DEFM14A 1 v365923_defm14a.htm FORM DEFM14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

Filed by the Registrant þ                             Filed by a Party other than the Registrant  o

Check the appropriate box:

 

o   Preliminary Proxy Statement
   
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
   
þ   Definitive Proxy Statement
   
o   Definitive Additional Materials
   
o   Soliciting Material Under Rule 14a-12

 

NTS, INC.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

o No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
     
  (1)

Title of each class of securities to which transaction applies:

 

Common Stock, par value $0.001 per share of NTS, Inc.

 

  (2)

Aggregate number of securities to which transaction applies:

 

42,068,055 shares of Common Stock, options to purchase 7,141,677 shares of Common Stock and warrants to purchase 1,400,000 shares of Common Stock.

 

  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

The maximum aggregate value was determined based on the sum of: (A) 42,068,055 shares of Common Stock multiplied by $2.00 per share; (B) options to purchase 7,141,677 shares of Common Stock with exercise prices less than $2.00 per share multiplied by $0.90 (which is the difference between $2.00 and the weighted average exercise price of $1.10 per share); and (C) warrants to purchase 1,400,000 shares of Common Stock with exercise prices less than $2.00 per share multiplied by $0.65 (which is the difference between $2.00 and the weighted average exercise price of $1.35 per share). In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.0001288 by the sum of the preceding sentence.

  (4) Proposed maximum aggregate value of transaction: $91,473,619
  (5) Total fee paid: $11,781.80
þ Fee paid previously with preliminary materials.
   
o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
     
  (1) Amount Previously Paid:
  (2) Form, Schedule or Registration Statement No.:
  (3) Filing Party:
  (4) Date Filed:

 

 

 
 

 

 

 

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

Dear NTS, Inc. Shareholders:

 

You are cordially invited to attend a Special Meeting of shareholders of NTS, Inc., a Nevada corporation, which is referred to herein as “NTS,” “the Company,” “we,” “us” or “our,” to be held at 10:30 a.m., local time, on Wednesday, February 26, 2014, at the corporate offices of NTS, Inc., located at 1220 Broadway, Lubbock, Texas 79401.

 

On October 20, 2013, NTS agreed to be acquired by T3 North Intermediate Holdings, LLC, which is referred to herein as Holdings, under the terms of the Agreement and Plan of Merger, which is referred to herein as the Merger Agreement, between NTS, Holdings and North Merger Sub, Inc., a wholly owned subsidiary of Holdings, which is referred to herein as Merger Sub. Holdings and Merger Sub are affiliates of Tower Three Partners LLC, which is referred to herein as Tower Three. Upon completion of the Merger of Merger Sub with and into NTS, pursuant to the Merger Agreement, NTS will become a wholly owned subsidiary of Holdings. We refer to this transaction as the Merger. We are sending you this proxy statement to invite you to attend a Special Meeting of NTS shareholders being held to vote on the Merger and to ask you to vote at the Special Meeting in favor of the Merger.

 

If the Merger is completed, each issued and outstanding share of NTS common stock will be cancelled and, in lieu thereof, the holders of shares of NTS common stock shall be entitled to receive the $2.00 per share in cash, without interest and less any applicable tax withholding.

 

Certain of NTS’ directors and executive officers may have material financial interests in the Merger that are different from, or in addition to, the interests of NTS shareholders generally. In particular, Guy Nissenson, the Chairman, President and Chief Executive Officer of NTS, has entered into a separate Rollover Agreement, referred to herein as the Rollover Agreement, whereby certain shares of common stock of NTS beneficially owned by Mr. Nissenson, referred to herein as the Rollover Shares, will be contributed to the sole member of Holdings immediately prior to the Effective Time in exchange for equity interests in such entity in accordance with the Rollover Agreement. See “Special Factors—Interests of NTS Directors and Executive Officers in the Merger,” beginning on page 53.

 

We cannot complete the Merger unless the NTS shareholders approve the Merger Agreement. We are seeking approval of this proposal at the Special Meeting of shareholders of NTS to be held on February 26, 2014.  Your vote is very important, regardless of the number of shares you own.  Whether or not you expect to attend the NTS Special Meeting in person, please submit your voting instructions as promptly as possible by (1) accessing the Internet website specified on your proxy card or (2) signing and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the NTS Special Meeting. A failure to vote your shares is the equivalent of a vote against the Merger.

 

Under Nevada law, if the Merger is completed, holders of shares of NTS common stock will not have the right to seek appraisal of the fair value of their shares.

 

The NTS board of directors, acting upon the unanimous recommendation of the special committee of the NTS board of directors,  unanimously  determined (with Mr. Nissenson abstaining, for the reasons set forth herein) that the Merger and related matters are fair to, advisable and in the best interests of NTS and its unaffiliated shareholders and adopted the Merger Agreement, and the NTS board of directors (with Mr. Nissenson abstaining) recommends that the NTS shareholders vote “FOR” the proposal to approve the Merger Agreement and “FOR” the other proposal to be submitted to the NTS shareholders at the NTS Special Meeting.

 

The obligations of Holdings and NTS to complete the Merger are subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement. More information about NTS and the Merger is contained in this proxy statement.  We encourage you to read this entire proxy statement carefully.

 

We thank you for your continued support of NTS and look forward to the successful acquisition of NTS by Holdings.

 

Jeffrey E. Eberwein

Chairman of the Special Committee

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Merger, passed upon the merits or fairness of the Merger, or determined if this proxy statement is accurate or complete. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated January 23, 2014, and is first being mailed to NTS shareholders on or about January 29, 2014.

 

 
 

 

 

NTS, Inc.

1220 Broadway

Lubbock, Texas 79401

(806) 771-5212


NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON FEBRUARY 26, 2014

 

NOTICE IS HEREBY GIVEN that the Special Meeting of shareholders of NTS, Inc., a Nevada corporation, which is referred to herein as NTS, will be held at 10:30 a.m., local time, on Wednesday, February 26, 2014 at the corporate offices of NTS, Inc., located at 1220 Broadway, Lubbock, Texas 79401, to consider and vote upon the following proposals:

 

1.           to approve the Agreement and Plan of Merger, dated as of October 20, 2013, by and among NTS, T3 North Intermediate Holdings, LLC, which is referred to herein as Holdings, and North Merger Sub, Inc., a wholly owned subsidiary of Holdings, which is referred to herein as Merger Sub, as such agreement may be amended from time to time, which is referred to herein as the Merger Agreement and provides for, among other things, the Merger of Merger Sub with and into NTS, with NTS surviving the Merger as a wholly owned subsidiary of Holdings, which is referred to herein as the Merger Proposal; and

 

2.           to approve the adjournment of the NTS Special Meeting, if necessary or appropriate, in the view of the NTS board of directors, to solicit additional proxies in favor of the Merger Proposal if there are not sufficient votes at the time of such adjournment to approve the proposal, which is referred to herein as the adjournment proposal.

 

These matters are described more fully in the accompanying proxy statement, which NTS shareholders are urged to read thoroughly.  The board of directors of NTS formed a committee, referred to herein as the special committee, consisting solely of three independent directors of the Company to evaluate the Merger and other alternatives available to the Company. The special committee unanimously determined that the transactions contemplated by the Merger Agreement, including the Merger, are fair to, and in the best interests of, the Company’s unaffiliated shareholders, and unanimously recommended that the board of directors approve, adopt and declare advisable the Merger Agreement, a copy of which is attached as Annex A to the accompanying proxy statement, and the transactions contemplated therein, including the Merger, and that the Company’s shareholders vote for the approval of the Merger Agreement. Based in part on that recommendation, the NTS board of directors unanimously (other than Guy Nissenson, who did not vote due to his interest in the Merger) adopted the Merger Agreement and recommends that the NTS shareholders vote:

 

  · “FOR” the Merger Proposal to approve the Merger Agreement; and

 

  · “FOR” any adjournment of the Special Meeting, if necessary to solicit additional proxies in favor of the Merger Proposal.

 

All NTS shareholders are cordially invited to attend this Special Meeting with proper identification and, if applicable, acceptable proof of ownership, although only holders of record of NTS common stock at the close of business on January 21, 2014, will be entitled to receive notice of, and to vote at, the NTS Special Meeting, or any adjournment or postponement thereof. A list of shareholders entitled to receive notice of and vote at the NTS Special Meeting will be available in NTS’ offices located at 1220 Broadway, Lubbock, Texas 79401, during ordinary business hours for the ten-day period preceding the date of the NTS Special Meeting. A shareholder list will also be available at the NTS Special Meeting.

 

Approval of the Merger Proposal requires the affirmative vote of holders of a majority of the outstanding shares of NTS common stock, hereinafter referred to as the NTS Shareholder Approval.

 

In connection with NTS’ solicitation of proxies for the Special Meeting, NTS began mailing the accompanying proxy statement and proxy card on or about January 29, 2014.  Whether or not you expect to attend the NTS Special Meeting in person, please submit your voting instructions as promptly as possible by (1) accessing the Internet website specified on your proxy card or (2) signing and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the NTS Special Meeting.  This will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any holder of NTS common stock who is present at the Special Meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before its exercise at the NTS Special Meeting in the manner described in the accompanying proxy statement.

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

Alon Reisser

Corporate Secretary

 

NTS, Inc.

 

January 23, 2014

 

YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR VOTING INSTRUCTIONS USING ONE OF THE METHODS ABOVE TO ENSURE THAT YOUR VOTE WILL BE COUNTED, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE THE VOTE AT THE NTS SPECIAL MEETING BY FOLLOWING THE PROCEDURES OUTLINED IN THE ACCOMPANYING PROXY STATEMENT. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD.

 

 
 

 

INFORMATION ABOUT ATTENDING THE NTS SPECIAL MEETING

 

Only shareholders of record on the record date of January 21, 2014 are entitled to notice of and to attend or vote at the NTS Special Meeting. If you plan to attend the NTS Special Meeting in person, please bring the following:

 

1.           Proper identification.

 

2.           Acceptable Proof of Ownership if your shares are held in street name.

 

Street name means your shares are held of record by brokers, banks or other institutions.

 

Acceptable Proof of Ownership is either (a) a letter from your broker stating that you beneficially owned NTS stock on the record date or (b) an account statement showing that you beneficially owned NTS stock on the record date.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE SPECIAL MEETING OF NTS SHAREHOLDERS TO BE HELD ON FEBRUARY 26, 2014.

 

This proxy statement is available at

http://www.transferonline.com/proxydocs/nts

 

 
 

 

TABLE OF CONTENTS

 

  Page
SUMMARY TERM SHEET 2
   
QUESTIONS AND ANSWERS ABOUT THE NTS SPECIAL MEETING 9
   
SUMMARY FINANCIAL INFORMATION 13
   
SPECIAL FACTORS 13
General Description and Effects of the Merger 13
Background of the Merger 13
The Company’ Purpose and Reasons for the Merger and Recommendation of the Special Committee and Board of  Directors 22
Differing Interests of NTS Shareholders and the Rollover Holder in the Merger 26
Certain Effects of the Merger and Plans for the Company After the Merger 26
Certain Information Prepared by the Management of NTS 28
Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors 39
Position of the Holdings Parties and T3 Parties as to the Fairness of the Merger 51
Position of the Rollover Holder as to the Fairness of the Merger 52
Purposes and Reasons of the Holdings Parties, the T3 Parties and the Rollover Holder for the Merger 53
Interests of NTS Directors and Executive Officers in the Merger 53
Material U.S. Federal Income Tax Consequences of the Merger 55
Accounting Treatment 57
Regulatory Approvals Required for the Merger 57
Treatment of Convertible Securities 57
Treatment of Options and Warrants 57
Rights of Dissenting Shareholders 58
Delisting and Deregistration of NTS Common Stock 58
Legal Proceedings Related to the Merger 58
Description of Financing 58
   
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 59
   
THE PARTIES TO THE MERGER 60
NTS 60
Holdings 60
Merger Sub 60
   
THE MERGER AGREEMENT 61
The Merger 61
Closing and Effective Time 62
Merger Consideration 62
Treatment of Company Options and Warrants 62
Payment Procedures 62
NTS Shareholder Approval 64
Representations and Warranties 64
Conduct of Business Pending the Merger 68
Other Takeover Proposals 69
Conditions to the Completion of the Merger 74
Termination 75
Termination Fees and Reimbursement of Expenses 76
Other Agreements Entered Into in Connection with the Merger Agreement 77
Fees and Expenses 77
Amendment; Waiver 77
Remedies 78
   
THE VOTING AGREEMENT 79
   
THE NTS SPECIAL MEETING 79
Date, Time and Place 79
Purpose of the NTS Special Meeting 79
Recommendations of the Board of Directors of NTS 80
Record Date; Stock Entitled to Vote 80
Quorum 80
Required Vote 80
Abstentions, Failures to Vote and Broker Non-Votes 80
Voting at the Special Meeting 80
Revocation of Proxies or Voting Instructions 81
Solicitation of Proxies 81
Adjournments and Postponements 81
   
PROPOSALS TO BE CONSIDERED AT THE NTS SPECIAL MEETING 82
The Merger Proposal (Item 1 on the Proxy Card) 82
The Adjournment Proposal (Item 2 on the Proxy Card) 82

 

 
 

 

RELATED PARTY TRANSACTIONS 83
PROVISIONS FOR UNAFFILIATED SHAREHOLDERS 83
IMPORTANT INFORMATION REGARDING THE COMPANY 84
Business 84
Governmental Regulations 90
Employees 90
Properties 90
Legal Proceedings 92
Management’s Discussion and Analysis of Financial Condition and Results of Operation 93
Market for NTS’ Common Equity and Related Stockholder Matters 100
Security Ownership of Certain Beneficial Owners and Management 101
Transactions in Common Stock During the Past 60 Days 104
Transactions in Common Stock During the Past Two Years 104
Directors, Executive Officers and Corporate Governance 104
Certain Relationships and Related Transactions 115
IMPORTANT INFORMATION REGARDING THE HOLDINGS PARTIES, THE T3 PARTIES AND THE ROLLOVER HOLDER 120
The Holdings Parties 120
The T3 Parties 121
The Rollover Holder 122
   
MERGER FEES AND EXPENSES 122
   
EXPERTS 123
FUTURE SHAREHOLDER PROPOSALS 123
MULTIPLE SHAREHOLDERS SHARING ONE ADDRESS 124
   
OTHER MATTERS 124
   
WHERE YOU CAN FIND MORE INFORMATION 124
   
ANNEXES  
   
Annex A - Agreement and Plan of Merger  
   
Annex B - Voting Agreement  
   
Annex C - Opinion of Oberon Securities, LLC  
   
Annex D - Opinion of B. Riley & Co., LLC  

 

 
 

 

REFERENCES TO ADDITIONAL INFORMATION

 

This document incorporates important business and financial information about Holdings and NTS from documents that are not included in or delivered with this document. You can obtain documents incorporated by reference in this document, other than certain exhibits to those documents, by requesting them in writing or by telephone from the Company at the following address:

 

NTS, Inc.

1220 Broadway

Lubbock, Texas 79401

Tel: (806) 771-5212

Attn. Niv Krikov, CFO

 

You will not be charged for any of these documents that you request. If you would like to receive documents before the Special Meeting, please request them by Tuesday, February 11, 2014 (which is ten business days before the scheduled date of the NTS Special Meeting).

 

Investors may also consult NTS’ website for more information concerning the Merger described in this proxy statement. NTS’ website is www.ntscom.com. Information included on NTS’ website is not incorporated by reference into this proxy statement.

 

See the section entitled “Where You Can Find More Information” beginning on page 124.

 

ABOUT THIS DOCUMENT

 

This document, which was filed with the Securities and Exchange Commission (referred to herein as the SEC), constitutes a proxy statement of NTS under Section 14(a) of the Securities Exchange Act of 1934, which is referred to herein as the Exchange Act, and the rules thereunder, and a notice of meeting with respect to the Special Meeting of NTS’ shareholders to consider and vote upon the Merger Proposal and related matters.

 

You should rely only on the information contained or incorporated by reference in this proxy statement. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference in, this proxy statement. This proxy statement is dated January 23, 2014. You should not assume that the information contained in this proxy statement is accurate as of any date other than such date, or that the information incorporated by reference in, this proxy statement is accurate as of any date other than the date of such incorporated documents. Neither the mailing of this proxy statement to NTS shareholders nor the payment of the Merger Consideration upon the consummation of the Merger will create any implication to the contrary.

 

This proxy statement does not constitute the solicitation of a proxy in any jurisdiction to or from any person to whom or from whom it is unlawful to make any such solicitation in such jurisdiction.

 

1
 

 

SUMMARY TERM SHEET

 

This summary term sheet highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you. NTS urges you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which NTS has referred you because this section does not provide all the information that might be important to you with respect to the Merger being considered at the NTS Special Meeting. See also the section entitled “Where You Can Find More Information” beginning on page 124. NTS has included page references to direct you to a more complete description of the topics presented in this summary.

 

General Description and Effects of the Merger (see page 13)

 

At the Effective Time, Merger Sub will merge with and into NTS, with NTS surviving the Merger as a wholly owned subsidiary of Holdings. Both Holdings and Merger Sub are affiliates of Tower Three. The following will occur in connection with the Merger:

 

· at the Effective Time, each issued and outstanding share of NTS common stock will be cancelled and, in lieu thereof, the holders of shares of Company common stock shall be entitled to receive the Merger Consideration, without interest and less any applicable tax withholding;

 

· all shares of NTS common stock so converted will, at the closing of the Merger, be canceled, and each holder of a certificate representing any shares of NTS common stock shall cease to have any rights with respect thereto, except the right to receive the per share Merger Consideration ($2.00) upon surrender of such certificate (if such shares are certificated).

 

Following and as a result of the Merger, NTS shareholders (other than the Rollover Holder) will no longer have any interest in, and will no longer be shareholders of, NTS, and will not participate in any of NTS’ future earnings or growth. In addition, upon completion of the Merger, the registration of shares of NTS common stock under the Exchange Act will be terminated and the common stock of NTS will cease to be traded on the NYSE MKT (f/k/a NYSE Amex LLC) and the Tel Aviv Stock Exchange Ltd., referred to herein as the TASE, and price quotations with respect to shares of NTS common stock in the public market will no longer be available. The Merger Agreement is attached as Annex A to this proxy statement.

 

Pursuant to the Merger Agreement, equity awards relating to shares of NTS common stock, other than certain specified surviving warrants, will be cancelled and converted upon the consummation of the Merger into the right to receive the option consideration or the warrant consideration, each as defined herein, as the case may be. For additional information on equity awards relating to shares of NTS, see the section entitled “Special Factors—Treatment of Options and Warrants” beginning on page 57.

 

Holdings and NTS expect to complete the Merger in the first quarter of 2014. However, the Merger is subject to approvals and other conditions, and it is possible that factors outside the control of NTS and Holdings could result in the Merger being completed at a later time, or not at all.

 

The Company’s Purpose and Reasons for the Merger and Recommendation of the Special Committee and Board of Directors (see page 22)

 

The Company’s purpose for engaging in the Merger is to enable the Company’s shareholders to immediately realize the value of their investment in the Company through their receipt of $2.00 per share in cash, without interest and less any applicable withholding taxes, which $2.00 per share Merger Consideration represents a premium of approximately 27% over the closing price of the Company’s common stock on October 18, 2013, the last trading day before the Merger was announced, and a premium of approximately 25% over the volume-weighted average closing price of the Company’s common stock for the 30 trading days ending on October 18, 2013. The Company believes its long-term objectives can better be pursued as a private company with greater operating flexibility without the constraint of the public market’s emphasis on quarterly earnings as well as other limitations and expenses associated with remaining a public company

 

The special committee has unanimously (i) determined that the Merger is fair to, advisable and in the best interests of NTS and its unaffiliated shareholders; (ii) approved the Merger Agreement; and (iii) recommended that the NTS board of directors adopt and approve the Merger Agreement.

 

Based upon the unanimous recommendation of the special committee, the NTS board of directors has, after careful consideration, approved and adopted the Merger Agreement and now recommends that NTS shareholders vote to approve the Merger Agreement.  Because of his interest in the Merger, Mr. Nissenson abstained from this vote.

 

The NTS board of directors and the special committee believe that the Merger is fair to the unaffiliated shareholders of the Company. For a discussion of the material factors considered by the NTS board of directors and the special committee in determining to recommend the approval of the Merger Agreement and in determining that the Merger is fair to the unaffiliated shareholders of NTS, see “Special Factors—The Company’s Purpose and Reasons for the Merger and Recommendation of the NTS Special Committee and Board of Directors” beginning on page 22.

 

Subject to certain conditions, the NTS board of directors may change its recommendation in response to either (i) an intervening event or (ii) a superior proposal, if it determines, after consultation with its financial advisors and outside counsel and upon recommendation thereof by the special committee, that not doing so would be inconsistent with its fiduciary duties under applicable law.

 

2
 

 

Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors (see page 39)

 

In connection with the Merger, on June 17, 2013, the NTS board of directors retained Oberon Securities, LLC, which is referred to herein as Oberon, to act as a financial advisor to the NTS board of directors. On October 20, 2013, at a meeting of the NTS board of directors, Oberon rendered its oral opinion, subsequently confirmed by delivery of a written opinion later that day, that, as of October 20, 2013 and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in its opinion, the Merger Consideration to be received by the holders of shares of NTS common stock pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of shares of NTS common stock entitled to receive such Merger Consideration.

 

The full text of the written opinion of Oberon, dated as of October 20, 2013, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex C to this proxy statement and is incorporated by reference in its entirety into this proxy statement. You are urged to read the opinion carefully and in its entirety. Oberon’s opinion was addressed to, and provided for the information and benefit of, the NTS board of directors in connection with its evaluation of whether the Merger Consideration to be received by the holders of shares of NTS common stock was fair, from a financial point of view, to the holders of shares of NTS common stock entitled to receive the Merger Consideration and did not address any other aspects or implications of the Merger. Oberon’s opinion does not address the fairness of the proposed Merger, or any consideration received in connection with the proposed Merger, to the holders of any other securities, creditors or other constituencies of NTS, nor does it address the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of NTS, or any class of such persons, whether relative to the Merger Consideration or otherwise. Oberon’s opinion does not address the relative merits of the Merger as compared to any other business or financial strategies that might be available to NTS, nor does it address the underlying business decision of NTS to engage in the Merger. Oberon’s opinion does not constitute a recommendation to the NTS board of directors or to any other persons in respect of the Merger, including as to how any holder of shares of common stock of NTS should act or vote in respect of the Merger. Finally, Oberon did not express any opinion as to the price at which shares of NTS capital stock will trade at any time.

 

In addition, in connection with the Merger, on October 2, 2013, the special committee agreed to retain B. Riley & Co., LLC, which is referred to herein as B. Riley, to furnish a fairness opinion to the NTS board of directors. On October 20, 2013, at a meeting of the NTS board of directors, B. Riley rendered its oral opinion, subsequently confirmed by delivery of a written opinion later that day, that, as of October 20, 2013 and based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by B. Riley, the Merger Consideration to be received by the holders (other than the Rollover Holder) of shares of NTS common stock pursuant to the Merger Agreement was fair, from a financial point of view, to the holders (other than the Rollover Holder) of shares of NTS common stock entitled to receive such Merger Consideration.

