent or the Lenders thereunder. "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "NCN" means Northland Cable News, Inc., a Washington corporation and Wholly-Owned Subsidiary of the Borrower, and its successors and assigns. "NCN Documents" means the security agreement and guaranty of NCN required under Section 6.23.2 and any agreements, instruments, or documents executed by NCN necessary to effect the purposes of such security agreement. "NTC" means Northland Telecommunications Corporation, a Washington corporation, and its successors and assigns. "Notes" means, collectively, the Facility A Notes and the Facility B Notes, and "Note" means any one of the Facility A Notes or the Facility B Notes. "Notice of Assignment" is defined in Section 12.3.2. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Agent or any indemnified party hereunder arising under the Loan Documents. Page 10 11 "Operating Cash Flow" means, for any period of determination thereof, the sum of (a) pre-tax income or deficit, as the case may be (excluding extraordinary gains and losses and gains and losses from sales of assets), (b) interest expense, (c) depreciation and amortization, and (d) deferred Management Fees, all calculated for the Borrower and its Subsidiaries for such period after giving effect to any acquisitions and disposition of assets of the Borrower and its Subsidiaries made during such period as if made on the first day of such period. "Participants" is defined in Section 12.2.1. "Payment Date" means the last day of each March, June, September, and December. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Permitted Acquisition" means, at any time of determination, any Acquisition by the Borrower or any Subsidiary which has been approved or consented to by (i) the board of directors or equivalent governing body of the Person whose assets or equity interests are to be acquired and (ii) in the event that the aggregate consideration for such Acquisition exceeds $2,000,000, the Required Lenders. "Person" means any natural person, corporation, firm, joint venture, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Pledge Agreement" means an amended and restated pledge agreement in substantially the form of Exhibit "E" hereto, dated as of the date hereof, duly executed and delivered to the Agent by NTC, as the same may be amended or modified and in effect from time to time. "Prior Agreement" is defined in the recitals to this Agreement. "Prior Lenders" is defined in the recitals to this Agreement. "Pro Forma Debt Service" means, at any date of determination thereof, the aggregate amount of payments of interest (including administrative fees payable to the Agent and any commitment fee to be paid on the unused portion of the Aggregate Commitment) and principal (excluding payments of principal required hereunder pursuant to Section 2.2.3) on Indebtedness required to be made by the Borrower and its Subsidiaries during the period of twelve consecutive complete calendar months commencing on the first day of the next calendar month succeeding such date of determination. For purposes of this ratio, pro forma interest on Debt shall be calculated at the Eurodollar Rate for an Interest Period of three months in effect Page 11 12 on the date of calculation. "Pro Forma Debt Service Ratio" means, at any date of determination thereof, the ratio of Annualized Operating Cash Flow to Pro Forma Debt Service, in each case calculated as at such date of determination. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Purchasers" is defined in Section 12.3.1. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Rentals" of a Person means the aggregate fixed amounts payable by such Person under any lease of Property having an original term (including any required renewals or any renewals at the option of the lessor or lessee) of one year or more but does not include any amounts payable under Capitalized Leases of such Person. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, Page 12 13 that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having at least 66_% of the Aggregate Commitments or, if a Default has occurred and is continuing or if the Aggregate Commitments have been terminated, Lenders in the aggregate holding at least 66_% of the aggregate unpaid principal amount of the outstanding Advances. "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Secured Obligations" means, collectively, (i) the Obligations and (ii) all Rate Hedging Obligations owing to one or more Lenders. "Security Agreement" means an amended and restated security agreement in substantially the form of Exhibit "D" hereto, dated as of the date hereof, duly executed and delivered to the Agent by the Borrower, as the same may be amended or modified and in effect from time to time. "Senior Debt" means, as at any date of determination, total Debt minus any outstanding Debt that on its terms is subordinated to senior indebtedness. "Senior Leverage Ratio" means, as at the last day of any fiscal quarter, the ratio of (i) Senior Debt as at the last day of such fiscal quarter to (ii) Annualized Operating Cash Flow for the fiscal quarter then ending. "Senior Subordinated Notes" means those certain 10 1/4% Senior Subordinated Notes issued by the Borrower in the aggregate amount of $100,000,000 due 2007 under that certain Indenture of even date herewith among the Borrower, NCN, and Harris Trust Company of California as trustee. "Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "Subject Year" is defined in Section 2.2.3. "Subordination Agreement" means an amended and restated subordination agreement in Page 13 14 substantially the form of Exhibit "F" hereto, dated as of the date hereof, duly executed by the Borrower, NTC, and the Agent on behalf of the Lenders as the same may be amended or modified and in effect from time to time. "Subordinated Indebtedness" of a Person means any Indebtedness of such Person the payment of which is subordinated to payment of the Obligations to the written satisfaction of the Required Lenders. "Subordinated Seller Notes" means subordinated notes evidencing Subordinated Indebtedness issued to a seller in connection with a Permitted Acquisition representing a holdback of not more than 5 percent of the aggregate consideration for such Permitted Acquisition. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Subsidiary Guaranty" means a guaranty in substantially the form of Exhibit "C" hereto, with appropriate insertions, duly executed and delivered to the Agent by a Subsidiary in accordance with Section 6.23.2, as the same may be amended or modified and in effect from time to time. "Substantial Portion" means, with respect to the Property of the Borrower and its Subsidiaries, Property which (i) represents more than 10% of the consolidated assets (before depreciation and amortization) of the Borrower and its Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 10% of the consolidated net sales or of the consolidated net income of the Borrower and its Subsidiaries as reflected in the financial statements referred to in clause (i) above. "Transaction Documents" means the Loan Documents, the Collateral Documents, any Subsidiary Guaranty, and the Subordination Agreement. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or Eurodollar Advance. Page 14 15 "Unfunded Liabilities" means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS 2.1. Commitments 2.1.1. Facility A Commitment. From and including the Effective Date and prior to the Facility A Termination Date, each Facility A Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Borrower under Facility A from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Facility A Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow under Facility A at any time prior to the Facility A Termination Date. The Facility A Commitments to lend hereunder shall expire on the Facility A Termination Date. 2.1.1. Facility B Commitment. From and including the Effective Date and prior to the Conversion Date, each Facility B Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Borrower under Facility B from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Facility B Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow under Facility B at any time prior to the Conversion Date. The Facility B Commitments to lend hereunder shall expire on the Conversion Date. Principal payments made after the Conversion Date on Advances made under Facility B may not be reborrowed. Page 15 16 2.2. Required Payments; Termination. 2.2.1. Facility A. The outstanding balance of Advances made under Facility A shall be payable in full on the Facility A Termination Date. The Borrower shall also make such mandatory prepayments as may be required upon giving effect to a reduction in the Aggregate Facility A Commitment pursuant to Section 2.5.3 so that the amount of Advances outstanding under Facility A at any time does not exceed the Aggregate Facility A Commitment as in effect at such time. 2.2.2. Facility B. Installments of the Conversion Balance shall be payable on each Payment Date commencing with March 31, 1998 through and including the Facility B Termination Date. Each installment due on a Payment Date set forth below shall be in an amount equal to the lesser of the amount set forth opposite such Payment Date or the remaining balance of Advances outstanding under Facility B. Page 16 17
PAYMENT DATE AMOUNT ------------ ------ 3/31/98 $250,000 6/30/98 $250,000 9/30/98 $250,000 12/31/98 $250,000 3/31/99 $562,500 6/30/99 $562,500 9/30/99 $562,500 12/31/99 $562,500 3/31/00 $750,000 6/30/00 $750,000 9/30/00 $750,000 12/31/00 $750,000 3/31/01 $1,750,000 6/30/01 $1,750,000 9/30/01 $1,750,000 12/31/01 $1,750,000 3/31/02 $2,750,000 6/30/02 $2,750,000 9/30/02 $2,750,000 12/31/02 $2,750,000 3/31/03 $3,687,500 6/30/03 $3,687,500 9/30/03 $3,687,500 12/31/03 $3,687,500 3/31/04 $4,500,000 6/30/04 $4,500,000 9/30/04 $4,500,000 12/31/04 $4,500,000 3/31/05 $4,500,000 6/30/05 $4,500,000 9/30/05 $4,500,000 Facility B Termination Date balance
2.2.3. Mandatory Prepayments. In addition to the scheduled installments due on Advances under the Facilities as set forth above, if the Leverage Ratio as of December 31 of any year (a "Subject Year") commencing with 1998 is greater than 5.0 to 1.0, the Borrower shall, on or before April 1 of the following year, commencing April 1, 1999, make a mandatory prepayment of Advances under Facility A and Page 17 18 Facility B in an amount equal to 50% of the Excess Cash Flow, if positive, for the Subject Year. Prepayments made under this Section 2.2.3 shall be applied first against installments due under Section 2.2.2 with respect to Facility B in the inverse order of maturity and then against installments due under Section 2.2.1 and Section 2.5.3 with respect to Facility A in the inverse order of maturity. 2.2.4. Termination. All other unpaid Obligations shall be paid in full by the Borrower on the earliest to occur of (i) the Facility A Termination Date, (ii) the Facility B Termination Date, and (iii) the date on which all Commitments have expired or been terminated and no Advances are outstanding. 2.3. Ratable Loans. Each Advance hereunder shall consist of Loans made under a Facility from the several Lenders ratably in proportion to the ratio that their respective Commitments under such Facility bear to the Aggregate Commitment under such Facility. 2.4. Types of Advances; Applicable Margin. Advances under either Facility may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.8 and 2.9. The Applicable Margin shall be based on the Leverage Ratio in accordance with the table below. The Leverage Ratio shall be determined from the financial statements delivered by the Borrower pursuant to Sections 6.1 (i) and (ii). The adjustment, if any, to the Applicable Margin shall be effective beginning on the fifth Business Day after the delivery of such financial statements. Until financial statements for the first quarter ending after the date hereof have been delivered, the maximum Applicable Margin shall apply.
APPLICABLE MARGIN ------------------------------ LEVERAGE RATIO FACILITY A & B - --------------------------------- ------------------------------ Greater than or equal to But less than Floating Eurodollar - ------------------------------------------------------------------------- 6.5 - 1.750% 3.000% 6.0 6.5 1.500% 2.750% 5.5 6.0 1.250% 2.500% 5.0 5.5 1.000% 2.250% 4.5 5.0 0.750% 2.000% 4.0 4.5 0.500% 1.750% 3.5 4.0 0.250% 1.500% 3.0 3.5 0.000% 1.250% - 3.0 0.000% 1.000%
Page 18 19 2.5. Fees; Reductions in Aggregate Commitments. 2.5.1. Commitment Fees. The Borrower agrees to pay to the Agent for the account of each Lender a commitment fee of .5% per annum on the daily unborrowed portion of (i) such Lender's Facility A Commitment from the date hereof to and including the Facility A Termination Date (or such earlier date upon which the Aggregate Facility A Commitment has been permanently cancelled) and (ii) such Lender's Facility B Commitment from the date hereof to and including the Conversion Date (or such earlier date upon which the Aggregate Facility B Commitment has been permanently cancelled), in each case payable on each Payment Date hereafter, on the Conversion Date, and on the Facility A Termination Date. All accrued commitment fees under this Section 2.5.1 shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder. 2.5.2. Agent's Fee. The Borrower agrees to pay to the Agent, for its own account, such fees as the Borrower and the Agent may agree upon from time to time. 2.5.3. Mandatory Facility A Reductions. The Aggregate Facility A Commitment shall be permanently reduced quarterly on each Payment Date commencing with March 31, 1999 through and including the Facility A Termination Date. Each reduction in the Aggregate Facility A Commitment on a Payment Date set forth below shall be in an amount equal to the lesser of (i) the percentage of the Facility A Reduction Basis for each Payment Date set forth below opposite such year and (ii) the then-effective Aggregate Facility A Commitment.
ANNUAL YEAR % (EACH PAYMENT DATE) REDUCTION ---- --------------------- --------- 1999 0.75% 3.0% 2000 1.25% 5.0% 2001 1.75% 7.0% 2002 2.50% 10.0% 2003 3.75% 15.0% 2004 5.00% 20.0% 2005 10.00% 40.0%
2.5.4. Voluntary Reductions. The Borrower may permanently reduce any Aggregate Commitment in whole, or in part ratably among the applicable Lenders in integral multiples of $500,000, upon at least three Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment under a Facility may not be reduced below the aggregate principal amount of the outstanding Advances under such Facility. Page 19 20 2.6. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in the minimum amount of $1,000,000 (and in multiples of $500,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $500,000 (and in multiples of $500,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the applicable unused Aggregate Commitment. 2.7. Optional Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $500,000 or any integral multiple of $500,000 in excess thereof any portion of the outstanding Floating Rate Advances upon three Business Days' prior written notice to the Agent. The Borrower may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $1,000,000 or any integral multiple of $500,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days' prior notice to the Agent. The Borrower may designate to which Facility any payment under this Section 2.7 shall apply. Principal payments made under this Section 2.7 on or after the Conversion Date on Advances outstanding under Facility B shall be applied to principal installments of Facility B payable under Section 2.2.2 in the inverse order of maturity. 2.8. Method of Selecting Types and Interest Periods for New Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable to each Advance from time to time. The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Chicago time) at least one Business Day before the Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Facility under which such Advance is to be borrowed, (ii) the Borrowing Date, which shall be a Business Day, of such Advance, (iii) the aggregate amount of such Advance, (iv) the Type of Advance selected, and (v) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans, in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIII. The Agent will make the funds so received from the Lenders available to the Borrower at the Agent's aforesaid address. Page 20 21 2.9. Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Section 2.4 and Section 2.6, the Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances; provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least one Business Day, in the case of a conversion into a Floating Rate Advance, or three Business Days, in the case of a conversion into or continuation of a Eurodollar Advance, prior to the date of the requested conversion or continuation, specifying: (i) the requested date which shall be a Business Day, of such conversion or continuation; (ii) the aggregate amount and Type of the Advance which is to be converted or continued; and (iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto. 2.10. Changes in Interest Rate, Etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9 to but excluding the date it becomes due or is converted into a Eurodollar Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Advance. No Interest Period for Advances under Facility A may end after the Facility A Termination Date and no Interest Period for Advances under Facility B may end after the Facility B Termination Date. The Borrower shall select Interest Periods so that it is not necessary to repay any portion of a Eurodollar Advance prior to the last day of the applicable Interest Period in order to make a mandatory repayment required pursuant to Section 2.2. Page 21 22 2.11. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.8 or 2.9, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. If any Advance is not paid at maturity, whether by acceleration or otherwise, the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate otherwise applicable to the Floating Rate Advance plus 2% per annum. 2.12. Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders to whom such Obligations are due. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Borrower maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder. 2.13. Notes; Telephonic Notices. Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its applicable Note, provided, however, that the failure to so record (or any error in such recordation) shall not affect the Borrower's obligations under such Note. The Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any Authorized Officer. The Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.14. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, and at maturity. Interest accrued on each Eurodollar Page 22 23 Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest and commitment fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.15. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof but in any event before the close of business on the day of such receipt, the Agent will notify each affected Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Agent will notify the Borrower and each affected Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give the Borrower and each Lender prompt notice of each change in the Alternate Base Rate. 2.16. Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. 2.17. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Agent for the account of any Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. Page 23 24 2.18. Withholding Tax Exemption. At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. ARTICLE III CHANGE IN CIRCUMSTANCES 3.1. Yield Protection. If after the date of this Agreement any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender therewith, (i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in Page 24 25 determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by such Lender, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans and its applicable Commitment. 3.2. Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender reasonably determines is attributable to this Agreement, its Loans or its obligation to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. Availability of Types of Advances. If any Lender reasonably determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance, then the Agent shall suspend the availability of the affected Type of Advance and require any Eurodollar Page 25 26 Advances of the affected Type to be repaid. The Borrower shall not be required to repay any Eurodollar Advance under this Section 3.3 prior to the last day of the applicable Interest Period unless such delay in repayment would violate any applicable law, rule, regulation, or directive, whether or not having the force of law. 3.4. Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each affected Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Advance. 3.5. Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of Advance under Section 3.3, so long as such designation is not disadvantageous to such Lender. Each Lender shall deliver to the Agent and the Borrower a written statement of such Lender as to the amount due, if any, under Sections 3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the Borrower of the written statement. The obligations of the Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and termination of this Agreement for up to one year. ARTICLE IV CONDITIONS PRECEDENT 4.1. Initial Advance. The Lenders shall not be required to make the initial Advance hereunder unless the Borrower has furnished to the Agent with sufficient copies for the Lenders: (i) Copies of the articles of incorporation of the Borrower, together with all amendments, and a certificate of existence, both certified by the appropriate Page 26 27 governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for the Agent) authorizing the execution of the Loan Documents. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Loan Documents and to make borrowings hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. (iv) Copies of the articles of incorporation of NTC, together with all amendments, and a certificate of existence, both certified by the appropriate governmental officer in its jurisdiction of incorporation. (v) Copies, certified by the Secretary or Assistant Secretary of NTC, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for the Agent) authorizing the execution of the Pledge Agreement and any agreements, instruments, or documents executed by NTC necessary to effect the purposes of the Pledge Agreement. (vi) An incumbency certificate, executed by the Secretary or Assistant Secretary of NTC, which shall identify by name and title and bear the signature of the officers of NTC authorized to sign the Pledge Agreement. (vii) Copies of the articles of incorporation of NCN, together with all amendments, and a certificate of existence, both certified by the appropriate governmental officer in its jurisdiction of incorporation. (viii) Copies, certified by the Secretary or Assistant Secretary of NCN, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for the Agent) authorizing the execution of the NCN Documents. (ix) An incumbency certificate, executed by the Secretary or Assistant Secretary of NCN, which shall identify by name and title and bear the signature of the officers of NCN authorized to sign the NCN Documents. (x) A certificate, signed by a senior financial officer of the Borrower, stating Page 27 28 that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing. (xi) A written opinion of counsel to the Borrower, NTC, and NCN, addressed to the Lenders in substantially the form of Exhibit "G" hereto. (xii) Notes payable to the order of each of the Lenders. (xiii) The Security Agreement, together with all agreements, instruments, and documents necessary to effect the purpose of the Security Agreement under applicable law, including without limitation duly executed UCC-1 financing statements describing the security interest of the Agent on behalf of the Lenders in the "Collateral" (as that term is defined in the Security Agreement) and acceptable for filing in the appropriate public offices in each jurisdiction which the Agent deems necessary or advisable to perfect the security interest created thereby. (xiv) The Pledge Agreement, together with (i) all stock certificates representing the Pledged Stock (as defined therein), (ii) stock powers duly executed in blank and (iii) duly executed UCC-1 financing statements describing the security interest of the Agent on behalf of the Lenders in the "Collateral" (as that term is defined in the Pledge Agreement) and acceptable for filing in the appropriate public offices in each jurisdiction which the Agent deems necessary or advisable to perfect the security interest created thereby. (xvi) A Subsidiary Guaranty duly executed and delivered to the Agent by NCN. (xvii) A security agreement duly executed and delivered to the Agent by NCN as required pursuant to Section 6.23.2, together with all agreements, instruments, and documents necessary to effect the purpose of such security agreement under applicable law, including without limitation duly executed UCC-1 financing statements describing the security interest of the Agent on behalf of the Lenders in the "Collateral" (as that term is defined in such security agreement) and acceptable for filing in the appropriate public offices in each jurisdiction which the Agent deems necessary or advisable to perfect the security interest created thereby. (xviii) Evidence satisfactory to the Agent and its counsel that the Agent is designated as loss payee on behalf of the Lenders on all insurance policies on the Property of the Borrower, together with any necessary documentation evidencing the assignment and perfection of the Lenders' security interest therein. Page 28 29 (xix) The insurance certificate described in Section 5.17. (xx) The Subordination Agreement. (xxi) A subscriber report in respect of each CATV System owned by the Borrower and its Subsidiaries by region as of June 30, 1997. (xxii) Evidence satisfactory to the Agent and its counsel that the Borrower, NTC, and the Subsidiaries shall have made all filings and registrations with, or obtained all material approvals, orders, authorizations, franchises, consents, licenses, certificates and permits (including, without limitation, all CATV Franchises and FCC Licenses) from, the FCC, other federal, state and local regulatory or governmental bodies and authorities (including, without limitation, state and local filing or recording offices), and other Persons which are or may be required prerequisites to the validity, enforceability or non-voidability of the Transaction Documents or the pledge of the capital stock of the Borrower and the Subsidiaries or other assets subject to the Liens created pursuant to the Collateral Documents. (xxiii) Copies of the most recent Cumulative Leakage Index reports for the Borrower and its Subsidiaries, together with such other reports on environmental matters as the Agent may request, each of which shall be in form and substance satisfactory to the Agent and the Lenders. (xxiv) Evidence satisfactory to the Agent and its counsel that, prior to or simultaneously with the occurrence of the Effective Date, the Borrower shall have received the proceeds of the Senior Subordinated Notes. (xxv) Written money transfer instructions, in substantially the form of Exhibit "K" hereto, addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (xxvi) Such other documents as any Lender or its counsel may have reasonably requested. 4.2. Advances for Permitted Acquisitions. The Lenders shall not be required to make any Advance hereunder the proceeds of which are or are to be used in connection with a Permitted Acquisition unless, in addition to satisfying the conditions set forth in Sections 4.1 and 4.3, the Borrower has furnished to the Agent with sufficient copies for the Lenders: (i) Copies, certified by the Secretary or Assistant Secretary of the Borrower, of the agreements, instruments, and documents governing such Permitted Page 29 30 Acquisition (including the most recent financial statements of the Acquisition candidate if available to the Borrower and documents evidencing or governing any Subordinated Seller Notes issued in connection with such Permitted Acquisition), which, together with all other aspects of such Permitted Acquisition, shall be in form and substance reasonably satisfactory to the Agent. (ii) Evidence satisfactory to the Agent and its counsel that all material approvals, authorizations, filings, registrations, consents, licenses, certificates and permits (including, without limitation, transfer documents or orders with respect to all affected CATV Franchises and FCC Licenses) in connection with such Permitted Acquisition have been or shall be obtained or made, as appropriate, from or with the FCC, other federal, state and local regulatory or governmental bodies and authorities (including, without limitation, state and local filing or recording offices), and other Persons which are or may be required prerequisites to the validity, enforceability or non-voidability of the Transaction Documents or the pledge of the capital stock of the Borrower and the Subsidiaries or other assets subject to the Liens created pursuant to the Collateral Documents. (iii) Copies of the most recent Cumulative Leakage Index reports for the assets being acquired in such Permitted Acquisition, together with such other reports on environmental matters as the Agent may request, each of which shall be in form and substance satisfactory to the Agent and the Lenders. (iv) Any documents required pursuant to Section 6.23.2. (v) Such other documents related to such Permitted Acquisition as any Lender or its counsel may have reasonably requested. 4.3. Each Advance. The Lenders shall not be required to make any Advance (other than an Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Advances), unless on the applicable Borrowing Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V are true and correct as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date. Page 30 31 (iii) The Borrower has delivered to the Agent a statement setting forth the Leverage Ratio (after giving effect to the contemplated Advance) as of such Borrowing Date. (iv) All legal matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel. Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.3(i) and (ii) have been satisfied. Notwithstanding anything herein to the contrary, in the event that the Leverage Ratio indicated in the statement delivered pursuant to Section 4.3(iii) exceeds the applicable permitted Leverage Ratio as set forth in Section 6.19.4, the Lenders shall not be obligated to make the contemplated Advance. Any Lender may require a duly completed compliance certificate in substantially the form of Exhibit "H" hereto (after giving effect to the contemplated Advance) as a condition to making an Advance. ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: 5.1. Corporate Existence and Standing. Each of the Borrower and its Subsidiaries is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5.2. Authorization and Validity. The Borrower has the corporate power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or the Borrower's or any Subsidiary's articles of incorporation or by-laws or Page 31 32 the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No material order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents. The execution and delivery of the Transaction Documents does not constitute the transfer, assignment or disposition in any manner, voluntarily or involuntarily, directly or indirectly, of any license issued as of this date by the FCC in connection with the operation of any of the CATV Systems, or the transfer of control of the Borrower or any Subsidiary, within the meaning of Section 310(d) of the Communications Act of 1934, as amended. 5.4. Financial Statements. The December 31, 1996 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended. 5.5. Material Adverse Change. Since December 31, 1996, there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. Taxes. The Borrower and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingencies. Except as set forth on Schedule "4" hereto, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. Other than any liability incident to such litigation, arbitration or proceedings, the Borrower has no material contingent obligations with respect to any litigation, arbitration, governmental investigation, proceeding or inquiry not provided for or disclosed in the financial statements Page 32 33 referred to in Section 5.4. 5.8. Subsidiaries. Schedule "2" hereto, as supplemented or modified by the Borrower in writing from time to time, contains an accurate list of all of the presently existing Subsidiaries of the Borrower, setting forth their respective jurisdictions of incorporation and the percentage of their respective capital stock owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of capital stock of such Subsidiaries have been duly authorized and issued and are fully paid and non-assessable. 5.9. ERISA. The Borrower has no Unfunded Liabilities. Neither the Borrower nor any other member of the Controlled Group has incurred, or is reasonably expected to incur, any withdrawal liability to Multiemployer Plans. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan. 5.10. Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Subsidiaries to the Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.11. Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction under which non-defaulting performance could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect or (ii) any agreement or instrument evidencing or governing Indebtedness in excess of $100,000 in the aggregate. 5.13. Compliance With Laws, Etc. The Borrower and its Subsidiaries have materially complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property (including, without limitation, those relating to the Cumulative Leakage Index). The Borrower and the Subsidiaries have obtained all material franchises, licenses, consents, approvals and authorizations granted or issued by any public or governmental body, agency or Page 33 34 authority necessary and appropriate to operate the CATV Systems and all such franchises, licenses, certificates, consents, approvals and authorizations are in full force and effect. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.14. Ownership of Properties. Except as set forth on Schedule "3" hereto, on the date of this Agreement, the Borrower and its Subsidiaries will have good title, free of all Liens other than those permitted by Section 6.18, to all of the Property and assets reflected in the financial statements as owned by it. 5.15. Investment Company Act. Neither the Borrower nor any Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 5.16. Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.17. Insurance. The certificate signed by the President or a senior officer of the Borrower, that attests to the existence and adequacy of, and summarizes, the property and casualty insurance program carried by the Borrower and that has been furnished by the Borrower to the Agent and the Lenders, is complete and accurate as of the date of this Agreement. This summary includes the insurer's or insurers' name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary also includes similar information, and describes any reserves, relating to any self-insurance program that is in effect. 5.18. Solvency. (i) Immediately after the consummation of the transactions contemplated by this Agreement and immediately following the making of each Loan, if any, made on the date hereof and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets of the Borrower and the Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Borrower and the Subsidiaries on a consolidated basis; (b) the present fair saleable value of the property of the Borrower and the Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Borrower and the Subsidiaries on a consolidated basis on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) Page 34 35 the Borrower and the Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) the Borrower and the Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof. (ii) The Borrower does not intend to, or to permit any of its Subsidiaries to, and does not believe that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it or any such Subsidiary and the timing of the amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary. ARTICLE VI COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lenders: (i) Within 90 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in generally accepted principles of accounting and required or approved by the Borrower's independent certified public accountants) audit report certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and the Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows, accompanied by (a) any management letter prepared by said accountants, and (b) a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof. (ii) Within 45 days after the close of each quarterly period of each of its fiscal years, for itself and the Subsidiaries, consolidated unaudited balance sheets Page 35 36 as at the close of each such period and consolidated profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, subject to normal year-end audit adjustments, and a Management Fee Report, all certified by a senior financial officer. (iii) Together with the financial statements required under Sections 6.1(i) and (ii), a compliance certificate in substantially the form of Exhibit "H" hereto signed by a senior financial officer showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as available, but in any event within 30 days after the beginning of each fiscal year of the Borrower, a copy of the plan and forecast (including a projected consolidated income statement and funds flow statement) of the Borrower for such fiscal year. (v) Within 270 days after the close of each fiscal year, a statement of the Unfunded Liabilities of each Single Employer Plan, if any, certified as correct by an actuary enrolled under ERISA. (vi) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by a senior financial officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto. (vii) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (viii) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (ix) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission. Page 36 37 (x) Promptly upon the request of the Agent or any Lender, copies of all material amendments or renewals of material franchises, licenses, consents, approvals and authorizations granted or issued by any public or governmental body, agency or authority necessary and appropriate to operate the CATV Systems and of all other material nonroutine communications between the Borrower or any Subsidiary and the FCC or any other federal, state, or local regulatory entity having jurisdiction over the Borrower or such Subsidiary. (xi) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Advances to refinance Indebtedness existing prior to the effective date of this Agreement, for working capital purposes, to finance the purchase of approximately 35,000 cable television subscribers and other costs of the Intermedia Acquisition, for other general corporate purposes, to make other Permitted Acquisitions, and to repay outstanding Advances. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U) or to make any other Acquisition. 6.3. Notice of Default, Etc. The Borrower will, and will cause each Subsidiary to, give prompt notice in writing to the Agent, which shall promptly notify the Lenders, of the occurrence of (a) any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect; (b) the receipt by the Borrower or any Subsidiary of any notice from any federal, state or local governmental or regulatory body or authority of the expiration without renewal, termination, material modification or suspension of, or institution of any proceedings to terminate, materially modify, or suspend, any CATV Franchise, FCC License or other license granted by any governmental authority now or hereafter held by the Borrower or any Subsidiary the lack of which could reasonably be expected to have a Material Adverse Effect; or (c) any state or local statute, regulation or ordinance or judicial or administrative order, or any federal judicial or administrative order specifically addressed to the Borrower or any Subsidiary, limiting or controlling the operations of the Borrower or any Subsidiary which has been issued or adopted hereafter and which could reasonably be expected to have a Material Adverse Effect on the operation of any of the CATV Systems. 6.4. Conduct of Business; Maintenance of Licenses. The Borrower will, and will cause each Subsidiary to, (a) carry on and conduct the business of owning and operating the CATV Systems in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted; (b) do all things necessary to remain duly incorporated or organized, validly existing and in good standing as a domestic corporation or partnership in its jurisdiction of incorporation or organization and maintain all requisite authority to conduct Page 37 38 its business in each jurisdiction in which the failure to maintain such authority could reasonably be expected to have a Material Adverse Effect; and (c) do all things necessary to renew, extend and continue in effect all permits, licenses and authorizations which may at any time and from time to time be necessary to operate the CATV Systems in compliance with all applicable laws and regulations, the failure to comply with which could reasonably be expected to have a Material Adverse Effect. 6.5. Taxes. The Borrower will, and will cause each Subsidiary to, pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. 6.6. Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to the Agent upon request full information as to the insurance carried. The Borrower will take all actions (including the execution of appropriate documentation) from time to time reasonably requested by the Agent or any Lender in order to maintain the assignment or perfection of the security interest of the Agent on behalf of the Lenders therein. Unless a Default or Unmatured Default has occurred and is continuing, the Borrower shall be entitled to receive the proceeds of any insurance on the Property of the Borrower and its Subsidiaries provided and to the extent that such insurance proceeds are used to acquire replacement Property within the later to occur of (i) 120 days after the occurrence of the casualty underlying the payment of such proceeds and (ii) 30 days after the receipt of such insurance proceeds by the Borrower or a Subsidiary. The Borrower will deliver to the Agent any insurance proceeds not used to acquire replacement Property within the applicable period. The Lenders shall apply any insurance proceeds they may receive to outstanding Obligations in the order set forth in Section 2.7. 6.7. Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, including, without limitation, all applicable rules and regulations of the FCC and any other state or local regulatory or governmental authority. 6.8. Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times. 6.9. Inspection. The Borrower will, and will cause each Subsidiary to, permit the Lenders, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and Page 38 39 make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate. 6.10. Dividends. The Borrower will not, nor will it permit any Subsidiary to, declare or pay any dividends on its capital stock (other than dividends payable in its own capital stock) or redeem, repurchase or otherwise acquire or retire any of its capital stock at any time outstanding, except that any Subsidiary may declare and pay dividends to the Borrower or to a Wholly-Owned Subsidiary. 6.11. Indebtedness. The Borrower will not, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except: (i) The Loans. (ii) Indebtedness existing on the date hereof and described in Schedule "3" hereto. (iii) Contingent Obligations permitted under Section 6.17. (iv) Rate Hedging Obligations. (v) Indebtedness of any Wholly-Owned Subsidiary to the Borrower. (vi) Capitalized Lease Obligations not exceeding, in the aggregate for the Borrower and the Subsidiaries, $500,000 at any one time outstanding. (vii) The Senior Subordinated Notes and any Subordinated Seller Notes. (viii) Additional Indebtedness not exceeding, in the aggregate for the Borrower and the Subsidiaries, $1,000,000 at any one time outstanding. 6.12. Merger. The Borrower will not, nor will it permit any Subsidiary to, merge or consolidate with or into any other Person, except that a Subsidiary may merge with the Borrower or a Wholly-Owned Subsidiary. 6.13. Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of its Property, to any other Person except for (i) sales of equipment and inventory in the ordinary course of business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction; (ii) the sale or other disposition (other than a sale or disposition described in the preceding clause (i) of this Section 6.13) of Property that is no longer used or useful in the business of the Borrower or the disposing Subsidiary, Page 39 40 provided that, within 30 days of any such sale or other disposition, the Borrower or such Subsidiary, as appropriate, replaces such Property with Property having substantially equivalent value, and (iii) leases, sales or other dispositions of its Property that, together with all other Property of the Borrower and its Subsidiaries previously leased, sold or disposed of as permitted by this clause (iii) of this Section 6.13 during the twelve-month period ending with the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries. 6.14. Sale of Accounts. The Borrower will not, nor will it permit any Subsidiary to, sell or otherwise dispose of any notes receivable or accounts receivable, with or without recourse except in the ordinary course of business on terms and conditions customary in the Borrower's or such Subsidiary's industry. 6.15. Sale and Leaseback. The Borrower will not, nor will it permit any Subsidiary to, sell or transfer any of its Property in order to concurrently or subsequently lease as lessee such or similar Property. 6.16. Investments and Acquisitions. The Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisition of any Person, except: (i) Permitted Acquisitions. (ii) Short-term obligations of, or fully guaranteed by, the United States of America. (iii) Commercial paper rated A-l or better by Standard & Poor's Ratings Group or P-l or better by Moody's Investors Service, Inc. (iv) Demand deposit accounts maintained in the ordinary course of business. (v) Certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000. (vi) Existing Investments in Subsidiaries and other Investments in existence on the date hereof and described in Schedule "2" hereto. 6.17. Contingent Obligations. The Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except (i) by Page 40 41 endorsement of instruments for deposit or collection in the ordinary course of business, (ii) franchise bonds, performance bonds, Letters of Credit required in the ordinary course of business and similar bonds, indemnities, and sureties, in each case not representing, securing, or otherwise involving Indebtedness for borrower money, (iii) to the extent permitted under Section 6.11(vii), (iv) Subsidiary Guaranties, (v) guaranties by Subsidiaries of Indebtedness of other Subsidiaries, and (vi) guaranties by Subsidiaries of Indebtedness of the Borrower which are subordinated to the Subsidiary Guaranties to the written satisfaction of the Required Lenders which shall not be unreasonably withheld or delayed. 6.18. Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or the Subsidiaries. (v) Liens existing on the date hereof and described in Schedule "3" hereto. (vi) Liens in favor of the Lenders granted pursuant to any Collateral Document. (vii) Liens securing additional Indebtedness not exceeding, in the aggregate for the Borrower and the Subsidiaries, $1,000,000 at any one time outstanding. 6.19. Financial Covenants. Page 41 42 6.19.1. Interest Coverage Ratio. The Borrower will maintain, as at the last day of each fiscal quarter ending during the periods set forth below commencing with the fiscal quarter ending December 31, 1997, an Interest Coverage Ratio of not less than the ratio set forth below opposite each such period:
PERIOD RATIO --------------------------------------------- Prior to 12/31/99 1.25:1 12/31/99 through 12/31/01 1.50:1 3/31/02 through 12/31/02 2.00:1 Thereafter 2.25:1
6.19.2. Pro Forma Debt Service Ratio. The Borrower will maintain, as at the last day of each fiscal quarter commencing with the fiscal quarter ending December 31, 1997, a Pro Forma Debt Service Ratio of not less than the ratio set forth below opposite each such period:
PERIOD RATIO --------------------------------------------- Prior to 3/31/99 1.15:1 3/31/99 and thereafter 1.20:1
6.19.3. Fixed Charge Coverage Ratio. The Borrower will maintain, as at the last day of each fiscal quarter commencing with the fiscal quarter ending December 31, 1997, a Fixed Charge Coverage Ratio of not less than 1.05 to 1.0. 6.19.4. Leverage Ratio. The Borrower will maintain at all times during each fiscal quarter ending during the periods set forth below, a Leverage Ratio of not more than the ratio set forth below opposite each such period:
PERIOD RATIO --------------------------------------------- Through 12/31/98 7.00:1 1/1/99 through 12/31/99 6.75:1 1/1/00 through 12/31/00 6.25:1 1/1/01 through 12/31/01 5.75:1 1/1/02 through 12/31/02 5.00:1 1/1/03 through 12/31/03 4.50:1 Thereafter 4.00:1
6.19.5. Senior Leverage Ratio. The Borrower will maintain at all times during each fiscal quarter ending during the periods set forth below, a Senior Leverage Ratio of not more than the ratio set forth below opposite each such period: Page 42 43
PERIOD RATIO --------------------------------------------- Through 12/31/98 4.00:1 1/1/99 through 12/31/99 3.75:1 1/1/00 through 12/31/00 3.50:1 Thereafter 3.00:1
6.20. Affiliates. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction. 6.21. Management Fees. The Borrower may pay Management Fees in cash in the first two months of any fiscal quarter in an amount not in excess of 5% of revenues for such month (as estimated by the Borrower in good faith). The Borrower shall defer payment of Management Fees for the third month of any fiscal quarter until it has delivered quarterly financial statements for such fiscal quarter pursuant to Section 6.1(ii), at which time it shall reduce or adjust Management Fees permitted to be paid as necessary to reflect differences between actual and estimated revenues for prior months in accordance with the actual revenues set forth in such financial statements. Notwithstanding anything in this Section 6.21 to the contrary, no Management Fees may be paid if, before or after giving effect thereto, a Default or Unmatured Default has occurred and is continuing. Any such Management Fees which may not be so paid shall be deferred; Management Fees so deferred may be paid only out of Excess Cash Flow that is not payable to the Lenders and only so long as no Default or Unmatured Default shall exist. 6.22. Subordinated and Other Indebtedness. The Borrower will not, and will not permit any Subsidiary to, make any amendment or modification to the indenture, note or other agreement evidencing or governing any Subordinated Indebtedness, or directly or indirectly voluntarily prepay, defease or in substance defease, purchase, redeem, retire or otherwise acquire, any Subordinated Indebtedness or other Indebtedness. 6.23. Collateral Security; Further Assistance. 6.23.1. Grant of Security. As security for the payment of the Secured Obligations, the Borrower shall cause to be granted to the Agent on behalf of the Lenders a Lien on and security interest in all of the following, whether now or hereafter existing or acquired: (i) all of the outstanding stock of the Borrower and all proceeds thereof, all as more specifically described in the Pledge Agreement; (ii) all of the outstanding equity interests in any Subsidiary and all proceeds thereof; and (iii) all other assets of the Borrower and all proceeds thereof, all as more specifically described Page 43 44 in and subject to the provisions of the Security Agreement. 6.23.2. Subsidiaries. The Borrower shall cause the Secured Obligations to be and remain guarantied in writing by each Subsidiary pursuant to a Subsidiary Guaranty in form and substance satisfactory to the Required Lenders. As security for the payment of any Subsidiary's guaranty of the Secured Obligations, the Borrower shall cause such Subsidiary to grant to the Agent on behalf of the Lenders a Lien on and security interest in all of the assets of such Subsidiary, whether now or hereafter existing or acquired, and all proceeds thereof, all as more specifically described in and subject to the provisions of a security agreement substantially identical to the Security Agreement with appropriate adjustments for such Subsidiary. Upon execution of a Subsidiary Guaranty and security agreement by any Subsidiary created or acquired after the date of this Agreement, the Borrower shall also cause to be delivered to the Agent such items evidencing legal existence, validity, power, and authorization (including, without limitation, an opinion of counsel) comparable to the items required with respect to NCN pursuant to Sections 4.1(vii), (viii), and (ix) as the Agent may reasonably require. 6.23.3. Exercise of Rights. Notwithstanding any other provision of the Transaction Documents, it is the intention of the parties hereto that the security interests and Liens of the Agent in and on the Collateral shall in all relevant aspects be subject to and governed by the Communications Act of 1934 (as such act may be in effect from time to time) or any successor statute or statutes thereto and the respective rules and regulations thereunder, as well as any other federal, state, or other law applicable to or having jurisdiction over the Borrower's or any Subsidiary's industry or the Borrower or any Subsidiary, and that nothing in this Agreement shall be construed to diminish the control exercised by the Borrower except in accordance with the provisions of such statutory requirements and rules and regulations and the terms and conditions of this Agreement. In connection with any exercise by the Agent or any Lender of its right and remedies under the Collateral Documents, it may be necessary to obtain the prior consent or approval of certain Persons, including but not limited to the FCC and other applicable governmental authorities. Upon the exercise by the Agent or the Lenders of any power, right, privilege or remedy pursuant to any Collateral Document which requires any consent, approval, registration, qualification or authorization of any Person, the Borrower will execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments, and other documents and papers that the Agent or the Lenders may be required to obtain for such consent, approval, registration, qualification or authorization. Without limiting the generality of the foregoing, the Borrower will use its best efforts to obtain from the appropriate Persons the necessary consents and approvals, if any, for the effectuation of any sale or sales of pledged interests under the Pledge Agreement upon the occurrence and during the continuance of a Default; and for the exercise of any other right or remedy of the Agent and Lenders under any Collateral Document. The Agent and the Page 44 45 Lenders will cooperate with the Borrower in preparing the filing with any Persons of all requisite applications required to be obtained by the Borrower under this Section 6.23.3. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Transaction Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Note when due, or nonpayment of interest upon any Note or of any commitment fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by the Borrower of any of the terms or provisions of Section 6.2, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19, 6.20, 6.21, 6.22, or 6.23. 7.4. The breach by the Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within five days after written notice from the Agent or any Lender. 7.5. Failure of the Borrower or any of its Subsidiaries or NTC to pay any Indebtedness in the aggregate in excess of $100,000 when due; or the default by the Borrower or any of its Subsidiaries or NTC in the performance of any term, provision or condition contained in any agreement under which any Indebtedness in the aggregate in excess of $100,000 was created or is governed, or any other event shall occur or condition exist, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any Indebtedness of the Borrower or any of its Subsidiaries or NTC in the aggregate in excess of $100,000 shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Borrower or any of its Subsidiaries or NTC shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. The Borrower or any of its Subsidiaries or NTC shall (i) have an order for Page 45 46 relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of the Borrower or any of its Subsidiaries, or NTC, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or NTC or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries or NTC and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a "Condemnation"), all or any portion of the Property of the Borrower and its Subsidiaries or NTC which, when taken together with all other Property of the Borrower and its Subsidiaries or NTC so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion. 7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $100,000, which is not stayed on appeal or otherwise being appropriately contested in good faith. 7.10. The Borrower shall incur Unfunded Liabilities or any Reportable Event shall occur in connection with any Plan. 7.11. The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan. 7.12. The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and Page 46 47 the other members of the Controlled Group (taken as a whole) to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years of each such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs. 7.13. The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to the release by the Borrower or any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation (including, without limitation, those relating to the Cumulative Leakage Index), which, in either case, could reasonably be expected to have a Material Adverse Effect. 7.14. Any Change in Control shall occur. 7.15. The occurrence of any "default," as defined in any Transaction Document (other than this Agreement or the Notes) or the breach of any of the terms or provisions of any Transaction Document (other than this Agreement or the Notes), which default or breach continues beyond any period of grace therein provided. 7.16. Nonpayment by the Borrower of any Rate Hedging Obligation beyond any applicable grace period or the breach by the Borrower of any term, provision or condition contained in any agreement, device or arrangement giving rise to any Rate Hedging Obligation beyond any applicable grace period. 7.17. Any Collateral Document shall for any reason fail to create a valid and perfected first priority security interest in any collateral purported to be covered thereby, except as permitted by the terms of any Collateral Document, or any Collateral Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Collateral Document, or the Borrower or NTC, as applicable, shall fail to comply with any of the terms or provisions of any Collateral Document. 7.18. Any Subsidiary Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Subsidiary Guaranty, or any Subsidiary shall fail to comply with any of the terms or provisions of any Subsidiary Guaranty to which it is a party. 7.19. (a) Any license, authorization, consent or permit (including, without limitation, any CATV Franchise or FCC License) necessary for the ownership or essential for the operation by the Borrower or any Subsidiary of any CATV System shall expire, and on or prior to such expiration, the same shall not have been renewed or replaced by another license, authorization, consent or permit authorizing substantially the same operations of such CATV Page 47 48 System; or (b) any license, authorization, consent or permit (including, without limitation, any CATV Franchise or FCC License) necessary for the ownership or essential for the operation of any CATV System shall be cancelled, revoked, terminated, rescinded, annulled, suspended or modified in a materially adverse respect, or shall no longer be in full force and effect, or the grant or the effectiveness thereof shall have been stayed, vacated, reversed or set aside, and such action shall be no longer subject to further administrative or judicial review; or (c) the FCC shall have issued any hearing designation order in any non-comparative license renewal proceeding or any license revocation proceeding involving any license necessary for the ownership or essential for the operation of any CATV System; or (d) in any comparative (multiple applicant) license renewal proceeding involving any license necessary for the ownership or essential for the operation of any CATV System, any administrative law judge of the FCC (or successor to the functions of an administrative law judge of the FCC) shall have issued an initial decision to the effect that the Borrower or any Subsidiary lacks the qualifications to own or operate such CATV System, and such initial decision shall not have been timely appealed or shall otherwise have become an order that is final and no longer subject to further administrative or judicial review, (provided, however, that none of the foregoing events described in clause (c) or (d) of this Section 7.18 shall constitute a Default if, assuming the final and non-appealable loss by the Borrower or any Subsidiary of any such license, authorization, consent or permit at the conclusion of all legal proceedings incident thereto, such loss would not materially adversely affect the value of the Collateral or the Borrower's or any Subsidiary's ability to perform its obligations under the Transaction Documents); or (e) any CATV System shall fail for any period of five consecutive calendar days to operate or maintain any broadcast signal, and such failure is not covered by business interruption insurance and the revenue stream derived from the particular CATV System failing to so operate or maintain a broadcast signal is material to the revenue stream of the Borrower and the Subsidiaries taken as a whole; or (f) any CATV System shall fail for any period of five consecutive calendar days to maintain a broadcast signal that is material to its operations receivable without either material interference or the use of any equipment other than ordinary consumer antennae and receivers, and such failure is not covered by business interruption insurance and the revenue stream derived from the particular CATV System failing to so operate or maintain a broadcast signal is material to the revenue stream of the Borrower and the Subsidiaries taken as a whole. 7.20. Twenty-five percent (25%) or more of the value of any class of equity interests in the Borrower shall be held by "benefit plan investors" within the meaning of 29 C.F.R. ss.2510.3-101(f). Page 48 49 ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent or any Lender. If any other Default occurs, the Required Lenders may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. If, within 14 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 8.2. Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Transaction Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Extend the maturity of any Loan or Note or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. (ii) Reduce the percentage specified in the definition of Required Lenders. (iii) Extend the Conversion Date, the Facility A Termination Date or the Facility B Termination Date, or reduce the amount or extend the payment dates for, the mandatory payments required under Section 2.2, or increase the amount of any Commitment of any Lender hereunder, or permit the Borrower to assign its rights under this Agreement. (iv) Amend this Section 8.2. (v) Except as provided in the Collateral Documents, release all or substantially all Page 49 50 of the Collateral or any Subsidiary Guaranty. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. 8.3. Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Transaction Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Transaction Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Transaction Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1. Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans herein contemplated. Except as otherwise provided in this Agreement, no representations and warranties of the Borrower and no obligations of the Borrower shall survive beyond the payment in full of the Obligations. 9.2. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Taxes. Any taxes (excluding federal income taxes on the overall net income of any Lender) or other similar assessments or charges made by any governmental or revenue authority in respect of the Transaction Documents shall be paid by the Borrower, together with interest and penalties, if any. 9.4. Headings. Section headings in the Transaction Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Transaction Documents. Page 50 51 9.5. Entire Agreement. The Transaction Documents embody the entire agreement and understanding among the Borrower, NTC, NCN, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, NTC, NCN, the Agent and the Lenders relating to the subject matter thereof. 9.6. Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Arranger shall enjoy the benefits of the provisions of Sections 9.7, 9.11 and 10.10 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.7. Expenses; Indemnification. The Borrower shall reimburse the Agent and the Arranger for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent or the Arranger in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Transaction Documents. The Borrower also agrees to reimburse the Agent, the Arranger, and the Lenders for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, the Arranger, and the Lenders, which attorneys may be employees of the Agent, the Arranger, or the Lenders) paid or incurred by the Agent, the Arranger, or any Lender in connection with the collection and enforcement of the Transaction Documents. The Borrower further agrees to indemnify the Agent, the Arranger, and each Lender, their respective directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, the Arranger, or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Transaction Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 9.8. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.9. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles, except that any calculation or Page 51 52 determination which is to be made on a consolidated basis shall be made for the Borrower and all its Subsidiaries, including those Subsidiaries, if any, which are unconsolidated on the Borrower's audited financial statements. 9.10. Severability of Provisions. Any provision in any Transaction Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Transaction Documents are declared to be severable. 9.11. Nonliability of Lenders. The relationship between the Borrower and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent, the Arranger, nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 9.12. CHOICE OF LAW. THE TRANSACTION DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY TRANSACTION DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND Page 52 53 EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY TRANSACTION DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.15. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender or to a Transferee, (iii) to regulatory officials, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which that Lender is a party, (vi) permitted by Section 12.4, and (vii) of information which has become public through no fault of that Lender. 9.16. Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U) for the repayment of the Loans provided for herein. 9.17. Compliance with Laws. The performance of this Agreement by the Borrower shall be subject at all times to all laws, regulations and rules of the United States of America, and any agency or instrumentality thereof, and of any State, and any agency or instrumentality thereof. None of the Borrower, Agent or Lenders shall be bound by any terms of this Agreement that are in conflict with such law, regulations and rules. 9.18. Approval of Cable Authorities. Notwithstanding any provisions in this Agreement to the contrary, no action shall be taken by the Agent or the Lenders with respect to any items of the Collateral unless and until all necessary requirements, if any, of the Communications Act of 1934, the Cable Communications Policy Act of 1984 and the Cable Television Consumer Protection and Competition Act of 1992 (in each case as it has been or may be amended from time to time) and the respective rules and regulations thereunder, as well as any other federal, state, or other law applicable to or having jurisdiction over the cable television industry or the Borrower or any appropriate Subsidiary have been fully satisfied with respect to such action and there have been obtained such consents, approvals, and authorizations, if any, as may be required to be obtained from the FCC and any other such governmental authority or utility or telephone company under the terms of any franchise, license, or similar operating right held by the Borrower or such Subsidiary and included in the Collateral. It is the intention of the parties hereto that the security interests and liens of the Agent in and on the Collateral shall in all relevant aspects be subject to and governed by said statutes, rules, and regulations and that nothing in this Agreement or any other Transaction Document shall be construed to diminish the control exercised by the Borrower or any Subsidiary except in accordance with the provisions of such statutory requirements and rules and regulations and the terms and conditions of this Agreement and the other Transaction Page 53 54 Documents. Upon the Agent's request, the Borrower agrees that it will use its best efforts to promptly obtain any and all governmental, regulatory, utility, or telephone company consents, approvals, or authorizations referred to in this Section 9.18. 9.19. Effect on Prior Agreement; Ratification. The Borrower, the Agent, and the Lenders agree that, on the Effective Date, all indebtedness, liabilities and obligations of the Borrower to the Prior Lenders outstanding under the Prior Agreement and the promissory notes delivered under the Prior Agreement shall, to the extent not paid on such date, be deemed to be Obligations outstanding under this Agreement and under the Notes. Each Prior Lender party to this Agreement shall, promptly after receipt of its Note under this Agreement, return to the Borrower the promissory notes received by it in connection with the Prior Agreement. The Borrower, the Agent, and the Lenders agree that (i) all terms and conditions of the Prior Agreement which are amended and restated by this Agreement shall remain effective until such amendment and restatement becomes effective under this Agreement, (ii) the representations, warranties and covenants set forth herein shall become effective concurrently with the occurrence of the Effective Date, and (iii) as of the Effective Date, each reference in any Transaction Document to the "Agreement" or "Credit Agreement" shall be deemed to be a reference to the Prior Agreement as amended and restated in the form of this Agreement. ARTICLE X THE AGENT 10.1. Appointment. The First National Bank of Chicago is hereby appointed Agent hereunder and under each other Transaction Document, and each of the Lenders irrevocably authorizes the Agent to act as the agent of such Lender. The Agent agrees to act as such upon the express conditions contained in this Article X. The Agent shall not have a fiduciary relationship in respect of the Borrower or any Lender by reason of this Agreement. 10.2. Powers. The Agent shall have and may exercise such powers under the Transaction Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Transaction Documents to be taken by the Agent. 10.3. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Transaction Document or in connection herewith or therewith except for its or their own gross negligence or willful Page 54 55 misconduct. 10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Transaction Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Transaction Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Agent; (iv) the validity, effectiveness or genuineness of any Transaction Document or any other instrument or writing furnished in connection therewith; or (v) the value, sufficiency, creation, perfection or priority of any interest in any collateral security. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Agent at such time, but is voluntarily furnished by the Borrower to the Agent (either in its capacity as Agent or in its individual capacity). 10.5. Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Transaction Document in accordance with written instructions signed by the Required Lenders (or, if required by Section 8.2, each Lender affected thereby), and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Transaction Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Transaction Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Transaction Document. 10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (i) for any Page 55 56 amounts not reimbursed by the Borrower for which the Agent is entitled to reimbursement by the Borrower under the Transaction Documents, (ii) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Transaction Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Transaction Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Agent. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9. Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Transaction Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Transaction Document, with the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender. 10.10. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent, the Arranger, or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Transaction Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, the Arranger, or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Transaction Documents. 10.11. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. Upon any such resignation, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders and with the consent of the Borrower (which shall not be unreasonably withheld), a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. If the Agent has Page 56 57 resigned and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the effectiveness of the resignation of the Agent, the resigning Agent shall be discharged from its duties and obligations hereunder and under the Transaction Documents. After the effectiveness of the resignation of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Transaction Documents. 10.12. Agent's Fee. The Borrower agrees to pay to the Agent, for its own account, the fees agreed to by the Borrower, the Agent, and the Arranger pursuant to that certain letter agreement dated October 15, 1997, or as otherwise agreed from time to time. 10.13. Execution of Collateral Documents. The Lenders hereby empower and authorize the Agent to execute and deliver to the Borrower on their behalf the Security Agreement and all related financing statements and any financing statements, agreements, documents or instruments as shall be necessary or appropriate to effect the purposes of the Security Agreement. 10.14. Collateral Releases. The Lenders hereby empower and authorize the Agent to execute and deliver to the Borrower on their behalf any agreements, documents or instruments as shall be necessary or appropriate to effect any releases of Collateral which shall be permitted by the terms hereof or of any other Transaction Document or which shall otherwise have been approved by the Required Lenders (or, if required by the terms of Section 8.2, all of the Lenders) in writing. 10.15. Delegation to Affiliates. The Borrower and the Lenders agree that the Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Agent is entitled under Articles IX and X. Page 57 58 ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default or Unmatured Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans under any Facility (other than payments received pursuant to Sections 3.1, 3.2, or 3.4) in a greater proportion than that received by any other Lender under such Facility, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders under such Facility so that after such purchase each Lender will hold its ratable proportion of Loans under such Facility. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. Page 58 59 ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrower or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Transaction Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2. Participations. 12.2.1 Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Transaction Documents, provided that any such sale shall be at no cost to the Borrower. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Transaction Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Transaction Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Transaction Documents. The consent of the Borrower shall be required prior to a participation becoming effective with respect to a Participant which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld or delayed. Page 59 60 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Transaction Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, or releases any substantial portion of collateral, if any, securing any such Loan. 12.2.3. Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Transaction Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Transaction Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3. Assignments. 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Transaction Documents, provided that (i) any such assignment shall be at no cost to the Borrower, and (ii) unless such Lender assigns all of its rights and obligations under the Transaction Documents to a Purchaser, each such assignment shall be in a minimum amount of $5,000,000. Such assignment shall be substantially in the form of Exhibit "J" hereto or in such other form as may be agreed to by the parties thereto. The consents of the Borrower and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld or delayed. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit "1" to Exhibit "J" hereto (a "Notice of Assignment"), together with any consents required by Section 12.3.1, and (ii) payment of a $4,000 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Page 60 61 Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment. 12.4. Dissemination of Information. The consent of the Borrower shall be required prior to disclosure by any Lender to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") other than a Lender or an Affiliate thereof and any prospective Transferee other than a Lender or an Affiliate thereof any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries; provided that each such Transferee and prospective Transferee agrees to be bound by Section 9.15 of this Agreement. Such consent shall not be unreasonably withheld or delayed. 12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.18. Page 61 62 ARTICLE XIII NOTICES 13.1. Giving Notice. Except as otherwise permitted by Section 2.13 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Transaction Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). 13.2. Change of Address. The Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action. Page 62 63 IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement as of the date first above written. NORTHLAND CABLE TELEVISION, INC. By: _____________________________________ James A. Penney Vice President 1201 Third Avenue Suite 3600 Seattle, Washington 98101 Attention: John S. Whetzell President James A. Penney Vice President Telecopier: (206) 674-3950 THE FIRST NATIONAL BANK OF CHICAGO, INDIVIDUALLY AND AS AGENT By: _____________________________________ Ronna Prince Vice President One First National Plaza Chicago, Illinois 60670 Attention: Communications Division Telecopier: (312) 732-8587 Page 63 EX-10.2 8 MANAGEMENT AGREEMENT DATED AUGUST 23, 1994 1 EXHIBIT 10.2 OPERATING MANAGEMENT AGREEMENT This Agreement is made and shall be deemed effective as of August 23, 1994, by and between NORTHLAND CABLE TELEVISION, INC., a Washington corporation ("NCTV") and NORTHLAND TELECOMMUNICATIONS CORPORATION, a Washington corporation ("NTC"). WHEREAS, NCTV owns and operates the cable television systems described in Exhibit A attached hereto and incorporated herein by reference, which Exhibit may be amended from time to time (collectively, the "Systems"); and WHEREAS, NTC is the corporate parent of NCTV, as well as the corporate parent of other entities affiliated with NCTV, and has significant experience in the operation of cable television systems; and WHEREAS, NCTV desires to engage the services of a managing agent to supervise the affairs and operations of the Systems, and to share an office site to conduct the administration of the Systems; and WHEREAS, NTC is capable and willing to serve as such managing agent; NOW, THEREFORE, in consideration of the agreements and covenants of the parties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree and covenant as follows: 1. Managing Agent. NCTV hereby engages NTC, and NTC hereby agrees to serve as the managing agent for NCTV in connection with the overall affairs and operations of the Systems. 2. Term. NTC shall serve as said managing agent until such time as either party shall terminate this Agreement upon thirty days' (30) written notice to the other party. 3. Duties. As managing agent, NTC shall perform (in accordance with the policies and procedures established from time to time by its wholly-owned subsidiary, Northland Communications Corporation) the following for NCTV in connection with its ownership of the Systems: A. Supervise the affairs, management and operations of the Systems. B. Supervise the accounting and other financial books and records of NCTV. C. Select, employ, instruct, and generally supervise all employees who work on the Systems. Operating Management Agreement Page 1 2 D. Oversee the fulfillment of various contractual obligations undertaken by NCTV in connection with its ownership of the Systems. 4. Other management services and activities. NCTV acknowledges that NTC may provide management services to other cable systems and to provide a variety of services to other companies as well as with respect to its own activities. The parties hereby agree that all such services and activities, and income derived therefrom, are permitted under this Agreement, provided the same shall not unreasonably interfere with the performance of services rendered to NCTV. 5. Direct costs. Wherever possible NCTV is to pay all direct costs for the operation of the Systems. Separate purchase orders are to be used for the Systems and all operating equipment and materials to be used by the Systems will be kept as physically segregated as reasonably possible from NTC's operating equipment and materials. The following list represents those types of costs that generally are to be paid directly by NCTV: System maintenance; Travel expenses; Drop materials; Dues and subscriptions; Pole and site rental; Marketing expenses; Lease payments; Sales commissions; Copyright fees; Legal expenses; Franchise fees; Billing expense - postage; Accounting services; Audit and tax fees; Collection expenses; Insurance; Governmental fees and licenses; Headquarters supplies and expenses; Satellite expense; Bank and service charges; Pay television expense; Property taxes; Program guides; Equipment usage charge (vehicles and other equipment); Office usage charge (billing equipment and office rent); Systems utilities; Operating salaries and benefits; Vehicle operating expenses; Administrative salaries and benefits; Billing expense - processing; Direct office postage; Office supplies; Telephone; Copying/printing; and Office maintenance. 6. Management fees and payment terms. For its performance of the management duties hereunder, NTC shall be entitled to receive from NCTV a fee equal to 5% of NCTV's gross revenues (the "Management Fee"). NCTV shall pay NTC the Management Fee in cash for the first two months of any fiscal quarter (and in September 1994 only). Payment of the Management Fee shall be deferred for the third month of any fiscal quarter (except for September 1994) until NCTV has delivered to its lenders quarterly financial statements for such fiscal quarter and has made such adjustments as necessary to reflect differences between actual and estimated gross revenues for prior months in accordance with the actual gross revenues set forth in such quarterly financial statements. The Management Fee may Operating Management Agreement Page 2 3 be calculated based on estimated revenues as determined by NCTV in good faith. Any differences between estimated and actual revenues shall be reflected as an adjustment to the Management Fee paid for the third month of any quarter. No Management Fee shall be payable to NTC if, before or after giving effect thereto, NCTV has defaulted on, or has committed an unmatured default of, its credit agreement with its lenders. Any such Management Fee which may not be paid shall be deferred; the Management Fee so deferred shall be paid only as may be permitted under NCTV's credit agreement with its lenders. 7. Bank accounts. NCTV will maintain separate Managers' Accounts and separate depository accounts. 8. Assignment. This Agreement may not be assigned by either party hereto without the prior written consent of the other party. 9. Miscellaneous. This Agreement contains the entire agreement between the parties and no modification, extension, termination, or waiver of this Agreement or any of the provisions hereof shall be binding upon the parties hereto unless made in writing and signed by the parties hereto. The captions hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed as of the date first written above. "NTC" NORTHLAND TELECOMMUNICATIONS CORPORATION By /s/ JAMES A. PENNEY ---------------------------------- Its Vice President -------------------------------- "NCTV" NORTHLAND CABLE TELEVISION, INC. By /s/ JAMES A. PENNEY ---------------------------------- Its Vice President -------------------------------- Operating Management Agreement Page 3 4 REPLACEMENT EXHIBIT A This is Replacement Exhibit A to that certain Operating Management Agreement dated as of August 23, 1994 by and between Northland Cable Television, Inc. and Northland Telecommunications Corporation. OWNED CABLE TELEVISION SYSTEMS CALIFORNIA o The Oakhurst cable television system serves Oakhurst, Ahwanee, Bass lake and Cedar Valley. o The Coarsegold cable television system serves Coarsegold. o The Fish Camp cable television system serves Fish Camp and nearby unincorporated Madera County. o The Mariposa cable television system serves Mariposa. o The Lush Meadows cable television system serves Lush Meadows and nearby unincorporated Mariposa County. o The Yreka cable television system serves Yreka, Montague and nearby unincorporated Siskiyou County. GEORGIA o The Statesboro cable television system serves Statesboro, Brooklet and nearby unincorporated Bulloch County. OREGON o The Woodburn cable television system serves Woodburn, Hubbard, Gervais and nearby unincorporated Marion County. SOUTH CAROLINA o The Liberty cable television system serves Liberty, Pickens, Norris, Six Mile and nearby unincorporated Pickens County. o The Seneca cable television system serves Seneca, Clemson, Central, Pendleton, Walhalla, Westminster, West Union and nearby unincorporated counties of Pickens, Anderson and Oconee. o The "Five Points" cable television system serves unincorporated Oconee County near Westminster. TEXAS o The Crockett cable television system serves Crockett. o The Madisonville cable television system serves Madisonville and nearby unincorporated Madison County. o The Waterwood cable television system serves unincorporated San Jacinto County known as Waterwood. o The Stephenville cable television system serves Stephenville. o The Dublin cable television system serves Dublin. o The Hico cable television system serves Hico. o The Marble Falls cable television system serves Marble Falls, Meadowlakes, Horseshoe Bay (Burnet County and Llano County), Cottonwood Shores and Oak Ridge Estates. o The Burnet cable television system serves Burnet. o The Kingsland cable television system serves Kingsland, Granite Shoals, Lake L. B. Johnson (Burnet County and LIano County), Sunrise Beach and Highland Haven. o The Llano cable television system serves Llano. Replacement Exhibit A Page 4 5 o The West Lake Buchanan cable television system serves West Lake Buchanan and Inks Lake (Llano County and Burnet County). o The Mexia cable television system serves Mexia, Lake Mexia, Tehuacana and Groesbeck. o The Coolidge cable television system serves Coolidge. o The Fairfield cable television system serves Fairfield and Teague. o The Wortham cable television system serves Wortham. o The Jewett cable television system serves Jewett. o The Buffalo system serves Buffalo. o The Marlin system serves Marlin. o The Navasota cable television system serves Navasota. WASHINGTON o The Bainbridge Island cable television system serves Bainbridge Island, Suquamish, Indianola and Sandy Hook. o The Moses Lake cable television system serves Moses Lake and nearby unincorporated Grant County. o The Ephrata cable television system serves Ephrata, Soap Lake and nearby unincorporated Grant County. o The Othello cable television system serves Othello and nearby unincorporated Adams County. o The Port Angeles cable television system serves Port Angeles and nearby unincorporated Clallam County. Replacement Exhibit A Page 5 EX-10.3 9 ASSET PURCHASE AND SALE AGREEMENT DATED 08/17/97 1 EXHIBIT 10.3 ASSET PURCHASE AND SALE AGREEMENT DATED AS OF AUGUST 27, 1997 BY AND BETWEEN INTERMEDIA PARTNERS OF CAROLINA, L.P. AND ROBIN CABLE SYSTEMS, L.P. AS SELLERS AND NORTHLAND CABLE TELEVISION, INC. AS BUYER 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 Definitions.............................................................1 1.1 Accounts Payable........................................................1 1.2 Accounts Receivable.....................................................2 1.3 Affiliate...............................................................2 1.4 Agreement...............................................................2 1.5 Assumed Contracts.......................................................2 1.6 Assets..................................................................2 1.7 Authorities.............................................................2 1.8 Basic Subscriber........................................................2 1.9 Basic Subscriber Rate...................................................3 1.10 Business................................................................3 1.11 Business Day............................................................3 1.12 Code....................................................................3 1.13 Communications Act......................................................3 1.14 Contracts...............................................................3 1.15 Current Assets..........................................................3 1.16 Current Liabilities.....................................................4 1.17 Deferred Revenue........................................................4 1.18 Equipment...............................................................4 1.19 Excluded Assets.........................................................4 1.20 FCC.....................................................................4 1.21 Financial Statements....................................................4 1.22 Franchises..............................................................5 1.23 Franchise Areas.........................................................5 1.24 GAAP....................................................................5 1.25 Governmental Authority..................................................5 1.26 Governmental Permits....................................................5 1.27 Intangibles.............................................................5 1.28 Legal Rules.............................................................5 1.29 Necessary Consents......................................................5 1.30 Nonstandard Charges.....................................................6 1.31 Other Current Liabilities...............................................6 1.32 Prepaid Expenses........................................................6 1.33 Real Property...........................................................6 1.34 Required Consents.......................................................6 1.35 Rules and Regulations...................................................6 1.36 Signals.................................................................6 1.37 Subscriber..............................................................6 1.38 Subscriber Adjustment...................................................6 1.39 Systems.................................................................6 1.40 Taxes...................................................................7 1.41 Working Capital Adjustment..............................................7 1.42 Other Definitions.......................................................7 ARTICLE 2 Purchase and Sale.......................................................8 2.1 Purchase and Sale of Assets.............................................8 2.2 Assumed Obligations.....................................................8 2.3 Purchase Price and Payment..............................................8 2.4 Preliminary and Final Adjustments.......................................9 2.5 Disputed Liabilities.................................................. 10 2.6 Completion of Purchase and Sale....................................... 11
