<PAGE>
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1997.
REGISTRATION NO. 333-29189
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GCI, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
ALASKA 4899 91-1820757
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
2550 DENALI ST., SUITE 1000, ANCHORAGE, ALASKA 99503
(907) 265-5600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN M. LOWBER
GCI, INC.
2550 DENALI STREET, SUITE 1000
ANCHORAGE, ALASKA 99503-2781
(907) 265-5600
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
COPIES TO:
CHARLES Y. TANABE, ESQ. JOEL M. SIMON, ESQ.
SHERMAN & HOWARD L.L.C. PAUL, HASTINGS, JANOFSKY & WALKER LLP
FIRST INTERSTATE TOWER NORTH 399 PARK AVENUE
633 SEVENTEENTH STREET, SUITE 3000 31ST FLOOR
DENVER, COLORADO 80202 NEW YORK, NEW YORK 10022
(303) 299-8108 (212) 318-6200
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
JULY 7, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS
$150,000,000
[LOGO]
GCI, INC.
(A WHOLLY OWNED SUBSIDIARY OF GENERAL COMMUNICATION, INC.)
% SENIOR NOTES DUE 2007
The % Senior Notes Due 2007 (the "Notes") are being offered by GCI, Inc. (the
"Issuer") and will mature on , 2007. The Issuer is a wholly owned
subsidiary of General Communication, Inc. (the "Parent"). Interest on the Notes
will be payable semiannually on and of each year,
commencing , 1998. The Notes will be redeemable at the option of the
Issuer, in whole or in part, at any time on or after , 2002 at the
redemption prices set forth herein, plus accrued and unpaid interest, if any, to
the date of redemption. In addition, prior to , 2000, the Issuer
may use the net cash proceeds of one or more Public Equity Offerings (as
defined) to redeem up to 33 1/3% of the initially issued aggregate principal
amount of the Notes at a redemption price of % of the aggregate principal
amount thereof, together with accrued and unpaid interest thereon to the date of
redemption; provided that not less than $100 million aggregate principal amount
of the Notes remains outstanding following any such redemption. See "Description
of Notes--Optional Redemption." Upon a Change of Control (as defined), the
Issuer will be required to make an offer to purchase all of the Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. See "Description of
Notes--Mandatory Offer to Purchase Upon a Change of Control."
Concurrently with the offering of the Notes (the "Debt Offering"), 13.8 million
shares of Parent's Class A common stock (assuming no exercise of the
Underwriters' over-allotment option) will be offered to the public, of which
approximately 7.0 million shares will be for the account of Parent and
approximately 6.8 million shares will be for the account of certain selling
shareholders of Parent (the "Stock Offering" and, together with the Debt
Offering, the "Offerings"). Consummation of the Debt Offering is not contingent
upon consummation of the Stock Offering, and there can be no assurance that the
Stock Offering will be consummated. The Debt Offering is contingent upon the
refinancing of the existing credit facilities of the Issuer's subsidiaries. See
"Description of Credit Facility."
The Notes will be senior unsecured obligations of the Issuer and will rank PARI
PASSU with all unsubordinated, unsecured indebtedness of the Issuer. The Notes
will be structurally subordinated to the indebtedness and all other liabilities
of the subsidiaries of the Issuer. As of March 31, 1997, after giving effect to
the Offerings and the application of the net proceeds therefrom, the total
consolidated indebtedness of the Issuer would have been $216.1 million, and the
total liabilities of the Issuer's subsidiaries (including trade payables and
accrued liabilities), would have been approximately $136.4 million, of which
$66.1 million would have been indebtedness. The Issuer's subsidiaries expect to
incur significant additional indebtedness and other liabilities in the future,
including $75 million of project financing expected to be incurred by certain
subsidiaries of the Issuer that will be Unrestricted Subsidiaries (as defined)
under the indenture governing the Notes. Although the Notes are entitled
"senior," the Issuer had no indebtedness as of the date of this Prospectus that
would have been subordinated to the Notes and has no current plans to incur such
indebtedness.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT ISSUER (2)
Per Note...................................... % % %
Total......................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from , 1997, to the date of delivery.
(2) Before deduction of expenses payable by the Issuer, estimated to be
$ .
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made through the facilities of The Depository
Trust Company on or about , 1997.
SALOMON BROTHERS INC
SCHRODER & CO. INC.
NATIONSBANC CAPITAL MARKETS, INC.
TD SECURITIES
The date of this Prospectus is , 1997.
<PAGE>
[LOGO]
MAP OF ALASKA SHOWING (1) THE CITIES AND AREAS SERVICED BY THE COMPANY AND
NATURE OF SERVICE, E.G., LONG DISTANCE, CABLE, PROPOSED LOCAL EXCHANGE AND PCS,
(2) A STYLIZED LINK TO AND OUTLINE OF THE LOWER 48 STATES, (3) FIBER OPTIC OCEAN
CABLE ROUTE, AND (4) USE OF SATELLITES FOR COMMUNICATIONS.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
PURCHASES OF THE NOTES TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
It is expected that delivery of the Notes will be made against payment
therefor on or about the date which is the fifth business day following the date
of this Prospectus (such settlement cycle being herein referred to as "T+5").
Purchasers of Notes should be aware that trading of the Notes on the date of
this Prospectus and the next succeeding business day may be affected by the T+5
settlement. See "Underwriting."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," including statements regarding the anticipated development and
expansion of the Company's business, the markets in which the Company's services
are offered, anticipated capital expenditures and regulatory reform, the intent,
belief or current expectations of the Company, its directors or its officers,
primarily with respect to the future operating performance of the Company, and
other statements contained in this Prospectus regarding matters that are not
historical facts, are "forward-looking" statements. Because such statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements include, but are not limited to, the factors set
forth in "Risk Factors" and "Business."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE
"COMPANY" REFERS TO GENERAL COMMUNICATION, INC. AND, WHERE APPLICABLE, ITS
DIRECT AND INDIRECT SUBSIDIARIES, INCLUDING THE ISSUER. THE ISSUER WAS RECENTLY
FORMED TO BE THE OBLIGOR ON THE NOTES. SEE "GLOSSARY" FOR DEFINITIONS OF CERTAIN
OTHER TERMS USED IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION
IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION OFFERED TO
THE UNDERWRITERS IN THE STOCK OFFERING. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS."
THE COMPANY
The Company is a diversified telecommunications provider with a leading
position in facilities-based long distance service in the State of Alaska and,
as a result of recent acquisitions, has become Alaska's leading cable television
service provider. The Company seeks to become the first significant provider in
Alaska of an integrated package of telecommunications and cable television
services. Complementing its long distance, cable and cellular resale operations,
the Company has announced plans to provide facilities-based competitive local
exchange and wireless communications services in Alaska's major population
centers. The Company expects to launch local exchange services in the second
half of 1997 initially in Anchorage where it has received a local exchange
certificate of authority and entered into an interconnection agreement with the
incumbent local exchange carrier ("LEC") which has been approved by the Alaska
Public Utilities Commission (the "APUC"). The Company also acquired a state-wide
30 MHz B-block personal communication service ("PCS") license in June 1995 for
approximately $1.65 million (or about $3.00 per population equivalent or "pop")
and is currently evaluating various technologies for a proposed wireless PCS
network.
The Alaskan voice, video and data markets are unique within the United
States. Alaska is physically distant from the rest of the United States and is
characterized by large geographical size and relatively small, dense population
clusters (with the exception of major population centers such as Anchorage,
Fairbanks and Juneau). It lacks a well-developed terrestrial transportation
infrastructure, and the majority of Alaska's communities are accessible only by
air or water. As a result, Alaska's telecommunications networks are different
from those found in the lower 49 states. Alaska today relies extensively on
satellite-based transmission for intrastate calling between remote communities
where investment in a terrestrial network would be uneconomic or impractical.
Also, given the remoteness of Alaska's communities and, in many cases, the lack
of major civic institutions such as hospitals, libraries and universities,
Alaskans are dependent on telecommunications to access the resources and
information of large metropolitan areas in the rest of the U.S. and elsewhere.
The Company believes that historical distinctions between telephony,
wireless communications and cable television services are disappearing as a
result of regulatory and technological changes. Upon becoming the first
significant integrated provider of such services in Alaska, the Company believes
that it will benefit from a number of advantages that would be difficult and
costly for a competitor to replicate. By providing multiple telecommunications
and cable services, the Company will be able to (i) expand the Company's
addressable market in Alaska and increase the Company's share of its customers'
voice, video and data expenditures, (ii) leverage the Company's existing
customer base by cross-selling its services, (iii) attract new customers and
improve customer retention rates by offering its customers a package of
services, a single bill and a single point-of-contact for customer service, (iv)
reduce capital spending requirements by sharing facilities, equipment and
rights-of-way, (v) contain administrative and personnel costs by combining
functional areas and (vi) reduce local access costs by bypassing some or all of
the incumbent LECs' facilities.
3
<PAGE>
The Company began providing interstate long distance service in 1982 and
began providing intrastate long distance service in 1991. The Company provides a
full range of long distance services, including direct dial, 800, message toll,
private line, private network, operator and calling and debit card services, to
residential, commercial and governmental customers and to other common carriers.
In addition, the Company sells data communication equipment and offers technical
services.
The Company operates a state-of-the-art, competitive telecommunications
network employing the latest digital transmission technology based upon fiber
optic and digital microwave facilities within and between Anchorage, Fairbanks
and Juneau, a digital fiber optic cable linking Alaska to the contiguous 48
states and providing access to other carriers' networks for communication around
the world, and the use of satellite transmission to remote areas of Alaska (and
for certain interstate traffic as well). As of March 31, 1997, the Company's
long distance services were available, through the Company's network, to
approximately 90% of total Alaskan access lines. As of March 31, 1997, the
Company's residential customers were served by approximately 81,150 access
lines, representing approximately 41% of all Alaskan residential presubscribed
access lines. In addition, the Company had over 11,000 commercial, governmental
and other common carrier customers who were served by approximately 57,600
access lines, representing approximately 48% of all non-residential
presubscribed access lines in the State. The Company believes its network costs
are significantly lower than those of its principal competitor, AT&T Alascom
(the other leading long distance provider in Alaska), which, until it was
acquired by AT&T Corp. ("AT&T") in August 1995, had benefitted from an annual
direct subsidy from AT&T of approximately $80 million.
In 1993, the Company entered into a significant business relationship with
MCI Telecommunications Corp., a subsidiary of MCI Communications Corporation
(together with its subsidiaries, "MCI"), pursuant to which, among other things,
the Company agreed to provide transmission services for substantially all
Alaska-bound MCI long distance traffic and MCI agreed to provide transmission
services for substantially all of the Company's long distance traffic
terminating in the lower 49 states (excluding Washington, Oregon and Hawaii). As
of June 30, 1997, MCI owned 22.6% of Parent's total combined outstanding Class A
common stock, no par value ("Class A Common Stock") and Class B common stock, no
par value ("Class B Common Stock" and, together with the Class A Common Stock,
the "Common Stock"), and 19.4% after giving effect to the Stock Offering, the
majority of which was acquired concurrently with entering into the 1993
agreements. MCI presently controls nominations to two seats on Parent's board of
directors (the "Board") pursuant to a voting agreement among MCI and certain
other shareholders (the "Voting Agreement") that was entered into in connection
with the Company's acquisition of cable television systems (the "Cable Systems")
from several unrelated sellers. In 1993, the Company also entered into an
agreement with an affiliate of Sprint Corp. ("Sprint"), pursuant to which the
Company agreed to provide transmission services for all Alaska-bound Sprint long
distance traffic and Sprint agreed to handle substantially all of the Company's
international traffic.
The Company's telecommunications services revenues for the three months
ended March 31, 1997 were $39.2 million and operating cash flow (or EBITDA as
defined below) was $3.4 million (including $0.6 million of start-up losses from
the Company's local exchange and PCS operations), or approximately 8.7% of
telecommunications services revenues for the period. The Company's
telecommunications services revenues for the year ended December 31, 1996 were
$155.4 million and EBITDA was $21.4 million (including $0.9 million of start-up
losses for the Company's local exchange and PCS operations), or approximately
13.8% of telecommunications services revenues for the period. In the five-year
period ended December 31, 1996, the Company's telecommunications services
revenues grew at a compounded annual rate of approximately 15.5%.
Effective October 31, 1996, the Company became the leading cable television
services provider in Alaska upon its acquisition of the Cable Systems for total
consideration of approximately $280.1 million. The Cable Systems serve 21
communities and areas in Alaska, including the state's three largest urban
areas, Anchorage, Fairbanks and Juneau. As of March 31, 1997, the Cable Systems
passed 162,711
4
<PAGE>
homes or approximately 70% of all households in Alaska and served approximately
104,400 subscribers (92,940 equivalent basic subscribers), representing 64% of
households passed by the Cable Systems. As of March 31, 1997, the Cable Systems
consisted of approximately 1,765 miles of installed cable plant having between
300 and 450 MHz of channel capacity. See "Business--Cable Television." On a pro
forma basis, assuming the Cable Systems had been acquired by the Company as of
January 1, 1996, the Cable Systems generated pro forma revenues for the year
ended December 31, 1996 of $55.3 million and pro forma EBITDA before management
fees of $27.0 million, or 48.8% of cable revenues. Pro forma revenues and EBITDA
from cable services would have represented 26.3% and 54.9%, respectively, of the
Company's pro forma consolidated revenues and EBITDA for 1996.
In connection with its acquisition of the Cable Systems, the Company entered
into a management agreement (the "Prime Management Agreement") with Prime II
Management, L.P. ("Prime Management"), a Delaware limited partnership affiliated
with certain sellers of the Cable Systems serving Anchorage and other areas (the
"Prime Sellers") to manage the Cable Systems. Under the Prime Management
Agreement, the Company will pay to Prime Management a net annualized fee for
managing the Cable Systems in the amount of $1,000,000 for the year ending
October 31, 1997, $750,000 for the year ending October 31, 1998, and $500,000
for each year ending October 31 thereafter that the Prime Management Agreement
is in effect. The Prime Management Agreement has a term of nine years but either
party may terminate the agreement in its discretion after October 31, 1998.
Certain of the Prime Sellers which are parties to the Voting Agreement (the
"Voting Prime Sellers") have the right to nominate two Board members pursuant to
the Voting Agreement, and will own approximately 18.0% of the total outstanding
Common Stock after giving effect to the Stock Offering.
In providing cable service, the Company competes principally with
traditional television broadcasters, direct broadcast satellite television
("DBS") and wireless cable or multichannel, multipoint distribution service
("MMDS") providers. The receipt of DBS signals in Alaska currently has the
disadvantage of requiring subscribers to install larger satellite dishes
(generally three to six feet in diameter) than are generally required in the
lower 48 states because of the weaker satellite signals available in northern
latitudes. In addition, existing satellites (situated over the equator) have a
relatively low altitude above the horizon when viewed from Alaska, making their
signals subject to interference from mountains, buildings and other structures.
MMDS also requires that customers' receiving antennas have line-of-sight access
to transmitting radio towers, and both MMDS and DBS signals are subject to
interference from rain, snow, and wind.
BUSINESS STRATEGY
The Company's goal is to become the first significant provider of integrated
voice, video and data services in Alaska while maximizing growth in its revenues
and net income. The Company's strategies to achieve this objective fall
generally into four broad categories: (i) integrate the Company's
telecommunications and cable operations, (ii) expand the scope of the Alaskan
voice, video and data markets that the Company will address, (iii) increase the
Company's penetration of these markets, and (iv) improve the Company's
consolidated operating margins and utilization of the Company's capital
resources. These broad strategies are discussed below. The Company's strategic
focus over the next several years will be on Alaska. On a longer term basis, the
Company may consider growth opportunities outside Alaska, especially in areas of
the world with demographics and infrastructure characteristics similar to those
of Alaska.
INTEGRATE TELECOMMUNICATIONS AND CABLE OPERATIONS
The Company has begun integrating the Cable Systems into its preexisting
operations. As part of this integration, the Company plans to combine the
marketing and sales organizations, the billing systems, management information
systems ("MIS") and customer service organizations of the Cable Systems with
those of the Company's historical operations. This integration will enable the
Company to
5
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coordinate the marketing of its telecommunications and cable services to the
full range of the Company's customers, promote introduction of new products and
services, leverage consumer awareness of the GCI brand name and provide its
customers with a single bill and point-of-contact for customer service. The
Company estimates that the essential elements of this integration will be
completed by late 1997.
EXPAND ADDRESSABLE MARKET
As a result of its acquisition of the Cable Systems, the Company has
expanded its addressable market in Alaska to include both long distance and
cable services, which markets generated approximately $450 million in revenues
in 1996 for all providers of such services in Alaska. Following its introduction
of local exchange and wireless services, the Company's addressable market will
expand to approximately $800 million in total.
The Company intends to offer local exchange services in Anchorage and other
major Alaskan population centers principally using its own network facilities.
The Company expects to provide local exchange services initially in Anchorage in
the second half of 1997. The Company has installed 38 miles of a planned
130-mile fiber optic network in Anchorage, has installed a Lucent 5ESS switch
with both local and long distance capabilities and has entered into an agreement
with the incumbent LEC, Anchorage Telephone Utility ("ATU"), to interconnect the
Company's network with that of ATU and to purchase unbundled local loops
necessary to provide local service. The Alaskan local service market generated
approximately $320 million in revenues in 1996, approximately 34% of which were
attributable to Anchorage. The Company anticipates expanding its local service
to the Fairbanks and Juneau markets during 1998 and to other markets during
1999, subject to negotiating acceptable interconnection arrangements with the
LECs serving those markets and to obtaining the necessary regulatory approvals.
The Company plans to enter the facilities-based wireless communications
market through development of a PCS network. The Company believes that PCS
technology, if successfully implemented, will offer advantages over existing
analog cellular technology, such as superior audio quality, additional features,
better compatibility with wireline services, and longer battery life. PCS
technology is particularly suited for use in Alaska, which has relatively small,
dense population clusters in many geographically remote areas. The Company
estimates that the Alaskan cellular services market generated approximately $35
million in total revenues in 1996.
INCREASE PENETRATION OF ALL MARKET SEGMENTS
The Company believes that by offering a variety of branded
telecommunications and cable services, by increasing consumer awareness and
leveraging brand equity, and by emphasizing customer service and rewarding
consumer loyalty, it will be well-positioned to improve customer retention rates
and to increase its market share in all service categories. The Company believes
that substantially all of its long distance and cable television customers are
potential wireless and local service customers. Cross-selling opportunities also
exist between the Company's long distance customers and its cable customers. The
Company estimates that, as of March 31, 1997, approximately 59% of the Company's
residential cable subscribers did not obtain long distance service from the
Company and that approximately 23% of the Company's total long distance
customers and 27% of the Company's residential long distance customers were
passed by the Cable Systems but did not buy cable service.