 

The full text of the written opinion of B. Riley, dated as of October 20, 2013, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken in rendering its opinion, is attached as Annex D to this proxy statement and is incorporated by reference in its entirety into this proxy statement. You are urged to read the opinion carefully and in its entirety. B. Riley’s opinion was addressed to, and provided for the information and benefit of, the NTS board of directors in connection with its evaluation of whether the Merger Consideration to be received by the holders (other than the Rollover Holder) of shares of NTS common stock was fair, from a financial point of view, to the holders (other than the Rollover Holder) of shares of NTS common stock entitled to receive such Merger Consideration and did not address any other aspects or implications of the Merger. B. Riley’s opinion does not address the fairness of the proposed Merger to the holders of any other class of securities, creditors or other constituencies of NTS, nor does it address the fairness of the amount or nature of any compensation to any of the officers, directors or employees of NTS, or any class of such persons. B. Riley was engaged solely to render its opinion and B. Riley was not engaged to, and did not, solicit any indications of interest from any parties with respect to a sale of all or part of NTS or any alternative transaction. B. Riley’s opinion does not address the relative merits of the Merger as compared to any alternative transaction of opportunity that might be available to NTS, nor does it address the underlying business decision of NTS to engage in the Merger. B. Riley’s opinion does not constitute a recommendation to the NTS board of directors or to any other persons in respect of the Merger, including as to how any holder of shares of common stock of NTS should act or vote in respect of the Merger. Finally, B. Riley did not express any opinion as to the price at which shares of NTS capital stock will trade at any time.

 

3
 

 

Interests of NTS Directors and Executive Officers in the Merger (see page 53)

 

In considering the recommendation of the NTS board of directors (with Mr. Nissenson abstaining), acting upon the unanimous recommendation of the special committee, to approve the Merger Agreement, NTS shareholders should be aware that certain NTS executive officers and directors may be deemed to have interests in the Merger that are different from, or in addition to, those of NTS shareholders generally. These interests, which may create actual or potential conflicts of interest, are, to the extent material, described in the section entitled “Special Factors—Interests of NTS Directors and Executive Officers in the Merger” beginning on page 53, and include, among others:

 

· the expected ownership of equity interests in Holdings or its affiliates by the Rollover Holder after the completion of the Merger;

 

· the potential establishment of an equity-based compensation plan and grants of equity awards to NTS’ executive officers and other key employees after completion of the Merger (although no agreement with management has been reached on the terms of any new equity plan, nor have any discussions with respect thereto commenced);

 

· continued indemnification and directors’ and officers’ liability insurance applicable to the period prior to completion of the Merger;

 

· severance payments and benefits if a qualifying termination of employment were to occur following the completion of the Merger; and

 

· the honoring by the Surviving Corporation of the employment agreements of certain of our executive officers upon the closing of the Merger or the entry into new agreements to replace such existing employment agreements.

 

The NTS board of directors was aware of these potential conflicts of interest and considered them, among other matters, in evaluating and negotiating the Merger Agreement, in reaching its decision to approve the Merger Agreement, and in recommending to NTS shareholders that the Merger Agreement be approved. These interests include the entry by the Rollover Holder into the Voting Agreement and the Rollover Agreement, as discussed on page 77.

 

For a discussion of certain relationships between NTS and the Rollover Holder, see the section entitled “Related Party Transactions” beginning on page 83.

 

In addition, certain NTS directors and executive officers own significant amounts of NTS common stock, as described in the section entitled “Security Ownership of C ertain Beneficial Owners and Management ” beginning on page 101. Shares of NTS common stock held by NTS directors and executive officers (other than certain shares held by the Rollover Holder) will be treated in the Merger in the same manner as shares held by unaffiliated holders. Assuming the Merger was consummated on the record date, the Merger Consideration payable to the NTS executive officers and directors in the aggregate would consist of approximately $9,598,728 million in cash. See the section entitled “Special Factors—Interests of NTS Directors and Executive Officers in the Merger—Merger Consideration Payable to NTS Executive Officers and Directors” beginning on page 54.

 

Material U.S. Federal Income Tax Consequences of the Merger (see page 55)

 

The NTS shareholders’ receipt of the Merger Consideration in exchange for their shares of NTS common stock in the Merger will be a fully taxable transaction for U.S. federal income tax purposes.  For more information, see the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 55.

 

NTS URGES YOU TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.

 

Before deciding whether to vote for the proposals presented in this proxy statement, you should carefully consider all of the information contained in or incorporated by reference herein, as well as the specific material U.S. federal income tax consequences under the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 55.

 

Regulatory Approvals Required for the Merger (see page 57)

 

Holdings and NTS are not required to make filings with antitrust authorities in the United States under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the related rules and regulations, which is referred to herein as the HSR Act, which provide that certain transactions may not be completed until required information has been furnished to the Antitrust Division of the U.S. Department of Justice, referred to herein as the Antitrust Division, and the Federal Trade Commission, referred to herein as the FTC.

 

The Company holds licenses from the Federal Communications Commission, hereinafter referred to as the FCC, to provide telecommunications services. The FCC must approve the transfer of control of certain licenses held by the Company as a result of the Merger.

 

Holdings and NTS will seek to complete the Merger in the first quarter of 2014.

 

4
 

 

Legal Proceedings Related to the Merger (see page 58)

 

Purported NTS shareholders have filed a number of putative class actions challenging the Merger on behalf of all NTS shareholders. The defendants in these lawsuits include, among others, NTS, Holdings, members of their respective boards of directors and Merger Sub. The lawsuits seek various forms of relief, including an injunction barring or rescinding the Merger and damages. Additional information on these legal proceedings related to the Merger is provided in the section entitled “Special Factors—Legal Proceedings Related to the Merger,” beginning on page 58. The NTS and Holdings defendants believe the lawsuits are without merit and intend to defend vigorously against them.

 

The Parties to the Merger (see page 60)

 

NTS

NTS, Inc.

1220 Broadway

Lubbock, Texas 79401

(806) 771-5212

 

NTS was incorporated in the State of Nevada, in September 2000, as Xfone, Inc. NTS is a holding and managing company providing, through its subsidiaries, integrated communications services which include voice, video and data over the Company’s Fiber-To-The-Premise, or FTTP, and other networks.  Several years ago, NTS made a strategic decision to concentrate its operations in the United States; accordingly, in the summer of 2010 NTS discontinued and disposed of its operations in the United Kingdom and Israel. NTS currently has operations in Texas, Mississippi and Louisiana and also serves customers in Arizona, Colorado, Kansas, New Mexico, and Oklahoma.

 

Effective as of February 1, 2012, NTS changed its name from “Xfone, Inc.” to “NTS, Inc.” and as of February 2, 2012 its shares of common stock are traded on the NYSE MKT and the TASE under the new ticker symbol “NTS.” The name change is a reflection of NTS’ refined and enhanced business strategy, which began with its acquisition of NTS Communications, Inc. in 2008, and its focus on the build out of its high-speed FTTP network.

 

Holdings

T3 North Intermediate Holdings, LLC

c/o Tower Three Partners

Two Sound View Drive

Greenwich, Connecticut 06830

Tel: (203) 485-5800

 

Holdings, a Nevada limited liability company, was formed on October 18, 2013 by Tower Three solely for the purpose of owning NTS after the Merger. Holdings is currently owned by T3 North Holdings, LLC, a Delaware limited liability company, which itself is wholly-owned by the Guarantor. Holdings has not engaged in any business except for activities incidental to its formation and in connection with the Merger and the other transactions contemplated by the Merger Agreement.

 

Merger Sub

North Merger Sub, Inc.

c/o Tower Three Partners

Two Sound View Drive

Greenwich, Connecticut 06830

Tel: (203) 485-5800

 

Merger Sub is a Nevada corporation formed on October 15, 2013 solely for the purpose of effecting the Merger. Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement, including the preparation of applicable notice filings in connection with the Merger. Upon completion of the Merger, Merger Sub will cease to exist.

 

The Merger Agreement (see page 61)

 

The Merger Agreement is included as Annex A hereto. Holdings and NTS encourage you to read carefully the Merger Agreement in its entirety. It is the principal document governing the Merger and the other related transactions.

 

NTS Shareholder Approval (see page 64)

 

The Merger Agreement contemplates that the Merger is conditioned upon the approval of the Merger Proposal by holders of a majority of the outstanding shares of NTS common stock.

 

5
 

 

Conditions to the Completion of the Merger (see page 74)

 

We currently expect to complete the Merger during the first quarter of 2014, subject to receipt of required shareholder and regulatory approvals and the satisfaction or waiver of the conditions to the Merger in the Merger Agreement.

 

Each party’s obligation to consummate the Merger is subject to the satisfaction or waiver of various conditions, which include the following:

 

·   the NTS Shareholder Approval has been obtained;

 

·   any applicable waiting period under the HSR Act relating to the merger has expired or terminated (which the parties to the Merger Agreement have subsequently determined is not required); and

 

·   no applicable law or ruling by a governmental authority is in effect that enjoins or prevents the consummation of the Merger or otherwise makes consummation of the Merger illegal.

 

The obligation of Holdings and Merger Sub to consummate the Merger is subject to the satisfaction or waiver of the following further conditions:

 

·   the representations and warranties of the Company set forth in the Merger Agreement are true and correct both when made and on the closing date of the Merger, except with respect to certain representations and warranties for which the failure to be true and accurate would not, individually or in the aggregate, reasonably be expected to have a “Material Adverse Effect” as described in the section entitled “The Merger Agreement—Representations and Warranties;”

 

·   the Company has performed or complied in all material respects with all of its obligations under the Merger Agreement at or prior to the closing date of the Merger;

 

·   Holdings has received a certificate signed by a senior executive officer of the Company with respect to the satisfaction of the two conditions described above;

 

·   there has been no event, change, or occurrence that has had, or would reasonably be expected to have, a “Material Adverse Effect;”

 

·   the Company has delivered to Holdings an affidavit stating that the Company is not and has not been a United States real property holding corporation; and

 

·   the Company has received a change of control consent from the Rural Utilities Service, lender under certain of the Company’s subsidiaries’ outstanding loan agreements, and approvals from certain governmental authorities, including the FCC.

 

The obligation of the Company to consummate the Merger is subject to the satisfaction or waiver of the following further conditions:

 

·   the representations and warranties of Holdings and Merger Sub set forth in the Merger Agreement are true and correct both when made and on the closing date of the Merger, unless the failure of any such representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to impair in any material respect the ability of Holdings or Merger Sub to perform its obligations under the Merger Agreement or prevent or materially delay the consummation of the Merger;

 

·   Holdings and Merger Sub have performed or complied in all material respects with all of their obligations under the Merger Agreement at or prior to the closing date of the Merger; and

 

·   the Company has received a certificate signed by a senior executive officer of Holdings and Merger Sub with respect to the satisfaction of the two above-described conditions.

 

No party may rely on the failure of any of the above conditions to be satisfied if such failure was caused by such party’s failure to use its commercially reasonable efforts to consummate the Merger.

 

6
 

 

Termination (see page 75)

 

Generally, the Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, under the following circumstances:

 

·           by the mutual written consent of the parties;

 

·           by either Holdings or NTS, acting upon the recommendation of the special committee, if:

 

  · the Merger has not been consummated on or before April 18, 2014;

 

  · a final and nonappealable injunction has been entered permanently prohibiting the consummation of the Merger; or

 

  · the NTS Shareholder Approval is not obtained at the Special Meeting or any adjournment or postponement thereof;

 

·           by NTS, upon the recommendation of the special committee, if:

 

  · Holdings breaches or fails to comply with its representations, warranties, agreements or covenants in the Merger Agreement which would give rise to the failure of certain conditions to closing and such breach has not been cured by Holdings or waived by the Company within 20 days of receipt of written notice by NTS, subject to certain exceptions;

 

  · at any time prior to the time NTS has obtained the approval of its shareholders, if the board of directors of NTS authorizes the Company to enter into an acquisition agreement with respect to a Superior Proposal, subject to certain exceptions; or

 

  · Holdings fails to effect the Merger (i) after the conditions to the obligations of Holdings to effect the Merger have been satisfied and (ii) within two business days of the Company irrevocably confirming in writing to Holdings that (A) all of the conditions to the Company’s obligation to close have been satisfied or that it is waiving any of such conditions that remain unsatisfied and (B) it is ready, willing and able to consummate the Merger;

 

·           by Holdings if:

 

  · prior to the receipt of NTS Shareholder Approval, the NTS board of directors changes its recommendation in favor of the Merger to NTS shareholders;

 

  · the Company materially breaches any of its obligations under the Merger Agreement related to soliciting an alternative takeover proposal as described in the section entitled “The Merger Agreement—Other Takeover Proposals”; or

 

  · NTS breaches or fails to comply with its representations, warranties, agreements or covenants in the Merger Agreement which would give rise to the failure of certain conditions to closing and such breach has not been cured by the Company or waived by Holdings within 20 days of receipt of written notice by Holdings, subject to certain exceptions.

 

Termination Fees and Reimbursement of Expenses (see page 76)

 

The Merger Agreement provides that NTS is required to pay Holdings a termination fee of:

 

  · $2,274,582 if (i) Holdings terminates the Merger Agreement because, prior to obtaining NTS Shareholder Approval, the NTS board of directors changes its recommendation in favor of the Merger and the event giving rise to such termination is the submission of a takeover proposal by a person or group that is an excluded party (as described herein) at the time of such termination or (ii) the Company terminates the Merger Agreement to enter into an acquisition agreement related to a superior proposal with a person or group that is an excluded party at the time of such termination; or

 

  · $4,094,247 in all other circumstances giving rise to the obligation to make such payment as described in the section entitled “The Merger Agreement—Termination Fees and Reimbursement of Expenses.”

 

The Merger Agreement also provides that Holdings is required to pay NTS a termination fee of $6,141,371 if NTS terminates the Merger Agreement because (i) Holdings fails to consummate the closing under certain specified circumstances or (ii) Holdings breaches or fails to comply with its representations, warranties, agreements or covenants in the Merger Agreement in such a way as to give rise to the failure of certain conditions to closing and such failure has not been cured or waived within 20 days of receipt of written notice by NTS, subject to certain exceptions.

 

The Merger Agreement further provides that NTS is required to reimburse Holdings for up to $2,250,000 in connection with Holdings’ reasonable documented out-of-pocket expenses incurred in connection with the Merger Agreement if:

 

  · either NTS or Holdings terminates the Merger Agreement because the NTS Shareholder Approval is not obtained; or

 

  · Holdings terminates the Merger Agreement because NTS has breached or failed to comply with its representations, warranties, agreements or covenants in the Merger Agreement in such a way as to give rise to the failure of certain conditions to closing and such failure has not been cured within 20 days of receipt of written notice by Holdings, subject to certain exceptions.

 

In the event a subsequent termination fee is payable by the Company, the amount of reimbursed expenses will be credited against the subsequent termination fee.

 

7
 

 

Other Takeover Proposals (see page 69)

 

Until November 19, 2013, referred to herein as the Go-Shop Period End Date, NTS had the right to initiate, solicit and encourage any inquiry or the making of any takeover proposal.

 

Beginning on such date and thereafter, however, the Merger Agreement restricts the ability of NTS to, directly or indirectly:

 

  · solicit, initiate or knowingly facilitate or knowingly encourage any inquiries regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, a takeover proposal;

 

  · engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person any non-public information in connection with or for the purpose of encouraging or facilitating, a takeover proposal; or

 

  · approve, recommend or enter into, or propose to approve, recommend or enter into, any letter of intent or similar document, agreement, commitment, or agreement in principle with respect to a takeover proposal.

 

In addition, but subject to certain exceptions, our board of directors is not permitted to: (A) withdraw or qualify, change or modify, in a manner adverse to Holdings, or publicly propose to withdraw or qualify, change or modify, in a manner adverse to Holdings, the recommendation of the board of directors in favor of the Merger Agreement; (B) publicly recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt, any alternative acquisition proposal; or (C) fail to publicly reaffirm the board of directors recommendation at the request of Holdings at any time after a takeover proposal shall have been made and not publicly rejected by the board of directors in favor of the Merger Agreement in this proxy statement.

 

If, however, at any time prior to the NTS Shareholder Approval having been obtained, NTS receives a bona fide, unsolicited written takeover proposal from any person that does not result from a breach of the non-solicitation provisions of the Merger Agreement and if the NTS board of directors, acting upon the recommendation of the NTS special committee, determines in good faith, after consultation with its outside financial advisors and outside legal counsel, that such takeover proposal constitutes or would reasonably be expected to lead to a superior proposal, then NTS may engage in or otherwise participate in discussions or negotiations with the person making such takeover proposal and its representatives and potential sources of financing regarding such takeover proposal.

 

The NTS Special Meeting (see page 79)

 

The Special Meeting of NTS shareholders is scheduled to be held at 10:30 a.m., local time, on Wednesday, February 26, 2014 at the corporate offices of NTS, located at 1220 Broadway, Lubbock, Texas 79401. At the NTS Special Meeting shareholders of NTS will be asked:

 

  · to approve the Merger Agreement, which provides for, among other things, the Merger Proposal; and

 

  · to approve the adjournment of the NTS Special Meeting, if necessary or appropriate, in the view of the NTS board of directors, to solicit additional proxies in favor of the Merger Proposal if there are not sufficient votes at the time of such adjournment to approve either proposal, which is referred to herein as the adjournment proposal.

 

You may vote at the NTS Special Meeting if you owned common stock of NTS at the close of business on the record date, January 21, 2014.

 

You may cast one vote for each share of common stock of NTS that you owned on the record date.

 

Approval of the Merger Proposal requires the affirmative vote of holders of a majority of the outstanding shares of NTS common stock. Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NTS common stock entitled to vote on the proposal present in person or represented by proxy at the Special Meeting.

 

As of January 21, 2014, the record date, the directors and executive officers of NTS as a group owned and were entitled to vote 11,412,901 shares of the common stock of NTS, representing approximately 26.3% of the outstanding shares of NTS common stock on that date. NTS currently expects that its directors and executive officers will vote their shares in favor of the Merger Proposal, but none of NTS’ directors or executive officers other than the Rollover Holder has entered into any agreement obligating them to do so.

 

Questions

 

If you have additional questions about the Merger or other matters discussed in this proxy statement after reading this proxy statement, you should contact InvestorCom, Inc. (“InvestorCom”), NTS’ proxy solicitation agent. The address of InvestorCom is 65 Locust Avenue, Suite 302, New Canaan, Connecticut 06840. If you would like additional copies of this proxy statement, without charge, or if you have questions about the Merger, including the procedures for voting your shares, you can call InvestorCom toll-free at (877) 972-0090, or you can e-mail InvestorCom at info@investor-com.com.

 

8
 

 

QUESTIONS AND ANSWERS ABOUT THE NTS SPECIAL MEETING

 

The following are answers to some questions that you, as a shareholder of NTS, may have regarding the Merger and the other matters being considered at the Special Meeting of shareholders of NTS, which is referred to herein as the Special Meeting or the NTS Special Meeting. NTS urges you to read carefully the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the Merger and the other matters being considered at the Special Meeting. Additional important information is also contained in the annexes to and the documents incorporated by reference into this proxy statement.

 

Q:           Why am I receiving this proxy statement?

 

A:

The board of directors of NTS is soliciting your proxy to vote at the NTS Special Meeting of shareholders because you owned shares of NTS common stock at the close of business on January 21, 2014, the record date for the NTS Special Meeting, and are therefore entitled to vote at the NTS Special Meeting. This proxy statement, along with a proxy card or a voting instruction card, is being mailed to shareholders on or about January 29, 2014. NTS has made these materials available to you on the internet, and NTS has delivered printed proxy materials to you or sent them to you by e-mail. This proxy statement summarizes the information that you need to know in order to cast your vote at the Special Meeting. You do not need to attend the Special Meeting in person to vote your shares of NTS common stock.

 

In order to complete the Merger, NTS shareholders must vote to approve the Merger Proposal, and all other conditions to the Merger must be satisfied or waived.

 

Q: When and where will the Special Meeting be held?

 

A: The NTS Special Meeting will be held at 10:30 a.m., local time, on Wednesday, February 26, 2014 at the corporate offices of NTS, located at 1220 Broadway, Lubbock, Texas 79401.

 

Q: On what matters will I be voting?

 

A:

You are being asked to approve a proposal to approve the Merger Agreement, dated October 20, 2013, by and among NTS, Holdings and Merger Sub, as such agreement may be amended from time to time. The Merger Agreement provides for, among other things, the Merger Proposal. A copy of the Merger Agreement is attached to this proxy statement as Annex A.

 

In addition you are also being asked to vote on a proposal to adjourn the NTS Special Meeting, if necessary or appropriate, in the view of the NTS board of directors, to solicit additional proxies in favor of the Merger Proposal if there are not sufficient votes at the time of such adjournment to approve either proposal, which is referred to herein as the adjournment proposal.

 

Q: What consideration will NTS shareholders receive if the Merger is completed?

 

A: If the Merger is completed, each issued and outstanding share of NTS common stock will be cancelled and, in lieu thereof, the holders of shares of Company common stock shall be entitled to receive the Merger Consideration, without interest and less any applicable tax withholding.

 

Q: How does the NTS board of directors recommend that I vote?

 

A: The NTS board of directors (with Mr. Nissenson abstaining, for the reasons discussed herein), upon the unanimous recommendation of the special committee, recommends that NTS shareholders vote “FOR” the Merger Proposal and, if necessary, vote “FOR” the adjournment proposal. You should read “Special Factors—The Company’s Purpose and Reasons for the Merger and Recommendation of the Special Committee and the Board of Directors” beginning on page  22 for a discussion of the factors that our board of directors considered in deciding to recommend the approval of the Merger Agreement. In addition, in considering the recommendation of the NTS board of directors, acting upon the unanimous recommendation of the NTS special committee, to approve the Merger Agreement, NTS shareholders should be aware that certain NTS executive officers and directors may be deemed to have interests in the Merger that are different from, or in addition to, those of NTS shareholders generally. These interests, which may create actual or potential conflicts of interest, are, to the extent material, described in the section entitled “Special Factors—Interests of NTS Directors and Executive Officers in the Merger” beginning on page 53.

 

9
 

 

Q: How do I vote?
A: After you have carefully read this proxy statement and have decided how you wish to vote your shares of NTS common stock, please vote your shares promptly.

 

Shareholders of Record

If your shares of NTS common stock are registered directly in your name with NTS’ transfer agent, Transfer Online, Inc., you are the shareholder of record of those shares and these proxy materials have been mailed or e-mailed to you by NTS. You may vote your shares by internet or by mail as further described below. Your vote authorizes Niv Krikov, as your proxy, with the power to appoint his substitute, to represent and vote your shares as you directed.

 

· Vote by Internet—http://www.transferonline.com/proxy

 

  · Use the internet to transmit your voting instructions 24 hours a day, seven days a week until 11:59 p.m. (Eastern Time) on Tuesday, February 25, 2014.

 

  · Please have your proxy card available and follow the instructions to obtain your records and create an electronic ballot.

 

· Vote by Mail

 

  · Complete, date and sign your proxy card and return it in the postage-paid envelope provided.

 

  Only the latest dated proxy received from you, whether by internet or mail, will be voted at the NTS Special Meeting. If you vote by internet, you do not also need to mail your proxy card. You may also vote in person at the NTS Special Meeting.

 

Beneficial Owners

If your shares of NTS common stock are held in a stock brokerage account, by a bank, broker or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your bank, broker or nominee that is considered the holder of record of those shares. As the beneficial owner, you have the right to direct your bank, broker, trustee or nominee on how to vote your shares via the internet or by telephone if the bank, broker, trustee or nominee offers these options or by signing and returning a proxy card. Your bank, broker, trustee or nominee will send you instructions for voting your shares. Please note that you may not vote shares held in street name by returning a proxy card directly to NTS or by voting in person at the Special Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or nominee. Further, brokers, banks and nominees who hold shares of NTS common stock on your behalf may not give a proxy to NTS to vote those shares without specific instructions from you.

 

For a discussion of the rules regarding the voting of shares held by beneficial owners, please see the question below entitled “If I am a beneficial owner of shares of NTS common stock, what happens if I don’t provide voting instructions? What is discretionary voting? What is a broker non-vote?”

 

Q: What vote is required to approve each proposal?

 

A:

Approval of the Merger Proposal requires the affirmative vote of holders of a majority of the outstanding shares of NTS common stock.

 

Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of NTS common stock entitled to vote on the proposal present in person or represented by proxy at the Special Meeting.

 

Q: How many votes do I and others have?

