<PAGE> 1
FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-29354 eff. 7-1-91)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the transition period from _______to________
Commission file number 0-16718
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
STATE OF WASHINGTON 91-1366564
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 WASHINGTON MUTUAL TOWER
1201 THIRD AVENUE, SEATTLE, WASHINGTON 98101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 621-1351
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
(NONE) (NONE)
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
(Partially Incorporated into Part IV)
(1) Form S-1 Registration Statement declared effective on August
6, 1987 (No. 33-13879).
(2) Form 10-K Annual Reports for fiscal years ended December 31,
1987, December 31, 1988, December 31, 1990, December 31, 1992
and December 31, 1993 respectively.
(3) Form 10-Q Quarterly Reports for periods ended June 30, 1989,
September 30, 1989 and March
31, 1993, respectively.
(4) Form 8-K dated September 27, 1993
(5) Form 8-K dated March 1, 1996
This filing contains pages. Exhibits Index appears on page .
Financial Statements/Schedules Index appears on page .
<PAGE> 2
PART I
ITEM 1. BUSINESS
Northland Cable Properties Seven Limited Partnership (the
"Partnership") is a Washington limited partnership consisting of two general
partners (the "General Partners") and approximately 2,906 limited partners as of
December 31, 1995. Northland Communications Corporation, a Washington
corporation, is the Managing General Partner of the Partnership (referred to
herein as "Northland" or the "Managing General Partner"). FN Equities Joint
Venture, a California general partnership, is the Administrative General Partner
of the Partnership (the "Administrative General Partner").
Northland was formed in March 1981 and is principally involved in the
ownership and management of cable television systems. Northland currently
manages the operations and is the General Partner for cable television systems
owned by 6 limited partnerships. Northland is also the parent company of
Northland Cable Properties, Inc. which was formed in February 1995 and is
principally involved in direct ownership of cable television systems. Northland
is a subsidiary of Northland Telecommunications Corporation ("NTC"). Other
subsidiaries of NTC include:
NORTHLAND CABLE TELEVISION, INC. - formed in October 1985 and
principally involved in the direct ownership of cable television
systems. Owner of Northland Cable News, Inc.
NORTHLAND CABLE NEWS, INC. - formed in May 1994 and
principally involved in the production and development of
local programming.
NORTHLAND CABLE SERVICES CORPORATION - formed in August 1993 as the
holding company for the following entities:
CABLE TELEVISION BILLING, INC. - formed in June 1987 and
principally involved in the development and production of
computer software used in connection with the billing and
financial recordkeeping for cable systems owned or managed by
Northland or Northland Cable Television, Inc.
NORTHLAND INVESTMENT CORPORATION - formed in 1988 and
principally involved in the underwriting of Northland
sponsored limited partnership securities offerings.
CABLE AD-CONCEPTS, INC. - formed in November 1993 and
principally involved in the production and development of
video commercial advertisements.
NORTHLAND MEDIA, INC. - formed in April 1995 as the holding company for
the following entity:
STATESBORO MEDIA, INC. - formed in April 1995 and principally
involved in acquiring and operating an AM radio station
serving the community of Statesboro, GA and surrounding areas.
The partnership was formed on April 17, 1987 and began operations in
1987 with the acquisition of a cable television system serving two communities
in Texas and one system in Washington. Subsequently, in 1988, the Partnership
acquired another cable television system in Washington and sold a sub-system in
Texas. In 1993, the Partnership purchased a cable television system in Bayview,
Washington. (Collectively, the cable television systems are referred to herein
as the "Systems".) As of December 31, 1995, the total number of basic
subscribers served by the Systems was 22,620, and the partnership's penetration
rate (basic subscribers as a percentage of homes passed) was
<PAGE> 3
approximately 72% as compared to an industry average of approximately 64%, as
reported by PAUL KAGAN AND ASSOCIATES, INC. The Partnership's properties are
located in rural areas which, to some extent, do not offer consistently
acceptable off-air network signals. This factor, combined with the existence of
fewer entertainment alternatives than in large markets contributes to a larger
proportion of the population subscribing to cable television (higher
penetration).
The Partnership has 10 non-exclusive franchises to operate the Systems.
These franchises, which will expire at various dates through 2017, have been
granted by local and county authorities in the areas in which the
Systems operate. Annual franchise fees are paid to the granting governmental
authorities. These fees vary between 1% and 5% and are generally based on the
respective gross revenues of the Systems in a particular community. The
franchises may be terminated for failure to comply with their respective
conditions.
The Partnership serves the communities and surrounding areas of Brenham
and Bay City, Texas, as well as Camano Island and Sequim, Washington. The
following is a description of these areas:
Brenham, TX: Brenham, Texas, with a population of approximately 12,000
is strategically located about midway between Houston and Austin. The population
has grown steadily over the last 15 years at a rate of two and one-half percent
per year. The city of Brenham serves as a hub for commerce, trade and services
to the surrounding counties of Burleson, Waller, Lee, Fayette, Austin, Colorado
and Grimes. Brenham's proximity to Houston makes it a gateway through which
international trade and commerce proceed to Austin, San Antonio and other
western cities. A main line of the Santa Fe Railway also services the city.
Certain information regarding the Brenham, TX system as of December 31, 1995 is
as follows:
<TABLE>
<S> <C>
Basic Subscribers 4,326
Tier Subscribers 1,032
Premium Subscribers 1,185
Estimated Homes Passed 5,500
</TABLE>
Bay City, TX: The Bay City system serves the communities of Bay City,
Markham, Matagorda, Van Vleck and certain unincorporated areas of Matagorda
county in southeast Texas. The local economies of the communities included in
the Bay City system are based primarily in agriculture, chemical manufacturing
and petroleum processing. Rich, productive agricultural lands are located along
the banks of the Colorado River in the Bay City area. Rice is the major crop.
There is an abundance of recreational and sporting activities in the
Bay City area, including freshwater and deep-sea fishing. The Gulf of Mexico,
Matagorda Beach, the Colorado River, bays and bayous combine to meet the
recreational needs of both tourists and residents. Certain information regarding
the Bay City, TX system as of December 31, 1995 is as follows:
<TABLE>
<S> <C>
Basic Subscribers 5,711
Tier Subscribers 2,234
Premium Subscribers 1,948
Estimated Homes Passed 8,450
</TABLE>
Camano Island, WA: Camano Island is approximately 16 miles long and six
miles wide with a year-round population of over 6,000. Located in the Puget
Sound, north of Seattle and five miles west of Stanwood, Washington, the island
is connected to the mainland by a bridge which provides easy access to
neighboring communities. The Camano Island system also serves the communities of
Stanwood, WA and Bayview, WA.
<PAGE> 4
Camano Island is currently experiencing growth at a rate of 200 to 250
new homes per year. The island is primarily residential with neighborhood
grocery stores, service stations, restaurants and other incidental services. The
neighboring mainland community of Stanwood provides the area with an education
system, additional shopping and medical services. Many employed residents of
Camano Island work in the neighboring cities of Everett (an industrial center),
Stanwood and Mount Vernon (mainly agricultural), while many have chosen Camano
Island as a retirement residence. Certain information regarding the Camano
Island, WA system as of December 31, 1995 is as follows:
<TABLE>
<S> <C>
Basic Subscribers 6,936
Tier Subscribers 1,683
Premium Subscribers 1,677
Estimated Homes Passed 9,230
</TABLE>
Sequim, WA: Clallam County's population is approximately 53,400, with
approximately 17,300 residing in the city of Port Angeles, the county seat.
Sequim is located approximately 15 miles east of Port Angeles. The county's work
force is concentrated in the lumber/wood products, logging, tourism,
aerospace/aviation, fishing and education industries. Some of the most
productive forest land in the United States is located on the Olympic Peninsula,
and timber has been the traditional mainstay of Clallam County's economy. A
natural deep-water harbor and relative proximity to the Far East have encouraged
international trade development for the county's products. The Olympic National
Park, ferry access to Victoria, British Columbia, sport fishing, and other
scenic and recreational attractions bring a steady stream of tourists through
Clallam County. Certain information regarding the Sequim, WA system as of
December 31, 1995 is as follows:
<TABLE>
<S> <C>
Basic Subscribers 5,647
Tier Subscribers 2,849
Premium Subscribers 714
Estimated Homes Passed 7,810
</TABLE>
The Partnership had 38 employees as of December 31, 1995. Management of
these systems is handled through offices located in the towns of Brenham and Bay
City, Texas. The Sequim and Camano systems share the costs of offices maintained
by affiliates of the Partnership pursuant to the terms of operating management
agreements. Pursuant to the Agreement of Limited Partnership, the Partnership
reimburses the Managing General Partner for time spent by the Managing General
Partner's accounting staff on Partnership accounting and bookkeeping matters.
(See Item 13(a) below.)
The Partnership's cable television business is not considered seasonal.
The business of the Partnership is not dependent upon a single customer or a few
customers, the loss of any one or more of which would have a material adverse
effect on its business. No customer accounts for 10% or more of revenues. No
material portion of the Partnership's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of any
governmental unit, except that franchise agreements may be terminated or
modified by the franchising authorities as noted above. During the last year,
the Partnership did not engage in any research and development activities.
Partnership revenues are derived primarily from monthly payments
received from cable television subscribers. Subscribers are divided into three
categories: basic subscribers, tier subscribers and premium subscribers. "Basic
subscribers" are households that subscribe to the basic level of service, which
generally provides access to the three major television networks (ABC, NBC and
CBS), a few independent local stations, PBS (the Public Broadcasting System) and
certain satellite programming services, such as ESPN, CNN or The Discovery
Channel. "Tier subscribers" are households that subscribe to an additional level
of programming service, such as Cartoon
<PAGE> 5
Network, CNBC or American Movie Classics. "Premium subscribers" are
households that subscribe to one or more "pay channels" in addition to the basic
service. These pay channels include such services as Showtime, Home Box Office,
Cinemax, Disney or The Movie Channel.
COMPETITION
Due to factors such as the non-exclusivity of the Partnership's
franchises, recent regulatory changes and Congressional action, the rapid pace
of technological developments, and the adverse publicity received by the cable
industry regarding the lack of competition, there is a substantial likelihood
that the Partnership's systems will be subject to a greater degree of
competition in the future.
Other Entertainment Alternatives The Partnership's systems compete with
other communications and entertainment media, including conventional
over-the-air television broadcasting stations. Cable television service was
first offered as a means of improving television reception in markets where
terrain factors or remoteness from major cities limited the availability of
over-the-air television broadcasts. In some of the areas served by the
Partnership's systems, several of the broadcast television channels can be
adequately received off-air. The extent to which cable television service is
competitive with broadcast stations depends in significant part upon the cable
television system's ability to provide an even greater variety of programming
than available off-air.
Cable television systems also are susceptible to competition from other
video programming delivery systems (discussed below), from other forms of home
entertainment such as video cassette recorders, and, in varying degrees, from
sources of entertainment in the communities served, including motion picture
theaters, live theater and sporting events.
Overbuilds Recent federal legislation and court decisions have
increased the likelihood that incumbent cable operators will face instances of
"overbuilding". Overbuilding occurs when a cable operator who is not affiliated
with the incumbent franchise holder applies for and receives a second franchise
from the local franchising authority and constructs a cable system in direct
competition with that of the incumbent. None of the Partnership's franchises
provide for exclusivity. Overbuilding typically occurs where the overbuilder
believes it can attract a profitable share of the incumbent operator's customer
base. Overbuilding also may occur if the local franchising authority authorizes
construction of a governmentally owned and operated cable system. However,
Management believes that given the current regulatory environment related to
cable rates, the attractiveness of overbuilding may have been diminished.
Wireless Services A variety of services, often generically referred to
as "wireless" cable, distribute video programming via omnidirectional low-power
microwave signals from a stationary transmitter to customers at fixed locations.
For many years such services faced governmental restrictions on the types of
programming they could distribute and were generally prevented, by regulatory
and technological reasons, from distributing the quantity of programming
distributed by cable operators. Wireless operators also faced difficulty in
obtaining access to certain programming produced by vendors affiliated with the
cable industry.
In recent years, the Federal Communications Commission (the "FCC") has
adopted policies for authorizing new technologies and providing a more favorable
regulatory environment for certain existing wireless technologies. Such policies
have the potential to create additional competition for cable television
systems. The FCC recently amended its regulations to enable multi-channel,
multi-point distribution services ("MMDS"), to compete more
<PAGE> 6
effectively with cable television systems by making available additional
channels to the MMDS industry.
On December 10, 1992, the FCC commenced a rulemaking in which a new
wireless multichannel video service is proposed to be created. The proposed new
service is called the Local Multichannel Distribution Service ("LMDS") and will
operate in the 27.5 - 29.5 MHz frequency band. LMDS providers, as the FCC
currently proposes, would have no restrictions on the kinds of service that may
be offered. No major technological advances which would adversely affect the
Partnership's business have been made during 1995.
There can be no assurance, however, that future competition brought
about by MMDS, LMDS and other wireless technologies will not have a material
adverse effect on Partnership operations. As noted below, the recent
Congressional legislation, among other things, is designed to make programming
that is currently available to the cable television industry available to other
technologies to foster the growth of alternative video programming delivery
services.
Satellite Delivered Services Additional competition exists from private
cable television systems serving condominiums, apartment complexes and other
private residential developments. The operators of these private systems,
generally referred to as Satellite Master Antenna Television ("SMATV")
providers, often enter into exclusive agreements with apartment building owners
or homeowner's associations that preclude operators of franchised cable
television systems from serving residents of such private complexes. Due to the
widespread availability of reasonably priced satellite signal reception dishes
or earth stations, SMATV systems now can offer both improved reception of local
televisions station and many of the same satellite-delivered programming
services that are offered by franchised cable television systems. Moreover,
SMATV systems generally are free of the regulatory burdens imposed on franchised
cable television systems. Although a number of states and some municipalities
have enacted laws and ordinances to afford operators of franchised cable
television systems access to private complexes, several of such laws and
ordinances have been challenged successfully in the courts, and others are under
attack. Because the Partnership generally has been able to enter into access
agreements with owners of private complexes, in Management's opinion, successful
challenges to access statutes would not have a material adverse effect on the
operations of the Partnership.
Reasonably priced earth stations designed for private home use now
enable individual households to receive many of the satellite-delivered
programming services formerly available only to cable television subscribers.
Many satellite programmers now encode their signals in order to allow reception
only by means of authorized decoding equipment.
Direct broadcast satellite ("DBS") service consists of satellite
services that focus on delivering programming services directly to homes using
high-power signals transmitted by satellites to receiving facilities located on
the premises of subscribers. With an antenna as small as 18 inches, a DBS
customer can receive a hundred or more programming signals. Several companies
are preparing to have high-powered DBS systems in place by the middle of this
decade, and two, DirecTv, an affiliate of Hughes Communications, United States
Satellite Broadcasting Co., an affiliate of Hubbard Broadcasting and Primestar,
owned by a consortium of cable television operators, have launched their
systems. It is expected that these DBS operators will use video compression
technology to increase the channel capacity of their systems to provide a
package of movies, broadcast stations and other programming services competitive
with those of cable television systems.
Using a national base of subscribers, it is possible that DBS companies
may be able to offer new and highly specialized services which may not be
available to the cable television industry, but as channel capacity and
<PAGE> 7
penetration of cable television systems increase, the cable industry is expected
to have the ability to offer additional services as well. Because DBS systems
deliver their services using satellite technology, they may not be able to
provide services that are of local interest to their subscribers, and may not be
able to maintain a local presence, which is considered a significant advantage
in developing and maintaining subscriber support. The extent to which DBS
systems will be competitive with the services provided by cable television
systems will depend, among other things, on the ability of DBS operators to
finance substantial start-up costs and to create their own programming or to
obtain access to existing programming. Recent federal legislation requires cable
programmers under certain circumstances to offer their programming to operators
of DBS, MMDS and other multi-channel video systems at not unreasonably
discriminatory prices.
During 1995, the Partnership did not experience any significant
subscriber loss to DBS. There can be no assurance, however, that future
competition brought about by DBS will not have a material adverse impact on
Partnership operations.
Telephone Companies Federal law, FCC regulations and the 1982 federal
court consent decree (the "Modified Final Judgment") that settled the 1974
antitrust suit against AT&T all limit in various ways the provision of video
programming and other information services by telephone companies. Federal law
codifies FCC cross-ownership regulations which, among other things, prohibit
local telephone exchange companies including the seven Regional Bell Operating
Companies ("RBOCs"), from providing video programming directly to subscribers
within their local exchange service areas, except in rural areas or by specific
waiver of FCC rules. These statutory provisions and corresponding FCC
regulations are of particular competitive importance because these telephone
companies already own much of the plant necessary for cable television
operations, such as poles, underground conduits, associated rights-of-way and
connections to the home.
In July 1991, the U.S. District Court responsible for the Modified
Final Judgment lifted the prohibition on the provision of information services
by the RBOCs. As a result, the RBOCs were allowed to acquire or construct cable
television systems outside of their own service areas. Another federal court
held that the cable/telco cross-ownership prohibitions unconstitutionally
abridge the First Amendment rights of the RBOCs and other telephone companies.
Several RBOCs have entered into agreements to purchase cable television systems
outside their service areas. Management believes that such purchases of existing
cable television systems do not represent a significant competitive threat to
the Partnership
In July 1992, the FCC voted to authorize additional competition to
cable television by video programmers using broadband common carrier facilities
constructed by telephone companies. The FCC allowed telephone companies to take
ownership interests of up to 5% in such programmers. Several telephone companies
have sought approval from the FCC to build such "video dialtone" systems and
several experimental systems have been approved by the FCC. No such systems were
proposed in a community in which the Partnership holds a cable franchise.
Recent Federal laws have significantly changed the restrictions on
telephone companies with respect to their ability to own and operate video
programming delivery systems within their own service areas. See "Regulation -
The 1996 Act."
There can be no assurance that future competition brought on by
telephone company participation in the cable television industry will not have a
material adverse effect on the Partnership's operations.
<PAGE> 8
REGULATION
The Partnership's business is subject to intensive regulation at the
federal and local levels, and to a lesser degree, at the state level. The FCC,
the principal federal regulatory agency with jurisdiction over cable television,
is responsible for implementing federal policies such as rate regulation, cable
system relations with other communications media, cross-ownership, signal
carriage, equal employment opportunity and technical performance. Provisions of
regulatory events that have impacted the Partnership's operations are summarized
below.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), which significantly increased regulation of the cable television
industry. The 1992 Cable Act became generally effective on December 4, 1992,
although certain provisions became effective at later dates. The 1992 Cable Act
represents a significant change in the regulatory framework under which cable
television systems operate and has had and likely will continue to have a
significant impact on the cable industry and the Partnership's business.
Since the Cable Communications Policy Act of 1984 (the "1984 Cable
Act") became effective, and prior to the enactment of the 1992 Cable Act, rates
for cable services were unregulated for substantially all of the Partnership's
systems. Effective September 1, 1993, rate regulation was instituted for certain
cable television services and equipment in communities that are not subject to
"effective competition" as defined in the legislation. Effective competition is
defined by this law to exist only where (i) fewer than 30 percent of the
households in the franchise area subscribe to the cable service of a cable
system; (ii) there are at least two unaffiliated multichannel video programming
distributors serving the franchise area meeting certain penetration criteria; or
(iii) a multichannel video programming distributor is available to 50 percent of
the homes in the franchise area and is operated by the franchising authority.
Virtually all cable television systems in the United States, including all of
the Partnership's systems, are not subject to effective competition under this
definition and therefore are subject to rate regulation for basic service by
local franchising authority officials under the oversight of the FCC and subject
to rate regulation for their remaining programming services (other than those
offered for a per-channel or per- program charge) by the FCC.
The 1992 Cable Act requires each cable system to establish a basic
service tier consisting, at a minimum, of all local broadcast signals and all
non-satellite delivered distant broadcast signals which the system wishes to
carry, and all public, educational and governmental access programming. On April
1, 1993, the FCC adopted its initial regulations governing rates for the basic
service tier. Under the regulations adopted by the FCC on April 1, 1993, local
franchising authorities, after meeting certain requirements, can require cable
operators to reduce the rates for the basic service tier by up to 10 percent
from the rates in effect on September 30, 1992, if those rates exceed a
per-channel benchmark established by the FCC. Local franchising authorities also
are empowered to regulate the rates charged for installation and lease of the
equipment used by subscribers to receive the basic service tier and the
installation and monthly use of connections for additional television sets. The
FCC's regulations require franchising authorities to regulate these rates on the
basis of actual cost standards developed by the FCC.
A local franchising authority seeking to regulate basic service rates
must certify to the FCC that, among other things, it has adopted regulations
consistent with the FCC's rate regulation guidelines and criteria. If a local
franchising authority's certification is deficient or subsequently is revoked,
then the FCC is required to regulate the cable operator's basic service rates
<PAGE> 9
until the local franchising authority is properly certified or until such time
as effective competition exists within the cable system's franchise area.
Under the initial regulations adopted by the FCC on April 1, 1993, the
FCC, in response to complaints by a subscriber, franchising authority or other
governmental entity, required cable operators to reduce the rates for tiers of
service other than the basic service tier ("CPST's") by up to 10 percent from
the rates in effect on September 30, 1992, if those rates were determined to
exceed a per-channel benchmark established by the FCC. In response to
complaints, the FCC also regulates, on the basis of actual cost, the rates for
equipment used only to receive these higher service tiers.
Only the FCC may regulate CPST's. Neither the FCC nor a local
franchising authority has jurisdiction over a cable system's rates for
programming provided on a per-channel or per-program basis.
As part of the implementation of the new regulations, the FCC froze all
rates in effect on April 5, 1993 until May 15, 1994, except rates for premium
and pay-per-view programming services and equipment. On February 22, 1994, the
FCC adopted rules that modify, among other things, the FCC's benchmark system
for determining the maximum rates for regulated services on cable systems not
subject to effective competition. In addition to adopting new, lower benchmark
levels, the FCC's regulations (i) allow local franchising authorities to require
cable operators to reduce the rate for the basic service tier by up to 17
percent from the rates in effect on September 30, 1992 if those rates exceed the
new per-channel benchmarks by that amount, and (ii) allow the FCC, in response
to a complaint, to require cable operators to reduce the rates for CPST's by up
to 17 percent from the rates in effect on September 30, 1992 if those rates
exceed the new per-channel benchmarks by that amount.
In late 1994, the FCC revised its regulations governing the manner in which
cable operators may charge subscribers for new cable programming services. The
FCC instituted a three-year flat fee mark-up plan for charges relating to new
channels of cable programming services in addition to the present formula for
calculating the permissible rate for new services. Commencing January 1, 1995,
operators may charge for new channels of cable programming services added after
May 14, 1994 at a rate of up to 20 cents per channel, but may not make
adjustments to monthly rates totaling more than $1.20 plus an additional 30
cents for programming license fees per subscriber over the first two years of
the three-year period for these new services. Cable operators may charge an
additional 20 cents in the third year only for channels added in that year plus
the costs for the programming. Cable operators electing to use the 20 cents per
channel adjustment may not also take a 7.5% mark-up on programming cost
increases, which is permitted under the FCC's current rate regulations. The FCC
indicated that it would request further comment on whether cable operators
should continue to receive the 7.5% mark-up on increases in license fees on
existing programming services.
Additionally, the FCC will permit cable operators to offer New Product
Tiers ("NPT") at rates which they elect so long as, among other conditions,
other channels that are subject to rate regulation are priced in conformity with
applicable regulations and cable operators do not remove programming services
from existing service tiers and offer them on the NPT.
Under the 1992 Cable Act, cable systems may not require subscribers to
purchase any service tier other than the basic tier as a condition of access to
video programming offered on a per-channel or per-program basis. Cable systems
are allowed a 10-year phase-in period to the extent necessary to implement the
required technology to facilitate such access. The FCC may grant extensions of
the 10-year time period, if deemed necessary.
<PAGE> 10
The 1992 Cable Act also provides that the consent of most television
stations (except satellite-delivered television stations that were provided to
the cable television industry as of May 1, 1991, and noncommercial stations)
would be required before a cable system could retransmit their signals.
Alternatively, a television station could elect to exercise must-carry rights.
Must-carry rights entitle a local broadcast station to demand carriage on a
cable system, and a system generally is required to devote up to one-third of
its channel capacity for the carriage of local stations. Litigation challenging
the constitutionality of the mandatory broadcast signal carriage requirements of
the 1992 Cable Act is currently pending before the United States Supreme Court.
The must-carry rules will remain in effect during the pendency of the
proceedings before the United States Supreme Court. If must-carry
requirements withstand judicial review, the requirements may cause displacement
of more attractive programming. If retransmission consent requirements withstand
judicial review and broadcast stations require significant monetary payments for
cable system carriage of their signals, the cost of such signal carriage may
adversely affect the Partnership's operations.
In addition, the 1992 Cable Act (i) requires cable programmers under
certain circumstances to offer their programming to present and future
competitors of cable television such as multichannel multipoint distribution
services ("MMDS"), satellite master antenna systems ("SMATV") and direct
broadcast satellite system operators; (ii) prohibits new exclusive contracts
with program suppliers without FCC approval; (iii) bars municipalities from
granting exclusive franchises and from unreasonably refusing to grant additional
competitive franchises; (iv) permits municipal authorities to operate a cable
system without a franchise; (v) regulates the ownership by cable operators of
other media such as MMDS and SMATV; (vi) bars, subject to several stated
exceptions, cable operators from selling or transferring ownership in a cable
system for a three-year period following the acquisition or initial construction
of the system; and (vii) prohibits a cable operator from charging a customer for
any service or equipment that the subscriber has not affirmatively requested.
In response to the 1992 Cable Act, the FCC has imposed or will impose
new regulations in the areas of customer service, technical standards,
compatibility with other consumer electronic equipment such as "cable ready"
television sets and video cassette recorders, equal employment opportunity,
privacy, rates for leased access channels, obscene or indecent programming,
limits on national cable system ownership concentration, standards for limiting
the number of channels that a cable television system operator could program
with programming services controlled by such operator and disposition of a
customer's home wiring.
The 1992 Cable Act and subsequent FCC rulings have generally increased
the administrative and operational expenses of cable television systems as a
result of additional regulatory oversight by the FCC and local franchise
authorities. There have been several lawsuits filed by cable operators and
programmers in federal court challenging various aspects of the 1992 Cable Act.
The litigation concerning the must-carry rules is described above. Appeals also
have been filed in connection with litigation resulting from the FCC's rate
regulation rulemaking decisions. The Partnership cannot determine at this time
the outcome of pending FCC rulemakings, the litigation described herein, or the
impact of any adverse judicial or administrative decisions on the Partnership's
systems or business.