The Company plans significant upgrades to the existing cable plant in order
to expand channel capacity, add new services, improve network quality and
reliability and reduce theft. The Company expects that, by expanding customers'
service options, it will attract new customers, increase average revenue per
subscriber and reduce customer attrition rates. Currently, the Cable Systems
have between 300 and 450 MHz of channel capacity, or enough capacity to carry
between 36 and 60 channels. Over
6
<PAGE>
the next two years, the Company plans to increase the capacity of the Cable
Systems to between 450 and 550/750 MHz of channel capacity, or enough capacity
to carry between 60 and 76 channels.
The Company plans to begin offering cable modems in the fourth quarter of
1997. Cable modems represent a new technology which offers significantly faster
access to the Internet and other on-line data services than other currently
available technologies. The Company believes that Alaskans have a greater
propensity to access the Internet than consumers in other states for a variety
of reasons. Alaskans on average have completed more years of formal education
and have a higher per capita income and mean household income than the U.S.
average. Purchasing power is also enhanced by the lack of a state income tax and
the annual Permanent Fund dividend that each resident, regardless of age,
receives from the State (over $1,100 per person in 1996). In markets outside of
Anchorage, Fairbanks and Juneau, the limited availability of traditional sources
of information such as libraries, universities and museums contribute to heavy
use of the Internet as an information, education and communication resource. In
addition to offering cable modems, the Company plans to offer certain
specialized telecommunications services to support distance education and
telemedicine in rural areas of the State. Rural Alaskans often do not have
access to medical professionals within their community and the use of a
communication network to deliver a wide range of telemedical services (voice,
video and data) enhances the quality and timeliness of the services delivered
while concurrently reducing the overall cost of delivery. Likewise, the
educational infrastructure is limited in many areas of rural Alaska and distance
education services are being deployed to provide specialized curricula to
smaller village schools. Like telemedical services, distance education services
both improve the quality of education and reduce the cost of delivery.
IMPROVE CONSOLIDATED OPERATING MARGINS AND CAPITAL UTILIZATION
The Company believes that the combination of its long distance, local,
wireless communications and cable operations will enable it to achieve better
overall operating margins than would be possible if these operations were
managed as stand-alone enterprises. The Company expects to achieve certain
efficiencies by combining the marketing, sales, customer service, MIS and
administrative organizations of the Cable Systems with each other and with those
of the Company's preexisting operations. The Company also expects that its
planned provision of local services, while a potentially significant source of
revenues, will coincidentally result in a significant reduction in the Company's
local access fees paid to Alaskan LECs. Access fees charged to the Company by
incumbent Alaskan LECs for the use of their local networks to originate or
terminate long distance calls totaled $36.4 million in 1996, or approximately
28.2% of the Company's long distance revenues for this period. The Company
estimates that the average access charge payable by it to Alaskan LECs for
originating or terminating interstate access is approximately $0.043 per minute
of traffic and for originating or terminating intrastate access is approximately
$0.07 per minute of traffic (or a total of $0.14 for both originating and
terminating access).
In addition, the Company expects to leverage its investment in existing
cable plant and rights-of-way by, in some cases, overlaying (or using existing)
fiber optic cable for telephony or PCS applications. The incremental cost of
such network enhancements, especially when combined with planned upgrades to the
existing cable plant, is significantly less than the cost of building entirely
new network facilities.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.......... $150,000,000 principal amount of % Senior
Notes due 2007 (the "Notes").
Maturity.................... The Notes will mature on , 2007.
Interest Payment Dates...... Interest on the Notes is payable semiannually on
each and commencing
, 1998.
Optional Redemption......... The Notes will be redeemable at the option of the
Issuer, in whole or in part, at any time on or
after , 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, prior
to ,2000, the Issuer may use the net cash
proceeds of one or more Public Equity Offerings
(as defined) to redeem up to 33 1/3% of the
initially issued aggregate principal amount of the
Notes at a redemption price of % of the
aggregate principal amount thereof, together with
accrued and unpaid interest thereon to the date of
redemption; provided that not less than $100
million aggregate principal amount of the Notes
remains outstanding following any such redemption.
See "Description of Notes--Optional Redemption."
Sinking Fund................ None.
Change of Control........... Upon a Change of Control, the Issuer will be
required to make an offer to purchase the Notes at
a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest,
if any, to the date of purchase. See "Description
of Notes--Mandatory Offer to Purchase Upon a
Change of Control."
Ranking..................... The Notes are senior unsecured obligations of the
Issuer, ranking PARI PASSU with other
unsubordinated, unsecured indebtedness of the
Issuer, and ranking senior in right of payment to
any future subordinated indebtedness of the
Issuer. The Notes will be structurally
subordinated to all liabilities of the Issuer's
subsidiaries, including the Credit Facility (as
defined). See "Description of Credit Facilities."
As of March 31, 1997, after giving effect to the
Offerings and the application of the net proceeds
therefrom, the total indebtedness and total
liabilities (including trade payables and accrued
liabilities) of such subsidiaries, on an aggregate
basis, would have been approximately $136.4
million, of which $66.1 million would have been
indebtedness. As of the date of this Prospectus,
the Issuer had no indebtedness that would have
been subordinated to the Notes. The Issuer's
subsidiaries expect to incur significant
additional indebtedness and other liabilities in
the future. See "Risk Factors--Substantial
Leverage; Ability to Service Debt," "--Holding
Company Structure" and "Description of Notes."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Certain Covenants........... The Indenture for the Notes will contain
limitations on, among other things, (a) the
ability of the Issuer and its Restricted
Subsidiaries to incur additional Indebtedness, (b)
the payment of dividends and other distributions
with respect to the Capital Stock of the Issuer
and the purchase, redemption or retirement of
Capital Stock and subordinated Indebtedness of the
Issuer, (c) the incurrence of certain Liens, (d)
the ability of the Issuer to allow restrictions on
distributions by Restricted Subsidiaries, (e)
Asset Sales, (f) transactions with Affiliates and
(g) certain consolidations, mergers and transfers
of assets. All of these limitations are subject to
a number of important qualifications. See
"Description of Notes--Certain Covenants" and
"--Certain Definitions."
Use of Proceeds............. The net proceeds of the Debt Offering
(approximately $145.0 million) will be used to
reduce borrowings outstanding under the Credit
Facility and to contribute or advance
approximately $50 million to GCI Transport
Company, an Unrestricted Subsidiary, as defined in
the indenture entered into in connection with the
Notes (the "Indenture"). The Company expects to
reborrow funds under the Credit Facility in the
future to fund capital expenditures and for other
general corporate purposes, including possible
acquisitions and other investments. See "Use of
Proceeds."
Concurrent Offerings........ Concurrently with the Debt Offering, Parent is
offering 13.8 million shares of Class A Common
Stock (including approximately 6.8 million shares
for the account of certain selling shareholders of
Parent). The Debt Offering and the Stock Offering
are not conditioned upon one another and,
therefore, one Offering may be consummated without
the other Offering being consummated. The Debt
Offering is contingent upon the Company
refinancing its existing credit facilities. See
"Risk Factors--Significant Capital Requirements;
Concurrent Offerings," "Use of Proceeds" and
"Description of Credit Facilities."
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Notes.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE, PER MINUTE AND PER SUBSCRIBER DATA)
The Issuer was recently formed to be the obligor on the Notes and has not
commenced operations and has nominal assets and liabilities, therefore financial
information for the Issuer is omitted. The following table summarizes certain
summary consolidated financial and operating data of the Company and should be
read in conjunction with, and is qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements of the Company, the notes thereto and other
financial data included elsewhere in this Prospectus. The unaudited pro forma
financial information reflects the acquisition of the Cable Systems as if such
acquisition had been consummated as of January 1, 1996. See the Unaudited Pro
Forma Combined Statement of Operations included elsewhere in this Prospectus.
The unaudited pro forma information should be read in conjunction with the
financial statements of Prime Cable of Alaska, L.P., Alaska Cablevision, Inc.
and Alaskan Cable Network and the notes thereto included elsewhere in this
Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
----------------------------------------------- PRO FORMA ------------------------
1992 1993 1994 1995 1996 1996 (1) 1996 1997
------- -------- -------- -------- -------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Telecommunications
services.................. $96,499 $102,213 $116,981 $129,279 $155,419 $ 155,419 $ 37,969 $ 39,225
Cable services.............. -- -- -- -- 9,475 55,343 -- 13,656
------- -------- -------- -------- -------- ---------- ----------- ----------
Total revenues................ 96,499 102,213 116,981 129,279 164,894 210,762 37,969 52,881
Operating income.............. 5,269 8,804 12,997 13,504 16,409 26,873 3,947 3,292
Net earnings (loss) before
income taxes................ 1,524 6,715 11,681 12,601 12,690 11,395 3,687 (657)
Net earnings (loss)........... 890 3,951 7,134 7,502 7,462 6,700 2,137 (525)
------- -------- -------- -------- -------- ---------- ----------- ----------
------- -------- -------- -------- -------- ---------- ----------- ----------
Net earnings (loss) per
share....................... $ 0.02 $ 0.17 $ 0.30 $ 0.31 $ 0.27 $ 0.16 $ .09 $ (0.01)
------- -------- -------- -------- -------- ---------- ----------- ----------
------- -------- -------- -------- -------- ---------- ----------- ----------
Ratio of earnings to fixed
charges (2)................. 1.29x 2.87x 4.95x 5.61x 2.52x 1.54x 4.73x 0.81x
OTHER FINANCIAL DATA:
Capital expenditures.......... $ 4,396 $ 5,744 $ 10,604 $ 8,938 $ 38,642 $ 45,718 $ 6,950 $ 9,529
Depreciation and
amortization................ 7,486 6,978 6,639 5,993 9,409 20,553 1,887 6,120
Cable operating income........ -- -- -- -- 2,196 12,660 -- 2,528
Cable EBITDA (3).............. -- -- -- -- 4,416 26,025 -- 6,025
Consolidated EBITDA (3)....... 12,755 15,782 19,636 19,497 25,818 47,427 5,834 9,412
Restricted Group
EBITDA (3)(4)............... 12,755 15,782 19,636 19,497 25,818 47,427 5,834 9,412
Consolidated cash flow
provided by operating
activities.................. 7,469 11,710 18,519 14,278 22,371 32,193 2,359 1,840
Consolidated cash flow
provided (used) by investing
activities.................. (7,531) (3,312) (11,359) (8,683) (122,646) -- (7,123) (10,059)
Consolidated cash flow
provided (used) by financing
activities.................. 2,155 (8,749) (8,134) (3,227) 109,607 -- 2,816 (400)
Cable cash flow provided by
operating activities........ $ -- $ -- $ -- $ -- $ 2,778 $ 12,600 $ -- $ 8,278
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
----------------------------------------------- PRO FORMA ------------------------
1992 1993 1994 1995 1996 1996 (1) 1996 1997
------- -------- -------- -------- -------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Long distance (minutes in
thousands)
Interstate minutes of use... 333,009 364,906 406,751 458,131 562,084 562,084 131,621 147,568
Intrastate minutes of use... 64,387 70,107 79,641 93,370 121,208 121,208 28,910 31,537
International minutes of
use....................... 4,304 4,251 5,318 6,385 7,524 7,524 1,890 1,738
------- -------- -------- -------- -------- ---------- ----------- ----------
Total minutes of use........ 401,700 439,264 491,710 557,886 690,816 690,816 162,421 180,843
------- -------- -------- -------- -------- ---------- ----------- ----------
------- -------- -------- -------- -------- ---------- ----------- ----------
Average revenue per
minute.................... $ 0.184 $ 0.182 $ 0.186 $ 0.188 $ 0.179 $ 0.179 $ 0.184 $ 0.173
Cable (period-end data)
Homes passed (5)............ -- -- -- -- 162,395 162,395 -- 162,711
Equivalent basic
subscribers (6)........... -- -- -- -- 93,391 93,391 -- 92,940
Basic penetration (7)....... -- -- -- -- 57.5% 57.5% -- 57.1%
Premium service units (8)... -- -- -- -- 77,609 77,609 -- 75,521
Premium penetration (9)..... -- -- -- -- 83.1% 83.1% -- 81.3%
Average monthly revenue per
equivalent basic
subscriber (10)........... -- -- -- -- $ 50.73 $ 50.73 $ 48.98
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------------------------------------------
AS ADJUSTED AS ADJUSTED AS ADJUSTED
FOR DEBT FOR STOCK FOR BOTH
ACTUAL OFFERING ONLY OFFERING ONLY OFFERINGS
--------- ------------------ ------------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................... $ 442,878 $ 497,878 $ 442,878 $ 497,878
Short-term debt and capital leases (including
current maturities).......................... 32,012 1,721 1,721 1,721
Long-term debt and capital leases (excluding
current maturities).......................... 181,528 266,819 159,399 214,399
Total stockholders' equity..................... $ 159,095 $ 159,095 $ 211,515 $ 211,515
</TABLE>
- ------------------------------
(1) The Cable Systems were acquired effective October 31, 1996. Pro forma data
reflect the acquisition of the Cable Systems as if it had occurred on
January 1, 1996. See the Unaudited Pro Forma Combined Statement of
Operations included elsewhere in this Prospectus.
(2) The ratio of earnings to fixed charges is computed by dividing pre-tax
earnings or loss (plus fixed charges, amortization of capitalized interest,
and minus interest capitalized during the period) by the sum of the total
interest, amortization of deferred loan costs, and one-third of rental
expense characterized as interest, all incurred during the period.
(3) As used herein, EBITDA consists of earnings before interest (net), income
taxes, depreciation, amortization and other income (expense). EBITDA is a
measure commonly used in the telecommunications and cable television
industries to analyze companies on the basis of operating performance. It is
not a measure of financial performance under GAAP and should not be
considered as an alternative to net income as a measure of performance or as
an alternative to cash flow as a measure of liquidity.
(4) Represents consolidated EBITDA for the Issuer and its Restricted
Subsidiaries (as defined in the Indenture).
(5) Dwellings and commercial establishments that are or can be connected to the
distribution system of a cable system without further extension of the
transmission lines of that cable system.
(6) A number representing the sum of (a) residential customers receiving at
least the entry level of cable television service offered by a system
("Basic Service") at the system's standard residential rate for Basic
Service plus (b) for customers receiving Basic Service under bulk billing
arrangements at a rate less than the system's standard residential rate for
Basic Service (including multi-unit residential complexes, hotels, motels
and hospitals), the number derived by dividing the monthly amount billed to
all such subscribers for Basic Service by the monthly standard residential
rate for Basic Service.
(7) Equivalent basic subscribers divided by homes passed.
(8) Premium programming services selected by and sold to subscribers on an a la
carte or packaged basis for monthly fees in addition to the fee for Basic
Service. All customers who are listed as "premium service units" are also
included in "equivalent basic subscribers."
(9) Premium service units divided by equivalent basic subscribers.
(10) Total subscriber revenues for the year from the sale of cable television
services divided by average total equivalent basic subscribers divided by
12.
11
<PAGE>
SUMMARY CABLE COMPANY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following tables set forth selected historical financial data separately
for the Cable Companies: (i) for and as of the end of each of the years in the
five-year period ended December 31, 1995 and; (ii) for the six-month periods
ended June 30, 1995 and June 30, 1996. The data for the six-month periods ended
June 30, 1995 and June 30, 1996 have been derived from the unaudited financial
statements of the Cable Companies appearing elsewhere in this Prospectus. Such
unaudited financial statements, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results for the unaudited periods. The following
information is qualified in its entirety by, and should be read in conjunction
with, the accompanying financial statements and notes thereto for the
corresponding Cable Company and the Company. See "Index to Financial
Statements."
PRIME CABLE OF ALASKA, L.P.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 25,951 $ 27,677 $ 29,101 $ 30,599 $ 32,594 $ 16,100 $ 17,276
Operating, selling, general and
administrative expenses (1)............... 29,871 31,373 32,615 33,561 34,425 17,175 18,002
Operating income (loss) (1)................. $ (3,920) $ (3,696) $ (3,514) $ (2,962) $ (1,831) $ (1,075) $ (726)
OTHER OPERATING DATA:
Total assets (period-end)................... $ 120,397 $ 111,179 $ 98,322 $ 85,303 $ 74,141 $ 80,061 $ 61,224
EBITDA (before management fees)(2).......... 13,968 14,699 15,289 15,653 16,330 7,950 8,608
Cash flow provided by operating activities
(3)....................................... $ -- $ -- $ 8,055 $ 8,450 $ 7,537 $ 3,652 $ 5,456
</TABLE>
ALASKAN CABLE NETWORK (4)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 13,761 $ 13,914 $ 14,142 $ 13,883 $ 14,515 $ 7,224 $ 7,442
Operating, selling, general and administrative
expenses (5)................................ 13,221 14,013 13,775 13,367 13,883 6,858 7,113
Operating income (loss) (5)................... $ 540 $ (99) $ 367 $ 516 $ 632 $ 366 $ 329
OTHER OPERATING DATA:
Total assets (period-end)..................... $ 38,242 $ 35,167 $ 33,115 $ 33,380 $ 24,494 $ 24,106 $ 19,209
EBITDA (before management fees) (2)........... 6,666 6,208 6,931 6,841 7,033 3,513 3,598
Cash flow provided by operating activities
(3)......................................... $ -- $ -- $ 7,327 $ 6,279 $ 7,124 $ 3,643 $ 3,049
</TABLE>
ALASKA CABLEVISION, INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 5,488 $ 5,626 $ 5,660 $ 5,709 $ 5,920 $ 2,969 $ 3,007
Operating, selling, general and administrative
expenses (6)................................ 3,624 3,603 3,845 4,064 4,157 2,037 2,119
Operating income (loss) (6)................... $ 1,864 $ 2,023 $ 1,815 $ 1,645 $ 1,763 $ 932 $ 888
OTHER OPERATING DATA:
Total assets (period-end)..................... $ 2,212 $ 2,076 $ 2,211 $ 2,663 $ 3,306 $ 3,184 $ 3,446
EBITDA (before management fees)............... 2,836 2,981 2,817 2,530 2,583 1,359 1,309
Cash flow provided by operating
activities(3)............................... $ -- $ -- $ 1,495 $ 1,976 $ 1,776 $ 964 $ 802
</TABLE>
12
<PAGE>
- ------------------------------
(1) Includes management fees paid by Prime in the amounts of $1,542,000,
$1,671,000 and $1,674,000 in 1993, 1994 and 1995, respectively, and $817,000
and $924,000 for the six months ended June 30, 1995 and 1996, respectively,
under management agreements in existence prior to the Company's acquisition
of Prime. These fees will not be relevant to the Company's ongoing cable
operating results. See "Business--Cable Television."
(2) As used herein, EBITDA consists of earnings before interest (net), income
taxes, depreciation, amoritzation and other income (expense). EBITDA is a
measure commonly used in the telecommuncations and cable television
industries to analyze companies on the basis of operating performance. It is
not a measure of financial performance under GAAP and should not be
considered as an alternative to net income as a measure of performance or as
an alternative to cash flow as a measure of liquidity. Other income
(expense) items are immaterial, except for a $2.7 million loss on disposal
of assets for Alaskan Cable Companies in 1993. See page F-52.