 

A: You are entitled to one vote for each share of NTS common stock that you held as of the record date. As of the close of business on January 21, 2014, the record date, there were 43,436,812 outstanding shares of NTS common stock.

 

10
 

 

Q: How will our directors and executive officers vote on the proposal to approve the Merger Agreement?

 

A: As of January 21, 2014, the record date, the directors and executive officers of NTS as a group owned and were entitled to vote 11,412,901 shares of the common stock of NTS, representing approximately 26.3% of the outstanding shares of NTS common stock on that date. NTS currently expects that its directors and executive officers will vote their shares in favor of the Merger Proposal, but none of NTS’ directors or executive officers other than Guy Nissenson (at times referred to herein as the Rollover Holder) has entered into any agreement obligating any of them to do so.

 

In connection with entry into the Merger Agreement, Holdings, NTS and the Rollover Holder, entered into a voting agreement, which is referred to herein as the Voting Agreement, with respect to the Merger. The Voting Agreement generally requires that the Rollover Holder, in his capacity as a shareholder of NTS, vote all of his shares of NTS common stock in favor of the Merger Proposal and against alternative transactions and generally prohibits the Rollover Holder from transferring his shares of NTS common stock prior to the consummation of the Merger. As of January 21, 2014, the record date, the Rollover Holder beneficially held 6,575,244 shares of NTS common stock, representing beneficial ownership of approximately 14.1% of the shares of NTS common stock, of which 3,432,865 shares are either held of record by the Rollover Holder as of the record date or over which he possesses voting rights and are therefore in either case subject to the Voting Agreement.

 

Q: What will happen if I fail to vote or I abstain from voting?

 

A: Your failure to vote will have the same effect as a vote against the Merger Proposal, but will have no effect on the adjournment proposal. Your abstention from voting will have the same effect as a vote against the Merger Proposal and the adjournment proposal.

 

Q: How many shares must be present to hold the NTS Special Meeting?

 

A: Under Nevada law and the reamended and restated bylaws of NTS, the presence in person or by proxy of a majority of the outstanding shares of NTS common stock entitled to vote at the Special Meeting is necessary to constitute a quorum at the NTS Special Meeting. The inspector of election will determine whether a quorum is present. If you are a beneficial owner (as defined above) of shares of NTS common stock and you do not instruct your bank, broker or other nominee how to vote your shares on any of the proposals, your shares will not be counted as present at the Special Meeting for purposes of determining whether a quorum exists. Votes of shareholders of record who are present at the Special Meeting in person or by proxy will be counted as present at the Special Meeting for purposes of determining whether a quorum exists, whether or not such holder abstains from voting on all of the proposals.

 

Q: If I am a beneficial owner of shares of NTS common stock, what happens if I don’t provide voting instructions? What is discretionary voting? What is a broker non-vote?

 

A: If you are a beneficial owner and you do not provide voting instructions to your broker, bank or other holder of record holding shares for you, your shares will not be voted with respect to any proposal for which your broker does not have discretionary authority to vote. The rules of the NYSE MKT LLC, referred to herein as the NYSE MKT, determine whether proposals presented at shareholder meetings are “discretionary” or “non-discretionary.” If a proposal is determined to be discretionary, your broker, bank or other holder of record is permitted under NYSE MKT rules to vote on the proposal without receiving voting instructions from you. If a proposal is determined to be non-discretionary, your broker, bank or other holder of record is not permitted under NYSE MKT rules to vote on the proposal without receiving voting instructions from you. A “broker non-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a non-discretionary proposal because the holder of record has not received voting instructions from the beneficial owner.

 

Under the rules of the NYSE MKT, each of the proposals to be presented at the NTS Special Meeting is a non-discretionary proposal. Accordingly, if you are a beneficial owner and you do not provide voting instructions to your broker, bank or other holder of record holding shares for you, your shares will not be voted with respect to any of the proposals. A broker non-vote would have the same effect as a vote against the Merger Proposal, but no effect on the adjournment proposal. In addition, such shares will not be considered present at the Special Meeting for purposes of determining the existence of a quorum.

 

Q: What will happen if I return my proxy card without indicating how to vote?

 

A: If you sign and return your proxy card without indicating how to vote on any particular proposal, the NTS common stock represented by your proxy will be voted in favor of each such proposal. Proxy cards that are returned without a signature will not be counted as present at the NTS Special Meeting and cannot be voted.

 

Q: Can I change my vote after I have returned a proxy or voting instruction card?

 

A: Yes. You can change your vote at any time before your proxy is voted at the Special Meeting. You can do this in one of four ways:

 

  · you can grant a new, valid proxy bearing a later date;
     
  · you can send a signed notice of revocation; or
     
  · if you are a holder of record, you can attend the Special Meeting and vote in person, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.
     
  · if your shares of NTS common stock are held in an account with a broker, bank or other nominee, you must follow the instructions on the voting instruction card you received in order to change or revoke your instructions.

 

If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to the Secretary of NTS, as specified in this proxy statement, no later than the beginning of the Special Meeting. If your shares are held in street name by your broker, bank or nominee, you should contact them to change your vote.

 

11
 

 

Q: Do I need identification to attend the NTS Special Meeting in person?

 

A: Yes. Please bring proper identification, together with proof that you are a record owner of shares of NTS common stock. If your shares are held in street name, please bring acceptable proof of ownership, such as a letter from your broker or an account statement stating or showing that you beneficially owned shares of NTS common stock on the record date.

 

Q: Are NTS shareholders entitled to appraisal rights?

 

A: No. The Nevada Revised Statutes, or the NRS, do not provide for appraisal rights in transactions like the proposed Merger and NTS does not intend to offer you appraisal rights.

 

Q: What do I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials for the NTS Special Meeting, including multiple copies of this proxy statement, proxy cards and/or voting instruction forms. This can occur if you hold your shares of NTS common stock in more than one brokerage account, if you hold shares directly as a record holder and also in street name, or otherwise through a nominee, and in certain other circumstances. If you receive more than one set of voting materials, each should be voted and/or returned separately in order to ensure that all of your shares of NTS common stock are voted.

 

Q: If I am an NTS shareholder, should I send in my NTS stock certificates with my proxy card?

 

A: No. Please DO NOT send your NTS stock certificates with your proxy card. After the Merger is completed, if you held certificates representing shares of NTS common stock prior to the Merger, Wells Fargo Bank N.A., Holdings’ paying agent, will send you a letter of transmittal and instructions for exchanging your shares of NTS common stock for the Merger Consideration. Upon surrender of the certificates for cancellation along with the executed letter of transmittal and other required documents described in the instructions, you will receive the Merger Consideration.

 

Q: Do you expect the Merger to be taxable to NTS shareholders?

 

A: Yes. The receipt of the Merger Consideration in exchange for shares of NTS common stock in the Merger will be a fully taxable transaction. Please review carefully the information under “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 55, for a description of the material U.S. federal income tax consequences of the Merger. The tax consequences to you will depend on your own situation. Please consult your tax advisors as to the specific tax consequences to you of the Merger, including the applicability and effect of U.S. federal, state, local and foreign income and other tax laws in light of your particular circumstances.

 

Q: When do you expect the Merger to be completed?

 

A: NTS is working to complete the Merger as quickly as possible, and expects to complete the Merger in the first quarter of 2014. However, NTS cannot assure you when or if the Merger will occur. The Merger is subject to regulatory and shareholder approvals and other conditions, and it is possible that factors outside the control of both NTS and Holdings could result in the Merger being completed at a later time, or not at all. There may be a substantial amount of time between the NTS Special Meeting and the completion of the Merger. NTS hopes to complete the Merger as soon as reasonably practicable following the receipt of all required approvals.

 

Q: Whom should I call with questions about the Special Meeting or the Merger?

 

A: The information provided above in the question-and-answer format is for your convenience only and is merely a summary of some of the information in this proxy statement. You should carefully read the entire proxy statement, including its annexes. If you would like additional copies of this proxy statement, without charge, or if you have questions about the Merger, including the procedures for voting your shares, you should contact InvestorCom, NTS’ proxy solicitation agent. The address of InvestorCom is 65 Locust Avenue, Suite 302, New Canaan, Connecticut 06840. You can call InvestorCom toll-free at (877) 972-0090, or you can e-mail InvestorCom at info@investor-com.com.
   
  You may also wish to consult your legal, tax and/or financial advisors with respect to any aspect of the Merger, the Merger Agreement or other matters discussed in this proxy statement.

 

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Summary Financial Information

 

The following historical consolidated financial information of NTS should be read in conjunction with, and are qualified by reference to, NTS’ consolidated financial statements, including the notes thereto, and the section of this proxy statement entitled “Important Information Regarding the Company — Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” The historical consolidated financial information is derived from, and qualified by reference to, NTS’ audited as well as unaudited consolidated financial statements previously filed with the SEC.

 

      12/31/2012   12/31/2011   9/30/2013   9/30/2012 
      Audited   Audited   Unaudited   Unaudited 
                    
(1)  Current assets   13,912,234    13,680,188    13,187,062      
  Noncurrent assets   94,570,765    77,847,416    104,155,023      
  Current liabilities   20,160,955    17,276,881    22,046,079      
  Noncurrent liabilities   60,918,176    46,583,297    68,279,780      
  Redeemable preferred stocks   N/A    N/A    N/A      
  Noncontrolling interests   N/A    N/A    N/A      
  Total equity   27,403,868    27,667,426    27,016,226      
                       
  Net sales/Gross revenues   59,870,468    57,657,834    44,928,122    44,934,434 
  Cost of services (including related depreciation and amortization)   32,099,954    31,281,372    23,695,179    24,257,550 
  Loss from continuing operations before extraordinary items and cumulative effect of a change in accounting principle   (546,993)   (1,015,844)   (1,126,022)   (297,831)
  Net loss attributable to the entity   (546,993)   (1,167,409)   (1,126,022)   (297,831)
                       
  Basic and diluted loss per share:                    
(2)  Loss from continued operations   (0.01)   (0.04)   (0.03)   (0.01)
(3)  Basic and diluted loss per share   (0.01)   (0.05)   (0.03)   (0.01)
                       
(4)  Ratio of earnings to fixed charges   0.84    0.77    0.63      
                       
(5)  Book value per share as of the most recent balance sheet date             0.62      

 

SPECIAL FACTORS

 

General Description and Effects of the Merger

 

Under the terms of the Merger Agreement and in accordance with the NRS, at the Effective Time, Merger Sub, a wholly owned subsidiary of Holdings, will merge with and into NTS, with NTS surviving the Merger as a wholly owned subsidiary of Holdings. Both Holdings and Merger Sub are affiliates of Tower Three.

 

The completion of the Merger, which is referred to herein as the closing, will take place no later than the second business day after the closing conditions contained in the Merger Agreement have been satisfied or waived (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions), unless another time is agreed to by the parties in writing. The Merger will become effective when the articles of merger are duly filed with the Secretary of State of the State of Nevada or at a later time as agreed by NTS and Holdings and specified in the articles of merger, which is referred to herein as the Effective Time.

 

Pursuant to the Merger Agreement, at the Effective Time, each issued and outstanding share of NTS common stock will be cancelled and, in lieu thereof, the holders of shares of Company common stock shall be entitled to receive the Merger Consideration, without interest and less any applicable tax withholding.  At the closing of the Merger, each holder of a certificate theretofore representing any shares of NTS common stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration upon surrender of such certificate (if such shares are certificated).

 

Following and as a result of the Merger, NTS shareholders (other than the Rollover Holder) will no longer have any interest in, and will no longer be shareholders of, NTS, and will not participate in any of NTS’ future earnings or growth. In addition, upon completion of the Merger, the registration of shares of NTS common stock under the Exchange Act will be terminated and NTS will cease to be a publicly traded company, and price quotations with respect to shares of NTS common stock in the public market will no longer be available. The Merger Agreement is attached as Annex A to this proxy statement.

 

Pursuant to the Merger Agreement, all equity awards relating to shares of NTS common stock other than certain warrants will be cancelled and converted upon the consummation of the Merger into the right to receive the option consideration or the warrant consideration, as the case may be. For additional information on equity awards relating to shares of NTS, see the section entitled “—Treatment of Options and Warrants” beginning on page 57.

 

The parties to the Merger Agreement intend to complete the Merger in the first quarter of 2014. However, the Merger is subject to approvals and other conditions, and it is possible that factors outside the control of the parties could result in the Merger being completed at a later time, or not at all.

 

Background of the Merger

 

The following is a discussion of the Merger, including the process undertaken by the Company, the special committee and the board of directors in identifying and determining whether to engage in the proposed transaction. This discussion of the Merger is qualified by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

 

The board of directors and senior management regularly evaluate the Company’s business strategy, prospects for growth and opportunities to maximize value for the Company’s shareholders. As part of this ongoing process, the board of directors and senior management also periodically review strategic alternatives that may be available to the Company, including potential joint ventures, mergers and acquisitions and divestitures.  The Company and its predecessors have  used Oberon for financial advice and investment banking services on an ongoing basis for approximately ten years, including advising the Company on potential mergers and acquisitions, equity financings and debt financings.

 

On March 7, 2013, Mr. Michael F. Nold, Managing Director of Tower Three, met a representative of Oberon to discuss general business matters unrelated to NTS. During the course of the meeting such representative of Oberon mentioned NTS, and  Mr. Nold expressed an interest in meeting with management and learning more about the Company’s business.

 

On March 14, 2013, Oberon facilitated an introductory telephonic meeting between Mr. Nold and Mr. Guy Nissenson, Chairman of the Board and Chief Executive Officer of the Company. At the end of the discussion  Mr. Nold inquired as to whether the Company would consider a potential transaction. Mr. Nissenson explained that while the Company was not actively exploring strategic transactions, the board of directors always considered opportunities to increase shareholder value.

 

On April 10, 2013, the Company entered into a confidentiality agreement with Tower Three.

 

On April 24, 2013, Mr. Nold, Mr. Nissenson and a representative of Oberon had a meeting in Dallas, Texas. At the conclusion of the meeting, Mr. Nold indicated to the representative of Oberon that a potential acquisition proposal for the Company might be made by Tower Three, subject to diligence. Following this meeting, the Company provided due diligence materials, including certain information on potential future financial performance prepared by management (the “April Projections”) to Tower Three.

 

On May 29, 2013, Mr. Nissenson, Mr. Tal Sheynfeld, Executive Vice President of Business Development at NTS Communications, Inc. (“NTSC”), and a representative of Oberon met with representatives of Tower Three, including Mr. Nold, at Tower Three’s offices in Greenwich, Connecticut. At the meeting, Mr. Nold indicated that Tower Three might be willing to pay $2.00 per share to acquire the Company, subject to further business diligence.

 

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On June 17, 2013, the Company entered into an engagement letter with Oberon to act as a financial advisor in connection with the possible sale of the Company.

 

On July 2, 2013, another potential financial sponsor  (“Company A”) approached the Company with respect to a potential transaction.

 

On July 7, 2013, the Company and  Company A  executed a confidentiality agreement and certain due diligence materials were thereafter shared by the Company with Company A.

 

In the middle of July 2013, Company A had a telephonic meeting with Company management inquiring as to whether the Company would be interested in pursuing an at-the-market “private investment in public equity” (“PIPE”) transaction. The trading price of the Company’s stock at this time was approximately $1.50. No indication of interest, however, was ultimately received from Company A.

 

In late July 2013, Mr. Nissenson and Tower Three had a preliminary discussion regarding Mr. Nissenson’s potential role in the Company on a post-transaction basis. Tower Three indicated a desire for Mr. Nissenson to roll over some of his equity in NTS into Tower Three's acquisition vehicle and serve on the board of directors of that entity. Tower Three also indicated a preference that Mr. Nissenson enter into a new employment agreement to replace his current employment agreement. Mr. Nissenson indicated to Mr. Nold that he was not averse to rolling over a portion of his equity in the Company.

 

On August 2, 2013, the Company received a preliminary and non-binding indication of interest, (the “Indication of Interest”), from Tower Three to acquire all of the Company’s outstanding equity at a cash purchase price of $2.00 per share, an approximately 28% premium over the average closing trading price for the Company’s shares of common stock over the previous 30-day trading period, subject to confirmatory due diligence and certain other conditions set forth in the Indication of Interest, including that Mr. Nissenson roll over a portion of his equity in the Company. The Indication of Interest provided for a 30-day exclusivity period.  The Indication of Interest also provided that Tower Three anticipated retaining select members of the Company’s senior management, including Mr. Nissenson, after the closing of the potential transaction.  The Indication of Interest was circulated to the NTS board of directors shortly after its receipt by management.

 

On August 6, 2013, the NTS board of directors convened a telephonic meeting. A representative from Sichenzia Ross Friedman Ference LLP (“Sichenzia”), outside corporate counsel to the Company, participated in the meeting. Mr. Nissenson provided an overview of the Indication of Interest, including the condition that he roll over a portion of his equity in the Company, and his preliminary meetings to date with Mr. Nold and other representatives of Tower Three, which letter and preliminary meetings were subsequently discussed by the board of directors. The representative from Sichenzia reviewed the board of directors’ fiduciary duties in the context of a potential sale of the Company. In addition, given Mr. Nissenson’s potential direct interest in the transaction, the representative from Sichenzia highlighted the potential of forming a special committee of independent directors to consider the Company’s strategic options and negotiate any potential sale. The board of directors then engaged in further discussion and agreed (with Mr. Nissenson abstaining) to (a) explore the potential sale of the Company to Tower Three, (b) approve the entry into exclusivity with Tower Three at a subsequent time (see following paragraph), and (c) notwithstanding that the NTS board of directors was, other than Mr. Nissenson, composed of non-employee directors without any potential conflicts of interest, form a special committee, consisting of three independent directors, Messrs. Jeffrey E. Eberwein, Don Carlos Bell III and Richard K. Coleman, Jr., to evaluate a potential strategic transaction with Tower Three and any other strategic alternatives available to the Company. Messrs. Eberwein, Bell and Coleman were selected to serve on the special committee based on their independence as directors as well as their financial and industry experience and acumen. The special committee was authorized to (i) explore and evaluate the proposed transaction with Tower Three, (ii) review, and hold meetings and discussions regarding, alternate proposals for business combinations or other strategic transactions involving the Company and evaluate potential counterparties, (iii) make recommendations to the board of directors regarding the foregoing , including recommending that the board of directors not approve the transaction  and (iv) retain, at the expense of the Company, such financial, legal and other advisors and/or seek fairness or other professional opinions as it deemed appropriate. The board of directors also determined that Mr. Nissenson, Mr. Niv Krikov, Chief Financial Officer of the Company, and Mr. Alon Reisser, General Counsel and Corporate Secretary of the Company, because of their knowledge of the Company’s business, should participate at meetings of the special committee but have no voting rights. The board of directors also determined to not  immediately sign the Indication of Interest, which would have bound the Company to the 30-day exclusivity period.

 

On August 14, 2013, Mr. Nissenson, Mr. Sheynfeld and representatives of Tower Three and Oberon met at Tower Three’s offices in Greenwich, Connecticut and discussed the Company’s business,  growth opportunities and capital needs.

 

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Also on August 14, 2013, the Company released and filed its quarterly report on Form 10-Q for the three months ended June 30, 2013. The Company disclosed a net loss of $984,731 for the three months ended June 30, 2013, a decrease of $1,057,476 compared to the net gain of $72,745 reported for the three months ended June 30, 2012, which was primarily attributable to increases in the Company’s selling expenses, general and administrative expenses and financing expenses.

 

On August 19, 2013, Mr. Nold asked a representative of Oberon whether the Company was prepared to agree to the exclusivity provision in the Indication of Interest.

 

On August 23, 2013, the Company agreed to enter into exclusivity with Tower Three and representatives of the Company and Oberon began the process of creating and populating a virtual data room containing diligence materials and other information responsive to Tower Three’s due diligence requests and provided Tower Three and its representatives with access to the virtual data room.

 

On August 27, 2013, representatives of Tower Three circulated a preliminary timetable for completing their due diligence.

 

On August 29, 2013, the special committee met telephonically, and  Oberon provided an update with respect to Tower Three’s ongoing due diligence.

 

From late August through the beginning of October 2013, Tower Three and its financial and legal advisors conducted an extensive due diligence review of the Company’s financial, legal and other matters.

 

On September 4, 2013, Company A sent an email to the Company asking for an update with respect to their previous conversations in July 2013. The Company advised Company A that it was unable to discuss a potential transaction with them due to the exclusivity agreement with Tower Three. On September 6, 2013, in accordance with the terms of the exclusivity arrangements, a representative of Oberon notified Tower Three on behalf of the Company of the Company’s receipt of correspondence from Company A.

 

On September 10, 2013, the special committee  convened a telephonic meeting which Mr. Eberwein did not attend. Oberon updated the special committee with respect to Tower Three’s progress in completing its due diligence. The special committee discussed whether Tower Three could complete its due diligence and enter into a definitive agreement with the Company within the 30-day exclusivity period. In addition, a representative of Oberon advised the special committee that he had sent an email on September 6, 2013 to Tower Three on behalf of the Company notifying them of correspondence the Company had received from Company A. The representative of Oberon explained to the special committee that  Company A had previously indicated in July 2013 that it would consider a potential PIPE transaction but that a valuation of the Company at or around $2.00 per share was likely too high, in light of Company A’s earlier indication that the purchase price for the PIPE transaction would be at an " at-the-market " price.   During the discussion, it was noted that such a potential transaction, aside from suggesting a lower valuation premium, was  dilutive to the shareholders of the Company.

 

On September 17, 2013, given (i) Mr. Nissenson’s potential direct interest in the transaction, (ii) the objective of limiting participation in special committee meetings to independent members of the board of directors with guests to be invited as necessary or deemed appropriate by the special committee and (iii) the fact that Tower Three had indicated that its counsel was in the process of drafting an initial draft of the Merger Agreement for distribution to the Company in the next few days, Messrs. Nissenson, Krikov and Reisser stepped down from their participatory, non-voting roles in the special committee.  Mr. Nissenson thereafter was invited to participate in meetings of the special committee solely in order to update the special committee on the Company’s progress in responding to Tower Three’s due diligence requests. On the same day, the special committee convened a telephonic meeting attended by Olshan Frome Wolosky, LLP (“Olshan”), whom the special committee had engaged as its independent legal advisor  to advise the special committee on the proposed transaction with Tower Three and any strategic alternatives.  The special committee  also elected Mr. Eberwein as Chairman of the special committee. Mr. Eberwein’s election had been delayed in part due to the Company not entering into exclusivity with Tower Three until the 17th day after the special committee was formed. Mr. Eberwein was chosen as Chairman of the special committee due to his background of investing in securities of public companies as well as his experience serving on the boards of directors (and audit and corporate governance committees thereof) of several public and non-public companies.

 

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On September 19, 2013, the special committee convened a telephonic meeting which Mr. Coleman did not attend. Representatives of Oberon and Olshan and Mr. Nissenson  were invited to participate. Oberon updated the special committee with respect to Tower Three’s progress in completing its due diligence, noting that Tower Three had requested a three-week extension of exclusivity through October 15, 2013 to ensure there was adequate time to complete its due diligence and to negotiate the terms of a definitive merger  agreement.

 

Olshan advised the special committee that it had contacted Weil, Gotshal & Manges LLP (“Weil”), legal counsel to Tower Three, to discuss the proposed transaction and to advise them that Olshan had been engaged as counsel to the special committee. Olshan reviewed their discussion with Weil. Mr. Nissenson was asked for management’s perspective on extending exclusivity. Mr. Nissenson indicated he believed Tower Three was serious about pursuing a transaction, and while he was not averse to an extension, it should not be for an extended period of time and that the due diligence process should not be open-ended.  At the special committee’s request, Mr. Nissenson excused himself from the meeting.