Other Regulatory Developments In November 1991, the FCC released a
Report and Order in which it concluded, among other things, that the 1984 Cable
Act and the FCC's regulatory cross-ownership restrictions do not prohibit
interexchange carriers (i.e., long distance telephone companies) from acquiring
cable television systems or entering into joint ventures with cable operators in
areas where such interexchange carriers provide their long
<PAGE> 11
distance telephone services. The FCC also concluded that a local exchange
carrier (i.e., the local telephone company) that provides a common carrier-based
system to distribute video programming to subscribers and a third party
programmer using such common carrier services are not required by federal law to
obtain a cable television franchise from the local franchising authority in
order to provide such video programming services to the public. The FCC's
decision described in the preceding sentence has been appealed and these appeals
are currently pending.
In 1989, the FCC issued new syndicated exclusivity and network
non-duplication rules which enable local television broadcasters to compel cable
television operators to delete certain programming on distant broadcast signals.
Those rules took effect January 1, 1990. Under the rules, all television
broadcasters, including independent stations, can compel cable television
operators to delete syndicated programming from distant signals if the local
broadcaster negotiated exclusive rights to such programming. Local network
affiliates may insist that a cable television operator delete a network
broadcast on a distant signal. The rules made certain distant signals a less
attractive source of programming for the Partnership's systems, since much of
such distant signals' programming may have to be deleted.
The FCC currently regulates the rates and conditions imposed by public
utilities for use of their poles, unless, under the Federal Pole Attachments
Act, state public service commissions are able to demonstrate that they regulate
the cable television pole attachment rates. In the absence of state regulation,
the FCC administers pole attachment rates through the use of a formula which it
has devised. The validity of this FCC function was upheld by the United States
Supreme Court.
THE 1996 ACT
On February 8, 1996, the Telecommunications Act of 1996 (the "1996
Act") was enacted which 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 FCC issues new regulations which, in
some cases, may not be completed for a few years. Because of this, the full
impact of the 1996 Act on the Partnership's operations cannot be determined at
this time. A summary of the provisions impacting the cable television industry,
more specifically those impacting the Partnership's operations, follows:
CPST Rate Regulation FCC regulation of rates for CPST's has been
eliminated for small cable systems served by small companies. Small cable
systems are those having 50,000 or fewer subscribers served by companies with
fewer than one percent of national cable subscribers (approximately 600,000).
All of the Partnership's cable systems qualify as small cable systems. Basic
tier rates remain subject to regulation 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 by the local exchange
carrier, its affiliates, or any multichannel video programming distributor which
uses the facilities of the local exchange carrier. No penetration criteria
exists that triggers the presence of effective competition under these
circumstances.
Telephone Companies The 1996 Act allows telephone companies to offer
video programming directly to customers in their service areas immediately upon
enactment. They may provide video programming as a cable operator fully subject
to the 1996 Act, or a radio-based multichannel programming distributor not
subject to any provisions of the 1996 Act or through non-franchised "open video
systems" offering non-discriminatory capacity to unaffiliated programmers,
subject to selected provisions of the 1996 Act. Although Management's opinion is
that the probability of competition from telcos in
<PAGE> 12
rural areas is unlikely in the near future, there are no assurances such
competition will not materialize.
The 1996 Act encompasses various other aspects of providing cable
television service including prices for equipment, discounting of 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 PEG and leased access
channels.
Copyright Cable television systems are subject to federal copyright
licensing, covering carriage of television broadcast signals. In exchange for
paying a percentage of their revenues to a federal copyright royalty pool, cable
television operators obtain a compulsory license to retransmit copyrighted
materials from broadcast signals. Existing Copyright Office regulations require
that compulsory copyright payments be calculated on the basis of revenue derived
from any service tier containing broadcast retransmission. Although the FCC has
no formal jurisdiction over this area, it has recommended to Congress to
eliminate the compulsory copyright scheme altogether. The Copyright Office has
similarly recommended such a repeal. Without the compulsory license, cable
television operators would need to negotiate rights from the copyright owners
for each program carried on each broadcast station in each cable system's
channel lineup. Such negotiated agreements could increase the cost to cable
television operators of carrying broadcast signals. Thus, given the uncertain
but possible adoption of this type of copyright legislation, the nature or
amount of the Partnership's future payments for broadcast signal carriage cannot
be predicted at this time.
Local Regulation Cable television systems are generally operated
pursuant to franchises, permits or licenses issued by a municipality or other
local government entity. Each franchise generally contains provisions governing
fees to be paid to the franchising authority, sale or transfer of the franchise,
territory of the franchise, design and technical performance of the system, use
and occupancy of public streets and number and types of cable television
services provided. Franchises are usually issued for fixed terms and must
periodically be renewed. There can be no assurance that the franchises for the
Partnership's systems will be renewed as they expire, although the Partnership
believes that its cable systems generally have been operated in a manner that
satisfies the standards of the 1984 Cable Act, as amended by the 1992 Cable Act,
for franchise renewal. In the event the franchises are renewed, the Partnership
cannot predict the impact of any new or different conditions that might be
imposed by the franchising authorities in connection with such renewals.
Summary The foregoing does not purport to be a summary of all present
and proposed federal, state and local regulations and legislation relating to
the cable television industry. Other existing federal legislation and
regulations, copyright licensing and, in many jurisdictions, state and local
franchise requirements are currently the subject of a variety of judicial
proceedings, legislative hearings and administrative and legislative proposals
which could change, in varying degrees, the manner in which cable television
systems operate. Neither the outcome of these proceedings nor their impact upon
the cable television industry or the Partnership can be predicted at this time.
The Partnership expects to adapt its business to adjust to the changes
that may be required under any scenario of regulation. At this time, the
Partnership cannot assess the effects, if any, that regulation may have on the
Partnership's operations and potential appreciation of its Systems. There can be
no assurance, however, that the final form of regulation will not have a
material adverse impact on partnership operations.
<PAGE> 13
ITEM 2. PROPERTIES
The Partnership's cable television systems are located in and around
Brenham and Bay City, Texas and Camano Island, Sequim, Stanwood, and Bayview,
Washington. The principal physical properties of the Systems consist of system
components (including antennas, coaxial cable, electronic amplification and
distribution equipment), motor vehicles, miscellaneous hardware, spare parts and
real property, including office buildings and headend sites and buildings. The
Partnership's cable plant passed approximately 30,990 homes as of December 31,
1995. Management believes that the Partnership's plant passes all areas which
are currently economically feasible to service. Future line extensions depend
upon the density of homes in the area as well as available capital resources for
the construction of new plant. (See Part II. Item 7. Liquidity and Capital
Resources.)
In February 1996, the Partnership amended its term loan agreement
increasing its overall credit limit to $35,000,000. Terms of the credit
agreement provide for a $32,000,000 term loan payable in graduating quarterly
installments beginning September 30, 1996, and a $3,000,000 revolving credit
facility converting to a term loan on February 1, 1999 with graduating quarterly
installments of principal. Both facilities mature June 30, 2004.
As of the date of this filing $26,400,000 was outstanding under the
amended term loan facility. The incremental borrowing was used to acquire two
cable systems serving the city of Vidalia, Georgia and surrounding areas (the
"Vidalia systems") and to pay certain transaction costs. The aggregate purchase
price for the Vidalia systems was $10,247,000. Of the total purchase price
$9,620,625 was paid up front and $326,375 was deposited into an escrow account
to be paid no later than July 1, 1996 net of certain post-closing adjustments.
The balance of the purchase price of $300,000 represents a non-interest bearing
unsecured seller note payable September 1, 1996. The Vidalia systems serve a
total of 6,400 basic subscribers.
The Partnership is currently negotiating the purchase of additional
cable systems to be financed by the remaining credit available under its bank
loan agreement. As of this date, no definitive purchase agreements have been
signed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) There is no established public trading market for the
Partnership's units of limited partnership interest.
(b) The approximate number of equity holders as of December 31,
1995, is as follows:
Limited Partners: 2,906
General Partners: 2
(c) During 1995, the Partnership made cash distributions of
$496,895 to the limited partners and $5,019 to the Managing General Partner. The
limited partners have received in the aggregate in the form of cash
distributions $2,983,120 on total initial contributions of $24,893,000 as of
December 31, 1995. As of December 31, 1995, the Partnership had repurchased
$57,000 in limited partnership units ($500 per unit). Future distributions
depend upon results of operations, leverage ratios, and compliance with
financial covenants required by the Partnership's lender, but are expected to
remain at their current level.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- -------
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Revenue $ 8,526,053 $ 7,757,306 $ 6,768,601 $ 6,016,984 $ 5,503,658
Operating income (loss) 40,080 (91,965) (713,339) (1,237,271) (1,525,006)
Loss on disposal of
assets (17,626) 0 (43,013) (31,583) 0
Net loss (1,205,316) (1,265,325) (2,014,094) (2,493,393) (3,060,939)
Net loss per limited
partner unit
(weighted average) .. (24) (25) (40) (50) (62)
Cumulative tax losses
per limited partner
unit (405) (415) (425) (433) (379)
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Total assets $ 14,520,969 $ 17,549,748 $ 20,172,231 $ 18,640,643 $ 22,250,905
Notes payable 16,056,381 17,537,318 18,465,537 14,547,895 15,007,854
Total liabilities 17,149,665 18,461,214 19,316,433 15,268,766 15,864,312
General partners'
deficit (238,836) (221,764) (204,092) (178,931) (148,974)
Limited partners'
(deficit)capital (2,389,860) (689,702) 1,059,890 3,550,808 6,535,567
Distributions per
limited partner unit 10 10 10 10 10
Cumulative distribu-
tions per limited
partner unit 60 50 40 30 20
</TABLE>
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 AND 1994
Total revenue reached $8,526,053 for the year ended December 31, 1995,
representing an increase of approximately 10% over 1994. This is mainly due to
the launch of tier service in the Camano, WA system and rate increases placed
into effect April 1995. Of the 1995 revenue, $5,994,967 (70%) is derived from
subscriptions to basic service, $740,233 (9%) from subscriptions to premium
services, $591,089 (7%) from subscriptions to tier services, $246,083 (3%) from
installation charges, $301,599 (3%) from service maintenance revenue and
$652,082 (8%) from other sources.
The following table displays historical average rate information for
various services offered by the Partnership's systems (amounts per subscriber
per month):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic Rate $ 21.80 $ 20.90 $ 19.90 $ 19.20 $ 18.61
Tier Rate 6.85 5.75 5.75 4.60 4.26
HBO Rate 10.65 10.25 10.25 10.68 10.68
Cinemax Rate 8.15 8.15 8.15 9.25 9.12
Showtime Rate 10.20 9.40 9.70 9.85 9.85
Movie Channel Rate 9.25 8.95 8.95 9.43 9.43
Disney Rate 7.50 7.50 8.30 8.60 8.60
Additional
Outlet Rate -- -- -- 3.15 3.15
Service Contract
Rate 2.85 2.80 3.00 -- --
</TABLE>
Operating expenses totaled $814,106 for the year ended December 31,
1995, representing an increase of approximately 10% over 1994. The increase is
primarily attributable to higher system maintenance expense and increased salary
and benefit costs. Salary and benefit costs are the major component of operating
expenses. Employee wages are reviewed annually, and in most cases, increased
based on cost of living adjustments and other factors. Therefore, management
expects the trend of increases in operating expense to continue.
General and administrative expenses totaled $2,035,931 for the year
ended December 31, 1995, representing an increase of approximately 8% over 1994.
This is mainly due to increased salary and benefit costs, and increases in
revenue based expenses, such as franchise fees and management fees. Significant
administrative expenses are based on Partnership revenues (franchise fees,
copyright fees and management fees). Therefore, as the Partnership's revenues
increase, the trend of increased administrative expenses is expected to
continue.
Programming expenses totaled $1,952,044 for the year ended December 31,
1995, representing an increase of approximately 26% over 1994. This is due to
increased costs charged by various program suppliers, as well as the addition of
new channels. Programming expenses mainly consist of payments made to suppliers
of various cable programming services. As these costs are based on the number of
subscribers served, future subscriber increases will cause the trend of
programming expense increases to continue. Moreover, rate increases
<PAGE> 16
from program suppliers, as well as new fees due to the launch of
additional channels, will contribute to the trend of increased programming
costs.
Depreciation and amortization expense remained consistent with the prior year
due to certain assets becoming fully depreciated during the year offset by fixed
asset purchases.
Interest expense for the year ended December 31, 1995 increased approximately 5%
as compared to 1994. The Partnership's average bank debt balance decreased from
approximately $17,994,000 during 1994 to $16,797,000 during 1995 mainly due to
scheduled principal repayments. The Partnership's effective interest rate during
1995 was approximately 7.35% as compared to a rate of approximately 6.53% during
1994.
The operating losses incurred by the Partnership are historically a result of
significant non-cash charges to income for depreciation and amortization. Prior
to the deduction for these non-cash items, the Partnership has generated
positive operating income, which has increased in each year in the three year
period ending December 31, 1995. Management anticipates that this trend will
continue, and that the Partnership will continue to generate net operating
losses after depreciation and amortization until a majority of the Partnership's
assets are fully depreciated.
1994 AND 1993
Total revenue reached $7,757,306 for the year ended December 31, 1994,
representing an increase of approximately 15% over 1993. This is mainly due to
the acquisition of the Bayview, WA System in September 1993. Additionally,
increases in revenue are attributable to rate increases placed into effect in
1994, a 3% increase in basic subscribers, increases in advertising revenue and
increased service maintenance revenue offset by a decrease in additional outlet
income. Of the 1994 revenue, $5,576,881 (72%) is derived from subscriptions to
basic service, $726,732 (9%) from subscriptions to premium services, $367,121
(5%) from subscriptions to tier services, $252,031 (3%) from installation
charges, $284,163 (4%) from service maintenance revenue and $550,378 (7%) from
other sources.
Operating expenses totaled $741,435 for the year ended December 31,
1994, representing an increase of approximately 11% over 1993. The increase is
partially due to the additional salary and benefit costs associated with the
Bayview acquisition
General and administrative expenses totaled $1,882,548 for the year
ended December 31, 1994, representing an increase of approximately 12% over
1993. This is mainly due to franchise fees related to the Bayview system
acquired in 1993, increases in discretionary incentive compensation during the
current year, and increases in revenue based expenses such as other franchise
fees and management fees
Programming expenses totaled $1,543,944 for the year ended December 31,
1994, representing an increase of approximately 29% over 1993. This is due to
increased costs charged by various program suppliers, and costs related to
services offered in the Bayview, WA System
Depreciation and amortization expense decreased approximately 6% as
compared to 1993. Decreases due to certain assets being fully amortized were
partially offset by increases due to fixed assets and intangibles acquired with
the purchase of the Bayview, WA System.
Interest expense for the year ended December 31, 1994 decreased
approximately 7% as compared to 1993. The Partnership's average bank debt
balance increased from approximately $16,492,000 during 1993 to $17,994,000
<PAGE> 17
during 1994 mainly due to a borrowing to finance the acquisition of the Bayview,
WA System. The Partnership's effective interest rate during 1994 was
approximately 6.53%, as compared to a rate of approximately 7.64% during 1993.
EFFECTS OF REGULATION
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Act"). The 1992 Act and
subsequent revisions and rulemakings substantially re-regulated the cable
television industry. The regulatory aspects of the 1992 Act included giving the
local franchising authorities and the FCC the ability to regulate rates for
basic services, equipment charges and additional CPST's when certain conditions
were met. All of the Partnership's cable systems were potentially subject to
rate regulation. The most significant impact of rate regulation was the
inability to raise rates for regulated services as costs of operation rose
during an FCC imposed rate freeze from April 5, 1993 to May 15, 1994. This has
contributed to operating margins before depreciation and amortization declining
from 48% for the twelve months ended December 31, 1993 to 46% for the same
period in 1994.
On February 8, 1996, the Telecommunications Act of 1996 (the 1996 Act)
became law. The 1996 Act will eliminate all rate controls on CPST's of small
cable systems, defined by the 1996 Act as systems serving fewer than 50,000
subscribers owned by operators serving fewer than 1% of all subscribers in the
United States (approximately 600,000 subscribers). All of the Partnership's
cable systems qualify as small cable systems. Many of the changes called for by
the 1996 Act will not take effect until the FCC issues new regulations, a
process that could take from several months to a few years depending on the
complexity of the required changes and the statutory time limits. Because of
this the full impact of the 1996 Act on the Partnership's operations cannot be
determined at this time.
As of the date of this filing, the Partnership has received
notification that local franchising authorities with jurisdiction over
approximately 22% of the Partnership's subscribers have elected to certify and
no formal requests for rate justifications have been received from franchise
authorities. Based on Management's analysis, the rates charged by these systems
are within the maximum rates allowed under the current FCC rate regulations.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Partnership's primary source of liquidity was cash
flow from operations and credit available under the bank loan facility. The
Partnership generates cash on a monthly basis through the monthly billing of
subscribers for cable services. Losses from uncollectible accounts have not been
material. During 1995, cash generated from monthly billings was sufficient to
meet the Partnership's needs for working capital, capital expenditures
(excluding acquisitions) and debt service. Management's projections for 1996
show that the cash generated from monthly subscriber billings should be
sufficient to meet the Partnership's working capital needs, as well as meeting
the debt service obligations of its bank loan.
At December 31, 1995, the Partnership's term loan balance was
$16,056,381. As of the date of this filing, interest rates on the credit
facility were as follows: $7,300,000 fixed at 6.965% under the terms of an
interest rate swap agreement with the Partnership's lender expiring January 16,
1998 and $8,091,000 fixed at 6.025% under the terms of a self-amortizing
interest rate swap agreement with the Partnership's lender expiring September
16, 1996. The balance of $665,381 bears interest at the prime rate plus 3/8%
(currently 8.625%). The above rates include a margin paid to the lender based on
overall leverage and may increase or decrease as the Partnership's overall
leverage fluctuates.
<PAGE> 18
At December 31, 1995, the Partnership was required under the terms of
its credit agreement to maintain certain financial ratios including a Senior
Debt to Annualized Cash Flow Ratio of 4.00 to 1 and an Annualized Cash Flow to
Pro Forma Debt Service Ratio of 1.15 to 1. At December 31, 1995, the Partnership
was in compliance with all covenants of its loan agreement.
ECONOMIC CONDITIONS
Historically, the effects of inflation have been considered in
determining to what extent rates will be increased for various services
provided. It is expected that the future rate of inflation will continue to be a
significant variable in determining rates charged for services provided, subject
to the provisions of the 1996 Act. Because of the deregulatory nature of the
1996 Act, the Partnership does not expect the future rate of inflation to have a
material adverse impact on operations.
CAPITAL EXPENDITURES
During 1995, the Partnership incurred approximately $600,000 in capital
expenditures. These expenditures included commercial insertion equipment and
channel additions in the Brenham, TX system, relocation of portions of
distribution plant and launch of an additional tier in the Camano, WA system as
well as line extensions in various systems.
Management estimates that the Partnership will spend approximately
$1,000,000 on capital expenditures during 1996. These expenditures include
distribution plant upgrades, line extensions, channel additions, commercial
insertion equipment and vehicle replacements in various systems.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of the Partnership for the years ended
December 31, 1995, 1994 and 1993 are included as a part of this filing (see Item
14(a)(1) below).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or officers. The Managing General
Partner of the Partnership is Northland Communications Corporation, a Washington
corporation; the Administrative General Partner of the Partnership is FN
Equities Joint Venture, a California general partnership.
Certain information regarding the officers and directors of Northland
is set forth below.
JOHN S. WHETZELL (AGE 54). Mr. Whetzell is the founder of Northland
Communications Corporation and has been President since its inception and a
Director since March 1982. Mr. Whetzell became Chairman of the Board of
Directors in December 1984. He also serves as President and Chairman of the
Board of Northland Telecommunications Corporation, Northland Cable Television,
Inc., Northland Cable Services Corporation, Cable Ad-Concepts, Inc., Cable
Television Billing, Inc. and Northland Cable News, Inc. 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 Antenna Television Association, a national
cable television association. Between March 1979 and February 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 Federal
Communications Commission (FCC) from May 1974 to February 1979. He provided
economic studies which support the deregulation of cable television both in
federal and state arenas. He participated in the formulation of accounting
standards for the industry and assisted the 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.
JOHN E. IVERSON (AGE 59). Mr. Iverson is the Assistant Secretary of
Northland Communications Corporation and has served on the Board of Directors
since December 1984. He also serves on the Board of Directors of Northland
Telecommunications Corporation, Northland Cable Television, Inc., Northland
Cable Services Corporation, Cable Ad-Concepts, Inc. and Cable Television
Billing, Inc., Northland Investment Corporation and Northland Cable News, Inc.
He is currently a partner in the law firm of Ryan, Swanson & Cleveland,
Northland's general counsel. 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 current Trustee of the
Pacific Northwest Ballet Association. Mr. Iverson has a Juris Doctor degree from
the University of Washington.
ARLEN I. PRENTICE (AGE 58). Since July 1985, Mr. Prentice has served on
the Board of Directors of Northland Telecommunications Corporation, and he
served on the Board of Directors of Northland Communications Corporation between
March 1982 and July 1985. Since 1969, Mr. Prentice has been Chairman and Chief
Executive Officer of Kibble & Prentice, a diversified financial services firm.
Kibble & Prentice has four divisions, which include Estate Planning and Business
Insurance, Financial Planning and Investments, Employee Benefit Services, and
Property and Casualty Insurance. Mr. Prentice is a Chartered Life Underwriter,
Chartered Financial Consultant, past President of the Million Dollar Round Table
and a registered representative of Investment Management and Research. Mr.
Prentice has a Bachelor of Arts degree from the University of Washington.
MILTON A. BARRETT, JR. (AGE 61). Since April 1986, Mr. Barrett has
served on the Board of Directors of NTC. In 1995, he retired from the
Weyerhaeuser Company after thirty-four years of service. At the time of his
retirement,
<PAGE> 20
Mr. Barrett was a Vice President of Sales and Marketing as well as
chairman of Weyerhaeuser's business ethics committee. Mr. Barrett is a graduate
of Princeton University magna cum laude and of the Harvard University Graduate
School of Business Administration.
RICHARD I. CLARK (AGE 38). Mr. Clark has served as Vice President of
Northland since March 1982. He has served on the Board of Directors of both
Northland Communications Corporation and Northland Telecommunications
Corporation since July 1985. He also serves as Vice President and Director of
Northland Cable Services Corporation, Cable Ad-Concepts, Inc., Cable Television
Billing, Inc., and Northland Cable News, Inc. Mr. Clark was elected Treasurer in
April 1987, prior to which he served as Secretary from March 1982. He also
serves as a registered principal, President and director of Northland Investment
Corporation. Mr. Clark was an original incorporator of Northland and is
responsible for the administration and investor relations activities of
Northland, including financial planning and corporate development. From July
1979 to February 1982, Mr. Clark was employed by Ernst & Whinney in the area of
providing cable television consultation services and has been involved with the
cable television industry for nearly 17 years. He has directed cable television
feasibility studies and on-site market surveys. Mr. Clark has assisted in the
design and maintenance of financial and budget computer programs, and he has
prepared documents for major cable television companies in franchising and
budgeting projects though the application of these programs. In 1979, Mr. Clark
graduated cum laude from Pacific Lutheran University with a Bachelor of Arts
degree in accounting.
ARTHUR H. MAZZOLA (AGE 73). Mr. Mazzola was elected to the Board of
Directors of Northland Telecommunications Corporation in April 1987. From 1985
to 1990, he was Senior Vice President of Benjamin Franklin Leasing Company,
Inc., an equipment lease financing company. Currently, Mr. Mazzola is serving as
Business Development Coordinator at Bank of California. Prior to his association
with Benjamin Franklin Leasing Company, Mr. Mazzola served as President of
Federal Capital Corporation and Trans Pacific Lease Co., Inc. Both of these
companies also engaged exclusively in equipment lease financing. Mr. Mazzola is
a past Board Chairman and current Trustee of the Pacific Northwest Ballet
Association and current Board Member of the Dante Alighieri Society. Mr. Mazzola
attended Boston University School of Business in 1943 where he studied
economics.
TRAVIS H. KEELER (AGE 55). Mr. Keeler was elected to the Board of
Directors of Northland Telecommunications Corporation in April 1987. Since May
1985, he has served as President of Overall Laundry Services, Inc., an
industrial laundry and garment rental firm. Mr. Keeler received a Bachelor of
Arts degree from the University of Washington in 1962.
JAMES E. HANLON (AGE 62). Since June 1985, Mr. Hanlon has been a
Divisional Vice President for Northland's Tyler, Texas regional office and is
currently responsible for the management of systems serving approximately 92,900
basic subscribers in Texas, Alabama and Mississippi. He also serves as Vice
President for Northland Cable News, Inc. Prior to his association with
Northland, he served as Chief Executive of M.C.T. Communications, a cable
television company, from 1981 to June 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.
<PAGE> 21
JAMES A. PENNEY (AGE 41). Mr. Penney is Vice President and General
Counsel for Northland. He has served as Vice President and General Counsel for
Northland Telecommunications Corporation, Northland Communications Corporation,
Northland Cable Television, Inc. and Northland Cable News, Inc. since September
1985 and was elected Secretary in April 1987. He also serves as Vice President
and General Counsel for Northland Cable Services Corporation, Cable Ad-Concepts,
Inc. and Cable Television Billing, Inc. He is responsible for 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,
Northland's general counsel. 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 (AGE 38). Mr. Jones is Vice President of Northland. Mr.
Jones joined Northland in March 1986 as Controller and has been Vice President
of Northland Telecommunications Corporation, Northland Communications
Corporation and Northland Cable Television, Inc. since October 1986. He also
serves as Vice President for Northland Cable Services Corporation, Cable
Ad-Concepts, Inc., Cable Television Billing, Inc. and Northland Cable News, Inc.
Mr. Jones is responsible for cash management, financial reporting and banking
relations for Northland and is involved in the acquisition and financing of new
cable systems. Prior to joining Northland, 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 (AGE 50). Mr. Dyste has served as Vice
President-Technical Services of Northland Telecommunications Corporation,
Northland Communications Corporation and Northland Cable Television, Inc. since
April 1987. He also serves as Vice President for Cable Ad-Concepts, Inc. and
Northland Cable News, Inc. He is currently responsible for the management of
systems serving approximately 48,600 basic subscribers in California, Idaho,
Oregon and Washington. Mr. Dyste is the past president and a current member of
the Mount Rainier Chapter of the Society of Cable Television Engineers, Inc. Mr.
Dyste joined Northland in 1986 as an engineer and served as Operations
Consultant to Northland Communications Corporation from August 1986 until April
1987. From 1977 to 1985, Mr. Dyste owned and operated Bainbridge TV Cable. Mr.
Dyste is a graduate of Washington Technology Institute.
H. LEE JOHNSON (AGE 52). Mr. Johnson has served as Divisional Vice
President for Northland's Statesboro, Georgia regional office since March 1994.
Mr. Johnson is responsible for the management of systems serving over 50,400
subscribers located in South Carolina, North Carolina, Georgia and Mississippi.