(3) Cash flow provided by operating activities for 1991 and 1992 is not
available.
(4) Combined for Alaskan Cable/Fairbanks, Alaskan Cable/Juneau, and Alaskan
Cable/Ketchikan-Sitka.
(5) Includes management fees paid by Alaskan Cable in the amounts of $202,000,
$233,000 and $225,000 in 1993, 1994 and 1995, respectively, and $113,000 and
$156,000 for the six months ended June 30, 1995 and 1996, respectively,
under management agreements in existence prior to the Company's acquisition
of cable systems from Alaskan Cable. These fees will not be relevant to the
Company's ongoing cable operating results. See "Business--Cable Television."
(6) Includes management fees paid by Alaska Cablevision in the amount of
$567,000, $571,000 and $400,000 in 1993, 1994 and 1995, respectively, and
$217,000 and $184,000 for the six months ended June 30, 1995 and 1996,
respectively, under management agreements in existence prior to the
Company's acquisition of cable systems from Alaska Cablevision. These fees
will not be relevant to the Company's ongoing cable operating results. See
"Business--Cable Television."
13
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE
IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING RISK
FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE NOTES
OFFERED HEREBY.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has substantial leverage. As of March 31, 1997, on an as
adjusted basis after giving effect to the Offerings and the application of the
net proceeds therefrom, the total consolidated indebtedness of the Issuer would
have been $216.1 million (or 50.5% of the total capitalization of the Issuer and
its subsidiaries) and the total liabilities of the Issuer's subsidiaries
(including trade payables and accrued liabilities) would have been approximately
$136.4 million, of which $66.1 million would have been indebtedness. As of March
31, 1997, after giving effect to the Debt Offering only and the application of
the net proceeds therefrom, the total consolidated indebtedness of the Issuer
would have been $268.5 million (or 62.8% of the total capitalization of the
Issuer and its subsidiaries) and the total liabilities of the Issuer's
subsidiaries (including trade payables and accrued liabilities) would have been
approximately $188.8 million, of which $118.5 million would have been
indebtedness. See "Capitalization." The degree to which the Company is leveraged
may adversely affect the Company's ability to finance its future operations, to
compete effectively against better capitalized companies and to withstand
downturns in its business or the economy generally, and could limit its ability
to pursue business opportunities that may be in the best interests of the
Company and its security holders. Following the Offerings, the Company's
subsidiary, GCI Holdings, Inc. ("Holdings"), will have approximately $216.4
million of available borrowings under the Credit Facility, subject to certain
limitations, and it expects to continue to borrow funds under such facility. The
Credit Facility is secured by substantially all of the assets of the Company and
is structurally senior to the Notes. See "--Holding Company Structure" and
"Description of Credit Facilities."
The Credit Facility and the Notes impose restrictions on the operations and
activities of the Company. Generally, the most significant restrictions relate
to debt incurrence, investments, capital expenditures, sales of assets and the
use of proceeds therefrom and cash distributions from the Company. These
restrictions require the Company to comply with certain financial covenants
including financial ratios. The Company is currently in compliance with such
covenants and ratios. The restrictions in the Indenture will be subject to a
number of important qualifications and exceptions. As long as the Issuer and its
Restricted Subsidiaries (as defined in the Indenture) comply with specified
leverage ratios, the Issuer and its Restricted Subsidiaries are permitted to
incur an unlimited amount of additional indebtedness to finance the acquisition
of telecommunications and cable assets, equipment and inventory and for capital
expenditures and working capital for the telecommunications and cable businesses
and up to $90.0 million of other indebtedness. The Indenture will also permit
the Issuer to secure any such indebtedness, subject to equally and ratably
securing the Notes. The Indenture will also permit the Company's Unrestricted
Subsidiaries (as defined in the Indenture) to incur an unlimited amount of
indebtedness, $75 million of which is currently contemplated to be incurred as
project financing to construct an undersea fiber optic cable. The ability of
Holdings to comply with the restrictions and covenants in the Credit Facility,
and of the Issuer to comply with the restrictions and covenants in the
Indenture, will be dependent upon the Company's future performance and various
other factors, including factors beyond its control. If the Issuer fails to
comply with the restrictions and covenants in the Indenture or if Holdings fails
to comply with the restrictions and covenants in the Credit Facility, the
Issuer's obligation to repay the Notes and Holdings' obligation to repay its
indebtedness under the Credit Facility may be accelerated. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Credit Facilities"
and "Description of Notes--Certain Covenants."
14
<PAGE>
The ability of the Issuer to repay the Notes at maturity depends in part on
the Issuer's ability to generate cash flows from operations at currently
anticipated levels. Should the Issuer's operating cash flows fall below the
levels required to generate sufficient funds to repay the Notes, the Notes may
need to be refinanced. The Issuer's ability to refinance the Notes will depend
upon, among other things, its financial condition at the time, the restrictions
in the agreements governing its and its subsidiaries' indebtedness and other
factors, including market conditions. There can be no assurance that any such
refinancing will be possible on terms that would be acceptable to the Issuer or
that any additional financing could be obtained. If such refinancing were not
possible, or if additional financing were not available, the Issuer could be
forced to dispose of assets under circumstances that might not be favorable to
realizing the highest price for them or could be in default on its obligations
with respect to its indebtedness. See "Description of Credit Facilities."
HOLDING COMPANY STRUCTURE
The Notes will be obligations exclusively of the Issuer and not of Parent or
the Issuer's subsidiaries. The Issuer is a holding company with no material
business operations or sources of income or assets of its own other than the
stock of its subsidiaries. The Issuer and Holdings must rely on dividends, loan
repayments and other intercompany cash flows from their subsidiaries to generate
the funds necessary to meet their debt service obligations, including the Notes.
The Credit Facility is guaranteed by all of the subsidiaries of Holdings and
limits the ability of Holdings' subsidiaries to pay dividends or make loans or
other distributions to Holdings, the Issuer or Parent. See "Description of
Credit Facilities." The ability of Holdings' subsidiaries to pay dividends to
Holdings is also limited by provisions of the Alaska Corporations Code.
The Notes will be effectively subordinated to indebtedness under the Credit
Facility, to any other secured indebtedness that Parent, the Issuer or Holdings
hereafter incurs and to all other liabilities and commitments of the Issuer's
subsidiaries, including trade payables and lease obligations. In the event of a
default on the Notes or a bankruptcy, liquidation or reorganization of the
Issuer, the assets of the Issuer will be available to satisfy its secured
obligations before any payment could be made on the Notes. Accordingly, there
may be a limited amount of assets available to satisfy any claims of the holders
of the Notes upon an acceleration of the Notes. Any right of the Company to
participate in the distribution of assets of a subsidiary upon its liquidation
or reorganization will be effectively subordinated to the claims of that
subsidiary's creditors (including tax authorities, trade creditors, and lenders
to those subsidiaries). As of March 31, 1997, after giving effect to the
Offerings, the Issuer's subsidiaries would have had approximately $136.4 million
of total liabilities, of which $66.1 million would have been indebtedness. As of
March 31, 1997, after giving effect to the Debt Offering only, the Issuer's
subsidiaries would have had approximately $188.8 million of total liabilities,
of which $118.5 million would have been indebtedness. The Indenture will permit
the Issuer's subsidiaries to incur substantial additional liabilities and
indebtedness, including $75 million of project financing currently contemplated
to be incurred by Unrestricted Subsidiaries (as defined in the Indenture) of the
Issuer for the construction of an undersea fiber optic cable. See "Description
of Notes."
SIGNIFICANT CAPITAL REQUIREMENTS; CONCURRENT OFFERINGS
Development and expansion of the Company's telecommunications and cable
operations will require substantial capital. The Company estimates that its
aggregate capital requirements for the next five years will be approximately
$445 to $505 million, including approximately $165 million for the purchase of
new satellite transponders and the construction of new undersea fiber optic
cable facilities through GCI Transport Company, an Unrestricted Subsidiary under
the Indenture. The Company's estimated capital requirements include, among other
things, the estimated costs (i) to continue the expansion of the Company's long
distance facilities and services; (ii) to develop and deploy the Company's entry
into local exchange services and its PCS network; and (iii) to upgrade, expand
and
15
<PAGE>
integrate the Cable Systems into its telecommunications services business. The
Company expects that the net proceeds from the Offerings, together with
internally generated cash flows and borrowings under the Credit Facility and its
separate committed financing facility for GCI Transport Company, will provide
sufficient funds for the Company to expand its business as currently planned.
The amount of the Company's future capital requirements will depend upon many
factors, however, including regulatory, technological and competitive
developments in the telecommunications and cable television industries, and may
differ materially from the Company's estimates.
Concurrently with the Issuer's offering of the Notes, Parent is separately
offering approximately 7.0 million shares of Class A Common Stock pursuant to
the Stock Offering (excluding approximately 6.8 million shares for the account
of certain selling shareholders). Consummation of one Offering is not contingent
upon consummation of the other Offering, and there can be no assurance that the
Stock Offering will be consummated and, if so, on what terms. Without the
proceeds from the Stock Offering, the Company may have to seek alternative
financing for a portion of its business plan. In particular, if the Stock
Offering is not consummated, the Company may need to obtain additional financing
for its planned purchase of seven transponders on the Galaxy X satellite that is
expected to be launched in mid-1998. In addition, the Company may be required to
seek additional capital if its actual capital requirements exceed its estimates
and it is unable to generate sufficient funds internally or borrow sufficient
funds under the Credit Facility. If the Company were to require additional
financing, there can be no assurance that additional financing would be
available to the Company or, if available, that it would be on terms acceptable
to the Company. The Debt Offering is contingent upon the Company refinancing its
existing credit facilities. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Business--Business Strategy" and "Description of Credit
Facilities."
POTENTIAL ADVERSE EFFECT ON THE COMPANY IF THE FIBER FACILITY IS NOT CONSUMMATED
As described under "Description of Credit Facilities," subsidiaries of the
Company plan to incur up to $75 million in additional indebtedness to finance
the construction of an undersea fiber optic cable (the "Fiber Facility"). The
Company requires the Fiber Facility in order to construct new undersea fiber
optic cable facilities, and although the Company has received executed
commitments from lenders to provide the Fiber Facility, there can be no
assurance that the Fiber Facility will be consummated.
DEVELOPMENT AND EXPANSION RISKS
The Company's ability to become the first significant provider in Alaska of
an integrated package of telecommunications and cable television services will
depend in large part on its ability to enter into and succeed in the local
exchange service market, to establish PCS networks in Alaska, and to upgrade or
convert the Cable Systems from their present coaxial distribution system to a
hybrid fiber optic/coaxial distribution system so that additional cable and
telecommunications services can be offered and can be integrated with the
Company's existing telecommunications services. The entry into local exchange
service, the implementation of its PCS networks and the upgrade of the Cable
Systems are critical to the Company's ability to provide new services and
products to its customers. See "Business--Overview,"
"--Business Strategy" and "--PCS."
The successful implementation of the Company's expansion strategy is subject
to a variety of risks, including changes in the competitive climate in which the
Company operates, technological changes and compatibility risks, and legal and
regulatory risks (including possible delays in the full implementation of
deregulation under the federal Telecommunications Act of 1996 (the "1996 Telecom
Act")). The Company's expansion plans also depend on factors such as its ability
to obtain and maintain required governmental licenses and authorizations, its
ability to enter into interconnection agreements with established LECs, and its
ability to obtain financing, all in a timely manner, at reasonable costs and on
terms and conditions acceptable to the Company. There can be no assurance that
the Company's
16
<PAGE>
contemplated expansion of services will take place as planned or that the
expanded services will become profitable or generate positive cash flows. See
"Business--Business Strategy" and
"--Competition."
ABILITY TO MANAGE GROWTH
The Company's aggressive growth in telecommunication services, its
acquisition of a state-wide license for development of PCS services, and its
acquisition of cable television systems in Alaska have placed, and may continue
to place, a significant strain on the Company's administrative, operational and
financial resources and have increased demands on the Company's systems and
controls. The Company's ability to continue to manage its growth successfully
will require the Company to further enhance its operational, management,
financial and information systems and controls and to expand, train and manage
its employee base. In addition, as the Company increases its service offerings
and expands its targeted markets, there will be additional demands on the
Company's customer support, sales, marketing, and administrative resources and
infrastructure. There can be no assurance that the Company's administrative,
operating and financial resources, systems and controls will be adequate to
effectively manage the Company's growth. The inability of the Company to manage
its growth successfully could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--Business
Strategy."
RELIANCE ON SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, the Company provided services to MCI
and to Sprint resulting in substantial revenues to the Company of approximately
29% of total revenues for 1996. These two customers are free to seek out long
distance communication services from competitors of the Company upon expiration
of their contracts (in 2001 in the case of MCI and in 1999 in the case of
Sprint) or earlier upon a default or the occurrence of a force majeure event or
a substantial change in applicable law or regulation under the applicable
contract.
Loss of one or both of these major customers, or a considerable number of
other customers, would have a material adverse effect on the financial condition
and results of operations of the Company. See "Business--Long Distance
Operations."
RAPID CHANGES IN TECHNOLOGY AND CUSTOMER REQUIREMENTS
The telecommunications and cable television industries have been
characterized by rapid technological changes, frequent new service introductions
and evolving industry standards. The Company believes that its future success
will depend on its ability to anticipate such changes and to offer services that
meet these standards on a timely basis. There can be no assurance that the
Company will have sufficient resources to make necessary investments or to
introduce new services that would satisfy its customers. See
"Business--Competition."
GEOGRAPHIC CONCENTRATION AND ALASKAN ECONOMY
The Company offers a variety of voice, video and data services to
residential, commercial and governmental customers in the State of Alaska. As a
result of this geographic concentration, the Company's growth and operations
depend in part upon economic conditions in Alaska. The economy of Alaska is
dependent upon the natural resource industries, in particular oil production, as
well as tourism, government and United States military spending. Any
deterioration in these markets could have an adverse impact on the demand for
telecommunications and cable television services and on the Company's results of
operations and financial condition. In addition, the customer base in Alaska is
limited. Alaska has a population of approximately 600,000 people, approximately
one-half of whom are located in the Anchorage area. No assurance can be given
that the Alaskan economy will continue to
17
<PAGE>
grow and to generate increased demand for the Company's services. See
"Business--Alaskan Voice, Video and Data Markets" and "--Alaskan Economy."
RECENT CABLE SYSTEM ACQUISITIONS
As of October 31, 1996, the Company acquired the Cable Systems for a total
purchase price of $280.1 million. On a pro forma basis, giving effect to the
acquisition of the Cable Systems as if it had occurred on January 1, 1996, the
Cable Systems' revenues and EBITDA before management fees would have comprised
26.3% of the Company's consolidated revenues and 54.9% of the Company's
operating cash flow for the year ended December 31, 1996. In acquiring the Cable
Systems, the Company obtained a substantial portion of the existing cable
television distribution systems in Alaska and gained entry into the cable
television business, in which it had no prior operating experience. In
connection with the acquisition, the Company entered into the Prime Management
Agreement with Prime Management to assist in the management of the Cable
Systems. The Company currently relies on Prime Management, which had managed the
Prime cable television systems prior to their acquisition by the Company, to
assist in the management of the Cable Systems, and there can be no assurance
that the Company's cable television business would not be adversely affected
should Prime Management's services become unavailable. Either party may
terminate the Prime Management Agreement in its discretion after October 31,
1998. In addition, given the Company's lack of experience in the cable
television industry, there can be no assurance that the Company will achieve
improved operating results, synergies and other benefits expected as a result of
the acquisition of the Cable Systems. See "Business--Cable Television."
COMPETITION
The long distance telecommunications industry is highly competitive.
Competition in the long distance business is based upon pricing, customer
service, billing services and perceived quality. The Company's principal
competitor in long distance service, AT&T Alascom (the other leading long
distance provider in Alaska), has substantially greater resources than the
Company and its interstate rates are integrated with those of a nationwide
communications firm, AT&T Corp. While the Company initially competed in long
distance services based upon offering substantial discounts, those discounts
have been eroded in recent years due to lowering of prices by AT&T Alascom. If
competition for long distance services forces the Company to offer its services
at greater discounts, the consequent loss of revenues could have a material
adverse effect on the Company's financial condition and results of operations.
Recent changes in the regulation of the telecommunications industry may
affect the Company's competitive position as a provider of long distance
services. The 1996 Telecom Act effectively opened the local and long distance
markets to competition. Incumbent local exchange carriers may enter the market
for long distance services. In fact, the incumbent LEC in Anchorage has, as of
April 1997, begun providing long distance services in the Anchorage area on a
non-facilities-based basis. The Company is unable to predict the extent to which
this may have an adverse effect on the Company's financial condition and results
of operations.
The cable television industry is also highly competitive. In certain areas
of the United States, cable television systems face competition from other cable
operators offering cable television services in the same areas. Currently, the
Company believes it is not subject to competition from other cable operators in
the areas served by the Cable Systems. However, applicable law permits cable
operators to compete directly with incumbent cable systems. Cable television
systems also face competition from alternative methods of receiving and
distributing television signals such as traditional broadcast television, direct
broadcast satellite systems, satellite master antennae television systems and
wireless cable systems, and from other sources of news, information and
entertainment. The extent to which a cable television system is competitive
depends, in part, upon the cable system's ability to provide quality programming
and other services at competitive prices. Recent published reports indicate that
there has been a
18
<PAGE>
substantial increase in the number of DBS subscribers in the United States in
recent years. Thus, although it is difficult to assess the ultimate impact that
DBS will have on the cable industry or the Company's financial condition and
results of operations, DBS services may pose a significant competitive threat to
cable television systems.
Regulatory changes may also make it easier for LECs and others, including
utility companies, to provide video services competitive with services provided
by cable systems and to provide cable services directly to subscribers. Prior to
the 1996 Telecom Act, LECs were statutorily barred from providing video services
to subscribers in their service areas, with certain exceptions. The 1996 Telecom
Act repealed this statutory telephone/cable cross-ownership prohibition, and
recognizes several multiple entry options for telephone companies to provide
competitive video programming. LECs, including the Regional Bell Operating
Companies ("RBOCs"), generally will be allowed to compete with cable operators
both inside and outside the LECs' telephone service areas with certain
limitations.
The local exchange services market is also likely to become competitive.
AT&T has announced plans to enter the local exchange services market in Alaska
on a non-facilities-based basis. The 1996 Telecom Act mandates that states allow
local exchange competition and requires LECs, among other things, to take steps
to ensure local competition by allowing adequate interconnection and network
access to competing carriers. In addition, in the PCS industry, the Company may
face competition from other PCS providers as well as other providers offering
similar services, such as cellular carriers.