 

Olshan then summarized the disclosure and other legal matters, including the board of directors’ fiduciary duties to shareholders implicated by a potential sale of the Company. The special committee noted that any definitive agreement with Tower Three or its affiliates should contain provisions  such as a “go shop” that would enable the board to confirm that the proposed Merger consideration being offered by Tower Three was the best price reasonably obtainable for the Company's shares. The special committee discussed the process for requesting a fairness opinion with respect to Tower Three’s per share offer price in the event that the special committee determined that a transaction with Tower Three was in the best interests of the Company's shareholders. Finally, the special committee discussed an extension of exclusivity with Tower Three. It was noted that Tower Three had devoted, and was continuing to devote, significant resources to the proposed transaction. The special committee determined to recommend to the board of directors that exclusivity be extended until the early part of the week of September 21, 2013, and that additional extensions be contingent upon the special committee’s initial review of the draft merger agreement, but that such extension would not exceed two weeks in total.

 

On September 21, 2013, additional management projections prepared by the Company were provided to Tower Three.

 

On September 22, 2013, the board of directors convened a telephonic meeting to discuss granting an extension  of Tower Three's exclusivity period. The board of directors (with Mr. Nissenson abstaining) authorized and empowered the special committee , in its sole discretion and upon such terms as it deemed appropriate, to extend Tower Three’s exclusivity through October 6, 2013. Later on the same day, the special committee convened a telephonic meeting and determined to extend exclusively with Tower Three  to September 25, 2013,  pending receipt of a draft Merger Agreement.

 

On September 23, 2013, Olshan received from Weil a  draft Merger Agreement.

 

On September 25, 2013, the special committee convened a telephonic meeting to which Mr. Nissenson, Mr. Alan L. Bazaar, a director and the Chairman of the Company’s audit committee, and representatives of Oberon and Olshan were invited. Mr. Nissenson provided a detailed update on the ongoing due diligence process, after which he excused himself from the meeting at the special committee’s request. Oberon noted that due diligence seemed to be concluding and Tower Three continued to move forward on the proposed transaction. Olshan reviewed some of the key provisions in the draft Merger Agreement, including a termination fee equal to 5.5% of the Company’s enterprise value, the lack of a “go-shop” provision allowing the Company to actively solicit competing proposals and continue negotiating after the expiration of the go-shop period with parties that had made bona fide competing proposals during the go-shop period and the lack of a majority of disinterested shareholders voting requirement. Olshan reviewed the significance of these provisions and a proposed non-solicitation provision. Olshan also highlighted certain issues which could impact certainty of closing, such as a requirement that the Company accomplish the exercise of warrants held by certain warrant holders who were not required, under the terms of their warrants, to exercise their warrants and that prior to closing the Company obtain various contractual and regulatory consents.   Following discussion, the  special committee instructed Olshan to revise the draft  Merger Agreement to include a significantly reduced termination fee, a go-shop provision, fewer closing conditions, a majority of disinterested shareholders voting requirement and a more flexible non-solicitation provision.

 

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The special committee also discussed retaining a second investment banker to evaluate, from a financial point of view, the fairness of the consideration to be received by the unaffiliated shareholders of the Company in any transaction, including with Tower Three,  and reviewed the qualifications of several investment banking firms. It was the consensus of the special committee that it should begin the process of retaining a second investment banker to potentially provide such an opinion. The special committee believed a second fairness opinion would further confirm the fairness of a transaction, including the Merger.  The special committee also agreed to extend exclusivity with Tower Three  until October 6, 2013.

 

On September 27, 2013, Olshan circulated a revised draft of the Merger Agreement , which included a 45-day go-shop period, a bifurcated break-up fee depending on whether the event giving rise to such termination involved a third party that submitted an alternative transaction proposal during the go-shop period, a reduction in the number of closing conditions and a requirement that a majority of disinterested shareholders approve the transaction.

 

On September 29, 2013, the Company prepared and provided to Tower Three management projections updating the set of projections provided to Tower Three on September 21, 2013.

 

Between September 30 and October 2, 2013, Mr. Bell and representatives of Olshan held discussions with representatives of B. Riley and two other investment banking firms, each of which had extensive expertise with merger and acquisition advisory matters.

 

On September 30, 2013, Mr. Nissenson advised the Chairman of the special committee as well as the respective legal counsels to the Company and the special committee that he had engaged his own counsel to represent him with respect to the Rollover Agreement, the Voting Agreement and employment related matters, if any.

 

Later that same day, Weil circulated a list of issues to be discussed with respect to Olshan’s revised draft of the Merger Agreement and proposed a conference call the following day to discuss.

 

On October 1, 2013, Weil, Olshan, Sichenzia and the Company’s in-house counsel held a conference call to discuss Olshan’s proposed revisions to the Merger Agreement, including, among other things, the proposal to leave certain warrants outstanding unless the warrant holders elected to exercise them before closing, the inclusion of a go-shop provision, changes to the non-solicitation provision, the elimination of a number of closing conditions, the insertion of a majority of disinterested shareholders voting requirement and the reduction of the termination fee, none of which had been viewed favorably by Tower Three. The revised draft of the Merger Agreement also included a reverse termination fee payable by Holdings if the Merger Agreement were to be terminated by the Company because of Holdings’ breach of the Merger Agreement or if Holdings had not closed the Merger within two business days of notice that all closing conditions had been satisfied.

 

Later the same day, Weil circulated initial drafts of the Rollover Agreement and Voting Agreement to Phelps Dunbar LLP, Mr. Nissenson's legal counsel, and a draft of the Limited Guarantee to the Company, Sichenzia and Olshan.

 

At a telephonic meeting held on October 2, 2013, the special committee determined, after considering the respective qualifications, reputations, experience and proposed fee arrangements of the independent investment banking firms previously interviewed , to retain B. Riley. In addition, the special committee discussed whether Oberon should be requested to give a fairness opinion if a definitive agreement was entered into given Oberon’s familiarity with the Company and their knowledge of the telecommunications industry. The special committee also discussed under what circumstances they would agree to further extend exclusivity with Tower Three.

 

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On October 3, 2013, Olshan circulated to Weil proposed revisions to the Merger Agreement, which primarily related to the Company’s representations and warranties.

 

On October 4, 2013, the board of directors convened a telephonic meeting to receive an update on the special committee's discussions with Tower Three and determined (with Mr. Nissenson abstaining) to (i) authorize and empower the special committee to, in its sole judgment and on such terms as the special committee deemed appropriate, further extend Tower Three's exclusivity period, provided that such extension or extensions would not exceed a cumulative 21 days, and, (ii) upon the recommendation of the compensation committee and in view of the time being expended by the members of the special committee, to compensate each member of the special committee with a flat fee of $15,000, payable whether or not the proposed transaction was completed, in two equal installments in the fourth quarter of 2013 and the first quarter of 2014, respectively. On the same day, at the direction of the special committee, the Company entered into an engagement letter with B. Riley to provide a fairness opinion and agreed to extend Tower Three’s exclusivity period to October 13, 2013.

 

Later on October 4, 2013, B. Riley contacted Olshan to discuss the proposed transaction’s background and expected timetable for entering into a definitive Merger Agreement and also sent to Olshan a list of diligence requests, which Olshan and the Company provided responses to over the course of the next two days.

 

Over the course of October 7 and October 8, 2013, Olshan circulated to Weil a revised draft of the Limited Guarantee and several additional comments to the Merger Agreement on behalf of the Company’s in-house and Israeli counsel.

 

On October 8, 2013, B. Riley met telephonically with the Company’s senior management to conduct a due diligence session and discuss the Company’s evaluation of the potential transaction with Tower Three and the business, operating and regulatory environment, financial condition, prospects and strategic objectives of the Company.

 

Later on October 8, 2013, Weil circulated to the Company and Olshan a revised draft of the Merger Agreement which proposed, among other things, (i) a 15-day go-shop period, (ii) deleting the majority of disinterested shareholders voting requirement, (iii) re-inserting as a closing condition the receipt of certain consents and approvals in addition to applicable FCC and state regulatory consents, (iv) a termination fee equal to 4.5% of the aggregate Merger Consideration, with a Company termination fee of 2.5% of the aggregate Merger Consideration if the event giving rise to such termination involved a third party that submitted an alternative transaction proposal during the go-shop period, and (v) reducing the reverse termination fee from 9% of the aggregate Merger Consideration to 6.75% of the aggregate Merger Consideration. Weil also circulated a revised draft of the Limited Guarantee.

 

On October 9, 2013, Olshan communicated with the special committee highlighting the issues presented by Weil’s revised draft of the Merger Agreement. Through further communication on the same day, the special committee indicated to Olshan its recommendations with respect to the open items, including accepting the deletion of the majority of disinterested shareholders voting requirement in light of Tower Three’s acceptance of a go-shop period. While it was the consensus of the special committee that based on their industry and financial experience a $2.00 per share price was a favorable price, the special committee noted that the fifteen day go-shop period was not enough time to conduct an adequate market check and determine whether there were other potential parties interested in pursuing a transaction with the Company on more favorable terms than what Tower Three was proposing.

 

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On October 10, 2013, Olshan distributed to Weil a revised draft of the Merger Agreement, which proposed, among other things, (i) a lengthening of the go-shop period to 30 days, (ii) accepting the deletion of the majority of disinterested shareholders voting requirement, (iii) decreasing the Company’s termination fees to 2.5% of the aggregate Merger Consideration, with a Company termination fee of 1.5% of the aggregate Merger Consideration if the event giving rise to such termination involved a third party that submitted an alternative transaction proposal during the go-shop period, (iv) limiting the consents and approvals the Company would be required to obtain to applicable FCC and state regulatory consents and (v) confirming Tower Three’s proposed reverse termination fee.

 

On October 11, 2013, Oberon, at the request of the special committee, entered into an amendment to its engagement letter with the Company agreeing to undertake an analysis and deliver an opinion to the NTS board of directors as to whether the consideration to be paid to holders of Company common stock was fair from a financial point of view to such shareholders. Under the terms of the amendment to Oberon’s engagement letter, a portion of Oberon’s previously negotiated advisory fee would be payable upon the delivery of Oberon’s fairness opinion. On the same day, Oberon and B. Riley received from the Company certain internal business, operating and financial information and forecasts of the Company for fiscal years 2013 through 2018 (the “Forecasts”).

 

On October 12, 2013, Weil, Olshan, Sichenzia and the Company’s in-house counsel held a conference call to discuss the proposed revisions to the draft Merger Agreement. Among other concessions, Weil indicated that Tower Three was willing to leave certain warrants outstanding and that the reverse termination fee would be calculated on a multiple of the larger termination fee as opposed to a multiple of the lower termination fee payable in connection with certain go-shop period events. Other issues were discussed but remained outstanding at the conclusion of the conference call, including those related to the length of the go-shop period, the Company’s termination fees, the extent of Tower Three’s reimbursable expenses, and whether the Company would accept a closing condition requiring it to obtain consents and approvals other than applicable FCC and state regulatory approvals. Weil indicated that it would distribute a revised draft of the Merger Agreement by the end of the following day.

 

Following the conference call, Olshan communicated the above open issues to the special committee. The special committee reaffirmed its position that no fewer than 30 days would be sufficient to encourage an effective market check process, and that it might be willing to concede an increase in the termination fee related to certain go-shop period events in exchange for a longer go-shop period.

 

On October 13, 2013, the special committee convened a telephonic meeting to discuss the Company termination fees proposed by Tower Three as well as whether to further extend the exclusivity with Tower Three  period. The special committee decided to extend exclusivity to October 16, 2013.

 

Later on October 13, 2013, Weil circulated a revised draft of the Merger Agreement and Limited Guarantee to Olshan.

 

In the evening of October 14, 2013, the special committee convened separate telephonic meetings to discuss B. Riley’s and Oberon’s preliminary financial analyses of the proposed transaction with Tower Three, as well as each investment bank's respective views concerning the fairness, from a financial point of view, of the proposed Merger Consideration in the proposed transaction with Tower Three and their accompanying board of directors presentations, each of which had been received by the special committee earlier in the day. The special committee forwarded these materials  to the board of directors later that evening.

 

On October 15, 2013, the board of directors convened a telephonic meeting. Oberon and B. Riley were invited to join at separate times to present their preliminary views as to the Merger Consideration and the financial analyses that they were likely to use in connection with rendering their fairness opinions. Oberon presented the various financial analyses it had performed, including selected comparable public companies analysis, selected comparable precedent transaction analysis and discounted cash flow analysis. Oberon also explained that the Company projections distributed to Tower Three on September 21, 2013 (and updated September 29, 2013) were optimistic and prepared under the assumption that the Company would have a recapitalized balance sheet and that such projections were not used by Oberon in connection with the preparation of its fairness opinions.  Oberon then left the telephonic meeting and representatives of B. Riley joined the telephonic meeting. B. Riley then provided a summary of the various financial analyses it had performed, including selected comparable public companies analysis, selected precedent transactions analysis, discounted cash flow analysis and selected premiums paid analysis. B. Riley also did not use the Company projections distributed to Tower Three on September 21, 2013 (and updated September 29, 2013) in connection with the preparation of its fairness opinion for the same reasons that Oberon did not.

 

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Later on October 15, 2013, the special committee convened a telephonic meeting with Olshan to discuss the latest developments in the potential transaction with Tower Three. Olshan gave a detailed update on the open transaction points. It was noted that Tower Three had offered to extend the go-shop period to 25 days with an additional 10-day period for the Company to negotiate alternatives with an excluded party.  In exchange for this increase, Tower Three insisted that the Company termination fee be 2.5% of the aggregate Merger Consideration if the event giving rise to such termination involved a third party that submitted an alternative transaction proposal during the go-shop period, and 4.5% of the aggregate Merger Consideration in all other circumstances. Olshan explained that, given the interplay between the larger Company termination fee of 4.5% of the aggregate Merger Consideration and the Holdings reverse termination fee, Tower Three would have to agree to a reverse termination fee of 6.75%. After a full discussion and noting the progress which had been made in negotiating a proposed transaction, the special committee agreed to extend exclusivity until October 18, 2013.

 

During the week of October 14, 2013, Weil and Olshan exchanged drafts of the Merger Agreement and continued to negotiate the remaining open items in the Merger Agreement. The special committee reiterated that the go-shop period should be 30 days. Among other matters, the parties ultimately agreed to (i) lengthen the go-shop period to 30 days and allow the Company to continue negotiating after the expiration of the go-shop period, for a period of up to 10 days thereafter, with excluded parties, (ii) significantly reduce the number of third party consents required to be obtained by the Company before closing, thereby creating greater certainty of closing and (iii) a Company termination fee of $4,094,247 (representing 4.5% of the aggregate Merger Consideration), with a Company termination fee of $2,274,852 (representing 2.5% of the aggregate Merger Consideration) if the event giving rise to such termination involved a third party that submitted an alternative transaction proposal during the go-shop period, and a Holdings reverse termination fee of $6,141,371 (representing 6.75% of the aggregate Merger Consideration). Among the outstanding issues was the extent to which Tower Three’s expenses would be reimbursable by the Company in the event the Merger Agreement was terminated under specified circumstances. It was the view of the special committee that any expense reimbursement should not be additive to the termination fee.

 

On October 17, 2013, Mr. Nold and , at the request of Mr. Eberwein, Chairman of the special committee, a representative of Oberon, held a series of telephonic meetings to discuss the remaining open issues in the Merger Agreement.

 

Also on October 17, 2013, the Company’s in-house counsel circulated revised drafts of the Merger Agreement, the Limited Guarantee and the Voting Agreement to the full board of directors.

 

On October 18 and 19, 2013, Tower Three and the special committee continued to negotiate the remaining open items in the Merger Agreement.

 

On October 20, 2013, the Company and Tower Three finalized the Merger Agreement and circulated proposed execution versions of the Merger Agreement, the Limited Guarantee and the Voting Agreement, which were forwarded to the special committee and the full board of directors. On the same day, the special committee convened a telephonic meeting, attended by Olshan. Olshan summarized the changes made to the proposed execution version of the Merger Agreement since the draft Merger Agreement dated October 17, 2013. It was noted that Mr. Nissenson (who was not invited to the telephonic meeting) had an interest in the Merger in addition to the interests of the Company’s shareholders generally; namely, his expected ownership of equity interests in the sole member of Holdings. The special committee considered the fact that no negotiations were conducted over Tower Three’s initial per share offer price, which represented a premium of approximately 27% over the stock’s closing price on October 18, 2013. The special committee concluded the price offered by Tower Three already represented an attractive valuation for the Company’s unaffiliated shareholders when considered in light of the Company’s second quarter financial results and management’s estimates for third quarter results, fourth quarter outlook and full year performance, as well as the special committee’s knowledge and understanding of the business, operations, financial condition, earnings and prospects of the Company, including the prospects of the Company as an independent entity. After considering the proposed terms of the Merger Agreement and the other transaction agreements, the fact that Tower Three’s per share offer price represented a premium of approximately 27% over the stock’s closing price on October 18, 2013, the financial analyses and presentations of B. Riley and Oberon that it had previously reviewed, the special committee unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement were advisable and fair to and in the best interests of the Company and its unaffiliated shareholders, and unanimously recommended to the board of directors that it approve the Merger Agreement.

 

Still later on October 20, 2013, and following the meeting of the special committee, the board of directors convened a telephonic meeting with Sichenzia and Olshan in attendance. Mr. Nissenson gave his views on the potential transaction to the board of directors. It was noted that Mr. Nissenson had an interest in the Merger in addition to the interests of the Company’s shareholders generally; namely, his expected ownership of equity interests in the sole member of Holdings.  Mr. Nissenson and the members of the special committee, with participation from Olshan and Sichenzia, provided the board of directors with a summary of the finalized version of the Merger Agreement and explained the differences between the draft Merger Agreement dated as of October 17, 2013 and the Merger Agreement under consideration, including a lower cap to Tower Three’s reimbursable expenses payable by the Company.

 

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B. Riley was then invited to join the telephonic meeting to present to the board of directors the various financial analyses it had performed, including selected comparable public companies analysis, selected precedent transactions analysis, discounted cash flow analysis and selected premiums paid analysis. B. Riley then verbally rendered its opinion to the board of directors, which was confirmed in writing by delivery of its written opinion, dated the same date, that as of that date based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by B. Riley, the $2.00 per share Merger Consideration was fair, from a financial point of view, to the holders of the Company common stock (other than the Rollover Holder). The full text of the opinion delivered by B. Riley on October 20, 2013 is attached as Annex D to this proxy statement. B. Riley left the telephonic meeting and representatives of Oberon joined the telephonic meeting. Oberon provided to the board of directors the various financial analyses it had performed, including selected comparable public companies analysis, selected comparable precedent transaction analysis and discounted cash flow analysis. Oberon then verbally rendered their opinion to the board of directors, which was confirmed in writing by delivery of its written opinion, dated the same date, that Oberon considered the per share Merger Consideration to be fair, from a financial point of view, to the holders of the Company common stock (other than the Rollover Holder). The full text of the opinion delivered by Oberon on October 20, 2013 is attached as Annex C to this proxy statement. Oberon then left the telephonic meeting. Thereafter the special committee presented its recommendation to the board of directors. After due consideration of the presentations made by B. Riley and Oberon, the unanimous recommendation of the special committee, discussions with Mr. Nissenson, Olshan and the members of the special committee, the receipt of the fairness opinions from each of B. Riley and Oberon and having deemed the terms thereof to be fair to and in the best interest of the Company’s unaffiliated shareholders, the board of directors (other than Mr. Nissenson, who abstained from voting) unanimously approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and determined to recommend that the shareholders of the Company approve the Merger Agreement. Later that same evening, Holdings, Merger Sub and the Company executed the Merger Agreement and the other transaction documents.

 

On the morning of October 21, 2013, the Company and Tower Three issued a joint press release announcing the execution of the Merger Agreement and related documents. A copy of the press release was furnished as an exhibit to the Form 8-K filed by the Company with the SEC on October 21, 2013, and is incorporated by reference herein.

 

The Merger Agreement provides that after the execution and delivery of the Merger Agreement and until 12:01 a.m., New York time, on November 19, 2013, hereinafter referred to as the go-shop period, the Company and its subsidiaries and their respective representatives may initiate, solicit and encourage the making of alternative takeover proposals, including by providing nonpublic information to, and participating in discussions and negotiations with, third parties in respect of alternative takeover proposals. Promptly after the announcement of the Merger Agreement on October 21, 2013, at the direction and under the supervision of the special committee, Oberon began the process of contacting third parties, including Company A. Almost immediately after the announcement of the Merger Agreement, Company A began conducting extensive due diligence on the Company.

 

On October 28, 2013, the special committee held a telephonic meeting which was attended by representatives of Olshan and Oberon. Representatives of Oberon provided a summary of the go-shop process to the special committee and explained that Oberon had contacted a total of 41 parties (including 18 strategic parties and 23 financial sponsors) and certain members of the special committee contacted an additional two financial sponsors, of which 15 responded that they were not interested. Oberon noted that it had also received an unsolicited inquiry regarding a potential transaction from one financial sponsor. Oberon explained that five of the parties had executed a confidentiality agreement with the Company and that no proposals had been received as of such date. Oberon indicated that of the parties that passed, many cited the $2.00 per share consideration and the lack of synergies as reasons for not continuing to pursue a transaction.

 

On October 30, 2013, Oberon updated  the special committee and Olshan with respect to the go-shop process noting that Company A was no longer interested in making a bid, and of the original five parties that had executed a confidentiality agreement (including Company A), two had already indicated that they would not pursue a transaction with the Company. Company A did not indicate why it was no longer interested in making a bid. Of the remaining parties, only two parties (a strategic party, “Company B,” and a financial sponsor, “Company C”) seemed to remain actively involved in conducting due diligence.

 

On October 31, 2013, a financial sponsor (“Company D”) executed a confidentiality agreement with the Company.

 

On November 1, 2013, the special committee convened a telephonic meeting at which representatives of Oberon and Olshan were also present, during which a representative of Oberon updated the special committee regarding the go-shop process, including that Company B was continuing to conduct extensive due diligence. The special committee agreed that the Company should be as cooperative as practicable in facilitating Company B's due diligence efforts.

 

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On November 5, 2013, a strategic party (“Company E”) executed a confidentiality agreement with the Company.

 

On November 8, 2013, Oberon informed the special committee that Company C was no longer interested in making a bid because it determined the valuation of the Company was too high and that the communities served by the Company’s subsidiary, PRIDE Network, Inc., had lower density rates than it desired.

 

On November 11, 2013, Company B and Company D informed Oberon that they were no longer interested in making a bid. Company B indicated it did not view the markets served by PRIDE Network, Inc., nor the related government (Rural Utilities Service) financing, consistent with its business model. Company D indicated that it would not proceed due to the high enterprise value of the transaction.

 

On November 16, 2013, Company E informed Oberon that it was no longer interested in making a bid. Company E did not indicate a reason for not ultimately making a bid.

 

The last remaining party that had executed a confidentiality agreement with the Company did not submit a bid during the go-shop period.

 

The Company’s Purpose and Reasons for the Merger and Recommendation of the Special Committee and the Board of Directors

 

The Company

The Company’s purpose for engaging in the Merger is to enable the Company’s shareholders to receive $2.00 per share in cash, without interest and less any applicable withholding taxes, which $2.00 per share Merger Consideration represents a premium of approximately 27% over the closing price of the Company’s common stock on October 18, 2013, the last trading day before the Merger was announced, and a premium of approximately 25% over the volume-weighted average closing price of the Company’s common stock for the 30 trading days ending on October 18, 2013. The Company believes its long-term objectives can better be pursued as a private company with greater operating flexibility without the constraint of the public market’s emphasis on quarterly earnings as well as other limitations and expenses associated with remaining a public company. The Company has determined to undertake the Merger at this time based on the analyses, determinations and conclusions of the special committee and the board of directors described in detail below.