He also serves as Vice President for Northland Cable News, Inc. Mr. Johnson has
been employed in the cable industry for nearly 27 years. Mr. Johnson has
attended and received certificates of completion from numerous industry training
seminars including courses sponsored by Jerrold Electronics, Scientific Atlanta,
and the Society of Cable Television Engineers. Mr. Johnson also received a
certificate of completion from CATA in public relations.
Certain information regarding the officers and directors of FN Equities
Joint Venture is set forth below:
MILES Z. GORDON (AGE 48). Mr. Gordon, President and Chief Executive
Officer of Financial Network Investment Corporation (FNIC), has a comprehensive
background in both the securities industry and securities law and regulation. In
1972, he joined the Los Angeles office of the Securities and Exchange Commission
(SEC), and in 1974 he was appointed Branch Chief of the Investment Company and
Investment Advisors Examination Division. Mr.
<PAGE> 22
Gordon left the SEC in 1978 to practice law. Within one year, he accepted a
position as Vice President of a major national securities broker/dealer firm
headquartered in Long Beach, California. He subsequently accepted the presidency
of this firm in early 1980. In 1983, he helped form and became President and
Chief Executive Officer of FNIC. This leading firm is now one of the largest
independent broker/dealers in the United States. A graduate of Michigan State
University (and current board member of the Visitors for the College of Social
Science for MSU), Mr. Gordon received his Juris Doctorate from the University of
California at Los Angeles School of Law. He presently serves as Chairman of the
Securities Industry Association Independent Contractor Firms Committee. Mr.
Gordon was also Chairman and a member of the NASD District Business Conduct
Committee and a former member of the NASD Board of Governors. He is past
president of the California Syndication Forum and has also served on several
committees for the Securities Industry Association. Mr. Gordon has appeared on
television and radio programs, been featured in numerous magazine and newspaper
articles as an industry spokesperson, and is a frequent speaker at many industry
seminars and conventions.
JOHN S. SIMMERS (AGE 45). Mr. Simmers, Executive Vice President and
Chief Operating Officer of Financial Network Investment Corporation (FNIC), has
an extensive background in the securities industry. He began his career as a
reporter for Dunn and Bradstreet, then joined the National Association of
Securities Dealers (NASD) in 1974. Knowledgeable in all aspects of broker/dealer
regulations, operations, and products, Mr. Simmers was responsible for reviewing
the activities of member firms in twelve states. Mr. Simmers left the NASD seven
years later to accept a position as Vice President of the securities
broker/dealer, retail, wholesale and investment advisory subsidiaries of a
publicly held investment company headquartered in Long Beach, California. He
left this firm in 1983 to help form and become Executive Vice President and
Chief Operating Officer of FNIC. This full service broker/dealer firm has
offices located across the United States. Mr. Simmers is a graduate of Ohio
State University. He served on the Board of Directors of the California
Association of Independent Broker/Dealers and was a member of the Real Estate
Securities and Syndication Institute, the NASD District Business Conduct
Committee (District 2 South), and the International Association for Financial
Planning Due Diligence Steering Committee, which was organized to work toward
improving the quality and consistency of due diligence in the securities
industry. Mr. Simmers currently serves as a member of the NASD Direct
Participation Programs Committee, and has spoken at numerous seminars and
conventions.
HARRY M. KITTER (AGE 40). Mr. Kitter has served as Controller for
Financial Network Investment Corporation since 1983. Prior to this association
from 1981 to 1983 he was employed as the Los Angeles Internal Audit Manager at
the Pacific Stock Exchange. From 1978 to 1981, he was Senior Accountant at
Arthur Young & Co., C.P.A. He holds an MBA from the University of Pittsburgh and
a bachelor's degree in economics from Lafayette College, Easton, Pennsylvania.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have executive officers. However, compensation
was paid to the General Partner during 1995 as indicated in Note 3 to the Notes
to Financial Statements--December 31, 1995 (see Items 14(a)(1) and 13(a) below).
In addition, cash distribution were made to the Managing General Partner in 1995
(see Item 5(c) above).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Security ownership of
management as of December 31, 1995 is as follows:
<PAGE> 23
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
-------------- ------------------- --------- -----
<S> <C> <C> <C>
General Partner's Northland Communications (See Note A) (See Note A)
Interest Corporation
1201 Third Avenue
Suite 3600
Seattle, Washington 98101
General Partner's FN Equities Joint Venture (See Note B) (See Note B)
Interest 2780 Skypark Dr.
Suite 300
Torrance, California 90505
</TABLE>
Note A: Northland has a 1% interest in the Partnership, which
increases to 20% interest in the Partnership at such time as the limited
partners have received 100% of their aggregate cash contributions plus a
preferred return. The natural person who exercises voting and/or investment
control over these interests is John S. Whetzell.
Note B: FN Equities Joint Venture has no interest (0%) in the
Partnership until such time as the limited partners have received 100% of their
aggregate cash contributions plus a preferred return, at which time FN Equities
Joint Venture will have a 5% interest in the Partnership. The natural person who
exercises voting and/or investment control over these interests is John S.
Simmers.
(B) CHANGES IN CONTROL. Northland has pledged its ownership interest as
Managing General Partner of the Partnership to its lender as collateral pursuant
to the terms of the term loan agreement between Northland and its lender.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) TRANSACTIONS WITH MANAGEMENT AND OTHERS. The Managing General
Partner receives a management fee equal to 5% of the gross revenues of the
Partnership, not including revenues from any sale or refinancing of the
Partnership's Systems. The Managing General Partner also receives reimbursement
of normal operating and general and administrative expenses incurred on behalf
of the Partnership.
The Partnership has entered into operating management agreements with
affiliates managed by the General Partner. Under the terms of these agreements,
the Partnership or an affiliate serves as the executive managing agent for
certain cable television systems and is reimbursed for certain operating,
programming and administrative expenses.
The Partnership has also entered into an operating and management
agreement with NCTV, an affiliated partnership organized and managed by
Northland. Under the terms of this agreement, the Partnership serves as the
exclusive managing agent for one of NCTV's cable systems, and is reimbursed for
certain operating, administrative and programming costs.
Cable Television Billing, Inc. ("CTB"), an affiliate of Northland,
provides software installation and billing services to the Partnership's
Systems.
<PAGE> 24
Northland Cable News, Inc. ("NCN"), an affiliate of Northland, provides
programming to the Partnership's systems.
Cable Ad-Concepts, Inc. ("CAC"), an affiliate of Northland, provides
the production and development of video commercial advertisements and
advertising sales support.
See Note 3 of the Notes to Financial Statements--December 31, 1995 for
disclosures regarding transactions with the General Partners and affiliates.
The following schedule summarizes these transactions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Partnership management fees $421,821 $387,865 $338,462
Operating expense reimbursements 503,181 472,617 312,085
Software installation and
billing service fees to CTB 44,606 38,787 46,298
Programming fees to NCN 172,698 64,836 --
Reimbursements to CAC for
services 41,668 13,012 --
Reimbursements to affiliates
(net) 51,780 9,021 315,660
Amounts due to General Partner
and affiliates at year end 82,363 40,387 39,761
</TABLE>
Management believes that all of the above transactions are on terms as
favorable to the Partnership as could be obtained from unaffiliated parties for
comparable goods or services.
As disclosed in the Partnership's Prospectus (which has been
incorporated by reference), certain conflicts of interest may arise between the
Partnership and the General Partners and their affiliates. Certain conflicts may
arise due to the allocation of management time, services and functions between
the Partnership and existing and future partnerships as well as other business
ventures. The General Partners have sought to minimize these conflicts by
allocating costs between systems on a reasonable basis. Each limited partner may
have access to the books and non-confidential records of the Partnership. A
review of the books will allow a limited partner to assess the reasonableness of
these allocations. The Agreement of Limited Partnership provides for any limited
partner owning 10% or more of the Partnership units to call a special meeting of
the Limited Partners, by giving written notice to the General Partners
specifying in general terms the subjects to be considered. In the event of a
dispute between the General Partners and Limited Partners which cannot be
otherwise resolved, the Agreement of Limited Partnership provides steps for the
removal of a General Partner by Limited Partners.
(B) CERTAIN BUSINESS RELATIONSHIPS. John E. Iverson, a
Director and Assistant Secretary of the Managing General Partner, is a partner
of the law firm of Ryan, Swanson & Cleveland, which has rendered and is expected
to continue to render legal services to the Managing General Partner and the
Partnership.
(C) INDEBTEDNESS OF MANAGEMENT. None.
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
--------
<S> <C>
(1)...............................................................................FINANCIAL STATEMENTS:
Auditors' Report...........................................................____
Balance Sheets--December 31, 1995 and 1994.................................____
Statements of Operations for the years
ended December 31, 1995, 1994 and 1993.....................................____
Statements of Changes in Partners' Capital
(Deficit) for the years ended December 31,
1995, 1994 and 1993........................................................____
Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993.....................................____
Notes to Financial Statements--December 31,
1995.......................................................................____
</TABLE>
(2) EXHIBITS:
4.1 Forms of Amended and Restated Certificate of
Agreement of Limited Partnership(1)
10.1 Brenham Franchise(2)
10.1 Amendment to Brenham Franchise4
10.3 Washington County Franchise(2)
10.4 Island County Franchise (Amended)(2)
10.5 Bay City Franchise(2)
10.6 Sweeney Franchise(2)
10.7 West Columbia Franchise(2)
10.8 Wharton Franchise(2)
10.9 Tenneco Development Corp. Franchise(3)
10.10 Sequim Franchise(1)
10.11 Clallam County Franchise(1)
10.12 Credit Agreement with National Westminster
Bank USA(1)
<PAGE> 26
10.13 First, Second and Third Amendments to Credit
Agreement with National Westminster Bank USA3
10.14 Amended and Restated Management Agreement with
Northland Communications Corporation3
10.15 Operating Management Agreement with Northland
Cable Television, Inc.3
10.16 Assignment and Transfer Agreement with
Northland Telecommunications Corporation dated
May 24, 19894
10.17 Agreement of Purchase and Sale with Sagebrush
Cable Limited Partnership5
10.18 Fourth, Fifth, Sixth and Seventh Amendments to
Credit Agreement with National Westminster
Bank USA6
10.19 Franchise Agreement with the City of Sequim,
WA effective as of May 6, 19927
10.20 Franchise Agreement with Clallam County, WA
effective as of May 29, 19927
10.21 Eighth Amendment to Credit Agreement with
National Westminster Bank USA dated as of May
28, 19927
10.22 Asset Purchase Agreement between Northland
Cable Properties Seven Limited Partnership
(Buyer) and Country Cable, Inc. (Seller)8
10.23 Amendment to Asset Purchase Agreement between
Northland Cable Properties Seven Limited
Partnership and Country Cable, Inc. dated
September 14, 19939
10.24 Commercial Loan Agreement between
Seattle-First National Bank and Northland
Cable Properties Seven Limited Partnership
dated September 24, 19939
10.25 Franchise Agreement with Island County, WA
dated October 4, 199310
10.26 Franchise Agreement with Skagit County -
Assignment and Assumption Agreement dated
September 27, 199310
10.27 Franchise Agreement with Whatcom County -
Assignment and Assumption Agreement dated
September 27, 199310
10.28 Amendment to Commercial Loan Agreement dated
March 15, 199410
10.29 Operating and Management Agreement with
Northland Cable Television, Inc. dated
November 1, 199411
10.30 Asset Purchase Agreement between Northland
Cable Properties Seven Limited Partnership and
Southland Cablevision, Inc.12
10.31 Asset Purchase Agreement between Northland
Cable Properties Seven Limited Partnership and
TCI Cablevision of Georgia, Inc.12
<PAGE> 27
(1) Incorporated by reference from the Partnership's
Form S-1 Registration Statement declared effective
on August 6, 1987
(2) Incorporated by reference from the partnership's
Form 10-K Annual Report for the fiscal year ended
December 31, 1987.
(3) Incorporated by reference from the partnership's
Form 10-K Annual Report for the year ended December
31, 1988.
(4) Incorporated by reference from the partnership's
Form 10-Q Quarterly Report for the period ended June
30, 1989.
(5) Incorporated by reference from the partnership's
Form 10-Q Quarterly Report for the period ended
September 30, 1989.
(6) Incorporated by reference from the partnership's
Form 10-K Annual Report for the fiscal year ended
December 31, 1990.
(7) Incorporated by reference from the partnership's
Form 10-K Annual Report for the fiscal year ended
December 31, 1992.
(8) Incorporated by reference from the partnership's
Form 10-Q Quarterly Report for the period ended
March 31, 1993
(9) Incorporated by reference from the partnership's
Form 8-K dated September 27, 1993
(10) Incorporated by reference from the partnership's
Form 10-K Annual Report for the fiscal year ended
December 31, 1993.
(11) Incorporated by reference from the partnership's
Form 10-K Annual Report for the fiscal year ended
December 31, 1993.
(12) Incorporated by reference from the partnership's
Form 8-K dated March 1, 1996.
(B) REPORTS ON FORM 8-K. No Partnership reports on Form 8-K have been
filed during the fourth quarter of the fiscal year ended December 31, 1995.
<PAGE> 28
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
By: NORTHLAND COMMUNICATIONS CORPORATION
(Managing General Partner)
By /s/ John S. Whetzell Date: 3/28/96
-------------------------------- ----------------
John S. Whetzell, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITIES DATE
<S> <C> <C>
/s/ John S. Whetzell Chief executive officer, principal 3/28/96
- --------------------- financial officer, and principal
John S. Whetzell accounting officer of registrant;
chief executive officer, principal
financial officer and chairman of the
board of directors of Northland
Communications Corporation
/s/ Richard I. Clark Director of Northland Communications 3/28/96
- --------------------- Corporation
Richard I. Clark
/s/ John E. Iverson Director of Northland Communications 3/28/96
- --------------------- Corporation
John E. Iverson
/s/ Gary S. Jones Vice President and principal accounting 3/28/96
- --------------------- officer of Northland Communications
Gary S. Jones Corporation
</TABLE>
<PAGE> 29
EXHIBITS INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ------------------------------------------------- ------------
<S> <C> <C>
10.32 Commercial Loan Agreement between Northland Cable
Properties Seven Limited Partnership and Seattle
First National Bank dated February 29, 1996 -----
27.0 Financial Data Schedule -----
</TABLE>
<PAGE> 30
NORTHLAND CABLE PROPERTIES SEVEN LIMITED
PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Northland Cable Properties Seven Limited Partnership:
We have audited the accompanying balance sheets of Northland Cable Properties
Seven Limited Partnership (a Washington limited partnership) as of December 31,
1995 and 1994, and the related statements of operations, changes in partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 Properties
Seven Limited Partnership as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Arthur Anderson LLP
Seattle, Washington,
January 24, 1996
<PAGE> 32
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH $ 309,737 $ 263,051
ACCOUNTS RECEIVABLE 227,249 195,505
PREPAID EXPENSES 61,141 48,576
INVESTMENT IN CABLE TELEVISION
PROPERTIES:
Property and equipment, at cost 17,470,098 16,965,107
Less--accumulated depreciation (9,415,089) (7,789,802)
------------ ------------
8,055,009 9,175,305
Franchise agreements (net of
accumulated amortization of
$14,953,551 in 1995 and
$13,030,173 in 1994) 5,389,915 7,313,003
Organization costs (net of
accumulated amortization of
$1,481,974 in 1995 and
$1,470,962 in 1994) 33,583 41,295
Noncompetition agreements and
other intangibles (net of
accumulated amortization of
$4,098,958 in 1995 and
$4,035,345 in 1994) 258,096 321,201
Goodwill (net of accumulated
amortization of $36,690 in
1995 and $31,117 in 1994) 186,239 191,812
------------ ------------
Total investment in cable
television properties 13,922,842 17,042,616
------------ ------------
Total assets $ 14,520,969 $ 17,549,748
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued
expenses $ 733,096 $ 568,603
Due to General Partner and
affiliates 82,363 40,387
Deposits 41,793 53,285
Subscriber prepayments 236,032 261,621
Notes payable 16,056,381 17,537,318
------------ ------------
Total liabilities 17,149,665 18,461,214
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' DEFICIT:
General partners-
Contributed capital (24,113) (24,113)
Accumulated deficit (214,723) (197,651)
------------ ------------
(238,836) (221,764)
------------ ------------
Limited partners-
Contributed capital, net -
49,672 units in 1995 and
49,692 units in 1994 18,867,756 18,877,756
Accumulated deficit (21,257,616) (19,567,458)
------------ ------------
(2,389,860) (689,702)
------------ ------------
Total liabilities and
partners' deficit $ 14,520,969 $ 17,549,748
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 33
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
REVENUE $ 8,526,053 $ 7,757,306 $ 6,768,601
----------- ----------- -----------
EXPENSES:
Operating (including $90,110,
$80,331 and $234,655, net, to
affiliates in 1995, 1994 and
1993, respectively) 814,106 741,435 669,905
General and administrative
(including $927,555, $800,157 and
$806,011, net, to affiliates in
1995, 1994 and 1993,
respectively) 2,035,931 1,882,548 1,686,065
Programming (including $214,366,
$72,011 and $(5,456), net, to
(from) affiliates in 1995, 1994
and 1993, respectively) 1,952,044 1,543,944 1,195,968
Depreciation and amortization 3,683,892 3,681,344 3,930,002
----------- ----------- -----------
8,485,973 7,849,271 7,481,940
----------- ----------- -----------
Operating income (loss) 40,080 (91,965) (713,339)
OTHER INCOME (EXPENSE):
Interest income 7,394 2,020 2,571
Interest expense (1,235,164) (1,175,380) (1,260,313)
Loss on disposal of assets (17,626) -- (43,013)
----------- ----------- -----------
Net loss $(1,205,316) $(1,265,325) $(2,014,094)
=========== =========== ===========
ALLOCATION OF NET LOSS:
General partners $ (12,053) $ (12,653) $ (20,141)
=========== =========== ===========
Limited partners $(1,193,263) $(1,252,672) $(1,993,953)
=========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (24) $ (25) $ (40)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 34
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1992 $(178,931) $ 3,550,808 $ 3,371,877
Cash distributions ($10.00 per limited
partnership unit) (5,020) (496,965) (501,985)
Net loss (20,141) (1,993,953) (2,014,094)
--------- ----------- -----------
BALANCE, December 31, 1993 (204,092) 1,059,890 855,798
Cash distributions ($10.00 per limited
partnership unit) (5,019) (496,920) (501,939)
Net loss (12,653) (1,252,672) (1,265,325)
--------- ----------- -----------
BALANCE, December 31, 1994 (221,764) (689,702) (911,466)
Cash distributions ($10.00 per limited
partnership unit) (5,019) (496,895) (501,914)
Repurchase of limited partnership units -- (10,000) (10,000)
Net loss (12,053) (1,193,263) (1,205,316)
--------- ----------- -----------
BALANCE, December 31, 1995 $(238,836) $(2,389,860) $(2,628,696)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 35
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(1,205,316) $(1,265,325) $ (2,014,094)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation and amortization 3,683,892 3,681,344 3,930,002
Loss on disposal of assets 17,626 -- 43,013
(Increase) decrease in operating assets:
Accounts receivable (31,744) (16,932) (27,410)
Prepaid expenses (12,565) 5,986 33,973
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 164,493 72,860 133,377
Due to General Partner and affiliates 41,976 626 (20,123)
Deposits (11,492) (16,620) (352)
Subscriber prepayments (25,589) 16,134 17,123
----------- ----------- ------------
Net cash provided by operating activities 2,621,281 2,478,073 2,095,509
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable system and other -- -- (4,104,411)
Purchase of property and equipment, net (577,646) (878,740) (1,212,428)
----------- ----------- ------------
Net cash used in investing activities (577,646) (878,740) (5,316,839)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- -- 18,783,166
Principal payments on notes payable (1,480,937) (928,219) (14,865,524)
Repurchase of limited partnership units (10,000) -- --
Loan fees (4,098) (5,023) (289,742)
Distributions to partners (501,914) (501,939) (501,985)
----------- ----------- ------------
Net cash (used in) provided by financing activities (1,996,949) (1,435,181) 3,125,915
----------- ----------- ------------
INCREASE (DECREASE) IN CASH 46,686 164,152 (95,415)
CASH, beginning of year 263,051 98,899 194,314
----------- ----------- ------------
CASH, end of year $ 309,737 $ 263,051 $ 98,899
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 1,142,324 $ 1,140,484 $ 1,263,382
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 36
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND PARTNERS' INTERESTS:
Formation and Business
Northland Cable Properties Seven Limited Partnership (the Partnership), a
Washington limited partnership, was formed on April 17, 1987. The Partnership
was formed to acquire, develop and operate cable television systems. The
Partnership began operations on September 1, 1987, by acquiring a cable
television system in Brenham, Texas. Additional acquisitions include systems
serving seven cities and three unincorporated counties in southeast Texas; a
system serving Camano Island, Washington; two systems serving certain
unincorporated portions of Clallam County, Washington; and a system serving
certain portions of Skagit and Whatcom counties, Washington. The Partnership has
10 nonexclusive franchises to operate the cable systems for periods which will
expire at various dates through 2017.
Northland Communications Corporation is the Managing General Partner (the
General Partner) of the Partnership. Certain affiliates of the Partnership also
own and operate other cable television systems. In addition, the General Partner
manages cable television systems for other limited partnerships for which it is
General Partner.
FN Equities Joint Venture, a California joint venture, is the Administrative
General Partner of the Partnership.
Contributed Capital, Commissions and Offering Costs
The capitalization of the Partnership is set forth in the accompanying
statements of changes in partners' capital (deficit). No limited partner is
obligated to make any additional contribution to partnership capital.
The general partners purchased their 1% interest in the Partnership by
contributing $1,000 to partnership capital.
Pursuant to the Partnership Agreement, brokerage fees paid to an affiliate of
the Administrative General Partner and other offering costs are recorded as a
reduction of limited partners' capital. The Administrative General Partner
received a fee for providing certain administrative services to the Partnership.
Organization Costs
Organization costs originally included reimbursements of approximately $35,000
to the General Partner for costs incurred on the Partnership's behalf and fees
of $1,618,045 as compensation for selecting and arranging the purchase of the
cable television systems. Amounts recorded as organization costs have been
reduced subsequent to the sale of certain cable television systems.
<PAGE> 37
-2-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Depreciation
Depreciation of property and equipment is provided using the straight-line
method over the following estimated service lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings 20 years
Distribution plant 10 years
Other equipment and leasehold improvements 5-20 years
</TABLE>
Allocation of Cost of Purchased Cable Television Systems
The Partnership allocated the total contract purchase price of cable television
systems acquired as follows: first, to the estimated fair value of net tangible
assets acquired; then, to noncompetition agreements and other intangibles and
franchise agreements; then, any excess was allocated to goodwill.
Intangible Assets
Costs assigned to franchise agreements, organization costs, noncompetition
agreements and other intangibles and goodwill are being amortized using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Franchise agreements 10-25 years
Organization costs 5 years
Noncompetition agreements and
other intangibles 5-8 years
Goodwill 40 years
</TABLE>
Revenue Recognition
The Partnership recognizes revenue in the month service is provided to customers
and accounts for advance payments on services to be rendered as subscriber
prepayments.
Reclassifications
Certain reclassifications have been made to conform prior years' data with the
current year presentation.
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 and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE> 38
-3-
3. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES:
Management Fees
The General Partner receives a fee for managing the Partnership equal to 5% of
the gross revenues of the Partnership, excluding revenues from the sale of cable
television systems or franchises. The amount of management fees charged by the
General Partner was $421,821, $387,865 and $338,462 for 1995, 1994 and 1993,
respectively.
Income Allocation
All items of income, loss, deduction and credit are allocated 99% to the limited
partners and 1% to the general partners until the limited partners have received
aggregate cash distributions in an amount equal to aggregate capital
contributions as defined in the limited partnership agreement. Thereafter, the
general partners receive 25% and the limited partners are allocated 75% of
partnership income and losses. Cash distributions from operations will be
allocated in accordance with the net income and net loss percentages then in
effect. Prior to the General Partner's receiving cash distributions from
operations for any year, the limited partners must receive cash distributions in
an amount equal to the lesser of i) 50% of the limited partners' allocable share
of net income for such year or ii) the federal income tax payable on the limited
partners' allocable share of net income using the then highest marginal federal
income tax rate applicable to such net income. Any distributions other than from
cash flow, such as from the sale or refinancing of a system or upon dissolution
of the Partnership, will be determined according to contractual stipulations in
the Partnership Agreement.
The limited partners' total initial contributions to capital were $24,893,000
($500 per partnership unit). As of December 31, 1995, $2,983,120 ($50 per
partnership unit) had been distributed to the limited partners and the
Partnership has repurchased $57,000 of limited partnership units ($500 per
unit).
Reimbursements
The General Partner provides certain centralized services to the Partnership and
other affiliated entities. As set forth in the Partnership Agreement, the
Partnership reimburses the General Partner for the cost of those services
provided by the General Partner to the Partnership. These services include
engineering, marketing, management services, accounting, bookkeeping, legal,
copying, office rent and computer services.
The amounts billed to the Partnership for these services are based on the
General Partner's cost. The cost of certain services is charged directly to the
Partnership, based upon actual time spent by employees of the General Partner.
The cost of other services is allocated to the Partnership and other affiliated
entities based upon their relative size, revenue and other factors. The amounts
charged to the Partnership by the General Partner for these services were
$503,181, $472,617 and $312,085 for 1995, 1994 and 1993, respectively.
In 1995, 1994 and 1993, the Partnership paid software installation charges and
billing service fees to an affiliate, amounting to $44,606, $38,787 and $46,298,
respectively.
<PAGE> 39
-4-
The Partnership has entered into operating management agreements with affiliates
managed by the General Partner. Under the terms of these agreements, the
Partnership or an affiliate serves as the executive managing agent for certain
cable television systems and is reimbursed for certain operating, programming
and administrative expenses. The Partnership paid $51,780, $9,021 and $315,660,
net, under the terms of these agreements during 1995, 1994 and 1993,
respectively.
In September 1994, the Partnership began paying monthly program license fees to
Northland Cable News, Inc. (NCN), an affiliate of the General Partner, for the
rights to distribute programming developed and produced by NCN. Total license
fees paid to NCN during 1995 and 1994 were $172,698 and $64,836, respectively.
Cable Ad Concepts, Inc. (CAC), an affiliate of the General Partner, was formed
in 1993 and began operations in 1994. CAC was organized to assist in the
development of local advertising markets and management and training of local
sales staffs. CAC billed the Partnership $41,668 and $13,012 in 1995 and 1994,
respectively, for these services.