Management of the Company has no control over the possible future entry into
the Alaskan telecommunications or cable television markets of other potential
competitors, many of whom may be much larger than the Company and have much
greater resources than the Company. Aggressive competition for customers in
communities served by the Company could also result in increased marketing
expenditures by the Company. Resulting reductions in the Company's customer base
and rates and increases in the Company's costs could have a material adverse
effect on the Company's financial condition and results of operations. Because
of the high level of competition, the Company's ability to expand its operations
and increase market share is uncertain. Therefore, no assurance can be given
that the Company can achieve growth in products or revenues or that the Company
will not lose market share due to competitive pricing, greater resources of its
competitors or other factors. See "Business--Competition."
REGULATION
The Company is subject to regulation by the Federal Communications
Commission ("FCC") and by the APUC as a non-dominant provider of long distance
services. Among other regulatory requirements, the Company is required to file
tariffs with the FCC for interstate and international service, and with the APUC
for intrastate services, but such tariffs routinely become effective without
intervention by the FCC, the APUC or other third parties since the Company is a
non-dominant carrier. The Company received approval from the APUC in February
1997 to provide local exchange services in and around Anchorage and Hope,
Alaska.
Military franchise requirements also affect the Company in its provision of
telecommunications and cable television services to military bases. Substantial
changes in the federal regulation of the telecommunications and the cable
television industries were accomplished through the 1996 Telecom Act which
became law in February 1996. Certain provisions of the 1996 Telecom Act could
materially affect the growth and operation of the telecommunications and cable
television industries and the services provided by the Company. Although the
1996 Telecom Act is expected to reduce regulatory burdens, the
telecommunications and cable television industries may be subject to additional
competition as a result thereof. There are numerous rulemakings that have been
and that will be undertaken by the FCC, which will interpret and implement the
1996 Telecom Act's provisions. In addition, certain provisions of the
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<PAGE>
1996 Telecom Act are not immediately effective. Furthermore, certain of the 1996
Telecom Act's provisions have been, and are likely to continue to be, judicially
challenged. The Company is unable to predict the outcome of such rulemakings or
litigation or the substantive effect (financial or otherwise) of the 1996
Telecom Act and the rulemakings on the Company. See "Business--Regulation." The
Company is also subject to federal and state regulation as a cable television
operator pursuant to the Communications Act of 1934 (the "Communications Act"),
the Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"
and, together with the 1984 Cable Act, the "Cable Acts"), all as amended by the
1996 Telecom Act. The 1992 Cable Act significantly expanded the scope of cable
television regulation on an industry-wide basis by imposing rate regulation,
carriage requirements for local broadcast stations, customer service obligations
and other requirements. The 1992 Cable Act and the FCC's rules implementing the
1992 Cable Act generally have increased the administrative and operational
expenses, and in certain instances required rate reductions for cable television
systems, and have resulted in additional regulatory oversight by the FCC and
state or local (depending on the regulatory scheme) authorities.
As an authorized local exchange service provider in parts of Alaska, the
Company is regulated as a LEC by the APUC. The APUC's February 1997 order
requires all Alaskan LECs, including the Company, to comply with several
regulatory requirements, including the filing of a local exchange service tariff
and the filing of certain annual and quarterly reports. In addition, the Company
is subject to other regulatory requirements, including certain obligations
imposed by the 1996 Telecom Act on all LECs, which requirements include
permitting resale of LEC services, number portability, dialing parity,
interconnection and reciprocal compensation. See "Business--Regulation."
As a PCS licensee, the Company is subject to regulation by the FCC and must
comply with certain buildout and other conditions of the license, as well as
with the FCC's regulations governing the PCS service. On a more limited basis,
the Company may be subject to certain regulatory oversight by the APUC (E.G., in
the areas of consumer protection and transfer of its license), although states
are not permitted to regulate the rates of PCS and other commercial mobile
service providers. PCS licensees may also be subject to regulatory requirements
of local jurisdictions pertaining to, among other things, the siting of tower
facilities. As a cellular reseller, the Company is deemed to be a common carrier
and is subject to the requirements of Title II of the Communications Act. In
light of the non-dominant market position of resellers, many of the obligations
traditionally imposed on common carriers are relaxed with respect to resellers.
Resellers are required to contribute to the Telecommunications Relay Services
Fund and to remit annual regulatory fees to the FCC. Cellular resellers may also
be subject to certain state requirements, although state regulation of mobile
service providers is limited in several respects by federal law. See
"Business--Regulation."
Other existing federal regulations, including copyright licensing rules, are
currently the subject of judicial proceedings, legislative hearings, and
administrative proposals which could change, in varying degrees, the manner in
which cable television systems operate. Neither the outcome of these
proceedings, nor their impact upon the cable television industry in general or
the Company's entry into that industry, can be predicted at this time. There can
be no assurance that future regulatory actions taken by Congress, the FCC or
other federal, state or local governmental authorities will not have an adverse
effect on the business, financial condition or results of operations of the
Company. See "Business-- Regulation."
CONCENTRATION OF STOCK OWNERSHIP
As of June 30, 1997, executive officers and directors of Parent and their
affiliates owned approximately 59.2% of the combined outstanding Common Stock,
representing 67.8% of the combined voting power of the Common Stock (45.3% and
59.1%, respectively, after giving effect to the Stock Offering). Certain of
these shareholders are subject to the Voting Agreement pursuant to which eight
of Parent's ten directors are currently elected (two nominations by the Voting
Prime Sellers, two nominations by
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<PAGE>
MCI, two nominations by TCI-GCI, Inc., a wholly owned subsidiary of
Tele-Communications, Inc. (together with its subsidiaries, "TCI") and one
nomination by each of Mr. Duncan and Mr. Walp who currently serve as their own
nominees). MCI owns 22.6% of the combined outstanding Common Stock as of June
30, 1997, representing 26.6% of the combined voting power of the Common Stock
(19.4% and 24.5% after giving effect to the Stock Offering). The Voting Prime
Sellers collectively own 25.7% of the combined outstanding Common Stock,
representing 13.8% of the combined voting power of the Common Stock (18.0% and
10.3% after giving effect to the Stock Offering). TCI expects to sell all of its
shares of Common Stock in the Stock Offering and, if it does so, it will
thereafter no longer be a party to the Voting Agreement. If TCI ceases to be a
party to the Voting Agreement, each other party to the Voting Agreement will
have the right to withdraw from the Voting Agreement by giving written notice to
the other parties, although the Company does not anticipate that any party will
exercise that right.
Following the Stock Offering and assuming that TCI is the only shareholder
that ceases to be a party to the Voting Agreement the percentage of the combined
outstanding Common Stock subject to the Voting Agreement will decrease from
54.0% to 40.7% (or from 56.3% to 44.6% of the combined voting power of the
Common Stock). Not withstanding the withdrawal of TCI, the shareholders who are
party to the Voting Agreement will collectively be able to control the
management policy of the Company and all fundamental corporate actions,
including mergers, substantial acquisitions and dispositions and election of
directors to the Board. This concentration of ownership may have the effect of
delaying or preventing a change of control of the Company, although the Voting
Agreement does not currently cover any matters other than the election of
directors. See "Principal and Selling Shareholders" and "Management--Voting
Agreement."
LACK OF PUBLIC MARKET FOR NOTES
Because the Notes are a new issue of securities, there is currently no
active trading market for the Notes. The Underwriters have advised the Company
that they presently intend to make a market in the Notes, although none of them
is obligated to do so, and each of them may discontinue any market-making
activities with respect to the Notes at any time without notice. There can be no
assurance that an active public market for the Notes will develop or be
maintained. If an active trading market for the Notes does not develop, the
market price and liquidity of the Notes may be adversely affected. See
"Underwriting."
THE COMPANY
CORPORATE BACKGROUND
The Company was founded in 1979 by Robert M. Walp and the Company's current
President and Chief Executive Officer, Ronald A. Duncan. From 1980 to 1987,
Parent was a wholly owned subsidiary of WestMarc Communications, Inc.
("WestMarc"). Parent was spun off in 1987 from WestMarc, a subsidiary of
Tele-Communications, Inc. that was itself spun off by TCI in 1984. As a result
of that spin off from WestMarc, Parent became an independent publicly held
company.
TCI acquired its stock in Parent through its ownership of WestMarc, which
was reacquired by TCI in 1990. In 1991, WestMarc provided financing to Parent in
exchange for convertible preferred stock of Parent on which dividends were paid
in shares of Class B Common Stock. That preferred stock and an outstanding
warrant were retired in 1993 in exchange for $3.8 million. Certain major
shareholders, including TCI and MCI, are parties to the Voting Agreement which
permits each of TCI and MCI to nominate two persons to the Board. TCI expects to
sell all of its shares of Common Stock in the Stock Offering and, if it does so,
it will thereafter no longer be a party to the Voting Agreement. The Company
currently expects, however, that TCI's nominees to the Board will continue as
directors of the Company following the Stock Offering, notwithstanding that TCI
would no longer have the right to nominate two directors. See
"Management--Voting Agreement" and "Principal and Selling Shareholders."
The Class A Common Stock is designated as a national market system stock on
Nasdaq, and trades under the symbol "GNCMA." The Class B Common Stock is quoted
in the over-the-counter market and is traded on a more limited basis. The Debt
Offering and the Stock Offering will be the Issuer's and Parent's first
underwritten offerings of securities. Consummation of the Debt Offering and the
Stock Offering are not contingent on each other.
The executive offices of the Company and the Issuer are located at 2550
Denali Street, Suite 1000, Anchorage, Alaska 99503-2781, and their telephone
number is (907) 265-5600.
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CORPORATE STRUCTURE
The following chart depicts the corporate structure of the Company:
[CHART]
The Company's telecommunications operations are conducted primarily through
GCI Communication Corp., to which Parent transferred substantially all of its
assets and liabilities in 1990. The Company's telecommunications operations are
also conducted through two other subsidiaries. GCI Communication Services, Inc.
provides private network point-to-point data and voice transmission services
between Alaska, Hawaii and certain western states, and GCI Leasing Co. Inc. is
the owner of the Company's existing undersea fiber optic cable capacity. The
Company's cable operations are conducted through GCI Cable, Inc. and its
subsidiaries. GCI Transport Company and its subsidiaries have been formed to
finance the acquisition of seven transponders on the Galaxy X satellite that is
expected to be launched in mid-1998, and to finance the construction of new
undersea fiber optic cable facilities linking Anchorage and Juneau to the lower
48 states at Seattle, Washington, with a terrestrial connection to Fairbanks.
GCI Transport Company and its subsidiaries are Unrestricted Subsidiaries under
the Indenture.
The Issuer was recently formed to be the obligor on the Notes to be issued
in the Debt Offering, while GCI Holdings, Inc. was recently formed to be the
borrower under the Credit Facility. If the Debt Offering is not consummated, the
Company will not refinance its existing credit facilities, under which
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<PAGE>
GCI Communication Corp. and GCI Cable, Inc. will remain the obligors. See
"Description of Credit Facilities."
RECAPITALIZATION
During the last several years, the Company has financed the development,
construction and expansion of its business principally through internally
generated funds and borrowings under bank credit facilities. In order to finance
a portion of the improvements to its long distance facilities and cable
television systems, as well as its entry into wireless services and local
exchange services, and to improve its operating and financial flexibility, the
Company (i) concurrently with the Offerings will refinance its existing bank
credit facilities (the "Existing Credit Facilities") with a new and enlarged
bank credit facility (the "Credit Facility"); (ii) through the Issuer, is
offering pursuant to this Prospectus $150,000,000 in principal amount of the
Notes; and (iii) concurrently with the Debt Offering, is offering approximately
13.8 million shares of Class A Common Stock, of which 7.0 million shares will be
for the account of Parent and 6.8 million shares will be for the account of
certain selling shareholders (collectively, the "Recapitalization"). The Company
believes that its internally generated cash flow, combined with the net proceeds
of the Offerings and borrowings under the Credit Facility and its separate
committed financing facility for GCI Transport Company, will provide sufficient
funds for the Company to satisfy its working capital requirements and capital
expenditures for the foreseeable future. However, consummation of one Offering
is not contingent upon consummation of the other Offering and there can be no
assurance that the Stock Offering will be consummated. Without the proceeds from
the Stock Offering, the Company may have to seek alternative financing for a
portion of its business plan. If the Company were to require additional
financing, there can be no assurance that additional financing would be
available to the Company or, if available, that it would be on terms acceptable
to the Company. The Debt Offering is contingent upon the Company refinancing its
existing credit facilities. See "Risk Factors--Significant Capital Requirements;
Concurrent Offerings; Refinancing of Existing Credit Facilities," "Business--
Business Strategy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Use of Proceeds"
and "Description of Credit Facilities."
RECENT ACQUISITION OF CABLE SYSTEMS
As of October 31, 1996, the Company acquired the Cable Systems from the
following unrelated cable television companies: (i) Prime Cable of Alaska, L.P.,
a Delaware limited partnership ("Prime"); (ii) three corporations comprising
"Alaskan Cable": Alaskan Cable Network/Fairbanks, Inc.; Alaskan Cable
Network/Juneau, Inc.; and Alaskan Cable Network/Ketchikan-Sitka, Inc.; (iii)
Alaska Cablevision, Inc., a Delaware corporation; (iv) McCaw/Rock Homer Cable
Systems, J.V., an Alaska joint venture; and (v) McCaw/Rock Seward Cable Systems,
J.V., an Alaska joint venture.
The total purchase price for the acquisition of the Cable Systems was $280.1
million, which included certain transaction and financing costs. The purchase
price included the issuance of approximately 14.7 million shares of Class A
Common Stock valued at $86.7 million, $72.8 million of cash, $110.6 million of
debt assumption and the issuance of $10.0 million in subordinated convertible
notes. The convertible notes were converted in accordance with their terms into
approximately 1.5 million shares of Class A Common Stock in January 1997.
Financing for the transactions consisted of a new $205 million bank credit
facility and additional capital provided by the sale of 2.0 million shares of
Class A Common Stock to MCI for $6.50 per share, a 30% premium to the $5.00 per
share market price immediately preceding the announcement of the Company's
acquisition of the Cable Systems. See "Business--Cable Television."
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USE OF PROCEEDS
The net proceeds to the Issuer from the Debt Offering are estimated to be
approximately $145.0 million, after deducting estimated underwriting discounts
and commissions and other estimated offering expenses payable by the Issuer. The
net proceeds to Parent from the Stock Offering are estimated to be approximately
$52.4 million, assuming an initial public offering price of $8.00 per share (the
closing sale price of the Class A Common Stock as of July 2, 1997) and after
deducting estimated underwriting discounts and commissions and other offering
expenses payable by Parent. Parent will not receive any of the proceeds from the
sale of Class A Common Stock by selling shareholders in the Stock Offering.
Substantially all of the net proceeds of the Offerings will initially be
contributed to Holdings and its subsidiaries as equity and used to pay down the
outstanding balance under the Existing Credit Facilities and to contribute or
advance approximately $50 million to GCI Transport Company, an Unrestricted
Subsidiary under the Indenture. Amounts under the Credit Facility to be entered
into concurrently with the consummation of the Offerings will be drawn as needed
to implement the Company's five-year business plan. The Credit Facility will
mature on June 30, 2005 and bears interest at either LIBOR plus 0.75% to 2.5%,
depending on the leverage ratio of Holdings and its restricted subsidiaries, or
at the greater of the prime rate or the federal funds effective rate (as
defined) plus 0.50%, in each case plus an additional 0.0% to 1.375%, depending
on the leverage ratio of Holdings and its restricted subsidiaries. Initial
borrowings under the Credit Facility will be used to refinance the Company's
$205.0 million credit facility (the "Cable Credit Facility") and the Company's
$62.5 million senior credit facility (the "Telephony Credit Facility"). As of
June 30, 1997, the principal amount outstanding under the Existing Credit
Facilities was $214.5 million. The Company's ability to reborrow under the
Credit Facility will be subject to certain conditions and there can be no
assurance that the Company will be able to satisfy such conditions at the time
it desires to reborrow. See "Description of Credit Facility." Under the
Company's current five-year business plan, the Company expects to invest between
$240 and $260 million to fund expansion of long distance facilities (including
approximately $40 million for satellite transponders and approximately $125
million for new undersea fiber optic cable facilities which will be owned and
operated by GCI Transport Company); between $140 and $160 million to fund
development, construction and operating costs of its local exchange and PCS
networks and businesses; and between $65 and $85 million to upgrade its cable
television plant and to purchase equipment for new cable television services.
The precise allocation of funds for these purposes will depend on the level and
timing of the Company's internally generated cash flow, future technological,
regulatory and other developments in or affecting the Company's business, the
competitive climate and the emergence of future opportunities.
Consummation of one Offering is not contingent upon consummation of the
other Offering and there can be no assurance that the Stock Offering will be
consummated. Without the proceeds from the Stock Offering, the allocation of the
Debt Offering proceeds will not change. However, the Company may have to seek
alternative financing for a portion of its business plan. In particular, if the
Stock Offering is not consummated, the Company will need to obtain additional
financing for its planned purchase of seven transponders on the Galaxy X
satellite that is expected to be launched in mid-1998. If the Company were to
require additional financing, there can be no assurance that additional
financing would be available to the Company or, if available, that it would be
on terms acceptable to the Company. The Debt Offering is contingent upon the
Company refinancing its existing credit facilities. See "Risk Factors--
Significant Capital Requirements; Concurrent Offerings; Refinancing of Existing
Credit Facilities," "Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Liquidity and Capital Resources,"
"Business--Business Strategy" and "Description of Credit Facilities."
The Company may also evaluate potential joint ventures, strategic alliances
and acquisitions. Although the Company is not currently a party to any
understandings or agreements regarding any of the foregoing, the Company may use
the Credit Facility to finance in whole or in part such joint ventures,
strategic alliances or acquisitions should attractive opportunities arise.