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Page ---- ARTICLE 3 Representations and Warranties of Sellers............................. 11 3.1 Organization and Qualification........................................ 11 3.2 Sellers' Authority.................................................... 11 3.3 Enforceability........................................................ 11 3.4 Approvals............................................................. 12 3.5 Compliance with Laws.................................................. 12 3.6 Compliance with Other Instruments..................................... 12 3.7 Complete System....................................................... 12 3.8 Title and Encumbrances................................................ 13 3.9 Cable Plant and Homes Passed.......................................... 13 3.10 Franchises............................................................ 13 3.11 Authorities........................................................... 14 3.12 Contracts............................................................. 14 3.13 Real Property......................................................... 14 3.14 Environmental Laws.................................................... 14 3.15 Carriage of Signals and Channel Capacity.............................. 15 3.16 FCC and Copyright..................................................... 15 3.17 Profit and Loss Statements............................................ 16 3.18 Litigation............................................................ 16 3.19 Employees and Employee Benefits....................................... 17 3.20 Commissions........................................................... 18 ARTICLE 4 Representations and Warranties of Buyer............................... 18 4.1 Organization and Qualification........................................ 18 4.2 Buyer Authority....................................................... 18 4.3 Enforceability........................................................ 18 4.4 Approvals............................................................. 19 4.5 Compliance with Other Instruments..................................... 19 4.6 Commissions........................................................... 19 ARTICLE 5 Covenants of Sellers.................................................. 19 5.1 Access to System...................................................... 19 5.2 Continuity and Maintenance of Operations.............................. 20 5.3 Compliance with Contracts and Laws.................................... 20 5.4 Adverse Changes....................................................... 20 5.5 Line Extensions and Rebuilds.......................................... 20 5.6 Taxes................................................................. 20 ARTICLE 6 Other Covenants....................................................... 21 6.1 Confidentiality....................................................... 21 6.2 HSR Notification...................................................... 22 6.3 Required Consents and Estoppel Certificates........................... 23 6.4 Franchise Transfer Expenses........................................... 23 6.5 Employee Matters...................................................... 23 ARTICLE 7 Conditions Precedent to Obligations of Buyer.......................... 27 7.1 Conditions Precedent.................................................. 27 7.2 Waiver................................................................ 27 ARTICLE 8 Conditions Precedent to Obligations of Sellers........................ 28 8.1 Conditions Precedent.................................................. 28 8.2 Waiver................................................................ 29 ARTICLE 9 Closing............................................................... 29 9.1 Closing............................................................... 29
-ii- 4 Page ---- 9.2 Closing Documents..................................................... 29 ARTICLE 10 Indemnification....................................................... 31 10.1 Indemnification by Sellers............................................ 31 10.2 Indemnification by Buyer.............................................. 32 10.3 Notice and Right To Defend Third-Party Claims......................... 33 10.4 Notice and Right to Remediate......................................... 34 10.5 Mitigation............................................................ 35 10.6 Exclusive Remedy...................................................... 35 ARTICLE 11 Termination........................................................... 35 11.1 Termination Events.................................................... 35 11.2 Manner of Exercise.................................................... 36 11.3 Effect of Termination................................................. 36 ARTICLE 12 General............................................................... 36 12.1 Covenant Not To Sue and Nonrecourse to Partners....................... 36 12.2 Assignment............................................................ 37 12.3 Parties in Interest................................................... 38 12.4 Time of Essence....................................................... 38 12.5 Severability.......................................................... 38 12.6 Amendment............................................................. 38 12.7 Terms................................................................. 38 12.8 Headings.............................................................. 38 12.9 Entire Understanding; Schedules....................................... 38 12.10 Counterparts.......................................................... 38 12.11 Applicable Law........................................................ 39 12.12 Notices............................................................... 39 12.13 Further Acts.......................................................... 40 12.14 Expenses.............................................................. 40 12.15 Attorneys' Fees....................................................... 40 12.16 Judicial Proceedings.................................................. 40
-iii- 5 EXHIBITS - -------- Exhibit A Escrow Agreement Exhibit B Franchise Consent Form Exhibit C Assignment, Assumption & Consent - Leases Exhibit D Assignment, Assumption & Consent - Contracts Exhibit E Receipt Exhibit F Bill of Sale Exhibit G FIRPTA Certificate Exhibit H Certificate of Sellers Exhibit I Opinion of Sellers' Counsel Exhibit J Assumption Agreement Exhibit K Opinion of Buyer's Counsel Exhibit L Certificate of Buyer Exhibit M Post-Closing Escrow Agreement SCHEDULES - --------- Schedule 1 The Businesses (including Rate Schedules) Schedule 0 Assumed Contracts Schedule 1.18 Vehicles Schedule 0 Excluded Assets Schedule 0 Franchises Schedule 0 Necessary Consents Schedule 0 Required Consents Schedule 2.3 Purchase Price Allocation Schedule 0 Contracts and Instruments Schedule 0 Real Property Schedule 0 Environmental Disclosure Schedule 0 Financial Statements Schedule 0 Material Changes Schedule 0 Litigation Schedule 0 Employees and Employment Agreement Schedule 0 Collective Agreements Schedule 0 Employment Benefit Plans Schedule 0(d) Sellers' Welfare Plans -iv- 6 ASSET PURCHASE AND SALE AGREEMENT THIS ASSET PURCHASE AND SALE AGREEMENT is made as of August 27, 1997, by and between INTERMEDIA PARTNERS OF CAROLINA, L.P., a California limited partnership ("IP-Carolina"), and ROBIN CABLE SYSTEMS, L.P., a California limited partnership ("RCS," and together with IP-Carolina, each referred to herein individually as "Seller," and collectively as "Sellers"), and NORTHLAND CABLE TELEVISION, INC. ("Buyer"). RECITALS A. RCS, through its ownership and operation of various assets, provides cable television and related services to subscribers located in the vicinities of Aiken, Allendale, Barnwell, Bamberg, Edgefield, McCormick, Saluda and Ware Shoals, South Carolina, including all franchised communities listed on SCHEDULE 1 (the "A System"). B. IP-Carolina, through its ownership and operation of various assets, provides cable television and related services to subscribers located in the vicinity of Bennettsville, South Carolina, including all franchised communities listed on SCHEDULE 1 (the "B System") and Greenwood, South Carolina, including all franchised communities listed on SCHEDULE 1 (the "C System," and together with the A System and the B System, the "Systems"). C. Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, subject to the terms and conditions contained in this Agreement, substantially all of the assets, rights, privileges, interests, business and properties owned, leased, held or utilized by Sellers to operate and maintain the Systems. NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, Sellers and Buyer agree as follows: ARTICLE 1 Definitions As used in this Agreement, the following terms shall have the following meanings: 1.1 Accounts Payable. The book value of all accounts payable of the Systems relating to the conduct of the Businesses determined as of the Closing Date in accordance with GAAP on a basis consistent with the application of such principles in the preparation of the Financial Statements. 1.2 Accounts Receivable. All accounts receivable of the -1- 7 Sellers representing amounts owed to the Sellers in connection with their operation of the Businesses. 1.3 Affiliate. With respect to any person or entity, any other person or entity owning a majority interest in or controlling such person or entity, or owned or controlled by or under common ownership or control with such person or entity, where "control" (and its corollaries) includes ownership of interests representing a majority of total voting power in an entity, and "ownership" (and its corollaries) includes ownership of a majority of the equity interests in an entity. 1.4 Agreement. This Asset Purchase and Sale Agreement dated as of August 27, 1997 between Sellers and Buyer, as the same may be amended from time to time. 1.5 Assumed Contracts. All contracts of the Businesses as set forth on SCHEDULE 0. 1.6 Assets. All of Sellers' right, title and interest in all properties, privileges, rights, interests and claims, real and personal, tangible and intangible, of every type and description that are owned, leased, held for or used exclusively in the Businesses in which Sellers have any right, title or interest or in which Sellers acquire any right, title or interest on or before the Closing Date, including Governmental Permits, Intangibles, Contracts, Equipment and Real Property, but excluding any Excluded Assets. 1.7 Authorities. Any and all approvals, consents, rights, certificates, orders, franchises, determinations, permissions, licenses, authorities or grants issued, noticed, declared, designated or promulgated by any Governmental Authority; excluding, however, the Franchises. 1.8 Basic Subscriber. As of any date and for each Franchise Area served by the Systems, without duplication, the aggregate of all of the following which are receiving basic cable television service ("Basic Services") provided by the Systems: (a) private residential customer accounts that are billed by individual unit (regardless of whether such accounts are in single family homes or in individually billed units in apartment houses and other multi-unit buildings) (excluding Nonstandard Charges (as defined herein)) each of which shall be counted as one "Basic Subscriber;" and (b) all commercial, bulk-billed and other accounts not billed by individual unit, such as hotels, motels, apartment houses and multi-family homes, provided that the number of "Basic Subscribers" serviced by each such account shall be deemed to be an amount equal to the quotient of (x) the aggregate monthly Basic Services revenue and expanded basic cable television service revenue derived by the Systems from such accounts (excluding any Nonstandard Charges), in each case for the last calendar month preceding the date of such determination, divided by (y) the Basic Subscriber Rate in effect on the date of such -2- 8 determination. Notwithstanding the foregoing, the term "Basic Subscriber" shall not include any commercial, residential or other subscriber who (A) has not paid for at least one (1) month of service, or (B) is more than sixty (60) days delinquent from the date of billing on five dollars ($5.00) or more due to either Seller. 1.9 Basic Subscriber Rate. For each Franchise Area, the monthly fees and charges for the provision of both "basic service" and "expanded basic service" (as such terms are customarily used in the cable television industry and excluding any charges for additional outlets and installation fees and revenues derived from the rental of converters, remote control devices and other like charges for equipment) charged to customers served by the Systems, as of the end of the last full month prior to the Closing Date. 1.10 Businesses. The individual cable television businesses conducted by Sellers on the date of this Agreement through the Systems in the Franchise Areas, as described on SCHEDULE 1. 1.11 Business Day. Any day other than Saturday, Sunday or a day on which banking institutions in either San Francisco, California or New York, New York are required or authorized to be closed. 1.12 Code. The Internal Revenue Code of 1986, as amended. 1.13 Communications Act. The Communications Act of 1934, as amended, including, but not limited to, by the Cable Communication Policy Act of 1984 and by the Cable Television Consumer Protection and Competition Act of 1992, and the rules and regulations promulgated thereunder. 1.14 Contracts. Any and all leases of real and personal property, private easements, rights-of-way, rights of access, contracts for easements, pole line or pole attachment agreements, joint line agreements, underground conduit agreements, wire or cable crossing agreements, contracts with Subscribers, bulk and commercial service agreements relating to the Systems, and any other agreements with third parties relating to the Systems. 1.15 Current Assets. The sum of (a) Accounts Receivable as of the Closing Date which have not been outstanding for more than ninety (90) days, net of any credit balances due to subscribers, and (b) Prepaid Expenses. 1.16 Current Liabilities. The sum of (a) Accounts Payable, (b) Deferred Revenue, and (c) Other Current Liabilities. 1.17 Deferred Revenue. Liabilities to Subscribers -3- 9 representing advance billings for services to be performed by Buyer after the Closing Date. 1.18 Equipment. All electronic devices, trunk and distribution coaxial and optical fiber cable, amplifiers, power supplies, conduit, vaults and pedestals, grounding and pole hardware, Subscriber's devices (including converters, encoders, transformers behind television sets and fittings), headend hardware (including origination, earth stations, transmission and distribution system), test equipment, vehicles and other tangible personal property owned, leased, used or held for use in the Businesses. SCHEDULE 1.18 lists each vehicle owned, used or held for use in the Businesses. 1.19 Excluded Assets. All (a) insurance policies and rights and claims thereunder; (b) bonds, letters of credit, surety instruments, notes and other similar items; (c) cash and cash equivalents; (d) Sellers' rights under any agreement governing or evidencing an obligation of any Seller for borrowed money; (e) Sellers' rights under any contract, license, authorization, agreement or commitment other than those creating or evidencing Assumed Contracts; (f) claims, rights and interests in and to any refunds for federal, state or local franchise, income or other taxes or fees (including, without limitation, copyright fees) of any nature whatsoever relating to such taxes or fees payable for taxable periods, or portions thereof, ending on or prior to the Closing Date; (g) assets or properties owned by Sellers that are unrelated to the Businesses; (h) assets of any Employee Plan or arrangement, except as expressly provided in Section 0; (i) Sellers' names and all trademarks, servicemarks and copyrights owned by Sellers; (j) Sellers' billing contracts; provided that Sellers shall offer Buyer billing services related to the Businesses at Sellers' actual cost at the time of providing such service, for a period of ninety (90) days following the Closing, which period shall be extended at Buyer's option for an additional thirty (30) days, and shall cooperate with Buyer to effect the transition of billing services from Sellers' service provider to Buyer's service provider; (k) programming and carriage agreements, except as described on SCHEDULE 0; and (l) the assets described on SCHEDULE 0. 1.20 FCC. The Federal Communications Commission or any successor agency. 1.21 Financial Statements. The financial statements attached as SCHEDULE 0 and described in Section 0. 1.22 Franchises. The franchises set forth on SCHEDULE 0 hereof. 1.23 Franchise Areas. The areas in which Sellers are authorized to provide cable television service under the Franchises, and the areas, if any, served by the Systems in which Sellers provide cable television service without a -4- 10 Franchise. 1.24 GAAP. Generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. 1.25 Governmental Authority. Any nation or government, any state, province or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 1.26 Governmental Permits. All franchises, approvals, authorizations, permits, licenses, easements, registrations, qualifications, leases and similar rights obtained from any Governmental Authority. 1.27 Intangibles. All intangible assets, including subscriber lists, accounts receivable, claims (excluding any claims relating to Excluded Assets), patents, copyrights and goodwill, if any, owned, used or held for use in the Businesses. 1.28 Legal Rules. The requirements of all federal, state, municipal or local laws, codes, statutes, ordinances, orders, judgments, decrees, injunctions, franchises, determinations, approvals, rules, regulations, permits, licenses, authorizations, certificates, notices, demand letters, circulars, opinion letters and directions, of all Governmental Authorities. 1.29 Necessary Consents. All material franchises, licenses, authorizations, approvals and consents required under Governmental Permits, Contracts or otherwise for (a) Sellers to transfer the Assets and the Businesses to Buyer, (b) Buyer to conduct the Businesses and to own, lease, use and operate the Assets at the places and in the manner in which the Businesses are conducted as of the date of this Agreement and on the Closing Date and (c) Buyer to assume and perform the Governmental Permits and Contracts. SCHEDULE 0 sets forth all Necessary Consents. 1.30 Nonstandard Charges. Any charges for taxes, second connects, additional outlets, installation fees, deposits and other non-recurring items and any charges for the rental of converters, remote control devices and other like charges for equipment. 1.31 Other Current Liabilities. All current liabilities (including, but not limited to, accrued vacation pay of -5- 11 employees of Sellers, subscriber security deposits and customer advance payments, but excluding (i) Accounts Payable and (ii) Deferred Revenue) of the Systems relating to the conduct of the Businesses determined as of the Closing Date in accordance with GAAP on a basis consistent with the application of such principles in the preparation of the Financial Statements. 1.32 Prepaid Expenses. The book value of prepaid expenses and miscellaneous prepaids (in each case, only to the extent constituting a current asset) of the Systems with respect to the Businesses determined as of the Closing Date in accordance with GAAP on a basis consistent with the application of such principles in the preparation of the Financial Statements, to the extent that such prepaid expenses will accrue to the benefit of Buyer upon and after the Closing Date. 1.33 Real Property1.33 Real Property. All assets consisting of realty, including appurtenances, improvements and fixtures located on such realty, and any other interests in real property, including fee interests in Sellers' offices and headend sites and leasehold interests and easements, licenses, rights-of-way or other real property rights used or held for use in the Businesses, but excluding any Excluded Assets. 1.34 Required Consents. Those Necessary Consents which must be obtained prior to Closing. SCHEDULE 0 sets forth all Required Consents. 1.35 Rules and Regulations. Rules and Regulations of the FCC, as in effect from time to time. 1.36 Signals. The transmissions, except radio signals (whether television, satellite or otherwise), of video programming or other information that the Systems make available to all Subscribers generally. 1.37 Subscriber. A Basic Subscriber of the Systems. 1.38 Subscriber Adjustment. An amount equal to the product of (x) $1,925 and (y) the difference between 47,000 and the actual number of Basic Subscribers in the Systems as of the Closing Date if such difference is greater than 470. 1.39 Systems. The individual cable television reception and distribution systems operated in the conduct of the Businesses, each of which is capable of being operated, without modification, as an independent system without interconnections to other systems. 1.40 Taxes. Any and all governmental or quasi-governmental fees (including, without limitation, license, filing and registration fees), taxes (including, without limitation, income, gross receipts, franchise, sales, use, property, real or personal, tangible or intangible taxes), interest -6- 12 equalization and stamp taxes, assessments, levies, imposts, duties, charges, required contributions or withholdings of any kind or nature whatsoever, together with any and all penalties, fines or interest thereon. For purposes of determining any Tax cost or Tax benefit to any person, such amount will be the actual cost or benefit recognized by such person at the time of actual payment of the additional Tax or actual recognition of the Tax benefit. In the event that any payment or other amount is required to be determined on an after-Tax basis, such payment or other amount will initially be determined without regard to any Tax cost or Tax benefit not actually recognized currently, and appropriate adjustments will be made when and to the extent that such Tax cost or Tax benefit is actually recognized. 1.41 Working Capital Adjustment. The number obtained by subtracting (x) the sum of the Current Liabilities existing (as defined and determined in accordance with GAAP) of Seller existing on the Closing Date which constitute assumed Current Liabilities, from (y) the sum of the Current Assets (as defined and determined in accordance with GAAP, except that inventory and cash shall not be included as a current asset) of Sellers on the Closing Date which are included within the Assets. 1.42 Other Definitions. In addition, the following terms have the meanings given them in the following sections:
Term Section - ---- ------- Adjustment Time 0 Buyer's DC Plan 0 Buyer's Welfare Plans 0 CLI 0 Closing 0 Closing Date 0 COBRA 0 Copyright Act 0 Deposit 0 Employee Plans 0 Employment Transfer Date 0 Environmental Law 0 ERISA 0 ERISA Affiliate 0 Final Adjustments Report 0 Hazardous Substance 0 HSR Act 0 HSR Adjustment 0 Indemnifiable Damages 0 Indemnitee 0 Indemnitor 0 Lien 0 New Employees 0 Nonrecourse 0 Nontransferring Employees 0 Preliminary Adjustments Report 0
-7- 13 Prospective Employees 0 Purchase Price 0 Sellers' DC Plan 0 Sellers' Welfare Plans 0 Transaction Document 0
ARTICLE 2 Purchase and Sale 2.1 Purchase and Sale of Assets. Subject to the terms and conditions hereinafter set forth, Buyer hereby agrees to purchase from Sellers, and Sellers hereby agree to sell to Buyer, the Assets. Sellers will retain, and Buyer hereby does not purchase, the Excluded Assets. 2.2 Assumed Obligations. Concurrently with the purchase described in Section 0 and subject to the terms and conditions hereinafter set forth, Buyer shall assume and agree to pay when due, and perform, those obligations, but only those obligations, that (i) constitute the Current Liabilities, (ii) arise on or after the Closing Date under all Franchises and Assumed Contracts, or (iii) arise out of its ownership and operation of the Assets after the Closing Date. 2.3 Purchase Price and Payment. (a) The consideration to be paid for the Assets shall be ninety million, four hundred seventy-five thousand dollars ($90,475,000) in cash adjusted as hereinafter provided (the "Purchase Price"). SCHEDULE 2.3 sets forth the manner in which the Purchase Price is to be allocated among the Assets. Notwithstanding the foregoing, in the event that after the adjustments the Purchase Price is less than eighty-five million, nine hundred fifty-one thousand, two hundred and fifty dollars ($85,951,250), at Seller's option, this Agreement may be terminated prior to Closing and, if so terminated, the parties shall have no further rights or obligations hereunder, except for the respective obligations of the parties under Sections 0, 12.1 and 0. (b) On the Closing Date, the Purchase Price shall be: (i) either (A) decreased by the Working Capital Adjustment to the extent it is a negative amount as of the Closing Date; or (B) increased by the Working Capital Adjustment to the extent it is a positive amount as of the Closing Date; and (ii) either increased (up to a maximum of -8- 14 $4,523,750) or decreased, as the case may be, for the Subscriber Adjustment, if any. (c) To secure Buyer's obligations under this Agreement and the agreement to be entered into in connection with the acquisition by Buyer of cable systems located in Royston and Toccoa, Georgia, among others (the "Royston/Toccoa Sale"), immediately upon execution of this Agreement, Buyer shall either (i) deposit the amount of $1,000,000 into an escrow account, under an escrow agreement, the form of which is attached hereto as EXHIBIT A (the "Escrow Agreement"), or (ii) obtain an irrevocable letter of credit in favor of the Seller in the amount of $1,000,000 issued by a financial institution reasonably acceptable to the Seller (in either case, the "Deposit"). (d) All revenues and all expenses arising from the operations of the Systems until 12:01 a.m. on the Closing Date (the "Adjustment Time") shall be prorated between Buyer and Sellers as of the Adjustment Time in accordance with GAAP on the principle that Sellers shall receive all revenues (other than with respect to Accounts Receivable being purchased by Buyer hereunder) and shall be responsible for all expenses, costs and liabilities allocable to the period prior to the Adjustment Time and Buyer shall receive all revenues and shall be responsible for all expenses, costs and liabilities allocable to the period after the Adjustment Time. 2.4 Preliminary and Final Adjustments. Preliminary and final adjustments to the Purchase Price will be determined as follows: (a) At least ten (10) Business Days prior to the Closing Date, Sellers will deliver to Buyer a report (the "Preliminary Adjustments Report"), prepared in good faith and on a reasonable basis and in a manner consistent with the Financial Statements, setting forth in reasonable detail a pro forma determination as of the Closing Date of the adjustments and prorations set forth in Section 0. The Preliminary Adjustments Report shall: (i) contain all information reasonably necessary to determine such adjustments and prorations and such other information as may be reasonably requested by Buyer; (ii) be prepared in accordance with GAAP; and (iii) be certified by an authorized officer of Sellers to be true, correct and complete as of the date thereof. Within five (5) Business Days after receipt of such report, Buyer shall give Sellers written notice of any objections. If Buyer makes any such objections, the parties shall agree on the amount, if any, which is not in dispute within two (2) Business Days after Sellers' receipt of Buyer's objections thereto. Any undisputed amounts shall be paid by the party responsible therefor to the other party upon the Closing, and the remaining disputed amounts shall be determined in the Final Adjustments Report. (b) Within sixty (60) days after the Closing Date, Buyer -9- 15 shall deliver to Sellers a report (the "Final Adjustments Report"), prepared in good faith and on a reasonable basis and similarly certified by Buyer, setting forth in reasonable detail the final determination of all adjustments that were not calculated as of the Closing Date and containing any corrections to the Preliminary Adjustments Report. (c) Within fifteen (15) days after receipt of the Final Adjustments Report, Sellers shall notify Buyer of its objections, if any. Any amount which is not in dispute shall, within five (5) Business Days of the expiration of the review period, be paid in cash by wire or interbank transfer in immediately available funds as follows: (i) if the Purchase Price calculated based on the Final Adjustments Report is greater than the Purchase Price calculated based on the Preliminary Adjustments Report, Buyer shall pay such difference to Sellers, or (ii) if the Purchase Price is less, Sellers shall pay such difference to Buyer. In the event any payment required by this Section 0(c) or by Section 2.4(d) is not made when due, Sellers or Buyer, as appropriate, shall make the payment required by this Section 0(c) with interest accruing from the date such payment was due at a rate of ten percent (10%) per annum. (d) Any disputed amounts will be determined within ninety (90) days after the Closing Date by the San Francisco, California office of the accounting firm of Price Waterhouse, whose determination will be conclusive. Sellers and Buyer will bear equally the fees and expenses payable to such firm in connection with such determination. The payment required after determination of all disputed amounts will be made by the responsible party by wire transfer of immediately available funds to the other party within three (3) Business Days after the final determination. 2.5 Disputed Liabilities. If a proration or adjustment to the Purchase Price is made in Buyer's favor for any liability assumed by Buyer but is in good faith being contested by Sellers as of the Closing Date, and if Buyer is relieved of this liability, Buyer shall pay to Sellers or its designee in cash (by means of wire or interbank transfer in immediately available funds) an amount equal to the portion of this liability so relieved within five (5) Business Days after the date Buyer is relieved of this liability. In the event any payment required by this Section 0 is not made by Buyer when due, Buyer shall make the payment required by this Section 0 with interest accruing from the date Buyer was relieved of such liability at a rate of ten percent (10%) per annum. 2.6 Completion of Purchase and Sale. The purchase and sale of the Assets shall be completed in accordance with Article 0 (the "Closing"). Within five (5) Business Days of fulfillment of all conditions to Closing, Buyer and Sellers shall mutually agree upon the date of Closing (the "Closing Date"), which date shall not be later than December 31, 1997. -10- 16 The Closing shall take place in the offices of Pillsbury Madison & Sutro LLP, 235 Montgomery Street, San Francisco, California 94104. ARTICLE 3 Representations and Warranties of Sellers As a material inducement to Buyer to enter into this Agreement, each Seller, severally and not jointly, represents and warrants to Buyer the following: 3.1 Organization and Qualification. Each Seller is a limited partnership duly organized, validly existing and in good standing under the laws of California and has all requisite power and authority to own, lease and use the Assets as they are currently owned, leased and used and to conduct the Businesses as currently conducted. Each Seller is duly qualified or licensed to do business and is in good standing under the laws of the State of South Carolina. 3.2 Sellers' Authority. Each Seller has the partnership right, power, legal capacity and authority to execute, deliver and (subject to the receipt of the Necessary Consents) perform its obligations under this Agreement and the documents, instruments and certificates to be executed and delivered by Sellers pursuant to this Agreement. The execution and delivery of, and performance of the obligations contained in, this Agreement by each Seller and the transactions contemplated hereby have been, and all documents, instruments and certificates have been or as of the Closing will be, duly authorized by all necessary partnership action on the part of each Seller. 3.3 Enforceability. The terms and provisions of this Agreement and all documents, instruments and certificates made or delivered from time to time by Sellers hereunder and thereunder constitute valid and legally binding obligations of Sellers, enforceable against Sellers in accordance with the terms hereof and thereof, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting generally the enforcement of creditors' rights and by general principles of equity. 3.4 Approvals. SCHEDULE 0 sets forth all Necessary Consents. Except for the Necessary Consents and compliance with the HSR Act, the execution, delivery and performance of this Agreement by Sellers does not require any material consent which has not been made, given or otherwise accomplished. 3.5 Compliance with Laws. Each Seller is in material compliance with all Legal Rules imposed by any Governmental Authority having jurisdiction over Sellers, the Businesses, the Assets or the Systems, and of any jurisdiction in which the -11- 17 Systems are being operated or conducted, including, but not limited to, the Communications Act. 3.6 Compliance with Other Instruments. (a) The execution and delivery of this Agreement and (subject to the receipt of the Necessary Consents) the consummation of the transactions contemplated hereunder do not and will not result in a breach or violation of any term or provision of, or result in the imposition of any Lien upon any Assets or any properties of Sellers pursuant to, or constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under the partnership agreement of either Seller or under any material contract, agreement, Authority, Legal Rule, license, lease, indenture, mortgage, loan agreement or note, as to which either Seller is a party or by which any of the Assets may be affected, except for such breaches or violations as would not have a material adverse effect on the Businesses or materially impair the ability of either Seller to perform its obligations under this Agreement. (b) Each Seller has complied with all provisions of and is not in breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under its partnership agreement or any contract, lease, instrument affecting any parcel of real property, authority or franchise, or obligation to which it is a party or by which it is or any of the Assets may be bound or affected, except for such breaches or violations as would not have a material adverse effect on the Businesses or materially impair the ability of Sellers to operate their businesses as presently operated. 3.7 Complete System. The Assets constitute fully operational cable television systems and include the assets, properties, franchises, licenses, permits, consents, certificates, authorities, operating rights, leases, easements, licenses, rights-of-way, contracts, agreements, commitments and arrangements (excluding programming and carriage agreements) necessary to operate and maintain the same as operated and maintained on the date hereof. 3.8 Title and Encumbrances. Sellers have good title to and possession of all of the Assets, free and clear of all Liens, except for the Permitted Liens. A "Lien" is any interest in property securing an obligation, whether such interest is based on common law, statute or contract, and including, but not limited to, any security interest or lien arising from a mortgage, claim, encumbrance, pledge, charge, easement, servitude, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall also include reservations, exceptions, covenants, conditions, restrictions, leases, subleases, licenses, occupancy agreements, pledges, equities, -12- 18 charges, assessments, covenants, reservations, defects in title, encroachments and other burdens, and other title exceptions and encumbrances affecting property of any nature, whether accrued or unaccrued, or absolute or contingent. "Permitted Liens" are (a) Liens for taxes not yet due and payable; (b) any carrier's, warehousemen's, mechanic's, materialmen's, repairmen's or other like lien arising in the ordinary course of business; (c) easements, rights-of-way, restrictions, minor encroachments and other similar nonmonetary encumbrances (i) incurred in the ordinary course of business, and (ii) which do not render the Asset subject thereto unusable for the purpose intended, materially detract from the value of the Asset or interfere with the ordinary use of the Asset in the ordinary course of business; and (d) in the case of real property leased to Seller, the rights of the fee owner and any lien encumbering the fee interest in such property. 3.9 Cable Plant and Homes Passed. As of the Closing Date, the A System will pass no fewer than forty-eight thousand three hundred (48,300) homes and will consist of no greater than eleven hundred seventy (1,170) miles of cable plant, the B System will pass no fewer than nine thousand ninety (9,090) homes and will consist of no greater than one hundred eighty (180) miles of cable plant, and the C System shall pass no fewer than twenty-three thousand seventy-five (23,075) homes and will consist of no greater than four hundred ninety (490) miles of cable plant. 3.10 Franchises. (a) SCHEDULE 0 lists each Franchise held by Sellers in connection with the operation or maintenance of the Systems, and the coverage area serviced thereby. (b) To Sellers' knowledge, each Franchise is in full force and effect and no proceeding to revoke, cancel, encumber or adversely affect in any manner any such Franchise has been initiated or threatened, and Sellers are in material compliance therewith. 3.11 Authorities. Sellers have all Authorities that are necessary to carry on the business of the Systems as conducted on the date hereof, except for such Authorities the failure of which to obtain would not have a material adverse effect on the Systems. To Sellers' knowledge, each such Authority is in full force and effect and no proceeding to revoke, cancel, encumber or adversely affect in any manner any such Authority has been initiated or threatened, and Sellers are in material compliance therewith. -13- 19 3.12 Contracts. SCHEDULE 0 lists all presently effective Contracts that are material to the conduct of the Businesses as they are now conducted. Copies of such Contracts as currently in effect have been, or prior to the Closing will be, made available to Buyer. To Sellers' knowledge, each Contract is in full force and effect and no action to revoke, cancel or adversely affect in any manner any such Contract has been initiated or threatened, and Sellers are in material compliance therewith. 3.13 Real Property. SCHEDULE 0 contains a list of all Real Property owned in fee or leased by Sellers which is used for headend equipment, microwave equipment and satellite earth receiving stations and related facilities, tower and antenna sites and office facilities in connection with the Systems. 3.14 Environmental Laws. (a) Except as disclosed on SCHEDULE 0, to Sellers' Actual Knowledge: (i) none of Sellers' operations on the Real Property is currently subject to any judicial or administrative proceeding alleging the violation of an Environmental Law; (ii) none of the Real Property is the subject of any investigation by any Governmental Authority concerning any release of any Hazardous Substance on the Real Property; (iii) Sellers have not filed any written notice under any Environmental Law indicating past or present treatment, storage or disposal of a hazardous waste on the Real Property or reporting a spill or release of a Hazardous Substance into the environment from its operations on the Real Property; (iv) Sellers have no material contingent liability in connection with any release of any Hazardous Substance into the environment from the Real Property; (v) no lien in favor of any Governmental Authority for (A) any liability under Environmental Laws, or (B) damages arising from or costs incurred in response to a release of any Hazardous Substance into the environment has been filed or attached to any of the Real Property; and (vi) no underground storage tanks are currently located on the Real Property and no building or other structure on the Real Property contains friable asbestos. (b) "Environmental Law" means a law, regulation, statute or ordinance pertaining to land use, air, soil, surface water, groundwater (including the protection, cleanup, removal, remediation or damage thereof) including, without limitation, the following laws: (i) Clean Air Act (42 U.S.C. ss. 7401, et seq.); (ii) Clean Water Act (33 U.S.C. ss. 1251, et seq.); (iii) Resource Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.); (iv) Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C. ss. 300f, et seq.); and (vi) Toxic Substances Control Act (15 U.S.C. ss. 2601, et seq.). -14- 20 (c) "Hazardous Substance" means any matter that is designated or regulated as a pollutant, contaminant or hazardous or toxic substance, constituent or waste under any Environmental Law. (d) "Sellers' Actual Knowledge" means that Robert J. Lewis or Rodney M. Royse has current actual knowledge of the accuracy of such statement, without any duty of investigation or inquiry. 3.15 Carriage of Signals and Channel Capacity. Sellers have the legal right and authority, including (without limitation) all necessary authority from the FCC and the requisite compulsory copyright license under section 111 of Title 17 of the United States Code, as amended, and all rules and regulations promulgated thereunder, as amended (the "Copyright Act"), to carry and use in the conduct of the Businesses all of the Signals. Other than requests for network nonduplication and syndex protection, no written notices have been received by Sellers from the FCC or the United States Copyright Office challenging or questioning the right of Sellers or the Systems to carry or furnish any of the Signals. 3.16 FCC and Copyright. (a) Sellers have Cumulative Leakage Index, as defined by the Rules and Regulations ("CLI"), monitoring equipment which is required by the Rules and Regulations, and have in connection with their CLI obligations under the Rules and Regulations (i) maintained appropriate log books and other recordkeeping, and (ii) filed all annual FCC Form 320s with the FCC. (b) Sellers have made all material submissions (including, without limitation, registration statements) required under the Communications Act. Sellers have delivered to Buyer complete and correct copies of all reports and filings made or filed pursuant to the Communications Act with respect to the Systems, a completed and accurate Form 393, Form 1200 Series or other FCC rate document for the Systems, and all notices alleging noncompliance with the Communications Act or the Franchises. Sellers have made all material filings required to be made with the FCC, including cable television registration statements, annual reports and aeronautical frequency usage notices. Sellers have all material FCC licenses necessary to operate the Systems and operate such licensed facilities in conformance with the terms and conditions of such licenses. The Systems are in compliance with all "must carry" requirements and have received all retransmission consents. (c) Sellers have deposited with the United States Copyright Office all statements of account and other documents and instruments, and paid all royalties, supplemental royalties, fees and other sums to the United States Copyright -15- 21 Office required under the Copyright Act with respect to the business and operations of the Systems as are required to obtain, hold and maintain the compulsory copyright license for cable television systems prescribed in section 111 of the Copyright Act. 3.17 Profit and Loss Statements. (a) The profit and loss statements with respect to the Systems furnished by Sellers to Buyer as SCHEDULE 0, which shall include the profit and loss statements for the year ended December 31, 1996 (the "Financial Statements") (other than information described as estimated) are (i) true, complete and correct in all material respects for the respective dates and periods thereof, subject to changes resulting from normal audit and year-end adjustments; and (ii) prepared in accordance with GAAP (provided that there are no footnotes and accompanying balance sheets, statement of sources and uses of funds or statements of stockholders' equity), in each case consistently applied throughout the applicable period. (b) Except as disclosed on SCHEDULE 0, since June 30, 1997, there has been no material adverse change in the condition, financial or otherwise, results of operations, revenues, expenses, gross operating profits, assets or liabilities (contingent or otherwise) of the Businesses. 