Due to General Partner and Affiliates
The liability to the General Partner and affiliates consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
------- ------
<S> <C> <C>
Management fees $39,894 $30,862
Reimbursable operating costs 49,158 47,357
Due from affiliates, net (6,689) (37,832)
------- -------
$82,363 $40,387
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
<S> <C> <C>
Land and buildings $ 342,648 $ 342,648
Distribution plant 16,114,550 15,573,602
Other equipment 982,207 994,466
Leasehold improvements 14,389 11,903
Construction in progress 16,304 42,488
----------- -----------
17,470,098 16,965,107
Less--accumulated depreciation 9,415,089 7,789,802
----------- -----------
$ 8,055,009 $ 9,175,305
=========== ===========
</TABLE>
<PAGE> 40
-5-
Replacements, renewals and improvements are capitalized. Maintenance and repairs
are charged to expense as incurred.
5. NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Term loan agreement, collateralized by a
first lien position on all present and
future assets of the Partnership.
Interest rates vary based on certain
financial covenants; currently 6.57%
(weighted average). Graduated principal
payments due quarterly until maturity on
December 31, 2000.
$16,056,381 $17,532,830
Other - 4,488
----------- -----------
$16,056,381 $17,537,318
=========== ===========
</TABLE>
Annual maturities of notes payable after December 31, 1995 are as follows:
<TABLE>
<C> <C>
1996 $ 2,030,117
1997 2,583,785
1998 3,137,454
1999 3,875,678
2000 4,429,347
-----------
$16,056,381
===========
</TABLE>
Under the term loan agreement, the Partnership has agreed to restrictive
covenants which require the maintenance of certain ratios, including an
Annualized Cash Flow to Pro Forma Debt Service Ratio of 1.15 to 1 and a Senior
Debt to Annualized Cash Flow Ratio of 4.00 to 1, among other restrictions. The
General Partner submits quarterly debt compliance reports to the Partnership's
creditor under this agreement.
The Partnership has entered into an interest rate swap agreement to reduce the
impact of changes in interest rates. Interest rate swap transactions generally
involve the exchange of fixed and floating interest payment obligations without
the exchange of the underlying principal amounts. At December 31, 1995, the
Partnership had outstanding one interest rate swap agreement with its bank,
having a notional principal amount of $8,091,000. This agreement effectively
changes the Partnership's interest rate exposure to a fixed rate of 4.40%, plus
an applicable margin based on certain financial covenants (the margin at
December 31, 1995 was 1.625%). The interest-rate swap agreement expires on
September 30, 1996. At December 31, 1995, no payment would have been required to
settle these agreements, based on information received from financial
institutions.
<PAGE> 41
-6-
The counterparty to the Partnership's interest rate swap agreements is the
Partnership's creditor. The Partnership is exposed to credit risk to the extent
of nonperformance by this counterparty; however, management believes the risk of
incurring losses due to credit risk is remote. The notional amount of the
instrument discussed above reflected the extent of involvement in the
instrument, but did not represent the Partnership's exposure to market risk.
Considerable judgment is required to develop the estimates of fair value; thus,
the estimates provided above are not necessarily indicative of the amounts that
could be realized in a current market exchange.
6. INCOME TAXES:
Income taxes have not been recorded in the accompanying financial statements
because they are obligations of the partners. The federal and state income tax
returns of the Partnership are prepared and filed by the General Partner.
The tax returns, the qualification of the Partnership as such for tax purposes,
and the amount of distributable partnership income or loss are subject to
examination by federal and state taxing authorities. If such examinations result
in changes with respect to the Partnership's qualification or in changes with
respect to the income or loss, the tax liability of the partners would likely be
changed accordingly.
Taxable income to the limited partners was approximately $497,000, $497,000 and
$405,000 for the three years in the period ended December 31, 1995, and is
different from that reported in the statement of operations due to the
difference in depreciation expense allowed for tax purposes and that amount
recognized under generally accepted accounting principles. There were no other
significant differences between taxable income and the net loss reported in the
statements of operations.
In general, under current federal income tax laws, a partner's allocated share
of tax losses from a partnership is allowed as a deduction on his individual
income tax return only to the extent of the partner's adjusted basis in his
partnership interest at the end of the tax year. Any excess losses over adjusted
basis may be carried forward to future tax years and are allowed as deductions
to the extent the partner has an increase in his adjusted basis in the
Partnership through either an allocation of partnership income or additional
capital contributions to the Partnership.
In addition, the current tax law does not allow a taxpayer to use losses from a
business activity in which he does not materially participate (a "passive
activity," e.g., a limited partner in a limited partnership) to offset other
income such as salary, active business income, dividends, interest, royalties
and capital gains. However, such losses can be used to offset other income from
passive activities. Disallowed losses can be carried forward indefinitely to
offset future income from passive activities. Disallowed losses can be used in
full when the taxpayer recognizes gain or loss upon the disposition of his
entire interest in the passive activity.
<PAGE> 42
-7-
7. COMMITMENTS AND CONTINGENCIES:
Lease Arrangements
The Partnership leases certain tower sites, office facilities and pole
attachments under leases accounted for as operating leases. Rental expense
included in operations amounts to $145,062, $134,702 and $127,073 in 1995, 1994
and 1993, respectively. Minimum lease payments to the end of the lease term are
as follows:
<TABLE>
<CAPTION>
<C> <C>
1996 $14,700
1997 10,500
1998 3,900
1999 3,900
2000 3,900
Thereafter 12,300
-------
$49,200
=======
</TABLE>
Effects of Regulation
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the 1992 Act). On April 1, 1993, the Federal
Communications Commission (FCC) adopted rules implementing rate regulation and
certain other provisions of the 1992 Act, which became effective September 1,
1993. On February 22, 1994, the FCC adopted further rate regulation rules
requiring additional reductions, which became effective May 15, 1994, and
revised the benchmarks and formulas used to calculate such rates. Also in
February, the FCC's initial rules governing cost-of-service showings were
adopted with an effective date of May 15, 1994. Cable operators may pursue
cost-of-service showings to justify charging rates for regulated services in
excess of those established by the FCC in its benchmark regulatory scheme.
On May 5, 1995, the FCC announced the adoption of a simplified set of rate
regulation rules applicable to small cable systems, defined as a system serving
15,000 or fewer subscribers, owned by small companies, defined as a company
serving 400,000 or fewer subscribers. Under the FCC's definition, the
Partnership is a small company and each of the Partnership's cable systems are
small systems. Maximum permitted rates under these revised rules are dependent
on several factors including the number of regulated channels offered, the net
asset basis of plant and equipment used to deliver regulated services, the
number of subscribers served and a reasonable rate of return. It is management's
opinion that, in all material respects, the rates in effect in the Partnership's
cable systems are within the maximum allowable rates permitted under the FCC's
small cable system rules.
<PAGE> 43
-8-
On February 8, 1996, the Telecommunications Act of 1996 (the 1996 Act) became
law. The 1996 Act will eliminate all rate controls on cable programming service
tiers of small cable systems, defined by the 1996 Act as systems serving fewer
than 50,000 subscribers owned by operators serving fewer than 1% of all
subscribers in the United States (approximately 600,000 subscribers). All of the
Partnership's cable systems qualify as small cable systems. Many of the changes
called for by the 1996 Act will not take effect until the FCC issues new
regulations, a process that could take from several months to a few years
depending on the complexity of the required changes and the statutory time
limits. Because of this, the full impact of the 1996 Act on the Partnership's
operations cannot be determined at this time.
8. SUBSEQUENT TRANSACTION:
The Partnership has signed an asset purchase agreement to acquire a cable
television system serving approximately 2,400 subscribers in central Georgia.
The purchase price is $3,710,000, subject to certain adjustments at closing.
This purchase is anticipated to occur in February 1996.
Additionally, the Partnership is currently in the process of negotiating the
acquisition of cable television systems serving approximately 7,200 subscribers
in central Georgia for an approximate purchase price of $12,125,000. These
purchases are expected to be completed in February and April 1996.
The Partnership has reached an agreement with its current lender to increase its
current facility up to a maximum of $35,000,000 including a $32,000,000 term
loan and $3,000,000 revolving credit facility to finance these acquisitions and
provide future working capital.
<PAGE> 1
COMMERCIAL LOAN AGREEMENT
BETWEEN
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
AS BORROWER
AND
SEATTLE-FIRST NATIONAL BANK
AS AGENT FOR ITSELF AND
VARIOUS BANKS
DATED AS OF FEBRUARY 29, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE 1
<S> <C>
DEFINITIONS............................ 1
Section 1.1 Definitions and Exhibits.............................................. 1
ARTICLE 2
THE COMMITMENT........................... 1
Section 2.1 Loans................................................................. 1
Section 2.2 Restrictions on Acquisition Advances.................................. 2
Section 2.3 Borrowing Notice...................................................... 3
Section 2.4 Bank Records.......................................................... 4
ARTICLE 3
REPAYMENT AND INTEREST....................... 4
Section 3.1 Repayment of Principal................................................ 4
Section 3.2 Additional Payments of Principal/Excess
Cash Flow................................................................ 5
Section 3.3 Payment of Interest................................................... 5
Section 3.4 Additional LIBOR Rate Provisions...................................... 6
Section 3.5 Prepayment............................................................ 6
Section 3.6 Manner, Method, Place, Time and Application
of Payment, Reinstatement................................................ 7
Section 3.7 Evidence of Debt...................................................... 8
ARTICLE 4
OTHER PAYMENTS........................... 9
Section 4.1 Closing Fees.......................................................... 9
Section 4.2 Commitment Fee........................................................ 9
Section 4.3 Costs and Fees........................................................ 9
Section 4.4 Calculations; Default Interest; Compounded
Interest; Place for Payment.............................................. 9
Section 4.5 Increased Costs....................................................... 10
ARTICLE 5
CONDITIONS TO LENDING, SECURITY AND
OTHER COVENANTS.......................... 11
Section 5.1 Conditions............................................................ 11
Section 5.2 Conditions Not Fulfilled.............................................. 13
Section 5.3 Security and Power of Attorney........................................ 14
Section 5.4 Negative Pledge....................................................... 14
Section 5.5 Contractual Right of Setoff........................................... 15
Section 5.6 Management of Interest Rate Risk...................................... 15
Section 5.7 Representations and Consents of Northland
and NCP-Seven............................................................ 15
ARTICLE 6
REPRESENTATIONS, WARRANTIES AND COVENANTS............. 16
Section 6.1 Representations, Warranties and Covenants
of NCP-Seven............................................................. 16
ARTICLE 7
FURTHER COVENANTS......................... 22
Section 7.1 Covenants............................................................. 22
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE 8
<S> <C>
EVENTS OF DEFAULT......................... 32
Section 8.1 Events of Default; Acceleration and
Remedies................................................................. 32
ARTICLE 9
MISCELLANEOUS........................... 34
Section 9.1 Notices, Etc.......................................................... 34
Section 9.2 No Waiver; Remedies................................................... 35
Section 9.3 Accounting Terms...................................................... 35
Section 9.4 Assignment and Appointment of Lead Agent.............................. 35
Section 9.5 Governing Law; Venue.................................................. 36
Section 9.6 Mandatory Arbitration................................................. 37
Section 9.7 FNEJV Delegation of All Powers........................................ 38
Section 9.8 Entire Agreement; Headings; Amendments;
Severability; Time; Counterparts......................................... 39
</TABLE>
EXHIBITS:
Exhibit A -- Notice of Borrowing, Interest Rate Change, and Certificate
Exhibit B -- Prepayment Premium Calculation
Exhibit C -- List of all Places of Business of NCP-Seven
Exhibit D -- NCP-Seven Disclosures
Exhibit E -- Form of Promissory Note
Exhibit F -- RESERVED
Exhibit G -- RESERVED
Exhibit H-1 -- Form of Deed of Trust (Fee)
Exhibit H-2 -- Form of Deed of Trust (Leasehold)
Exhibit I -- RESERVED
Exhibit J -- RESERVED
Exhibit K -- RESERVED
Exhibit L -- Operating Rights
Exhibit M -- Form of Computation Schedule
Exhibit N -- Resolution
Exhibit O -- RESERVED
Exhibit P -- RESERVED
Exhibit Q -- Assignment and Assumption Certificate
- ii -
<PAGE> 4
COMMERCIAL LOAN AGREEMENT
This COMMERCIAL LOAN AGREEMENT ("Agreement") is between NORTHLAND CABLE
PROPERTIES SEVEN LIMITED PARTNERSHIP, a Washington limited partnership
("NCP-Seven") and SEATTLE-FIRST NATIONAL BANK, a national banking association,
as agent for itself and for each financial institution which is properly defined
as a "Bank" in the Definitions Addendum attached hereto. This Agreement amends
and restates the Commercial Loan Agreement dated September 15, 1993, between
NCP-Seven and Seafirst.
Whereas, NCP-Seven has requested Bank to renew the Existing Seafirst
Debt and advance to NCP-Seven additional credit, such that the aggregate
principal amount of $35,000,000 shall be available hereunder for the purposes
set forth in Section hereof, subject to the terms and conditions contained in
this Agreement.
Now, therefore, in consideration of the mutual promises contained
herein and other good and valuable consideration, receipt of which is hereby
acknowledged, and in order to induce Bank to extend such credit, NCP-Seven and
Bank each hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions and Exhibits. Terms defined above or in the
text of this Agreement shall have the meanings set forth above and in such text.
Other capitalized terms shall have the meaning set forth in the Definitions
Addendum which is attached hereto and incorporated herein. All exhibits to this
Agreement are also incorporated herein.
ARTICLE 2
THE COMMITMENT
Section 2.1 Loans. Subject to the terms and conditions of this
Agreement, Bank agrees to make Advances to NCP-Seven on Business Days during the
Commitment Period in an aggregate principal amount not exceeding at any time
$35,000,000 (hereinafter, the "Commitment"), in two tranches, to be known as
"Tranche A" and "Tranche B." The Existing Seafirst Debt, in the amount of
$16,056,380.93, shall constitute a portion of the amounts outstanding under
Tranche A, and shall hereafter be evidenced by the Note and governed by the
terms of this Agreement. The remainder of Tranche A, in the principal amount of
$15,943,619.07, is made available for the acquisition by NCP- Seven of the
Georgia Systems pursuant to (a) Asset Purchase Agreement dated January 26, 1996,
between NCP-Seven and Southland Cablevision, Inc., (b) Asset Purchase Agreement
Dated February 5, 1996, between NCP-Seven and TCI Cablevision of Georgia, Inc.
("TCI"), each for Cable Systems in and around Vidalia Georgia,
- 1 -
<PAGE> 5
and (c) an agreement yet to be entered into between NCP-Seven and TCI for a
Cable System in and around Sandersville, Georgia; and the remaining $3,000,000
of the Commitment, constituting all of Tranche B, is made available for
acquisition of other Cable Systems and for capital expenditures for Cable System
enhancement and expansion. All Advances shall be made either as Prime- Related
Loans or as LIBOR Rate Loans. Tranche B is available as a revolving line of
credit which NCP-Seven may borrow, prepay (subject to Section ) and reborrow
until the end of the Commitment Period, at which time the aggregate amount
outstanding shall be added to Tranche A and may not be reborrowed. Subject to
the terms and conditions of this Agreement, NCP-Seven may draw the amount of the
Commitment during the Commitment Period in one or more Advances and shall
execute and deliver a promissory note in the form attached as Exhibit E to
evidence all amounts advanced. If the aggregate amounts actually advanced are
less than the Commitment, NCP-Seven's liability for principal under the Note
shall not exceed the aggregate Advances.
Section 2.2 Restrictions on Acquisition Advances. All Advances shall be
subject to the conditions of Article . In addition, all Advances for the
acquisition of any one or more of the Georgia Systems or any other Cable Systems
shall be conditioned on Bank's satisfaction that each of the following shall be
delivered to Bank either prior to, simultaneously with, or immediately upon the
completion of the Cable System acquisition being funded with such Advance:
(a) the following documents to be executed by the seller under
the Purchase Contract or by its counsel: (i) a subordination agreement in
substantially the same form as the Subordination Agreement subordinating all
amounts (if any) now or hereafter due from NCP-Seven to seller to all amounts
now or hereafter due from NCP-Seven to Bank; and (ii) all opinions delivered in
connection with the sale contemplated by said Purchase Contract, addressed and
delivered to Bank as well as to NCP-Seven, or in the alternative accompanied by
letters permitting Bank's reliance on such opinions;
(b) evidence of all approvals by Governmental Bodies necessary
for NCP-Seven to purchase, operate and grant a Lien on the Cable System,
including but not limited to evidence of the consents listed as required in the
opinions of seller's counsel;
(c) termination statements and all other documents executed by
said sellers or other Persons deemed necessary by Bank in its sole discretion to
eliminate any Lien on or interest of third parties in the Cable System or other
Collateral;
(d) executed financing statements, fixture filings, security
agreements, deeds of trust, assignments of leases, assignments of licenses,
permits and contracts, consents thereto, and such other documents as the Bank
may request to further evidence or obtain a Lien on all property of every nature
related to the Cable System;
- 2 -
<PAGE> 6
(e) reimbursement to Bank (but not to any Participants) of all
Costs and Fees incurred in connection with determining compliance with this
Section and in examining, determining, drafting, obtaining delivery of, and
filing and recording the documents contemplated hereunder. NCP-Seven agrees that
if such reimbursement is not submitted by NCP-Seven to Bank before distribution
of any Advance, Bank may make an Advance under the Commitment for such purpose;
(f) the certificate contemplated by Section (b) and such other
certificates, legal opinions and documents as Bank may request to update the
items received under Section in connection with Closing. As to the Cable Systems
and all rights and property acquired in connection therewith, the foregoing
shall include the making of all representations, warranties and agreements
contained herein, all in form satisfactory to the Bank;
(g) such other documents or evidence of such other actions as
Bank deems necessary, in its sole discretion, to obtain a first priority Lien on
all aspects of each Cable System.
Section 2.3 Borrowing Notice. NCP-Seven may obtain Advances on any
Business Day for a Prime-Related Loan by providing a Borrowing Notice which must
be received by Agent at or before 11:30 a.m., Seattle time, on the day borrowing
is allowed. NCP- Seven may obtain a LIBOR Rate Loan by providing a Borrowing
Notice on any London Banking Day which is three London Banking Days before the
date the Advance is to be disbursed (unless either of the London Banking Days is
not also a Business Day, in which case the Borrowing Notice shall be submitted
on the immediately preceding Business Day). All Advances shall be discretionary
if the notice is given subsequent to these times. If for any reason Bank in its
sole discretion ever waives the requirement for, or timing for delivery of, a
Borrowing Notice, Bank may rely in good faith on telephonic, telex and oral
requests made by any Person purporting to be an officer designated in the
definition of Borrowing Notice.
The Borrowing Notice shall be irrevocable and constitute NCP-Seven's
representation and warranty that as of the date of the notice the certifications
set forth therein are true and correct. Subject to the conditions set forth in
this Agreement, Bank will disburse any Loan by check or by crediting the
proceeds to any account(s) of NCP-Seven with Bank, or to such other account as
NCP-Seven shall designate in the Borrowing Notice. Any such Advance shall be
conclusively presumed to have been made to or for the benefit of NCP-Seven when
made in accordance with a Borrowing Notice, or when such advance is deposited to
any such account(s) regardless of the fact that Persons other than those
authorized in the definition of "Borrowing Notice" may have actually executed
the Borrowing Notice or may have authority to draw against any such account(s).
- 3 -
<PAGE> 7
NCP-Seven may also submit a Borrowing Notice to obtain a change in the
interest rate due on an outstanding Loan upon expiration of an Interest Period.
Section 2.4 Bank Records. Bank is authorized to record on a schedule or
computer-generated statement the date and amount of each Advance, all payments
on Obligations and all other matters relevant to the Obligations.
NCP-Seven shall review all statements (if any) delivered by Bank for
accuracy and notify Bank of any suspected error within 180 days after the date
of said statement. Any objection to any statement shall not excuse NCP-Seven
from paying all Obligations. Bank shall use good faith in determining the amount
of obligations such as those due under Section and shall always be entitled to
correct any error in its sole discretion (exercised in good faith), it being the
intent of the parties that NCP-Seven not be excused from paying any rightfully
owing Obligation because of any error. Without limiting the methods by which
Bank may be entitled by law to make demand (if any be necessary) for payment of
any Obligation, NCP-Seven agrees that any statement, invoice or payment notice
from Bank shall be deemed to be a demand for payment, which demand is subject to
Bank's right of correction.
ARTICLE 3
REPAYMENT AND INTEREST
Section 3.1 Repayment of Principal. On the last Business Day of each
September, December, March, and June beginning September 30, 1996, NCP-Seven
shall pay to Bank as installments of principal under the Note, the percentage of
the outstanding principal balance of Tranche A which is set forth in the table
appearing below. All amounts outstanding under Tranche B shall be added to
Tranche A on February 1, 1999 (for purposes of the following table, the
"Converted Amount"), and thereafter be deemed part of Tranche A. In all events,
all remaining principal and accrued interest due under the Note shall be due and
payable in full on June 30, 2004:
- 4 -
<PAGE> 8
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Quarters Percentage of Percentage of the
(Commencing Principal Balance Sum of (a) the
9/30/96) of Tranche A at Principal Balance
9/29/96 Payable Per of Tranche A at
Quarter 9/29/96, Plus (b)
the Converted
Amount, Payable Per
Quarter
- ---------------------------------------------------------------------------------------------------------
1-2 1.25%
- ---------------------------------------------------------------------------------------------------------
3-4 1.50
- ---------------------------------------------------------------------------------------------------------
5-6 1.75
- ---------------------------------------------------------------------------------------------------------
7-10 2.00
- ---------------------------------------------------------------------------------------------------------
11-14 2.25
- ---------------------------------------------------------------------------------------------------------
15-18 3.00
- ---------------------------------------------------------------------------------------------------------
19-22 3.50
- ---------------------------------------------------------------------------------------------------------
23-26 4.00
- ---------------------------------------------------------------------------------------------------------
27-30 5.00
- ---------------------------------------------------------------------------------------------------------
31 6.00
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Section 3.2 Additional Payments of Principal/Excess Cash Flow. In
addition to the regularly scheduled payments of principal provided in Section
and notwithstanding any contrary term herein, NCP-Seven shall pay to Bank
commencing March 31, 1998 and continuing on March 31st of each year thereafter
until June 30, 2004, One-Half (1/2) of any (if any) Excess Cash Flow for the
year ending the preceding December 31.
Section 3.3 Payment of Interest. All Advances shall bear interest on
the principal balance outstanding from time to time from the date of the Advance
creating the Loan until the Loan is paid in full and interest accrued thereon
shall be payable on the Interest Payment Date. Each time NCP-Seven requests an
Advance under the Commitment and upon each expiration (before June 30, 2004) of
an Interest Period governing a previous Advance, NCP- Seven shall choose one of
the following-described interest rates to govern that Advance (but no other
Advances). In the event NCP-Seven does not specify an interest rate for any
Advance in the Borrowing Notice or upon the expiration of an Interest Period, or
in the event Bank makes an Advance to NCP-Seven under the Commitment without a
request therefor, the Loan shall then or thereafter bear interest at the Base
Rate. NCP-Seven shall specify one of the following interest rates:
(a) the Base Rate, for a Prime-Related Loan; or
(b) the Adjusted LIBOR Rate, for a LIBOR Rate Loan,
subject to Section 3.4. The minimum principal amount of any
- 5 -
<PAGE> 9
LIBOR Rate Loan shall be $1,000,000.00 and amounts at all times exceeding
$1,000,000 shall be in increments of $100,000. NCP- Seven may request Bank to
give an Adjusted LIBOR Rate quote for a specified loan amount and Interest
Period. Bank will then quote to NCP-Seven the available Adjusted LIBOR Rate.
NCP-Seven shall have two hours from the time of the quote to elect an Adjusted
LIBOR Rate by delivering a Borrowing Notice.
Section 3.4 Additional LIBOR Rate Provisions. All LIBOR Rate Loans
shall be subject to the following additional provisions:
(a) Inability to Participate in Market. If Bank in good faith
cannot participate in the Eurodollar market for legal or practical reasons, the
Adjusted LIBOR Rate shall cease to be an interest rate option. Bank shall notify
NCP-Seven of and when it again becomes legal or practical to participate in the
Eurodollar market, at which time the Adjusted LIBOR Rate shall resume being an
interest rate option. If during the period an Interest Rate Risk Agreement is in
effect the Adjusted LIBOR Rate becomes unavailable, Bank agrees to make good
faith efforts to locate for NCP-Seven a reasonably equivalent substitute for the
Adjusted LIBOR Rate if and only if such substitute may be offered by Bank
without any reduction in Bank's rate of return on any and all Loans, without any
increase in its Costs and Fees and without violation of any Requirement of Law
or Bank policies or practices. NCP-Seven acknowledges and agrees that Bank is
only agreeing to attempt, in good faith, to locate a substitute rate and that
the foregoing does not impose on Bank any duty to supply a substitute and Bank
shall have no liability of any nature whatsoever for failing to supply a
substitute;
(b) Costs. NCP-Seven shall, as to LIBOR Rate Loans, reimburse
Bank for all Costs and Fees and Taxes and defend and hold Bank harmless from and
against any Claims and Losses which Bank may incur as a consequence of any
changes in the cost of participating in, or in the Requirements of Law
affecting, the Eurodollar market, including any additional reserve requirements,
except to the extent such costs are already calculated into the Adjusted LIBOR
Rate. This covenant shall survive Closing and the payment of the Obligations for
a period of six months; and
(c) Basis of Quotes. NCP-Seven acknowledges that Bank may or
may not in any particular case actually match-fund a LIBOR Rate Loan. FDIC
assessments, and Federal Reserve Board reserve requirements, if any are
assessed, will be based on Bank's best estimates of its marginal cost for each
of these items. Whether such estimates in fact represent the actual cost to Bank
for any particular dollar or Eurodollar deposit or any LIBOR Rate Loan will
depend upon how Bank actually chooses to fund the LIBOR Rate Loan.
Section 3.5 Prepayment. No prepayment of Tranche A, or of a LIBOR Rate
Loan under Tranche B, shall be made until NCP-Seven (a) delivers to Bank prior
written notice of its intent to prepay, which notice shall be given at least 10
Business Days
- 6 -
<PAGE> 10
before the date of prepayment and contain the amount to be prepaid, and (b) pays
any premium required below. Any prepayment of less than the full amount
outstanding (which partial prepayments may be made upon compliance with (a) and
(b)) shall be applied in the inverse order of maturity and shall first be
applied to Cost and Fees and any prepayment fees then due, then to accrued
interest, then to the principal of Tranche B, if any, and then to the principal
of Tranche A. Notwithstanding the foregoing, NCP-Seven need not give the notice
required by (a) above with respect to any prepayment required by Section (but
the premium required by (b) above and Section 3.5.2 shall be paid).
Section 3.5.1 No Premium Due. Prime-Related Loans may
be prepaid in whole or in part without fee, premium or penalty.