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CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated capitalization of Parent and
its subsidiaries as of March 31, 1997 and as adjusted to give effect to the
Offerings and refinancing of the Company's existing credit facilities (except
for the As Adjusted for Stock Offering Only column). This table should be read
in conjunction with Parent's Consolidated Financial Statements and the notes
thereto and the other financial information included elsewhere in this
Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997(1)
-----------------------------------------------------
AS ADJUSTED AS ADJUSTED
FOR DEBT FOR STOCK AS ADJUSTED
OFFERING OFFERING FOR BOTH
ACTUAL ONLY (2) ONLY OFFERINGS (2)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $ 4,730 $ 54,730 $ 4,730 $ 54,730
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Short-term debt:
Current maturities of Existing Credit Facilities......... $ 30,291 $ -- $ -- $ --
Current maturities of Credit Facility.................... -- -- -- --
Current maturities of long-term debt and capital
leases................................................. 1,721 1,721 1,721 1,721
----------- ------------ ------------ ------------
Total short-term debt................................ 32,012 1,721 1,721 1,721
----------- ------------ ------------ ------------
Long-term debt (excluding current maturities):
Existing Credit Facilities............................... 175,709 -- 153,580 --
Credit Facility.......................................... -- 111,000 -- 58,580
Notes.................................................... -- 150,000 -- 150,000
Obligations under capital leases......................... 655 655 655 655
Other long-term debt..................................... 5,164 5,164 5,164 5,164
----------- ------------ ------------ ------------
Total long-term debt (excluding current
maturities)........................................ 181,528 266,819 159,399 214,399
----------- ------------ ------------ ------------
Stockholders' equity:
Class A Common Stock 50,000,000 shares authorized;
38,159,468 shares issued and outstanding; 45,159,468 as
adjusted for Stock Offering............................ 123,498 123,498 175,918 175,918
Class B Common Stock 10,000,000 shares authorized;
4,071,490 shares issued and outstanding................ 3,432 3,432 3,432 3,432
Less cost of 202,768 shares of Class A Common Stock held
in treasury............................................ (1,039) (1,039) (1,039) (1,039)
Paid-in capital.......................................... 4,247 4,247 4,247 4,247
Retained earnings........................................ 28,957 28,957 28,957 28,957
----------- ------------ ------------ ------------
Total stockholders' equity........................... 159,095 159,095 211,515 211,515
----------- ------------ ------------ ------------
Total capitalization................................. $ 372,635 $ 427,635 $ 372,635 $ 427,635
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
- ------------------------------
(1) Actual and pro forma consolidated capitalization for the Issuer and its
subsidiaries as of March 31, 1997 are identical in all material respects to
the actual and pro forma capitalization of Parent and its subsidiaries as of
March 31, 1997, except for the number of shares of common stock of the
Issuer, 10,000 of which are authorized and 100 of which are issued and
outstanding.
(2) Assumes refinancing of the Company's Existing Credit Facilities. See
"Description of Credit Facilities."
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Issuer was recently formed to be the obligor on the Notes and has not
commenced operations and has nominal assets and liabilities; therefore financial
information for the Issuer is omitted. The selected consolidated financial data
presented below under the captions "Statement of Operations Data," "Other
Financial Data" and "Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1996, excluding pro forma data,
are derived from the Consolidated Financial Statements of the Company, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The Consolidated Financial Statements of the
Company as of December 31, 1995 and 1996, and for each of the years in the
three-year period ended December 31, 1996, and the report thereon (which is
based partially upon the report of other auditors), are included elsewhere in
this Prospectus. The selected unaudited data presented below for the three-month
periods ended March 31, 1996 and 1997, and as of March 31, 1997, are derived
from the Unaudited Consolidated Financial Statements of the Company as of March
31, 1997 and for the three-month periods ended March 31, 1996 and 1997, which
are included elsewhere in this Prospectus. The pro forma data are derived from
the Unaudited Pro Forma Combined Statement of Operations included elsewhere in
this Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEARS ENDED DECEMBER 31, PRO
----------------------------------------------- FORMA ----------------------------
1992 1993 1994 1995 1996 1996 (1) 1996 1997
------- -------- -------- -------- -------- -------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Telecommunications
services.................. $96,499 $102,213 $116,981 $129,279 $155,419 $155,419 $ 37,969 $ 39,225
Cable services.............. -- -- -- -- 9,475 55,343 -- 13,656
------- -------- -------- -------- -------- -------- ----------- ----------
Total revenues................ 96,499 102,213 116,981 129,279 164,894 210,762 37,969 52,881
Cost of sales and
services.................. 55,576 56,437 63,877 72,091 92,664 104,180 21,302 27,168
Selling, general and
administrative expenses... 28,168 29,994 33,468 37,691 46,412 59,155 10,833 16,301
Depreciation and
amortization.............. 7,486 6,978 6,639 5,993 9,409 20,553 1,887 6,120
------- -------- -------- -------- -------- -------- ----------- ----------
Operating income.............. 5,269 8,804 12,997 13,504 16,409 26,873 3,947 3,292
Interest expense (net)...... 3,745 2,089 1,316 903 3,719 15,512 260 3,949
------- -------- -------- -------- -------- -------- ----------- ----------
Net earnings (loss) before
income taxes................ 1,524 6,715 11,681 12,601 12,690 11,395 3,687 (657)
Income tax expense
(benefit)................... 634 2,764 4,547 5,099 5,228 4,695 1,550 (132)
------- -------- -------- -------- -------- -------- ----------- ----------
Net earnings (loss)........... 890 3,951 7,134 7,502 7,462 6,700 2,137 (525)
------- -------- -------- -------- -------- -------- ----------- ----------
------- -------- -------- -------- -------- -------- ----------- ----------
Net earnings (loss) per
share....................... $ 0.02 $ 0.17 $ 0.30 $ 0.31 $ 0.27 $ 0.16 $ 0.09 $ (0.01)
------- -------- -------- -------- -------- -------- ----------- ----------
------- -------- -------- -------- -------- -------- ----------- ----------
Ratio of earnings to fixed
charges (2)................. 1.29x 2.87x 4.95x 5.61x 2.52x 1.54x 4.73x 0.81x
OTHER FINANCIAL DATA:
Capital expenditures.......... $ 4,396 $ 5,744 $ 10,604 $ 8,938 $ 38,642 $ 45,718 $ 6,950 $ 9,529
Cable operating income........ -- -- -- -- 2,196 12,660 -- 2,528
Cable EBITDA (3).............. -- -- -- -- 4,416 26,025 -- 6,025
Consolidated EBITDA (3)....... 12,755 15,782 19,636 19,497 25,818 47,427 5,834 9,412
Restricted Group
EBITDA (3)(4)............... 12,755 15,782 19,636 19,497 25,818 47,427 5,834 9,412
Consolidated cash flow
provided by operating
activities.................. 7,469 11,710 18,519 14,278 22,371 32,193 2,359 1,840
Consolidated cash flow
provided (used) by investing
activities.................. (7,531) (3,312) (11,359) (8,683) (122,646) -- (7,123) (10,059)
Consolidated cash flow
provided (used) by financing
activities.................. 2,155 (8,749) (8,134) (3,227) 109,607 -- 2,816 (400)
Cable cash flow provided by
operating activities........ $ -- $ -- $ -- $ -- $ 2,778 $ 12,600 $ -- $ 8,278
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------------------
AS OF DECEMBER 31, AS ADJUSTED AS ADJUSTED
----------------------------------------------------- FOR THE DEBT FOR THE STOCK
1992 1993 1994 1995 1996 ACTUAL OFFERING ONLY OFFERING ONLY
--------- --------- --------- --------- --------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........... $ 72,351 $ 71,610 $ 74,249 $ 84,765 $ 447,335 $ 442,878 $ 497,878 $ 442,878
Short-term debt and
capital leases
(including current
maturities).......... 24,080 2,582 1,834 1,971 32,040 32,012 1,721 1,721
Long-term debt and
capital leases
(excluding current
maturities).......... 14,875 19,763 12,017 9,056 191,948 181,528 266,819 159,399
Total stockholders'
equity............... $ 13,870 $ 27,210 $ 35,093 $ 43,016 $ 149,554 $ 159,095 $ 159,095 $ 211,515
<CAPTION>
AS ADJUSTED
FOR BOTH
OFFERINGS
------------
<S> <C>
BALANCE SHEET DATA:
Total assets........... $ 497,878
Short-term debt and
capital leases
(including current
maturities).......... 1,721
Long-term debt and
capital leases
(excluding current
maturities).......... 214,399
Total stockholders'
equity............... $ 211,515
</TABLE>
- ------------------------------
(1) The Cable Systems were acquired effective October 31, 1996. Unaudited pro
forma combined data reflect the acquisition of the Cable Systems as if the
acquisition had occurred on January 1, 1996. See the Unaudited Pro Forma
Combined Statement of Operations included elsewhere in this Prospectus.
(2) The ratio of earnings to fixed charges is computed by dividing pre-tax
earnings or loss (plus fixed charges, amortization of capitalized interest,
and minus interest capitalized during the period) by the sum of the total
interest expense, amortization of deferred loan costs, and one-third of
rental expense characterized as interest, all incurred during the period.
(3) As used herein, EBITDA consists of earnings before interest (net), income
taxes, depreciation, amortization and other income (expense). EBITDA is a
measure commonly used in the telecommunications and cable television
industries to analyze companies on the basis of operating performance. It is
not a measure of financial performance under GAAP and should not be
considered as an alternative to net income as a measure of performance or as
an alternative to cash flow as a measure of liquidity.
(4) Represents consolidated EBITDA for the Issuer and its Restricted
Subsidiaries.
27
<PAGE>
SELECTED CABLE COMPANY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following tables set forth selected historical financial data separately
for the Cable Companies: (i) for, and as of the end of each of the years in the
five-year period ended December 31, 1995 and; (ii) for the six-month periods
ended June 30, 1995 and June 30, 1996. The data for the six-month periods ended
June 30, 1995 and June 30, 1996 have been derived from the unaudited financial
statements of the Cable Companies appearing elsewhere in this Prospectus. Such
unaudited financial statements, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results for the unaudited periods. The following
information is qualified in its entirety by, and should be read in conjunction
with, the accompanying financial statements and notes thereto for the
corresponding Cable Company and the Company. See "Index to Financial
Statements."
PRIME CABLE OF ALASKA, L.P.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
------------ ------------ --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 25,951 $ 27,677 $ 29,101 $ 30,599 $ 32,594 $ 16,100
Operating, selling, general and administrative expenses
(1).................................................. 29,871 31,373 32,615 33,561 34,425 17,175
Operating income (loss) (1)............................ $ (3,920) $ (3,696) $ (3,514) $ (2,962) $ (1,831) $ (1,075)
OTHER OPERATING DATA:
Total assets (period-end).............................. $ 120,397 $ 111,179 $ 98,322 $ 85,303 $ 74,141 $ 80,061
EBITDA (before management fees) (2).................... 13,968 14,699 15,289 15,653 16,330 7,950
Cash flow provided by operating activities (3)......... $ -- $ -- $ 8,055 $ 8,450 $ 7,537 $ 3,652
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 17,276
Operating, selling, general and administrative expenses
(1).................................................. 18,002
Operating income (loss) (1)............................ $ (726)
OTHER OPERATING DATA:
Total assets (period-end).............................. $ 61,224
EBITDA (before management fees) (2).................... 8,608
Cash flow provided by operating activities (3)......... $ 5,456
</TABLE>
ALASKAN CABLE NETWORK (4)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
------------ ------------ --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 13,761 $ 13,914 $ 14,142 $ 13,883 $ 14,515 $ 7,224
Operating, selling, general and administrative expenses
(5).................................................. 13,221 14,013 13,775 13,367 13,883 6,858
Operating income (loss) (5)............................ $ 540 $ (99) $ 367 $ 516 $ 632 $ 366
OTHER OPERATING DATA:
Total assets (period-end).............................. $ 38,242 $ 35,167 $ 33,115 $ 33,380 $ 24,494 $ 24,106
EBITDA (before management fees) (2).................... 6,666 6,208 6,931 6,841 7,033 3,513
Cash flow provided by operating activities (3)......... $ -- $ -- $ 7,327 $ 6,279 $ 7,124 $ 3,643
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 7,442
Operating, selling, general and administrative expenses
(5).................................................. 7,113
Operating income (loss) (5)............................ $ 329
OTHER OPERATING DATA:
Total assets (period-end).............................. $ 19,209
EBITDA (before management fees) (2).................... 3,598
Cash flow provided by operating activities (3)......... $ 3,049
</TABLE>
ALASKA CABLEVISION, INC.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
------------ ------------ --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 5,488 $ 5,626 $ 5,660 $ 5,709 $ 5,920 $ 2,969
Operating, selling, general and administrative expenses
(6).................................................. 3,624 3,603 3,845 4,064 4,157 2,037
Operating income (loss) (6)............................ $ 1,864 $ 2,023 $ 1,815 $ 1,645 $ 1,763 $ 932
OTHER OPERATING DATA:
Total assets (period-end).............................. $ 2,212 $ 2,076 $ 2,211 $ 2,663 $ 3,306 $ 3,184
EBITDA (before management fees) (2).................... 2,836 2,981 2,817 2,530 2,583 1,359
Cash flow provided by operating activities (3)......... $ -- $ -- $ 1,495 $ 1,976 $ 1,776 $ 964
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 3,007
Operating, selling, general and administrative expenses
(6).................................................. 2,119
Operating income (loss) (6)............................ $ 888
OTHER OPERATING DATA:
Total assets (period-end).............................. $ 3,446
EBITDA (before management fees) (2).................... 1,309
Cash flow provided by operating activities (3)......... $ 802
</TABLE>
28
<PAGE>
- ------------------------------
(1) Includes management fees paid by Prime in the amounts of $1,542,000,
$1,671,000 and $1,674,000 in 1993, 1994 and 1995, respectively, and $817,000
and $924,000 for the six months ended June 30, 1995 and 1996, respectively,
under management agreements in existence prior to the Company's acquisition
of Prime. These fees will not be relevant to the Company's ongoing cable
operating results. See "Business--Cable Television."
(2) As used herein, EBITDA consists of earnings before interest (net), income
taxes, depreciation, amortization and other income (expense). EBITDA is a
measure commonly used in the telecommunications and cable television
industries to analyze companies on the basis of operating performance. It is
not a measure of financial performance under GAAP and should not be
considered as an alternative to net income as a measure of performance or as
an alternative to cash flow as a measure of liquidity. Other income
(expense) items are immaterial, except for a $2.7 million loss on disposal
of assets for Alaskan Cable Companies in 1993. See page F-52.
(3) Cash flow provided by operating activities for 1991 and 1992 is not
available.
(4) Combined for Alaskan Cable/Fairbanks, Alaskan Cable/Juneau, and Alaskan
Cable/Ketchikan-Sitka.
(5) Includes management fees paid by Alaskan Cable in the amounts of $202,000,
$233,000 and $225,000 in 1993, 1994 and 1995, respectively, and $113,000 and
$156,000 for the six months ended June 30, 1995 and 1996, respectively,
under management agreements in existence prior to the Company's acquisition
of cable systems from Alaskan Cable. These fees will not be relevant to the
Company's ongoing cable operating results. See "Business--Cable Television."
(6) Includes management fees paid by Alaska Cablevision in the amount of
$567,000, $571,000 and $400,000 in 1993, 1994 and 1995, respectively, and
$217,000 and $184,000 for the six months ended June 30, 1995 and 1996,
respectively, under management agreements in existence prior to the
Company's acquisition of cable systems from Alaska Cablevision. These fees
will not be relevant to the Company's ongoing cable operating results. See
"Business--Cable Television."
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER
FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, EBITDA
CONSISTS OF EARNINGS BEFORE INTEREST (NET), INCOME TAXES, DEPRECIATION,
AMORTIZATION AND OTHER INCOME (EXPENSE). EBITDA IS A MEASURE COMMONLY USED IN
THE TELECOMMUNICATIONS AND CABLE TELEVISION INDUSTRIES TO ANALYZE COMPANIES ON
THE BASIS OF OPERATING PERFORMANCE. IT IS NOT A MEASURE OF FINANCIAL PERFORMANCE
UNDER GAAP AND SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO NET INCOME AS A
MEASURE OF PERFORMANCE OR AS AN ALTERNATIVE TO CASH FLOW AS A MEASURE OF
LIQUIDITY.
OVERVIEW
The Company has historically reported revenues principally from the
provision of interstate and intrastate long distance telecommunications services
to residential, commercial and governmental customers and to other common
carriers (principally MCI and Sprint). These services accounted for
approximately 86.5% of the Company's telecommunications services revenues in
1996 and 92.6% of the Company's telecommunications services revenues during the
first quarter of 1997. The balance of telecommunications services revenues have
been attributable to corporate network management contracts, telecommunications
equipment sales and service and other miscellaneous revenues (including revenues
from prepaid and debit calling cards, the installation and leasing of customers'
VSAT equipment and fees charged to MCI and Sprint for certain billing services).
Factors that have the greatest impact on year-to-year changes in
telecommunications services revenues include the rate per minute charged to
customers and usage volumes, usually expressed as minutes of use. These factors
in turn depend in part upon economic conditions in Alaska. The economy of Alaska
is dependent upon the natural resource industries, in particular oil production,
as well as tourism, government and United States military spending. See
"Business--Alaskan Economy."
The Company's telecommunications cost of sales and services has consisted
principally of the direct costs of providing services, including local access
charges paid to LECs for the origination and termination of long distance calls
in Alaska, fees paid to other long distance carriers to carry calls that
terminate in areas not served by the Company's network (principally the lower 49
states, most of which calls are carried over MCI's network, and international
locations, which calls are carried principally over Sprint's network), and the
cost of equipment sold to the Company's customers. In 1996, local access charges
accounted for 49.8% of telecommunications cost of sales and services, fees paid
to other long distance carriers represented 34.7%, satellite transponder lease
and undersea fiber maintenance costs represented 9.1%, and telecommunications
equipment accounted for 5.2% of telecommunications cost of sales and services.
During the three months ended March 31, 1997, local access charges accounted for
45.7% of telecommunications cost of sales and services, fees paid to other long
distance carriers represented 32.1%, satellite transponder lease and undersea
fiber maintenance costs represented 9.4% and telecommunications equipment
accounted for 2.9% of telecommunications cost of sales and services.
The Company's telecommunications selling, general, and administrative
expenses have consisted of operating and engineering, service, sales and
marketing, general and administrative, legal and regulatory expenses. Most of
these expenses consist of salaries, wages and benefits of personnel and certain
other indirect costs (such as rent, travel, utilities and certain equipment
costs). A significant portion of selling, general, and administrative expenses,
28.6% in 1996 and 17.9% during the three months ended March 31, 1997, represents
the cost of the Company's advertising and promotion programs.
Following the acquisition of the Cable Systems effective October 31, 1996,
the Company now reports a significant level of revenues and EBITDA from the
provision of cable services. During the first
30
<PAGE>
quarter of 1997, cable revenues and EBITDA represented 25.8% and 64.0%,
respectively, of consolidated revenues and EBITDA. On a pro forma basis,
assuming the Cable Systems had been acquired by the Company as of January 1,
1996, revenues and EBITDA from cable services would have represented 26.3% and
54.9%, respectively, of the Company's consolidated revenues and EBITDA for 1996.
The Cable Systems serve 21 communities and areas in Alaska, including the
state's three largest population centers, Anchorage, Fairbanks and Juneau. As of
March 31, 1997, the Cable Systems passed 162,711 homes or approximately 70% of
all households in Alaska and served approximately 104,400 subscribers (92,940
equivalent basic subscribers), representing 64% of households passed by the
Cable Systems.
The Company generates cable services revenues from three primary sources:
(i) programming services, including monthly basic or premium subscriptions and
pay-per-view movies or other one-time events, such as sporting events; (ii)
equipment rentals or installation; and (iii) advertising sales. In 1996, on a
pro forma basis, programming services generated 86.0% of total cable services
revenues, equipment rental or installation accounted for 8.0% of such revenues,
advertising sales accounted for 4.0% of such revenues, and other services
accounted for the remaining 2.0% of total cable services revenues. The primary
factors that contribute to year-to-year changes in cable services revenues are
average monthly subscription and pay-per-view rates, the mix among basic,
premium and pay-per-view services, and the average number of subscribers during
a given reporting period.