3.18 Litigation. Except as set forth on SCHEDULE 0, (a) there is no material claim, grievance, action, proceeding or governmental investigation pending or, to Sellers' knowledge, threatened against Sellers or affecting any of the Assets or the Systems; and (b) there is no material outstanding or unsatisfied judgment, order or decree to which either Seller is a party or which involves the transactions contemplated herein. 3.19 Employees and Employee Benefits. (a) Employment Agreements. SCHEDULE 0 sets forth a list of all employees of the Systems as of June 30, 1997 and the position and base compensation paid or payable to each such individual. Except as described on SCHEDULE 0, neither Seller is a party to any written employment contract, agreement, commitment or arrangement with any individual identified on SCHEDULE 0. (b) Collective Agreements. Except as described in SCHEDULE 0, (i) neither Seller is party to or subject to any labor union or collective bargaining agreement with respect to any employee of the Systems, (ii) neither Seller is party to any labor or employment dispute as it relates to the Systems and their employees, and (iii) to the knowledge of Sellers, no labor union or bargaining agent holds bargaining rights with respect to any employee of the Systems or has applied or indicated an intention to apply to be certified as the bargaining agent of any employee of the Systems. -16- 22 (c) Employee Benefit Plans. SCHEDULE 0 lists each pension benefit, welfare benefit, stock option, stock purchase, disability, vacation pay, incentive bonus, severance pay, deferred compensation, supplemental income or other employee benefit plan, policy or arrangement or agreement, including each "employee benefit plan" within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by or contributed to by the Sellers covering current or former employees of the Systems or their dependents or survivors (collectively referred to as "Employee Plans"). Sellers have provided or, upon Buyer's request, will provide or make available to Buyer prior to the Closing Date complete, accurate and current copies of the plan document(s) of each Employee Plan, summary plan descriptions and other descriptive materials provided to employees and, in the case of an Employee Plan intended to qualify under section 401(a) of the Code, a copy of the most recent Internal Revenue Service determination letter of such Employee Plan's qualified status. (d) Employee Benefit Plan Compliance. No material liabilities, other than for payment of benefits in the ordinary course, have been incurred with respect to the Employee Plans. Having made due inquiry, Sellers: (i) Know of no circumstances relating to an Employee Plan intended to qualify under section 401(a) of the Code that would likely be treated by the Internal Revenue Service as a disqualifying defect; (ii) Know of no facts reasonably likely to result in any material liability (whether or not asserted as of the date hereof) of Sellers arising by virtue of any event, act or omission occurring prior to the Closing Date with respect to any Employee Plan; and (iii) Know of no liens under Code section 412(n) or ERISA section 4069(a), nor liabilities under ERISA section 4069(a) or 4201(a), in effect with respect to any Employee Plan that would have a material adverse effect on the Assets, and know of no facts reasonably likely to result in the assertion of any such liens or liabilities. 3.20 Commissions. Neither Seller has entered into an agreement, commitment or obligation with regard to any brokerage commission or finder's fee which would be payable by Buyer arising out of the execution, delivery or performance of this Agreement or the transactions contemplated hereby. Sellers have employed Daniels & Associates and will be responsible for their fees and expenses. -17- 23 ARTICLE 4 Representations and Warranties of Buyer As a material inducement to Sellers to enter into this Agreement, Buyer represents and warrants to Sellers the following for the benefit of Sellers: 4.1 Organization and Qualification. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington and, prior to Closing, will be authorized to transact business in all states in which the Assets are located. Buyer has all necessary corporate power and authority to own, lease and utilize its properties and assets and to engage in the business or businesses in which it is presently engaged and in the places where such property and assets are now owned, leased or utilized or as such business is now conducted. 4.2 Buyer Authority. Buyer has the corporate right, power, legal capacity and authority to execute, deliver and perform its obligations under this Agreement and the documents, instruments and certificates to be executed and delivered by Buyer pursuant to this Agreement. The execution, delivery and performance of this Agreement by Buyer and the transactions contemplated hereby have been, and all documents, instruments and certificates have been or as of the Closing will be, duly authorized by all necessary corporate action on the part of Buyer. 4.3 Enforceability. The terms and provisions of this Agreement and all documents, instruments and certificates made or delivered from time to time by Buyer hereunder and thereunder constitute valid and legally binding obligations of Buyer enforceable against Buyer in accordance with the terms hereof and thereof, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting generally the enforcement of creditors' rights and by general principles of equity. 4.4 Approvals. Except for compliance with the HSR Act, the execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby do not require any material consent which consent has not been made, given or otherwise accomplished and satisfactory evidence thereof has been delivered to Sellers. -18- 24 4.5 Compliance with Other Instruments. (a) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder do not and will not result in a breach or violation of any term or provision of Buyer's articles of incorporation or bylaws or under any contract, agreement, Authority, Legal Rule, license, lease, indenture, mortgage, loan agreement or note, as to which Buyer is a party, except for such breaches or violations as would not materially impair the ability of Buyer to perform its obligations under this Agreement. (b) Buyer has complied with all provisions of and is not in breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under its articles of incorporation or bylaws or any contract, lease, instrument affecting any parcel of real property, authority or franchise, or obligation to which it is a party or by which it is bound or affected, except for such breaches or defaults as would not materially impair the ability of Buyer to operate the Businesses as presently operated. 4.6 Commissions. Buyer has entered into no agreement, commitment or obligation with regard to any brokerage commission or finder's fee which would be payable by Sellers arising out of the execution, delivery or performance of this Agreement or the transactions contemplated hereby. ARTICLE 5 Covenants of Sellers 5.1 Access to System. Prior to the Closing Date, Sellers shall give Buyer's employees and representatives, during normal business hours and with reasonable prior notice, access to all of the properties, books, accounts, records, contracts, agreements, commitments, arrangements and documents of or relating to the Assets and the Systems, and shall permit the making of copies or extracts thereof. Prior to the Closing Date, Sellers shall furnish to Buyer and its representatives such existing documentation concerning the operation and financial condition of the Assets and the Systems as Buyer or any such representative shall reasonably request. 5.2 Continuity and Maintenance of Operations. Except as to actions which Buyer has been advised and to which it has consented in writing and except as specifically permitted or required by this Agreement or required by any Legal Rule, Sellers shall from the date hereof to the Closing Date, operate the Businesses in the ordinary course consistent with past practices, and use reasonable efforts to preserve any beneficial business relationships with customers, suppliers and others having business dealings with it that are material to -19- 25 the Businesses and use reasonable efforts to keep available to Buyer the services of present employees of the Systems. 5.3 Compliance with Contracts and Laws. From the date hereof to the Closing Date, Sellers shall keep in full force and effect and shall comply in all material respects with all Franchises, Authorities and material Contracts to which it is a party or by which it or the Assets may be bound or affected and which are material to the Businesses. 5.4 Adverse Changes. From the date hereof to the Closing Date, Sellers shall promptly notify Buyer in writing of any material adverse developments affecting the Systems which become known to Sellers, including, without limitation: (a) any material adverse change in the condition, financial or otherwise, of the Systems; (b) any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting any of the Assets or the Systems; or (c) any material notice of violation, forfeiture or complaint under any Franchise. 5.5 Line Extensions and Rebuilds. All line extensions made by Sellers from the date hereof until the Closing Date shall be built and spaced to operate at a minimum of 450 MHz. On the Closing Date, Buyer shall reimburse Sellers for any and all rebuild expenditures incurred by Sellers and approved by Buyer from the date hereof until the Closing Date. 5.6 Taxes. (a) Sellers agree to timely file all sales or transfer tax returns with respect to sales, including the sale of Assets hereunder, occurring on or before the Closing Date, in connection with the Systems, and Sellers shall timely pay all sales or transfer taxes applicable to the sales reported on such tax returns, provided that Buyer cooperates, to the extent required, in the preparation and execution of such tax returns and related filing. (b) Sellers and Buyer shall cooperate fully as and to the extent reasonably requested by the other party in connection with any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Sellers and Buyer agree (i) to retain all books and records with respect to Tax matters pertinent to the Assets relating to all taxable periods until the statute of limitations (including any extensions) as to any taxable year that may be affected thereby shall have run, (ii) to abide by all record retention agreements entered into with any Governmental Authority, and (iii) to give the other party reasonable written notice prior -20- 26 to destroying or discarding any such books and records and, if one party so requests, shall allow the requesting party to take possession of such books and records proposed for destruction or discard. (c) No new elections with respect to Taxes or any changes in current elections with respect to Taxes affecting the Assets shall be made after the date of this Agreement without the prior written consent of Buyer. ARTICLE 6 Other Covenants 6.1 Confidentiality. (a) Neither of the parties hereto shall make any public announcement regarding the transactions contemplated in this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that either of the parties may at any time make announcements which are required by applicable law so long as the party so required to make an announcement promptly upon learning of such requirement notifies the other party of such requirement and discusses with the other party in good faith the exact wording of any such announcement. (b) Each party shall keep strictly confidential any and all information furnished to it or to its Affiliates, agents or representatives in the course of negotiations relating to this Agreement or any transaction contemplated by this Agreement, and the business and financial reviews and investigation conducted by such party in connection with this Agreement. Each party has instructed its officers, employees and other representatives having access to such information of such party's obligation of confidentiality. If this Agreement is terminated, each party shall promptly deliver to the other party or certify as to the destruction of all originals and copies (including all notes, extracts and computer disks) of documents, work papers and other written material concerning or obtained from such other party or its agents, employees or representatives in connection with such negotiations and business and financial reviews and investigations, whether so obtained before or after the execution hereof. Neither party shall use any information so obtained except in connection with the transactions contemplated by this Agreement or disclose or divulge such information to any other person, and each party will keep confidential any information so obtained. (c) Notwithstanding the foregoing, either party may disclose any information which such party is obligated under this Section 0 to keep confidential after consultation with the other party as follows: -21- 27 (i) to which the other party consents in writing; (ii) to representatives, agents, consultants and attorneys of the disclosing party who need to know such confidential information for the purpose of assisting or advising such party, provided that the disclosing party informs each such representative, agent, consultant and attorney of the confidential nature of such information and requires them to be bound by the provisions of this Section 6.1 prior to disclosure; (iii) to third parties whose consent or approval is required for consummating the transactions contemplated herein; (iv) in compliance with applicable Legal Rules; or (v) in order to use such information as evidence in or in connection with any pending or threatened litigation related to this Agreement or any transaction contemplated hereunder; but in each case only to the extent such disclosure is necessary in connection with the purpose for which disclosure is permitted. The obligations of confidentiality set forth herein shall not apply to information generally available to the public or in the possession of the receiving party on a non-confidential basis. 6.2 HSR Notification. As soon as practicable, if required by applicable Legal Rules, Sellers and Buyer shall complete and file, or cause to be completed and filed, any notification and report required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Each of the parties will take or cause to be taken any additional action that may be necessary, proper or advisable, will cooperate to prevent inconsistencies between their respective filings and will furnish to each other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of necessary filings or submissions under the HSR Act. Buyer, on the one hand, and Sellers, on the other hand, shall use commercially reasonable efforts (including the filing of a request for early termination) to obtain the early termination of the waiting period under the HSR Act. Buyer and Sellers shall share equally all HSR filing fees and any other fees to a governmental authority in connection with the transfer of the Assets. 6.3 Required Consents and Estoppel Certificates. Sellers will use reasonable commercial efforts to obtain, as soon as possible, all the Required Consents, in form and substance -22- 28 satisfactory to Buyer. Required Consents will be deemed to be satisfactory to Buyer if they are similar in all material respects to the applicable form attached as EXHIBIT B, C OR D. Sellers will provide copies of all correspondence to or from, any parties in connection with the Required Consents. Buyer will cooperate with Sellers to obtain all Required Consents. Buyer, on the one hand, and Sellers, on the other hand, shall bear equally any costs or fees in connection with obtaining the Required Consents. 6.4 Franchise Transfer Expenses. Buyer and Sellers shall share equally all administrative fees and expenses, if any, required by any Governmental Authority in connection with the transfer to Buyer of all Franchises. 6.5 Employee Matters. (a) Employment. SCHEDULE 0 sets forth a list of all employees of the Systems as of June 30, 1997, showing then-current positions and rates of compensation. At least forty-five (45) days prior to the Closing, Buyer shall notify Sellers of the employees ("Prospective Employees") it intends to hire and shall offer employment as of the Closing Date to all Prospective Employees for a position with at least comparable responsibility. Prospective Employees who accept Buyer's offer of employment and become employees of Buyer within six (6) months of the Closing Date are referred to herein as "New Employees" and all other employees of the Systems are referred to as "Nontransferring Employees." Subject to the provisions of this Section 0 as to any particular benefit, Buyer shall provide New Employees with compensation and employee benefits that are substantially similar to those provided to similarly situated Buyer employees. Buyer shall indemnify and hold Sellers and their Affiliates harmless from and against all claims, expenses (including reasonable attorneys' fees), loss and liability arising either (i) out of Sellers' submission of personnel records or information to Buyer about the employees of the Systems, or (ii) with respect to the New Employees' employment with Buyer after the Closing. Except as otherwise specifically provided in this Agreement, Sellers and their Affiliates shall indemnify and hold Buyer and its Affiliates harmless from and against all claims, expenses (including reasonable attorneys' fees), loss and liability arising out of the New Employees' and Nontransferring Employees' employment with Sellers or their Affiliates prior to the Closing. (b) Service Credit for New Employees. Subject to the provisions of this Section as to any particular benefit, Buyer shall recognize all prior service of New Employees with the Sellers and any Affiliate that is aggregated with the Sellers under section 414(b), 414(c) or 414(m) of the Code ("ERISA Affiliate") for tenure purposes, and for all benefit plan purposes, other than benefit accrual under a defined benefit -23- 29 plan, at least to the extent recognized under the comparable Sellers employee benefit plan as in effect on the Closing Date, but without regard to any amendment increasing such service adopted or made effective less than twelve (12) months prior to the Closing Date. On or before the Closing Date, Sellers shall provide Buyer with a list setting forth the service accrued by each Prospective Employee. Sellers agree that Buyer shall be under no obligation to and shall not assume sponsorship of any Employee Plan. (c) Qualified Defined Contribution Plan. Each Seller is currently a participating company in the InterMedia Partners Tax-Deferred Savings Plan ("Sellers' DC Plan"). New Employees shall not accrue any further benefits under the Sellers' DC Plan as of any date after the Closing (unless employed by either Seller or its ERISA Affiliates). Buyer is a participating company in the Northland Telecommunications Corporation 401(k) Plan ("Buyer's DC Plan"). The account balances of New Employees in the Sellers' DC Plan shall be transferred to the Buyer's DC Plan as soon as reasonably practicable following the Closing in accordance with this Subsection 0. Buyer represents and warrants that the Buyer's DC Plan and related trust meet the requirements for qualification under section 401 and related sections of the Code and shall continue to meet such requirements as of the date of the transfer described in this Subsection 0. Prior to such transfer, but in no event later than two (2) months after the Closing Date, Buyer shall provide to Sellers satisfactory evidence that the Buyer's DC Plan complies with such requirements, including copies of Buyer's DC Plan and the most recent determination letter issued by the Internal Revenue Service (and any subsequent determination letter application filed with the Internal Revenue Service). As soon as reasonably practicable after the Closing and provision of satisfactory evidence pursuant to this Subsection 0, the trustee of Sellers' DC Plan shall transfer to the trustee of Buyer's DC Plan cash and/or assets, including plan loan obligations, equal to the value of the account balances of each New Employee under Sellers' DC Plan as of the last valuation date immediately preceding the transfer date, which amount shall be credited to the respective account or accounts under Buyer's DC Plan. The foregoing notwithstanding, the amount to be so transferred with respect to any New Employee shall be reduced by any withdrawals and other distributions made from Sellers' DC Plan to the New Employee between such valuation date and such transfer date. Buyer agrees that once the transfers made herein have been made, the sole and exclusive responsibility for providing the benefits accrued by the New Employees under Sellers' DC Plan as of the transfer date and transferred to Buyer's DC Plan shall be that of Buyer's DC Plan and Buyer. -24- 30 (d) Welfare Plans.Each New Employee shall be eligible for coverage as of the later of the Closing Date or the date on which he or she becomes a New Employee (the "Employment Transfer Date") under any medical, dental, vision, prescription drug, life insurance and other welfare benefit plans (within the meaning of section 3(1) of ERISA) maintained by Buyer for its employees ("Buyer's Welfare Plans"). Buyer agrees to (i) waive any waiting periods and preexisting condition limitations in Buyer's Welfare Plans, except to the extent coverage would have been denied or restricted on a similar basis under the welfare benefit plans of Sellers for employees of the Systems ("Sellers' Welfare Plans") and (ii) coordinate deductibles, maximum benefit restrictions and "out-of-pocket" maximums so that (A) New Employees receive credit toward any deductibles under Buyer's Welfare Plans for deductibles paid under the Sellers' Welfare Plans during the coverage year of the Buyer's Welfare Plans in which the Employment Transfer Date occurs and (B) New Employees receive credit for eligible claims incurred under the Sellers' Welfare Plans during the coverage year of the Buyer's Welfare Plans in which the Employment Transfer Date occurs toward any "out-of-pocket" maximums under Buyer's Welfare Plans. As soon as reasonably practicable after the Closing Date, Sellers shall prepare and deliver to Buyer SCHEDULE 0, setting forth the information needed for Buyer to comply with the preceding sentence. Sellers will pay or cause to be paid all eligible unpaid claims incurred by New Employees prior to the Employment Transfer Date and which are timely submitted for reimbursement in accordance with the Sellers' Welfare Plans. Sellers will be responsible for providing continuation health care ("COBRA") coverage as required by section 4980B of the Code and sections 601-608 of ERISA to or with respect to any of Sellers' employees who incurs a "qualifying event" prior to the Employment Transfer Date, including a qualifying event that occurs as a result of the transaction contemplated by this Agreement. Buyer will be responsible for providing COBRA coverage to or with respect to any New Employee who incurs a "qualifying event" after the Employment Transfer Date. (e) Vacation. As of the Closing Date, Buyer shall assume Sellers' liability for each New Employee's vacation pay for up to and including four weeks of vacation accrued under the Sellers' vacation policy but not taken before the Closing Date. The aggregate dollar value of the liabilities so assumed by Buyer shall be an "Other Current Liability." (f) Sick Leave. As of the Closing Date, Buyer shall assume Sellers' liability for each New Employee's sick (short-term disability) days for up to and including ten (10) days of sick leave accrued under the Sellers' sick leave policy but not taken before the Closing Date. The aggregate dollar value of the liabilities so assumed by Buyer shall be an "Other Current Liability." (g) General. Sellers and Buyer shall give any notices -25- 31 required by law and take whatever other actions with respect to the plans described in this Section as may be necessary to carry out the arrangements described in this Section 0. Sellers and Buyer shall provide each other with such plan documents and descriptions, employee data and other information as may reasonably be required to carry out the arrangements described in this Section. If any of the arrangements in this Section is determined by the Internal Revenue Service or other applicable governmental authority, or by a court of competent jurisdiction, to be prohibited by law, Sellers and Buyer shall modify such arrangement to as closely as possible retain the intent of the parties, as reflected herein, in a manner that is not so prohibited. (h) No Third Party Beneficiaries. Except as set forth in Section 10.2, nothing in this Section 0 or elsewhere in this Agreement shall be deemed to make any employee of Sellers a third party beneficiary of this Agreement. 6.6 Programming Services. As of the Closing and notwithstanding anything to the contrary contained herein, Buyer shall have entered into programming agreements with each of TV Land, Home Shopping Network and TV Food which provide for carriage of such programming to those customers of the System as are currently receiving such programming. In the event that, as of the Closing Date, Buyer has not entered into such an agreement with TV Land, Buyer shall pay Sellers forty thousand six hundred twenty-two dollars ($40,622) in cash. ARTICLE 7 Conditions Precedent to Obligations of Buyer 7.1 Conditions Precedent. The obligations of Buyer to consummate the transactions contemplated on the Closing Date are subject to the satisfaction, on or before the Closing Date, of all the following conditions: (a) If required under applicable Legal Rules, all filings required under the HSR Act shall have been made and the applicable waiting period shall have expired or been earlier terminated without the receipt of any objection or the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the transactions contemplated by this Agreement. (b) Sellers shall have performed and complied in all material respects with all covenants, conditions and obligations required by this Agreement to be performed or complied with by Sellers on or before the Closing Date. (c) All representations and warranties of Sellers, including, without limitation, those made to the knowledge of -26- 32 Sellers, contained in this Agreement, shall be true, correct and complete in all material respects on and as though made on the Closing Date. (d) Each of the Franchises transferred pursuant to this Agreement and listed on SCHEDULE 0 hereof shall have a term expiring no earlier than one (1) year after the Closing Date. (e) Sellers shall have obtained and delivered to Buyer all Required Consents. (f) As of the Closing Date, no action or proceeding shall be completed, pending or threatened against Buyer or Seller that has or may result in a judgment, decree or order that would prevent or make unlawful the consummation of the transactions under this Agreement or have a material adverse effect on the Systems and there shall be in effect no order restraining or prohibiting the consummation of the transactions contemplated by this Agreement nor any proceedings pending with respect thereto. (g) Sellers shall have tendered to Buyer all documents which Sellers are required by Section 0 to deliver to Buyer. 7.2 Waiver. Buyer may waive any or all of the conditions set forth in Section 0 hereof in whole or in part; however, no such waiver of a condition shall constitute a waiver by Buyer of any of its other rights or remedies under this Agreement or otherwise at law or in equity if Sellers should be in default of any of the covenants, agreements, representations or warranties of Sellers under this Agreement. ARTICLE 8 Conditions Precedent to Obligations of Sellers 8.1 Conditions Precedent. The obligations of Sellers to consummate the transactions contemplated on the Closing Date are subject to the satisfaction, on or before the Closing Date, of all the following conditions: (a) If required under applicable Legal Rules, all filings required under the HSR Act shall have been made and the applicable waiting period shall have expired or been earlier terminated without the receipt of any objection or the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the transactions contemplated by this Agreement. (b) Buyer shall have performed and complied in all material respects with all covenants, conditions and obligations required by this Agreement to be performed or complied with by Buyer on or before the Closing Date. -27- 33 (c) All representations and warranties made by Buyer, including, without limitation, those made to the knowledge of Buyer, contained in this Agreement shall be true, correct and complete in all material respects at and as of the Closing Date as though made on such date. (d) Sellers shall have obtained all Required Consents, provided that this condition shall be deemed to be satisfied as to Sellers with respect to any Required Consent if Buyer at or prior to Closing waives the requirement that such consent be obtained prior to Closing. (e) The closing of the Royston/Toccoa Sale shall have occurred or will occur simultaneously with the Closing hereunder. (f) As of the Closing Date, no action or proceeding shall be completed, pending or threatened against Sellers or Buyer that has or is likely to result in a judgment, decree or order that would prevent or make unlawful the consummation of the transactions under this Agreement and there shall be in effect no order restraining or prohibiting the consummation of the transactions contemplated by this Agreement nor any proceedings pending with respect thereto. (g) Buyer shall have tendered to Sellers the Purchase Price and all documents which Buyer is required by Section 0(b) to deliver to Sellers. 8.2 Waiver. Sellers may waive any or all of such conditions set forth in Section 8.1 hereof in whole or in part; however, no such waiver of a condition shall constitute a waiver by Sellers of any of their other rights or remedies under this Agreement or otherwise at law or in equity if Buyer should be in default of any of the covenants, agreements, representations or warranties made by Buyer under this Agreement. ARTICLE 9 Closing 9.1 Closing. The Closing shall take place on the Closing Date at the place set forth in Section 0. At the Closing, each of the parties shall take all action and deliver all documents, instruments, certificates, agreements and other items as required under this Agreement in order to perform, fulfill and observe all covenants, conditions and agreements on its part to be performed, fulfilled and observed at or prior to the Closing Date (and not theretofore accomplished) and cause all conditions precedent to the other party's obligations hereunder to be satisfied in full. -28- 34 9.2 Closing Documents. (a) At the Closing, Sellers shall deliver to Buyer all of the following: (i) a certificate of each Seller that all appropriate action authorizing the execution, performance and delivery of this Agreement has been taken; (ii) a copy of each instrument pursuant to which a Governmental Authority or other person consents to the transfer of the Franchise which it issued, substantially in the form of EXHIBIT B; (iii) wire transfer instructions for the Purchase Price and a receipt, substantially in the form of EXHIBIT E, for the Purchase Price; (iv) a bill of sale, substantially in the form of EXHIBIT F; (v) for each parcel of Real Property a deed in the form customarily used in the jurisdiction where the real property is located; (vi) Certification of Nonforeign Status for each Seller pursuant to section 1.1445-2(b)(2) of the United States Treasury Income Tax Regulations, substantially in the form of EXHIBIT G; (vii) for each lease of real property listed on SCHEDULE 3.13 for which a consent is required, an assignment, assumption and consent, if required, substantially in the form of EXHIBIT C, duly executed by the relevant Seller and the third party, if any, whose consent is required for the assignment of such lease; (viii) for each Contract the assignment of which requires a Required Consent, an assignment, assumption and consent substantially in the form of EXHIBIT D, duly executed by the relevant Seller and the third party to such Contract; (ix) documents of title for any motor vehicles included within the Assets; (x) a certificate of each Seller, substantially in the form of EXHIBIT H; (xi) a written opinion dated the Closing Date, from Pillsbury Madison & Sutro LLP, counsel to Sellers, in the form annexed hereto as EXHIBIT I; -29- 35 (xii) all data, books and records which relate primarily to the Systems and the Assets; (xiii) a Certificate of Good Standing for each Seller certified to by the Secretary of State of the State of California and a Certificate of Qualification certified to by the Secretary of State of the State of South Carolina; (xiv) such other documents and certificates as Buyer may reasonably request. (b) At the Closing, Buyer shall deliver to Sellers the following documents: (i) a Certificate of Good Standing of Buyer certified to by the Secretary of State of the State of Washington and a Certificate of Qualification of Buyer certified to by the Secretary of State of the State of South Carolina; (ii) a Certificate of Buyer that all appropriate action authorizing the execution, performance and delivery of this Agreement has been taken; (iii) an assumption agreement, substantially in the form of EXHIBIT J and an executed counterpart of each assignment, assumption and consent delivered by Sellers pursuant to and in accordance with Section 0 hereof; (iv) a written opinion dated the Closing Date, from Buyer's counsel, in the form annexed hereto as EXHIBIT K; (v) a certificate of Buyer, substantially in the form of EXHIBIT L; (vi) a wire transfer of the Purchase Price pursuant to instructions received from Sellers; and (vii) such other documents and certificates as Sellers may reasonably request. ARTICLE 10 Indemnification 10.1 Indemnification by Sellers. (a) Each Seller agrees severally, and for its own account only, to indemnify Buyer and hold it harmless on an after-Tax basis, from any and all losses, liabilities, claims, suits, proceedings, demands, judgments, damages, expenses and costs, -30- 36 including, without limitation, counsel fees and disbursements, expert fees and costs and expenses incurred in the investigation, defense or settlement of any claims covered by this indemnity (in this Section 0, collectively, the "Indemnifiable Damages") which Buyer may suffer or incur by reason of (i) the inaccuracy of any representation or warranty of such Seller contained in this Agreement; (ii) the breach by such Seller of any covenant made by it in any of the Transaction Documents; (iii) the ownership, operation or transfer of the Assets or the Systems on or prior to the Closing Date and any liabilities relating to the Systems not assumed by Buyer, provided that in no case shall this Subsection 0 apply to or include Indemnifiable Damages caused by, relating to or arising under Environmental laws, including contamination of the Real Property, which are intended to be covered by Subsection 0. The foregoing obligation of Sellers shall be subject to and limited by each of the qualifications set forth in this Article 0. (b) Except as set forth in subparagraphs (i) and (ii) below or with respect to bona fide and valid claims for which notice has been given within twelve (12) months of the Closing Date, each representation, warranty and covenant made by Sellers in this Agreement or pursuant hereto shall survive until the date which is twelve (12) months following the Closing Date, and thereafter all such representations, warranties and covenants shall be extinguished: (i) the representations, warranties and covenants made by Sellers in Section 0 (Taxes) shall survive until the end of any statutory limitation period with respect thereto; and (ii) the representations, warranties and covenants made by Sellers in the first sentence of Section 0 (title) shall survive indefinitely. (c) The indemnity obligations of Sellers hereunder shall not apply (i) to the extent that Buyer is compensated for the same loss under Buyer's insurance policies in the absence of any indemnity hereunder if the insurers under such policy waive their rights of subrogation with respect thereto; (ii) if the damages to Buyer do not exceed $500,000; and (iii) if such damages exceed $500,000, the indemnity obligations hereunder shall only apply to that portion of the damages that exceed such $500,000 threshold and thereafter losses shall be paid up to a maximum of $9,750,000. (d) Four hundred forty-four thousand and two hundred dollars ($444,200) of the Purchase Price shall be held in escrow pursuant to a mutually acceptable form of escrow agreement, a form of which is attached hereto as EXHIBIT M (the "Post-Closing Escrow Agreement") for a period of six (6) months after the Closing as security for the indemnity obligations of Sellers hereunder. -31- 37 10.2 Indemnification by Buyer. (a) Buyer agrees to indemnify each Seller and its Affiliates, directors, partners, agents and employees against and hold each of them harmless on an after-Tax basis, from any and all Indemnifiable Damages which any such indemnified party may suffer or incur by reason of or in connection with (i) the inaccuracy of any representation or warranty of Buyer contained in this Agreement or any document, certificate or agreement delivered pursuant hereto; (ii) the breach by Buyer of any covenant made by it in any of the Transaction Documents; (iii) the ownership and operation of the Assets after the Closing Date; and (iv) any obligation or liability assumed by Buyer hereunder or under any document, certificate or agreement delivered pursuant hereto. The foregoing obligation of Buyer shall be subject to and limited by each of the qualifications set forth below. (b) Except as set forth in the next succeeding sentence, or with respect to bona fide and valid claims for which notice has been given prior to the date twelve (12) months from the Closing Date, each representation, warranty and covenant made by Buyer in this Agreement or pursuant hereto and the indemnity obligations set forth in this Section 0 shall survive until the date twelve (12) months from the Closing Date, and thereafter all such representations, warranties, covenants and indemnity obligations and any liability thereunder shall be extinguished. The right of Sellers to assert claims for Indemnifiable Damages arising out of the ownership or operation of the Assets or the Systems after the Closing Date and any obligation or liability assumed by Buyer hereunder or pursuant hereto shall survive indefinitely. (c) The indemnity obligations of Buyer hereunder shall not apply (i) to the extent that Sellers or any Affiliates are compensated for the same loss under Sellers' or any Affiliate's insurance policies in the absence of any indemnity hereunder if the insurers under such policy waive their rights of subrogation with respect thereto; (ii) if the damages to Sellers or any Affiliates do not exceed $500,000; and (iii) if such damages exceed $500,000, the indemnity obligations hereunder shall only apply to that portion of the damages that exceed such $500,000 threshold and thereafter losses shall be paid up to a maximum of $9,750,000. Notwithstanding anything to the contrary contained herein, the limitations set forth in this Section 10.2(c) shall not apply with respect to any liability related to Section 6.6 hereof. 10.3 Notice and Right To Defend Third-Party Claims. (a) Upon receipt of written notice of any claim, demand or assessment or the commencement of any suit, action or proceeding in respect of which indemnity may be sought on account of an indemnity agreement contained in this Article, -32- 38 the party seeking indemnification (the "Indemnitee") shall promptly, but in no event later than twenty (20) days prior to the date a response or answer thereto is due (unless a response or answer is due within fewer than twenty (20) days from the date of Indemnitee's receipt of notice thereof), inform the party against whom indemnification is sought (the "Indemnitor") in writing thereof. The failure, refusal or neglect of such Indemnitee to notify the Indemnitor within the time period specified above of any such claim or action shall relieve such Indemnitor from any liability which it may have to such Indemnitee in connection therewith, if the effect of such failure, refusal or neglect is to prejudice materially the rights of the Indemnitor in defending against the claim or action. (b) In case any claim, demand or assessment shall be asserted or suit, action or proceeding commenced against an Indemnitee, and such Indemnitee shall have timely and properly notified the Indemnitor of the commencement thereof, the Indemnitor shall assume the defense, conduct or settlement thereof, with counsel selected by the Indemnitor. After assumption of the defense, conduct or settlement thereof, the Indemnitor will not be liable to the Indemnitee for expenses incurred by Indemnitee in connection with the defense, conduct or settlement thereof, except for such expenses as may be reasonably required to enable the Indemnitor to take over such defense, conduct or settlement. (c) The Indemnitee will at its own expense cooperate with the Indemnitor in connection with any such claim, make personnel, witnesses, books and records relevant to the claim available to the Indemnitor at no cost, and grant such authorizations or powers of attorney to the agents, representatives and counsel of the Indemnitor as the Indemnitor may reasonably request in connection with the defense or settlement of any such claim. (d) Notwithstanding the foregoing in this Section 0, the Indemnitee shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be its fees and expenses unless (i) the Indemnitor has agreed to pay such fees and expenses, (ii) the Indemnitor has failed to assume the defense of such action, claim or proceeding or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both the Indemnitor and the Indemnitee and the Indemnitee has been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnitor (in which case, if the Indemnitee informs the Indemnitor in writing that it elects to employ separate counsel at the expense of the Indemnitor, the Indemnitor shall not have the right to assume the defense of such action, claim or proceeding on behalf of the Indemnitee, it being understood, however, that the Indemnitor shall not, in -33- 39 connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for the Indemnitee, which firm shall be designated in writing by the Indemnitee). 10.4 Notice and Right to Remediate. Anything in this Agreement to the contrary notwithstanding, Sellers shall have no obligation to indemnify Buyer with respect to Indemnifiable Damages arising under Environmental Laws, including damages due to any necessary investigation, remediation or cleanup of Hazardous Substances at the Real Property, unless Buyer first gives Sellers an option to conduct any necessary response or perform any required work and Sellers refuse to do so. Such an option should be given with the written notice required by Section 0, but in any case, shall be given prior to any Buyer expenditure of what it considers to be Indemnifiable Damages. Sellers shall respond to the option in writing within thirty (30) Business Days. If Sellers exercise their option, Sellers shall perform all work in a safe and workmanlike manner in compliance with all applicable Environmental Laws to the satisfaction of the appropriate Governmental Authority. In addition, Sellers will afford Buyer a reasonable opportunity to comment (at Buyer's sole expense) in advance of Sellers' proposed responses or submissions to Governmental Authorities or third parties relating to activities on the Property, including reports and workplans, provided that such comment period does not delay or interfere with Sellers' obligations to any third party. Sellers shall consider Buyer's comments in good faith, but are under no obligation to accept or incorporate Buyer's comments. Buyer, its representatives and agents will not make comments or submissions to any Governmental Authority or third parties with respect to environmental conditions as to which Sellers have exercised their option. Any conflicts between Section 0 and this Section 0 shall be resolved in favor of this Section 0. 10.5 Mitigation. Nothing herein contained shall affect a party's legal duty to mitigate damages. 