Section 3.5.2 Premium Due. LIBOR Rate Loans may only be paid
before the end of an Interest Period or the Loan maturity date (whichever is
earlier and from time to time) in whole or in part upon NCP-Seven's payment to
Bank of a prepayment premium calculated as set forth in Exhibit B hereto, which
exhibit is incorporated by this reference. The prepayment premium shall be due
under all circumstances under which any such Loan is prepaid or discharged for
any reason before the scheduled maturity date of the Loan, including without
limitation prepayment by voluntary prepayment, by operation of law, by virtue of
Bank's collection efforts, or after acceleration or otherwise.
NCP-Seven agrees that the prepayment premium is intended as liquidated
damages to compensate Bank for its willingness to allow prepayment and to forego
its right to receive the interest contemplated hereunder for the full, stated
term of the Loan(s). NCP-Seven further acknowledges the inability of the parties
accurately to predict, among other things, the date on which any Advance may
occur, whether NCP-Seven will choose to obtain the full amount of the
Commitment, the investments available to Bank upon any prepayment to replace its
investment in any Loans, and, in general, the Losses Bank may suffer by reason
of prepayment. NCP-Seven hereby agrees that, in addition to the foregoing (but
not in lieu thereof), the prepayment premium represents the parties' reasonable
estimate of a fair or average compensation for the Loss Bank may sustain due to
payment before the date the Loans are due and that the prepayment premium is
fully enforceable according to its terms.
Section 3.6 Manner, Method, Place, Time and Application of Payment,
Reinstatement. All Obligations shall be paid in lawful currency of the United
States and in immediately available funds to Bank at its Seafirst Agency
Services Office located at 701 Fifth Avenue, Floor 16, Seattle, Washington. Any
payment received after 12:00 noon (Seattle time) shall be deemed to have been
received on the next Business Day, and the date for payment thereof shall be
extended to the next succeeding Business Day (unless said day would be in the
next calendar month, in which case the date for payment shall be the immediately
preceding Business Day). However, NCP-Seven shall pay to Bank, on demand,
- 7 -
<PAGE> 11
default interest on said payment for such extended time at the rate set forth in
Section hereof. The liability of NCP-Seven hereunder and under any Related
Document shall be reinstated and revived and the rights of Bank shall continue,
with respect to any amount at any time paid by or on behalf of NCP-Seven if such
amount shall thereafter be required to be restored, returned or forfeited by
Bank pursuant to Requirement of Law, and NCP-Seven's liability therefor shall
continue as if such amount had not been paid. NCP-Seven agrees that (a) if any
for any reason any amount due hereunder or under any Related Document is paid by
cashier's, certified or teller's check, there shall be no discharge of NCP-
Seven's obligation until said check be finally paid by the issuer thereof; and
(b) the provisions of RCW Section62A.3-311 and any other applicable law becoming
effective on or after the Closing Date shall not entitle NCP-Seven to any accord
and satisfaction of any now or hereafter existing claim in any dispute between
Bank and NCP-Seven (or any of their respective successors and assigns), all of
which provisions and rights are hereby waived.
All payments under this Agreement shall be made without counterclaim,
set-off, condition or qualification and free and clear of and without deduction
for any Taxes, deductions or charges of any nature whatsoever. All payments
shall be applied first against Costs and Fees, then against indemnities,
increased costs and all amounts due hereunder other than principal and interest,
then against interest due on amounts in default, then against interest due on
amounts not in default, and then against principal.
Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be.
Section 3.7 Evidence of Debt. The books and records of Bank shall be
conclusive evidence, absent manifest error, of all amounts of principal,
interest, Costs and Fees advanced, outstanding or repaid pursuant to this
Agreement or any Related Document. NCP-Seven acknowledges that principal of all
Loans is to be paid as scheduled in Section and Bank agrees to provide invoices
to NCP-Seven for the amount of interest due on an Interest Payment Date. Any
failure to provide an invoice shall not relieve NCP-Seven of its obligation
timely to pay all amounts due hereunder or under any Related Document. If
NCP-Seven's payment is remitted as scheduled but before receipt of Bank's
invoice, and if there is a reasonable deficit between the interest paid and
invoiced, such deficit shall not be grounds for a default hereunder if the
deficit is immediately paid to Bank.
- 8 -
<PAGE> 12
ARTICLE 4
OTHER PAYMENTS
Section 4.1 Closing Fees. NCP-Seven agrees to pay Bank on the Closing
Date each of the fees set forth in the Fee Letter. NCP-Seven agrees that all
such fees and all other fees in this Article 4 are fully earned and
nonrefundable.
Section 4.2 Commitment Fee. NCP-Seven agrees to pay Bank a fee equal
the percentage per annum as set forth below, depending upon the ratio of Total
Debt of NCP-Seven to its Annualized Cash Flow, of the daily undrawn portions of
Tranche A and Tranche B. The portion of the fee covering undrawn portions of
Tranche A shall accrue from Closing through May 31, 1996. The portion of the fee
covering undrawn portions of Tranche B shall accrue from Closing through
February 1, 1999. This fee shall be payable on the last day of each calendar
quarter after Closing through and including December 31, 1998, and on February
1, 1999, whether or not the full Commitment is ever borrowed:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Total Debt to Annualized Cash Flow Ratio Fee Rate
- --------------------------------------------------------------------------------
Greater than or equal to 4.00 to 1 0.50% per annum
- --------------------------------------------------------------------------------
Less than 4.00 to 1 0.375% per annum
- --------------------------------------------------------------------------------
</TABLE>
Section 4.3 Costs and Fees. Upon demand therefor, NCP-Seven agrees to
pay to Bank all Costs and Fees Arising Out Of: the development, review,
execution, amendment, renewal, extension, forbearance (if any), refinance or
"work-out" restructuring of this Agreement or any Related Document; collecting
any Obligations; protecting, preserving and realizing upon any Collateral or
other security for such amounts; and enforcing this Agreement or any Related
Document; all whether or not suit is brought and including but not limited to
all Costs and Fees incurred in any court action, arbitration or mediation, on
appeal, in any bankruptcy (or state receivership or other insolvency or similar
proceedings or circumstances), in any forfeiture, and for any post-judgment
collection services. Except with respect to the development and execution of
this Agreement, NCP-Seven also agrees that after the occurrence of any Event of
Default, NCP-Seven shall also pay the foregoing Costs and Fees incurred by each
Participant. The Costs and Fees are part of the Obligations and are secured by
the Collateral.
NCP-Seven acknowledges that any legal counsel retained or employed by
Bank has acted and will hereafter act solely on Bank's behalf and not on
NCP-Seven's behalf, despite NCP-Seven's obligation to reimburse Bank for the
cost of such legal counsel, and that NCP-Seven has consulted or has had
sufficient opportunity to consult its own legal counsel with regard to this
Agreement.
Section 4.4 Calculations; Default Interest; Compounded Interest; Place
for Payment. Except as otherwise expressly set
- 9 -
<PAGE> 13
forth, all computations of interest and fees under this Agreement or any Related
Document shall be made on the basis of a 360-day year and actual days elapsed.
Interest shall accrue during each period from but excluding the first day
thereof to and including the last day thereof. All amounts that are not paid
when due under this Agreement shall bear interest at the interest rate which is
the sum of (a) the interest rate due on the delinquent debt (or if no interest
rate is stated for the amount due, then interest shall be at the rate that would
have been due on a Prime-Related Loan if one had been made on the date of
Default) and (b) 3% per annum, all from the time due until paid. All interest
not paid when due shall be added to principal and interest shall thereafter
accrue on said increased principal amount. All Obligations due under this
Agreement shall be paid in the funds and at the time and place set forth in
Section . Each determination of an interest rate by the Agent shall be
conclusive and binding on NCP-Seven and the other institutions constituting
"Bank" in the absence of manifest error.
Section 4.5 Increased Costs. In the event that any Requirement of Law
or any change therein or interpretation thereof (or addition thereto):
(a) subjects Bank to or increases any Tax or withholding
obligation; eliminates or impairs any Tax deduction or credit or status, or
changes the basis of taxation of any payments to Bank on account of any portion
of the Obligations; requires Bank to account for any transaction contemplated by
this Agreement or by any Related Document differently than as of the date hereof
(including but not limited to transactions under the Interest Rate Risk
Agreement); or
(b) imposes, modifies, increases or determines applicable any
reserve, insurance premium (including without limitation deposit insurance
premium), deposit or similar requirements against any assets held by, deposits
with or for the account of or loans or commitments by, any office of Bank in
connection with any of the Loans; or
(c) affects the amount of capital required or expected to be
maintained by depository institutions generally or corporations controlling such
institutions and Bank determines the amount by which Bank or any corporation
controlling Bank is required or expected to maintain or increase its capital
because of or based upon the existence of any of the Obligations; or
(d) makes any Loan a "highly leveraged transaction" ("HLT")
under Requirements of Law (or NCP-Seven takes any action causing any Loan to
become an HLT under such law or Bank's internal policies generally applicable to
commercial borrowers similar to NCP-Seven) or makes advisable (in the opinion of
legal counsel to Bank), qualification, registration, filing or any other act by
Bank to avoid violation of or to effect compliance with any Requirement of Law
relating to underwriting, selling, distribution of, marketing or dealing in
securities; or
- 10 -
<PAGE> 14
(e) imposes upon Bank any other condition with respect to any
of the Obligations; which, as a result thereof, (1) increases the cost to Bank
of making or maintaining the Loans, or (2) reduces the rate of return or the net
amount of any payment received by Bank in respect of the Loans (whether of
principal, interest, fees or otherwise), or (3) requires Bank to make any
payment on or calculated by reference to the gross amount of any sum received by
it in respect of any Loan, in each case by an amount which Bank in its sole
judgment deems material; then and in any such case NCP-Seven shall pay to Bank
five days following demand therefor, such amount or amounts as will compensate
Bank for any increased cost, reduced rate of return, deduction or payment
incurred or made by Bank or any company controlling Bank, all as determined by
Bank in its good faith discretion, except for such increased cost or reduced
rate of return arising from changes in the rate of tax on the overall net or
gross income of Bank, at any of its or their offices, imposed by the
jurisdiction or jurisdictions in which Bank is organized, or is or should be
qualified to do business, or in which any such office is located. The demand for
payment by Bank shall be delivered to NCP-Seven and shall state the reason for
the demand, the amount thereof and the manner in which such amount has been
calculated. The statement of Bank as to the additional amounts payable pursuant
to this section shall be conclusive evidence of the amounts due hereunder absent
manifest error.
The protection of this section shall be available to Bank regardless of
any possible contention of invalidity or inapplicability of the relevant
condition, Requirement of Law or interpretation thereof. In the event that
NCP-Seven pays Bank the amount demanded and such amount or any part thereof is
subsequently returned to Bank as a result of the final determination of the
invalidity or inapplicability of the condition, Requirement of Law or
interpretation, then Bank shall remit to NCP-Seven the amount paid by NCP-Seven
which has actually been returned to Bank (together with any interest actually
paid to Bank on such returned amount), less Bank's allocated Costs and Fees
incurred in connection therewith or in connection with any Claim Arising Out Of
same.
ARTICLE 5
CONDITIONS TO LENDING, SECURITY AND
OTHER COVENANTS
Section 5.1 Conditions. The obligation of Bank to make any
Loan is subject to fulfillment by NCP-Seven of all of the
following conditions:
(a) Bank shall have received on or before Closing the
following, each addressed to Bank and dated on or as of Closing, in form and
substance satisfactory to Bank:
(i) copies of (a) the current partnership agreement of
NCP-Seven and Limited Partnership Certificate
- 11 -
<PAGE> 15
evidencing filing with the State of Washington, (b) a list of real property
owned, used, leased or to be acquired in connection with the Georgia Systems
acquisition or in connection with any part of the NCP System and legal
descriptions for each such property; (c) a list and copy of Operating Rights
which are material to the operation, maintenance, ownership or use of the NCP
System, including without limitation a list and copy of Operating Rights which
are material to the operation, maintenance, ownership or use of all Cable
Systems to be acquired at or about Closing; (d) a list of all other Contractual
Obligations of the NCP System which are material to the operation, maintenance,
ownership or use of said system, identifying the name of the contract, date,
contracting parties and the nature of the contract, including without limitation
(and supplying the same identifying information) a list of all Contractual
Obligations which are material to the operation, maintenance, ownership or use
of all Cable Systems to be acquired at or about Closing; and (e) a copy of the
Purchase Contract for all Cable Systems to be acquired at or about Closing. All
lists and copies shall be certified by NCP-Seven to be true, correct and current
and shall have been delivered to Bank's counsel at least two Business Days prior
to Closing;
(ii) Executed originals in form and substance
satisfactory to Bank of this Agreement and each Related Document and evidence
satisfactory to Bank of their due adoption by NCP- Seven and/or all other
parties and the incumbency of the persons signing same;
(iii) an opinion of independent counsel selected by NCP-Seven (subject to
Bank's reasonable approval) in form and substance satisfactory to Bank covering
such matters as Bank or its counsel may reasonably request, including but not
limited to the matters addressed in Sections 6.1.1 through 6.1.6, Sections
6.1.1, 6.1.8(2), 6.1.11, 6.1.12, 6.1.14, and 6.1.17, and opinions that (a)
FNEJV Agreement is enforceable according to its terms; that no Requirement of
Law or Contractual Obligation of Northland, FNEJV, any joint venturer of FNEJV,
or NCP-Seven requires the further consent or agreement of FNEJV to this
Agreement or any Related Document or to any matter now or hereafter Arising Out
Of same; and that the Persons executing and delivering the FNEJV Agreement and
the Resolution are each duly authorized and empowered to do so and that no
consent, signature or approval of any other Person is required to make the
FNEJV Agreement or the Resolution legally valid and binding on FNEJV and each
joint venturer thereof; and (b) the security interests, assignments and deeds
of trust reflected in the Agreement or Related Documents create a valid and
perfected security interest or lien of Bank on the NCP System and federal law
or FCC regulations prohibit NCP- Seven from assigning or granting further
interests as security to Bank; an opinion from special counsel, after a review
of Federal Communication Commission files, in the form (after updating and
expansion to include the current NCP System and each community now served) set
forth in the opinion of Arent, Fox, Kintner, Plotkin & Kahn dated 9/24/93
rendered in connection with the debt renewed hereby, and including additional
opinions that said
- 12 -
<PAGE> 16
counsel has no actual knowledge of any violation by any part of the NCP System
of federal law or FCC regulations, except any violation that would not have a
Material Adverse Effect, and has no knowledge after investigation of public
records and due inquiry of any FCC or federal copyright office judgments,
decrees, orders, investigations or proceedings issued or commenced against
NCP-Seven, Northland, FNEJV or any FCC licenses relating to the NCP System.
NCP-Seven hereby requests and instructs each of its foregoing counsel to issue
said opinions;
(iv) the amounts specified to be paid on the
Closing Date pursuant to Section 4.1, the letters from and to NCP-Seven's
accountants specified in Section 7.1.4; establishment of the deposit accounts
contemplated by Section 7.1.18, and proof of insurance required hereunder or
under any Related Document;
(v) amendments of all Related Documents as
necessary to reflect the fact that all Liens of Bank which previously existed in
the sole name of Seafirst are now held by Seafirst as agent for itself and all
other financial institutions constituting a "Bank," and that such Liens now
secure the Obligations.
(vi) evidence satisfactory to Bank that all Liens
of Bank which previously existed in the sole name of Seafirst have been amended
of record to reflect that Seafirst holds such Liens as agent for itself and all
other financial institutions constituting a "Bank," and that such Liens now
secure the Obligations.;
(vii) from Northland an executed Amendment to
Subordination Agreement; and
(viii) such other documents, interpretations,
instruments, approvals or opinions as Bank or its counsel may reasonably
request; and
(b) The representations and warranties contained herein and in
each Related Document shall be correct, accurate and complete on and as of
Closing as though made on and as of such date and no Event of Default and no
condition or event which, with the giving of notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing on
Closing and Bank shall have received a certificate signed by an authorized
official of NCP-Seven, dated the date of Closing, to that effect.
Section 5.2 Conditions Not Fulfilled. If the above conditions are not
fulfilled or if the Commitment or any portion thereof is not borrowed (because
of nonfulfillment of conditions or otherwise), neither Bank nor NCP-Seven shall
be responsible to each other or any other Person for any Loss Arising Out Of
same, except that NCP-Seven shall reimburse Bank for any Costs and Fees or Taxes
incurred by Bank (other than any tax measured by the Bank's net or gross
income). If any condition of this Agreement to Closing or for Advances for
acquisition of any Cable System,
- 13 -
<PAGE> 17
including but not limited to the conditions contained in Sections 2.2 and 5.1,
is waived in whole or in part by the Bank in its sole discretion, such
condition(s) shall be fully satisfied within 30 days of Closing or the Advance.
Section 5.3 Security and Power of Attorney. As security for the prompt
payment and performance of all Obligations, NCP-Seven hereby agrees to grant or
has granted to Bank a first Lien in all collateral described herein or in the
Deeds of Trust, Security Agreement and Assignment whether now or hereafter owned
by NCP- Seven and whether located in Washington, Texas, Georgia or elsewhere
(collectively, the "Collateral"). The Collateral shall include but not be
limited to a Lien on all rights of NCP-Seven in all now or hereafter existing
real and personal property of every nature whatsoever Arising Out Of the NCP
System. Without limitation, the Collateral shall include:
- a blanket security interest on all personal property
assets, including but not limited to all Accounts;
- deeds of trust on all real property owned in fee and
on all interests of NCP-Seven as lessee of real property;
- assignments of all interests of NCP-Seven as lessor
of real or personal property;
- assignments of all Operating Rights which may be assigned
under applicable law (and, with respect to Operating Rights that may
not be assigned, a list of such Operating Rights and the law
prohibiting assignment);
- assignment of the Programming Contract; and
- once NCP-Seven has any rights in or acquires such property,
all personal and real property Arising Out Of the Cable Systems
acquired at or after Closing, if purchased using proceeds of Loans.
NCP-Seven agrees to execute and deliver to Bank, whenever requested, such
security instruments as Bank deems necessary, in its sole discretion, for the
creation, continuation and preservation of its Liens and to ensure the priority
of each Lien on the Collateral. NCP-Seven hereby irrevocably appoints Bank as
its attorney-in-fact, solely for the purpose of executing on NCP- Seven's behalf
any financing statements or other security documents deemed necessary by Bank to
carry out the purposes of this Section, which appointment shall be coupled with
an interest and shall continue so long as this Agreement remains in effect or
any Obligations remain outstanding, whichever is later.
Section 5.4 Negative Pledge. Until payment in full of all Obligations,
NCP-Seven shall not allow any Collateral to be transferred or encumbered, except
as expressly authorized in Section 7.1.11 or elsewhere in this Agreement or in
any Related Document concerning the Collateral or to secure the Obligations.
- 14 -
<PAGE> 18
Section 5.5 Contractual Right of Setoff. Upon any Event of Default,
NCP-Seven hereby grants to Bank a contractual right from time to time to setoff
(and take from), whether now or hereafter existing, any and all deposits
(general or special, time or demand, provisional or final) and any and all other
property directly or indirectly owned by NCP-Seven (whether owned alone or with
others) at any time in the possession (for any reason) of Bank or any of its
affiliates, and apply the same to any Obligation (in such order and amounts as
Bank may determine it its sole discretion). Notwithstanding the foregoing and
with respect to amounts Bank determines to apply to Prime-Related Loans and
LIBOR Rate Loans, Bank acknowledges NCP-Seven's request that amounts first be
applied to Prime-Related Loans to avoid "breakage" expenses of LIBOR Rate Loans,
and Bank agrees to make such application when such would not otherwise be
adverse to the interests of Bank (all as determined by Bank). This contractual
right of setoff shall be in addition to Bank's banker's lien and its common law
rights of setoff, and may be exercised in Bank's discretion without notice or
demand and without regard to concepts of maturity and mutuality. If exercise of
this or Bank's setoff right causes any deposit to be withdrawn before any
scheduled withdrawal date, NCP-Seven shall pay any early withdrawal or other
penalty in addition to the Obligations.
Section 5.6 Management of Interest Rate Risk. NCP-Seven acknowledges
that the floating rates of interest that it has requested Bank to make available
to NCP-Seven hereunder create an exposure of NCP-Seven to interest rate risk
arising from changes in future interest rates and, consequently, an exposure to
Bank of the occurrence of an Event of Default. As a separate covenant to induce
Bank to make available the long-term nature of the credit extended hereunder and
in lieu of a request by Bank for security in addition to the Collateral or other
different terms for the Loans, NCP-Seven hereby agrees to execute and deliver to
Bank such Interest Rate Risk Agreements as are necessary to achieve by August 1,
1996 fixed interest rates (through Interest Rate Risk Agreements) for the
interest that will accrue on one-half the outstanding principal balance of
Tranche A through March 1, 1998, which Interest Rate Risk Agreements shall
continue in full force and effect from the date of the Interest Rate Risk
Agreement(s) through March 1, 1998. NCP-Seven shall fully perform the Interest
Rate Risk Agreement(s) and shall provide any deposits and pay all charges, fees
and other sums as are required by the Interest Rate Risk Agreement in the
amounts and at the times set forth therein. If an Interest Rate Risk Agreement
is entered into with Seafirst or another Bank, all charges and fees and all
other amounts due under such Interest Rate Risk Agreements shall be part of the
Obligations and shall be secured by the Collateral.
Section 5.7 Representations and Consents of Northland and NCP-Seven.
Each of Northland and NCP-Seven hereby represents, warrants and agrees that (a)
this Agreement and each Related Document are each enforceable according to their
respective terms, and that each amendment thereto and any waivers thereof (if
any) will be enforceable according to their terms, without
- 15 -
<PAGE> 19
any consent (except the consent contained in the Resolution and/or FNEJV
Agreement) by FNEJV; (b) that all amounts of every nature due FNEJV under the
Constituent Documents or any other agreement have been paid in full to FNEJV
except for any distributions due upon liquidation of NCP-Seven, that NCP-Seven
has no other Contractual Obligation to pay any amount of money to FNEJV and that
NCP-Seven shall not, without first having FNEJV execute a subordination
agreement in substantially the form of the Subordination Agreement, incur any
such Contractual Obligation or pay (with or without a Contractual Obligation)
any amount of money to FNEJV until the Obligations have been paid in full; and
(c) that FNEJV has to date fulfilled all of its duties under the Constituent
Documents. The foregoing representations and warranties shall survive Closing
and continue until all obligations have been paid in full.
Each of NCP-Seven and Northland hereby consent to all terms of the
FNEJV Power and Northland hereby accepts all powers and duties thereunder and
agrees to keep FNEJV fully informed of all actions taken by Northland or any
agent or sub-agent thereunder (but only to the extent of any duties of Northland
or said agents or sub-agents to FNEJV).
ARTICLE 6
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 6.1 Representations, Warranties and Covenants of NCP-Seven. The
warranties, representations and covenants contained in this Agreement or in any
Related Document shall be deemed to have been relied upon by Bank regardless of
any investigation made by Bank or on its behalf and shall survive the Closing
and continue until all Obligations have been paid in full. NCP-Seven hereby
represents, warrants, covenants and agrees with Bank that:
Section 6.1.1 Organization and Standing. NCP-Seven is a
limited partnership duly organized and validly existing under the laws of the
State of Washington and has the power to own its property and carry on its
business as now being conducted and as proposed to be conducted with use of the
Loan proceeds; is duly qualified and authorized to do business and is in good
standing in every state, county, city or other jurisdiction in which the nature
of its business and property makes such qualification necessary including but
not limited to the State of Washington; the name "NORTHLAND CABLE PROPERTIES
SEVEN LIMITED PARTNERSHIP" is the exact, true and current name of NCP-Seven;
NCP-Seven has filed with the Washington Department of Licensing a Certificate of
Trade Name for "Northland Cable Television," the only business or assumed trade
names under which NCP-Seven has done, does or may do business and has made all
similar filings required or advisable in Texas, Georgia and all other
jurisdictions (if any) in which NCP-Seven does business, the addresses of all
places of business of NCP-Seven are as set forth in Exhibit C; NCP-Seven has not
changed its name, been the surviving corporation in a merger, acquired any
business, or changed its principal executive
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office to a location outside Washington within five years and one month prior to
the date hereof, except for its acquisitions of the assets of the NCP System
(all of which were asset acquisitions) except as set forth in Exhibit D; and
that NCP- Seven is in compliance with all Requirements of Law (unless
noncompliance would not have a Material Adverse Effect).
Section 6.1.2 Authorization. All action under the Constituent
Documents of NCP-Seven and all action of all managing and other partners of
NCP-Seven necessary for the authorization, execution, delivery and performance
of this Agreement and each Related Document has been duly taken. NCP-Seven has
full power and authority (under all Requirements of Law, Contractual
Obligations, Constituent Documents and otherwise) to execute, deliver and
perform this Agreement and each Related Document to which NCP-Seven is a party
and to perform and observe their terms and conditions.
Section 6.1.3 Enforceability. This Agreement and each of the
Related Documents are legal, valid and binding agreements of NCP-Seven, each
enforceable against it in accordance with its terms, except to the extent that
the enforcement thereof may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the rights of creditors generally.
Section 6.1.4 Consents or Approvals. Except as set forth in
Exhibit D, no consent, approval, permission, authorization, order or license of
any Person with an ownership interest in NCP-Seven or with a Lien on any asset
of NCP-Seven; or of any trustee, issuer or holder of any Debt or Contractual
Obligation of NCP-Seven; or of any Governmental Body; is necessary or advisable
in connection with the execution and delivery of this Agreement, the Related
Documents or any transaction contemplated thereby, except as may have already
been obtained and copies of which certified by NCP-Seven have been delivered to
Bank on or prior to Closing.
Section 6.1.5 No Violation. There is no Constituent Document
or any Requirement of Law or any Contractual Obligation binding on NCP-Seven
which would be contravened by the execution and delivery of this Agreement and
the Related Documents or by the performance of any provision or condition
thereof. The execution, delivery and performance of this Agreement and each
Related Document, the consummation of the transactions contemplated therein, and
compliance with the terms and conditions thereof do not conflict with or result
in a breach of any of the provisions and conditions of any Constituent Document
or Contractual Obligation of NCP-Seven or of any Requirement of Law or
constitute a default thereunder or result in the creation or imposition of any
Lien (except in favor of Bank) upon any of the assets of NCP-Seven pursuant to
the terms of any such Constituent Document, Contractual Obligation or
Requirement of Law. NCP-Seven is not now, and in the future NCP-Seven agrees
there shall be no, default under any Constituent Document, Requirement of Law,
Debt or under any Contractual Obligation with
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<PAGE> 21
respect to which obligation the default would have a Material Adverse Effect.
Section 6.1.6 Litigation. Other than as disclosed in Exhibit D
or the financial statements referenced in Section , there is no pending or
threatened Tax or Claim or other dispute of any nature whatsoever concerning,
affecting or relating to NCP-Seven before or by any Governmental Body, which (a)
could have a Material Adverse Effect; or (b) could result in a judgment or order
against NCP-Seven (in excess of insurance coverage) for more than $300,000.00 in
any one case or in the aggregate. NCP-Seven is not in default under any
Requirement of Law that could result in any such Tax or Claim.