The Cable Systems' operating, selling, general and administrative expenses
have consisted principally of programming and copyright expenses, labor,
maintenance and repairs, marketing and advertising, rental expense, property
taxes and depreciation and amortization. In 1996, on a pro forma basis,
programming and copyright expenses represented approximately 31.8% of total
cable operating expenses. Marketing and advertising expenses represented 2.7% of
such total expenses and depreciation and amortization represented 31.3% of such
expenses.
The Company expects to commence offering local exchange services initially
in Anchorage during the second half of 1997, and expects that local exchange
services will represent less than 2.0% of revenues in 1997 and less than 8.0% of
revenues in 1998. The Company expects that it may generate moderately negative
EBITDA from local exchange services during this time period.
The Company began developing plans for PCS wireless communications service
deployment in 1995 and is currently evaluating various technologies for a
proposed PCS network. The Company expects to launch PCS service in Anchorage as
early as 1999.
31
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company as a
percentage of total revenues for the periods indicated and the percentage
changes in such data as compared to the corresponding prior year period:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
THREE MONTHS ENDED ----------------------
YEAR ENDED DECEMBER 31, MARCH 31, 1995 1996
---------------------------------- ---------------------- VS. VS.
1994 1995 1996 1996 1997 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Telecommunications services... 100.0% 100.0% 94.2% 100.0% 74.2% 10.5% 20.2%
Cable services................ -- -- 5.8 -- 25.8 -- --
----- ----- ----- ----- ----- ----- ---
Total revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0% 10.5% 27.5%
Cost of sales and services.... 54.6 55.8 56.2 56.1 51.4 12.9 28.5
Selling, general and
administrative expenses..... 28.6 29.2 28.1 28.5 30.8 12.6 23.1
Depreciation and
amortization................ 5.7 4.6 5.7 5.0 11.6 (9.7) 57.0
Operating income................ 11.1 10.4 10.0 10.4 6.2 3.9 21.5
Net earnings (loss) before
income taxes.................. 10.0 9.7 7.7 9.7 (1.2) 7.9 0.7
Net earnings (loss)............. 6.1% 5.8% 4.5% 5.6% (1.0%) 5.2% (0.5%)
OTHER OPERATING DATA:
Cable operating income (1)...... -- -- 23.2% -- 18.5% -- --
Cable EBITDA (1)(2)............. -- -- 48.4 -- 46.1 -- --
Consolidated EBITDA............. 16.8% 15.1% 15.7% 15.4% 18.3% (0.7)% 32.4%
<CAPTION>
THREE MONTHS
1997 VS.
THREE MONTHS
1996
----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Telecommunications services... 3.3%
Cable services................ --
-----
Total revenues.................. 39.2%
Cost of sales and services.... 27.5
Selling, general and
administrative expenses..... 50.5
Depreciation and
amortization................ 224.3
Operating income................ (16.6%)
Net earnings (loss) before
income taxes.................. --
Net earnings (loss)............. --
OTHER OPERATING DATA:
Cable operating income (1)...... --
Cable EBITDA (1)(2)............. --
Consolidated EBITDA............. 61.3%
</TABLE>
- ------------------------------
(1) Computed as a percentage of total cable services revenues.
(2) Computed before deducting management fees. Under the Prime Management
Agreement, the Company will pay Prime Management a net annualized fee for
managing all of the Cable Systems in the amount of $1,000,000 for the year
ending October 31, 1997, $750,000 for the year ending October 31, 1998 and
$500,000 for each year ending October 31 thereafter that the Prime
Management Agreement is in effect. See "Business--Cable Television."
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES. Total revenues increased 39.2% from $38.0 million for the three
months ended March 31, 1996 to $52.9 million for the three months ended March
31, 1997. Long distance transmission revenues from commercial, residential,
governmental, and other common carrier customers increased 6.5% from $34.1
million for the three months ended March 31, 1996 to $36.3 million for the three
months ended March 31, 1997. This increase in revenues resulted in part from a
12% increase in minutes of interstate and international traffic carried, which
traffic totaled 149.3 million minutes, and a 9.4% increase in minutes of
intrastate traffic, which traffic totaled 31.5 million minutes during the
quarter. The increases in traffic resulted from growth in the underlying
economy, usage stimulation resulting from reductions in rates, an increase in
the number of presubscribed lines assigned to the Company, and an expansion of
the Company's service area resulting from the turn-up of a number of new
satellite earth station facilities located in rural Alaska. Revenue and minutes
growth were also driven by an increase in services provided to other common
carriers (principally MCI and Sprint), which other common carrier revenues
increased from $10.7 million for the three months ended March 31, 1996 to $13.4
million for the three months ended March 31, 1997. System sales and network
service revenues decreased 20.7% from $2.9 million for the three months ended
March 31, 1996 to $2.3 million for the three months ended March 31, 1997,
principally due to the temporary increase in the level of activity in the prior
year related to the provision of services under a new outsourcing contract with
National Bank of Alaska. Private line and private network transmission revenues
increased 5.9% from $3.4 million for the three months ended March 31, 1996 to
$3.6 million for the three months ended March 31, 1997. The Company reported
three
32
<PAGE>
months of cable services revenues in 1997 following its acquisition of the Cable
Systems effective October 31, 1996. The Company estimates that its facilities
passed 162,711 homes in Alaska and that it had approximately 104,400 basic
subscribers (92,940 equivalent basic subscribers) as of March 31, 1997. There
was little change in the number of subscribers, the rates charged those
subscribers, or the number of homes passed by the Cable Systems during the
three-month period ended March 31, 1997.
The increases in telecommunication services revenues were offset in part by
a 6.0% reduction in the Company's average revenue per minute on long distance
traffic from $0.184 per minute for the three months ended March 31, 1996 to
$0.173 per minute for the three months ended March 31, 1997. The decrease in the
average revenue per minute resulted from the Company's promotion of, and
customers' greater than anticipated acceptance of new calling plans offering
discounted rates and length of service rebates.
COST OF SALES AND SERVICES. Cost of sales and services totaled $21.3
million for the three months ended March 31, 1996 and $27.2 million for the
three months ended March 31, 1997. Of this increase, $3.2 million resulted from
cable services programming and copyright charges incurred during the first
quarter of 1997. Long distance transmission services costs increased from $19.2
million for the three months ended March 31, 1996 to $21.7 million for the three
months ended March 31, 1997. The increase in transmissions costs was
approximately proportional to the increase in the number of minutes carried in
the first quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 50.9% from $10.8 million for the three months
ended March 31, 1996 to $16.3 million for the three months ended March 31, 1997,
and, as a percentage of revenues, increased from 28.5% for the three months
ended March 31, 1996 to 30.7% for the three months ended March 31, 1997.
Selling, general and administrative expenses increased as a result of increased
sales and customer service volumes and bad debt expense totaling $523,000 for
the three months ended March 31, 1997 compared to $397,000 for the three months
ended March 31, 1996 (directly associated with increased revenues), and was
offset by a reduction in sales, advertising and telemarketing costs which
totaled $3.1 million for the three months ended March 31, 1996 as compared to
$2.9 million for the three months ended March 31, 1997. Selling, general and
administrative expenses also increased for the three months ended March 31, 1997
due to increased costs totaling $1.1 million in sales, engineering, operations,
accounting, human resources, legal and regulatory, and management information
services. Such costs were associated with the development and introduction, or
planned introduction, of new products and services including local exchange
services, PCS services, and Internet services. Cable services selling, general
and administrative costs totaled $4.4 million during the quarter ended March 31,
1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $4.2 million from $1.9 million for the three months ended March 31,
1996 to $6.1 million for the three months ended March 31, 1997. Of this
increase, $3.5 million resulted from the Company's acquisition of the Cable
Systems effective October 31, 1996, with the balance of the increase
attributable to the Company's $38.6 million investment in facilities during
1996.
INTEREST EXPENSE, NET. Interest expense, net of interest income, increased
from $260,000 for the three months ended March 31, 1996 to $3.9 million for the
three months ended March 31, 1997. This increase resulted primarily from
increases in the Company's average outstanding indebtedness incurred in
connection with its acquisition of the Cable Systems and investment in new
facilities during 1996, offset in part by increases in the amount of interest
capitalized during 1997.
INCOME TAX EXPENSE. Income tax expense decreased from $1.6 million for the
three months ended March 31, 1996 to a benefit of $132,000 for the three months
ended March 31, 1997 due to the Company incurring a net loss before income taxes
for the three months ended March 31, 1997 as compared to net earnings for the
three months ended March 31, 1996. The Company's effective income tax rate
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<PAGE>
decreased from 42.0% for the three months ended March 31, 1996 to 20.1% for the
three months ended March 31, 1997 due to the net loss and the proportional
amount of items that are nondeductible for tax purposes.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Total revenues increased 27.5% from $129.3 million in 1995 to
$164.9 million in 1996. Long distance transmission revenues from commercial,
residential and governmental customers increased 18.8% from $120.0 million in
1995 to $142.6 million in 1996. This increase reflected a 22.6% increase in
interstate and international minutes of use to 570 million minutes and a 29.8%
increase in intrastate minutes of use to 121.2 million minutes, principally due
to a new marketing program which the Company launched during the third quarter
of 1995. This program consisted of the introduction of a new flat-rate calling
plan coupled with telemarketing, direct sales, and the promotion of a $1.0
million sweepstakes. Revenue growth in 1996 was also due to a 23.7% increase in
revenues from other common carriers (principally MCI and Sprint), from $38.8
million in 1995 to $48.0 million in 1996, and a 23.7% increase in private line
and private network transmission services revenues, from $11.4 million in 1995
to $14.1 million in 1996. Systems sales and services revenues also increased
44.4% from $7.2 million in 1995 to $10.4 million in 1996, primarily due to the
commencement in the first quarter of 1996 of services provided under a new
outsourcing contract with National Bank of Alaska. The Company also reported two
months' of cable services revenues in 1996 following its acquisition of the
Cable Systems effective October 31, 1996.
The above increases in revenues were offset in part by a 4.8% reduction in
the Company's average revenue per minute on long distance traffic from $0.188
per minute in 1995 to $0.179 per minute in 1996. The decrease in revenues
resulted from the Company's promotion of and customers' enrollment in new
calling plans offering discounted rates and length of service rebates.
COST OF SALES AND SERVICES. Cost of sales and services was $72.1 million in
1995 and $92.7 million in 1996. As a percentage of total revenues, cost of sales
and services increased from 55.8% in 1995 to 56.2% in 1996. The increase in cost
of sales and services as a percentage of revenues during 1996 as compared to
1995 resulted primarily from the reduced average revenue per minute billed to
customers in 1996 as compared to 1995 without an offsetting reduction in the
revenue per minute billed to the Company for the local access and interstate
termination services it obtains from third parties. These increases were offset
in part by refunds in the first two quarters of 1996 aggregating approximately
$960,000 from a LEC and the National Exchange Carriers Association in respect of
earnings by them which exceeded regulatory requirements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 23.1% from $37.7 million in 1995 to $46.4
million in 1996. As a percentage of total revenues, selling, general and
administrative expenses decreased from 29.2% in 1995 to 28.1% in 1996. Selling,
general and administrative expenses increased as a result of increased sales and
customer service volumes, additional bad debt expense totaling $1.7 million in
1996 compared to $1.5 million in 1995 (directly associated with increased
revenues), and increased sales, advertising and telemarketing costs totaling
$13.0 million in 1996 compared to $9.9 million in 1995, due to the introduction
of various marketing plans and other proprietary rate plans. Additionally,
selling, general and administrative expenses increased in 1996 due to an
increase of approximately $2.7 million in sales, engineering, operations,
accounting, human resources, legal and regulatory, and management information
services expenses. Such costs were associated with the development and
introduction, or planned introduction, of new products and services including
local services, cable television services, rural message and data telephone
services, PCS services, and Internet services.
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<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 56.7% from $6.0 million in 1995 to $9.4 million in 1996. This increase
resulted primarily from the Company's acquisition of the Cable Systems effective
October 31, 1996.
INTEREST EXPENSE, NET. Interest expense, net of interest income, increased
309.7% from $903,000 in 1995 to $3.7 million in 1996. This increase resulted
primarily from increases in the Company's average outstanding indebtedness
resulting primarily from its acquisition of the Cable Systems and construction
of new facilities in rural Alaska, offset in part by increases in the amount of
interest capitalized during 1996.
INCOME TAX EXPENSE. Income tax expense increased 2.0% from $5.1 million in
1995 to $5.2 million in 1996 due to an increase in net earnings before income
taxes and a slightly higher effective income tax rate from 40.5% in 1995 to
41.2% in 1996.
As a result of its acquisition of the Cable Systems, the Company acquired
net operating loss carryforwards ("NOL carryforwards") for income tax purposes
totaling $58.5 million which begin to expire in 2004 if not utilized. However,
the Company's utilization of these NOL carryforwards is subject to certain
limitations pursuant to Section 382 of the Internal Revenue Code. Because of the
limitation on the NOL carryforwards, the Company established an $8.1 million
valuation allowance to offset the gross amount of the deferred tax asset. The
amount of the valuation allowance was based on an estimate of the amount of the
NOL carryforwards that will not be utilized, and the effective income tax rate.
The amount of deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforwards period are reduced.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Total revenues increased 10.5% from $117.0 million in 1994 to
$129.3 million in 1995. Revenue growth was primarily attributable to increases
in minutes of use and the average revenue per minute for long distance traffic.
The Company's average revenue per minute increased 1.1% from $0.186 in 1994 to
$0.188 in 1995. Interstate minutes of use increased 12.7% to 464.5 million
minutes and intrastate minutes of use increased 17.3% to 93.4 million minutes.
Revenue growth was also attributable to a 21.6% increase in revenues derived
from other common carriers (principally MCI and Sprint), from $31.9 million in
1994 to $38.8 million in 1995, and a 7.6% increase in private line and private
network transmission services revenues, from $10.6 million in 1994 to $11.4
million in 1995.
These increases in revenues were partially offset by a 20.9% decline in
system sales and services revenues from $9.1 million in 1994 to $7.2 million in
1995. This decline was due to fewer large-dollar equipment sales orders received
during 1995 as well as a temporary reduction in the level of the Company's
outsourcing services provided to the oil field services industry.
COST OF SALES AND SERVICES. Cost of sales and services was $63.9 million in
1994 and $72.1 million in 1995. Cost of sales and services as a percentage of
total revenues increased from 54.6% of revenues in 1994 to 55.8% in 1995. The
increase in cost of sales and services as a percentage of revenues resulted
primarily from increases in costs associated with the Company's lease of
transponder capacity. The two wideband transponders the Company owned reached
the end of their expected useful life in August 1994, at which time the Company
leased replacement capacity. The cost of the leased capacity contributed to an
increase in distribution costs during 1995 as compared to 1994. During 1995 the
Company incurred approximately $450,000 for nonrecurring costs related to breaks
in the undersea fiber optic cable and costs associated with its new DAMA
technology. The Company also experienced reduced margins associated with
equipment sales and service contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 12.5% from $33.5 million in 1994 to $37.7
million in 1995. As a percentage of total revenues, selling, general and
administrative expenses increased from 28.6% in 1994 to 29.2% in 1995. Increases
35
<PAGE>
in selling, general and administrative expenses for the period were primarily
due to increased personnel necessary to support the Company's expansion efforts
and the increase in minutes of traffic carried. Additional costs were incurred
during the fourth quarter of 1995 attributable to the promotion of the Company's
calling plans.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased 9.1% from $6.6 million in 1994 to $6.0 million in 1995. The decrease
was attributable primarily to the Company's retirement of two owned wideband
transponders in August 1994 that were replaced with leased rather than owned
capacity.
INTEREST EXPENSE, NET. Interest expense, net of interest income, decreased
30.5% from $1.3 million in 1994 to $903,000 in 1995. This decrease resulted
primarily from a reduction in the Company's average outstanding indebtedness.
INCOME TAX EXPENSE. Income tax expense increased 13.3% from $4.5 million in
1994 to $5.1 million in 1995 due to an increase in net earnings before income
taxes and a higher effective income tax rate from 38.9% in 1994 to 40.5% in
1995.
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<PAGE>
SEASONALITY; FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The following chart provides selected unaudited statement of operations data
from the Company's quarterly results of operations during 1995 and 1996 and for
the three months ended March 31, 1997:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
- ------------------------------------------------------ --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Telecommunications services......................... $ 29,693 $ 31,860 $ 33,363 $ 34,363 $ 129,279
Cable services...................................... -- -- -- -- --
--------- --------- --------- --------- -----------
Total revenues........................................ 29,693 31,860 33,363 34,363 129,279
Operating income...................................... 2,958 3,337 4,108 3,101 13,504
Net earnings.......................................... 1,607 1,836 2,252 1,807 7,502
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Net earnings per share................................ $ 0.07 $ 0.08 $ 0.09 $ 0.07 $ 0.31
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Consolidated EBITDA................................... $ 4,538 $ 4,897 $ 5,716 $ 4,346 $ 19,497
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
- ------------------------------------------------------ --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Telecommunications services......................... $ 37,969 $ 37,199 $ 38,664 $ 41,587 $ 155,419
Cable services...................................... -- -- -- 9,475 9,475
--------- --------- --------- --------- -----------
Total revenues........................................ 37,969 37,199 38,664 51,062 164,894
Operating income...................................... 3,947 3,970 4,017 4,475 16,409
Net earnings.......................................... 2,137 2,150 2,140 1,035 7,462
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Net earnings per share................................ $ 0.09 $ 0.09 $ 0.09 $ 0.02 $ 0.27
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Cable EBITDA.......................................... $ -- $ -- $ -- $ 4,416 $ 4,416
Consolidated EBITDA................................... $ 5,834 $ 5,888 $ 5,829 $ 8,267 $ 25,818
<CAPTION>
FIRST
1997 QUARTER
- ------------------------------------------------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues
Telecommunications services......................... $ 39,225
Cable services...................................... 13,656
---------
Total revenues........................................ 52,881
Operating income...................................... 3,292
Net earnings (loss)................................... (525)
---------
---------
Net earnings (loss) per share......................... $ (0.01)
---------
---------
Cable EBITDA.......................................... $ 6,025
Consolidated EBITDA................................... $ 9,412
</TABLE>
Total revenues in the quarter ended March 31, 1997 were $52.9 million,
representing a 3.6% increase over total revenues in the fourth quarter of 1996
of $51.1 million. This increase in revenues resulted in part from an increase in
cable services revenues to $13.7 million in the first quarter of 1997 from $9.5
million in the fourth quarter of 1996 because the Company reported three months
of cable services revenues in the first quarter of 1997 and only two months of
such revenues during the fourth quarter of 1996. This revenue increase was
partially offset by a 5.7% decrease in telecommunications services revenues to
$39.2 million in the first quarter of 1997 from $41.6 million during the fourth
quarter of 1996. This decrease is attributable in part to a reduction in the
average revenues per minute reported
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<PAGE>
by the Company, which resulted from the Company's promotion of, and customers'
greater than anticipated acceptance of, new calling plans offering discounted
rates and length of service rebates.