 

Special Committee

The special committee, consisting solely of independent directors, with the assistance of its own independent legal advisor, evaluated and participated in the negotiation of the Merger, including the terms and conditions of the Merger Agreement, with Holdings and Merger Sub. At the telephonic meeting held on October 20, 2013 described above, the special committee unanimously recommended the approval of the Merger Agreement to the full board of directors and the board of directors (with Mr. Nissenson abstaining) determined to recommend to the Company’s shareholders that they vote for the approval of the Merger Agreement. In reaching this determination, the special committee considered the same factors considered by the NTS board of directors as described below, including the fact that certain of the Company’s directors and executive officers (including Mr. Nissenson) may be deemed to have interests in the Merger that are different from, or in addition to, the interests of the Company’s shareholders generally (among other things, the expected ownership of equity interests in the sole member of Holdings by Mr. Nissenson). In addition, the special committee considered the fact that the Merger does not require approval by holders of at least a majority of the shares of Company common stock held by the Company’s unaffiliated shareholders, and shared the board of directors’ belief as described below that the approval by a majority of shares held by unaffiliated holders was not required to protect the interests of the unaffiliated shareholders because the affiliated shareholders of the Company (including the Rollover Holder and the other officers and directors of the Company), who are entitled to vote at the Special Meeting, will dispose of their shares of Company common stock (other than the Rollover Shares) in the Merger for the same consideration as will be received by the unaffiliated shareholders in the Merger. Accordingly, the special committee concluded that the interests of the affiliated shareholders would be substantially aligned with the interests of the unaffiliated shareholders with respect to the Merger vote.

 

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Board of Directors

The board of directors, with the assistance of the Company’s management, legal advisor, considered the unanimous recommendation of the special committee and carefully evaluated the Merger Agreement and the transactions contemplated thereby.  At the telephonic meeting held on October 20, 2013 described above, the board of directors unanimously (with the exception of Mr. Nissenson, who abstained from voting due to his interests in the Merger) (i) determined that the Merger Proposal is fair to, advisable and in the best interests of the Company as a whole and the unaffiliated shareholders of the Company, (ii) approved, adopted and declared advisable the Merger Agreement and the Merger Proposal and the other transactions contemplated by the Merger Agreement, (iii) directed that the Merger Agreement be submitted for consideration by the Company’s shareholders at a special meeting thereof and (iv) determined to recommend that the Company’s shareholders vote “FOR” the approval of the Merger Agreement. The board of directors’ purpose for engaging in the Merger is to enable the Company’s shareholders to immediately realize the value of their investment in the Company through their receipt of $2.00 per share in cash, without interest and less any applicable withholding taxes, which $2.00 per share Merger Consideration represents a premium of approximately 27% over the closing price of the Company’s common stock on October 18, 2013, the last trading day before the Merger was announced, and a premium of approximately 25% over the volume-weighted average closing price of the Company’s common stock for the 30 trading days ending on October 18, 2013. In evaluating the Merger Proposal, the board of directors consulted with its legal and financial advisors and considered a number of factors that supported their decision, including the following:

 

· the fact that the $2.00 in cash being paid for each outstanding share of Company common stock represented a premium of 27% to the closing price of the Company common stock on the NYSE MKT on October 18, 2013, the last trading day before the Merger Agreement was signed, a premium of 25% based on the Company’s 30-day volume-weighted average price on that date, a premium of 19% based on the Company’s 90-day volume-weighted average price on that date, a premium of 48% based on the Company’s 180-day volume-weighted average price on that date, a premium of 55% based on the Company’s one-year volume-weighted average price on that date and a premium of 123% based on the Company’s two-year volume-weighted average price on that date;

 

· the favorable financial and other terms and conditions of the Merger Agreement and the transactions contemplated thereby as reviewed by the board of directors, and the fact that such matters were the product of extensive negotiations between the parties, including:

 

Ø the Company’s ability during the go-shop period to initiate, solicit and encourage alternative takeover proposals from third parties and to enter into, engage in, and maintain discussions or negotiations with third parties with respect to such proposals;

 

Ø the Company’s ability to continue discussions after the end of the go-shop period for a period of up to 10 days with parties from whom the Company may receive during the go-shop period a takeover proposal that the board of directors determines (after consultation with independent financial advisors and outside legal counsel and upon recommendation thereof by the special committee), prior to the end of the go-shop period, is bona fide and constitutes a superior proposal or would reasonably be expected to lead to a superior proposal;

 

Ø the fact that, subject to compliance with the terms and conditions of the Merger Agreement, the Company is permitted under certain circumstances after the end of the go-shop period to engage in or otherwise participate in discussions or negotiations with third parties that make an unsolicited proposal relating to a competing transaction for the acquisition of the Company (as described in the section below entitled “The Merger Agreement—Other Takeover Proposals” beginning on page 69);

 

Ø the fact that, subject to compliance with the terms and conditions of the Merger Agreement, including, without limitation, the Company’s payment of the appropriate termination fee under certain circumstances, the board of directors, acting upon the recommendation of the special committee, may change its recommendation to the Company’s shareholders in response to either (1) an intervening event or (2) a superior proposal, if it determines, after consultation with its outside financial advisors and outside counsel, that not doing so would be inconsistent with its fiduciary duties under applicable law (see the sections below entitled “The Merger Agreement—Termination” beginning on page  75 and “The Merger Agreement—Termination Fees” beginning on page 76);

 

Ø the termination fee and expenses payable to Holdings under certain circumstances, including as described above, in connection with a termination of the Merger Agreement, which the board of directors concluded were reasonable in the context of termination fees and expenses payable in comparable transactions and in light of the overall terms of the Merger Agreement including the per share Merger Consideration;

 

Ø the fact that the Merger Agreement provides that, in the event the Merger Agreement is terminated due to a failure of the Merger to be consummated under certain circumstances, Holdings will pay the Company a $6,141,371 termination fee, without any requirement that the Company be obligated to establish any damages;

 

Ø the fact that, in connection with the execution of the Merger Agreement, Tower Three Partners Fund II LP, an investment fund managed by an affiliate of Holdings, which we refer to herein as the Guarantor, provided the Company with a Limited Guarantee in favor of the Company guaranteeing the payment of Holdings’ payment obligations in the event such are payable by Holdings;

 

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· the lack of any financing contingencies in the Merger Agreement, and limited closing conditions in the Merger Agreement, which together created additional certainty of closing;

 

· the Company’s current and historical financial condition and results of operation, as well as its prospects and strategic objectives if it were to retain its current ownership structure. The board of directors believes that the Company faces difficult industry, operational and financing challenges for the foreseeable future and that the Company’s future financial condition, results of operation, prospects and strategic objectives would be best served through a sale of the Company at this time. The financial, operational and capital factors used to determine such conclusion included:

 

Ø the fact that the Company operates in a highly competitive environment which is generally characterized by the dominance of Incumbent Local Exchange Carriers, referred to herein as ILECs, such as AT&T, Incumbent Cable TV Providers, referred to herein as ICTVPs, such as Time Warner Communications, and other smaller Competitive Local Exchange Carriers, referred to herein as CLECs;

 

Ø the fact that the Company has experienced net losses in the six month period ended June 30, 2013 and in each of its fiscal years ended December 31, 2012, 2011 and 2010;

 

Ø the fact that the Company has experienced consistently negative net working capital balances, reporting working capital deficits in each of its fiscal years ended December 31, 2012, 2011 and 2010; and

 

Ø given the Company’s low fiber-optic network densities in rural areas, the difficulties associated with replicating elsewhere the successful extension of the Company’s FTTP network to Levelland, Texas and Smyer, Texas.

 

· the fact that the Merger Consideration to be paid is all cash, which, assuming closing of the Merger Agreement, provides certainty of value and liquidity to the Company’s shareholders since they will not be exposed to the risks and uncertainties relating to the Company’s prospects;

 

· the directors’ familiarity with, and presentations by the Company’s management regarding, the business, operations, properties and assets, financial condition, business strategy, the estimated value of the Company’s assets and prospects of the Company, as well as the risks involved in achieving those prospects, the nature of the industry in which the Company competes, industry trends and economic and market conditions, both on an historical and on a prospective basis;

 

· the potential shareholder value that could be expected to be generated from the strategic alternatives available to the Company, including the alternatives of:

 

Ø remaining independent; however, the board of directors believed the Merger was more favorable to shareholders than maintaining its current ownership structure given the risks of successfully executing the Company’s independent growth plans in light of the increased competition in the telecommunications industry from ILECs, ICTVPs and CLECs and the financial, operational and capital challenges affecting the Company. In particular, the alternative of remaining independent required significant capital investment to enable the Company to remain competitive and execute its growth plans under its current ownership structure; and

 

Ø making one or more strategic acquisitions; however, the board of directors decided it did not believe that there were suitable acquisitions which would address the competitive, financial and operational problems facing the Company, principally the Company’s ability to execute its business plan in light of the increased competition in the telecommunications industry and the financial and operational challenges facing the Company. In addition, the Company, which already has considerable working capital needs, would require a significant infusion of capital in order to complete one or more such strategic acquisitions.

 

· the fact that the board of directors considered more than one fairness opinion, and that the financial presentations of Oberon and B. Riley and their respective opinions delivered to the board of directors, each dated October 20, 2013, provided that, as of October 20, 2013 and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration, consisting of $2.00 in cash to be received by the holders of Company common stock (other than the Rollover Holder with respect to the Rollover Shares) was fair from a financial point of view to holders of such shares. While the opinion of Oberon addressed the fairness of the Merger Consideration to be received by all shareholders (except with respect to the Rollover Shares) and the B. Riley opinion addressed the fairness of the Merger Consideration to be received by all shareholders (other than the Rollover Holder with respect to the Rollover Shares), in each case rather than with respect to all shareholders unaffiliated with the Company, this group of shareholders includes all of the Company’s unaffiliated shareholders. Moreover, all affiliated shareholders of the Company (including the Rollover Holder and the other officers and directors of the Company), who are entitled to vote at the Special Meeting, will dispose of their shares of Company common stock (other than the Rollover Shares) in the Merger for the same consideration as will be received by the unaffiliated shareholders in the Merger. Accordingly, the board of directors concluded that the interests of such affiliated shareholders would be substantially aligned with the interests of the unaffiliated shareholders. Therefore the fact (i) the opinion of Oberon addressed the fairness of the Merger Consideration to be received by all shareholders (except with respect to the Rollover Shares) and (ii) that the opinion of B. Riley only addressed fairness with respect to holders of shares of Company common stock (other than the Rollover Holder with respect to the Rollover Shares) did not affect its reliance on such opinions in making its fairness determination with respect to all unaffiliated shareholders of the Company. The full texts of the opinions, which set forth the assumptions made, matters considered and limitations on the scope of review undertaken by Oberon and B. Riley in rendering their respective opinions, are attached to this proxy statement as Annex C and Annex D, respectively. A discussion of the opinion and presentation appears in the section below entitled “—Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors”;

 

· the possibility that it could take a considerable period of time before the trading price of the Company’s common stock would reach and sustain at least the per share Merger Consideration of $2.00, as adjusted for present value;

 

· the reputation of Tower Three and its ability to complete acquisition transactions similar in size; and

 

· the likelihood and anticipated timing of completing the proposed Merger in light of the scope of the conditions to completion, including the absence of significant required regulatory approvals.

 

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In analyzing the proposed Merger and in reaching its determination as to the fairness to the unaffiliated shareholders of the transactions contemplated by the Merger Agreement, including the Merger, the NTS board of directors did not rely on a separate going concern analysis as it is the belief of Oberon and B. Riley that the respective financial analyses that they conducted collectively assess pre-merger going concern value. However, among the valuation methodologies conducted by Oberon, which included a selected comparable public companies analysis, a selected comparable precedent transaction analysis and a discounted cash flow analysis, and B. Riley, which included a selected comparable public companies analysis, selected precedent transactions analysis, a discounted cash flow analysis and a selected premiums paid analysis, was a review of the Company’s stock price trading history, which generally accounted for all information publicly known about the Company, including the Company’s pre-merger high cost of capital, particularly under its outstanding loan agreements with ICON Agent, LLC, as well as the Company’s history of losses. Moreover, the board of directors believed that a separate going concern valuation would not by its nature be meaningful in providing a pertinent figure to use in gauging the Company’s value because the Company has a history of losses and is currently highly leveraged and thinly capitalized.

 

Except as otherwise described in “—Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors” below, the board of directors did not specifically consider the net book value or the liquidation value of the Company as factors in assessing the fair value of the Company because the board of directors did not consider them relevant to its determination. The board of directors did not consider the liquidation value of the Company because it considered the Company to be a viable going concern. Therefore, the board of directors believes that the liquidation value of the Company is irrelevant to a determination as to whether the Merger is fair to the Company’s unaffiliated shareholders, and no appraisal of liquidation value was sought for purposes of valuing the Company’s common stock. Further, net book value, which is an accounting concept, was not considered as a factor because the board of directors believes that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and excludes intangible assets. The board of directors notes, however, that the per share Merger Consideration of $2.00 per share is higher than the net book value of the Company per share of $0.62 as of September 30, 2013.

 

The board of directors was not aware of any firm offer made to the Company by any unaffiliated person during the past two years for the merger or consolidation of the Company into another company, the sale or transfer of all or any substantial part of the assets of the Company to another company, or the purchase of a controlling stake in the Company by another company, and no such firm offer was considered as a factor in either of the special committee’s or the board of directors’ decisions.

 

The board of directors believes that sufficient procedural safeguards were and are present to ensure the fairness (both substantive and procedural) of the Merger to the Company’s unaffiliated shareholders. These procedural safeguards include the following:

 

· the fact that the special committee is comprised entirely of independent directors (who are not affiliated with either the Rollover Holder or Holdings, Merger Sub or any direct or indirect wholly owned subsidiary of Holdings and are not employees of the Company of any of its subsidiaries) to whom the board of directors delegated the authority to, among other things, (i) explore and evaluate the proposed transaction with Tower Three, (ii) review, and hold meetings and discussions regarding, alternate proposals for business combinations or other strategic transactions involving the Company and evaluate potential counterparties, and (iii) make recommendations to the board of directors regarding the foregoing;

 

· the fact that the special committee retained its own independent legal advisor, and the fact that the special committee retained B. Riley to provide an opinion in addition to the opinion delivered by Oberon as to the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of Company common stock (other than the Rollover Holder);

 

· the recognition by the special committee that it had the authority not to recommend to the full board of directors the approval of the Merger or any other transaction;

 

· the fact that, other than the indemnification of and provision of directors and officers liability insurance for each director for six years from and after the Effective Time and the special committee fees (which are not contingent upon the consummation of the Merger or the special committee’s or the board of directors’ recommendation of the Merger), the members of the special committee will not receive any consideration in connection with the Merger that is different from that received by any other shareholder of the Company; and

 

· the fact that, subject to compliance with the terms and conditions of the Merger Agreement, the Company is permitted under certain circumstances to engage in or otherwise participate in discussions or negotiations in response to unsolicited inquiries regarding proposals for a competing proposal for the acquisition of the Company, and the board of directors is permitted to change its recommendation in light of a superior proposal.

 

The board of directors also considered a variety of risks and other potentially negative factors concerning the Merger Agreement and the Merger, including the following:

 

· the fact that the Merger is subject to conditions, including certain conditions that may not be satisfied, and may not be completed on a timely basis, or at all, and that the failure to complete the Merger could have material and adverse effects on the Company;

 

· the risks and costs to the Company if the proposed Merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on the Company’s various business relationships;

 

· that the public shareholders of the Company (other than the Rollover Holder, who will maintain an indirect equity interest in the Company) will have no ongoing equity in the Surviving Corporation following the proposed Merger, meaning that the public shareholders (other than the Rollover Holder) will cease to participate in the Company’s future earnings or growth, if any, or to benefit from any increases in the value of the Company’s common stock;

 

· the fact that certain of the Company’s directors and executive officers (including the Rollover Holder) may be deemed to have interests in the Merger that are different from, or in addition to, the interests of the Company’s shareholders generally (namely, the expected ownership of equity interests in the sole member of Holdings by the Rollover Holder);

 

· the fact that the Merger Agreement contains a non-solicitation provision that limits the Company’s ability to pursue alternatives to the Merger after the end of the go-shop period;

 

· the fact that the fairness opinions obtained by the board of directors from Oberon and B. Riley will not reflect changes in circumstances between the signing of the Merger Agreement and the completion of the Merger;

 

· the fact that the operations of the Company will be restricted by interim operating covenants during the period between signing the Merger Agreement and the closing of the Merger, which could effectively prohibit the Company from undertaking any strategic initiatives or other material transactions to the detriment of the Company and its shareholders;

 

· that no pre-signing auction or other pre-signing market check was conducted;

 

· the possibility that one of two alternative termination fees payable by the Company upon the termination of the Merger Agreement under certain circumstances may discourage other potential acquirers from making a competing proposal for a transaction with the Company;

 

· the risk that the Voting Agreement and the Rollover Holder’s participation in the proposed transaction may deter third parties from submitting competing proposals;

 

· the fact that Holdings and Merger Sub are newly formed corporations with essentially no assets, and that the Company’s remedy in the event of breach of the Merger Agreement by Holdings or Merger Sub may be limited to receipt of the $6,141,371 reverse termination fee, which is guaranteed by the Guarantor; and

 

· the fact that an all cash transaction would be taxable to the Company’s shareholders.

 

In addition, the board of directors noted that the Merger does not require approval by holders of at least a majority of the shares of Company common stock held by the Company’s unaffiliated shareholders. The board of directors did not believe that such approval was required to protect the interests of the unaffiliated shareholders because the affiliated shareholders of the Company (including the Rollover Holder and other officers and directors of the Company), who are entitled to vote at the Special Meeting, will dispose of their shares of Company common stock (other than the Rollover Shares) in the Merger for the same consideration as will be received by the unaffiliated shareholders in the Merger. Accordingly, the board of directors concluded that the interests of such affiliated shareholders would be substantially aligned with the interests of the unaffiliated shareholders with respect to the Merger vote.

 

25
 

 

The foregoing discussion is not intended to be exhaustive, but rather includes and summarizes the material factors considered by the board of directors in its consideration of the Merger. After considering these factors, the board of directors concluded that the positive factors relating to the Merger Agreement and the Merger outweighed the negative factors. In view of the wide variety of factors considered by the board of directors, the board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the board of directors may have assigned different weights to various factors. The special committee unanimously recommended the Merger Agreement to the board of directors (with Mr. Nissenson abstaining), and the board of directors has adopted and now recommends the Merger Agreement and the Merger based upon the totality of the information presented to and considered by it. In light of the procedural protections described above, other than the special committee and its legal advisor, the NTS board of directors did not consider it necessary to retain an unaffiliated representative to act solely on behalf of the Company’s unaffiliated shareholders for purposes of negotiating the terms of the Merger Agreement or preparing a report concerning the fairness of the Merger Agreement and the Merger, nor did the NTS board of directors consider it necessary to make any provision to grant unaffiliated shareholders access to the Company’s corporate files or to obtain counsel or appraisal services for unaffiliated shareholders.

 

Differing Interests of NTS Shareholders and the Rollover Holder in the Merger

The interests of NTS shareholders (other than the Rollover Holder) with respect to the Merger Consideration are significantly different from the interests of the Rollover Holder, who will immediately prior to the closing receive securities of the sole member of Holdings in consideration for shares of Company common stock that he presently owns representing the equivalent of the right to receive $2,781,742 in Merger Consideration (which equals 30% of the total value of the Rollover Holder’s equity ownership of NTS including his stock options, based on the Merger Consideration), referred to herein as the Rollover Shares.  As a result, following the consummation of the Merger, NTS shareholders will not have a direct or indirect equity ownership interest in Holdings or any of its assets, but the Rollover Holder will. Negotiations related to the Rollover Holder's future employment agreement have not  proceeded beyond a preliminary stage, although the Rollover Holder expects to conduct negotiations regarding a going-forward employment arrangement prior to the consummation of the Merger. See “Special Factors—Background of the Merger” beginning on page 13.

 

For a further discussion of the differing effects of the Merger on the Rollover Holder and NTS shareholders, see “—Certain Effects of the Merger.” Currently, the Rollover Holder is party to an employment agreement with the Company.

 

Certain Effects of the Merger and Plans for the Company After the Merger

If the Merger Agreement is approved by NTS’ shareholders and certain other conditions to the closing of the Merger are either satisfied or waived, Merger Sub will be merged with and into NTS with NTS being the Surviving Corporation, and continuing in existence as a wholly owned subsidiary of Holdings and an affiliate thereof.

 

At the Effective Time each issued and outstanding share of NTS common stock will be cancelled and, in lieu thereof, the holders of shares of Company common stock shall be entitled to receive the Merger Consideration, without interest and less any applicable tax withholding.  However, the Rollover Holder will immediately prior to the closing receive securities of the sole member of Holdings in consideration for the Rollover Shares, which constitute the equivalent of the right to receive $2,781,742 in Merger Consideration.

 

A primary benefit of the Merger to NTS’ shareholders will be the right of such shareholders to receive a cash payment of $2.00, without interest and less any applicable tax withholding, for each share of NTS common stock held by such shareholders as described above, representing a premium of approximately 25% to the average closing market price of the NTS common stock over the 30-day trading period immediately preceding October 18, 2013. Additionally, after the Merger such shareholders will no longer be subject to the risk of any possible decrease in the value of NTS common stock.

 

The primary detriments of the Merger to such shareholders include the fact that the receipt of the Merger Consideration will generally be a taxable sale transaction for U.S. federal income tax purposes to NTS shareholders who surrender shares of NTS common stock in the Merger.  Another detriment will be that none of the current NTS shareholders will, unlike the Rollover Holder, have the right to benefit from the future growth and earnings of NTS, if any.

 

If the Merger is completed, NTS’ unaffiliated shareholders will have no interest in its net book value or net earnings. The table below sets forth the direct and indirect interests in NTS’ net book value and net earnings of the Rollover Holder prior to and immediately after the Merger, based upon the net book value of NTS at September 30, 2013 and at December 31, 2012, and the net income of NTS for the year ended December 31, 2012.

 

26
 

 

    Ownership Prior to the Merger  
    Net Book Value     Net Income  
    December 31, 2012     September 30, 2013     December 31, 2012  
    %     $(000’s)     %      $(000’s)     %     $(000’s)  
Name                                                
                                                 
Guy Nissenson     11.2       2,910       11.1       2,869       11.2       (61 )

 

    Ownership After the Merger  
    Net Book Value     Net Income  
    December 31, 2012     September 30, 2013     December 31, 2012  
    %     $(000’s)     %      $(000’s)     %     $(000’s)  
Name                                                
                                                 
Guy Nissenson     2.6       687       2.7       696       2.6       (14 )

 

Following the Merger, all of the equity interests in NTS will be owned, directly or indirectly, by Holdings.  The primary benefit of the Merger to Holdings and the Rollover Holder is that after the Merger, the Holdings Parties and the Rollover Holder will be the sole beneficiaries of NTS’ future earnings and growth, which, if they successfully execute their business strategies, could be substantial. In addition, Holdings will be the only persons entitled to vote on corporate matters affecting NTS following the Merger. Similarly, the Holdings Parties, the T3 Parties and the Rollover Holder will also bear the risks of ongoing operations, including the risks of any decrease in the value of NTS after the Merger, which is the primary detriment of the Merger to these parties.  Another benefit of the Merger to Holdings and the Rollover Holder is that, after the Merger, NTS will be a private company, and as such will be relieved of the burdens and costs imposed on companies with publicly-traded equity, including the requirements and restrictions on trading that NTS’ directors and executive officers, among others, face as a result of the provisions of Section 16 of the Exchange Act.

 

The primary detriments of the Merger to the Holdings Parties and the Rollover Holder include the fact that all of the risk of any possible decrease in NTS’ earnings, growth or value, and all of the risks related to NTS’ additional leverage, following the Merger will be borne by Holdings (and, indirectly, the Rollover Holder). Additionally, the Rollover Holder’s investment in the sole member of Holdings, and Holdings’ investment in NTS, will not be liquid, with no public trading market for such securities, and each such investment may be subject to contractual restrictions on transfer.