Section 6.1.7 Financial Information; Taxes. The balance sheet
of NCP-Seven as at December 31, 1994, and the related statements of operations
and partners' capital of NCP- Seven for the fiscal year then ended, copies of
which have been furnished to Bank, fairly present the financial condition of
NCP- Seven as at such date and the results of operations of NCP-Seven for the
period then ended, all in accordance with GAAP. NCP- Seven did not have on such
date and does not now have any contingent liabilities for Taxes, unusual forward
or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
that balance sheet and in the notes to those financial statements or except as
disclosed in Exhibit D. Since that date and except as disclosed to Bank in
writing, there has been no change that would have a Material Adverse Effect.
Section 6.1.8 Title and Liens. (1) NCP-Seven is vested with
good and marketable title to each of the properties and assets reflected in its
balance sheet referred to in Section (except such as have been since sold or
otherwise disposed of in the ordinary course of business), all of which are
owned by NCP-Seven free and clear of Liens except (a) Liens to be discharged
with proceeds of the Loans; (b) Liens which are shown on said balance sheet or
on Schedule B to any policy of title insurance accepted by Bank in its
discretion, (c) property tax liens for Taxes not yet delinquent; (d) Liens
disclosed on Exhibit D hereto; and (e) purchase money Liens taken in
consideration of Debt incurred and permitted pursuant to Section (iii) and (iv)
hereof; and (2) upon execution of all the following and the Assignments, and
filing of the UCCs and recording of the Deeds of Trust in the places
contemplated by those documents, Bank will have a first priority Lien on all
Collateral enforceable as security for the Obligations and no other Person will
have any Lien in the Collateral except as otherwise provided in this Agreement.
Section 6.1.9 Business Authorizations. NCP-Seven possesses all
patents, patent rights and licenses, trademarks, trademark rights, tradenames
and tradename rights and copyrights required to conduct its business as now
conducted without conflict with the rights or privileges of any Person.
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<PAGE> 22
Section 6.1.10 Taxes. NCP-Seven has filed and shall continue
to file all Tax returns that are required to be filed (except for extensions
applied for and disclosed to Bank), has paid and provided for all Taxes which
are due and payable or for which provision should be made (other than Taxes the
amount of which is currently being contested in good faith and by appropriate
proceedings and with respect to which reserves to which Bank has Consented have
been provided on the books of NCP- Seven). No Tax Liens have been filed and, to
the knowledge of NCP-Seven, no Claims are being asserted with respect to any
Taxes.
Section 6.1.11 Investment Company Act. NCP-Seven is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended; is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, or any Requirement of Law which
regulates the incurring by NCP-Seven of indebtedness for borrowed money,
including without limitation, Requirements of Law relative to common or contract
carriers or for the sale of electricity, gas, steam, water, telephone, telegraph
or other public utility services.
Section 6.1.12 Federal Reserve Board ("FRB") Regulations.
NCP-Seven is not engaged and shall not engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
such terms under Regulation U. No part of the proceeds of the Loans shall be
used for "purchasing" or "carrying" "margin stock" as so defined or for any
purpose that violates, or would be inconsistent with, the provisions of the
regulations of the Federal Reserve Board. If requested by Bank, NCP-Seven will
furnish to Bank a statement in conformity with the requirements of federal
Regulation U to the foregoing effect. Further, NCP- Seven is and shall remain in
compliance with FRB Regulation B (12 CFR Part 202) in connection with any credit
extended now or hereafter by NCP-Seven.
Section 6.1.13 Drug Free Workplace Act. If any portion of
NCP-Seven's gross income, now or hereafter, directly or indirectly stems from
any contract of $25,000 or more for the procurement of property or services
awarded by a "Federal agency," as defined in the federal Drug-Free Workplace Act
of 1988 ("Act"), NCP-Seven (or any part thereof which is a "contractor" within
the meaning of the Act) has not made and shall not make any false certification
to said agency, has not violated nor shall not violate such certification in any
manner, and has complied and shall at all times fully comply with said Act.
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<PAGE> 23
Section 6.1.14 Compliance with ERISA. NCP-Seven is in
substantial compliance with ERISA and the Code as to each Plan.
As to each Plan maintained by NCP-Seven:
(i) Such Plan has been maintained in substantial
compliance with all statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, applicable to such Plan;
(ii) No "reportable event," as such term is used
in Section 4043 of ERISA, or "prohibited transaction," as such term is used in
Section 406 of ERISA or Section 4975 of the Code, or "accumulated funding
deficiency," as such term is used in Section 412 or Section 4971 of the Code
(whether or not such accumulated funding deficiency has been waived), has
heretofore occurred with respect thereto;
(iii) Each such Plan designed to be a qualified
plan since its adoption and to date qualifies and has qualified under Section
401(a) of the Code, and each trust, if any, established under each such Plan is
exempt from taxation pursuant to Section 501(a) of the Code;
(iv) Each such Plan has been administered and
enforced substantially in accordance with its terms, no dispute is pending or
threatened with respect thereto, and substantially all contributions due from
employees thereunder, if any, have been made; and
(v) No condition exists that could constitute
grounds for termination of any such Plan.
NCP-Seven has not incurred any material liability under Title IV of
ERISA (which remains unsatisfied as of the date hereof) arising in connection
with the complete or partial termination of, or complete or partial withdrawal
from, any Plan covered or previously covered by Title IV of ERISA; and no
condition exists or event has occurred which would be reasonably likely to
result in the imposition of any such liability upon NCP-Seven nor has NCP-Seven
been notified that any such Plan is in reorganization or is insolvent within the
meaning of sections 4241 and 4245 of ERISA, respectively.
For purposes of this Section 6.1.14 and as referenced in Sections
7.1.6, 7.1.9, and 8.1 (f), the term "NCP-Seven" shall include NCP-Seven and any
corporation, partnership, sole proprietorship or other entity if NCP-Seven and
such other entity or entities are (i) corporations which are members of a
controlled group of corporations as defined in Section 414(b) of the Code, (ii)
trades or businesses (whether or not incorporated) which are under common
control as defined in Section 414(c) of the Code, (iii) members of an affiliated
service group as defined in Section 414(m) or 414(o) of the Code, or (iv) any
combination of the foregoing.
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<PAGE> 24
Section 6.1.15 No Commissions. NCP-Seven has not made any
agreement or taken any action, other than pursuant to the Fee Letter, that may
have caused any Person to become entitled to a commission or finder's fee as a
result of or in connection with any Loan and in connection therewith, NCP-Seven
agrees to indemnify Bank and hold Bank harmless from any and all Losses Arising
Out Of any Claims by Persons relating to any such commission or fee.
Section 6.1.16 Information Correct and Complete. No
information, exhibit, or report furnished by NCP-Seven to Bank or to any other
Person in connection with this Agreement or any of the Related Documents
contains any material misstatement of fact or omits to state a material fact or
any fact necessary to make the statement contained therein not misleading.
NCP-Seven has disclosed to Bank all information about NCP-Seven which would be
of material interest to a reasonably prudent lender. There is no presently known
fact (other than facts relating to the cable television industry generally as
opposed to such facts applied to NCP-Seven in particular) which could have a
Material Adverse Effect that has not been disclosed to Bank in writing.
Section 6.1.17 Operating Rights. NCP-Seven, by assignment,
ownership or otherwise, possesses or has the right to use, or will so possess
and have within two Business Days of Closing, all Operating Rights necessary,
used or useful for the ownership, maintenance and operation of the NCP System,
each of which Operating Rights, the lack of which would have a Material Adverse
Effect, is in full force and effect. Each Operating Right, the lack of which
would have a Material Adverse Effect, is accurately listed in Exhibit L. That
listing specifies the title, date, parties and nature of each Operating Right
and true and correct copies of each listed Operating Right have been delivered
to the Bank.
Section 6.1.18 Compliance With Other Laws. NCP-Seven is in
compliance with all Requirements of Law with respect to which any noncompliance
could have a Material Adverse Effect. Without limiting the foregoing, NCP-Seven
specifically represents and warrants that it complies with all Requirements of
Law enforced or promulgated by the Federal Communications Commission ("FCC")
(with respect to which any noncompliance would have a Material Adverse Effect)
and has had validly issued to it all FCC licenses, authorizations and consents
necessary to own and operate the NCP System, has filed all required reports with
the FCC, has maintained its FCC required public file in accordance with FCC
rules and has validly registered with the FCC each of the communities served by
the NCP System with the FCC. A full and complete list of such communities and
their respective FCC community code numbers is set forth in Exhibit D. Without
limiting the foregoing, NCP-Seven further represents and warrants that it is
currently in compliance with its obligations in connection with FCC rules and
regulations regarding the cumulative leakage index ("CLI") standards and
maintains adequate CLI monitoring equipment, maintains appropriate records,
promptly corrects any radiation leakage and makes all other repairs
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<PAGE> 25
discovered in connection therewith or related thereto, and has paid all fines or
other amounts due Arising Out Of any previous failure to comply with such rules
or standards.
NCP-Seven further represents and warrants that all towers and
appurtenances thereto owned or leased by NCP-Seven comply with Federal Aviation
airspace regulations, and that it has filed all statements of account and paid
all copyright fees required by federal law or regulation or necessary to hold
and maintain a compulsory license for the carriage of the signals of broadcast
television and AM and FM radio stations carried by or relevant to the operation
of any and all parts of the NCP System.
ARTICLE 7
FURTHER COVENANTS
Section 7.1 Covenants. Until all Obligations are paid in full,
NCP-Seven hereby covenants and agrees that unless Bank otherwise Consents,
NCP-Seven shall:
Section 7.1.1 Use of Proceeds (Loan Purpose). Take all steps
necessary to cause the Loan proceeds to be used solely for the purpose of (a)
renew the Existing Seafirst Debt and pay fees and costs associated therewith;
(b) the acquisition of the Georgia Systems and other Cable Systems, and (c)
capital expenditures for the NCP System, and no other purpose.
Section 7.1.2 Additional Acts. Upon demand by Bank, execute
and deliver all instruments and documents (including but not limited to Uniform
Commercial Code continuation statements) and perform all such other acts as Bank
may reasonably request to carry out the transactions and establish or preserve
the lien status and priority contemplated by this Agreement or any Related
Document. NCP-Seven shall also use its best efforts to obtain and then shall
furnish to Bank upon demand all approvals of Governmental Bodies or other
Persons as may be required in the future from time to time for NCP-Seven to
conduct its business or to perform its obligations under this Agreement and any
Related Document.
Section 7.1.3 Financial Statements and Reports. With each of
the statements submitted pursuant to (a) and (b) below, deliver to Bank a report
(current as of the date of the other materials submitted) containing: the number
of subscribers in the NCP System (detailed per cable system in a manner
reasonably requested by Bank); a breakdown of the subscriptions into
subscriptions for basic services regulated under 47 U.S.C.Section543 and other
services offered in connection therewith ("Basic Package") and those for greater
revenue producing services ("Premium Services"); the number (reasonably
approximated in accordance with industry standards) of homes or apartments
passed by the system; and, on an annual basis (delivered with the statements
delivered under (c) below), a description of all differences between the
internal projected budget for the year in question and the actual expenditures
for such year.
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<PAGE> 26
NCP-Seven shall also deliver to Bank in form and detail reasonably
satisfactory to Bank the following which, if NCP-Seven now or hereafter has
subsidiaries, shall be prepared on a consolidated basis:
(a) Quarterly. As soon as reasonably possible and in any event
within 45 days after the close of each calendar quarter, NCP-Seven's internally
prepared (1) balance sheet as of the end of such period, and (2) statements of
operations and partners' capital for such period and for the portion of the
fiscal year ended with such period, all in reasonable detail and subject to
year-end audit adjustments. Upon reasonable request, NCP-Seven shall also supply
to Bank the foregoing for any month during the term of this Agreement;
(b) Annually. As soon as reasonably possible and in any event
within 90 days after the close of each fiscal year of NCP-Seven, the
consolidated (1) balance sheet of NCP-Seven as at the end of such fiscal year
setting forth in comparative form the corresponding figures as at the end of the
preceding fiscal year, and (2) statements of operations and partners' capital
and statements of cash flows for such fiscal year of NCP-Seven setting forth in
comparative form the corresponding figures for the previous fiscal year,
prepared in conformity with GAAP applied on a basis consistent with that of the
preceding year or containing disclosure of the effect on financial position or
results of operations of any change in the application of accounting principles
during the year.
Such balance sheet and income statements shall be accompanied by an
unqualified report and opinion of independent public accountants of recognized
standing approved by Bank, which report and opinion shall be in accordance with
generally accepted auditing standards relating to reporting or, if qualified,
the opinion shall not be qualified due to any limitation in scope of the
examination or due to any departure from any GAAP, and shall be accompanied by a
statement of such accountants that, in making the audit necessary for the
certification of such financial statements and such report, such accountants
have obtained no knowledge of any Event of Default under Article 8 or under any
other evidence of indebtedness or of any event which, with notice or lapse of
time, or both, would constitute an Event of Default under Article or under any
other evidence of indebtedness or, if in the opinion of such accountants any
such Event of Default or other event shall exist, shall include a statement as
to the nature and status thereof;
(c) Certificates. As soon as reasonably possible, and in any
event within 45 days after the close of each of the first three fiscal quarters
in the case of (1) and (3) below and within 90 days after the close of each
fiscal year in the case of (2) and (3) below, submit (1) a quarterly certificate
executed by the President, chief financial officer, the Treasurer, or any
financial vice president of Northland ("Certifying Officer") certifying
compliance by NCP-Seven with the requirements of Section 7.1.7 on each
Determination Date, stating whether any
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<PAGE> 27
noncompliance occurred on another day during the period in question and
containing the calculations used to document compliance with Section 7.1.7; (2)
an annual certificate executed by the Certifying Officer certifying compliance
with Section for the year in question and containing the calculations used to
document compliance therewith (including without limitation compliance with the
Excess Cash Flow covenant); and (3) a statement of the Certifying Officer that
such officer has no knowledge of any Event of Default under Article 8 or of any
event which, with notice or lapse of time, or both, would constitute an Event of
Default under Article 8, or if in the opinion of the Certifying Officer any such
Event of Default or other event shall exist, shall include a statement as to the
nature and status thereof. Each such certificate shall be accompanied by an
attached schedule in the form attached as Exhibit M setting forth in reasonable
detail the computations necessary to ascertain compliance;
(d) Governmental Filings. Copies of all reports or other
materials delivered or required to be delivered from time to time by NCP-Seven
to the limited partners pursuant to the Constituent Documents or filed by or
with respect to NCP-Seven with any Governmental Body. To the extent the
foregoing are delivered or filed in the ordinary course of business, NCP-Seven
shall supply the Bank's copies of FCC filings only upon request by Bank, and of
other filings only on a quarterly basis; for any item filed or delivered other
than in the ordinary course, such shall be delivered to Bank at the same times
as delivered or filed (or required to be delivered or filed) to the limited
partners or Governmental Body; and
(e) Other Reports. Such other statements, list of property and
accounts, budgets, forecasts or reports regarding NCP-Seven that Bank may
reasonably request.
Section 7.1.4 Reliance on Accountants. Obtain from its
accountants a letter acknowledging that use of the 1994 audit report may be
extended to Bank in connection with its decision to enter into this Agreement
and make the Loans, and deliver to its accountants (with a copy to Bank) a
letter advising them that (a) Bank will rely on the future audited financial
statements in making, extending and modifying the Loans; and (b) that the
accountants shall name Bank in the audit engagement contract as an intended
beneficiary of each audit relating to any of the statements referenced in
Section 7.1.3 and, even if not so named, performance of the audit by the
accountants shall constitute the accountants' agreement that Bank shall be an
intended beneficiary. NCP-Seven also agrees to provide written notice to Bank of
any change in the identity of NCP-Seven's accountants within 10 days of such
change;
Section 7.1.5 Notices. Promptly give written notice to Bank of
the occurrence of, and the occurrence of any material development in, any (a)
Event of Default or any event which, upon a lapse of time or notice or both,
would become an Event of Default; (b) any Tax or Claim or other dispute of any
nature
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<PAGE> 28
whatsoever concerning, or any change in any Requirement of Law, affecting or
relating to NCP-Seven before or by any Governmental Body, which (i) could have a
Material Adverse Effect; or (ii) could result in a judgment or order against
NCP-Seven (in excess of insurance coverage) for more than $150,000.00 in any one
case or $500,000.00 in the aggregate; and (c) any labor controversy which has
resulted in or which threatens to result in a strike which could have a Material
Adverse Effect.
Section 7.1.6 Compliance with Laws. Conduct its operations in
compliance with all now or hereafter existing Requirements of Law including but
not limited to laws and regulations referenced in Section 6.1.18 hereof and
ERISA (for purposes of ERISA compliance, "its operations" shall include all
operations of "NCP-Seven" as defined in Section of this Agreement), FLSA, Tax
and withholding laws, environmental laws and laws concerning hazardous,
dangerous or other wastes (including but not limited to the laws listed in the
definition of "Claims"), land use and zoning, energy and industrial facilities
siting, and occupational health and safety laws.
Section 7.1.7 Financial Covenants. Maintain, at all times
until Bank's obligation to make Advances has terminated and until all
Obligations are paid in full, the following on a consolidated basis and also
comply with the following:
(a) Total Debt/Annualized Cash Flow. The ratio of the Total
Debt of NCP-Seven to its Annualized Cash Flow shall not exceed the following
ratios:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Measured as of Total Debt to Annualized Cash Flow Ratio
- --------------------------------------------------------------------------------
Closing 5.75 to 1
- --------------------------------------------------------------------------------
September 30, 1996 5.25 to 1
- --------------------------------------------------------------------------------
December 31, 1996 5.00 to 1
- --------------------------------------------------------------------------------
December 31, 1997 4.50 to 1
- --------------------------------------------------------------------------------
December 31, 1998 4.00 to 1
and each fiscal
year end
thereafter
- --------------------------------------------------------------------------------
</TABLE>
(b) Annualized Cash Flow to Proforma Debt Service. The ratio
of NCP-Seven's Annualized Cash Flow to Proforma Debt Service shall equal or
exceed 1.20 to 1;
(c) Interest Coverage Ratio. The ratio of (i) the Cash Flow of
NCP-Seven to (ii) the interest expense on Total Debt of NCP-Seven shall be at
least 1.75 to 1, all calculated for the most recently ended fiscal quarter.
(d) Investments and Capital Expenditures. Except for the
acquisition of the Georgia Systems and the other Cable
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<PAGE> 29
Systems to be acquired using Tranche B, not make any (i) loan or advance to any
person or purchase or otherwise acquire the capital stock, assets or obligations
of, or any interest in, any person; (ii) investment outside the ordinary course
of business except investments in certificates of deposit maturing within one
year from the date of acquisition from any one or more of the top 100 commercial
banks in the United States, in prime commercial paper with maturities of less
than one year, or in obligations issued or guaranteed by any Governmental Body
of the United States; and (iii) any expenditures for fixed assets or other
capital expenditures which exceed the following amounts in the following years:
<TABLE>
<CAPTION>
- ----------------------------------------------------
Year Amount
- ----------------------------------------------------
<S> <C>
1996 $1,500,000
- ----------------------------------------------------
1997 $1,750,000
- ----------------------------------------------------
1998 $2,000,000
- ----------------------------------------------------
1999 $2,000,000
- ----------------------------------------------------
2000 $2,250,000
- ----------------------------------------------------
2001 $2,250,000
- ----------------------------------------------------
2002 $2,500,000
- ----------------------------------------------------
2003 $2,500,000
- ----------------------------------------------------
2004 $2,500,000
- ----------------------------------------------------
</TABLE>
The foregoing amounts may not be carried forward into another year without the
Consent of Bank, except that if the amount of an expenditure is budgeted or
otherwise planned to be made in a given year but, because of weather or other
reasonably unavoidable developments, is not spent until the first quarter of the
next year, up to $200,000.00 of such amount may be carried forward into said
first quarter but no other quarter.
(e) Distributions and Capital Structure Etc. Not declare or
pay, or set apart any funds for the payment of any dividends or distributions to
any partner (or former partner) or for any purpose whatsoever, except that
during the 1996 fiscal year NCP-Seven may pay up to $126,000 in aggregate
distributions if at the time of any such distribution there is no Event of
Default and there is no event which, with notice or lapse of time would become
an Event of Default. Without the prior Consent of Bank, NCP-Seven also shall not
issue, redeem, retire, purchase or otherwise acquire for value any partnership
interests of or effect any change in the structure of NCP-Seven;
(f) Contingent Obligations. Not create or incur Contingent
Obligations except as disclosed pursuant to Section and except as required in
the ordinary course of business of the NCP System by issuers of Operating
Rights;
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<PAGE> 30
(g) Debt. Not create, incur, commit or become liable for any
Debt except (i) any Loan or other Debt to Bank; (ii) existing Debt reflected on
the balance sheet referenced in Section 6.1.7 or to which Bank Consents; (iii)
unsecured, short-term Debt arising from current operations by purchasing on
credit goods, services, supplies, or merchandise and not constituting
borrowings; (iv) so long as there is no Default, new Debt for the deferred
purchase price or capital lease of real or personal property used in NCP-Seven's
business, but not exceeding the aggregate sum of $200,000.00 at any time; and
(v) so long as there is no Default, obligations incurred to obtain surety bonds
necessary in the ordinary course of its business up to an aggregate limit of
$250,000.00 outstanding at any time; and
(h) Guaranties, Etc. Not assume, guaranty, endorse or
otherwise become directly or contingently liable or surety for, or obligated to
purchase, pay or provide funds for payment of, any Debt of any other Person,
except (i) guarantees and Contingent Liabilities in favor of Bank; (ii)
endorsement of negotiable instruments for deposit or collection or by similar
transactions in the ordinary course of business; and (iii) performance
guarantees or indemnities entered into in the ordinary course of business.
Section 7.1.8 Maintenance and Inspection of Records. Maintain
adequate and complete records of the Collateral and adequate and complete
records and books of account in accordance with GAAP, which books shall reflect
all financial transactions of NCP-Seven. At the Bank's expense, NCP-Seven shall
also permit any of Bank's representatives to visit and inspect any of the
properties of NCP-Seven, to examine the Collateral and all its books of account,
records, reports and other papers, to make copies and extracts therefrom, and to
discuss its affairs, finances and accounts with the officers of Northland and
the general partners of FNEJV, employees and independent public accountants of
NCP-Seven and/or Northland and/or FNEJV (and by this provision Northland, FNEJV
and NCP-Seven authorize said accountants to discuss the finances and affairs of
NCP-Seven with Bank or its accountants or other agents) all at such reasonable
times and as often as may be reasonably requested. Upon reasonable notice, Bank
may also conduct a periodic audit of NCP- Seven at Bank's expense. The foregoing
includes without limitation the right of Bank to inspect and obtain the records
and information required to be maintained or made available by NCP-Seven
pursuant to RCW Section25.10.050 and RCW Section25.10.210.
Section 7.1.9 Employee Benefit Programs. Conduct its
operations so that the representations, warranties and covenants in Section
6.1.14 with respect to any Plan continue to be true during the term of this
Agreement. For purposes of this Section 7.1.9, "its operations" shall include
all operations of "NCP-Seven" as defined in Section 6.1.14.
Section 7.1.10 Indemnification. Indemnify and hold harmless
Bank from and against any and all Claims (whether known or unknown) and Losses
now or hereafter Arising Out Of (a) any
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inaccuracy when made of any representation or warranty by NCP- Seven or
Northland contained in this Agreement or any Related Document, (b) the
execution, delivery, performance, breach, enforcement (including affirmative
suits and the defense of any Claim or liability whatsoever), collection,
administration, and any amendment of this Agreement or of any Related Document;
(c) any noncompliance by NCP-Seven with Section 7.1.17 regarding hazardous and
other wastes; and (d) and noncompliance by NCP- Seven with any Requirement of
Law, including but not limited to laws concerning securities and forfeiture; it
being the intention of the parties that this Agreement shall be construed and
applied to protect and indemnify Bank against any and all risks Arising Out Of
(a) through (d) above or otherwise involved in making, maintaining and enforcing
the Loans and realizing upon the Collateral, all of which risks are hereby
assumed by NCP-Seven, including, without limitation, any and all risks of the
acts or omissions, whether rightful or wrongful, of any present or future de
jure or de facto Governmental Body ("Government Acts"). Notwithstanding the
foregoing, NCP-Seven shall not be required to indemnify Bank (1) for any Claims
or Losses directly and actually caused by the willful misconduct of Bank or by
its gross negligence as to Claims and Losses which could have been prevented but
for such gross negligence or (2) for any Claims by one Bank against another, not
attributable to actions or inactions of NCP-Seven or Northland. Nothing in this
section is intended to limit or shall limit any obligation of NCP-Seven to Bank,
including but not limited to the repayment obligations of NCP-Seven contained in
Article 3.
Within 5 days of demand by Bank, NCP-Seven shall reimburse Bank for
Costs and Fees incurred in connection with investigating or defending against
any of the foregoing. If any Claim Arising Out Of any of the foregoing is
brought against Bank, NCP-Seven, to the extent determined by Bank as necessary
or advisable in order to protect Bank's rights hereunder, shall resist and
defend such Claim or cause the same to be resisted and defended by counsel
designated by NCP-Seven (which counsel shall be satisfactory to Bank). The
obligations of NCP-Seven under this section shall survive payment in full of
NCP-Seven's obligations under this Agreement and the Related Documents, but the
obligations of NCP-Seven under this section shall terminate as to any Claims the
prosecution of which are not commenced within one year of such payment in full
(or if the stay of a bankruptcy proceeding intervenes to prevent the prosecution
of such Claim, then within the later of one year after payment in full or six
months after the lifting of such stay).
Section 7.1.11 Preservation of Existence and Property; Sale of
Assets. Preserve and maintain its existence, rights, franchises and privileges
in the jurisdiction of its formation and qualify and remain qualified as a
foreign corporation (or other Person) in each jurisdiction where the failure to
so qualify could have a Material Adverse Effect. NCP-Seven shall take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable to the normal conduct of its business, and shall comply with all
Contractual Obligations and
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Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, have a Material Adverse Effect. NCP-Seven shall not
dissolve, terminate or substantially alter its existence of current business nor
engage in any activity that is not in the ordinary course of NCP-Seven's current
business.