10.6 Exclusive Remedy. This Article 0 shall be the sole and exclusive basis of any remedy that each party may have against the other party for an inaccuracy or breach of a representation, warranty or covenant under this Agreement or any agreement contemplated hereby, and each party hereby waives any claim (other than under this Article 0) it may have against the other party with respect to the inaccuracy or breach of any such representation, warranty or covenant. -34- 40 ARTICLE 11 Termination 11.1 Termination Events. This Agreement may be terminated and the transactions contemplated hereby may be abandoned: (a) at any time, by the mutual agreement of Buyer and Sellers; (b) by either Buyer or Sellers, upon written notice to the other, if the conditions to its obligations set forth in Sections 0 and 0, respectively, shall not have been satisfied or waived on or before December 31, 1997 for any reason other than a breach or default by such party of its respective covenants, agreements, or other obligations hereunder, or any of its representations or warranties herein not being true and accurate when made or when otherwise required by this Agreement to be true and accurate; (c) By Sellers, in the event that the Closing does not occur by reason of breach or default by the Buyer under this Agreement and provided that Sellers have not breached or defaulted hereunder and have performed or stand ready, willing, and able to perform, their obligations under this Agreement in all material respects; (d) By the Buyer, in the event that the Closing does not occur by reason of a breach or default by the Sellers under this Agreement and provided that the Buyer has not breached or defaulted hereunder and has performed or stands ready, willing, and able to perform, its obligations under this Agreement in all material respects; or (e) By Sellers in the event that the Closing does not occur because the Purchase Price, as adjusted, is less than the threshold set forth in Section 2.3(a). 11.2 Manner of Exercise. In the event of the termination of this Agreement by either Buyer or Sellers pursuant to this Article 0, notice thereof shall forthwith be given to the other party and this Agreement shall terminate and the transactions contemplated hereunder shall be abandoned without further action by Buyer or Sellers. 11.3 Effect of Termination. In the event of the termination of this Agreement pursuant to this Article 0 and prior to the Closing, all obligations of the parties hereunder shall terminate, except for the respective obligations of the parties under Sections 0 (Confidentiality) and 0 (Expenses); provided, however, that no termination of this Agreement shall (a) relieve a defaulting or breaching party from any liability to the other party or parties hereto for or in respect of such -35- 41 default or (b) result in the rescission of any transaction theretofore consummated hereunder. If this Agreement is terminated by Sellers in accordance with Section 11.1(c) or by Buyer other than in accordance with Section 11.1, Sellers shall be entitled to retain the Deposit. ARTICLE 12 General 12.1 Covenant Not To Sue and Nonrecourse to Partners. (a) 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, Sellers' obligations and liabilities under all Transaction Documents and in connection with the transactions contemplated therein shall be nonrecourse to all direct and indirect general and limited partners of Sellers. (b) "Nonrecourse" means that the obligations and liabilities are limited in recourse solely to the assets of Sellers (for those purposes, any capital contribution obligations of the general and limited partners of Sellers or any negative capital account balances of such partners shall not be deemed to be assets of Sellers) and are not guaranteed directly or indirectly by, or the primary obligations of, any general or limited partner of Sellers, and neither Sellers nor any general or limited partner or any officer, director, partner, employee or agent of Sellers or any general or limited partner of any successor partnership, either directly or indirectly, shall be personally liable in any respect (except to the extent of their respective interests in the assets of Sellers) for any obligation or liability of Sellers under any Transaction Document or any transaction contemplated therein. (c) "Direct" partners include all general and limited partners of Sellers, and "indirect" partners include all general and limited partners and members of each direct partner and all general and limited partners and members of each such indirect partner and all such further indirect partners and members thereof and each such indirect partner. (d) 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 direct or indirect member or general or limited partner of Sellers or any officer, director, partner, employee or agent of Sellers or any direct or indirect -36- 42 member or general or limited partner of Sellers 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). 12.2 Assignment. Neither Buyer nor Sellers may assign its rights and obligations under, or grant a security interest in, this Agreement to any person or entity other than an Affiliate of such party without the consent of the other parties hereto. 12.3 Parties in Interest. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties hereto, whether herein so expressed or not. Except as provided in Sections 0, 0 and 0, no person other than Buyer and Sellers and their respective Affiliates may rely upon any provision of this Agreement or any agreement, instrument, certificate or document executed pursuant to this Agreement. 12.4 Time of Essence. Time is of the essence in each and every provision in this Agreement. 12.5 Severability. Any provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining provisions of this Agreement or affecting the validity or enforceability of any provision of this Agreement in any other jurisdiction. 12.6 Amendment. Except as otherwise provided herein, Buyer and Sellers may amend, modify or supplement this Agreement at any time, but only in writing duly executed by all parties hereto. 12.7 Terms. Defined terms used herein are equally applicable to the singular and plural forms as appropriate. Unless otherwise expressly stated herein, references to Articles and Sections are to articles and sections of this Agreement and references to parties, Exhibits and Schedules are to the parties, and the exhibits and schedules attached, to this Agreement. 12.8 Headings. The headings preceding the text of -37- 43 Sections of this Agreement are for convenience only and shall not be deemed a part hereof. 12.9 Entire Understanding; Schedules. The terms set forth in this Agreement including its Schedules and Exhibits are intended by the parties as a final, complete and exclusive expression of the terms of their agreement and may not be contradicted, explained or supplemented by evidence of any prior agreement, any contemporaneous oral agreement or any consistent additional terms. The Schedules and Exhibits attached to this Agreement are made a part of this Agreement. All documents or information disclosed in the Schedules are intended to be disclosed for all purposes under this Agreement and will also be deemed to be incorporated by reference in each Schedule to which they may be relevant without further disclosure. 12.10 Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12.11 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 12.12 Notices. Any notice or demand desired or required to be given hereunder shall be in writing and deemed given when personally delivered, sent by telecopier, overnight courier or deposited in the mail, postage prepaid, sent certified or registered, return receipt requested, and addressed as set forth below or to such other address as either party shall have previously designated by such a notice. Any notice so delivered personally or by telecopy shall be deemed to be received on the date of delivery or transmission by telecopier; any notice so sent by overnight courier shall be deemed to be received one (1) Business Day after the date sent; and any notice so mailed shall be deemed to be received on the date stamped on the receipt (rejection or other refusal to accept or inability to deliver because of a change of address of which no notice was given shall be deemed to be receipt of the notice). If to Sellers: 235 Montgomery Street, Suite 420 San Francisco, CA 94104 Attention: Mr. Rodney M. Royse Telephone: (415) 616-4600 Telecopier: (415) 397-3978 -38- 44 Copy to: Pillsbury Madison & Sutro LLP 235 Montgomery Street San Francisco, CA 94104 Attention: Gregg F. Vignos, Esq. Telephone: (415) 983-1649 Telecopier: (415) 983-1200 If to Buyer: Northland Cable Television, Inc. 1201 Third Avenue, Suite 3600 Seattle, WA 98101 Attention: Mr. John S. Whetzell Telephone: (206) 674-3900 Telecopier: (206) 674-3950 Copy to: Ryan Swanson & Cleveland 1201 Third Avenue Suite 3400 Seattle, WA 98101 Attention: John E. Iverson, Esq. Telephone: (206) 464-4224 Telecopy: (206) 583-0359 12.13 Further Acts. If, at any time before, on or after the Closing Date, any further action by either party is necessary to carry out the purposes of this Agreement, such party shall take all such necessary action or use such party's reasonable best efforts to cause such action to be taken. 12.14 Expenses. Except as set forth in Sections 6.2, 6.3 and 6.4, Sellers and Buyer shall each bear its own costs and expenses incurred in connection with the negotiation, preparation or execution of this Agreement (including, but not limited to, fees and expenses of attorneys, accountants, brokers, consultants, finders and investment bankers), whether or not the Closing occurs. In the event that one of the parties hereto breaches this Agreement, however, and fails to consummate the transaction contemplated hereby, such breaching party shall be responsible for all costs and expenses incurred by the non-breaching party in connection herewith. 12.15 Attorneys' Fees. If any action or proceeding is commenced between the parties with respect to the Transaction Documents, the prevailing party shall be entitled to all fees and expenses incurred by it in connection with such action or proceeding, including reasonable attorneys' fees. -39- 45 12.16 Judicial Proceedings. Each party consents to the jurisdiction over it of the courts of the State of California in the City and County of San Francisco, and of the United States Courts in the Northern District of California and agrees that personal service of all process may be made by registered or certified mail pursuant to the provisions of Section 0. -40- 46 IN WITNESS WHEREOF, the parties hereto have entered into and signed this Agreement as of the date and year first above written. SELLERS: INTERMEDIA PARTNERS OF CAROLINA, L.P. By: InterMedia Partners, a California limited partnership Its General Partner By: InterMedia Capital Management, L.P., Its General Partner By: InterMedia Management, Inc. Its Managing General Partner By: /s/ RODNEY M. ROYSE --------------------------------- Rodney M. Royse Vice President ROBIN CABLE SYSTEMS, L.P. By: MITGO CORP., Its general partner By: /s/ RODNEY M. ROYSE ----------------------------------- Rodney M. Royse Attorney-In-Fact BUYER: NORTHLAND CABLE TELEVISION, INC. By: /s/ JAMES A. PENNEY ----------------------------------- Title: Vice President -41- EX-10.4 10 PURCHASE AGREEMENT DATED NOVEMBER 6, 1997 1 EXHIBIT 10.4 EXECUTION/CONFORMED COPY NORTHLAND CABLE TELEVISION, INC., as Issuer NORTHLAND CABLE NEWS, INC., as Guarantor $100,000,000 10 1/4% Senior Subordinated Notes due 2007 Purchase Agreement November 6, 1997 BANCAMERICA ROBERTSON STEPHENS FIRST CHICAGO CAPITAL MARKETS, INC. 2 $100,000,000 10 1/4% Senior Subordinated Notes due 2007 of NORTHLAND CABLE TELEVISION, INC. PURCHASE AGREEMENT November 6, 1997 BANCAMERICA ROBERTSON STEPHENS FIRST CHICAGO CAPITAL MARKETS, INC. c/o BancAmerica Robertson Stephens 231 South LaSalle Street Chicago, IL 60697 Dear Sirs: Northland Cable Television, Inc., a Washington corporation (the "Company"), proposes to issue and sell to BancAmerica Robertson Stephens and First Chicago Capital Markets, Inc. (each, an "Initial Purchaser" and collectively the "Initial Purchasers") $100,000,000 aggregate principal amount of its 10 1/4% Senior Subordinated Notes due 2007 (the "Series A Notes"), subject to the terms and conditions set forth herein. The Series A Notes are to be issued pursuant to an indenture (the "Indenture") to be dated as of the Closing Date (as defined below), among the Company, the Guarantor (as defined below) and Harris Trust Company of California, as trustee (the "Trustee"). The Series A Notes and the Series B Notes (as defined below) issuable in exchange therefor are collectively referred to herein as the "Notes". The Notes will be guaranteed (the "Subsidiary Guarantee") by Northland Cable News, Inc., a Washington corporation (the "Guarantor"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Indenture. 1. OFFERING MEMORANDUM. The Series A Notes will be offered and sold to the Initial Purchasers pursuant to one or more exemptions from the registration requirements under the Securities Act of 1933, as amended (the "Securities Act"). The Company and the Guarantor have prepared a preliminary offering memorandum dated October 22, 1997 (the "Preliminary Offering Memorandum") and a final offering memorandum dated November 6, 1997 (the "Offering Memorandum") relating to the Series A Notes and the Subsidiary Guarantee. Upon original issuance thereof, and until such time as the same is no longer required pursuant to the Indenture, the Series A Notes (and all securities issued in exchange therefor, in substitution thereof or upon conversion thereof, except for the Series B Notes) shall bear the following legend: 3 "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) BY AN INITIAL PURCHASER (a) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (d) TO THE COMPANY, (e) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (f) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND (2) BY SUBSEQUENT PURCHASERS, AS SET FORTH IN (1)(a) THROUGH (e) ABOVE, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY." 2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations, warranties and covenants contained in this Agreement, and subject to the terms and conditions contained herein, the Company agrees to issue and sell to the Initial Purchasers, and the Initial Purchasers agree, severally and not jointly, to purchase from the Company, the principal amounts of Series A Notes set forth opposite the name of such Initial Purchaser on Schedule A hereto at a purchase price equal to 97.125% of the principal amount thereof (the "Purchase Price"). 3. TERMS OF OFFERING. The Initial Purchasers have advised the Company that the Initial Purchasers will make offers (the "Exempt Resales") of the Series A Notes purchased hereunder on 2 4 the terms set forth in the Offering Memorandum, as amended or supplemented, solely to (i) persons whom the Initial Purchasers reasonably believe to be "qualified institutional buyers" as defined in Rule 144A under the Securities Act ("QIBs"), (ii) not more than ten other institutional "accredited investors," as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities Act, that make certain representations and agreements to the Company (each, an "Accredited Institution"), and (iii) to persons permitted to purchase the Series A Notes in offshore transactions in reliance upon Regulation S under the Securities Act (each, a "Regulation S Purchaser") (such persons specified in clauses (i), (ii) and (iii) being referred to herein as the "Eligible Purchasers"). The Initial Purchasers will offer the Series A Notes to Eligible Purchasers initially at a price equal to 100% of the principal amount thereof. Such price may be changed at any time without notice. Holders (including subsequent transferees) of the Series A Notes will have the registration rights set forth in the registration rights agreement (the "Registration Rights Agreement"), to be dated the Closing Date, in substantially the form of Exhibit A hereto, for so long as such Series A Notes constitute "Transfer Restricted Securities" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Guarantor will agree to file with the Securities and Exchange Commission (the "Commission") under the circumstances set forth therein, (i) a registration statement under the Securities Act (the "Exchange Offer Registration Statement") relating to the Company's 10 1/4% Series B Senior Subordinated Notes due 2007 (the "Series B Notes"), to be offered in exchange for the Series A Notes (such offer to exchange being referred to as the "Exchange Offer") and the Subsidiary Guarantee thereof and, in certain circumstances, (ii) a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, the "Registration Statements") relating to the resale by certain holders of the Series A Notes and to use their best efforts to cause such Registration Statements to be declared and remain effective and usable for the periods specified in the Registration Rights Agreement and to consummate the Exchange Offer. This Agreement, the Indenture, the Notes, the Subsidiary Guarantee and the Registration Rights Agreement are hereinafter sometimes referred to collectively as the "Operative Documents". 4. DELIVERY AND PAYMENT. (a) Delivery of, and payment of the Purchase Price for, the Series A Notes shall be made at the offices of the Trustee in New York, New York. Delivery of other documents called for by this Agreement and otherwise in connection with the issuance, sale and delivery of the Notes shall be made at the offices of Latham & Watkins, 505 Montgomery Street, Suite 1900, San Francisco, California 94111, or such other location as may be mutually acceptable. Such delivery and payment shall be made at 9:00 a.m. San Francisco time, on November 12, 1997 or at such other time as shall be agreed upon by the Initial Purchasers and the Company. The time and date of such delivery and the payment are herein called the "Closing Date". (b) One or more of the Series A Notes in definitive global form, registered in the name of Cede & Co., as nominee of the Depository Trust Company ("DTC"), having an aggregate principal amount corresponding to the aggregate principal amount of the Series A Notes (collectively, the "Global Note"), shall be delivered by the Company to the Initial Purchasers (or as the Initial Purchasers direct) in each case with any transfer taxes thereon duly paid by the Company against payment by the Initial Purchasers of the Purchase Price thereof by wire transfer in same day funds to the order of the 3 5 Company. The Global Note shall be made available to the Initial Purchasers for inspection not later than 9:30 a.m., San Francisco time, on the business day immediately preceding the Closing Date. 5. AGREEMENTS OF THE COMPANY AND THE GUARANTOR. Each of the Company and the Guarantor, jointly and severally, hereby agrees with each of the Initial Purchasers as follows: (a) To advise the Initial Purchasers promptly and, if requested by the Initial Purchasers, confirm such advice in writing, (i) of the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any Series A Notes for offering or sale in any jurisdiction designated by the Initial Purchasers pursuant to Section 5(e) hereof, or the initiation of any proceeding by any state securities commission or any other federal or state regulatory authority for such purpose and (ii) of the happening of any event during the period referred to in Section 5(c) below that makes any statement of a material fact made in the Preliminary Offering Memorandum or the Offering Memorandum untrue or that requires any additions to or changes in the Preliminary Offering Memorandum or the Offering Memorandum in order to make the statements therein not misleading. The Company shall use its best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption of any Series A Notes under any state securities or Blue Sky laws and, if at any time any state securities commission or other federal or state regulatory authority shall issue an order suspending the qualification or exemption of any Series A Notes under any state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish the Initial Purchasers and those persons identified by the Initial Purchasers to the Company as many copies of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments or supplements thereto, as the Initial Purchasers may reasonably request. Subject to the Initial Purchasers' compliance with their representations and warranties and agreements set forth in Section 7 hereof, the Company consents to the use of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments and supplements thereto required pursuant hereto, by the Initial Purchasers in connection with Exempt Resales. (c) During such period as in the opinion of counsel for the Initial Purchasers an Offering Memorandum is required by law to be delivered in connection with Exempt Resales by the Initial Purchasers and in connection with market-making activities of the Initial Purchasers for so long as any Series A Notes are outstanding, (i) not to make any amendment or supplement to the Offering Memorandum of which the Initial Purchasers shall not previously have been advised or to which the Initial Purchasers shall reasonably object after being so advised and (ii) to prepare promptly upon the Initial Purchasers' reasonable request, any amendment or supplement to the Offering Memorandum which may be necessary or advisable in connection with such Exempt Resales or such market-making activities. (d) If, during the period referred to in Section 5(c) above, any event shall occur or condition shall exist as a result of which, in the opinion of counsel to the Initial Purchasers, it becomes necessary to amend or supplement the Offering Memorandum in order to make the statements therein, in the light of the circumstances when such Offering Memorandum is delivered to an Eligible Purchaser, not misleading, or if, in the opinion of counsel to the Initial Purchasers, it is necessary to amend 4 6 or supplement the Offering Memorandum to comply with any applicable law, forthwith to prepare an appropriate amendment or supplement to such Offering Memorandum so that the statements therein, as so amended or supplemented, will not, in the light of the circumstances when it is so delivered, be misleading, or so that such Offering Memorandum will comply with applicable law, and to furnish to the Initial Purchasers and such other persons as the Initial Purchasers may designate such number of copies thereof as the Initial Purchasers may reasonably request. (e) Prior to the sale of all Series A Notes pursuant to Exempt Resales as contemplated hereby, to cooperate with the Initial Purchasers and counsel to the Initial Purchasers in connection with the registration or qualification of the Series A Notes for offer and sale to the Initial Purchasers and pursuant to Exempt Resales under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may request and to continue such qualification in effect so long as required for Exempt Resales and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided, however, that neither the Company nor the Guarantor shall be required in connection therewith to register or qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process or taxation other than as to matters and transactions relating to the Preliminary Offering Memorandum, the Offering Memorandum or Exempt Resales, in any jurisdiction in which it is not now so subject. (f) So long as the Notes are outstanding, whether or not required by the rules and regulations of the Commission, the Company will furnish or cause to be furnished promptly to the holders of the Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to the securities analysts and prospective investors upon request. In addition, the Company shall, for so long as any Notes remain outstanding, furnish to the holders of the Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (g) So long as Notes are outstanding, to furnish to the Initial Purchasers as soon as available copies of all reports or other communications furnished by the Company or the Guarantor to its security holders or furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company or the Guarantor is listed and such other publicly available information concerning the Company and/or its subsidiaries as the Initial Purchasers may reasonably request. (h) So long as any of the Series A Notes remain outstanding and during any period in which the Company and the Guarantor are not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make available to any holder of Series A 5 7 Notes in connection with any sale thereof and any prospective purchaser of such Series A Notes from such holder the information ("Rule 144A Information") required by Rule 144A(d)(4) under the Securities Act. (i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of the obligations of the Company and the Guarantor under this Agreement, including: (i) the fees, disbursements and expenses of counsel to the Company and the Guarantor and accountants of the Company and the Guarantor in connection with the sale and delivery of the Series A Notes to the Initial Purchasers and pursuant to Exempt Resales, and all other fees or expenses in connection with the preparation, printing, filing and distribution of the Preliminary Offering Memorandum, the Offering Memorandum and all amendments and supplements to any of the foregoing (including financial statements) specified in Section 5(b) and 5(c) prior to or during the period specified in Section 5(c), including the mailing and delivering of copies thereof to the Initial Purchasers and persons designated by it in the quantities specified herein, (ii) all costs and expenses related to the transfer and delivery of the Series A Notes to the Initial Purchasers and pursuant to Exempt Resales, including any transfer or other taxes payable thereon, (iii) all costs of printing or producing this Agreement, the other Operative Documents and any other agreements or documents in connection with the offering, purchase, sale or delivery of the Series A Notes, (iv) all expenses in connection with the registration or qualification of the Series A Notes and the Subsidiary Guarantee for offer and sale under the securities or Blue Sky laws of the several states and all costs of printing or producing any preliminary and supplemental Blue Sky memoranda in connection therewith (including the filing fees and fees and disbursements of Latham & Watkins in connection with such registration or qualification and memoranda relating thereto), (v) the cost of printing certificates representing the Series A Notes and the Subsidiary Guarantee, (vi) all expenses and listing fees in connection with the application for quotation of the Series A Notes in the National Association of Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee and the Trustee's counsel in connection with the Indenture, the Notes and the Subsidiary Guarantee, (viii) the costs and charges of any transfer agent, registrar and/or depository (including DTC), (ix) any fees charged by rating agencies for the rating of the Notes, (x) all costs and expenses of the Exchange Offer and any Registration Statement, as set forth in the Registration Rights Agreement and any legal opinions and other related documentation delivered in connection with the consummation of the Exchange Offer, and (xi) and all other costs and expenses incident to the performance of the obligations of the Company and the Guarantor hereunder for which provision is not otherwise made in this Section. Except as otherwise provided by or contemplated by this Agreement, the Initial Purchasers shall pay all of their own fees and expenses, including fees and expenses of their counsel, transfer taxes, if any, upon resale of the Notes, and any other expense incurred by the Initial Purchasers in connection with any offers or resales made by the Initial Purchasers. (j) To use its best efforts to effect the inclusion of the Series A Notes in PORTAL and to maintain the listing of the Series A Notes on PORTAL for so long as the Series A Notes are outstanding. (k) To obtain the approval of DTC for "book-entry" transfer of the Notes, and to comply with all of its agreements set forth in the representation letters of the Company and the Guarantor to DTC relating to the approval of the Notes by DTC for "book-entry" transfer. 6 8 (l) During the period beginning on the date hereof and continuing to and including the Closing Date, not to offer, sell, contract to sell or otherwise transfer or dispose of any debt securities of the Company or the Guarantor or any warrants, rights or options to purchase or otherwise acquire debt securities of the Company or the Guarantor substantially similar to the Notes and the Subsidiary Guarantee (other than (i) the Notes and the Subsidiary Guarantee and (ii) commercial paper issued in the ordinary course of business), without the prior written consent of the Initial Purchasers. (m) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Series A Notes to the Initial Purchasers or pursuant to Exempt Resales in a manner that would require the registration of any such sale of the Series A Notes under the Securities Act. (n) Not to voluntarily claim, and to actively resist any attempts to claim, the benefit of any usury laws against the holders of any Notes. (o) To cause the Exchange Offer to be made in the appropriate form to permit Series B Notes and guarantees thereof by the Guarantor registered pursuant to the Securities Act to be offered in exchange for the Series A Notes and the Subsidiary Guarantee and to comply with all applicable federal and state securities laws in connection with the Exchange Offer. (p) To comply with all of its agreements set forth in the Registration Rights Agreement. (q) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by it prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Series A Notes and the Subsidiary Guarantee. 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE GUARANTOR. As of the date hereof, each of the Company and the Guarantor, jointly and severally, represents and warrants to, and agrees with, each of the Initial Purchasers that: (a) The Preliminary Offering Memorandum and the Offering Memorandum do not, and any supplement or amendment to them will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (a) shall not apply to statements in or omissions from the Preliminary Offering Memorandum or the Offering Memorandum (or any supplement or amendment thereto) based upon information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use therein. No stop order preventing the use of the Preliminary Offering Memorandum or the Offering Memorandum, or any amendment or supplement thereto, or any order asserting that any of the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act, has been issued. 7 9 (b) Each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Preliminary Offering Memorandum and the Offering Memorandum and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"). (c) All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights. (d) The entities listed on Schedule B hereto are the only subsidiaries, direct or indirect, of the Company. All of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature (each, a "Lien"), except as such stock may be pledged pursuant to the Senior Credit Facility (as defined in the Offering Memorandum). (e) This Agreement has been duly authorized, executed and delivered by the Company and the Guarantor. (f) The Indenture has been duly authorized by the Company and the Guarantor and, on the Closing Date, will have been validly executed and delivered by the Company and the Guarantor. When the Indenture has been duly executed and delivered by the Company and the Guarantor, the Indenture will be a valid and binding agreement of the Company and the Guarantor, enforceable against the Company and the Guarantor in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. On the Closing Date, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act of 1939, as amended (the "TIA" or "Trust Indenture Act"), and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (g) The Series A Notes have been duly authorized and, on the Closing Date, will have been validly executed and delivered by the Company. When the Series A Notes have been issued, executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Series A Notes will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. On the Closing Date, the Series A Notes will conform as to legal matters to the description thereof contained in the Offering Memorandum. 8 10 (h) On the Closing Date, the Series B Notes will have been duly authorized by the Company. When the Series B Notes are issued, executed and authenticated in accordance with the terms of the Exchange Offer and the Indenture, the Series B Notes will be entitled to the benefits of the Indenture and will be the valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (i) The Subsidiary Guarantee to be endorsed on the Series A Notes by the Guarantor has been duly authorized by the Guarantor and, on the Closing Date, will have been duly executed and delivered by the Guarantor. When the Series A Notes have been issued, executed and authenticated in accordance with the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Subsidiary Guarantee of the Guarantor endorsed thereon will be entitled to the benefits of the Indenture and will be the valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. On the Closing Date, the Subsidiary Guarantee to be endorsed on the Series A Notes will conform as to legal matters to the description thereof contained in the Offering Memorandum. (j) The Subsidiary Guarantee to be endorsed on the Series B Notes by the Guarantor has been duly authorized by the Guarantor and, when issued, will have been duly executed and delivered by the Guarantor. When the Series B Notes have been issued, executed and authenticated in accordance with the terms of the Exchange Offer and the Indenture, the Subsidiary Guarantee of the Guarantor endorsed thereon will be entitled to the benefits of the Indenture and will be the valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. When the Series B Notes are issued, authenticated and delivered, the Subsidiary Guarantee to be endorsed on the Series B Notes will conform as to legal matters to the description thereof in the Offering Memorandum. (k) All indebtedness of the Company and the Guarantor that will be repaid with the proceeds of the issuance and sale of the Series A Notes was incurred, and the indebtedness represented by the Series A Notes is being incurred, for proper purposes and in good faith and each of the Company and the Guarantor was, at the time of the incurrence of such indebtedness that will be repaid with the proceeds of the issuance and sale of the Series A Notes, and will be on the Closing Date (after giving effect to the application of the proceeds from the issuance of the Series A Notes) solvent, and had at the time of the incurrence of such indebtedness that will be repaid with the proceeds of the issuance and sale of the Series A Notes and will have on the Closing Date (after giving effect to the application of the proceeds from the issuance of the Series A Notes) sufficient capital for carrying on their respective business and were, at the time of the incurrence of such indebtedness that will be repaid with the proceeds of the issuance and sale of the Series A Notes, and will be on the Closing Date (after giving effect to the application of the proceeds from the issuance of the Series A Notes) able to pay their respective debts as they mature. 9 11 (l) The Registration Rights Agreement has been duly authorized by the Company and the Guarantor and, on the Closing Date, will have been duly executed and delivered by the Company and the Guarantor. When the Registration Rights Agreement has been duly executed and delivered, the Registration Rights Agreement will be a valid and binding agreement of the Company and the Guarantor, enforceable against the Company and the Guarantor in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. On the Closing Date, the Registration Rights Agreement will conform as to legal matters to the description thereof in the Offering Memorandum. (m) Neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound. (n) The execution, delivery and performance of this Agreement and the other Operative Documents by the Company and the Guarantor, compliance by the Company and the Guarantor with all provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property, except for such violations or conflicts which, singly or in the aggregate, would not have a Material Adverse Effect, or (iv) result in the termination or revocation of any Authorization (as defined below) of the Company or any of its subsidiaries or result in any other impairment of the rights of the holder of any such Authorization, except for such terminations or revocations which, singly or in the aggregate, would not have a Material Adverse Effect. (o) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject, which might result, singly or in the aggregate, in a Material Adverse Effect. (p) Neither the Company nor any of its subsidiaries has knowledge or has received notification of any violation of any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws") or any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a Material Adverse Effect. 10 12 (q) The Company is not aware of, and the Company has not received any notification of, any costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a Material Adverse Effect. (r) Each of the Company and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "Authorization") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a Material Adverse Effect. Each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a Material Adverse Effect. (s) The accountants, Arthur Andersen LLP and Price Waterhouse LLP, that have certified the financial statements and supporting schedules included in the Preliminary Offering Memorandum and the Offering Memorandum are independent public accountants with respect to the Company and the Guarantor, as required by the Securities Act and the Exchange Act. The historical financial statements, together with related schedules and notes, set forth in the Preliminary Offering Memorandum and the Offering Memorandum comply as to form in all material respects with the requirements applicable to registration statements on Form S-1 under the Securities Act. (t) The historical financial statements, together with related schedules and notes forming part of the Offering Memorandum (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated in the Offering Memorandum at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data set forth in the Offering Memorandum (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (u) The pro forma financial statements included in the Preliminary Offering Memorandum and the Offering Memorandum have been prepared on a basis consistent with the historical 11 13 financial statements of the Company and its subsidiaries and give effect to assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly the historical and proposed transactions contemplated by the Preliminary Offering Memorandum and the Offering Memorandum; and such pro forma financial statements comply as to form in all material respects with the requirements applicable to pro forma financial statements included in registration statements on Form S-1 under the Securities Act. The other pro forma financial and statistical information and data included in the Offering Memorandum are, in all material respects, accurately presented and prepared on a basis consistent with the pro forma financial statements. (v) The Company is not and, after giving effect to the offering and sale of the Series A Notes and the application of the net proceeds thereof as described in the Offering Memorandum, will not be, an "investment company," as such term is defined in the Investment Company Act of 1940, as amended. (w) Except for the Registration Rights Agreement, there are no contracts, agreements or understandings between the Company or the Guarantor and any person granting such person the right to require the Company or the Guarantor to file a registration statement under the Securities Act with respect to any securities of the Company or the Guarantor or to require the Company or the Guarantor to include such securities with the Notes and Subsidiary Guarantee registered pursuant to any Registration Statement. (x) Neither the Company nor any of its subsidiaries nor any agent thereof acting on the behalf of them has taken, and none of them will take, any action that might cause this Agreement or the issuance or sale of the Series A Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (y) Since the respective dates as of which information is given in the Offering Memorandum other than as set forth in the Offering Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. (z) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its date, contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act. (aa) When the Series A Notes and the Subsidiary Guarantee are issued and delivered pursuant to this Agreement, neither the Series A Notes nor the Subsidiary Guarantee will be of the same class (within the meaning of Rule 144A under the Securities Act) as any security of the Company 12 14 or the Guarantor that is listed on a national securities exchange registered under Section 6 of the Exchange Act or that is quoted in a United States automated inter-dealer quotation system. (bb) No form of general solicitation or general advertising (as defined in Regulation D under the Securities Act) was used by the Company, the Guarantor or any of their respective representatives (other than the Initial Purchasers, as to whom the Company and the Guarantor make no representation) in connection with the offer and sale of the Series A Notes contemplated hereby, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. No securities of the same class as the Series A Notes have been issued and sold by the Company within the six-month period immediately prior to the date hereof. (cc) Prior to the effectiveness of any Registration Statement, the Indenture is not required to be qualified under the TIA. (dd) None of the Company, the Guarantor nor any of their respective affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company and the Guarantor make no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S under the Securities Act ("Regulation S") with respect to the Series A Notes or the Subsidiary Guarantee. (ee) The Series A Notes offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions. (ff) The sale of the Series A Notes pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act. (gg) The Company, the Guarantor and their respective affiliates and all persons acting on their behalf (other than the Initial Purchasers, as to whom the Company and the Guarantor make no representation) have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Series A Notes outside the United States and, in connection therewith, the Offering Memorandum will contain the disclosure required by Rule 902(h). (hh) The Series A Notes sold in reliance on Regulation S will be represented upon issuance by a temporary global security that may not be exchanged for definitive securities until the expiration of the 40-day restricted period referred to in Rule 903(c)(3) of the Securities Act and only upon certification of beneficial ownership of such Series A Notes by non-U.S. persons or U.S. persons who purchased such Series A Notes in transactions that were exempt from the registration requirements of the Securities Act. 13 15 (ii) No registration under the Securities Act of the Series A Notes or the Subsidiary Guarantee is required for the sale of the Series A Notes and the Subsidiary Guarantee to the Initial Purchasers as contemplated hereby or for the Exempt Resales assuming the accuracy of the Initial Purchasers' representations and warranties and agreements set forth in Section 7 hereof. (jj) No "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act (i) has imposed (or has informed the Company or the Guarantor that it is considering imposing) any condition (financial or otherwise) on the Company's or the Guarantor's retaining any rating assigned as of the date hereof to the Company, the Guarantor or any securities of the Company or the Guarantor or (ii) has indicated to the Company or the Guarantor that it is considering (a) the downgrading, suspension or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating so assigned or (b) any change in the outlook for any rating of the Company or the Guarantor. (kk) Each certificate signed by any officer of the Company or the Guarantor and delivered to the Initial Purchasers or counsel for the Initial Purchasers shall be deemed to be a representation and warranty by the Company or the Guarantor to the Initial Purchasers as to the matters covered thereby. (ll) The information contained in the caption "Certain Transactions" in the Offering Memorandum contains all of the information that is required by Item 404 of Regulation S-K of the Securities Act if the Company were required to comply with such Item and, to the extent such information constitutes summaries of agreements, instruments, other documents or unwritten understandings, such information is presented in a fair, complete and accurate manner. The Company acknowledges that the Initial Purchasers and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Section 9 hereof, counsel to the Company and the Guarantor and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance. 7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each of the Initial Purchasers, severally and not jointly, represent and warrant to each of the Company and the Guarantor, and agrees that: (a) Such Initial Purchaser is either a QIB or an Accredited Institution, in either case, with such knowledge and experience in financial and business matters as is necessary in order to evaluate the merits and risks of an investment in the Series A Notes. (b) Such Initial Purchaser (A) is not acquiring the Series A Notes with a view to any distribution thereof or with any present intention of offering or selling any of the Series A Notes in a transaction that would violate the Securities Act or the securities laws of any state of the United States or any other applicable jurisdiction and (B) will be reoffering and reselling the Series A Notes only to (x) QIBs in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A, (y) not more than ten Accredited Institutions that execute and deliver a letter containing certain 14 16 representations and agreements in the form attached as Annex A to the Offering Memorandum, and (z) in offshore transactions in reliance upon Regulation S under the Securities Act. (c) Such Initial Purchaser agrees that no form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) has been or will be used by such Initial Purchaser or any of its representatives in connection with the offer and sale of the Series A Notes pursuant hereto, including, but not limited to, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (d) Such Initial Purchaser agrees that, in connection with Exempt Resales, such Initial Purchaser will solicit offers to buy the Series A Notes only from, and will offer to sell the Series A Notes only to, Eligible Purchasers. Each Initial Purchaser further agrees that it will offer to sell the Series A Notes only to, and will solicit offers to buy the Series A Notes only from, (A) Eligible Purchasers that the Initial Purchaser reasonably believes are QIBs, (B) Accredited Institutions who make the representations contained in, and execute and return to the Initial Purchaser, a certificate in the form of Annex A attached to the Offering Memorandum and (C) Regulation S Purchasers, in each case, that agree that (x) the Series A Notes purchased by them may be resold, pledged or otherwise transferred within the time period referred to under Rule 144(k) (taking into account the provisions of Rule 144(d) under the Securities Act, if applicable) under the Securities Act, as in effect on the date of the transfer of such Series A Notes, only (I) to the Company or any of its subsidiaries, (II) to a person whom the seller reasonably believes is a QIB purchasing for its own account or for the account of a QIB in a transaction meeting the requirements of Rule 144A under the Securities Act, (III) in an offshore transaction (as defined in Rule 902 under the Securities Act) meeting the requirements of Rule 904 of the Securities Act, (IV) in a transaction meeting the requirements of Rule 144 under the Securities Act, (V) to an Accredited Institution that, prior to such transfer, furnishes the Trustee a signed letter containing certain representations and agreements relating to the registration of transfer of such Series A Note (the form of which is substantially the same as Annex A to the Offering Memorandum) and an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act, (VI) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel acceptable to the Company) or (VII) pursuant to an effective registration statement and, in each case, in accordance with the applicable securities laws of any state of the United States or any other applicable jurisdiction and (y) they will deliver to each person to whom such Series A Notes or an interest therein is transferred a notice substantially to the effect of the foregoing. (e) None of such Initial Purchaser nor any of its affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Regulation S with respect to the Series A Notes or the Subsidiary Guarantee. (f) The Series A Notes offered and sold by such Initial Purchaser pursuant hereto in reliance on Regulation S have been and will be offered and sold only in offshore transactions (as defined in Rule 902 under the Securities Act). 