 

It is expected that, upon consummation of the proposed Merger, NTS’ business and other operations will be conducted in substantially the same manner as they are currently being conducted.  While Holdings, the other Holdings Parties and the T3 Parties do not have any current plans to effectuate any extraordinary transactions with respect to the Company, including by way of its merger or sale or other disposition of a material amount of its assets, following the consummation of the proposed Merger, the management and/or board of directors of the Surviving Corporation will continue to assess the assets, capital structure, operations, business and personnel of the Surviving Corporation and, as a result, may implement changes they believe are appropriate to enhance the business and operations of the Surviving Corporation at any time following the Merger.

 

NTS’ common stock is currently registered under the Exchange Act and is quoted on the NYSE MKT under the symbol “NTS.” As a result of the Merger, NTS will be a wholly owned subsidiary of Holdings and there will be no public market for its common stock, which will cease to be quoted on the NYSE MKT or TASE.  In addition, registration of the common stock under the Exchange Act will be terminated and NTS will no longer file periodic reports with the SEC with respect to the common stock.

 

Merger Sub’s articles of incorporation and bylaws will become the articles of incorporation and bylaws of the Surviving Corporation, until amended.

 

If the Merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of unaffiliated shareholders’ shares of Company common stock. In the event the Merger is not completed, the NTS board of directors will continue to evaluate and review its business operations, prospects and capitalization, make such changes as are deemed appropriate and seek to identify acquisitions, joint ventures or strategic alternatives to enhance shareholder value. If the Merger Agreement is not approved by the NTS shareholders, or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to NTS will be offered or that its business, prospects or results of operations will not be adversely impacted.

 

If the Merger Agreement is terminated under certain circumstances, NTS will be obligated to pay Holdings a termination fee.  Holdings will be obligated to pay NTS the reverse termination fee if the Merger Agreement is terminated under certain other circumstances. For a description of the circumstances triggering payment of these termination fees, see “The Merger Agreement—Termination Fees and Reimbursement of Expenses”.

 

27
 

 

Certain Information Prepared by the Management of NTS

NTS does not as a matter of course make public forecasts on projected financial performance because of the unpredictability of the underlying assumptions and estimates. However, on April 24, 2013, in connection with Tower Three’s due diligence review of NTS, NTS provided Tower Three with the  April Projections. On October 11, 2013, the Company also provided the Forecasts to Oberon and B. Riley to use in connection with their respective financial analyses, as summarized in “Special Factors—Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors.” The Forecasts and  April  Projections as set forth below represented Company management’s best view of the Company’s future financial performance as of the time the Forecasts were prepared. The Forecasts and April Projections were prepared on a basis consistent with the accounting principles used in the Company’s historical internal financial statements.

 

The Company also provided certain information regarding its projected financial performance to Tower Three on September 21, 2013 (the “September 21 projections”) and updated on September 29, 2013 (the “ September 29 projections,” and together with the September 21 projections, the “September Projections”) (see “Special Factors—Background of the Merger”). However, such information did not serve as the basis for Tower Three’s offer made on August 2, 2013 to acquire all of the Company’s outstanding equity at a cash purchase price of $2.00 per share, nor was such information used or relied upon by Tower Three in its final decision to cause Holdings and Merger Sub to enter into the Merger Agreement with the Company. However, the projections provided to Tower Three on September 21, 2013 and September 29, 2013 have nevertheless been summarized herein.

 

The Forecasts and April Projections were not prepared with a view to public disclosure and the tables summarizing the Forecasts and April Projections below are included in this proxy statement only to give shareholders access to the information that was made available, in whole or in part, to, in the case of the Forecasts, Oberon and B. Riley for use in connection with their respective financial analyses summarized below and, in the case of the  April Projections, Tower Three during their due diligence review of the Company, and are not included in this proxy statement in order to influence any shareholder to make any investment decision with respect to the proposed Merger or any other purposes. The Forecasts and April Projections were not prepared with a view to compliance with published guidelines of the SEC regarding projections, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, or U.S. generally accepted accounting principles (“GAAP”). Furthermore, neither Baker Tilly Virchow Krause, LLP, the Company’s independent registered public accounting firm, nor any other independent accountants, has examined, reviewed, compiled, or otherwise applied procedures to the Forecasts and, accordingly, assumes no responsibility for, and expresses no opinion on them.

 

In compiling the Forecasts and April Projections, Company management took into account historical performance, combined with estimates regarding client assets, revenues, operating income, and EBITDA (as defined below), and these estimates were in turn developed taking into account trends in historical and expected operational performance on a variety of operational and financial metrics. Although the Forecasts and April Projections are presented with numerical specificity, they reflect numerous assumptions and estimates as to future events made by Company management that Company management believed were reasonable at the time the Forecasts and April Projections were prepared. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. In addition, factors such as the conditions of the telecommunications industry and general economic, regulatory and market conditions, all of which are difficult to predict and beyond the control of Company management, may cause the Forecasts and April Projections or the underlying assumptions not to be reflective of actual future results. In addition, the Forecasts and April Projections do not take into account any circumstances or events occurring after they were prepared and, accordingly, do not give effect to the Merger or any changes to the Company’s operations or strategy that may be implemented after the completion of the Merger. As a result, there can be no assurance that either the Forecasts or April Projections will be realized, and actual results may be materially better or worse than those contained in the Forecasts and April Projections. The inclusion of this information should not be regarded as an indication that the Company, Tower Three, the Rollover Holder, Oberon, B. Riley, or any other recipient of this information considered, or now considers, either the Forecasts or  April Projections to be material information or predictive of actual future results.

 

Except to the extent required by applicable federal securities laws, NTS does not intend, and expressly disclaims any responsibility to, update or otherwise revise either the Forecasts or the April Projections to reflect circumstances existing after the date when prepared or to reflect the occurrence of future events even in the event that any of the assumptions underlying the Forecasts and April Projections are shown to be in doubt or error. The Forecasts and April Projections constitute forward looking statements; see “Cautionary Statement Regarding Forward-Looking Statements.”

 

Certain of the financial measures in the Forecasts, April Projections and September Projections set forth in the tables below, including EBITDA, EBITDAS, Pro Forma EBITDA and Adjusted EBITDA, may be considered non-GAAP financial measures. The Company provided the Forecasts to Oberon and B. Riley because the Company believed it could be useful in evaluating, on a prospective basis, the Company’s operating performance and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used in the Forecasts, April Projections and September Projections may not be comparable to similarly titled amounts used by other companies. The Company has provided a reconciliation of the non-GAAP measures to the most directly comparable GAAP financial measures beginning on page 31.

 

28
 

 

The Company’s senior management employed the following key assumptions in preparing the Forecasts summarized in the table below, which were provided to the NTS board of directors, Oberon and B. Riley.

 

Assumptions included:

 

·UNE-L (Unbundled Network Element – Loop) markets would experience a quarterly decline of business customers in the range of 2-7% and for residential customers in the range of 5-8%, and ARPU (average revenue per user) in those markets would experience a quarterly change in the range of +0.5% to -2.6% for business customers and 0% - 1.3% for residential customers. In addition, UNE-L markets where the Company has a smart build presence would experience additional cannibalization of 25% of new customers added in such smart build projects;
·Carrier revenue would decline at a quarterly rate of 1%;
·Other business revenue would experience a quarterly decline in customers of 3% and a quarterly increase in ARPU of 1%;
·Other non-fiber revenues would experience a quarterly decline of 1-4%;
·Variable non-fiber COGs (cost of goods) would experience a quarterly increase of 0-0.5% of revenues;
·Fixed non-fiber COGS would experience a quarterly decline of 1%;
·Business and residential variable fiber COGS would be 3.4% and 41.3%, respectively, as a percentage of revenue;
·Fixed fiber COGS would experience a quarterly increase of 1% for the projected period until the end of 2016, and an annual increase of 4% in 2017-2018;
·Selling expenses would experience a quarterly increase of 1.5%;
·Bad debt as a percentage of revenue would be 1.5%;
·The Company would commence paying taxes in 2016, with an expected tax rate of 35%;
·Property taxes would be 1.25% of sales;
·General cost savings would be realized at 75% of management’s plan;
·Wholesale fiber revenue would experience a quarterly increase of 2% and an annual increase of 5% from 2017-2018;
·New projects in Midland, Odessa and new Rural Utilities Service projects would be realized with 20% probability;
·Fiber revenue would increase by 16% from 2013 to 2018 on a compounded annual gross rate basis. Business and residential take rate and ARPU assumptions are based on taking 75% of the growth and the ARPU rates the Company experienced in its Levelland project; and
·The Company would maintain its current capital structure.

 

   Year Ended December 31, 
Forecasts  2013P   2014P   2015P   2016P   2017P   2018P 
   (in millions) 
Selected Income Statement Information                              
Revenue  $60.5   $64.8   $70.0   $73.1   $73.6   $72.8 
Gross Profit   34.4    39.3    44.3    47.5    48.4    48.3 
EBITDA(1)   14.6    18.4    22.4    24.6    25.6    25.4 
Adjusted EBITDA(2)   14.7    19.5    23.8    26.1    27.0    26.9 
Free cash flow reconciliation(3)                              
Net Income   -    5.8    10.2    11.1    13.8    14.6 
Depreciation and Amortization   -    7.4    7.9    8.3    2.2    2.2 
Stock-based compensation and other non-cash items   -    1.2    1.2    0.5    0.5    0.5 
Change in working capital   -    (0.6)   (0.5)   (0.5)   (0.1)   (0.3)
Capital expenditures   -    (10.5)   (7.7)   (5.1)   (4.4)   (2.6)

 

 

 

(1)   EBITDA represents earnings before interest, taxes, depreciation, amortization, stock-based compensation and other non-recurring items.
(2)   Adjusted EBITDA includes planned costs savings by management, consisting of reduction in payroll, information technology, transport and headquarters related costs.

(3)   The Forecasts provided to Oberon and B. Riley in connection with the preparation of their respective fairness opinions understated the Company’s projected depreciation and amortization in 2017 and 2018 by approximately $6.2 million for each of the forecasted years. As a result, projected net income for 2017 and 2018 shown here is overstated by approximately $4.0 million for each of the forecasted years, and projected free cash flow for 2017 and 2018 is understated by approximately $2.2 million for each of the forecasted years. In addition, the range of per share equity values indicated by the respective discounted cash flow analyses of Oberon and B. Riley were therefore understated by approximately $0.06 to $0.07 and $0.05 to $0.06, respectively. See the sections entitled “Special Factors—Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors—Opinion of Oberon Securities, LLC, Financial Advisor to the Board of Directors—Discounted Cash Flow Analysis” and “Special Factors—Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors—Opinion of B. Riley to the Board of Directors—Discounted Cash Flow Analysis.”

 

29
 

 

The Company’s senior management employed the following key assumptions in preparing the April Projections summarized in the table below, which were provided by management to Tower Three.

 

Assumptions include:

 

·Projected ARPU in new FTTP markets as follows:

 

   2012   2013   2014   2015 
Pride 1  $150   $150   $155   $159 
Pride 2  $140   $140   $144   $149 
Pride 3  $180   $180   $185   $191 
Wichita Falls  $245   $245   $245   $245 
Abilene  $250   $250   $250   $250 
Amarillo  $275   $275   $275   $275 

 

·An expected increase in fiber revenues in Lubbock, Texas and Levelland, Texas of 6% in each year from 2013 to 2015. Fiber revenues in other markets is based on projected additional business and residential customers as follows:
   
   Q1
2013
   Q2
2013
   Q3
2013
   Q4
2013
   Q1
2014
   Q2
2014
   Q3
2014
   Q4
2014
   Q1
2016
   Q2
2016
   Q3
2015
   Q4
2015
 
PRIDE 1   450    450    450    450    300    300    300    300    300    300    300    300 
PRIDE 2   275    375    375    375    225    225    225    175    75    75    75    75 
PRIDE 3   -    400    600    600    375    375    375    375    225    225    225    225 
Wichita Falls   120    98    54    47    33    19    12    12    12    12    12    12 
Abilene   -    -    120    90    55    45    27    18    15    15    15    15 
Amarillo   -    -    -    240    200    96    84    30    26    18    18    18 

 

·An expected quarterly decline in business and residential customers in UNE-L markets in the range of 5-6%;
·An expected quarterly decline of 5-6% in carrier revenue;
·An expected quarterly increase in non-fiber COGs of 0.5% of revenues;
·COGs of fiber business and residential revenues in the PRIDE Network, Inc. markets would equal 15% and 40%, respectively; fiber COGs would be stable as a percentage of revenues between 2013 and 2015;
·Selling expenses as a percentage of revenue would equal 5.7-6.2%;
·Bad debt as a percentage of revenue would be 1.3%;
·An expected tax rate of 35%;
·Property taxes would equal 1.25% of sales; and
·The Company would maintain its current capital structure.

 

   Year Ended December 31, 
April Projections  2013P   2014P   2015P 
   (in millions) 
Selected Income Statement Information               
Revenue  $62.1   $68.0   $70.1 
Gross Profit   36.0    42.2    45.2 
EBITDA(1)   16.1    21.4    23.4 
EBITDAS(2)   16.3    21.7    23.7 

 

 

(1)   EBITDA represents earnings before interest, taxes, depreciation and amortization.
(2)   EBITDAS represents EBITDA before stock-based compensation.

 

30
 

 

The foregoing summaries of the Forecasts and April Projections are qualified in their entirety, except as noted by footnote 3 in the preceeding table summarizing the Forecasts, by reference to the copies of the Forecasts and April Projections attached as exhibits to the transaction statement on Schedule 13E-3 filed by the Company and the filing  persons thereon with the SEC on November 22, 2013. The Forecasts are included as exhibit (c)(6) to the transaction statement on Schedule 13E-3 and the April Projections are included as exhibit (c)(5) to the transaction statement on Schedule 13E-3.

 

In preparing the September 21 projections and the September 29 projections, the Company made certain assumptions that it did not make in preparing the April Projections or the Forecasts, including completion of the transaction with Tower Three. The September Projections assumed the Company would have access to additional capital as a result of debt refinancing and/or infusions of capital as a result of the Merger. This capital could, among other things, facilitate various transactions which would not otherwise be available to the Company as a highly leveraged, thinly capitalized entity as is currently the case. Accordingly, this access to capital resulted in differences to, among other line items, the projected revenues in major markets and in sales, general and administrative expenses. In the September 29 projections, the Company still assumed the completion of the Merger but made certain minimal adjustments to the September 21 projections. As a result of the assumptions made in preparing the September Projections, they do not reflect management’s expectations for the Company on a stand-alone basis and therefore would not provide a useful guide to shareholders in determining whether they should approve the transaction with Tower Three.

 

In preparing the Forecasts, the Company instead assumed, among the other assumptions disclosed on page 29 above, that the Company would continue to operate on a stand-alone basis and continue to be highly leveraged, and as such would need to preserve and manage its cash to service its continuing debt obligations as opposed to reinvesting it for growth initiatives. In addition, as a public company, the Company would continue to be focused on shorter term goals like quarterly earnings, which could make it more challenging to undertake longer term growth initiatives. As a stand-alone entity, the Company also would continue to have substantially fewer resources to pursue additional projects and additional fiber investments than was assumed in the September Projections, as projects undertaken under the auspices of the Rural Utilities Service, a division of the U.S. Department of Agriculture, require the Company to post 10% equity for each such project and 100% of the equity for smart build projects. Accordingly, the Forecasts assumed only a 20% probability for new projects, a 25% reduction in the assumed fiber penetration and average revenue per unit, a 25% reduction in general cost savings and an overall higher decline and lower margin in the non-fiber business since the Company would be forced to focus all of its sales and marketing activities in the fiber business.

 

    Year Ended December 31,  
September 21 projections   2012     2013E     2014P     2015P     2016P  
      (in millions)  
Selected Income Statement Information                                        
Revenue   $ 59.9     $ 61.0     $ 69.4     $ 82.5     $ 95.9  
Cost of Goods     27.5       26.4       26.7       28.6       30.4  
Gross Profit     32.4       34.6       42.7       54.0       65.6  
SG&A     20.8       21.7       21.2       22.1       23.0  
EBITDA(1)     11.9       13.3       22.0       32.3       43.0  
Adjusted EBITDA(2)     11.9       15.0       24.0       35.0       45.6  
Pro Forma EBITDA(3)     14.5       16.0       24.6       35.0       45.6  
Net debt     59.8       67.5       67.9       66.2       51.4  

_______

(1) EBITDA represents earnings before interest, taxes, depreciation, amortization, stock-based compensation and other non-recurring items.
(2) Adjusted EBITDA includes cost savings associated with becoming a private company and planned costs savings by management, consisting of reduction in payroll, information technology, transport and headquarters related costs.
(3) Pro Forma EBITDA represents Adjusted EBITDA and assumes full impact of the associated cost savings taking effect as of January 1, 2011.

 

    Year Ended December 31,  
September 29 projections   2012     2013E     2014P     2015P     2016P  
      (in millions)                                  
Selected Income Statement Information                                        
Revenue   $ 59.9     $ 60.7     $ 68.0     $ 80.6     $ 93.5  
Cost of goods     27.5       26.2       26.0       27.6       29.2  
Gross Profit     32.4       34.6       41.9       53.0       64.4  
SG&A     20.8       21.7       21.5       22.6       23.8  
EBITDA(1)     11.9       13.2       21.0       30.9       41.0  
Adjusted EBITDA(2)     11.9       14.9       23.1       33.5       43.6  
Pro Forma EBITDA(3)     14.5       15.9       23.6       33.5       43.6  
Net debt     59.8       66.8       66.6       64.9       50.3  

______

(1) EBITDA represents earnings before interest, taxes, depreciation, amortization, stock-based compensation and other non-recurring items.
(2) Adjusted EBITDA includes cost savings associated with becoming a private company and planned costs savings by management, consisting of reduction in payroll, information technology, transport and headquarters related costs.
(3) Pro Forma EBITDA represents Adjusted EBITDA and assumes full impact of the associated cost savings taking effect as of January 1, 2011.

 

Reconciliation of non-GAAP financial measures

 

We present certain non-GAAP financial measures as a supplemental measure of our performance. These non-GAAP financial measures are not a measure of financial performance or liquidity calculated in accordance with accounting principles generally accepted in the U.S., referred to herein as GAAP, and should be viewed as a supplement to, not a substitute for, our results of operations presented on the basis of GAAP. Reconciliations of these non-GAAP financial measures (other than those set forth in the tables summarizing the September Projections above) measures to the most directly comparable GAAP financial measures are detailed in the tables below.

  

Our non-GAAP measures should be read in conjunction with the corresponding GAAP measures. These non-GAAP financial measures have limitations as an analytical tool and you should not consider them in isolation from, or as a substitute for, analysis of our results as reported in accordance with GAAP.

 

We define EBITDAS by excluding from net income (loss), depreciation, amortization, stock-based compensation, interest, taxes, property taxes and other non-recurring items.

 

We define adjusted EBITDA by excluding from net income (loss), depreciation, amortization, interest, taxes, property taxes and other non-recurring items. EBITDA and EBITDAS are not necessarily comparable to similarly-titled measures reported by other companies.

 

We use these non-GAAP financial measures:

 

as a measure of operating performance to assist in comparing performance from period to period on a consistent basis;
as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and
as a primary measure to review and assess the operating performance of our company and management team;

 

Reconciliation of the April Projections

 

The following is an unaudited reconciliation of EBITDA and EBITDAS to net income (loss), the most directly comparable GAAP measure, for the periods presented:

 

   Q1/2011A   Q2/2011A   Q3/2011A   Q4/2011A   Y2011A 
                     
Net Income (loss) attributed to shareholders  $(633,614)  $(817,767)  $871,127   $(587,155)  $(1,167,409)
                          
Depreciation & Amortization  $1,169,282   $1,227,181   $1,453,983   $1,500,527   $5,350,973 
Stock Based Compensation  $82,996   $58,631   $24,567   $234,191   $400,385 
Financing expense (income), net  $1,524,430   $1,728,264   $(421,121)  $548,747   $3,380,320 
Other expenses  $146,732   $143,114   $115,453   $259,491   $664,790 
Acquisition costs  $-   $-   $-   $205,047   $205,047 
Taxes  $(278,535)  $(241,984)  $177,952   $348,966   $6,399 
Loss from discontinued operations, after taxes  $-   $-   $137,535   $14,030   $151,565 
                     
EBITDAS  $2,011,291   $2,097,439   $2,359,496   $2,523,844   $8,992,070 
                          
Stock Based Compensation  $(82,996)  $(58,631)  $(24,567)  $(234,191)  $(400,385)
                          
EBITDA  $1,928,295   $2,038,808   $2,334,929   $2,289,653   $8,591,685 

 

31
 

 

   Q1/2012A   Q2/2012A   Q3/2012A   Q4/2012E   Y2012E 
                     
Net Income (loss) attributed to shareholders  $(339,001)  $72,746   $(31,575)  $(150,478)  $(448,308)
                          
Depreciation & Amortization  $1,533,975   $1,452,468   $1,813,006   $1,664,836   $6,464,285 
Stock Based Compensation  $40,530   $38,616   $64,389   $64,389   $207,924 
Financing expense (income), net  $1,441,699   $1,119,237   $1,324,054   $1,391,917   $5,276,907 
Other expenses  $198,669   $179,207   $69,590   $237,900   $685,477 
Acquisition costs  $-   $-   $-   $-   $- 
Taxes  $(170,926)  $4,104   $(148,913)  $21,755   $(293,980)
Loss from discontinued operations, after taxes  $-   $-   $-   $-   $- 
                     
EBITDAS  $2,704,946   $2,866,378   $3,090,551   $3,230,319   $11,892,194 
                          
Stock Based Compensation  $(40,530)  $(38,616)  $(64,389)  $(64,389)  $(207,924)
                          
EBITDA  $2,664,416   $2,827,762   $3,026,273   $3,165,930   $11,684,381 

 

   Q1/2013E   Q2/2013E   Q3/2013E   Q4/2013E   Y2013E 
                     
Net Income (loss)  $74,858   $16,304   $99,086   $369,000   $559,248 
                          
Depreciation & Amortization  $1,881,265   $2,071,047   $2,266,966   $2,475,709   $8,694,987 
Stock Based Compensation  $64,389   $64,389   $64,389   $64,389   $257,556 
Financing expense (income), net  $1,306,172   $1,415,180   $1,527,513   $1,517,927   $5,766,792 
Other expenses  $185,521   $186,384   $191,225   $198,638   $761,768 
Acquisition costs  $-   $-   $-   $-   $- 
Taxes  $90,530   $14,411   $34,712   $159,602   $299,255 
Loss from discontinued operations, after taxes  $-   $-   $-   $-   $- 
                          
EBITDAS  $3,602,734   $3,767,715   $4,183,892   $4,785,265   $16,339,606 
                          
Stock Based Compensation  $(64,389)  $(64,389)  $(64,389)  $(64,389)  $(257,556)
                          
EBITDA  $3,538,345   $3,703,326   $4,119,503   $4,720,876   $16,082,050 

 

32
 

 

   Q1/2014E   Q2/2014E   Q3/2014E   Q4/2014E   Y2014E 
                     
Net Income (loss)  $519,855   $567,480   $598,833   $644,614   $2,330,781 
                          
Depreciation & Amortization  $2,655,721   $2,795,516   $2,921,918   $3,044,063   $11,417,217 
Stock Based Compensation  $64,389   $64,389   $64,389   $64,389   $257,556 
Financing expense (income), net  $1,478,756   $1,474,126   $1,464,179   $1,427,064   $5,844,125 
Other expenses  $203,832   $206,218   $208,256   $209,953   $828,259 
Acquisition costs  $-   $-   $-   $-   $- 
Taxes  $226,848   $242,202   $254,335   $274,237   $997,622 
Loss from discontinued operations, after taxes  $-   $-   $-   $-   $- 
                          
EBITDAS  $5,149,400   $5,349,931   $5,511,909   $5,664,320   $21,675,560 
                          
Stock Based Compensation  $(64,389)  $(64,389)  $(64,389)  $(64,389)  $(257,556)
                          
EBITDA  $5,085,011   $5,285,542   $5,447,520   $5,599,931   $21,418,004 

 

   Q1/2015E   Q2/2015E   Q3/2015E   Q4/2015E   Y2015E 
                     
Net Income (loss)  $711,043   $708,291   $710,697   $736,822   $2,866,853 
                          
Depreciation & Amortization  $3,145,379   $3,238,489   $3,330,717   $3,422,878   $13,137,463 
Stock Based Compensation  $64,389   $64,389   $64,389   $64,389   $257,556 
Financing expense (income), net  $1,361,154   $1,348,528   $1,335,178   $1,294,029   $5,338,889 
Other expenses  $211,697   $212,570   $213,642   $214,914   $852,823 
Acquisition costs  $-   $-   $-   $-   $- 
Taxes  $305,257   $299,027   $295,573   $304,891   $1,204,748 
Loss from discontinued operations, after taxes  $-   $-   $-   $-   $- 
                          
EBITDAS  $5,798,918   $5,871,294   $5,950,196   $6,037,923   $23,658,332 
                          
Stock Based Compensation  $(64,389)  $(64,389)  $(64,389)  $(64,389)  $(257,556)
                          
EBITDA  $5,734,529   $5,806,905   $5,885,807   $5,973,534   $23,400,776 

 

33
 

 

We present certain non-GAAP financial measures as a supplemental measure of our performance. These non-GAAP financial measures are not a measure of financial performance or liquidity calculated in accordance with accounting principles generally accepted in the U.S., referred to herein as GAAP, and should be viewed as a supplement to, not a substitute for, our results of operations presented on the basis of GAAP. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is detailed in the table below.