Operating expenses increased during the first quarter of 1997 as compared to
the fourth quarter of 1996 principally as a result of (i) turn-up costs,
including rent and utilities, of the Company's new DAMA satellite earth-station
facilities, (ii) personnel, sales, engineering, operations, accounting, human
resources, legal and regulatory expenses associated with the development and
introduction, or planned introduction, of new products and services including
local services, PCS services and Internet services and (iii) increases in cable
programming costs and copyright charges effective January 1, 1997.
The Company expects that its EBITDA and EBITDA margins during 1997 may
improve due to (i) increasing average long-distance revenues per minute, (ii)
cable service rate increases beginning in April 1997 and (iii) revenue
generation from the Company's rural telephony expansion and new service and
product offerings to offset expenses already generated by these endeavors.
The Company reported a net loss of $0.5 million in the first quarter of 1997
as compared to net earnings of $1.0 million during the fourth quarter of 1996.
In addition to the margin compression experienced by the Company in the first
quarter of 1997 discussed above, the net loss was attributable to higher
depreciation and amortization and interest expenses associated with reporting a
full three months of cable services operations in the first quarter of 1997 and
only two months of such costs in the fourth quarter of 1996.
Long distance revenues have historically been highest in the summer months
as a result of temporary population increases attributable to tourism and
increased seasonal economic activity such as construction, commercial fishing,
and oil and gas activities. Cable television revenues, on the other hand, are
higher in the winter months because consumers tend to watch more television, and
spend more time at home, during these months. The Company's ability to implement
construction projects is also reduced during the winter months because of cold
temperatures, snow and short daylight hours.
ACCOUNTING PRONOUNCEMENT
Financial Accounting Standards No. 128, EARNINGS PER SHARE, supersedes APB
Opinion No. 15, EARNINGS PER SHARE, and specifies the computation, presentation,
and disclosure requirements for earnings per share ("EPS") for entities with
publicly held common stock or common stock equivalents. The statement replaces
Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively.
Basic EPS, unlike Primary EPS, excludes all dilution while Diluted EPS, like
Fully Diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Due to an immaterial difference between Primary and Fully Diluted EPS, the
Company has historically only presented a single EPS. The Company in the future
will present both Basic and Diluted EPS for income (loss) from continuing
operations and net income (loss). The statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
After adoption, all prior period EPS data will be restated. The adoption of the
new statement will have minimal effect on the Company's EPS.
In February 1997, the Accounting Standards Board issued SFAS No. 129,
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. SFAS No. 129 consolidates the
existing guidance in authoritative literature relating to a company's capital
structure. SFAS No. 129 is effective for financial statements for periods ending
after December 15, 1997. Capital structure disclosures required by this standard
include liquidation preferences of preferred stock, information about the
pertinent rights and privileges of the outstanding equity securities, and the
redemption amounts for all issues of capital stock that are redeemable at fixed
or determinable prices on fixed or determinable dates. Management of the Company
does not
38
<PAGE>
expect that adoption of SFAS No. 129 will have a material impact on the
Company's financial statement disclosures.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported cash flows from operating activities during the three
months ended March 31, 1997 of $1.8 million, net of changes in the components of
working capital. Additional sources of cash during the three months ended March
31, 1997 included long-term borrowings of $10.0 million. The Company's
expenditures for property and equipment, including construction in progress,
totaled $7.0 million and $9.5 million during the three months ended March 31,
1996 and 1997, respectively. Uses of cash during the first quarter of 1997
included repayment of $10.4 million of long-term borrowings and capital lease
obligations and an increase in notes receivable of $337,000.
The Company reported cash flows from operating activities in 1996 of $22.4
million, net of changes in the components of working capital. Additional sources
of cash in 1996 included long-term borrowings of $208.0 million, sales of
additional Common Stock to MCI of $13.0 million, and payments on notes
receivable of $288,000. The Company's uses of cash included payment of the cash
portion of the consideration for the acquisition of the Cable Systems. The total
purchase price for the acquisition of the Cable Systems was $280.1 million and
was financed by the Company through the issuance to the sellers of the Cable
Systems of approximately 14.7 million shares of Class A Common Stock (valued at
$86.7 million), the payment of $72.8 million in cash, the assumption of
approximately $110.6 million in existing indebtedness, and the issuance to one
seller of $10.0 million in subordinated convertible notes. The notes were
converted into approximately 1.5 million shares of Class A Common Stock in
January 1997. Other uses of cash during 1996 included payment of a $9.1 million
transponder purchase deposit, repayment of $5.0 million of long-term borrowings
and capital lease obligations, purchase of $621,000 of Common Stock held by an
officer, which stock is held in treasury to satisfy a deferred compensation
obligation in lieu of satisfying the obligation in cash, payment of loan fees
totaling $764,000, and investment in other assets.
The Company's expenditures for property and equipment, including
construction in progress, totaled $38.6 million and $8.9 million during 1996 and
1995, respectively. The Company anticipates that its capital expenditures in
1997 will be between $60 million and $65 million. Planned capital expenditures
over the next five years include $240.0 million to $260.0 million to fund
expansion of long distance facilities (including approximately $40.0 million for
satellite transponders and approximately $125.0 million for new undersea fiber
optic cable facilities which will be financed by GCI Transport Company); between
$140.0 million and $160.0 million to fund development, construction and
operating costs of its local exchange and PCS networks and businesses; and
between $65.0 million and $85.0 million to upgrade its cable television plant
and to purchase equipment for new cable television services. Sources of funds
for these planned capital expenditures include net proceeds of the Offerings,
internally generated cash flows and borrowings under the Company's Credit
Facility and its separate committed financing for GCI Transport Company all of
which funds will be necessary to complete the Company's planned capital
expenditures. Consummation of one Offering is not contingent upon consummation
of the other Offering and there can be no assurance that the Stock Offering will
be consummated. Without the proceeds from the Stock Offering, the allocation of
the Debt Offering proceeds will not change. However, the Company may have to
seek alternative financing for a portion of its business plan. In particular, if
the Stock Offering is not consummated, the Company will need to obtain
additional financing for its planned purchase of seven transponders on the
Galaxy X satellite that is expected to be launched in mid-1998. See "Risk
Factors--Significant Capital Requirements; Concurrent Offerings; Refinancing of
Existing Credit Facilities," "Use of Proceeds" and "Business--Business
Strategy," and "Description of Credit Facilities."
39
<PAGE>
The Credit Facility and the Notes will impose restrictions on the operations
and activities of the Company, including requirements that the Company comply
with certain financial covenants and financial ratios. Under the Credit
Facility, Holdings may not permit the ratio of senior debt to annualized
operating cash flow of Holdings and its restricted subsidiaries to exceed 3.5 to
1.0, total debt to annualized operating cash flow to exceed 7.0 to 1.0, and
annualized operating cash flow to interest expense to exceed 1.5 to 1.0. Each of
the foregoing ratios decreases in specified increments during the life of the
Credit Facility. The Credit Facility will also require Holdings to maintain a
ratio of annualized operating cash flow to debt service of Holdings and its
restricted subsidiaries of at least 1.25 to 1.0, and annualized operating cash
flow to fixed charges of at least 1.0 to 1.0 (which adjusts to 1.05 to 1.0 in
April, 2003 and thereafter). Each of the foregoing ratios would be adjusted if
the Stock Offering were not consummated. The Credit Facility will also limit
capital expenditures of Holdings and its restricted subsidiaries to no more than
$55.0 million, $90.0 million, and $65.0 million in 1997, 1998 and 1999,
respectively. See "Description of Credit Facility" and "Description of Notes."
Net receivables increased $7.1 million from December 31, 1995 to December
31, 1996 and $5.0 million from March 31, 1996 to March 31, 1997 resulting from:
(i) increased MTS revenues in 1996 as compared to 1995 and in 1997 as compared
to 1996; (ii) increased amounts due from other common carriers attributed to
growth in their traffic carried by the Company; (iii) increased private line
sales activity in 1996 as compared to 1995 and in 1997 as compared to 1996; and
(iv) increases in receivables resulting from the Cable Systems acquisition.
The Company reported a working capital deficit of $27.3 million as of March
31, 1997. During April 1997 the Company extended the maturity of its Telephony
Credit Facility from April 1997 to July 1997. Since the entire facility matures
within the twelve-month period ending March 31, 1998, the outstanding balance as
of March 31, 1997 was included in current maturities of long-term debt. Except
for the classification of the Company's senior indebtedness as current, working
capital at March 31, 1997 totaled $4.6 million, a $4.6 million decrease from
working capital similarly recomputed at December 31, 1996.
INFLATION
The Company does not believe that inflation has a significant effect on its
operations.
40
<PAGE>
BUSINESS
OVERVIEW
The Company is a diversified telecommunications provider with a leading
position in facilities-based long distance service in the State of Alaska and,
as a result of recent acquisitions, has become Alaska's leading cable television
service provider. The Company seeks to become the first significant provider in
Alaska of an integrated package of telecommunications and cable television
services. Complementing its long distance, cable and cellular resale operations,
the Company has announced plans to provide facilities-based competitive local
exchange and wireless communications services in Alaska's major population
centers. The Company expects to launch local exchange services in Anchorage in
the second half of 1997. The Company also acquired a state-wide 30 MHz B-block
PCS license in June 1995 for approximately $1.65 million (or about $3.00 per
pop) and is currently evaluating various technologies for a proposed wireless
PCS network.
The Company believes that the size and growth potential of the voice, video
and data markets, the increasing deregulation of telecommunications services,
and the increased convergence of telephony, wireless and cable services offer
the Company considerable opportunities to integrate its telecommunications and
cable services and expand into communications markets both within and, over the
longer-term, outside of Alaska. The Company expects the rate of growth in
industry-wide telecommunications revenues to increase as the historical
dominance of monopoly providers is challenged as a result of deregulation.
Considerable deregulation has already taken place in the United States as a
result of the 1996 Telecom Act, with the barriers to competition among
telecommunications, local exchange and cable providers being lowered. The
Company believes that its acquisition of the Cable Systems and its development
of local exchange service and PCS leave it well-positioned to take advantage of
this deregulation process in telecommunications markets.
The Company began providing interstate long distance service in 1982 and
began providing intrastate long distance service in 1991. The Company provides a
full range of long distance services, including direct dial, 800, message toll,
private line, private network, operator and calling and debit card services, to
residential, commercial and governmental customers and to other common carriers.
In addition, the Company sells data communication equipment and offers technical
services.
The Company operates a state-of-the-art, competitive telecommunications
network employing the latest digital transmission technology based upon fiber
optic and digital microwave facilities within and among Anchorage, Fairbanks and
Juneau, a digital fiber optic cable linking Alaska to the contiguous 48 states
and providing access to other carriers' networks for communication around the
world, and the use of satellite transmission to remote areas of Alaska (and for
certain interstate traffic as well). As of March 31, 1997, the Company's long
distance services were available, through the Company's network, to
approximately 90% of total Alaskan access lines. As of March 31, 1997, the
Company's residential customers were served by approximately 81,150 access
lines, representing approximately 41% of all Alaskan residential presubscribed
access lines. In addition, the Company had over 11,000 commercial, governmental
and other common carrier customers who were served by approximately 57,600
access lines, representing approximately 48% of all presubscribed
non-residential access lines in the State.
Effective October 31, 1996, the Company became the leading cable television
services provider in Alaska upon its acquisition of the Cable Systems from
several unrelated sellers for total consideration of approximately $280.1
million. The Cable Systems serve 21 communities and areas in Alaska, including
the state's three largest urban areas, Anchorage, Fairbanks and Juneau. As of
March 31, 1997, the Cable Systems passed 162,711 homes or approximately 70% of
all households in Alaska and served approximately 104,400 subscribers (92,940
equivalent basis subscribers), representing 64% of households passed by the
Cable Systems. As of March 31, 1997, the Cable Systems consisted of
approximately 1,765 miles of installed cable plant having between 300 and 450
MHz of channel capacity.
41
<PAGE>
BUSINESS STRATEGY
The Company's goal is to become the first significant provider of integrated
voice, video and data services in Alaska while maximizing growth in its revenues
and net income. The Company's strategies to achieve this objective fall
generally into four broad categories: (i) integrate the Company's
telecommunications and cable operations, (ii) expand the scope of the Alaskan
voice, video and data markets that the Company will address, (iii) increase the
Company's penetration of these markets, and (iv) improve the Company's
consolidated operating margins and utilization of the Company's capital
resources. These broad strategies are discussed below. The Company's strategic
focus over the next several years will be on Alaska. On a longer-term basis, the
Company may consider growth opportunities outside Alaska, especially in areas of
the world with demographics and infrastructure characteristics similar to those
of Alaska.
INTEGRATE TELECOMMUNICATIONS AND CABLE OPERATIONS
The Company has begun integrating the Cable Systems into its preexisting
operations. As part of this integration, the Company plans to combine the
marketing and sales organizations, the billing systems, MIS and customer service
organizations of the Cable Systems with those of the Company's historical
operations. This integration will enable the Company to coordinate the marketing
of its telecommunications and cable services to the full range of the Company's
customers, promote introduction of new products and services, leverage consumer
awareness of the GCI brand name and provide its customers with a single bill and
point-of-contact for customer service. The Company estimates that the essential
elements of this integration will be completed by late 1997.
EXPAND ADDRESSABLE MARKET
As a result of its acquisition of the Cable Systems, the Company has
expanded its addressable market in Alaska to include both long distance and
cable services, which markets generated approximately $450 million in revenues
in 1996 for all providers of such services in Alaska. Following its introduction
of local exchange and wireless services, the Company's addressable market will
expand to approximately $800 million in total.
The Company intends to offer local exchange services in Anchorage and other
major Alaskan population centers principally using its own network facilities.
The Company expects to provide local exchange services initially in Anchorage in
the second half of 1997. The Company has installed 38 miles of a planned
130-mile fiber optic network in Anchorage, installed a Lucent 5ESS switch with
both local and long distance capabilities and has entered into an agreement with
the incumbent LEC, ATU, to interconnect the Company's network with that of ATU
and to purchase unbundled local loops necessary to provide local service. The
Company's agreement with ATU has been approved by the APUC. The Alaskan local
service market generated approximately $320 million in revenues in 1996,
approximately 34% of which were attributable to Anchorage. The Company
anticipates expanding its local service to the Fairbanks and Juneau markets
during 1998 and to other markets during 1999, subject to negotiating acceptable
interconnection arrangements with the LECs serving those markets and to
obtaining the necessary regulatory approvals.
The Company plans to enter the facilities-based wireless communications
market through development of a PCS network. The Company believes that PCS
technology, if successfully implemented, will offer advantages over existing
analog cellular technology, such as superior audio quality, additional features,
better compatibility with wireline services, and longer battery life. PCS
technology is particularly suited for use in Alaska, which has relatively small,
dense population clusters in many geographically remote areas. The Company
estimates that the Alaskan cellular services market generated approximately $35
million in total revenues in 1996.
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INCREASE PENETRATION OF ALL MARKET SEGMENTS
The Company believes that by offering a variety of branded
telecommunications and cable services, by increasing consumer awareness and
leveraging brand equity, and by emphasizing customer service and rewarding
consumer loyalty, it will be well-positioned to improve customer retention rates
and to increase its market share in all service categories. The Company believes
that substantially all of its long distance and cable television customers are
potential wireless and local service customers. Cross-selling opportunities also
exist between the Company's long distance customers and its cable customers. The
Company estimates that, as of March 31, 1997, approximately 59% of the Company's
residential cable subscribers did not obtain long distance service from the
Company and that approximately 23% of the Company's total long distance
customers and 27% of the Company's residential long distance customers were
passed by the Cable Systems did but not buy cable service.
The Company plans significant upgrades to the existing cable plant in order
to expand channel capacity, add new services, improve network quality and
reliability and reduce theft. The Company expects that, by expanding customers'
service options, it will attract new customers, increase average revenue per
subscriber and reduce customer attrition rates. Currently, the Cable Systems
have between 300 and 450 MHz of channel capacity, or enough capacity to carry
between 36 and 60 channels. Over the next two years, the Company plans to
increase the capacity of the Cable Systems to between 450 and 550/750 MHz of
channel capacity, or enough capacity to carry between 60 and 76 channels.
The Company plans to begin offering cable modems in the fourth quarter of
1997. Cable modems represent a new technology which offers significantly faster
access to the Internet and other on-line data services than other currently
available technologies. The Company believes that Alaskans have a greater
propensity to access the Internet than consumers in other states for a variety
of reasons. Alaskans on average have completed more years of formal education
and have a higher per capita income and mean household income than the U.S.
average. Purchasing power is also enhanced by the lack of a state income tax and
the annual Permanent Fund dividend that each resident, regardless of age,
receives from the State (over $1,100 per person in 1996). In markets outside of
Anchorage, Fairbanks and Juneau, the limited availability of traditional sources
of information such as libraries, universities and museums contribute to heavy
use of the Internet as an information, education and communication resource. In
addition to offering cable modems, the Company plans to offer certain
specialized telecommunications services to support distance education and
telemedicine in rural areas of the State. Rural Alaskans often do not have
access to medical professionals within their community and the use of a
communication network to deliver a wide range of telemedical services (voice,
video and data) enhances the quality and timeliness of the services delivered
while concurrently reducing the overall cost of delivery. Likewise, the
educational infrastructure is limited in many areas of rural Alaska and distance
education services are being deployed to provide specialized curricula to
smaller village schools. Like telemedical services, distance education services
both improve the quality of education and reduce the cost of delivery.
IMPROVE CONSOLIDATED OPERATING MARGINS AND CAPITAL UTILIZATION
The Company believes that the combination of its long distance, local,
wireless communications and cable operations will enable it to achieve better
overall operating margins than would be possible if these operations were
managed as stand-alone enterprises. The Company expects to achieve certain
efficiencies by combining the marketing, sales, customer service, MIS and
administrative organizations of the Cable Systems with each other and with those
of the Company's preexisting operations. The Company also expects that its
planned provision of local services, while a potentially significant source of
revenues, will coincidentally result in a significant reduction in the Company's
local access fees paid to Alaskan LECs. Access fees charged to the Company by
incumbent Alaskan LECs for the use of their local networks to originate or
terminate long distance calls totaled $36.4 million in 1996, or approximately
28.2% of the Company's long distance revenues for this period. The Company
estimates that the
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average access charge payable by it to Alaskan LECs for originating or
terminating interstate access is approximately $0.043 per minute of traffic and
for originating or terminating intrastate access is approximately $0.07 per
minute of traffic (or a total of approximately $0.14 for both originating and
terminating access).