NCP-Seven shall also cause its business to be carried on and conducted
in the ordinary course and cause the Collateral to be maintained, preserved and
kept in accordance with Requirements of Law and in good repair, working order
and condition (except for ordinary wear and tear) and cause all needful and
proper repairs, renewals and replacements thereof to be made. Without the
Consent of Bank, NCP-Seven shall not sell, lease or otherwise dispose of
("Disposition") a significant portion (in the reasonable opinion of Bank) of its
property and assets and/or Collateral until payment in full of all Obligations,
except that nothing in this section shall prevent NCP-Seven from selling,
leasing, abandoning or otherwise disposing of any property to a Person other
than Northland, FNEJV or any of their affiliates (a) in accordance with any Lien
in favor of Bank if such be expressly allowed by said Lien, or (b) if such
property is not a substantial portion of the assets of NCP-Seven and if such
property is no longer of use in the business of NCP-Seven and such sale,
abandonment or other disposition is in the ordinary course of business, is in
the best interests of NCP-Seven and will not materially adversely effect Bank.
Any Consent of Bank given in connection with the preceding sentence shall not be
unreasonably withheld or delayed. Without limiting the circumstances in which
Consent to a Disposition may be reasonably withheld, NCP-Seven agrees it shall
automatically be deemed reasonable for Bank to withhold its Consent (in its sole
discretion) if (a) all proceeds of or payment for the Disposition are not
remitted to Bank as a condition to the Disposition; or (b) Bank reasonably
believes the Disposition might impair the value of Bank's Collateral (given, for
example, a comparison of (a) the sum of the proposed Disposition proceeds and
the identity, nature and value of the remaining Collateral with (b) the Bank's
Collateral before the proposed Disposition) or NCP- Seven's financial condition
or ability timely to pay and perform all of the Obligations.
With respect to any Contractual Obligations contracted by Northland for
the direct or indirect benefit of NCP-Seven in common or shared with other
partnerships or Persons managed, owned (in full or in part) or operated by
Northland ("Affiliates"), and with respect to any other Contractual obligations,
services, property or equipment of every nature whatsoever supplied, shared or
in any way related to any Affiliate, Northland hereby agrees to use its best
commercially reasonable efforts to continue to supply all of the foregoing to
NCP-Seven or to Bank, and to cause any Affiliate controlled by Northland (and to
use its best efforts to cause any other Affiliate), to continue to supply all of
the foregoing to NCP- Seven or to Bank after any default, all on the same terms
and conditions as the foregoing was supplied to NCP-Seven before the
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default. Northland further agrees not to resign as Managing General Partner and,
so long as it may legally do so, to continue to serve as Managing General
Partner of NCP-Seven under the terms and conditions set forth in the Constituent
Documents as they exist on the date hereof, upon request of Bank made after any
default.
Section 7.1.12 No Mergers; Change of Control Etc. Not, without
the Consent of Bank, merge, consolidate, reorganize, liquidate, dissolve, enter
into or form a new partnership or joint venture or other combination, or
otherwise dispose of, terminate or change the partnership structure of
NCP-Seven. Any change in control of NCP-Seven shall constitute an Event of
Default. "Change in control" shall mean any event or action whatsoever that
causes: (a) FNEJV to revoke or attempt to revoke or in any manner impair the
enforceability of Section 9.7 hereof or the FNEJV Agreement or the Resolution,
or (b) Northland to cease being the sole Managing General Partner (as defined
in the partnership agreement dated 9/30/87 of NCP-Seven which is part of the
Constituent Documents) of NCP-Seven, (c) the addition of another general partner
of NCP-Seven which partner purports to have any right or power now held in any
manner by Northland or FNEJV; or (d) or constitutes any sale, disposition or
other transfer of any nature by Northland of its ownership interest in
NCP-Seven. Each of NCP-Seven and Northland acknowledge that Bank shall be a
third party beneficiary of the promises made by Northland and/or FNEJV in the
Constituent Documents and in all management agreements between Northland or
FNEJV and NCP-Seven, including but not limited to the agreements referenced in
the Subordination Agreement.
Section 7.1.13 Payment of Claims. Promptly pay or otherwise
satisfy and discharge all Debt, Contractual Obligations and Claims against it as
and when the same become due and payable, other than any thereof whose validity,
amount or collectability is being contested in good faith and for which reserves
to which Bank has Consented have been set aside.
Section 7.1.14 Insurance. Maintain for itself such insurance
against loss or damage to its tangible property of the kinds customarily insured
against by Persons similarly situated, with reputable companies or with the
United States government or any agency or instrumentality thereof, in such
amounts and by such methods as shall be adequate or by a reasonably prudent
amount of self-insurance, and will at all times maintain or cause to be
maintained in full force and effect, with reputable companies and in such
amounts and by such methods as shall be adequate, public liability insurance
against loss or damage to it for bodily injury or death in or about any premises
occupied by it, and liability insurance against loss or damage to it for bodily
injury or death or injury to property occurring by reason of the operation by it
of any motor vehicle or other equipment. To the extent the foregoing insurance
is not also required by any security agreement of which Bank is a beneficiary,
the requirements of this section shall be in addition to those of such security
agreement.
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<PAGE> 34
Upon demand from time to time, NCP-Seven shall furnish to Bank
certificates of insurance or (at NCP-Seven's option) duplicate policies
evidencing such coverage together with evidence to the satisfaction of Bank that
Bank is shown as loss payee to the extent of its insurable interest.
Section 7.1.15 Amendments. Not modify, supplement or amend the
Constituent Documents (except for ministerial changes and except to add or
eliminate a limited partner) in any respect whatsoever, and not accept the
benefit of any waiver of any provision or condition of the foregoing, without
the Consent of Bank.
Section 7.1.16 No Liens. Not create, assume or suffer to exist
(excluding Liens listed on Exhibit D hereto or permitted under Section 6.1.8)
any Lien (including the lien of an attachment, judgment or execution) or
security interest in any of its property, real or personal, whether now owned or
hereafter acquired, except:
(a) Liens or charges for current Taxes which are not
delinquent or remain payable without any penalty, or the validity of which is
contested in good faith by appropriate proceedings upon stay of execution of the
enforcement thereof and for which reserves Consented by Bank have been
established;
(b) Deposits or pledges securing (1) statutory obligations;
(2) surety or appeal bonds; (3) bonds for release of attachment, stay of
execution or injunction; or (4) performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, incurred and maintained in
the ordinary course of NCP-Seven's business;
(c) Easements, rights of way, covenants, restrictions and
other encumbrances affecting NCP-Seven's property, whether or not currently
existing, to which Bank Consents and which (1) do not directly or indirectly
constitute a Lien securing an obligation for the payment of money and (2) have
no Material Adverse Effect;
(d) Minor irregularities in the title to any such property
which have no Material Adverse Effect and to which Bank Consents; and
(e) other Liens securing Debt which does not exceed $250,000
in the aggregate outstanding.
Section 7.1.17 Hazardous or Dangerous Wastes. Not use,
generate, manufacture, produce, store, release, discharge, dispose of or
transport any Hazardous Substance or allow any other person or entity to do so,
except as allowed by and in full compliance with all applicable laws and
regulations.
Section 7.1.18 Maintenance of Deposit Accounts.
Maintain all deposit accounts for business operations with Bank
and shall retain Bank (commencing at Closing and continuing until
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payment in full of the Obligations) to provide all other depository, discount
and trust services provided to NCP-Seven from time to time by third parties,
other than escrow services as required under the Purchase Contracts. The
foregoing shall not apply to deposit accounts maintained in the locale of the
systems within the NCP System for the initial and temporary deposit (before
transfer to a Bank deposit account) of subscriber payments.
ARTICLE 8
EVENTS OF DEFAULT
Section 8.1 Events of Default; Acceleration and Remedies. Without
regard to previous knowledge or any forbearance of Bank, the following shall be
defaults under this Agreement and the terms "Event of Default," "default" or
"Default" shall mean any one or more of the following events:
(a) Payment Default. NCP-Seven shall fail to pay or cause to
be paid within three days of when due any portion of any Obligation; or
(b) Security Exposure. Any Lien(s) of Bank in any material
portion of the Collateral shall, for any reason, be impaired or cease to exist
as valid and binding first priority Liens; any portion of the Collateral shall
be materially adversely affected (as determined by Bank) by any uninsured Loss
or theft or become the subject of or affected by any condemnation, forfeiture,
seizure or similar Claim; or any guarantor of any part of the Obligations shall
attempt to withdraw the guaranty or maintain it has been discharged or impaired;
or
(c) Breach of Other Covenants of Failure of any Condition.
NCP-Seven shall fail to perform, keep or observe any provision (not involving a
payment obligation) or condition, contained in this Agreement and any such
failure shall remain unremedied for 10 days after written notification thereof
shall have been given to NCP-Seven by Bank; notwithstanding the preceding
clause, if the Default is of a nature that is not susceptible to cure within 10
days and if NCP-Seven commences to cure the Default within said period,
NCP-Seven shall not be deemed to be in Default if it diligently prosecutes said
cure thereafter to completion and, notwithstanding such diligence, cures said
Default by the 30th day after the date of said notice; or
(d) Breach of Representation or Warranty. Any representation
or warranty made by NCP-Seven (or any of its representatives) under or in
connection with this Agreement or any Related Document shall prove to have been
untrue or misleading when made or becomes untrue in any material respect and,
unless such breach constitutes a violation of law, Bank is materially adversely
affected (as determined by Bank) thereby; or
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<PAGE> 36
(e) Cross Defaults (Payment and Other). NCP-Seven shall
default in a principal amount of $100,000.00 or more in the payment of any Debt
of NCP-Seven to any Person, including but not limited to default under other
agreements with Bank. NCP-Seven shall be in any default under any Related
Document or in any material default under any agreement with any Person, except
that the defaults in this sentence shall not be an Event of Default hereunder
until expiration of, without cure, any period for cure contained in the Related
Document; or
(f) ERISA. A Plan shall fail to maintain the minimum funding
standard required by Section 412 of the Code for any Plan Year or a waiver of
such standard is sought or granted under Section 412(d) of the Code; a Plan is,
shall have been or is likely to be terminated or the subject of termination
proceedings under Title IV of ERISA; or NCP-Seven (for purposes of this
paragraph, "NCP-Seven" shall have the meaning set forth in Section 6.1.14 of
this Agreement) has incurred or is likely to incur a liability to or on
account of a Plan in connection with the complete or partial termination of,
or complete or partial withdrawal from, any Plan covered or previously covered
by Title IV of ERISA, which liability or material risk of liability, in the
opinion of Bank, will have a Material Adverse Effect; or
(g) Bankruptcy, etc. NCP-Seven shall consolidate, dissolve or
liquidate or take an equivalent action or an involuntary petition shall have
been filed under any federal or state bankruptcy, reorganization, insolvency,
moratorium or similar statute against NCP-Seven, or a custodian, receiver,
trustee, assignee for the benefit of creditors or other similar official shall
be appointed to take possession, custody or control of the property of
NCP-Seven, unless such petition or appointment is set aside or withdrawn or
ceases to be in effect within 60 days from the date of said filing or
appointment; or NCP-Seven shall become insolvent or admit in writing its
inability to pay its debts as they mature, or shall file any petition or action
for relief relating to any bankruptcy, reorganization, insolvency or moratorium
law, or any other law or laws for the relief of, or relating to, debtors; or
NCP-Seven shall make an assignment for the benefit of creditors or enter into an
agreement of composition with its creditors; or NCP-Seven shall fail generally
to pay its debts as they become due; or NCP- Seven shall fail to promptly have
discharged any judgment, execution, garnishment or attachment of such
consequence as could impair the ability of NCP-Seven to carry on its operations
as presently conducted or to fulfill its obligations under this Agreement or the
Related Documents; or
(h) Change in Control or Authority. The occurrence of a change
in control as defined in Section 7.1.12; or if any material (in the opinion of
Bank) permit, license or other authority of any nature from any Governmental
Body now or hereafter required in connection with the conduct of NCP-Seven's
business or its performance hereunder or under any Related Document shall not be
obtained or shall be revoked, withdrawn or withheld or otherwise fail to
remain in full force and effect; or
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(i) Judgments. A judgment or order (not fully covered by
insurance) for the payment of money in excess of $250,000.00 or its equivalent
in another currency is entered against NCP-Seven or any of its assets, and such
judgment is not appealed and stayed within 10 days of entry or imposition
thereof; or Bank reasonably deems itself insecure.
Upon any Event of Default Bank may terminate the Commitment and any
other obligation hereunder or under any Related Document. With respect to any
Event of Default, (i) in any such event described in Section 8.1(g), all
Obligations shall automatically be due and payable without notice or demand or
any action whatsoever by Bank; and (ii) in all other Events of Default Bank may,
upon notice (of any nature allowed by law) to NCP-Seven, declare all Obligations
(or any part thereof), to be forthwith due and payable without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by NCP-Seven.
In addition, upon any Event of Default, Bank may without prior notice
or demand, exercise any and all rights available to it under this Agreement or
any Related Document, in equity or by applicable law, including but not limited
to (at the sole option of Bank), all actions that could be taken by a secured
party under the Washington, Georgia or Texas Uniform Commercial Codes (even if
all would not apply but for this contract). No action taken by Bank shall be
deemed to be an election of remedies by Bank, it being the intent of the parties
that Bank shall be entitled repeatedly to exercise all remedies separately or
concurrently and in any manner allowed by law.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices, Etc. Except as otherwise provided in this
Agreement or as otherwise allowed to Bank by law, all notices, requests, demands
or other communications shall be in a writing addressed to the respective party
at the address given below or to such other address as the parties may from time
to time specify in writing. Notice shall be deemed to have been given when (a)
personally delivered, (b) given by a telex or machine-confirmed facsimile, or
(c) after placement in the U.S. mails as certified or registered, return receipt
requested, first-class postage prepaid, the receipt indicates delivery or
refusal or failure to accept delivery:
If to NCP-Seven, NORTHLAND CABLE PROPERTIES SEVEN
Northland or FNEJV LIMITED PARTNERSHIP
1201 Third Avenue #3600
Seattle, Washington 98101
Telecopy: (206) 623-9015
Telephone: (206) 621-1351
Attn: James Penney
John S. Whetzell
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With a copy to: John E. Iverson
Ryan Swanson & Cleveland
1201 Third Avenue #3400
Seattle, WA 98101
Telecopy: (206) 583-0359
Telephone: (206) 464-4224
If to Bank: SEATTLE-FIRST NATIONAL BANK
Seafirst Agency Services
701 Fifth Ave., 16th Floor
Seattle, Washington 98104
Attention: Ken Puro
Telecopy: (206) 358-0971
Telephone: (206) 358-0138
NCP-Seven and Northland each agree to forward all notices received by either to
FNEJV (if notice to FNEJV be required by FNEJV or applicable law).
Section 9.2 No Waiver; Remedies. No failure on the part of Bank to
exercise, and no delay in exercising, any right under this Agreement or any
Related Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of the aforesaid preclude any other or
further exercise thereof or the exercise of any other right from time to time
and as often as Bank may deem expedient and without notice (except any notice
which is specifically required by written agreement). The remedies provided in
this Agreement or the Related Documents are cumulative (and may be exercised
singly or concurrently) and are not exclusive of any remedies provided by law or
in equity, now or hereafter existing.
Section 9.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP except as otherwise
stated herein.
Section 9.4 Assignment and Appointment of Lead Agent. This Agreement
shall not be assignable by NCP-Seven without Bank's Consent. Bank may, with the
prior consent of NCP-Seven, which consent shall not be unreasonably withheld or
delayed, sell, transfer, assign, negotiate, pledge, hypothecate, syndicate or
participate all or any portion of this Agreement or any Related Document, except
that (a) each Person obtaining any interest in this Agreement or any Related
Document shall be subject to all terms and conditions contained herein or in any
Related Document regarding Bank, and (b) Bank shall provide to NCP-Seven the
name and address of any Participant at least 10 days before any transfer
thereto, but any failure to provide such shall not affect the validity of the
transfer or the rights of the Participant. In connection with any disposition
made by the Bank or in connection with any examination of Bank, Bank may
disclose to the proposed transferee or regulatory authority any information
regarding NCP-Seven which is in Bank's possession or which NCP-Seven is required
to deliver to Bank, all at Bank's own expense. Bank may also disclose such
information to its affiliates which affiliates, unless otherwise agreed by NCP-
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<PAGE> 39
Seven, shall hold the information in confidence (except for disclosure thereof
to regulators and other appropriate agents [e.g., legal counsel] of the
affiliate). NCP-Seven shall have no liability to any participant or assignee of
Bank to reimburse or indemnify such institution for any Costs and Fees incurred
in its assignment or participation, including in any due diligence activities
associated therewith.
Notwithstanding the foregoing, Seafirst agrees to retain at least 40%
of Advances made hereunder until they are paid in full and each Participant
agrees, by virtue of taking an interest in this Agreement or any Related
Document (all of which are hereby made subject to this Section 9.4), that
Seafirst shall be the agent of each Participant for purposes of dealing with
NCP-Seven and its agents, it being the request of NCP-Seven to deal with one
lender only and not with numerous lenders. Seafirst and not any Participant
shall be the sole party authorized or obligated to provide any consent or
approval required, contemplated or authorized by this Agreement or any Related
Document. Seafirst may, however, in its discretion or as required by any other
section of this Agreement or other agreements (including without limitation
agreements with Participants), consult with, take into consideration or be
guided by the views of Participants determining whether to provide such consents
or approvals. In any such agreement between Seafirst and Participants, a minimum
of 100% (of Pro Rata Shares) approval shall be required for any consent,
modification, or waiver which would (i) subject Bank to any additional
obligations; (ii) reduce the principal of, interest on, or any fees under the
Loan Documents; (iii) postpone any date fixed for any payment of principal of,
or interest on, the Obligations or any fees under this Agreement, or otherwise
change the amortization or maturity of the Obligations; (iv) consent to the
assignment or transfer by NCP-Seven of any of its rights and obligations under
this Agreement and other Loan Documents; (v) waive any Event of Default and its
consequences; or (vi) release any Collateral, other than that which is sold or
disposed of in the ordinary course of business; and a minimum of 67% approval
shall be required for any other consent, modification or waiver. Nothing in this
paragraph shall create any duties of Seafirst to any Participant that are not
expressly set forth in another writing signed by Seafirst, it being the
intention of this paragraph only to designate with whom NCP-Seven will deal and
not to impose or create duties of Seafirst to Participants.
Section 9.5 Governing Law; Venue. This Agreement and each Related
Document shall be deemed to have been made in Washington and the validity of
such documents, their construction, interpretation and enforcement, and the
rights of Bank in any Collateral, shall be determined under, governed by and
construed in accordance with the laws of Washington. Notwithstanding the
foregoing, if the laws of another state govern or provide additional rights to
Bank regarding said Collateral, such laws shall apply to the extent required or
desired by Bank in its sole discretion. In any court proceeding (if any, given
Section 9.6 below), NCP-Seven agrees to submit to the jurisdiction of the
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<PAGE> 40
state or federal court selected by Bank, and venue of any action concerning this
Agreement or any Related Document shall be in King County, Washington. NCP-Seven
hereby irrevocably waives to the fullest extent permitted by law any objection
which it may now or hereafter have to the laying of such venue and any claim
that any such forum is an inconvenient forum. Nothing in this Section shall
impair the right of Bank to bring any action or proceeding against NCP-Seven or
its property in the courts of any other county or jurisdiction and NCP-Seven
irrevocably submits to the nonexclusive jurisdiction of the appropriate courts
(as selected by Bank) of the jurisdiction in which NCP-Seven is organized or any
place where any property or any office of NCP- Seven is located.
NCP-Seven warrants that the name and address of its registered agent
for service of process set forth in Exhibit C hereto is true and correct and
agrees not to change its registered agent without prior written notice to Bank.
Section 9.6 Mandatory Arbitration. At the request of either Bank or
NCP-Seven, any Claim or controversy between Bank and NCP- Seven, Arising Out Of
this Agreement or any Related Document, or Arising Out Of any alleged tort,
shall be settled by arbitration in Seattle, Washington. The United States
Arbitration Act shall apply even though this Agreement is otherwise governed by
Washington law. The proceedings shall be administered by the American
Arbitration Association under its commercial rules of arbitration. Any
controversy over whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in any court
having jurisdiction over the parties. The institution and maintenance of an
action for judicial relief or pursuit of an ancillary or provisional remedy
shall not constitute a waiver of the right of either party, including the
plaintiff, to submit the controversy or claim to arbitration if such action for
judicial relief is contested. For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this subsection is the
equivalent of the filing of a lawsuit, and any Claim or controversy which may be
arbitrated under this subsection is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any such
claim or controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis. The parties consent to the joinder of any
guarantor, hypothecator, or other party having an interest relating to the Claim
or controversy being arbitrated in any proceedings under this Section.
Notwithstanding any contrary provision of this Agreement, no
controversy or Claim shall be submitted to arbitration without the consent of
all parties if at the time of the proposed submission, such controversy or Claim
arises from or relates to an Obligation secured by real property.
No provision of this Section shall limit the right of Bank to exercise
self-help remedies such as set-off, foreclosure,
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<PAGE> 41
retention or sale of Collateral, or obtaining any ancillary, provisional, or
interim remedies from a court of competent jurisdiction before, after, or during
the pendency of any arbitration proceeding. The exercise of any such remedy does
not waive the right of either party to request arbitration.
Section 9.7 FNEJV Delegation of All Powers. FNEJV, by executing the
FNEJV Agreement, Northland, by executing the Agreement and Consent that appears
at the end of this Agreement, and NCP-Seven, by executing this Agreement, and
all of the foregoing, by receiving the benefits of this Agreement, each hereby
agree as follows, and warrant to Bank that the FNEJV Agreement remains in full
force and effect:
(a) FNEJV does hereby direct and irrevocably delegate to
Northland and empower Northland with all of the powers and authorities
referenced in (b) below and for the same purpose does further hereby
constitute and appoint Northland as agent of and/or attorney-in-fact
for FNEJV with full power, authority and consent to act from time to
time for and on behalf of FNEJV for the following purposes and without
notice to or consultation with FNEJV or any joint venturer thereof, all
as Northland shall act through its agents John S. Whetzell, President,
and James A. Penney, Vice President and/or General Counsel, or either
of them or their successors in office. The power of attorney contained
herein shall be a special power coupled with an interest; and
(b) after the execution and delivery of this Agreement and any
or all of the other Related Documents (collectively, "Loan Documents"),
Northland shall be empowered from time to time without further
authorization by or consent of FNEJV or any joint venturer thereof and
before, during or after any Default, and in its own name or as agent
for FNEJV or as attorney-in-fact for FNEJV:
(i) to amend, supplement, extend, renew and/or
replace any or all Loan Documents; to restructure, work-out,
compromise, release and settle any obligation; to exercise all
power, authority and discretion of FNEJV with respect to any
matter now or hereafter relating to any Loan Document; to
employ agents and sub-agents for the purpose of exercising all
or any part of the power and authority granted herein, all of
which agents and sub-agents shall also be agents of FNEJV; to
accept service of process and all other process for FNEJV and
each joint venturer thereof, or any of them; and to otherwise
deal in all respects whatsoever with the Bank alone and
without the further consent or joinder or approval of FNEJV,
it being the intent of this Section that until payment and
performance in full of the Obligations the Bank shall deal
exclusively with Northland for all purposes whatsoever and
that FNEJV and each joint venturer thereof shall be legally
bound by all actions of
- 38 -
<PAGE> 42
Northland Arising Out Of this Section 9.7 or by Bank in
reliance on said section; and
(ii) to take all such other and further action
and do such things as are incidental to any of the foregoing,
including but not limited to, the making, execution, signing,
sealing, acknowledgment, publication, filing and delivery of
any contract, agreement, deed, deed of trust, affidavit, loan
application, loan commitment, evidence of debt, note, bond,
mortgage, pledge, hypothecation, security agreement, financing
statement, guarantee, certificate, statement, estoppel
certificate, assignment, license, permit, approval, receipt,
release and such other and further instruments, certificates,
documents or agreements or other papers as Northland may deem
necessary from time to time in order to accomplish the actions
or transactions set forth in and contemplated by the
provisions of the Loan Documents as amended from time to time,
all as empowered hereby or as agent for or in the name, place,
and stead of FNEJV.
Section 9.8 Entire Agreement; Headings; Amendments; Severability; Time;
Counterparts. This Agreement constitutes the entire Agreement between the
parties regarding the terms hereof and supersedes any and all other agreements
relating to the subject matter of this Agreement, oral or written, among any or
all of the parties (except for the Related Documents). The headings of the
various sections and subsections in this Agreement and in each Related Document
are for convenience of reference only and do not constitute a part of the
respective agreement and shall not affect the meaning or construction of any
provision thereof. No amendment, waiver or forbearance of any provision of this
Agreement or of any Related Document shall be effective unless the same shall be
in a writing signed by Bank. Any such waiver or forbearance shall only be
effective for the specific purpose and in the specific instance given and not
for other or subsequent purposes or instances and no forbearance or waiver shall
affect Bank's right to refuse further forbearances or waivers. If any portion of
this Agreement or of any Related Document is held to be invalid or
unenforceable, the remaining portions and provisions and conditions thereof
shall remain in full force and effect except for Bank's obligations under the
Commitment. Time is of the essence of this Agreement and each Related Document.
The signature pages of the Agreement may be executed in counterparts.
NOTICE: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
Each of the undersigned represents and warrants that each of the
officers signing on behalf of the undersigned, respectively, has been duly
authorized to execute and deliver this Agreement on behalf of the undersigned.
- 39 -
<PAGE> 43
Dated and effective as of February 29, 1996.
NORTHLAND CABLE PROPERTIES SEATTLE-FIRST NATIONAL BANK,
SEVEN LIMITED PARTNERSHIP, a national banking association
a Washington limited
partnership By /s/ Edward Forman
-------------------------------
By: Northland Communications Edward Forman,
Corporation, General and Assistant Vice President
Managing General Partner
By /s/ James A. Penney
---------------------
Vice President
on behalf of Northland
Communications
Corporation as Managing
General Partner and as
agent for FN Equities
Joint Venture,
Administrative General
Partner
AGREEMENT and CONSENT
Northland hereby makes the representations and warranties and
agreements contained in and agrees and consents to the terms and conditions of
Sections 5.7, 7.1.8, 7.1.11, 7.1.12, 9.1 and 9.7 of the foregoing Commercial
Loan Agreement, each of which sections are incorporated herein by this
reference. Northland further agrees that at the request of either Bank or
Northland, any Claim or controversy between Bank and Northland Arising Out Of
this Agreement or any Related Document, or Arising Out Of any alleged tort,
shall be settled by arbitration in Seattle, Washington under the terms and
conditions of Section of said Commercial Loan Agreement, which section 9.6 is
incorporated herein.
This agreement and consent shall be binding upon Northland individually and in
addition to its agreements as general partner of NCP-Seven. Dated as of this
29th day of February, 1996.
NORTHLAND COMMUNICATIONS
CORPORATION, a Washington
corporation
By /s/ James A. Penney
----------------------------------
Its Vice President
- 40 -
<PAGE> 44
DEFINITIONS ADDENDUM
This Definitions Addendum is an attachment to and part of that certain
Commercial Loan Agreement dated as of February 29, 1996 ("Agreement"). Except as
otherwise stated in the Agreement, the following terms shall have the following
meanings:
"Agent" means Seafirst or any successor agent for Bank.