  

Our non-GAAP measures should be read in conjunction with the corresponding GAAP measures. These non-GAAP financial measures have limitations as an analytical tool and you should not consider them in isolation from, or as a substitute for, analysis of our results as reported in accordance with GAAP.

 

We define EBITDA by excluding from net income (loss), depreciation, amortization, stock-based compensation, interest, taxes, property taxes and other non-recurring items.

 

We define adjusted EBITDA by excluding from EBITDA planned costs savings by management, consisting of reduction in payroll, information technology, headquarters related costs and one-time charges related to the merger. EBITDA and adjusted EBITDA are not necessarily comparable to similarly-titled measures reported by other companies.

 

We use these non-GAAP financial measures:

 

as a measure of operating performance to assist in comparing performance from period to period on a consistent basis;
as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and
as a primary measure to review and assess the operating performance of our company and management team.

 

Reconciliation of the Forecasts

 

The following is an unaudited reconciliation of EBITDA and adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, for the periods presented:

 

34
 

 

   2011A 
   Q1   Q2   Q3   Q4   Year 
                     
Net income  $(633,614)  $(817,767)  $871,127   $(587,155)  $(1,167,409)
                          
Depreciation & amortization   1,169,282    1,227,181    1,453,983    1,500,527    5,350,973 
Stock based compensation   82,996    58,631    24,567    234,191    400,385 
Interest expense   1,524,430    1,728,264    (421,121)   548,747    3,380,320 
Interest income   -    -    -    -    - 
Amortization of discount on bond   -    -    -    -    - 
Other non cash financial charges   -    -    -    -    - 
Bond issuance costs   -    -    -    -    - 
Bank charges and other cash financial expenses   -    -    -    -    - 
Property taxes   146,732    143,114    115,453    259,491    664,790 
Misc expenses (income)   -    -    137,535    219,077    356,612 
Income tax expense (benefit)   (278,535)   (241,984)   177,952    348,966    6,399 
Cost savings   -    -    -    -    - 
                          
EBITDA  $2,011,291   $2,097,439   $2,359,496   $2,523,844   $8,992,070 
                          
One time charges   -    -    -    -    - 
Cost savings   -    -    -    -    - 
                          
Adjusted EBITDA  $2,011,291   $2,097,439   $2,359,496   $2,523,844   $8,992,070 

 

   2012A 
   Q1   Q2   Q3   Q4   Year 
                     
Net income  $(339,001)  $72,745   $(31,575)  $(249,162)  $(546,992)
                          
Depreciation & amortization   1,533,973    1,452,468    1,813,006    1,475,041    6,274,488 
Stock based compensation   40,530    38,616    64,389    139,900    283,435 
Interest expense   486,159    1,115,492    645,171    1,366,764    3,613,586 
Interest income   -    -    -    -    - 
Amortization of discount on bond   30,417    30,417    30,417    30,417    121,668 
Other non cash financial charges   778,487    (190,318)   492,060    165,854    1,246,083 
Bond issuance costs   72,345    72,345    72,345    72,345    289,380 
Bank charges and other cash financial expenses   74,296    91,301    84,072    30,685    280,354 
Property taxes   194,214    191,175    194,606    238,942    818,937 
Misc expenses (income)   4,450    (11,968)   (124,917)   25    (132,410)
Income tax expense (benefit)   (170,926)   4,104    (148,913)   (70,635)   (386,370)
Cost savings   -    -    -    -    - 
                          
EBITDA  $2,704,944   $2,866,377   $3,090,661   $3,200,176   $11,862,159 
                          
One time charges   -    -    -    -    - 
Cost savings   -    -    -    -    - 
                          
Adjusted EBITDA  $2,704,944   $2,866,377   $3,090,661   $3,200,176   $11,862,159 

 

35
 

 

   2013E 
   Q1   Q2   Q3   Q4   Year 
                     
Net income  $186,981   $(984,731)  $282,339   $38,951   $(476,460)
                          
Depreciation & amortization   1,664,842    1,683,128    1,717,945    1,753,111    6,819,026 
Stock based compensation   53,085    119,217    119,217    119,217    410,736 
Interest expense   745,417    1,246,447    1,013,709    1,577,350    4,582,923 
Interest income   -    -    (24,843)   (24,080)   (48,923)
Amortization of discount on bond   30,417    30,417    30,417    30,417    121,668 
Other non cash financial charges   266,266    230,117    230,117    67,050    793,550 
Bond issuance costs   72,345    72,345    70,916    70,916    286,521 
Bank charges and other cash financial expenses   87,245    82,007    82,007    82,007    333,266 
Property taxes   210,245    215,590    189,465    190,662    805,962 
Misc expenses (income)   -    7,789    -    -    7,789 
Income tax expense (benefit)   44,927    (528,735)   -    -    (483,808)
Cost savings   -    -    -    (64,406)   (64,406)
                          
EBITDA  $3,361,770   $2,173,591   $3,711,289   $3,841,195   $13,087,845 
                          
One time charges   -    1,547,973    -    -    1,547,973 
Cost savings   -    -    -    64,406    64,406 
                          
Adjusted EBITDA  $3,361,770   $3,721,564   $3,711,289   $3,905,600   $14,700,224 

 

   2014P 
   Q1   Q2   Q3   Q4   Year 
                     
Net income  $1,038,274   $1,080,246   $1,878,641   $1,771,852   $5,769,013 
                          
Depreciation & amortization   1,800,745    1,842,002    1,878,463    1,911,198    7,432,409 
Stock based compensation   119,217    119,217    119,217    119,217    476,868 
Interest expense   1,007,195    1,371,527    982,575    1,351,642    4,712,940 
Interest income   (13,262)   (11,679)   (13,387)   (17,578)   (55,906)
Amortization of discount on bond   30,417    30,417    30,417    30,417    121,668 
Other non cash financial charges   67,050    67,050    67,050    67,050    268,200 
Bond issuance costs   70,916    70,916    70,916    70,916    283,663 
Bank charges and other cash financial expenses   82,007    82,007    82,007    82,007    328,028 
Property taxes   193,950    199,562    205,627    210,269    809,407 
Misc expenses (income)   -    -    -    -    - 
Income tax expense (benefit)   -    -    -    -    - 
Cost savings   (309,097)   (401,875)   (494,653)   (523,026)   (1,728,652)
                          
EBITDA  $4,087,411   $4,449,390   $4,806,872   $5,073,965   $18,417,638 
                          
One time charges   -    -    -    -    - 
Cost savings   309,097    401,875    494,653    523,026    1,728,652 
                          
Adjusted EBITDA  $4,396,509   $4,851,265   $5,301,526   $5,596,991   $20,146,290 

 

36
 

 

   2015P 
   Q1   Q2   Q3   Q4   Year 
                     
Net income  $2,359,869   $2,350,581   $2,726,601   $2,714,342   $10,151,392 
                          
Depreciation & amortization   1,942,378    1,973,314    2,002,287    2,027,596    7,945,576 
Stock based compensation   119,217    119,217    119,217    119,217    476,868 
Interest expense   960,276    1,141,113    926,553    1,095,493    4,123,434 
Interest income   (12,525)   (18,120)   (23,384)   (29,365)   (83,395)
Amortization of discount on bond   30,417    30,417    30,417    30,417    121,668 
Other non cash financial charges   67,050    67,050    67,050    67,050    268,200 
Bond issuance costs   70,916    70,916    70,916    70,916    283,663 
Bank charges and other cash financial expenses   82,007    82,007    82,007    82,007    328,028 
Property taxes   214,010    217,334    220,424    223,333    875,100 
Misc expenses (income)   -    -    -    -    - 
Income tax expense (benefit)   -    -    -    -    - 
Cost savings   (534,112)   (534,112)   (534,112)   (534,112)   (2,136,448)
                          
EBITDA  $5,299,502   $5,499,716   $5,687,975   $5,866,893   $22,354,087 
                          
One time charges   -    -    -    -    - 
Cost savings   534,112    534,112    534,112    534,112    2,136,448 
                          
Adjusted EBITDA  $5,833,614   $6,033,828   $6,222,087   $6,401,005   $24,490,535 

 

   2016P 
   Q1   Q2   Q3   Q4   Year 
                     
Net income  $3,215,755   $3,343,990   $2,275,634   $2,298,857   $11,134,236 
                          
Depreciation & amortization   2,049,827    2,070,273    2,088,769    2,105,524    8,314,392 
Stock based compensation   119,217    119,217    119,217    119,217    476,868 
Interest expense   875,161    847,199    819,089    791,104    3,332,552 
Interest income   (25,138)   (31,593)   (39,129)   (44,396)   (140,255)
Amortization of discount on bond   -    -    -    -    - 
Other non cash financial charges   -    -    -    -    - 
Bond issuance costs   -    -    -    -    - 
Bank charges and other cash financial expenses   82,007    82,007    82,007    82,007    328,028 
Property taxes   225,739    227,788    229,346    230,552    913,425 
Misc expenses (income)   -    -    -    -    - 
Income tax expense (benefit)   -    -    1,179,129    1,237,846    2,416,975 
Cost savings   (534,112)   (534,112)   (534,112)   (534,112)   (2,136,448)
                          
EBITDA  $6,008,456   $6,124,768   $6,219,950   $6,286,600   $24,639,774 
                          
One time charges   -    -    -    -    - 
Cost savings   534,112    534,112    534,112    534,112    2,136,448 
                          
Adjusted EBITDA  $6,542,568   $6,658,880   $6,754,062   $6,820,712   $26,776,222 

 

37
 

 

   2017P   2018P 
         
Net income  $13,764,489   $14,601,362 
           
Depreciation & amortization   2,170,243    2,209,808 
Stock based compensation   476,868    476,868 
Interest expense   2,869,248    1,337,711 
Interest income   -    (190,179)
Amortization of discount on bond   -    - 
Other non cash financial charges   -    - 
Bond issuance costs   -    - 
Bank charges and other cash financial expenses   82,007    328,028 
Property taxes   919,633    909,748 
Misc expenses (income)   -    - 
Income tax expense (benefit)   7,411,648    7,862,272 
Cost savings   (2,136,448)   (2,136,448)
           
EBITDA  $25,557,687   $25,399,169 
           
One time charges   -    - 
Cost savings   2,136,448    2,136,448 
           
Adjusted EBITDA  $27,694,135   $27,535,617 

 

38
 

   

Opinions of Oberon Securities and B. Riley & Co. to the NTS Board of Directors

 

Opinion of Oberon Securities, LLC, Financial Advisor to the Board of Directors

Pursuant to an engagement letter dated June 17, 2013 and amended on October 11, 2013, the Company retained Oberon as its financial advisor in connection with the Merger.

 

At the meeting of the board of directors on October 20, 2013, Oberon rendered its oral opinion to the board of directors that, as of such date and based upon and subject to the factors, assumptions, qualifications and limitations set forth in its written opinion, the consideration to be paid to the Company’s common shareholders in the Merger was fair, from a financial point of view, to such shareholders. Oberon confirmed its October 20, 2013 oral opinion by delivering its written opinion to the board of directors, dated as of the same date, that, as of such date, the consideration to be paid to the Company’s common shareholders in the Merger was fair, from a financial point of view, to such shareholders.

 

The full text of the written opinion of Oberon, dated October 20, 2013, which sets forth the assumptions made, factors considered and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated herein by reference. The Company’s shareholders are urged to read the opinion in its entirety. Oberon’s written opinion is addressed to the board of directors, is directed only to the consideration to be paid in the Merger and does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote with respect to the Merger or any other matter. The summary of the written opinion of Oberon set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

 

In arriving at its opinion, Oberon, among other things:

 

   Examined:

 

o   a draft of the Merger Agreement dated October 20, 2013,

 

o   certain publicly available financial statements and other financial statements of the Company that Oberon deemed relevant,

 

o   Forecasts, furnished by the management of the Company,

 

o   information regarding publicly available financial terms of certain other business combinations Oberon deemed relevant,  and

 

o   the financial position and operating results of the Company and the market prices and trading history of its stock compared with those of certain other publicly traded companies Oberon deemed relevant (as reported by reliable information sources);

 

   Held discussions with members of the management of the Company to discuss the foregoing;

 

   Considered other matters which Oberon deemed relevant to Oberon's inquiry and took into account such accepted financial and other relevant analytical analyses and considerations as deemed relevant;

 

   Compared the Merger with other comparable and completed transactions that Oberon deemed relevant, as reported by reliable information services;

 

   Conducted a discounted cash flow analysis using the Forecasts provided by the Company; and

 

 
   Performed such other analyses and considered such other information and factors as Oberon deemed appropriate.

 

39
 

 

Oberon relied, without independent verification but with the Company’s approval and agreement, upon the accuracy, completeness and fair presentation of all the information examined by or otherwise reviewed or discussed with Oberon for purposes of this Opinion, including, without limitation, the Forecasts provided by management.  Oberon did not conduct, and was not provided with, any valuation or appraisal of the assets, liabilities or solvency of the Company. In relying on the Forecasts provided to it or derived therefrom, Oberon assumed that they were reasonably prepared in good faith on the basis of reasonable assumptions as to the expected future results of operations and financial condition of the Company to which such Forecasts relate. Oberon expressed no view as to such Forecasts or the assumptions on which they were based. Oberon also assumed that the Merger and the other transactions contemplated by the Merger Agreement will be consummated as described in the Merger Agreement and that the definitive Merger Agreement will not differ in any material respect from the draft thereof provided to Oberon.  Oberon relied as to all legal matters relevant to the rendering of its opinion upon the advice of counsel.

 

The Forecasts furnished to Oberon by the Company and used in connection with its analysis of the Merger were prepared by management of the Company. The Company does not publicly disclose internal management financial forecasts of the type provided to Oberon in connection with Oberon’s analysis of the Merger, and the Forecasts were not prepared with a view toward public disclosure. The Forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in the Forecasts.

 

Oberon’s opinion is based on economic, market and other conditions as they existed and as they could be evaluated as of the date of its opinion. Subsequent developments may have affected, and in the future may affect, Oberon’s opinion and Oberon does not have any obligation to update, revise, or reaffirm such opinion. Oberon’s opinion is limited to the fairness, from a financial point of view, of the consideration to be paid to the Company’s common shareholders in the Merger, and Oberon has expressed no opinion as to the fairness of any consideration paid in connection with the Merger to the holders of any other class of securities, creditors or other constituencies of the Company or as to the underlying decision by the Company to engage in the Merger. Furthermore, Oberon has expressed no opinion as to the price at which the Company’s common stock will trade at any future time or as to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to the officers, directors, or employees of any party to the Merger, or any class of such persons, relative to the consideration to be paid to the Company’s common shareholders in the Merger. The issuance of Oberon’s opinion was approved by a fairness opinion committee of Oberon.

 

In accordance with customary investment banking practice, Oberon employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses undertaken by Oberon, and reviewed by the board of directors, in connection with providing its opinion. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone. In order to fully understand the financial analyses used by Oberon, the tables must be read together with the full text of each summary. Considering the data in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Oberon’s financial analyses.

 

All values in the following “Public Comparables Trading Analysis,” “Selected Transaction Analysis,” and “Discounted Cash Flow Analysis” sections are presented on an equity value per share basis, rounded to the nearest $0.01. In arriving at equity value per share for the Company, Oberon first derived, from the consideration of $2.00 per share in cash to be received by the Company pursuant to the Merger Agreement, an implied Enterprise Value, or “EV” (defined as the implied equity value plus the value of the Company's debt, preferred stock and minority interests, less cash, cash equivalents and marketable securities), for the transaction of approximately $156.2 million.  The EV determined in each of the aforementioned analyses was then adjusted by subtracting total debt outstanding and adding total cash and cash equivalents outstanding to arrive at Equity Value for the Company. Equity Value was then divided by the fully diluted share count to arrive at equity value per share. All market data used by Oberon in its analyses was as of October 17, 2013.

 

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Historical Trading Range

 

Oberon reviewed the historical trading prices for the Company's common stock.  Oberon noted that the low and high closing prices for the Company's common stock during the 52-week period ended October 17, 2013 were $0.83 and $1.80 per share, respectively.

 

Public Comparables Trading Analysis

 

Using publicly available information, Oberon compared selected financial data of the Company with similar data for selected publicly traded companies engaged in businesses which Oberon judged to be sufficiently analogous to the Company’s business. The companies Oberon selected were as follows:

 

Integrated Telecom Services, or ITS

■       CenturyLink, Inc.

■       Windstream Holdings, Inc.

■       Frontier Communications Corporation

■       Telephone & Data Systems Inc.

■       Cincinnati Bell Inc.

■       Consolidated Communications Holdings Inc.

■       General Communication Inc.

■       Fairpoint Communications, Inc.

■       Shenandoah Telecommunications Co.

■       Alaska Communications Systems Group Inc.

■       Hickory Tech Corp.

■       LICT Corporation

■       New ULM Telecom Inc.

Fiber and Cable, or F&C

■       Comcast Corporation

■       Time Warner Cable Inc.

■       Charter Communications, Inc.

■       Cablevision Systems Corporation

■       TW Telecom Inc.

■       Lumos Networks Corp.

 

None of the selected companies reviewed is identical to the Company. Accordingly, a complete analysis of the results of the following calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the selected companies compared to the Company’s and other factors that could affect the public trading value of the selected companies and the Company.

 

In all instances, multiples were based on closing stock prices on October 17, 2013. For each of the following analyses performed by Oberon, estimated financial data for the selected companies were obtained from Capital IQ and other publicly available information. Oberon observed that nearly all of the selected publicly traded companies have significantly larger revenue and market capitalizations than the Company and also have significantly higher profit margins.

 

In conducting its analyses, Oberon reviewed the selected companies’ trading multiples based on (1) EV to earnings before interest, taxes, depreciation and amortization, or EBITDA, for the last twelve months ending June 30, 2013, or LTM EBITDA, and (2) EV to estimated EBITDA for fiscal year 2013 ending December 31, 2013, or FY2013 EBITDA. Results of the analyses were presented for the selected companies, as indicated in the following table:

 

    Integrated Telecom Services     Fiber and Cable  
    EV / LTM
EBITDA
    EV / 2013
EBITDA
    EV / LTM
EBITDA
    EV / 2013
EBITDA
 
Mean (1)     5.7 x     5.7 x     8.8 x     8.4 x
Median     6.1 x     5.7 x     8.5 x     8.2 x
High     7.8 x     7.4 x     10.8 x     9.9 x
Low     3.8 x     4.6 x     7.5 x     7.2 x

(1) Harmonic mean.

 

Based on the above analyses, Oberon applied a multiple reference range of 5.0x to 7.8x for Integrated Telecom Services, or ITS, companies (which range excluded two companies with multiples of 3.8x and 4.3x, respectively, since applying these multiples would have implied a negative equity value) and 7.5x to 10.8x for Fiber and Cable, or F&C, companies for EV to the Company’s LTM EBITDA. The implied EV was then adjusted by subtracting total debt outstanding as of June 30, 2013 and adding total cash and cash equivalents outstanding as of June 30, 2013 to arrive at Equity Value for the Company, which was then divided by the fully diluted share count to arrive at equity value per share. In comparison to the per share Merger Consideration, the analyses indicated equity values per share of $0.01 to $0.91 for ITS companies and $0.83 to $1.90 for F&C companies. Oberon also compared the foregoing multiples to the implied multiple of EV derived using the per share Merger Consideration to Company LTM EBITDA of 11.7x.

 

Oberon also compared the range of multiples of EV to FY2013 EBITDA of 4.6x to 7.4x for ITS companies and 7.2x to 9.9x for F&C companies to the implied multiple of EV derived using the per share Merger Consideration to Company FY2013 EBITDA of 10.6x.

 

41
 

 

The enterprise values, EBITDA and LTM information for each selected comparable company that is the basis for the multiples disclosed above are set forth below.

 

Fiber and Cable                    
($ in millions, except share data)                    
Company  EV   LTM
EBITDA
   FYE 2013
EBITDA
   EV / LTM
EBITDA
   EV / FYE 2013
EBITDA
 
Comcast Corporation  $166,552   $20,744   $21,353    8.0x   7.8x
Time Warner Cable Inc.  $57,416   $7,662   $7,974    7.5x   7.2x
Charter Communications  $27,084   $2,659   $2,851    10.2x   9.5x
Cablevision Systems Corporation  $13,955   $1,725   $1,642    8.1x   8.5x
TW Telecom Inc.  $5,525   $511   $558    10.8x   9.9x
Lumos Networks Corp.  $795   $90   $99    8.8x   8.0x
                          
Telecom Services                         
($ in millions, except share data)                         
Company  EV   LTM
EBITDA
   FYE 2013
EBITDA
   EV / LTM
EBITDA
   EV / FYE 2013
EBITDA
 
Century Link, Inc.  $40,343   $7,560   $7,471    5.3x   5.4x
Windstream Holdings, Inc.  $14,046   $2,259   $2,341    6.2x   6.0x
Frontier Communications Corporation  $12,050   $2,266   $2,231    5.3x   5.4x
Telephone & Data Systems Inc.  $4,142   $960   $900    4.3x   4.6x
Cincinnati Bell Inc.  $2,926   $412   $395    7.1x   7.4x
Consolidated Communications Holdings Inc.  $1,950   $251   $283    7.8x   6.9x
General Communications Inc.  $1,375   $227   $264    6.1x   5.2x
Fairpoint Communications, Inc.  $1,142   $181   $233    6.3x   4.9x
Shenandoah Telecommunications Co.  $792   $119   $113    6.7x   7.0x
Alaska Communications Systems Group Inc.  $636   $128   $108    5.0x   5.9x
Hickory Tech Corp.  $299   $46    NA (1)   6.5x   NA (1)
LICT Corporation  $128   $33    NA (1)   3.8x   NA (1)
New ULM Telecom Inc.  $76   $13    NA (1)   6.0x   NA(1)

(1) Wall Street analyst forecast for FYE 2013 unavailable.

 

Selected Transaction Analysis

 

Oberon reviewed publicly available transactions for the past three years and identified twenty-one transactions that involved the acquisition of companies in the telecommunications sector that were relevant and comparable to NTS.