15 17 (g) The sale of the Series A Notes offered and sold by such Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act. (h) Such Initial Purchaser agrees that it has not offered or sold and will not offer or sell the Series A Notes in the United States or to, or for the benefit or account of, a U.S. Person (other than a distributor), in each case, as defined in Rule 902 under the Securities Act (i) as part of its distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering of the Series A Notes pursuant hereto and the Closing Date, other than in accordance with Regulation S of the Securities Act (or Rule 144A or to Accredited Institutions in transactions that are exempt from the registration requirements of the Securities Act). Such Initial Purchaser agrees that, during such 40-day restricted period, it will not cause any advertisement with respect to the Series A Notes (including any "tombstone" advertisement) to be published in any newspaper or periodical or posted in any public place and will not issue any circular relating to the Series A Notes, except such advertisements as are permitted by and include the statements required by Regulation S. (i) Such Initial Purchaser agrees that, at or prior to confirmation of a sale of Series A Notes by it to any distributor, dealer or person receiving a selling concession, fee or other remuneration during the 40-day restricted period referred to in Rule 903(c)(2) under the Securities Act, it will send to such distributor, dealer or person receiving a selling concession, fee or other remuneration a confirmation or notice to substantially the following effect: "The Series A Notes covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of your distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the Offering and the Closing Date, except in either case in accordance with Regulation S under the Securities Act (or Rule 144A or to Accredited Institutions in transactions that are exempt from the registration requirements of the Securities Act), and in connection with any subsequent sale by you of the Series A Notes covered hereby in reliance on Regulation S during the period referred to above to any distributor, dealer or person receiving a selling concession, fee or other remuneration, you must deliver a notice to substantially the foregoing effect. Terms used above have the meanings assigned to them in Regulation S." (j) Such Initial Purchaser agrees that the Series A Notes sold in reliance on Regulation S will be represented upon issuance by a temporary global security that may not be exchanged for definitive securities until the expiration of the 40-day restricted period referred to in Rule 903(c)(3) of the Securities Act and only upon certification of beneficial ownership of such Series A Notes by non-U.S. persons or U.S. persons who purchased such Series A Notes in transactions that were exempt from the registration requirements of the Securities Act. (k) Such Initial Purchaser further represents and agrees that (1) it has not offered or sold and will not offer or sell any Series A Notes to persons in the United Kingdom prior to the expiration of the period of six months from the issue date of the Series A Notes, except to persons whose 16 18 ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Series A Notes in, from or otherwise involving the United Kingdom and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of the Series A Notes to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise lawfully be issued or passed on. (l) Such Initial Purchaser agrees that it will not offer, sell or deliver any of the Series A Notes in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Series A Notes in such jurisdictions. Such Initial Purchaser understands that no action has been taken to permit a public offering in any jurisdiction outside the United States where action would be required for such purpose. The Initial Purchasers acknowledge that the Company and the Guarantor and, for purposes of the opinions to be delivered to each Initial Purchaser pursuant to Section 9 hereof, counsel to the Company and the Guarantor and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and the Initial Purchasers hereby consent to such reliance. 8. Indemnification. (a) The Company and the Guarantor agree, jointly and severally, to indemnify and hold harmless each Initial Purchaser, its directors, its officers and each person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action, that could give rise to any such losses, claims, damages, liabilities or judgments), as incurred, caused by any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum (or any amendment or supplement thereto), the Preliminary Offering Memorandum or any Rule 144A Information provided by the Company or the Guarantor to any holder or prospective purchaser of Series A Notes pursuant to Section 5(h) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any of the Initial Purchasers furnished in writing to the Company by any of the Initial Purchasers. (b) Each of the Initial Purchasers agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantor, and their respective directors and officers and each person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company or the Guarantor, to the same extent as the foregoing indemnity from the Company and the Guarantor to the Initial Purchasers but only with reference to information relating to 17 19 such Initial Purchaser furnished in writing to the Company by such Initial Purchaser expressly for use in the Preliminary Offering Memorandum or the Offering Memorandum. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), the Initial Purchasers shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Initial Purchasers). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by BancAmerica Robertson Stephens, in the case of the parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent the indemnification provided for in this Section 8 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, 18 20 damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantor, on the one hand, and the Initial Purchasers, on the other hand, from the offering of the Series A Notes or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company and the Guarantor, on the one hand, and the Initial Purchasers, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantor, on the one hand, and the Initial Purchasers, on the other hand, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Series A Notes (before deducting expenses) received by the Company, and the total discounts and commissions received by the Initial Purchasers bear to the total price to investors of the Series A Notes, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault of the Company and the Guarantor, on the one hand, and the Initial Purchasers, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Guarantor, on the one hand, or the Initial Purchasers, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Guarantor, and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, the Initial Purchasers shall not be required to contribute any amount in excess of the amount by which the total price of the Series A Notes purchased by it were sold to investors in Exempt Resales exceeds the amount of any damages which such Initial Purchaser have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of Series A Notes purchased by each of the Initial Purchasers hereunder and not joint. (e) The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. 9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations of the Initial Purchasers to purchase the Series A Notes under this Agreement are subject to the satisfaction of each of the following conditions: 19 21 (a) All the representations and warranties of the Company and the Guarantor contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) On or after the date hereof, (i) there shall not have occurred any downgrading, suspension or withdrawal of, nor shall any notice have been given of any potential or intended downgrading, suspension or withdrawal of, or of any review (or of any potential or intended review) for a possible change that does not indicate the direction of the possible change in, any rating of the Company or the Guarantor or any securities of the Company or the Guarantor (including, without limitation, the placing of any of the foregoing ratings on credit watch with negative or developing implications or under review with an uncertain direction) by any "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, (ii) there shall not have occurred any change, nor shall notice have been given of any potential or intended change, in the outlook for any rating of the Company or the Guarantor by any such rating organization and (iii) no such rating organization shall have given notice that it has assigned (or is considering assigning) a lower rating to the Notes than that on which the Notes were marketed. (c) Since the respective dates as of which information is given in the Offering Memorandum other than as set forth in the Offering Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries shall have incurred any liability or obligation, direct or contingent, the effect of which, in any such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Series A Notes on the terms and in the manner contemplated in the Offering Memorandum. (d) The Initial Purchasers shall have received on the Closing Date a certificate dated the Closing Date, signed by the President and the Chief Financial Officer of the Company, confirming the matters set forth in Sections 9(a), 9(b) and 9(c). (e) The Initial Purchasers shall have received on the Closing Date an opinion (satisfactory to the Initial Purchasers and counsel for the Initial Purchasers), dated the Closing Date, of Cairncross & Hempelmann, P.S., counsel for the Company and the Guarantor, the form of which is attached as Exhibit B hereto. The opinion of Cairncross & Hempelmann, P.S. shall be rendered to the Initial Purchasers at the request of the Company and the Guarantor and shall so state therein. (f) The Initial Purchasers shall have received on the Closing Date an opinion (satisfactory to the Initial Purchasers and counsel for the Initial Purchasers), dated the Closing Date, of Haythe & Curley, special counsel for the Company and the Guarantor, the form of which is attached as Exhibit C hereto. The opinion of Haythe & Curley shall be rendered to the Initial Purchasers at the request of the Company and the Guarantor and shall so state therein. 20 22 (g) The Initial Purchasers shall have received on the Closing Date an opinion (satisfactory to the Initial Purchasers and counsel for the Initial Purchasers), dated the Closing Date, of Cole, Raywid & Braverman, regulatory counsel for the Company and the Guarantor, the form of which is attached as Exhibit D hereto. The opinion of Cole, Raywid & Braverman shall be rendered to the Initial Purchasers at the request of the Company and the Guarantor and shall so state therein. (h) The Initial Purchasers shall have received on the Closing Date an opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial Purchasers, in form and substance satisfactory to the Initial Purchasers. (i) The Initial Purchasers shall have received, at the time this Agreement is executed and at the Closing Date, letters dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Initial Purchasers from each of Arthur Andersen LLP and Price Waterhouse LLP, independent public accountants, containing the information and statements of the type ordinarily included in accountants' "comfort letters" to the Initial Purchasers with respect to the financial statements and certain financial information contained in the Offering Memorandum. (j) The Series A Notes shall have been approved by the NASD for trading and duly listed in PORTAL. (k) The Initial Purchasers shall have received a counterpart, conformed as executed, of the Indenture which shall have been entered into by the Company, the Guarantor and the Trustee. (l) The Company and the Guarantor shall have executed the Registration Rights Agreement and the Initial Purchasers shall have received an original copy thereof, duly executed by the Company and the Guarantor. (m) The Company shall not have failed at or prior to the Closing Date to perform or comply with any of the agreements herein contained and required to be performed or complied with by the Company at or prior to the Closing Date. (n) The Company shall have amended or shall amend simultaneously with the execution of this Agreement, the Credit Agreement dated August 23, 1994, by and among the Company and The First National Bank of Chicago, as lender and managing agent and the other lenders party thereto providing for up to $100 million of credit borrowings, having terms substantially similar to those described in the caption "Description of the Senior Credit Facility" in the Offering Memorandum (the "Senior Credit Facility"). (o) The Company shall have received a commitment letter from The First National Bank of Chicago setting forth a commitment for the Supplemental Credit Facility (as defined in the Offering Memorandum). 21 23 10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. This Agreement may be terminated at any time prior to the Closing Date by the Initial Purchasers by written notice to the Company if any of the following has occurred: (i) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in the Initial Purchasers' judgment, is material and adverse and, in the Initial Purchasers' judgment, makes it impracticable to market the Series A Notes on the terms and in the manner contemplated in the Offering Memorandum, (ii) the suspension or material limitation of trading in securities or other instruments on the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or The Nasdaq National Market or limitation on prices for securities or other instruments on any such exchange or the Nasdaq National Market, (iii) the suspension of trading of any securities of the Company or the Guarantor on any exchange or in the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects, or will materially and adversely affect, the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the financial markets in the United States. If on the Closing Date any one or more of the Initial Purchasers shall fail or refuse to purchase the Series A Notes which it or they have agreed to purchase hereunder on such date and the aggregate principal amount of the Series A Notes which such defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of the Series A Notes to be purchased on such date by all Initial Purchasers, each non-defaulting Initial Purchaser shall be obligated severally, in the proportion which the principal amount of the Series A Notes set forth opposite its name in Schedule A bears to the aggregate principal amount of the Series A Notes which all the non-defaulting Initial Purchasers, as the case may be, have agreed to purchase, or in such other proportion as you may specify, to purchase the Series A Notes which such defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed or refused to purchase on such date; provided that in no event shall the aggregate principal amount of the Series A Notes which any Initial Purchaser has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 10 by an amount in excess of one-ninth of such principal amount of the Series A Notes without the written consent of such Initial Purchaser. If on the Closing Date any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase the Series A Notes and the aggregate principal amount of the Series A Notes with respect to which such default occurs is more than one-tenth of the aggregate principal amount of the Series A Notes to be purchased by all Initial Purchasers and arrangements satisfactory to the Initial Purchasers and the Company for purchase of such the Series A Notes are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Initial Purchaser and the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Offering Memorandum or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Initial Purchaser from liability in respect of any default of any such Initial Purchaser under this Agreement. 22 24 11. MISCELLANEOUS. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company or the Guarantor, to Northland Cable Television, Inc., 1201 Third Avenue, Suite 3600, Seattle, Washington 98101, Attention: President and General Counsel, with a copy to: Cairncross & Hempelmann, P.S., 70th Floor, Columbia Center, 701 Fifth Avenue, Seattle, Washington 98104-7016, Attention: Scott T. Bell and (ii) if to the Initial Purchasers, BancAmerica Robertson Stephens, 231 South LaSalle Street, Chicago, Illinois 60697, Attention: High Yield Syndication (with a copy, which shall not constitute notice, to Latham & Watkins, Attention: Gregory K. Miller), or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Company, the Guarantor and the Initial Purchasers set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Series A Notes, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchasers, the officers or directors of the Initial Purchasers, any person controlling the Initial Purchasers, the Company, the Guarantor, the officers or directors of the Company or the Guarantor, or any person controlling the Company or the Guarantor, (ii) acceptance of the Series A Notes and payment for them hereunder and (iii) termination of this Agreement. If for any reason the Series A Notes are not delivered by or on behalf of the Company as provided herein (other than as a result of any termination of this Agreement pursuant to Section 10), the Company and the Guarantor, jointly and severally, agree to reimburse the Initial Purchasers for all out-of-pocket expenses (including the fees and disbursements of counsel) incurred by them. Notwithstanding any termination of this Agreement, the Company shall be liable for all expenses which it has agreed to pay pursuant to Section 5(i) hereof. The Company and the Guarantor also agree, jointly and severally, to reimburse the Initial Purchasers and their officers, directors and each person, if any, who controls such Initial Purchasers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act for any and all fees and expenses (including without limitation the fees and expenses of counsel) incurred by them in connection with enforcing their rights under this Agreement (including without limitation its rights under this Section 8). Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Guarantor, the Initial Purchasers, the Initial Purchasers' directors and officers, any controlling persons referred to herein, the directors of the Company and the Guarantor and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Series A Notes from any of the several Initial Purchasers merely because of such purchase. This Agreement shall be governed and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed in such State. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 23 25 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Guarantor and the Initial Purchasers. Very truly yours, NORTHLAND CABLE TELEVISION, INC. By: /s/ GARY S. JONES ----------------------------------- Name: Gary S. Jones Title: Vice President NORTHLAND CABLE NEWS, INC. By: /s/ GARY S. JONES ----------------------------------- Name: Gary S. Jones Title: Vice President 24 26 The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. BANCAMERICA ROBERTSON STEPHENS By: /s/ THOMAS J. McGRATH -------------------------------- Name: Thomas J. McGrath Title: Managing Director FIRST CHICAGO CAPITAL MARKETS, INC. By: /s/ ROBERT J. RISCHARD -------------------------------- Name: Robert J. Rischard Title: Director 27 SCHEDULE A
Principal Amount Initial Purchaser of Notes ----------------- ---------------- BancAmerica Robertson Stephens........................ $70,000,000 First Chicago Capital Markets, Inc.................... 30,000,000 Total......................................... $100,000,000 ============
S-1 28 SCHEDULE B Subsidiaries Northland Cable News, Inc. S-2 29 EXHIBIT A FORM OF REGISTRATION RIGHTS AGREEMENT A-1 30 EXHIBIT B Opinion of Cairncross & Hempelmann, P.S., counsel for the Company, to be delivered pursuant to Section 9(e) of the Purchase Agreement. References to the Offering Memorandum in this Exhibit B include any supplements thereto at the Closing Date. (i) each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Offering Memorandum and to own, lease and operate its properties; (ii) each of the Company and its subsidiaries is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; (iii) all the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; (iv) all of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, free and clear of any Lien except as such stock may be pledged pursuant to the Senior Credit Facility; (v) the Series A Notes have been duly authorized and validly executed by the Company; (vi) the Subsidiary Guarantee has been duly authorized and validly executed by the Guarantor; (vii) this Agreement, the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and the Guarantor; (viii) the Series B Notes have been duly authorized by the Company and the Subsidiary Guarantee to be endorsed on the Series B Notes have been duly authorized by the Guarantor; (ix) the statements under the captions "Risk Factors-Ranking of Notes; Subordination," "Risk Factors-Competition; Litigation," "Risk Factors-Fraudulent Transfer Statutes," "Business-The Acquisition," "Business-Industry Overview," "Business-Programming and Subscriber Rates," "Business-Competition," "Business-Properties," "Business-Insurance," "Business-Litigation," "Management," "Certain Transactions," "Description of the Senior Credit Facility," "Description of the Notes," "Certain U.S. Federal Tax Considerations for Non-U.S. Holders," "Exchange Offer; Registration Rights" and "Notice to Investors" in the Offering Memorandum, insofar as such statements constitute a summary of the legal matters, documents or legal B-1 31 proceedings referred to therein, fairly present in all material respects such legal matters, documents and legal proceedings; (x) neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws and, to the best of such counsel's knowledge after due inquiry, neither the Company nor any of its subsidiaries is in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound; (xi) the execution, delivery and performance of this Agreement and the other Operative Documents by the Company and the Guarantor, compliance by the Company and the Guarantor with all provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property, except for such violations or conflicts which, singly or in the aggregate, would not have a Material Adverse Effect, or (iv) result in the termination or revocation of any Authorization of the Company or any of its subsidiaries or result in any other impairment of the rights of the holder of any such Authorization, except for such terminations or revocations which, singly or in the aggregate, would not have a Material Adverse Effect. (xii) after due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject, which might result, singly or in the aggregate, in a Material Adverse Effect. (xiii) each of the Company and its subsidiaries has such Authorizations of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a Material Adverse Effect. Each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of B-2 32 any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a Material Adverse Effect; (xiv) the Company is not and, after giving effect to the offering and sale of the Series A Notes and the application of the net proceeds thereof as described in the Offering Memorandum, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (xv) to the best of such counsel's knowledge after due inquiry, there are no contracts, agreements or understandings between the Company or the Guarantor and any person granting such person the right to require the Company or the Guarantor to file a registration statement under the Securities Act with respect to any securities of the Company or the Guarantor or to require the Company or the Guarantor to include such securities with the Notes and Subsidiary Guarantee registered pursuant to any Registration Statement; (xvi) the Indenture complies as to form in all material respects with the requirements of the TIA, and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. It is not necessary in connection with the offer, sale and delivery of the Series A Notes to the Initial Purchasers in the manner contemplated by this Agreement or in connection with the Exempt Resales to qualify the Indenture under the TIA. (xvii) no registration under the Securities Act of the Series A Notes is required for the sale of the Series A Notes to the Initial Purchasers as contemplated by this Agreement or for the Exempt Resales assuming that (i) each Initial Purchasers is a QIB, an Accredited Institution or a Regulation S Purchaser, (ii) the accuracy of, and compliance with, the Initial Purchasers' representations and agreements contained in Section 7 of this Agreement, (iii) the accuracy of the representations of the Company and the Guarantor set forth in Sections 5(h) and 6(dd), (ee) and (ff) of this Agreement and (iv) with respect to Accredited Institutions, the accuracy of the representations made by each such Accredited Institution as set forth in the letter of representation executed by such Accredited Institution in the form of Annex A to the Offering Memorandum. (xviii) to such counsel's knowledge, the information contained in the caption "Certain Transactions" in the Offering Memorandum contains all of the information that is required by Item 404 of Regulation S-K of the Securities Act if the Company was required to comply with such Item and, to the extent such information constitutes summaries of agreements, instruments, other documents or unwritten understandings, such information is presented in a fair, complete and accurate manner. (xix) such counsel has no reason to believe that, as of the date of the Offering Memorandum or as of the Closing Date, the Offering Memorandum, as amended or supplemented, if applicable (except for the financial statements and other financial data included therein, as to which such counsel need not express any belief) contains any untrue B-3 33 statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. B-4 34 EXHIBIT C Opinion of Haythe & Curley, special counsel for the Company, to be delivered pursuant to Section 9(f) of the Purchase Agreement. References to the Offering Memorandum in this Exhibit C include any supplements thereto at the Closing Date. (i) the Series A Notes are entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as (x) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (y) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; (ii) The Subsidiary Guarantee is entitled to the benefits of the Indenture and is the valid and binding obligation of the Guarantor, enforceable in accordance with its terms except as (x) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (y) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; (iii) the Indenture is a valid and binding agreement of the Company and the Guarantor, enforceable against each of the Company and the Guarantor in accordance with its terms except as (x) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (y) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; (iv) The Registration Rights Agreement is a valid and binding agreement of the Company and the Guarantor, enforceable against each of the Company and the Guarantor in accordance with its terms, except as (x) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (y) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; and (v) the Series B Notes, when duly executed and authenticated in accordance with the provisions of the Indenture, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as (x) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (y) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. C-1 35 EXHIBIT D Opinion of Cole, Raywid & Braverman, regulatory counsel for the Company, to be delivered pursuant to Section 9(g) of the Purchase Agreement. References to the Offering Memorandum in this Exhibit D include any supplements thereto at the Closing Date. (i) the statements under the captions "Risk Factors-Non-Exclusive Franchises; Non-Renewal or Termination of Franchises," "Risk Factors-Substantial Regulation in the Cable Television Industry," "Legislation and Regulation," "Business-Programming and Subscriber Rates," and "Business-Franchises," "Business-Competition" in the Offering Memorandum, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present in all material respects such legal matters, documents and legal proceedings. D-1 EX-10.5 11 REGISTRATION RIGHTS AGREEMENT DATED 11/12/97 1 EXHIBIT 10.5 CONFORMED COPY REGISTRATION RIGHTS AGREEMENT BY AND AMONG NORTHLAND CABLE TELEVISION, INC., as Issuer and NORTHLAND CABLE NEWS, INC., as Guarantor and BANCAMERICA ROBERTSON STEPHENS FIRST CHICAGO CAPITAL MARKETS, INC., as Initial Purchasers DATED AS OF NOVEMBER 12, 1997 2 This Registration Rights Agreement (this "Agreement") is made and entered into as of November 12, 1997, by and among Northland Cable Television, Inc., a Washington corporation (the "Issuer"), Northland Cable News, Inc., a Washington corporation and subsidiary of the Issuer (the "Guarantor"), on the one hand, and BancAmerica Robertson Stephens and First Chicago Capital Markets, Inc. (each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), on the other hand, each of whom has agreed to purchase the Issuer's 10 1/4% Senior Subordinated Notes due 2007 (the "Initial Notes") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated as of November 6, 1997 (the "Purchase Agreement"), by and among the Issuer, the Guarantor and the Initial Purchasers (i) for your benefit and for the benefit of each other Initial Purchaser and (ii) for the benefit of the holders from time to time of the Notes (including you and each other Initial Purchaser). In order to induce the Initial Purchasers to purchase the Initial Notes, the Issuer has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 9 of the Purchase Agreement. The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Additional Interest Payment Date: With respect to the Initial Notes, each Interest Payment Date. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Broker-Dealer Transfer Restricted Securities: Exchange Notes that are acquired by a Broker-Dealer in the Exchange Offer in exchange for Initial Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activites (other than Initial Notes acquired directly from the Company or any of its affiliates). Closing Date: The date of this Agreement. Commission: The Securities and Exchange Commission. Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Securities Act of the Exchange Offer Registration Statement relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) hereof, and (iii) the delivery by the Issuer to the Registrar under the Indenture of Exchange Notes in the same aggregate principal amount as the aggregate principal amount of Initial Notes that were tendered by Holders thereof pursuant to the Exchange Offer. Damages Payment Date: With respect to the Initial Notes, each Interest Payment Date. Effectiveness Target Date: As defined in Section 5. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Notes: The 10 1/4% Senior Subordinated Notes due 2007, of the same series under the Indenture as the Initial Notes, to be issued to Holders in exchange for Transfer Restricted Securities pursuant to this Agreement. Exchange Offer: The registration by the Issuer under the Securities Act of the Exchange Notes pursuant to a Registration Statement pursuant to which the Issuer offers the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Transfer Restricted Securities held by such 2 3 Holders for Exchange Notes in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchasers propose to sell the Initial Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Securities Act, and to certain institutional "accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) and (7) of Regulation D under the Securities Act ("Accredited Institutions"). Holders: As defined in Section 2(b) hereof. Indemnified Holder: As defined in Section 8(a) hereof. Indenture: The Indenture, dated as of November 12, 1997, among the Issuer and Harris Trust Company of California, as trustee (the "Trustee"), pursuant to which the Notes are to be issued, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof. Initial Purchaser: As defined in the preamble hereto. Initial Notes: The 10 1/4% Senior Subordinated Notes due 2007, of the same series under the Indenture as the Exchange Notes, for so long as such securities constitute Transfer Restricted Securities. Initial Placement: The issuance and sale by the Issuer of the Initial Notes to the Initial Purchasers pursuant to the Purchase Agreement. Interest Payment Date: As defined in the Indenture and the Notes. NASD: National Association of Securities Dealers, Inc. Notes: The Initial Notes and the Exchange Notes. Person: An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. Prospectus: The prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Record Holder: With respect to any Damages Payment Date relating to the Notes, each Person who is a Holder of Notes on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur. Registration Default: As defined in Section 5 hereof. Registration Statement: Any registration statement of the Issuer and the Guarantor relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which is filed pursuant to the provisions of this Agreement, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer Transfer Restricted Securities. 3 4 Securities Act: The Securities Act of 1933, as amended. Shelf Filing Deadline: As defined in Section 4 hereof. Shelf Registration Statement: As defined in Section 4 hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. Transfer Restricted Securities: Each Note, until the earliest to occur of (a) the date on which such Note is exchanged in the Exchange Offer and entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Securities Act, (b) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with a Shelf Registration Statement and (c) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act or by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of the Prospectus contained therein). Underwritten Registration or Underwritten Offering: A registration in which securities of the Issuer are sold to an underwriter for reoffering to the public. SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permissible under applicable law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with), the Issuer and the Guarantor shall (i) cause to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 75 days after the Closing Date, a Registration Statement under the Securities Act relating to the Exchange Notes and the Exchange Offer, (ii) use its best efforts to cause such Registration Statement to become effective at the earliest possible time, but in no event later than 150 days after the Closing Date, (iii) in connection with the foregoing, file (A) all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, (B) if applicable, a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Securities Act and (C) cause all necessary filings in connection with the registration and qualification of the Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Registration Statement, commence the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the Exchange Notes to be offered in exchange for the Transfer Restricted Securities and to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers as contemplated by Section 3(c) below. (b) The Issuer and the Guarantor shall cause the Exchange Offer Registration Statement to be effective continuously and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 30 days after the date notice of the Exchange Offer is mailed to the Holders. The Issuer and the Guarantor shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Notes shall be included in the Exchange Offer Registration Statement. The Issuer and the Guarantor shall use its best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 180 days after the Closing Date. 4 5 (c) The Issuer shall indicate in a "Plan of Distribution" section contained in the Prospectus forming a part of the Exchange Offer Registration Statement that any Restricted Broker-Dealer who holds Initial Notes that are Transfer Restricted Securities and that were acquired for its own account as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Issuer), may exchange such Initial Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the Exchange Notes received by such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may be satisfied by the delivery by such Broker-Dealer of the Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of Distribution" section shall also contain all other information with respect to such resales by Restricted Broker-Dealers that the Commission may require in order to permit such resales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer except to the extent required by the Commission as a result of a change in policy after the date of this Agreement. The Issuer and the Guarantor shall use their best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) below to the extent necessary to ensure that it is available for resales of Broker-Dealer Transfer Restricted Securities acquired by Restricted Broker-Dealers for their own accounts as a result of market-making activities or other trading activities, and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, for a period ending on the earlier of (i) 180 days from the date on which the Exchange Offer Registration Statement is declared effective and (ii) the date on which a Restricted Broker-Dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities. The Issuer and the Guarantor shall provide sufficient copies of the latest version of such Prospectus to Restricted Broker-Dealers promptly upon request at any time during such 180-day (or shorter as provided in the foregoing sentence) period in order to facilitate such resales. SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Issuer is not required to file an Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with), (ii) for any reason the Exchange Offer is not Consummated within 180 days after the Closing Date, or (iii) with respect to any Holder of Transfer Restricted Securities (A) such Holder is prohibited by applicable law or Commission policy from participating in the Exchange Offer, or (B) such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, or (C) such Holder is a Broker-Dealer and holds Initial Notes acquired directly from the Issuer or one of its affiliates, then, upon such Holder's request, the Issuer and the Guarantor shall (x) cause to be filed a shelf registration statement pursuant to Rule 415 under the Securities Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the "Shelf Registration Statement") as soon as practicable but in any event on or prior to 30 days after the Closing Date (such date being the "Shelf Filing Deadline"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) hereof; and (y) use their best efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or before the 180th day after the Closing Date. The Issuer and the Guarantor shall use their best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for resales of Notes by the Holders of Transfer Restricted Securities entitled 5 6 to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years following the effective date of such Shelf Registration Statement (or shorter period that will terminate when all the Notes covered by such Shelf Registration Statement have been sold pursuant to such Shelf Registration Statement). (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Issuer in writing, within 10 business days after receipt of a request therefor, such information as the Issuer may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuer all information required to be disclosed in order to make the information previously furnished to the Issuer by such Holder not materially misleading. SECTION 5. ADDITIONAL INTEREST If (i) any of the Registration Statements required by this Agreement is not filed with the Commission on or prior to the date specified for such filing in this Agreement, (ii) any of such Registration Statements has not been declared effective by the Commission on or prior to the date specified for such effectiveness in this Agreement (the "Effectiveness Target Date"), regardless of the reasonableness of any efforts made by or on behalf of the Issuer to cause such Registration Statement to become effective), or (iii) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself immediately declared effective (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Issuer and the Guarantor, jointly and severally, hereby agree that the interest rate borne by the Transfer Restricted Securities shall be increased by 0.50% per annum during the 90-day period immediately following the occurrence of any Registration Default and shall increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event shall such increase exceed 2.00% per annum. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the interest rate borne by the relevant Transfer Restricted Securities will be reduced to the original interest rate borne by such Transfer Restricted Securities; provided, however, that, if after any such reduction in interest rate, a different Registration Default occurs, the interest rate borne by the relevant Transfer Restricted Securities shall again be increased pursuant to the foregoing provisions. All obligations of the Issuer and the Guarantor set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Note shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Issuer and the Guarantor shall comply with all of the provisions of Section 6(c) below, shall use their best efforts to effect such exchange to permit the sale of Broker-Dealer Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions: (i) If in the reasonable opinion of counsel to the Issuer there is a question as to whether the Exchange Offer is permitted by applicable law, the Issuer and the Guarantor hereby agree to seek a no-action letter or other favorable decision from the Commission allowing the Issuer and the Guarantor to Consummate an Exchange Offer for such Initial Notes. The Issuer and the Guarantor, each hereby agrees to pursue the issuance of such a decision to the Commission staff level but shall not be required to take commercially unreasonable action to effect a change of Commission policy. The Issuer and the Guarantor hereby agree, however, to (A) participate in telephonic conferences with the Commission, (B) deliver to the Commission staff an analysis prepared by counsel to the Issuer setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange 6 7 Offer should be permitted and (C) diligently pursue a favorable resolution by the Commission staff of such submission. (ii) As a condition to its participation in the Exchange Offer pursuant to the terms of this Agreement, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Issuer, prior to the Consummation thereof, a written representation to the Issuer and the Guarantor (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate of the Issuer, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary course of business. In addition, all such Holders of Transfer Restricted Securities shall otherwise cooperate in the Issuer's preparations for the Exchange Offer. Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the securities to be acquired in the Exchange Offer (1) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (which may include any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K if the resales are of Exchange Notes obtained by such Holder in exchange for Initial Notes acquired by such Holder directly from the Issuer. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Issuer and the Guarantor shall comply with all the provisions of Section 6(c) below and shall use their best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Issuer and the Guarantor will as expeditiously as possible prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Securities Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof. (c) General Provisions. In connection with any Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Registration Statement and the related Prospectus required to permit resales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the Issuer and the Guarantor shall: (i) use their respective best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements (including, if required by the Securities Act or any regulation thereunder, financial statements of the Guarantor) for the period specified in Section 3 or 4 of this Agreement, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Issuer and the Guarantor shall file promptly an appropriate amendment to such Registration Statement, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its best efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter; (ii) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as applicable, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with 7 8 the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise the underwriter(s), if any, and selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Issuer and the Guarantor shall use their best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) furnish without charge to each of the Initial Purchasers and each of the underwriter(s), if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review of such Holders and underwriter(s), if any, for a period of at least five business days, and the Issuer will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which an Initial Purchaser of Transfer Restricted Securities covered by such Registration Statement or the underwriter(s), if any, shall reasonably object in writing within five business days after the receipt thereof (such objection to be deemed timely made upon confirmation of telecopy transmission within such period). The objection of an Initial Purchaser or underwriter, if any, shall be deemed to be reasonable if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission; (v) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to the Initial Purchasers and to the underwriter(s), if any, make the Issuer's representatives and representatives of the Guarantor available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such selling Holders or underwriter(s), if any, reasonably may request; (vi) make available at reasonable times for inspection by the Initial Purchasers, any managing underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant retained by such selling Holders or any of the underwriter(s), all financial and other records, pertinent corporate documents and properties of the Issuer and the Guarantor and cause the Issuer's and the Guarantor's officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Registration Statement subsequent to the filing thereof and prior to its effectiveness; (vii) if requested by any selling Holders or the underwriter(s), if any, promptly incorporate in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective 8 9 amendment as soon as practicable after the Issuer is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (viii) cause the Transfer Restricted Securities covered by the Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Notes covered thereby or the underwriter(s), if any; (ix) furnish to each selling Holder and each of the underwriter(s), if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including financial statements and schedules, all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each selling Holder and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Issuer and the Guarantor hereby consent to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) enter into, and cause the Guarantor to enter into, such agreements (including an underwriting agreement), and make, and cause the Guarantor to make, such representations and warranties, and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Registration Statement contemplated by this Agreement, all to such extent as may be requested by any Initial Purchaser or by any Holder of Transfer Restricted Securities or underwriter in connection with any sale or resale pursuant to any Registration Statement contemplated by this Agreement; and whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, the Issuer and the Guarantor shall: (A) furnish to each Initial Purchaser, each selling Holder and each underwriter, if any, in such substance and scope as they may request and as are customarily made by issuers to underwriters in primary underwritten offerings, upon the date of the Consummation of the Exchange Offer and, if applicable, the effectiveness of the Shelf Registration Statement: (1) a certificate, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, signed by (y) the President or any Vice President and (z) a principal financial or accounting officer of each of the Issuer and the Guarantor, confirming, as of the date thereof, the matters set forth in paragraphs (i), (ii) and (iii) of Section 9 of the Purchase Agreement and such other matters as such parties may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Issuer and the Guarantor, covering the matters set forth in paragraphs (e) through (g) of Section 9 of the Purchase Agreement and such other matter as such parties may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Issuer and the Guarantor, representatives of the independent public accountants for the Issuer and the Guarantor, the Initial Purchasers' representatives and the Initial Purchasers' counsel in connection with the preparation of such Registration Statement and the related Prospectus and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to a large extent upon facts provided to such counsel by officers and other representatives of the Issuer and the Guarantor and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration 9 10 Statement or any post-effective amendment thereto became effective, and, in the case of the Exchange Offer Registration Statement, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated as of the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Issuer's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters by underwriters in connection with primary underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9 of the Purchase Agreement, without exception; (B) set forth in full or incorporate by reference in the underwriting agreement, if any, the indemnification provisions and procedures of Section 8 hereof with respect to all parties to be indemnified pursuant to said Section; and (C) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Issuer and the Guarantor pursuant to this clause (xi), if any. If at any time the representations and warranties of the Issuer and the Guarantor contemplated in clause (A)(1) above cease to be true and correct, the Issuer or the Guarantor shall so advise the Initial Purchasers and the underwriter(s), if any, and each selling Holder promptly and, if requested by such Persons, shall confirm such advice in writing; (xii) prior to any public offering of Transfer Restricted Securities, cooperate with, and cause the Guarantor to cooperate with, the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders or underwriter(s) may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that neither the Issuer nor the Guarantor shall not be required to register or qualify as a foreign corporation where it is not then so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not then so subject; (xiii) shall issue, upon the request of any Holder of Initial Notes covered by the Shelf Registration Statement, Exchange Notes, having an aggregate principal amount equal to the aggregate principal amount of Initial Notes surrendered to the Issuer by such Holder in exchange therefor or being sold by such Holder; such Exchange Notes to be registered in the name of such Holder or in the name of the purchaser(s) of such Notes, as the case may be; in return, the Initial Notes held by such Holder shall be surrendered to the Issuer for cancellation; (xiv) cooperate with, and cause the Guarantor to cooperate with, the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, 10 11 may request at least two business days prior to any sale of Transfer Restricted Securities made by such underwriter(s); (xv) use its best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (viii) above; (xvi) if any fact or event contemplated by clause (c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (xvii) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of the Registration Statement and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depositary Trust Issuer; (xviii) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD, and use its reasonable best efforts to cause such Registration Statement to become effective and approved by such governmental agencies or authorities as may be necessary to enable the Holders selling Transfer Restricted Securities to consummate the disposition of such Transfer Restricted Securities; (xix) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) for the twelve-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm or best efforts Underwritten Offering or (B) if not sold to underwriters in such an offering, beginning with the first month of the Issuer's first fiscal quarter commencing after the effective date of the Registration Statement; (xx) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate with, and cause the Guarantor to cooperate with, the Trustee and the Holders of Notes to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute, and cause the Guarantor to execute, and use its best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xxi) provide promptly to each Holder upon request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Issuer of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing (the "Advice") by the Issuer that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Issuer, each Holder will deliver to the Issuer (at the Issuer's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice. In the event the Issuer shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including the date when each 11 12 selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or shall have received the Advice; however, no such extension shall be taken into account in determining whether Additional Interest is due pursuant to Section 5 hereof or the amount of such Additional Interest, it being agreed that the Issuer's option to suspend use of a Registration Statement pursuant to this paragraph shall be treated as a Registration Default for purposes of Section 5. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Issuer's or the Guarantor's performance of or compliance with this Agreement will be borne by the Issuer or the Guarantor, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made by any Initial Purchaser or Holder with the NASD (and, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel that may be required by the rules and regulations of the NASD)); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Issuer, the Guarantor and, subject to Section 7(b) below, the Holders of Transfer Restricted Securities; and (v) all fees and disbursements of independent certified public accountants of the Issuer and the Guarantor (including the expenses of any special audit and comfort letters required by or incident to such performance). The Issuer will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Issuer or the Guarantor. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Issuer and the Guarantor will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins or such other counsel as may be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Issuer agrees and the Guarantor, jointly and severally, agree to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) any Holder (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person") and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing, settling, compromising, paying or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Holder), joint or several, directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Holders furnished in writing to the Issuer by any of the Holders expressly for use therein. This indemnity agreement shall be in 12 13 addition to any liability which the Issuer may otherwise have. In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any of the Indemnified Holders with respect to which indemnity may be sought against the Issuer or the Guarantor, such Indemnified Holder (or the Indemnified Holder controlled by such controlling person) shall promptly notify the Issuer and the Guarantor in writing (provided, that the failure to give such notice shall not relieve the Issuer or the Guarantor of their respective obligations pursuant to this Agreement). Such Indemnified Holder shall have the right to employ its own counsel in any such action and the fees and expenses of such counsel shall be paid, as incurred, by the Issuer and the Guarantor (regardless of whether it is ultimately determined that an Indemnified Holder is not entitled to indemnification hereunder). The Issuer and the Guarantor shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Holders, which firm shall be designated by the Holders. The Issuer shall be liable for any settlement of any such action or proceeding effected with the Issuer's prior written consent, which consent shall not be withheld unreasonably, and the Issuer agrees to indemnify and hold harmless any Indemnified Holder from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of the Issuer. The Issuer shall not, without the prior written consent of each Indemnified Holder, settle or compromise or consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Holder is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Issuer and the Guarantor and their respective directors, officers of the Company who sign a Registration Statement, and any person controlling (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Issuer and the respective officers, directors, partners, employees, representatives and agents of each such person, to the same extent as the foregoing indemnity from the Issuer and the Guarantor to each of the Indemnified Holders, but only with respect to claims and actions based on information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement. In case any action or proceeding shall be brought against the Issuer or its directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder of Transfer Restricted Securities, such Holder shall have the rights and duties given the Issuer and the Issuer or its directors or officers or such controlling person shall have the rights and duties given to each Holder by the preceding paragraph. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) If the indemnification provided for in this Section 8 is unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof (other than by reason of exceptions provided in those Sections) in respect of any losses, claims, damages, liabilities, judgments, actions or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative benefits received by the Issuer on the one hand and the Holders on the other hand from the Initial Placement (which in the case of the Issuer shall be deemed to be equal to the total gross proceeds from the Initial Placement as set forth on the cover page of the Offering Memorandum), the amount of Additional Interest which did not become payable as a result of the filing of the Registration Statement resulting in such losses, claims, damages, liabilities, judgments actions or expenses, and such Registration Statement, or if such allocation is not permitted by applicable law, the relative fault of the Issuer on the one hand and of the Indemnified Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Issuer on the one hand and of the Indemnified Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or by the Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a), any 13 14 legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Issuer, the Guarantor and each Holder of Transfer Restricted Securities agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, none of the Holders (and its related Indemnified Holders) shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total discount received by such Holder with respect to the Initial Notes exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Initial Notes held by each of the Holders hereunder and not joint. SECTION 9. RULE 144A The Issuer and the Guarantor each hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. SECTION 11. SELECTION OF UNDERWRITERS The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, that such investment bankers and managers must be reasonably satisfactory to the Issuer. SECTION 12. MISCELLANEOUS (a) Remedies. The Issuer and the Guarantor each agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Issuer will not, and will cause the Guarantor not to, on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor the Guarantor has previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not 14 15 inconsistent with the rights granted to the holders of the Issuer's securities under any agreement in effect on the date hereof. (c) Adjustments Affecting the Notes. Neither the Issuer nor the Guarantor will not take any action, or permit any change to occur, with respect to the Notes that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless the Issuer has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities being tendered or registered; provided that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Issuer shall obtain the written consent of each such Initial Purchaser with respect to which such amendment, qualification, supplement, waiver, consent or departure is to be effective. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Issuer or the Guarantor: Northland Cable Television, Inc. 1501 Third Avenue, Suite 3600 Seattle, Washington 98101 Telecopier No.: (206) 674-3950 Attention: James A. Penney, Vice President and General Counsel All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 15 16 (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement together with the other Operative Documents (as defined in the Purchase Agreement) is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Issuer with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. NORTHLAND CABLE TELEVISION, INC. By: _______________________________________ Name: Title: NORTHLAND CABLE NEWS, INC. By: _______________________________________ Name: Title: 16 17 The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. BANCAMERICA ROBERTSON STEPHENS By: /s/ THOMAS J. McGRATH ------------------------------------- Name: Thomas J. McGrath Title: Managing Director FIRST CHICAGO CAPITAL MARKETS, INC. By: /s/ ROBERT J. RISCHARD ------------------------------------- Name: Robert J. Rischard Title: Director 17 EX-12.1 12 COMPUTATION OF DEFICIENCY OF EARNINGS 1 EXHIBIT 12.1 DEFICIENCY OF EARNINGS TO FIXED CHARGES The deficiency of earnings to fixed charges for each of the years in the five-year period ended December 31, 1996 and for the nine-month periods ended September 30, 1997 and 1996 is presented below. Ratio of earnings to fixed charges means the ratio of pretax income from continuing operations (with certain adjustments described below) to the total of: (i) interest and (ii) such portion of rental expense as can be demonstrated to be representative of the interest factor in the particular case.
Nine Months Ended September 30, Year Ended December 31, ------------------ ------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ------------------ ------------------------------------------------- (dollars in thousands) Historical: EARNINGS BEFORE FIXED CHARGES: Net (Loss) $(3,962) $(2,526) $(4,229) $(3,758) $ (385) $ (761) $2,023) Add: Interest Expense $ 7,378 $ 5,884 $ 8,263 $ 7,215 $ 3,226 $ 2,592 $ 3,051 Interest factor in rental expense $ 142 $ 124 $ 145 $ 143 $ 71 $ 63 $ 61 EARNINGS BEFORE FIXED CHARGES $ 3,558 $ 3,482 $ 4,179 $ 3,600 $ 2,912 $ 1,894 $ 1,089 FIXED CHARGES: Interest Expense $ 7,378 $ 5,884 $ 8,263 $ 7,215 $ 3,226 $ 2,592 $ 3,051 Interest factor in rental expense $ 142 $ 124 $ 145 $ 143 $ 71 $ 63 $ 61 TOTAL FIXED CHARGES $ 7,520 $ 6,008 $ 8,408 $ 7,358 $ 3,297 $ 2,655 $ 3,112 RATIO OF EARNINGS TO FIXED CHARGES - - - - - - - DEFICIENCY IN EARNINGS AVAILABLE TO COVER FIXED CHARGES $(3,962) $(2,526) $(4,229) $(3,758) $ (385) $ (761) $(2,023)
EX-21.1 13 SUBSIDIARIES 1 EXHIBIT 21.1 Subsidiaries of Northland Cable Television, Inc. Northland Cable News, Inc. Subsidiaries of Northland Cable News, Inc. None. EX-23.1 14 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm), as it relates to Northland Cable Television, Inc., included in or made a part of this registration statement. /s/ ARTHUR ANDERSEN LLP Seattle, Washington December 18, 1997 EX-23.3 15 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus consisting part of this Registration Statement on Form S-4 of Northland Cable Television, Inc. of our reports dated October 10, 1997 relating to the financial statements of Aiken II Cable Systems, a component of Robin Cable Systems, L.P., and the financial statements of Greenwood Cable System a component of InterMedia Partners of Carolina, L.P. which appear in such Prospectus. We also consent to the references to us under the heading "Experts," "Summary Historical and Pro Forma Consolidated Financial Data" and "Selected Historical and Pro Forma Consolidated Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Summary Historical and Pro Forma Consolidated Financial Data" or "Selected Historical and Pro Forma Consolidated Financial Data." PRICE WATERHOUSE LLP San Francisco, California December 23, 1997 EX-25.1 16 STATEMENT OF ELIGIBILITY OF TRUSTEE 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM T-1 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE --------------------- HARRIS TRUST COMPANY OF CALIFORNIA (Exact name of trustee as specified in its charter) California 94-0304530 (State of incorporation (I.R.S. employer if not a national bank) Identification No.) 601 South Figueroa Street, 49th Floor Los Angeles, California 90017 (Address of principal executive offices) John T. Deleray, Harris Trust Company of California 601 South Figueroa Street, 49th Floor Los Angeles, California 90017 (213) 239-0674 (Name, address and telephone number for agent for service) --------------------- NORTHLAND CABLE TELEVISION, INC. (Exact name of obligor as specified in its charter) Washington 91-1311836 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 1201 Third Ave., Suite 3600 Seattle, Washington 98101 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (206) 674-3900 and Subsidiary Guarantor: NORTHLAND CABLE NEWS, INC. (Exact name of obligor as specified in its charter) Washington 91-1638891 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 1201 Third Ave., Suite 3600 Seattle, Washington 98101 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (206) 674-3900 --------------------- 10-1/4% SENIOR SUBORDINATED NOTES DUE 2007 (Title of the indenture securities) 2 GENERAL Item 1. General Information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervisory authority to which it is subject. Department of Financial Institutions Federal Reserve Bank of San Fancisco 111 Pine Street 101 Market Street Suite 1100 San Francisco, California 94105 San Francisco, California 94104 (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with Obligor. If the obligor is an affiliate of the Trustee, describe each affiliation. None. 3 Item 16. List of Exhibits. Exhibit T-1A. A copy of the articles of association of Trustee as presently in effect: Restated Articles of Incorporation and Amendment of February 9, 1994. Exhibit T-1A is incorporated herein by reference to S.E.C. File No. 33-54627 of the Registration Statement of FirstFed Financial Corp. Exhibit T-1A. Exhibit T-1B. A copy of the certificate of authority of the Trustee to commence business, if not contained in the articles of association: Certificate of Authorization to transact business. Exhibit T-1B is incorporated herein by reference to S.E.C. File No. 333-2688 of the Registration Statement of Western Wireless Corporation Exhibit T-1B. Exhibit T-1C. A copy of the authorization of the Trustee to exercise corporate trust powers, if such authorization is not contained in the documents specified in paragraph (1) and (2) above: Contained in Exhibits T-1A and T-1B above. Exhibit T-1D. Copy of the existing bylaws of the Trustee or instruments corresponding thereto: By-Laws of Harris Trust Company of California as of April 27, 1995, as presently in effect. Exhibit T-1D is incorporated herein by reference to S.E.C. File No. 333-2688 of the Registration Statement of Western Wireless Corporation Exhibit T-1D. Exhibit T-1E. A copy of each indenture referred to in Item 4, if obligor is in default. Not Applicable. Exhibit T-1F. The consents of United States institutional trustees required by Section 321 of the Act: Consent dated as of January, 1994. Exhibit T-1F is incorporated herein by reference to S.E.C. File No. 33-69382 of the Registration Statement of Pacific Gulf Properties, Inc. Exhibit T-1F. Exhibit T-1G. A copy of the latest report of condition of the Trustee published pursuant to law or the requirement of its supervising or examining authority: Trust Company Consolidated Report of Condition provided to the Department of Financial Institutions for the period ending September 30, 1997. Exhibit T-1H. A copy of any order pursuant to which the foreign trustee is authorized to act as sole trustee under the indentures qualified or to be qualified under the Act. Not Applicable. Exhibit T-1I. Foreign trustees are required to file a consent to service of process on Forms F-X. Not Applicable. 4 SIGNATURES Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, Harris Trust Company of California, a corporation organized and existing under the laws of California, has duly caused this Statement of Eligibility and Qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Los Angeles, State of California, on January __, 1998. HARRIS TRUST COMPANY OF CALIFORNIA By______________________________ John T. Deleray Assistant Vice President 5 SIGNATURES Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, Harris Trust Company of California, a corporation organized and existing under the laws of California, has duly caused this Statement of Eligibility and Qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Los Angeles, State of California, on January ___, 1998. HARRIS TRUST COMPANY OF CALIFORNIA By /S/ JOHN T. DELERAY --------------------------------- John T. Deleray Assistant Vice President 6 HARRIS TRUST COMPANY OF CALIFORNIA - -------------------------------------------------------------------------------- City County State Zip Code LOS ANGELES LOS ANGELES CALIFORNIA 90017 - -------------------------------------------------------------------------------- At the close of Business on (Date) State Banking Department Number SEPTEMBER 30, 1997 642 - -------------------------------------------------------------------------------- Name and title of Person to Whom Area Code & Telephone Number Inquiries may be Directed M. CUSTER, FINANCIAL ANALYST 311-461-6164 - --------------------------------------------------------------------------------
ASSETS ------------- 1. Cash and due from ................................................................................. 89 1 ------------- 2. U.S. Treasury securities .......................................................................... 752 2 ------------- 3. Obligations of other U.S. Government agencies and corporations .................................... 3 ------------- 4. Obligations of States and political subdivisions .................................................. 6166 4 ------------- 5. (a) Other securities .............................................................................. 200 5 ------------- 6. (a) Loans ......................................................................................... 6(a) ------------- (b) Less: Reserve for possible loan losses ........................................................ 6(b) ------------- (c) Loans (net) ................................................................................... 0 6(c) ------------- 7. (a) Bank premises, furniture and fixtures and other assets representing bank premises ............. 208 7(a) ------------- (b) Capital leases included in 7(a) above ......................................................... 7(b) ------------- 8. Real estate owned other than bank premises ........................................................ 8 ------------- 9. Investments in subsidiaries not consolidated ...................................................... 9 ------------- 10. Other assets (complete schedule on reverse) ....................................................... 1251 10 ------------- 11. TOTAL ASSETS ...................................................................................... 8666 ------------- - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES ------------- 12. Liabilities for borrowed money .................................................................... 12 ------------- 13. Mortgage indebtedness ............................................................................. 13 ------------- 14. Other liabilities ................................................................................. 697 14 ------------- 15. TOTAL LIABILITIES ................................................................................. 697 15 ------------- - ------------------------------------------------------------------------------------------------------------------------------------ ------------- 16. Capital notes and debentures ..................................................................... 16 ------------- - ------------------------------------------------------------------------------------------------------------------------------------ SHAREHOLDERS EQUITY ------------- 17. Preferred stock .................................................................................. 17 ------------- (a) Number shares outstanding .................................................................... 17(a) ------------- 18. Common stock ..................................................................................... 2500 18 ------------- (a) Number shares authorized ..................................................................... 18(a) ------------- (b) Number shares outstanding .................................................................... 18(b) ------------- 19. Surplus .......................................................................................... 2500 19 ------------- 20. TOTAL CONTRIBUTED CAPITAL ........................................................................ 5000 20 ------------- 21. Retained earnings and other capital reserves ..................................................... 2969 21 ------------- 22. TOTAL SHAREHOLDERS EQUITY ........................................................................ 7969 22 ------------- 23. TOTAL LIABILITIES AND CAPITAL ACCOUNTS ........................................................... 8666 23 ------------- - ------------------------------------------------------------------------------------------------------------------------------------ MEMORANDA ------------- 1. Assets deposited with State Treasurer to qualify for exercise of fiduciary powers (market value).. 250 M1 ------------- - ------------------------------------------------------------------------------------------------------------------------------------
D. Certification The undersigned, - -------------------------------------------------------------------------------- Name Title M. VALOISE DOUGLAS VC.P. & G.M. - -------------------------------------------------------------------------------- and - -------------------------------------------------------------------------------- Name Title STEVEN ROTHBLOOM PRESIDENT & CHAIRMAN - -------------------------------------------------------------------------------- of the above named trust company, each declares, for himself alone and not for the other: I have personal knowledge of the matters contained in this report and I believe that each statement in said report is true. Each of the undersigned, for himself alone and not for the other, certified under penalty of perjury that the foregoing is true and correct. - -------------------------------------------------------------------------------- Executed on At - -------------------------------------------------------------------------------- Signature Signature /s/ M. V. DOUGLAS /s/ STEVEN ROTHBLOOM - -------------------------------------------------------------------------------- 7 SCHEDULE OF OTHER ASSETS - -------------------------------------------------------------------------------- Description Amount - -------------------------------------------------------------------------------- RECEIVABLES 755 - -------------------------------------------------------------------------------- GOODWILL 121 - -------------------------------------------------------------------------------- OTHER INTANGIBLES 269 - -------------------------------------------------------------------------------- DEFERRED TAXES 106 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total (Same as Item 1) 1251 ================================================================================ SCHEDULE OF OTHER LIABILITIES ================================================================================ Description Amount - -------------------------------------------------------------------------------- PAYABLES 349 - -------------------------------------------------------------------------------- ACCRUED EXPENSES 348 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total (Same as Item 1) 697 ================================================================================ 8
Harris Trust Company of California - ----------------------------------------------------------------------------------------------------------------------- City County State Zip Code Los Angeles Los Angeles California 90017 - ----------------------------------------------------------------------------------------------------------------------- At the close of business on (date) State Banking Department Number September 30, 1997 06402 - ----------------------------------------------------------------------------------------------------------------------- Name and title of person to whom inquiries may be directed Area Code & Telephone Number Esther Cervantes, Assistant Vice President (213) 239-0675 - ----------------------------------------------------------------------------------------------------------------------- A. ASSETS Dollars in Thousands -------------------------------- 1. Investments (a) U.S. Government & Agency Obligations............................................. 550970 1(a) -------------------------------- (b) State, County & Municipal Obligations............................................ 0 1(b) -------------------------------- (c) Other Obligations................................................................ 0 1(c) -------------------------------- (d) Stocks (Common and Preferred).................................................... 0 1(d) -------------------------------- (e) Mutual Funds..................................................................... 131740 1(e) -------------------------------- (f) Real Estate...................................................................... 0 1(f) -------------------------------- (g) Real Estate Loans................................................................ 0 1(g) -------------------------------- (h) All Other Loans.................................................................. 0 1(h) -------------------------------- (i) Miscellaneous.................................................................... 36449 1(i) -------------------------------- 2. Interest-bearing Deposits -------------------------------- (a) Own Institution.................................................................. 2(a) -------------------------------- (b) Other Federally Insured Financial Institutions................................... 100 2(b) -------------------------------- 3. Noninterest-Bearing Deposits -------------------------------- (a) Own Institution.................................................................. 3(a) -------------------------------- (b) Other Federally Insured Financial Institutions................................... 96 3(b) -------------------------------- 4. TOTAL ASSETS......................................................................... 719355 4 -------------------------------- _____________________________________________________________________________________________________________________________ B. LIABILITIES 5. Fiduciary Accounts -------------------------------- (a) Court Trusts..................................................................... 0 5(a) -------------------------------- (b) Personal Trusts.................................................................. 0 5(b) -------------------------------- (c) Employee Benefit Trusts.......................................................... 0 5(c) -------------------------------- (d) Collective Investment Funds (Total Market Value)................................. 0 5(d) -------------------------------- 6. SUBTOTAL (ITEMS (a) THROUGH (e))..................................................... 0 6 -------------------------------- -------------------------------- 7. Local Agency Security Accounts....................................................... 0 7 -------------------------------- 8. Corporate Accounts................................................................... 156796 8 -------------------------------- 9. Agency, Safekeeping, Custodian, and Escrow Accounts.................................. 562379 9 -------------------------------- 10. TOTAL LIABILITIES..................................................................... 719355 10 -------------------------------- _______________________________________________________________________________________________________________________ C. TRUST BUSINESS FOR WHICH SECURITIES ARE ON DEPOSIT WITH THE STATE TREASURER Court Trusts Private Trusts -------------------------------- -------------------------------- 11. Trust Business...................................... 11 -------------------------------- -------------------------------- 12. Less Real Estate.................................... 12 -------------------------------- -------------------------------- 13. Trust Business on Which Security is Required........ 0 0 13 -------------------------------- -------------------------------- 14. Amount of Security Required by Sections 1540 and 1541 of the Financial Code....................... 100 100 14 -------------------------------- -------------------------------- 15. Market Value of Securities on Deposit with the State Treasurer.................................. 125 125 15 -------------------------------- -------------------------------- 16. Excess or Deficiency................................ 25 25 16 -------------------------------- -------------------------------- _____________________________________________________________________________________________________________________________ D. MISCELLANEOUS INFORMATION -------------------------------- 17. Total Number of Discretionary Accounts............................................... 0 17 -------------------------------- 18. Overdrafts........................................................................... 0 18 -------------------------------- _____________________________________________________________________________________________________________________________ E. CERTIFICATION The undersigned - ------------------------------------------------------------------------------------------------------------------------------ Name Title - ------------------------------------------------------------------------------------------------------------------------------ and - ------------------------------------------------------------------------------------------------------------------------------ Name Title - ------------------------------------------------------------------------------------------------------------------------------ of the above named bank, each declares, for himself alone and not for the other: I have personal knowledge of the matters contained in this report and I believe that each statement in said report is true. Each of the undersigned, for himself alone and not for the other, certified under penalty of perjury that the foregoing is true and correct. - ------------------------------------------------------------------------------------------------------------------------------ Executed on: at: , California - ------------------------------------------------------------------------------------------------------------------------------ Signature Signature /s/ M. Valerie Douglas X - ------------------------------------------------------------------------------------------------------------------------------ Form 203 (REV. 12/95)
EX-99.1 17 FORM OR LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 NORTHLAND CABLE TELEVISION, INC. NORTHLAND CABLE NEWS, INC. -------------- LETTER OF TRANSMITTAL TO EXCHANGE 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 -------------- Exchange Agent: HARRIS TRUST AND SAVINGS BANK By Registered or Certified Mail By Overnight Courier or Hand: Harris Trust and Savings Bank Harris Trust and Savings Bank c/o Harris Trust Company of New York c/o Harris Trust Company of New York P.O. Box 1010 88 Pine Street Wall Street Station 19th Floor New York, NY 10268-1010 New York , NY 10005 By Facsimile: (212) 701-7636 Confirm by Telephone: (212) 701-7624 - -------------------------------------------------------------------------------- DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. - -------------------------------------------------------------------------------- The undersigned acknowledges receipt of the Prospectus dated ___________, 1998 (the "Prospectus") of Northland Cable Television, Inc., a Washington corporation, and Northland Cable News, Inc., a Washington corporation, (collectively, the "Company"), and this Letter of Transmittal to Exchange 10 1/4% Senior Subordinated Notes due 2007 which may be amended from time to time (this "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of its 10 1/4% Senior Subordinated Notes due 2007 (the "Exchange Notes") for each $1,000 in principal amount of its outstanding 10 1/4% Senior Subordinated Notes due 2007 (the "Original Notes") that were issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned has completed, executed and delivered this Letter to indicate the action he or she desires to take with respect to the Exchange Offer. All holders of Original Notes who wish to tender their Original Notes must, prior to the Expiration Date: (1) complete, sign, date and deliver this Letter, or a facsimile thereof, to the Exchange 2 Agent, in person or to the address set forth above; and (2) tender his or her Original Notes or, if a tender of Original Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance with the procedures for tendering described in the Instructions to this Letter. Holders of Original Notes whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation and all other documents required by this Letter to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer-How to Tender" in the Prospectus. (See Instruction 1). Upon the terms and subject to the conditions of the Exchange Offer, the acceptance for exchange of Original Notes validly tendered and not withdrawn and the issuance of the Exchange Notes will be made on the Exchange Date. For the purposes of the Exchange Offer, the Company shall be deemed to have accepted for exchange validly tendered Original Notes when, as and if the Company have given written notice thereof to the Exchange Agent. The Instructions included with this Letter must be followed in their entirety. Questions and requests for assistance or for additional copies of the Prospectus or this Letter may be directed to the Exchange Agent, at the address listed above, or James A. Penny of Northland Cable Television, Inc., 1201 Third Avenue, Suite 3600, Seattle, Washington 98101, at (206) 674-3900. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW Capitalized terms used in this Letter and not defined herein shall have the respective meanings ascribed to them in the Prospectus. List in Box 1 below the Original Notes of which you are the holder. If the space provided in Box 1 is inadequate, list the certificate numbers and principal amount of Original Notes on a separate signed schedule and affix that schedule to this Letter.