"Agreement" means this Commercial Loan Agreement, as the same may be
amended, extended, restated or renewed from time to time.
"Accounts" means all of NCP-Seven's receipts, accounts, drafts,
acceptances, contract rights of and for moneys and performances due or to become
due, chattel paper, and other forms of receivables, now owned or later acquired,
which derive from or arise out of the conduct of NCP-Seven's business, sale of
its inventory, or the furnishing of services, together with all guaranties and
security interests for, and the cash and noncash proceeds of, all the foregoing.
"Adjusted LIBOR Rate" shall mean for any day that per annum rate equal
to the sum of (a) the LIBOR Margin, (b) the Assessment Rate, and (c) the
quotient of (i) the LIBOR Rate as determined for such day, divided by (ii) the
Reserve Adjustment. The Adjusted LIBOR Rate shall change with any change in the
LIBOR Rate on the first day of each Interest Period and on the effective date of
any change in the Assessment Rate or Reserve Adjustment. The "LIBOR Margin"
shall be 3.00% per annum from Closing through the date on which NCP-Seven
reports results for the first quarterly Determination Date, and thereafter shall
be as set forth below depending upon the ratio of Total Debt of NCP- Seven to
its Annualized Cash Flow, which ratio shall initially be measured on the
Determination Date immediately preceding the date of the Advance creating the
LIBOR Rate Loan, and shall thereafter be measured on each Determination Date
during the Interest Period. Any change in the ratio causing the LIBOR Margin to
increase or decrease shall become effective on the Determination Date on which
the change occurs:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Total Debt to Annualized Cash Flow Ratio LIBOR Margin
- -------------------------------------------------------------------------------
Greater than or equal to 5.50 to 1 2.75% per annum
- -------------------------------------------------------------------------------
Less than 5.50 to 1 but greater than or 2.50% per annum
equal to 5.00 to 1
- -------------------------------------------------------------------------------
Less than 5.00 to 1 but greater than or 2.25% per annum
equal to 4.50 to 1
- -------------------------------------------------------------------------------
Less than 4.50 to 1 but greater than or 2.00% per annum
equal to 4.00 to 1
- -------------------------------------------------------------------------------
</TABLE>
- 41 -
<PAGE> 45
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Total Debt to Annualized Cash Flow Ratio LIBOR Margin
- -------------------------------------------------------------------------------
Less than 4.00 to 1 but greater than or 1.625% per annum
equal to 3.00 to 1
- --------------------------------------------------------------------------------
less than 3.0 to 1 1.25% per annum
- --------------------------------------------------------------------------------
</TABLE>
"Advance" shall mean the disbursement of loan proceeds under
the Note. An Advance shall not constitute a "payment order"
under R.C.W. Section62A.4A-103.
"Amendment to Subordination Agreement" means an amendment to the
Subordination Agreement changing its reference to the Obligations under this
Agreement rather than merely to the Existing Seafirst Debt, and providing that
no management fees may be paid by NCP-Seven to Northland (a) if Event of Default
shall have occurred and be continuing, or any event which, upon a lapse of time
or notice or both, would become an Event of Default; or (b) in excess of five
percent of NCP-Seven's gross service revenues for the immediately preceding
fiscal year.
"Annualized Cash Flow" means the product of Quarterly Cash Flow for the
fiscal quarter in question times four (4).
"Arising Out Of" means directly or indirectly arising out of, related
to, arising in connection with, or resulting or stemming from.
"Assessment Rate" means as of any day the minimum annual percentage
rate, if any, established by the Federal Deposit Insurance Corporation (or any
successor) for the assessment due from members of the Bank Insurance Fund (or
any successor) in effect for the assessment period during which said day occurs
based on deposits maintained at such members' offices located outside of the
United States.
"Assignment" means the Assignment dated September 15, 1993, made by
NCP-Seven to Seafirst, as amended from time to time.
"Bank" shall mean Seafirst, and any of its Participants, successors and
assigns. If there be a Participant, it shall have all rights and duties of
"Bank" except as set forth in Section or as otherwise expressly set forth in the
Agreement.
"Base Rate" shall mean, on any given day:
(a) the greater of (i) the Prime Rate, or (ii) the
sum of the Fed Funds Rate plus 0.5%; plus
(b) the Prime Margin.
"Borrowing Notice" means the notice form attached and incorporated
herein as Exhibit A appropriately completed and executed by any officer of
Northland who, for transactions described in No. 1 of the notice (requesting
advances), is the
- 42 -
<PAGE> 46
President or Treasurer, each of whom is severally authorized to request advances
and direct the disposition of any such advances until written notice from
NCP-Seven of the revocation of such authority is received by Bank. For
transactions described in No. 2 of the notice (selecting interest rates),
execution of the Borrowing Notice shall be by any officer of Northland who is
the President, Treasurer, or any financial vice president, each of whom is
severally authorized to select such rates.
"Business Day" means any day other than (i) a Saturday, Sunday or legal
holiday, (ii) a day on which commercial banks in Seattle, Washington are
authorized or required by law or executive order to close; or (iii) a day on
which Bank is closed.
"Cable System" means each cable television system, and all other assets
and property to be purchased by NCP-Seven, pursuant to a Purchase Contract.
"Cash Flow" means the total of all operating revenues, including
interest income, of NCP-Seven, less all operating expenses (other than all
management fees subordinated to the Bank under the Subordination Agreement), all
as determined according to GAAP.
"Claims" means any and all administrative, legal or other actions,
suits, appeals, settlements, consent decrees, investigations, liabilities
(including without limitation all liabilities of every nature from environmental
laws or laws concerning hazardous, dangerous or other wastes, including without
limitation 42 U.S.C. Section9601 et. seq. (CERCLA); 42 U.S.C. Section6901 et.
seq. (SWDA/RCRA); 42 U.S.C. Section7401 et. seq. (CAA); 42 U.S.C. Section1251
et. seq. (FWPCA/CWA); 42 U.S.C. Section300(f) et. seq. (PHSA/SDWA); 15 U.S.C.
Section2601 et. seq. (TSCA); Ch. 90.48 RCW (WPCA) ; Ch. 70.105D RCW (MTCA); Ch.
70.105 RCW (HWMA) ; Ch. 70.94 RCW (WCAA); Ch. 90.56 RCW (OHSSPRA); Ch. 88.46 RCW
(VOSPRA), all as amended from time to time, demands, penalties, fines and Taxes.
"Closing" and "Closing Date" shall mean the date this Agreement and the
Related Documents are executed and delivered to Bank.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" has the meaning set forth in Section .
"Commitment" has the meaning set forth in Section .
"Commitment Period" means the period commencing on Closing and ending
February 1, 1999.
"Consent" means a written document containing the approval of and
executed by the Person to be bound by the document.
- 43 -
<PAGE> 47
"Consent to Assignment" means the Consents to Assignment
required under the Security Agreement.
"Contingent Obligation" means, with respect to any Person, any
guarantee of Debt or any other obligation of any other Person or any assurance
with respect to the financial condition of any other Person, whether direct,
indirect or contingent, including, without limitation, any purchase or
repurchase agreement or keepwell, take-or-pay, through-put or other arrangement
of whatever nature having the effect of assuring or holding harmless any Person
against loss with respect to any obligation of such other Person; provided,
however, that the term "Contingent Obligation" shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined in good faith
by the Person subject to such obligation.
"Constituent Documents" means the Amended and Restated Agreement of
Limited Partnership of Northland Cable Properties Seven Limited Partnership
among Northland, FN Equities Joint Venture, a California joint venture, Richard
I. Clark, the original limited partner, and the remaining parties thereto as
limited partners, dated as of September 30, 1987, as amended from time to time,
and other partnership agreement governing or affecting NCP-Seven.
"Contractual Obligation" means, with respect to any Person, each
provision of this Agreement, each Related Document and all provisions of all
other agreements, contracts, instruments and undertakings to which such Person
is a party or by which it or any of its property is or purports to be bound.
"Costs and Fees" means all out-of-pocket or incurred costs, attorneys'
fees (including without limitation, fees of in-house counsel and of paralegals
and clerks), fees of accountants, collection and other agents and all other fees
and expenses of every nature whatsoever now or hereafter incurred from time to
time, including without limitation all expenses related to the Collateral
(including without limitation, all appraisal, filing and recording fees), all as
incurred by Bank in good faith and in its reasonable discretion (collectively
"Costs and Fees").
"Debt" means all consolidated obligations, on a GAAP basis, included in
the liability section of a balance sheet of NCP-Seven including, without
limitation and without duplication of such amounts, and regardless of whether
such items would otherwise not be shown on the liability side of a balance
sheet:
(c) Guaranties. All obligations guaranteed or
assumed by NCP-Seven, directly or indirectly in any manner,
or endorsed (other than for collection and deposit in the
ordinary course of business) or discounted by NCP-Seven with
- 44 -
<PAGE> 48
recourse, including all debt guaranteed by NCP-Seven through
any agreement, contingent or otherwise;
(d) Contingent Reserves. The aggregate amount of reserves
established on the books of NCP-Seven with respect to contingent
liabilities (except reserves which are properly treated as deductions
from assets);
(e) Leases. All obligations for the payment of money or other
property pursuant to capital leases under which NCP-Seven is leasing
real or personal property; and
(f) Partnership Debts. All obligations of any partnership or
joint venture of which NCP-Seven is a member, if NCP-Seven is legally
liable for such obligations.
"Deed of Trust" means all (individually and collectively) deeds of
trust in substantially the form attached as Exhibit H-1 (as to property held in
fee simple) or H-2 (as to leasehold property) and delivered pursuant to Section
, each as amended from time to time.
"Default" or "Event of Default" has the meaning set forth in
Section hereof.
"Determination Date" means the Closing Date and the last Business Day
of each September, December, March and June thereafter through and including
June 30, 2004.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Excess Cash Flow" means the Cash Flow (as defined herein and in the
following sentence) for each year beginning January 1, 1997, less all management
fees subordinated to Bank under the Subordination Agreement and less all
authorized distributions made pursuant to Section 7.1.7 and less all authorized
capital expenditures made pursuant to Section 7.1.7 for said calendar year. For
purposes of calculating the operating expenses component of "Cash Flow" when
calculating Excess Cash Flow, such expenses shall include Proforma Debt Service
for the next fiscal year (as opposed to the actual debt service for the fiscal
year with respect to which the Excess Cash Flow is being calculated).
"Existing Seafirst Debt" means Debt incurred pursuant to the Commercial
Loan Agreement dated September 15, 1993, between NCP- Seven and Seafirst.
"Fed Funds Rate" means the fixed rate of interest per annum quoted as
the "Federal Funds" rate by Garvin Guybutler on the display designated as "Page
5" on the Telerate Service (or such other page on that service or such other
service designated by Garvin Guybutler for the display of its Federal Funds rate
quote, or if not quoted by Garvin Guybutler, then by a comparable secondary
market source acceptable to Bank), on the Determination Date.
- 45 -
<PAGE> 49
"Fee Letter" means the letter dated January 31, 1996, addressed to Gary
Jones of Northland, from Edward Forman of Seafirst and Jane E. Rawles of BA
Securities, Inc.
"FLSA" means the Fair Labor Standards Act of 1938, as amended from time
to time, and the regulations promulgated pursuant thereto.
"FNEJV" means FN Equities Joint Venture, a California joint venture, as
general and Administrative General Partner of NCP- Seven.
"FNEJV Agreement" shall mean the FNEJV Agreement dated
September 15, 1993, between FNEJV and John S. Simmers.
"GAAP" or "Generally Accepted Accounting Principles" means generally
accepted accounting principles as in effect from time to time in the United
States and as consistently applied by NCP- Seven.
"Georgia Systems" means the Cable Systems in Vidalia, Georgia and
Sandersville, Georgia being purchased from TCI Cablevision of Georgia, Inc., and
the Cable System in Vidalia, Georgia being purchased from Southland Cablevision,
Inc.
"Governmental Body" means any foreign or domestic government; court;
federal, state, county, municipal or other department, commission, board,
bureau, agency, administrator, public authority, instrumentality; arbitrator;
mediator; or other governmental regulator or authority.
"Hazardous Substance" means any substance or matter (or nonmatter) of
every nature whatsoever regulated in any manner by laws, rules or regulations,
standards or guidelines concerning environmental matters, hazardous, dangerous
or other wastes of every nature whatsoever, including but not limited to all
laws and regulations referenced in the definition of "Claims" and all laws and
regulations concerning radiation and other matters relevant to cable television
systems.
"Interest Payment Date" means (a) for a Prime-Related Loan, the last
Business Day of each September, December, March and June; and (b) for a 1, 2, or
3-month LIBOR Rate Loan, the last Business Day of the Interest Period, and for a
6-month LIBOR Rate Loan the 90th day and the last Business Day of the Interest
Period; and (c) for all Loans, the maturity date of each Loan, including
maturity by acceleration.
"Interest Period" means the period commencing on the date of any
Advance and ending on the date set forth below, subject to acceleration after an
Event of Default. For any LIBOR Rate Loan, the end of the Interest Period shall
be the last day of the one, two, three or six month period designated by
NCP-Seven in a Borrowing Notice (so long as such period ends on or before June
30, 2004). For any Prime-Related Loan, the end of the Interest Period shall be
June 30, 2004, unless NCP-Seven shall cause the
- 46 -
<PAGE> 50
period to expire earlier by submitting a Borrowing Notice requesting an Adjusted
LIBOR Rate for said loan (and thereby converting the Prime-Related Loan to a
LIBOR Rate Loan). Notwithstanding the foregoing, in the event that the last day
of any Interest Period would fall on a day other than an International Banking
Day, the Interest Period shall be extended to the next succeeding International
Banking Day (unless said day would be in the next calendar month in which case
the date for payment shall be the immediately preceding International Banking
Day) if such is not later than June 30, 2004.
"Interest Rate Risk Agreement" means, individually and collectively,
each mutually agreeable interest rate hedging or risk agreement entered into by
NCP-Seven pursuant to Section , including but not limited to any interest rate
swaps, basis swaps, forward rate agreements, forward price agreements, caps,
floors, collars, swaptions, or interest rate options.
"International Banking Day" means a Business Day that is
also a London Banking Day.
"LIBOR Rate" means for any Interest Period the per annum rate,
calculated on the basis of actual number of days elapsed over a year of 360
days, for U.S. Dollar deposits for a period equal to the Interest Period
appearing on the display designated as "Page 3750" on the Telerate Service (or
such other page on that service or such other service designated by the British
Banker's Association for the display of that Association's Interest Settlement
Rates for U.S. Dollar deposits) as of 11:00 a.m., London time, on the day which
is two London Banking Days prior to the first day of the Interest Period. If
there is no period equal to the Interest Period on the display, the LIBOR Rate
shall be determined by straight-line interpolation to the nearest month (or week
or day if expressed in weeks or days) corresponding to the Interest Period
between the two nearest neighboring periods on the display. Bank shall endeavor
to notify NCP-Seven of the LIBOR Rate used in connection with a LIBOR Rate Loan
on the date the rate is established, but Bank shall have no liability for any
failure timely to so notify NCP- Seven.
"LIBOR Rate Loan" means any Loan accruing interest at the Adjusted
LIBOR Rate.
"Lien" means, with respect to any Person, any security interest,
pledge, mortgage, charge, option, assignment, hypothecation, encumbrance,
attachment, garnishment, sequestration, forfeiture, execution or other voluntary
or involuntary lien upon or affecting the revenues of such Person or any real or
personal property in which such Person has or hereafter acquires any interest,
except (i) Liens for Taxes which are not delinquent or which remain payable
without penalty or the validity or amount of which is being contested in good
faith by appropriate proceedings and, if the Lien exceeds $50,000, reserves
Consented to by Bank; (ii) Liens imposed by law (such as mechanics' liens)
incurred in good faith in the ordinary course
- 47 -
<PAGE> 51
of business which are not delinquent or which remain payable without penalty or
the validity or amount of which is being contested in good faith by appropriate
proceedings and, if the Lien exceeds $50,000, reserves Consented to by Bank; and
(iii) deposits or pledges under workmen's compensation, unemployment insurance,
social security, bids, tenders, contracts (except for repayment of borrowed
money), or leases, or to secure statutory obligations or surety or appeal bonds
or to secure indemnity, performance or other similar bonds given in the ordinary
course of business.
"Loan" or "Loans" means any Advances made pursuant to the Commitment,
as amended, extended or renewed from time to time.
"London Banking Day" means any day other than a Saturday, Sunday, or
other day on which commercial banks in London, England, are authorized or
required by law or executive or regulatory order to close or a day on which
London banks are closed.
"Loss" or "Losses" means any and all Costs and Fees, losses,
liabilities, deficiencies, obligations, damages and other expenses of every
nature, including without limitation interest and penalties.
"Material Adverse Effect" means any material adverse effect on (a) the
validity or enforceability of this Agreement or any of the Related Documents,
(b) the value of any of the Cable Systems, (c) NCP-Seven's financial condition
or operations, or (d) the ability of NCP-Seven to fulfill its obligations under
this Agreement or any of the Related Documents.
"NCP-Seven" means Northland Cable Properties Seven Limited
Partnership, a Washington limited partnership.
"NCP System" means all of the cable television reception and
distribution systems (including without limitation headends, trunk cables,
feeder cables, microwave transmission and reception facilities, drops and
associated electronic equipment), wherever located (including but not limited to
Washington, Georgia and Texas), which are now or hereafter directly or
indirectly owned or operated (or are legally capable of being operated) by NCP-
Seven, including without limitation, each Cable System (once owned or operated)
and all "Systems" as defined in and subject to the Constituent Documents. The
NCP System shall include but not be limited to the cable television systems
serving the communities listed in Exhibit D which is attached and incorporated
herein.
"Northland" means Northland Communications Corporation, a Washington
corporation, as general partner and as Managing General partner of NCP-Seven
and, where indicated, individually.
"Note" means the promissory note in substantially the form attached as
Exhibit E evidencing the Loans, all as amended, extended and renewed from time
to time.
- 48 -
<PAGE> 52
"Obligations" means the Note, all Costs and Fees, all indemnifications
and all other amounts of every nature whatsoever now or hereafter due or to
become due Bank under this Agreement or under any Related Document, as amended,
renewed, extended or replaced from time to time, and any obligations of
NCP-Seven under any Interest Rate Risk Agreements entered into between NCP-
Seven and Seafirst or any other Bank.
"Operating Rights" means all licenses, permits, franchises, agreements
with public utilities and microwave transmission companies, pole attachment,
use, access and rental and utility agreements, agreements with broadcasters for
retransmission or concerning "must-carry" status, and all other contracts and
authorities with, from, granted or authorized by any Governmental Body or Person
used or useful in or necessary to the ownership, maintenance or operation of any
of NCP Systems. Operating Rights shall include the Programming Contract.
"Participant" means one or more entities to whom Bank transfers an
interest in this Agreement or any Related Document. References to Bank shall be
deemed to include all Participants. The interest of each Participant (and
Seafirst) shall be an undivided interest in all rights under this Agreement and
each Related Document equal to the percentage of the outstanding principal
balance of the Obligations funded by that Participant (hereafter the "Pro Rata
Share"), and each Participant's (including Seafirst's) obligation under the
Commitment shall be limited to its Pro Rata Share of the Commitment. Each
Participant shall become a Participant upon execution by both such Participant
and Seafirst, and delivery to Seafirst, of an Assignment and Assumption
Certificate in the form of Exhibit Q attached.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or any other entity or organization,
including a state, government or political subdivision or an agency or
instrumentality thereof.
"Plan" means (i) any "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA); (ii) any "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA) or a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA); (iii) any employee benefit
plan maintained in connection with any trust described in Section 401(c)(9) of
the Code; or (iv) a combination of such plans; if such plan or plans is
maintained or contributed to, or at any time during the five calendar years
preceding the date of this Agreement was maintained or contributed to, by
NCP-Seven or under which NCP-Seven has or, during the term of this Agreement,
will have any liability. For purposes of this paragraph, the term "NCP-Seven"
shall include NCP-Seven and any corporation, partnership, sole proprietorship or
other entity if NCP-Seven and such other entity or entities are (i) corporations
which are members of a controlled group of corporations as defined in Section
414(b) of the Code, (ii) trades or businesses (whether or not incorporated)
which are under common control as defined in
- 49 -
<PAGE> 53
Section 414(c) of the Code, (iii) members of an affiliated service group as
defined in Section 414(m) or 414(o) of the Code, or (iv) any combination of the
foregoing.
"Prime Margin" shall be 1.75% per annum from Closing through the date
on which NCP-Seven reports results for the first quarterly Determination Date,
and thereafter shall be as set forth below depending upon the ratio of Total
Debt of NCP-Seven to its Annualized Cash Flow, which ratio shall initially be
measured on the Determination Date immediately preceding the date of the Advance
creating the Prime-Related Loan, and shall thereafter be measured on each
Determination Date during the Interest Period. Any change in the ratio causing
the Prime Margin to increase or decrease shall become effective on the
Determination Date on which the change occurs:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
<S> <C>
Total Debt to Annualized Cash Flow Ratio Prime Margin
- ------------------------------------------------------------------------
Greater than or equal to 5.50 to 1 1.50% per annum
- ------------------------------------------------------------------------
Less than 5.50 to 1 but greater than or 1.25% per annum
equal to 5.00 to 1
- ------------------------------------------------------------------------
Less than 5.00 to 1 but greater than or 1.00% per annum
equal to 4.50 to 1
- ------------------------------------------------------------------------
Less than 4.50 to 1 but greater than or 0.75% per annum
equal to 4.00 to 1
- ------------------------------------------------------------------------
Less than 4.00 to 1 but greater than or 0.375% per annum
equal to 3.00 to 1
- ------------------------------------------------------------------------
less than 3.0 to 1 0.00% per annum
- ------------------------------------------------------------------------
</TABLE>
"Prime Rate" means the rate Seafirst publicly announces or otherwise
makes available to the public from time to time as its "prime rate" (currently
calculated on the basis of actual number of days elapsed over a year of 360
days), with any change in the Prime Rate to be effective on the date the "prime
rate" changes. The Prime Rate and the calculation thereof may be established
from time to time by Seafirst in its sole discretion. The Prime Rate is not
necessarily the lowest rate of interest offered by Seafirst to its most
creditworthy customers. The Prime Rate is a variable or fluctuating rate which
increases or decreases from time to time.
"Prime-Related Loan" means any Loan accruing interest at the
Base Rate.
"Proforma Debt Service" shall mean that amount reasonably projected by
NCP-Seven as necessary to make all payments required on the Total Debt when due.
For purposes of making the projection for an entire year, NCP-Seven shall
determine an assumed amount of interest due for the year in question by using
the interest rate in effect on the Determination Date for a
- 50 -
<PAGE> 54
Prime-Related Loan. For LIBOR Rate Loans, NCP-Seven shall use
the interest rate in effect on the Determination Date.
"Programming Contract" means the contract between Northland and
NCP-Seven dated August 1, 1993, including only those amendments approved in
writing by Bank.
"Purchase Contract" means each contract between NCP-Seven and the
current owner of a Cable System for purchase of such Cable System.
"Quarterly Cash Flow" means Cash Flow for the fiscal quarter ending on
the Determination Date on which Cash Flow is to be measured, all as shown on the
most recent financial statements and certificates delivered pursuant to Section
7.1.3.
"Related Documents" means (individually and collectively) the Borrowing
Notices, Note, Deeds of Trust, Security Agreement, UCCs, Assignment, Consents to
Assignment, Assignment of Leases, Subordination Agreement, Interest Rate Risk
Agreement, Programming Contract, Resolution, FNEJV Agreement, Certificate And
Indemnity Agreement Regarding Hazardous Substances and all other certificates,
documents or agreements now or hereafter Arising Out Of or executed in
connection with or pursuant to any of the foregoing, including all amendments
thereto and restatements thereof.
"Requirement of Law" means, with respect to any Person, the articles or
certificate of incorporation and bylaws, the partnership or limited liability
company agreement or other organizational or governing documents of such Person,
and any law, treaty, rule, guideline, standard (including but not limited to
accounting standards and GAAP), order, restriction, directive, judgment, decree,
injunction, writ, or regulation, or a final and binding determination of an
arbitrator, mediator, or a determination of any Governmental Body, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject. With respect to Bank, Requirement
of Law shall include a Requirement of Law or request of a central bank or
financial, monetary or other supervisory authority (whether or not having the
force of law).
"Reserve Adjustment" means as of any day the remainder of one minus
that percentage (expressed as a decimal) which is the highest of any such
percentages established by the Board of Governors of the Federal Reserve System
(or any successor) for required reserves (including any emergency, marginal, or
supplemental reserve requirement) regardless of the aggregate amount of deposits
with said member bank and without benefit of any possible credit, proration,
exemptions, or offsets for time deposits established at offices of member banks
located outside of the United States or for eurocurrency liabilities, if any.
"Resolution" means the resolution of Borrower included in
Exhibit N.
- 51 -
<PAGE> 55
"Seafirst" means Seattle-First National Bank, a national banking
association, including its universal successors. All parties acknowledge that
Seattle-First National Bank is scheduled to merge into Bank of America NW, N.A.
effective March 1, 1996, but will continue to do business in the state of
Washington as "Seafirst Bank."
"Security Agreement" means the Security Agreement and Assignment dated
September 15, 1993, as such agreement is amended from time to time.
"Subordination Agreement" means the Subordination Agreement by
Northland in favor of Bank dated September 15, 1993, as such agreement is
amended from time to time, and such other subordination agreements as are
executed in connection herewith, including but not limited to a subordination
agreement from certain affiliates of NCP-Seven.
"Subsidiary" or "Subsidiaries" means any corporation of which at least
50% of the outstanding stock having ordinary voting powers to elect a majority
of the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by NCP- Seven and/or one or more of
its Subsidiaries.
"Taxes" means for any Person any federal or state tax, assessment,
duty, levy, withholding liability, impost and other charges of every nature
whatsoever imposed by any Governmental Body on such Person or on any of its
property or because of any, revenue, income, sales, use, product, employee or
franchise, and any interest or penalty with respect to any of the foregoing.
"Total Debt" means all Debt of NCP-Seven for money borrowed from
financial institutions, including but not limited to the Loans and any other
loans from time to time from the Bank to NCP- Seven.
"Tranche A" means $32,000,000 of the Commitment, which is available to
be drawn down for the purposes set forth in Section 7.1.1 in three Advances,
two at or within one day of Closing, and one within three months of Closing.
"Tranche B" means $3,000,000 of the Commitment, which is available to
be drawn down, on a revolving basis, for the purposes set forth in Section
7.1.1 in multiple Advances, during the Commitment Period.
"UCCs" means the Uniform Commercial Code financing statements to be
executed at Closing.
- 52 -
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