 

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The following table sets forth the selected transactions used in this analysis:

 

Fiber and Cable  

Announced

Date

 

 

Target

 

 

Acquiror

  EV / LTM
EBITDA
 
2/26/2013   Baja Broadband (1)   TDS     10.7 x
2/7/2013   Bresnan Broadband Holdings   Charter Communications     10.0 x
7/18/2012   Cequel Communications   BC Partners     8.7 x
4/18/2012   Knology   WOW! Internet, Cable and Phone     8.5 x
3/19/2012   AboveNet   Zayo Group     11.6 x
10/7/2011   360networks   Zayo Group     10.0 x
9/21/2011   Alpheus Communications   First Communications     8.0 x
2/22/2011   Cobridge Communications (2)   Knology     5.5 x
8/26/2010   Fibertech Networks   Court Square Capital Partners     10.3 x
8/17/2010   Q-Comm Corporation   Windstream     8.4 x

 

 

(1)    EBITDA based on analyst estimates.

(2)    Certain cable and broadband operations in Georgia and Alabama.

 

Integrated Telecom Services  

Announced

Date

 

 

Target

 

 

Acquiror

  EV / LTM
EBITDA
 
11/28/2012   FairPoint Communications (1)   Blackfoot Telecommunications     6.0 x
2/6/2012   SureWest Communications   Consolidated Communications     6.5 x
12/6/2011   IdeaOne Telecom   HickoryTech     6.9 x
8/1/2011   Paetec   Windstream     7.2 x
4/11/2011   Global Crossing   Level 3 Communications     6.6 x
1/12/2011   XO Holdings   ACF Industries     5.9 x
12/20/2010   One Communications (2)   EarthLink     4.7 x
10/1/2010   ITC DeltaCom   EarthLink     5.8 x
9/13/2010   Cavalier Telephone   Paetec     6.8 x
7/20/2010   Mountaineer Telecommunications   nTelos     6.5 x
4/22/2010   Qwest Communications   CenturyLink     5.4 x

 

 

(1) Represents the sale of Fairpoint Idaho-based operations.

(2) Transaction was excluded for the purpose of calculating equity value per share, since applying this multiple would have implied a negative equity value.

 

Based on the results of this analysis and other factors that Oberon considered appropriate, Oberon applied a multiple range of 5.4x to 7.2x for ITS companies and 5.5x to 11.6x for Fiber and Cable companies for EV to Company LTM EBITDA. The implied EV was then adjusted by subtracting total debt outstanding as of June 30, 2013 and adding total cash and cash equivalents outstanding as of June 30, 2013 to arrive at Equity Value for the Company, which was then divided by the fully diluted share count to arrive at equity value per share. The analysis indicated implied equity values per share of $0.14 to $0.67 for ITS companies and $0.16 to $1.96 for F&C companies, as compared to the per share Merger Consideration.  Oberon also compared the foregoing multiples to the implied multiple of EV derived using the per share Merger Consideration to Company LTM EBITDA of 11.7x.

 

The data from the selected transactions from which the applied multiples are derived are set forth below.

 

Fiber and Cable
Announced
Date
  Target  Acquiror  EV   LTM
EBITDA
   EV / LTM
EBITDA
 
2/26/2013  Baja Broadband (1)  TDS  $268   $25    10.7x
2/7/2013  Bresnan Broadband Holdings  Charter Communications   1,625    163    10.0x
7/18/2012  Cequel Communications  BC Partners   6,579    756    8.7x
4/18/2012  Knology  WOW! Internet, Cable and Phone   1,496    176    8.5x
3/19/2012  AboveNet  Zayo Group   2,215    191    11.6x
10/7/2011  360networks  Zayo Group   345    35    10.0x
9/21/2011  Alpheus Communications  First Communications   175    22    8.0x
2/22/2011  Cobridge Communications (2)  Knology   30    5    5.5x
8/26/2010  Fibertech Networks  Court Square Capital Partners   500    49    10.3x
8/17/2010  Q-Comm Corporation  Windstream   779    93    8.4x

 

 

(1) EBITDA based on analyst estimates.

(2) Certain cable and broadband operations in Georgia and Alabama.

 

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Integrated Telecom Services
Announced
Date
  Target  Acquiror  EV   LTM
EBITDA
   EV / LTM
EBITDA
 
11/28/2012  FairPoint Communications (1)  Blackfoot Telecommunications  $30   $5    6.0x
2/6/2012  SureWest Communications  Consolidated Communications   560    86    6.5x
12/6/2011  IdeaOne Telecom  HickoryTech   28    4    6.9x
8/1/2011  Paetec  Windstream   2,254    313    7.2x
4/11/2011  Global Crossing  Level 3 Communications   2,650    402    6.6x
1/12/2011  XO Holdings  ACF Industries   1,171    198    5.9x
12/20/2010  One Communications (2)  EarthLink   370    79    4.7x
10/1/2010  ITC DeltaCom  EarthLink   491    85    5.8x
9/13/2010  Cavalier Telephone  Paetec   460    68    6.8x
7/20/2010  Mountaineer Telecommunications  nTelos   163    25    6.5x
4/22/2010  Qwest Communications  CenturyLink   22,151    4,102    5.4x

 

 

(1) Represents the sale of Fairpoint Idaho-based operations.

(2) Transaction was excluded for the purpose of calculating equity value per share, since applying this multiple would have implied a negative equity value.

 

Discounted Cash Flow Analysis

 

Oberon conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per share for the Company’s common stock. A discounted cash flow analysis is designed to estimate an implied value of an operating business by calculating the aggregate present value of the estimated unlevered future free cash flows for some future period, as well as the value of the Company at the end of such period (the “Terminal Value”) in order to arrive at the value of the business.  Oberon used the unlevered future free cash flows derived from the Forecasts, which may be found in the section entitled “Special Factors—Certain Information Prepared by the Management of NTS” beginning on page 28. Oberon also calculated a range of Terminal Values of the Company at the end of the 5-year period ending 2018 by applying a multiple to the EBITDA of the Company during the final year of the 5-year period. The unlevered free cash flows and the range of Terminal Values were then discounted to present values using a range of discount rates from 9.0% to 13.0%. Oberon calculated these discount rates, or weighted average costs of capital, using the Capital Asset Pricing Model, which considers the risk free rate, equity risk premium, industry risk as implied by the betas of the companies included in the Public Comparables Trading Analysis, NTS’ size, tax affected cost of debt financing and capital structure. The present value of the unlevered free cash flows and the range of Terminal Values were then adjusted by subtracting the estimated total debt outstanding as of December 31, 2013 and adding the estimated total cash and cash equivalents outstanding as of December 31, 2013. Based on the financial forecasts prepared by management and a discount rate of 9.0% to 13.0%, the discounted cash flow analysis indicated a range of per share equity values of between $1.62 and $2.60, as compared to the per share Merger Consideration. Subsequent to Oberon’s delivery of its fairness opinion and Oberon’s presentation to the NTS board of directors of the financial analyses undertaken in connection with the preparation of its fairness opinion, it was discovered that the Forecasts prepared by Company management and provided to Oberon understated the Company’s projected depreciation and amortization in 2017 and 2018 by approximately $6.2 million for each of the forecasted years. As a result, projected net income for 2017 and 2018 was overstated by approximately $4.0 million for each of the forecasted years, and projected free cash flow for 2017 and 2018 was understated by approximately $2.2 million for each of the forecasted years. Based on these adjustments, the discounted cash flow analysis should have indicated a range of per equity values of between $1.68 and $2.67, as compared to the per share Merger Consideration. These adjustments, however, do not alter Oberon’s opinion that as of October 20, 2013, the per share Merger Consideration to be paid to the Company’s common stock shareholders in the Merger was fair, from a financial point of view, to such shareholders. See the section entitled “Special Factors—Certain Information Prepared by the Management of NTS.”

 

44
 

 

General

 

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by Oberon. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Oberon believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, Oberon did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, Oberon considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by Oberon are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, Oberon’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to the Company, and none of the selected transactions reviewed was identical to the Merger. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of Oberon’s analysis, may be considered similar to those of the Company. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of Oberon’s analysis, may be considered similar to the Merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to the Company and the transactions compared to the Merger.

 

As a part of its investment banking business, Oberon is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, private placements, and valuations for corporate and other purposes.  In the ordinary course of Oberon's business, Oberon and its affiliates may actively trade the securities of the Company for their own account and the account of their customers and, accordingly, may at any time hold a long or short position in such securities.  Oberon was selected to advise the Company with respect to the Merger on the basis of such experience and its familiarity with the Company.

 

Oberon acted as financial advisor to the Company with respect to the Merger. For its services, the Company has agreed to pay Oberon a transaction fee of approximately $2.3 million, payable if the Merger is consummated, of which $150,000 became payable upon delivery of Oberon’s opinion. In the event that the Merger is not consummated and the Company receives any payment pursuant to the termination, abandonment or failure to occur of the proposed Merger, the Company will pay Oberon a fee equal to the lesser of (i) 25% of such payment or (ii) $400,000.  In addition, the Company has agreed to reimburse Oberon for certain expenses incurred in connection with its services, including the fees and expenses of counsel, and will indemnify Oberon against certain liabilities, including liabilities under the federal securities laws, arising out of its engagement.

 

During the two years preceding the date of its opinion, Oberon and its affiliates had, and may continue to have in the future, commercial or investment banking relationships with the Company. During the two years preceding the date hereof, the aggregate fees paid by the Company and its affiliates to Oberon and its affiliates were approximately $0.4 million. Such services for the Company during such period included acting as financial advisor to the Company with respect to a $6.6 million secured term loan in June 2012 and a $7.5 million secured term loan in October 2011.  Oberon may seek to provide services to the Company and Holdings in the future and would expect to receive fees for such services. Oberon has not provided services to the T3 Parties, the Holding Parties or their affiliates in the last two years.

 

The opinion of Oberon was only one of many factors taken into consideration by the board of directors in its evaluation of the Merger.  The consideration for the Merger was determined through arm’s-length negotiations between the Company and the Holdings. Oberon provided advice to the Company during these negotiations but did not recommend any specific amount of consideration to the Company or that any specific amount of consideration constituted the only appropriate consideration for the Merger.

 

Copies of the October 15, 2013 and October 20, 2013 Oberon presentations are attached as exhibits to Amendment No.2 to the transaction statement on Schedule 13E-3 filed by the Company and the filing persons thereon with the SEC on January 14, 2014.

 

Opinion of B. Riley to the Board of Directors

The special committee to the NTS board of directors retained B. Riley to render an opinion to the NTS board of directors as to the fairness, from a financial point of view, to the holders of Company common stock (other than the Rollover Holder) of the Merger Consideration, to be received by such holders in respect of each share of Company common stock in the Merger. The special committee engaged B. Riley for such opinion due to its experience in similar transactions.

 

A complete copy of the fairness opinion, dated October 20, 2013, provided by B. Riley is attached as Annex D to this proxy statement and is incorporated herein by reference. The description of the B. Riley opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. Holders of Company common stock are urged to read the B. Riley opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by B. Riley in connection with the opinion. The B. Riley opinion is for the benefit of the board of directors and only addresses the fairness to the holders of Company common stock (other than the Rollover Holder) of the Merger Consideration to be received in the Merger from a financial point of view as of the date of the B. Riley opinion. The B. Riley opinion does not address the relative merits of the Merger as compared to any alternative transaction or opportunity that might be available to the Company, nor does it address the underlying business decision by the Company to engage in the Merger, and it does not constitute a recommendation to any holder of Company common stock as to how such holder should vote on the Merger or any matter related thereto. The B. Riley opinion is necessarily based on economic, market, monetary and other conditions as they existed and could be evaluated, and the information made available to B. Riley as of, the date of the B. Riley opinion. B. Riley has assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the opinion. The following is only a summary of the B. Riley opinion. You are urged to read the entire opinion.

 

The NTS board of directors held a Special Meeting on October 20, 2013 to review and approve the proposed terms of the transaction with Tower Three. During this meeting B. Riley rendered its oral opinion, subsequently confirmed in writing, that as of that date based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by B. Riley, the Merger Consideration to be received by holders of Company common stock (other than the Rollover Holder) in the Merger was fair to such holders (other than the Rollover Holder) from a financial point of view.

 

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In preparing its opinion to the board of directors, B. Riley reviewed and analyzed documents and materials related to the proposed transactions. Included in this were the following:

 

   The financial terms of the draft Merger Agreement dated as of October 19, 2013;

 

   Certain publicly available information, which B. Riley believed to be relevant, concerning the business, financial condition, and operations of NTS;

 

   Certain information internal to NTS concerning its business, financial condition, and operations, prepared and furnished to B. Riley by the management of the Company;

 

   NTS’ financial forecasts furnished to B. Riley by the management of the Company;

 

   Certain other internal financial analyses, estimates and forecasts, prepared and furnished to B. Riley by the management of NTS;

 

   The Company’s annual audited and quarterly unaudited financial statements through June 30, 2013;

 

   Certain publicly available financial data, stock market performance data and trading multiples of companies, which B. Riley deemed to be generally comparable to the Company; and

 

   The publicly available financial terms of certain other business combinations that B. Riley deemed to be relevant in industries similar to those in which the Company participates and the consideration received for such companies that B. Riley believed to be generally relevant.

 

In addition to reviewing these materials, B. Riley also performed the following actions, among other things:

 

   Held discussions with members of senior management of NTS concerning their evaluations of the Merger and the business, operating and regulatory environment, financial condition, prospects, and strategic objectives of the Company, as well as such other matters as B. Riley deemed necessary or appropriate for purposes of rendering its opinion;

 

   Performed a discounted cash flow analysis of the Company utilizing finanical information prepared by and  furnished to B. Riley by the management of NTS; 

 

   Reviewed and analyzed premiums paid in business combinations involving publicly traded companies that B. Riley deemed to be generally comparable to NTS with respect to size and industry; and

 

   Performed such other  financial studies, analyses and investigations, and considered such other matters, as B. Riley deemed necessary or appropriate for purposes of rendering its opinion.

 

In preparing its opinion, at the direction of the special committee, and without assuming responsibility or liability for independent verification, B. Riley relied upon the accuracy and completeness of all financial and other information provided available from public sources and all other information provided to B. Riley or otherwise discussed with or reviewed by B. Riley. B. Riley was not asked to undertake, and did not undertake, an independent verification of any information provided to or reviewed by B. Riley, nor was B. Riley furnished with any such verification, and B. Riley does not assume any responsibility or liability for the accuracy or completeness thereof. B. Riley did not make an independent evaluation or appraisal of the assets or the liabilities (contingent or otherwise) of NTS including those which may arise from the Merger, nor did B. Riley evaluate the solvency of NTS or Holdings under any state or federal laws. B. Riley undertook no independent analysis of any pending or threatened litigation, possible unasserted claims or other contingent liabilities to which either the Company is a party or may be subject, and the B. Riley opinion made no assumption concerning, and therefore does not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.

 

In rendering its opinion to the board of directors, B. Riley assumed that:

 

   The final executed form of the Merger Agreement would not differ in any material respects from the latest draft provided to B. Riley;

 

   The consummation of the Merger would be effected in accordance with the terms and conditions of the Merger Agreement, without waiver, modification or amendment of any material term, condition or agreement; and

 

   In the course of obtaining the necessary regulatory or third party consents and approvals (contractual or otherwise) for the Merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on NTS or the contemplated benefits of the Merger in any respect material to B. Riley’s opinion.

 

 

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B. Riley did not express any opinion as to legal, tax and regulatory matters with respect to the proposed transaction. The B. Riley opinion only addressed the fairness to the holders of Company common stock (other than the Rollover Holder) of the Merger Consideration to be received in the Merger from a financial point of view as of the date of the B. Riley opinion. B. Riley expressed no opinion as to the fairness of the Merger to the holders of any other class of securities, creditors or other constituencies of NTS. B. Riley was engaged solely to render its opinion and B. Riley was not engaged to, and did not, solicit any indications of interest from any parties with respect to a sale of all or part of the Company or any alternative transaction. The B. Riley opinion did not address any other aspect or implication of the Merger, the Merger Agreement, or any other agreement or understanding entered into in connection with the Merger or otherwise. B. Riley also expressed no opinion as to the fairness of the amount or nature of the compensation to any of NTS’ officers, directors or employees, or any class of such persons, relative to the Merger Consideration. B. Riley expressed no opinion as to the prices or trading ranges at which Company common stock would trade at any time before consummation of the Merger. Furthermore, B. Riley did not express any opinion as to the impact of the Merger on the solvency or viability of NTS, or the ability of NTS to pay its obligations when they become due before consummation of the Merger.

 

The following is a brief summary of the material financial analyses that B. Riley deemed appropriate for this type of transaction and that were performed by B. Riley in connection with rendering its opinion. The summary of B. Riley’s analyses described below is not a complete description of the analyses underlying its opinion. The preparation of a fairness opinion is a complex analytical process involving determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances, and, therefore, is not readily susceptible to summary description. In arriving at its opinion, B. Riley considered the results of all of the analyses and did not attribute any particular weight to any factor or analysis considered by it; rather, B. Riley made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

 

In its analyses, B. Riley considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. No company or business used in B. Riley’s analyses as a comparison is identical to the Company, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial, operating, and geographical characteristics and other factors that could affect the public trading or other values of the companies analyzed. The estimates contained in B. Riley’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, B. Riley’s analyses are inherently subject to substantial uncertainty.

 

The financial analyses summarized below include information presented in tabular format. In order to fully understand B. Riley’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of B. Riley’s financial analyses.

 

Comparable Companies Analysis

 

B. Riley used comparable financial and market valuation metrics of two sets of publicly traded telecommunications providers for NTS, based on market position and business model similarities. The first set of public comparables focused on CLECs and telecommunications providers. These companies were chosen based on certain characteristics including business model similarities, product and service offerings, and geographic or market focus. The second set of public comparables focused on cable providers, chosen primarily due to the owned-nature of their cable networks as well as the triple play offering, which B. Riley viewed as a competitive offering to NTS. Although none of the selected companies is directly comparable to NTS, each has lines of business, markets, business risks, growth prospects, a maturity of business and a size and scale of business that, for purposes of analysis, B. Riley considered generally relevant in evaluating NTS or one of its business segments. Included in these two sets were:

 

CLEC and Telecommunications Comparables   Cable Comparables
Alaska Communications Systems Group, Inc.   Cablevision Systems Corporation
CenturyLink, Inc.   Charter Communications, Inc.
Cincinnati Bell Inc.   Time Warner Cable Inc.
Consolidated Communications Holdings, Inc.    
Frontier Communications Corporation    
HickoryTech Corporation    
Windstream Holdings, Inc.    

 

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Financial data for all peers was for the latest twelve-month period available, with market data as of October 11, 2013. Certain adjustments to NTS, as well as to the peer telecommunications providers, were made to reflect normalized performance and results for one-time or non-recurring items.

 

Summary data for the respective financial performance information included:

 

    CLEC and
Telecom Peer
Group
Minimum
    CLEC and
Telecom Peer
Group
Maximum
    Cable Peer
Group
Minimum
    Cable Peer
Group
Maximum
 
LTM Revenue ($MM)   $ 188     $ 18,192     $ 6,430     $ 21,873  
LTM Gross Profit Margin     40.3 %     66.7 %     47.7 %     53.1 %
LTM Adjusted EBITDA Margin     25.4 %     46.2 %     25.1 %     36.4 %
LTM Capex as % of Revenue     12.4 %     26.6 %     14.1 %     22.7 %
                                 
    CLEC and
Telecom Peer
Group
Minimum
    CLEC and
Telecom Peer
Group
Maximum
    Cable Peer
Group
Minimum
    Cable Peer
Group
Maximum
 
Enterprise Value ($MM)   $ 285     $ 26,113     $ 12,871     $ 55,351  
Market Capitalization ($MM)   $ 119     $ 18,735     $ 3,572     $ 31,853  
2013E Revenue Growth     (15.8 )%     21.2 %     (7.1 )%     8.7 %
Enterprise Value / CY 2013E EBITDA     5.4 x     7.3 x     6.9 x     9.1 x

 

Based on a range derived by B. Riley from the peer group enterprise value to calendar year 2013E EBITDA multiples above, B. Riley derived a per share valuation range for NTS. B. Riley applied a CLEC and telecommunications peer group EBITDA multiple range of 4.5x to 6.5x to 2013E NTS non-fiber EBITDA of $6.1 million to derive an enterprise value range of $27.4 million to $39.5 million for the non-fiber segment of NTS. A cable peer group EBITDA multiple range of 7.5x to 8.5x was applied to 2013E NTS fiber EBITDA of $8.6 million to derive an enterprise value range of $64.6 million to $72.9 million for the fiber segment of NTS. Summing the implied enterprise values of both the non-fiber and fiber businesses yielded an implied total enterprise value range for NTS of $92.0 million to $112.4 million. Subtracting 2013E net debt of $66.7 million per management estimates from the implied total enterprise value range yielded an implied equity value range of $25.3 million to $45.7 million or an implied per share value of $0.56 to $1.01.

 

The enterprise values, EBITDA, LTM and other information for each CLEC and telecommunications provider that is the basis for the multiples disclosed above are set forth below.

 

($ in millions)                                                            
                        LTM Operating Results  
Company  
Enterprise
Value
    Market
Capitalization
    2013E
Revenue Growth
    CY 2013E
Adjusted
EBITDA
    Enterprise
Value /
CY 2013E
EBITDA
    Revenue     Gross Profit
Margin
    Adjusted
EBITDA
    Adjusted
EBITDA
Margin
    Capital
Expenditures
as % of
Revenue
 
                                                             
CLEC and Telecommmunications Peer Group                                                                                
Alaska Communications Systems Group, Inc.   $ 624.1     $ 118.5       (6.8 %)   $ 107.7       5.8 x   $ 380.7       61.7 %   $ 131.4       34.5 %     15.0 %
CenturyLink, Inc.     40,562.5       18,735.1       (1.6 %)     7,413.8       5.5 x     18,192.0       58.7 %     7,581.8       41.7 %     16.0 %
Cincinnati Bell Inc.     2,877.8       561.6       (15.8 %)     392.6       7.3 x     1,380.6       51.0 %     453.1       32.8 %     26.6 %
Consolidated Communications Holdings, Inc.     1,943.1       700.0       21.2 %     281.6       6.9 x     619.9       62.5 %     250.2       40.4 %     12.4 %
Frontier Communications Corporation     12,009.7       4,228.8       (5.0 %)     2,218.5       5.4 x     4,881.0       66.7 %     2,253.1       46.2 %     16.4 %
HickoryTech Corporation     284.9       148.2       (2.5 %)     48.5       5.9 x     188.3       40.3 %     47.9       25.4 %     19.1 %
Windstream Holdings, Inc.     13,890.2       4,772.1       (2.2 %)     2,322.9       6.0 x     6,079.8       52.4 %     2,225.2       36.6 %     18.1 %
Maximum     40,562.5       18,735.1       21.2 %     7,413.8       7.3 x     18,192.0       66.7 %     7,581.8       46.2 %     26.6 %
Mean     10,313.2       4,180.6       (1.8 %)     1,826.5       6.1 x     4,531.8       56.2 %     1,849.0       36.8 %     17.7 %
Median     2,877.8       700.0       (2.5 %)     392.6       5.9 x     1,380.6       58.7 %     453.1       36.6 %     16.4 %
Minimum     284.9       148.2       (15.8 %)     48.5       5.4 x     188.3       40.3 %     47.9       25.4 %     12.4 %

 

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The enterprise values, EBITDA, LTM and other information for each cable provider that is the basis for the multiples disclosed above are set forth below.

 

($ in millions)                                                            
                        LTM Operating Results  
Company   Enterprise
Value
    Market
Capitalization
    2013E
Revenue Growth
    CY 2013E
Adjusted
EBITDA
    Enterprise
Value /
CY 2013E
EBITDA
    Revenue     Gross Profit
Margin
    Adjusted
EBITDA
    Adjusted
EBITDA Margin
    Capital
Expenditures
as % of
Revenue
 
                                                             
Cable Peer Group                                                                       &nb