- -------------------------------------------------------------------------------------------------------------------- BOX 1 TO BE COMPLETED BY ALL TENDERING HOLDERS - -------------------------------------------------------------------------------------------------------------------- Name(s) and Address(es)of Certificate Principal Amount of Registered Holder(s) Number(s) Principal Amount of Original Notes Tendered (Please fill in if blank) (1) Original Notes (2) - -------------------------------------------------------------------------------------------------------------------- Totals: - --------------------------------------------------------------------------------------------------------------------
(1) Need not be completed if Original Notes are being tendered by book-entry transfer. (2) Unless otherwise indicated, the entire principal amount of Original Notes represented by a certificate or Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered. 3 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned tenders to the Company the principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Original Notes tendered with this Letter, the undersigned exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Original Notes tendered. The undersigned constitutes and appoints the Exchange Agent as his or her agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Original Notes, with full power of substitution, to: (a) deliver certificates for such Original Notes; (b) deliver Original Notes and all accompanying evidence of transfer and authenticity to or upon the order of the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Company of the Original Notes tendered under the Exchange Offer; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of the Original Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that he or she has full power and authority to tender, exchange, assign and transfer the Original Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the assignment and transfer of the Original Notes tendered. The undersigned agrees that acceptance of any tendered Original Notes by the Company and the issuance of Exchange Notes (together with the guarantee of the Guarantor with respect thereto) in exchange therefor shall constitute performance in full by the Company and the Guarantor of their respective obligations under the Registration Rights Agreement and that, upon the issuance of the Exchange Notes, the Company and the Guarantor will have no further obligations or liabilities thereunder (except in certain limited circumstances). By tendering Original Notes, the undersigned certifies (a) that it is not an "Affiliate" of the Company, that it is not a broker-dealer that owns Original Notes acquired directly from the Company or an Affiliate, that it is acquiring the Exchange Notes acquired directly from the Company or an Affiliate, that it is acquiring the Exchange Notes offered hereby in the ordinary course of the undersigned's business and that the undersigned has no arrangement with any person to participate in the distribution of such Exchange Notes; (b) that it is an Affiliate of the Company or of any of the initial purchasers of the Original Notes in the Offering and that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it; or (c) that it is a participating Broker-Dealer (as defined in the Registration Rights Agreement) and that it will deliver a prospectus in connection with any resale of the Exchange Notes. By tendering Original Notes and executing this Letter of Transmittal, the undersigned further certifies that it is not engaged in and does not intend to engage in a distribution of the Exchange Notes. The undersigned acknowledges that, if it is a broker-dealer that will receive Exchange Notes for its own account, it will deliver a prospectus in connection with any resale of such Exchange Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands that the Company may accept the undersigned's tender by delivering written notice of acceptance to the Exchange Agent, at which time the undersigned's right to withdraw such tender will terminate. 4 All authority conferred or agreed to be conferred by this Letter shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Letter shall be binding upon the undersigned's heirs, legal representatives, successors, assigns, executors and administrators. Tenders may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. Unless otherwise indicated under "Special Delivery Instructions" below, the Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate for any Original Notes not tendered but represented by a certificate also encompassing Original Notes which are tendered) to the undersigned at the address set forth in Box 1. The undersigned acknowledges that the Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the terms of the Prospectus and this Letter, the Prospectus shall prevail. [_] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution:________________________________________ Account Number:_______________________________________________________ Transaction Code Number:______________________________________________ [_] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s):_______________________________________ Date of Execution of Notice of Guaranteed Delivery:___________________ Window Ticket Number (if available):__________________________________ Name of Institution which Guaranteed Delivery:________________________ 5 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY ________________________________________________________________________________ BOX 2 PLEASE SIGN HERE WHETHER OR NOT ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY This box must be signed by registered holder(s) of Original Notes as name(s) appear(s) on certificate(s) for Original Notes, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter. If signature is by a trustee, executor, administrator, guardian, officer of a corporation or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. (See Instruction 3) X______________________________________________________________________________ X______________________________________________________________________________ Signature(s) of Owner(s) or Authorized Signatory Dated: ____________________, 1998 Name(s)________________________________________________________________________ ________________________________________________________________________________ (Please Print) Capacity (full title):_________________________________________________________ Address:_______________________________________________________________________ _______________________________________________________________________________ Area Code and Telephone No.: (____) _____________________ SIGNATURE GUARANTEE (Certain Signatures Must be Guaranteed by an Eligible Institution See Instruction 4 below) ________________________________________________________________________________ (Name of Eligible Institution Guaranteeing Signatures) ________________________________________________________________________________ (Address (including zip code) and Telephone Number (including area code)) Authorized Signature:__________________________________________________________ Capacity (full title):_________________________________________________________ Dated: ____________________, 1998 ________________________________________________________________________________ 6 ____________________________________________________________________________________________________________________________ BOX 3 TO BE COMPLETED BY ALL TENDERING HOLDERS PAYOR'S NAME: HARRIS TRUST AND SAVINGS BANK ____________________________________________________________________________________________________________________________ PART 1. Please provide the TIN of the Employer Identification or Social person submitting this Letter of Security Number: Transmittal in the box at right and certify by signing and dating below. (See Instruction 5) _____________________________________ SUBSTITUTE FORM W-9 Department of the Treasury, Internal Revenue Service Payer's Request for Taxpayer Identification Number (TIN) ____________________________________________________________________________________________________________________________ PART 2. Check the box if you are NOT subject to back-up withholding under the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to back-up withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to back-up withholding. [__] ____________________________________________________________________________________________________________________________ PART 3. Check the box if you are awaiting your TIN [__] ____________________________________________________________________________________________________________________________ CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE Signature: ________________________________ Date:______________ Name (Please Print)_____________________________________________ ____________________________________________________________________________________________________________________________
7
_____________________________________________________________________________________________________________________________ BOX 4 BOX 5 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instruction 4) (See Instruction 4) To be completed ONLY if certificates for Original Notes in To be completed ONLY if certificates for Original Notes in a principal amount not exchanged, or Exchange Notes, are a principal amount not exchanged, or Exchange Notes, are to be issued in the name of someone other than the person to be sent to someone other than the person whose whose signature appears in Box 2, or if Original Notes signature appears in Box 2 or to an address other than delivered by book-entry transfer which are not accepted that shown in Box 1. for exchange are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above. Issue and Deliver to: Mail to: (check appropriate boxes) (check appropriate boxes) [_] Original Notes not tendered [_] Original Notes not tendered [_] Exchange Notes, to: [_] Exchange Notes, to: Name:____________________________________________________ Name:____________________________________________________ (Please Print or Type Name(s)) (Please Print or Type Name(s)) Address:_________________________________________________ Address:_________________________________________________ Taxpayer I.D. Number_____________________________________ (PLEASE ALSO SIGN AND COMPLETE SUBSTITUTE FORM W-9 AT BOX 3) _____________________________________________________________________________________________________________________________
INSTRUCTIONS THE FOLLOWING INSTRUCTIONS FORM PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original Notes or a Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed copy of this Letter (or a manually signed facsimile thereof) and any other documents required by this Letter, must be received by the Exchange Agent at its address set forth herein on or before the Expiration Date. The method of delivery of this Letter, certificates for Original Notes or a Book-Entry Confirmation, as the case may be, and any other required documents is at the election and risk of the tendering holder, but except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. If delivery is by mail, the use of registered mail with return receipt requested, properly insured, is suggested. If tendered Original Notes are registered in the name of the signer of the Letter of Transmittal and the Exchange Notes to be issued in exchange therefor are to be issued (and any untendered Original Notes are to be reissued) in the name of the registered holder, the signature of such signer need not be guaranteed. In any other case, the tendered Original Notes must be endorsed or accompanied by written 8 instruments of transfer in form satisfactory to the Company and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by a bank, broker, dealer, credit union, savings association, clearing agency or other institution (each an "Eligible Institution") that is a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the Original Notes, the signature on the Letter of Transmittal must be guaranteed by an Eligible Institution. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Original Notes should contact such holder promptly and instruct such holder to tender Original Notes on such beneficial owner's behalf. If such beneficial owner wishes to tender such Original Notes himself, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering such Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such beneficial owner's name or follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time. The Exchange Agent will make a request to establish an account with respect to the Original Notes at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after receipt of the Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, this Letter, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address on this Letter on or prior to the Expiration Date of the guaranteed delivery procedures described below must be complied with. The method of delivery of Original Notes and all other documents is at the election and risk of the holder. If sent by mail, it is recommended that registered mail, return receipt requested, be used, proper insurance be obtained, and the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent on or before the Expiration Date. Unless an exemption applies under the applicable law and regulations concerning "backup withholding" of federal income tax, the Exchange Agent will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to a holder pursuant to the Exchange Offer if the holder does not provide his or her taxpayer identification number (social security number or employer identification number, as applicable) and certify that such number is correct. Each tendering holder should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal, so as to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to the Company and the Exchange Agent. If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or Original Notes to reach the Exchange Agent before the Expiration Date, a tender may be effected if the Exchange Agent has received at its office listed on the back cover hereof on or prior to the Expiration Date a letter, telegram or facsimile transmission from an Eligible Institution setting forth the name and address of the tendering holder, the principal amount of the Original Notes being tendered, the names in which the Original Notes are registered and, if possible, the certificate numbers of the Original Notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within three New 9 York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission by the Eligible Institution, the Original Notes, in proper form for transfer, will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless Original Notes being tendered by the above-described method (or a timely Book-Entry Confirmation) are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Company may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery which may be used by Eligible Institutions for the purposes described in this paragraph are available from the Exchange Agent. A tender will be deemed to have been received as of the date when the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the Original Notes (or a timely Book-Entry Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Original Notes (or a timely Book-Entry Confirmation). All questions as to the validity, form, eligibility (including time of receipt), acceptance for exchange and withdrawal of tendered Original Notes will be determined by the Company, whose determination will be final and binding. The Company reserve the absolute right to reject any or all tenders that are not in proper form or the acceptance for exchange of which, in the opinion of the Company's counsel, may be unlawful. The Company also reserve the absolute right to waive any of the conditions of the Exchange Offer or any defect or irregularities in tenders of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. All tendering holders, by execution of this Letter, waive any right to receive notice of acceptance of their Original Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Neither the Company, the Exchange Agent nor any other person shall be obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of any Original Note evidenced by a submitted certificate or by a Book-Entry Confirmation is tendered, the tendering holder must fill in the principal amount tendered in the fourth column of Box 1 above. All of the Original Notes represented by a certificate or by a Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. A certificate for Original Notes not tendered will be sent to the holder, unless otherwise provided in Box 5, as soon as practicable after the Expiration Date, in the event that less than the entire principal amount of Original Notes represented by a submitted certificate is tendered (or, in the case of Original Notes tendered by book-entry transfer, such non-exchanged Original Notes will be credited to an account maintained by the holder with the Book-Entry Transfer Facility). If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. For a withdrawal to be effective with respect to the tender of Original Notes, a written or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at its address on this Letter prior to the Expiration Date. Any such notice of withdrawal must specify the person named in this Letter as having tendered the Original Notes to be withdrawn, the certificate numbers shown on the particular certificates evidencing such Original Notes, the principal amount of Original Notes represented by such certificates, a statement that such holder is withdrawing his or her election to have such Original Notes exchanged, and the name of the registered holder of such Original 10 Notes, and must be signed by the holder in the same manner as the original signature on this Letter (including any required signature guarantees) or be accompanied by evidence satisfactory to the Company that the person withdrawing the tender has succeeded to the beneficial ownership of the Original Notes being withdrawn. The Exchange Agent will return the properly withdrawn Original Notes promptly following receipt of notice of withdrawal. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Company, and such determination will be final and binding on all parties. 3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the holder(s) of Original Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) for such Original Notes, without alteration, enlargement or any change whatsoever. If any of the Original Notes tendered hereby are owned by two or more joint owners, all owners must sign this Letter. If any tendered Original Notes are held in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are names in which certificates are held. If this Letter is signed by the holder of record and (i) the entire principal amount of the holder's Original Notes are tendered, and/or (ii) untendered Original Notes, if any, are to be issued to the holder of record, then the holder of record need not endorse any certificates for tendered Original Notes, nor provide a separate bond power. In any other case, the holder of record must transmit a separate bond power with this Letter. If this Letter or any certificate or assignment is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Company of their authority to so act, unless waived by the Company. Signatures on this Letter must be guaranteed by an Eligible Institution, unless Original Notes are tendered: (i) by a holder who has not completed the Box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter; or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of The Securities Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program (SEMP). If Original Notes are registered in the name of a person other than the signer of this Letter, the Original Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company, in its discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in Box 4 or 5, as applicable, the name and address to which the Exchange Notes or certificates for Original Notes not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate. 5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder whose tendered Original Notes are accepted for exchange must provide the Exchange Agent (as payor) with his or her correct taxpayer identification number ("TIN"), which, in the case of a holder who is an 1 11 individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to the holder of the Exchange Notes pursuant to the Exchange Offer may be subject to back-up withholding. If withholding results in overpayment of taxes, a refund may be obtained. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. Under federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to back-up withholding at a rate of 31%. In order to prevent back-up withholding, each tendering holder must provide his or her correct TIN by completing the "Substitute Form W-9" referred to above, certifying that the TIN provided is correct (or that the holder is awaiting a TIN) and that: (i) the holder has not been notified by the Internal Revenue Service that he or she is subject to back-up withholding as a result of failure to report all interest or dividends; (ii) the Internal Revenue Service has notified the holder that he or she is no longer subject to back-up withholding; or (iii) in accordance with the Guidelines, such holder is exempt from back-up withholding. If the Original Notes are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for information on which TIN to report. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Original Notes to it or its order pursuant to the Exchange Offer. If, however, the Exchange Notes or certificates for Original Notes not exchanged are to be delivered to, or are to be issued in the name of, any person other than the record holder, or if tendered certificates are recorded in the name of any person other than the person signing this Letter, or if a transfer tax is imposed by any reason other than the transfer of Original Notes to the Company or its order pursuant to the Exchange Offer, then the amount of such transfer taxes (whether imposed on the record holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of taxes or exemption from taxes is not submitted with this Letter, the amount of transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter. 7. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend or waive any of the specified conditions in the Exchange Offer in the case of any Original Notes tendered. 8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose certificates for Original Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above, for further instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus or this Letter, may be directed to the Exchange Agent. IMPORTANT: This Letter (together with certificates representing tendered Original Notes or a Book-Entry Confirmation and all other required documents) must be received by the Exchange Agent on or before the Expiration Date (as defined in the Prospectus). EX-99.2 18 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NORTHLAND CABLE TELEVISION, INC. NORTHLAND CABLE NEWS, INC. ------------- NOTICE OF GUARANTEED DELIVERY TO TENDER FOR EXCHANGE 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 ------------- ________________________________________________________________________________ THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ______________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE") ________________________________________________________________________________ As set forth in the Prospectus dated ____________, 1998 (the "Prospectus") of Northland Cable Television, Inc. and Northland Cable News, Inc. (collectively, the "Company") under "The Exchange Offer-How to Tender" and in the Letter of Transmittal to Exchange 10 1/4% Senior Subordinated Notes due 2007 (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Exchange Offer (as defined below) of the Company if: (i) certificates for the above-referenced Notes (the "Original Notes") are not immediately available, (ii) time will not permit all required documents to reach the Exchange Agent (as defined below) on or prior to the Expiration Date or (iii) the procedures for book-entry transfer cannot be completed on or prior to the Expiration Date. Such form may be delivered by hand or transmitted by telegram, telex, facsimile transmission or letter to the Exchange Agent. The Exchange Agent: HARRIS TRUST AND SAVINGS BANK By Registered or Certified Mail By Overnight Courier or Hand: Harris Trust and Savings Bank Harris Trust and Savings Bank c/o Harris Trust Company of New York c/o Harris Trust Company of New York P.O. Box 1010 88 Pine Street Wall Street Station 19th Floor New York, NY 10268-1010 New York , NY 10005 By Facsimile: (212) 701-7636 Confirm by Telephone: (212) 701-7624 ________________________________________________________________________________ DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. ________________________________________________________________________________ 2 Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedures described in the Prospectus and the Letter of Transmittal. The undersigned understands and acknowledges that the Exchange Offer will expire at 5:00 p.m., New York City Time, on _____________, 1998, unless extended by the Company. With respect to the Exchange Offer, "Expiration Date" means such time and date, or if the Exchange Offer is extended, the latest time and date to which the Exchange Offer is so extended by the Company. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. ________________________________________________________________________________ Certificate No.(s) For Original No Principal amount of Original Note(s) Exchanged Exchanged: (If available) _____________________________ $___________________________ _____________________________ $___________________________ _____________________________ $___________________________ _____________________________ $___________________________ ________________________________________________________________________________ 3 _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ Signature(s) of Owner(s) or Authorized Signatory Dated:___________________________ Name(s)________________________________________________________________________ (Please Print) Capacity (full title)__________________________________________________________ Address:_______________________________________________________________________ (Include Zip Code) Area Code and Telephone No.: (____) __________________ If original notes will be delivered by book-entry transfer, provide The Depository Trust Company ("DTC") Account No.:._________________________________ ________________________________________________________________________________ 4 GUARANTEE OF DELIVERY (Not to be used for signature guarantee) The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees (a) that the above-named person(s) own(s) the above-described securities tendered hereby within the meaning of Rule 10b-4 under the Securities Exchange Act of 1934, (b) that such tender of the above-described securities complies with Rule 10b-4, and (c) that delivery of such certificates pursuant to the procedure for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents, is being made within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery of the above-named person. Name of Firm:__________________________________________________________________ Authorized Signature:__________________________________________________________ Capacity (full title):_________________________________________________________ Address:_______________________________________________________________________ Tele. No.: ( ) ______________________ Fax No.: ( ) ______________________ DO NOT SEND CERTIFICATES REPRESENTING NOTES WITH THIS NOTICE. NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL. EX-99.3 19 FORM OF LETTER TO ALL NOMINEES 1 EXHIBIT 99.3 NORTHLAND CABLE TELEVISION, INC. NORTHLAND CABLE NEWS, INC. ------------- OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED ------------- ________________________________________________________________________________ THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___________________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE") ________________________________________________________________________________ To Securities Dealers, Commercial Banks Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus dated ____________, 1998 (as the same may be amended or supplemented from time to time (the "Prospectus")) and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Northland Cable Television, Inc. and Northland Cable News, Inc. (collectively, the "Company") to exchange up to $100,000,000 in aggregate principal amount of their 10 1/4% Senior Subordinated Notes due 2007 (the "Exchange Notes") for up to $100,000,000 in aggregate principal amount of their outstanding 10 1/4% Senior Secured Notes due 2007 that were issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"). We are asking you to contact your clients for whom you hold Original Notes registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Original Notes registered in their own name. The Company will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the Company for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay all transfer taxes, if any, applicable to the tenderer of Original Notes to it or its order, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed are copies of the following documents: 1. The Prospectus; 2 2. A Letter of Transmittal for your use in connection with the exchange of Original Notes and for the information of your clients (facsimile copies of the Letter of Transmittal may be used to exchange Original Notes); 3. A form of letter that may be sent to your clients for whose accounts you hold Original Notes registered in your name or the name of your nominee, with space provided for obtaining the clients' instructions with regard to the Exchange Offer; 4. A Notice of Guaranteed Delivery; 5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. A return envelope addressed to Harris Trust and Savings Bank, the Exchange Agent. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., New York City Time, on _____________________, 1998, unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. To tender Original Notes, certificates for Original Notes or a Book-Entry Confirmation, a duly executed and properly completed Letter of Transmittal or a facsimile thereof, and any other required documents, must be received by the Exchange Agent as provided in the Prospectus and the Letter of Transmittal. Questions and requests for assistance with respect to the Exchange Offer or for additional copies of the enclosed material may be directed to the Exchange Agent at its address set forth in the Prospectus or at (212) 701-7624. Very truly yours, NORTHLAND CABLE TELEVISION, INC. NORTHLAND CABLE NEWS, INC. ________________________________________________________________________________ NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR ANY AFFILIATE THEREOF, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR THE ENCLOSED DOCUMENTS AND THE STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. ________________________________________________________________________________ EX-99.4 20 FORM OF LETTER TO CLIENTS 1 EXHIBIT 99.4 NORTHLAND CABLE TELEVISION, INC. NORTHLAND CABLE NEWS, INC. ------------- OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED ------------- - -------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___________________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE") - -------------------------------------------------------------------------------- To Our Clients: Enclosed for your consideration is a Prospectus dated ____________, 1998 (as the same may be amended or supplemented from time to time (the "Prospectus")) and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Northland Cable Television, Inc. and Northland Cable News, Inc. (collectively, the "Company") to exchange up to $100,000,000 in aggregate principal amount of their 10 1/4% Senior Subordinated Notes due 2007 (the "Exchange Notes") for up to $100,000,000 in aggregate principal amount of their outstanding 10 1/4% Senior Secured Notes due 2007 that were issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"). The material is being forwarded to you as the beneficial owner of Original Notes carried by us for your account or benefit but not registered in your name. A tender of any Original Notes may be made only by us as the registered holder and pursuant to your instructions. Therefore, the Company urges beneficial owners of Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such registered holder promptly if they wish to tender Original Notes in the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all Original Notes, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us to tender your Original Notes. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender Original Notes on your behalf in accordance with the provisions of the Exchange Offer. The 2 2 Exchange Offer will expire at 5:00 p.m., New York City Time, on _________________, 1998, unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for the exchange of $1,000 in principal amount of the Exchange Notes for each $1,000 in principal amount of the Original Notes, of which $100,000,000 aggregate principal amount of the Original Notes was outstanding as of ____________, 1998. The terms of the Exchange Notes are substantially identical (including principal amount, interest rate, maturity, security and ranking) to the terms of the Original Notes, except that the Exchange Notes will generally be freely transferable by holders thereof (except as provided in the Prospectus) and the holders of the Exchange Notes (as well as remaining holders of any Original Notes) are not entitled to certain registration rights and certain additional interest provisions which are applicable to the Original Notes under a registration rights agreement dated as of November 12, 1997 (the "Registration Rights Agreement") between the Company and BancAmerica Robertson Stephens and First Chicago Capital Markets, Inc., as initial purchasers. 2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS, SEE "THE EXCHANGE OFFER-CONDITIONS TO THE EXCHANGE OFFER" IN THE PROSPECTUS. 3. The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York City Time, on ________________, 1998, unless extended. 4. The Company have agreed to pay the expenses of the Exchange Offer except as provided in the Prospectus and the Letter of Transmittal. 5. Any transfer taxes incident to the transfer of Original Notes from the tendering holder to the Company will be paid by the Company, except as provided in the Prospectus and the Letter of Transmittal. The Exchange Offer is not being made to nor will exchange be accepted from or on behalf of holders of Original Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. If you wish to have us tender any or all of your Original Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Original Notes held by us and registered in our name for your account or benefit. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of Northland Cable Television, Inc. and Northland Cable News, Inc., including the Prospectus and the Letter of Transmittal. 3 This form will instruct you to exchange the aggregate principal amount of Original Notes indicated below (or, if no aggregate principal amount is indicated below, all Original Notes) held by you for the account or benefit of the undersigned, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. ________________________________________________________________________________ Aggregate Principal Amount of Original SIGN HERE Notes to be exchanged: ______________________________________ Signature(s) ______________________________________ $_______________** ______________________________________ Name(s) (please print) ______________________________________ ______________________________________ Address (including zip code) ______________________________________ ______________________________________ Area Code and Telephone No. ______________________________________ Taxpayer Identification or Social Security Number Dated:________________________________ _______________________________________________________________________________ ** I (we) understand that if I (we) sign these instruction forms without indicating an aggregate principal amount of Original Notes in the space above, all Original Notes held by you for my (our) account will be exchanged. -----END PRIVACY-ENHANCED MESSAGE-----