In addition, the Company expects to leverage its investment in existing
cable plant and rights-of-way by, in some cases, overlaying (or using existing)
fiber optic cable for telephony or PCS applications. The incremental cost of
such network enhancements, especially when combined with planned upgrades to the
existing cable plant, is significantly less than the cost of building entirely
new network facilities.
ALASKAN VOICE, VIDEO AND DATA MARKETS
The Alaskan voice, video and data markets are unique within the United
States. Alaska is physically distant from the rest of the United States and is
characterized by large geographical size and relatively small, dense population
clusters (with the exception of major population centers such as Anchorage,
Fairbanks and Juneau). It lacks a well-developed terrestrial transportation
infrastructure, and the majority of Alaska's communities are accessible only by
air or water. As a result, Alaska's telecommunications networks are different
from those found in the lower 49 states. Alaska today relies extensively on
satellite-based transmission for intrastate calling between remote communities
where investment in a terrestrial network would be uneconomic or impractical.
Also, given the remoteness of Alaska's communities and, in many cases, lack of
major civic institutions such as hospitals, libraries and universities, Alaskans
are dependent on telecommunications to access the resources and information of
large metropolitan areas in the rest of the U.S. and elsewhere. In addition to
satellite-based communications, the telecommunications infrastructure in Alaska
includes traditional copper wire, digital microwave links between Anchorage and
Fairbanks and Juneau and fiber optic cable. For interstate and international
communication, Alaska is currently connected to the lower 48 states by undersea
fiber optic cable with a capacity of nine DS3s and is backed-up by additional
satellite capacity. Calls to Hawaii and international calls are routed from the
lower 48 states by various means.
Prior to 1982, Alascom, Inc. ("Alascom") was the sole long distance carrier
in Alaska. Alascom was required to maintain a number of low bandwidth links and
expand service to remote or less-developed areas of the state. Interstate rates
initially charged for Alaskan telecommunications services were substantially
higher than interstate rates in the contiguous states. In 1972, the FCC
established a policy of rate integration intended to equalize all domestic
interstate rates based on distances of calls. This policy was used to support a
subsidy mechanism to help Alascom cover higher costs associated with rural
operations. When the Company began providing interstate long distance service in
1982, AT&T provided almost all of the telecommunications services in the lower
49 states, and Alascom provided almost all of the long distance
telecommunications services in Alaska and between Alaska and the lower 49 states
and foreign countries. Although Alascom's business was highly subsidized, the
Company competed in long distance services against Alascom without the advantage
of a subsidy. In 1983, the State of Alaska petitioned the FCC to initiate a
rulemaking to determine how to rationalize the policies of rate integration and
competition in the Alaskan market in light of the rapid changes in the
telecommunications industry brought on by the AT&T divestiture and changing FCC
competition policies. This action ultimately led to a negotiated buyout of
Alascom from Pacific Telecom, Inc. ("PTI") by AT&T in August 1995 for
consideration of approximately $290 million. After the buyout, Alascom changed
its name to AT&T Alascom. See "--Competition" and "--Regulation."
The Alaskan telecommunications business today comprises three distinct
markets: long distance services (interstate and intrastate), local exchange
services and wireless communications services (cellular and, eventually, PCS).
In the long distance market, the Company competes against AT&T Alascom and ATU,
and may in the future compete against other new market entrants. In the local
exchange market, the Company will compete against various incumbent local
exchange carriers, including ATU in the Anchorage area and PTI in Juneau. In
June 1997, Century Telephone Enterprises,
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Inc. announced an agreement to purchase PTI. PTI is also expected to be the
local exchange carrier in Fairbanks by the end of 1997. In the wireless
communications market, the Company's PCS business expects to compete against the
cellular subsidiaries of AT&T and ATU in the Anchorage market and the cellular
subsidiaries of PTI and others outside of Anchorage. Other PCS providers may
compete against the Company as well, although the Company is unable to determine
the extent of this competition at the present time. For calendar year 1996, the
aggregate telecommunications market in Alaska generated revenues of
approximately $738 million. Of this amount, approximately $383 million was
attributable to interstate and intrastate long distance service, approximately
$320 million was attributable to local exchange services, and approximately $35
million was attributable to wireless communications services. Over the five-year
period ended December 1996, these markets have grown, in aggregate, at a
compounded annual rate of approximately 6%. Over the same period, the long
distance, local and cellular markets have individually grown at compounded
annual rates of approximately 6%, 5% and 22%, respectively.
The market for programmed video services in Alaska includes traditional
broadcast television, cable television, wireless cable, and direct broadcast
satellite ("DBS") systems. The urban centers in Alaska are served by broadcast
television stations including network affiliates and independent stations.
Anchorage, Fairbanks and Juneau are served by seven, four and two broadcast
stations, respectively. In addition, several smaller communities such as Bethel
are served by one local television station. Approximately 240 rural communities
receive a single state-sponsored channel of television by a satellite dish and a
low power transmitter. Anchorage and Fairbanks are served by a UHF subscription
television operator that has been successful in gaining customers, particularly
in areas not served by cable. Additionally, Anchorage is served by a MMDS
operator that has made minor inroads into the Company's cable customer base.
In Alaska, cable television was introduced in the 1970s to provide
television signals to communities with few or no available off-air television
signals and to communities with poor reception or other reception difficulties
caused by terrain interference. Since that time, as on the national level, the
cable television providers in Alaska have added non-broadcast programming,
utilized improved technology to increase channel capacity and expanded service
markets to include more densely populated areas and those communities in which
off-air reception is not problematic.
Recently, both broadcast television and cable operators have had to compete
against new entrants to the market including wireless cable and DBS operators.
In cities with higher population densities, MMDS or wireless cable operators can
now deliver video signals to homes with line-of-sight access to the transmitting
location. In both urban and rural locations, DBS operators offer satellite-based
programming packages to subscribers. Because of Alaska's high latitude, DBS
signals are not as strong as they are in the lower 48 states and currently
require the use of receiving dishes that are substantially larger (ranging
generally from three feet to six feet in diameter) than those required in the
lower 49 states. In addition, the relatively low altitude above the horizon of
DBS satellites in the eastern portion of the satellite arc when viewed from
Alaska makes their signals subject to blockage from mountains, buildings and
other structures. MMDS also requires that customers' receiving antennas have
line-of-sight access to transmitting radio towers, and both MMDS and DBS signals
are subject to interference from rain, snow and wind. Future satellite launches
may provide enhanced service and signal quality to DBS providers operating in
Alaska. Recent published reports indicate that there has been a substantial
increase in the number of DBS subscribers in the United States in recent years.
Thus, although it is difficult to assess the ultimate impact that DBS will have
on the cable industry or upon the Company's financial condition and results of
operations, DBS services may pose a significant competitive threat to cable
television systems.
At present, 21 communities and areas in Alaska, including the state's three
largest urban areas (Anchorage, Fairbanks and Juneau) are served by the Cable
Systems. As of March 31, 1997, the Cable Systems passed 162,711 homes or
approximately 70% of all households in Alaska and served approximately 104,400
subscribers (92,940 equivalent basic subscribers), representing 64% of
households passed by the Cable Systems. It is difficult if not impossible to
determine the exact number of homes passed by cable in Alaska because many rural
communities served by cable are very small and the cable systems are
independently owned and operated. A number of cable operators other than
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the Company provide cable service in Alaska, although the Company does not
believe any cable operators are currently providing service in the areas served
by the Cable Systems. All of these companies are relatively small, with the
largest having fewer than 6,000 subscribers. Aggregate revenues for all
providers in the Alaskan cable television market are estimated to be $62.0
million for 1996, a 4.0% increase over the prior year.
LONG DISTANCE OPERATIONS
SERVICES
The Company commenced providing interstate long distance service in November
1982 and commenced providing intrastate long distance service in May 1991. The
Company provides a full range of long distance services, including direct dial,
800 message toll, private line, private network, operator, and calling and debit
card services, to residential, commercial and government customers and to other
common carriers. The Company also sells data communication equipment and offers
technical services.
As of March 31, 1997, approximately 90% of total Alaskan access lines were
accessible through the Company's satellite, fiber optic or leased digital
microwave networks. As of March 31, 1997, the Company's residential customers
were served by approximately 81,150 access lines, representing approximately 41%
of all Alaskan residential presubscribed access lines. In addition, the Company
had over 11,000 commercial, governmental and other common carrier customers who
were served by approximately 57,600 access lines, representing approximately 48%
of all non-residential presubscribed access lines in the State. All service
areas constructed prior to January 1, 1996 in which the Company has facilities
have completed the equal access balloting process (which permits customers , by
completing a ballot, to designate their preferred long distance carrier). Among
these communities, the Company carries 33% to 49% of the southbound interstate
message toll service ("MTS") traffic and 21% to 48% of the intrastate MTS
traffic originating in these service areas. Among the sites constructed in 1996,
the communities of Barrow, Bethel, Nome, Togiak and Unalakleet have completed
the equal access balloting process. The communities of Ekwak, New Stuyahok,
Kollganek and Levelock also completed the equal access balloting process in
1997. The Company is currently negotiating equal access conversion with the LECs
in the remainder of the sites constructed in western Alaska during 1996.
The Company provides interstate and intrastate switched MTS and private line
and private network communication services between the major communities in
Alaska, and to and from the lower 49 states and foreign countries. The Company's
message toll services include intrastate, interstate and international direct
dial, 800, calling and debit card, operator and enhanced conference calling, as
well as termination of northbound toll service for MCI, Sprint and several
resellers who do not have facilities of their own in Alaska. The Company also
provides origination of southbound calling card and 800 toll services for MCI
and Sprint customers. Regulated telephone relay services for the deaf,
hard-of-hearing and speech-impaired are provided through the Company's operator
service center. The Company offers its message toll services to commercial,
residential, government and other common carrier customers. Subscribers may
generally cancel service at any time. Toll related services accounted for
approximately 82.7% of the Company's total telecommunications services revenues
in 1996. Private line and private network services utilize voice and data
transmission circuits, dedicated to particular subscribers, which link an office
in one location to another in a different location. The Company provided private
line and private network communication products and services to approximately
769 commercial and government accounts in 1996. Private line and private network
communication products and services generated $14.9 million in revenue in 1996
or approximately 9.6% of total telecommunications services revenues.
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Although the Company has several agreements to facilitate the origination
and termination of international toll traffic, it has neither foreign operations
nor export sales. Revenues associated with international toll traffic were $6.3
million in 1996.
The following table summarizes the Company's switched MTS traffic minutes
for the periods indicated:
<TABLE>
<CAPTION>
INTERSTATE MINUTES
-------------------------------------
SOUTHBOUND NORTHBOUND INTER-
FOR YEAR ENDED (TO LOWER 49 (FROM LOWER CALLING INTRASTATE NATIONAL
DECEMBER 31, STATES) 49 STATES) CARD MINUTES MINUTES TOTAL
- --------------- ------------ ------------ --------- ----------- ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1993 203,652 144,994 16,260 70,107 4,251 439,264
1994 231,226 158,059 17,466 79,641 5,318 491,710
1995 263,023 176,893 18,215 93,370 6,385 557,886
1996 326,471 209,154 26,459 121,208 7,524 690,816
</TABLE>
In addition to providing communication services, the Company designs, sells,
services and operates, on behalf of certain customers, dedicated communication
and computer networking equipment and provides field/depot, third party,
technical support, consulting and outsourcing services through its systems sales
and service business. The Company's equipment sales and services revenue was
$9.8 million in the year ended December 31, 1996, or approximately 6.3% of total
telecommunications services revenues. The Company has expanded its technical
services business to include outsourcing, onsite technical contract services and
telecommunications consulting. The Company manages substantially all of the
telecommunications and computer networking assets of BP Exploration (Alaska),
the largest oil company presently operating in Alaska, pursuant to a contract
that expires on December 31, 1997. The Company is currently negotiating a
three-year extension of such contract and expects to finalize the extension
shortly. The Company was also awarded a six-year contract, effective October 31,
1995, to assume management responsibility for all of the telecommunications and
computer networking assets of National Bank of Alaska.
SIGNIFICANT CUSTOMERS
In 1993, the Company entered into a significant business relationship with
MCI which includes the following agreements: (i) the Company agreed to terminate
all Alaska-bound MCI long distance traffic and MCI agreed to terminate all of
the Company's long distance traffic terminating in the lower 49 states,
excluding Washington, Oregon and Hawaii (the "MCI Traffic Carriage Agreement");
(ii) MCI licensed certain service marks to the Company for use in Alaska; (iii)
MCI, in connection with providing to the Company credit enhancement to permit
the Company to purchase a portion of an undersea cable linking Seward, Alaska,
with Pacific City, Oregon, leased from the Company all of the capacity owned by
the Company on the undersea fiber optic cable and the Company leased such
capacity back from MCI; (iv) MCI purchased certain service marks of the Company;
and (v) the parties agreed to share some communications network resources and
various marketing, engineering and operating resources. The Company also handles
MCI's 800 traffic originating in Alaska and terminating in the lower 49 states
and handles traffic for MCI's calling card customers when they are in Alaska,
while MCI originates calls for the Company's calling card customers when they
are in the lower 49 states. Concurrently with entering into these agreements,
MCI purchased approximately 31% of the then outstanding Class A Common Stock and
approximately 31% of the then outstanding Class B Common Stock and presently
controls nominations to two seats on the Board pursuant to the Voting Agreement.
Concurrently with the Company's acquisition of the Cable Systems, MCI purchased
an additional 2.0 million shares of Class A Common Stock for $13.0 million or
$6.50 per share, a 30% premium to the market price of $5.00 per share
immediately preceding the announcement of the Company's acquisition of the Cable
Systems. As of June 30, 1997, MCI owned 22.6% of the outstanding combined Common
Stock, representing 26.6% of
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the total voting power of the Common Stock. After giving effect to the Stock
Offering, MCI will own 19.4% of the outstanding combined Common Stock,
representing 24.5% of the total voting power of the Common Stock. See "--Cable
Television" and "Principal and Selling Shareholders."
Revenues attributed to the MCI Traffic Carriage Agreement, which expires in
2001, were approximately $29.2 million in 1996, or approximately 17.7% of total
revenues. The contract was amended in 1996 to reduce the rate to be charged by
the Company for southbound MCI traffic for the period April 1, 1996 through July
1, 1999 and thereafter. The rate reduction, if applied to the number of
southbound minutes carried by the Company in all of 1996, would have been
approximately $570,000.
In 1993, the Company entered into a long-term agreement with Sprint pursuant
to which the Company agreed to terminate all Alaska-bound Sprint long distance
traffic and Sprint agreed to handle substantially all of the Company's
international traffic. Services provided to Sprint pursuant to the contract,
which expires in 1999, resulted in revenues in 1996 of $18.8 million, or 11.4%
of total revenues.
NETWORK
The Company operates a state-of-the-art, competitive telecommunications
network employing the latest digital transmission technology based upon fiber
optic and digital microwave facilities within and between Anchorage, Fairbanks
and Juneau, a digital fiber optic cable linking Alaska to the lower 48 states
and providing access to other carriers' networks for communication around the
world, and the use of satellite transmission to remote areas of Alaska (and for
certain interstate traffic as well).
The Company's C-band satellite network currently uses six leased C-band
transponders on the Galaxy IX satellite and will transition to six owned C-band
transponders on the Galaxy X satellite that is expected to be launched in
mid-1998. The Company's MTS services and private line and network services
(excluding VSAT services) are distributed primarily via its C-band satellite
network which is also used for transmissions to remote areas of Alaska. In
connection with its C-band distribution network, the Company owns and operates
five 13-meter earth stations in Anchorage, Fairbanks and Juneau, Alaska,
Issaquah, Washington and Dallas, Texas. In addition, the Company owns and
operates six 9-meter and three 7-meter earth stations throughout the State. The
Company also owns 49% of a 13-meter earth station on Adak Island, providing MTS
and private line services. During 1996, the Company installed its six 9-meter
earth stations in Barrow, Kotzebue, Nome, Bethel, Dillingham, and King Salmon,
Alaska.
The Company also uses its C-band satellite capacity to operate a Demand
Assigned Multiple Access ("DAMA") satellite network to serve rural communities
in Alaska, which includes features of both a toll switch and a satellite
transmission network. Most existing satellite technology relies on fixed channel
assignments to a central hub. The Company's DAMA communication technology,
developed in 1994, assigns satellite capacity on an as needed basis. The digital
DAMA system allows calls to be made between remote villages using only one
satellite hop, thereby reducing satellite delay and capacity requirements while
improving quality. The Company has obtained the necessary APUC and FCC approvals
waiving current prohibitions against construction of competitive facilities in
rural Alaska. A four-module demonstration system was constructed in 1994 and was
integrated into the Company's telecommunications network in 1995. The Company's
56-site DAMA project in rural communities of Alaska is substantially complete,
and half of the sites are currently providing service. The DAMA system is
currently capable of interfacing with LECs using standard toll to local office
signaling protocols. A signaling system number 7 ("SS7") interface to DAMA
signaling capabilities is currently under development, as is an integrated
services digital network ("ISDN") rate interface capability.
The Company's Ku-band satellite network uses one leased Ku-band transponder
on the Hughes SBS5 satellite and will transition to an owned Ku-band transponder
on the Galaxy X satellite once that satellite is successfully launched. The
Ku-band network is higher power and is used primarily for point-to-point data
communications. The Company's Ku-band network comprises an 8.1-meter hub station
located in Anchorage and a 7.3-meter hub station located near Seattle,
Washington from which the
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Company provides services to 98 VSAT earth stations located throughout the state
of Alaska and 6 VSAT earth stations in the lower 48 states. Substantially all of
these VSAT earth stations are owned by the Company's customers.
The majority of the Company's interstate long distance traffic is carried to
and from the contiguous 48 states over the Seward, Alaska branch of the undersea
fiber optic cable that connects Pacific City, Oregon to Miura, Japan. Of the
nine DS3s of capacity between Seward and Pacific City in this undersea cable,
the Company owns one and leases 57% of another DS3 channel.
The Company utilizes leased digital microwave facilities to carry long
distance traffic within and between Anchorage, Fairbanks and Juneau. These
facilities are leased from AT&T Alascom under agreements that provide for annual
lease payments of approximately $2.4 million in 1997, $2.5 million in 1998 and
decreasing to approximately $662,000 in 1999. The Company's business plan
anticipates a reduction in its use of leased digital microwave facilities from
AT&T Alascom as it expands its own facilities.
The Company's switched network consists of three medium capacity Digital
Switch Corp. DEX digital toll switches located in Anchorage, Fairbanks and
Juneau, the three main urban centers in Alaska. The Company owns and operates
these switching centers as well as a fourth digital toll switch in Seattle,
Washington. The Company leases switching capacity in Dallas, Texas from GTE
Telecom. These switches provide a wide range of toll services including routing
of direct dial, calling card, toll free and operator assisted calls.
Since 1990, the Company has utilized SS7 in its main toll switched network
to speed call setup and provide enhanced service. In 1993, the Company began SS7
interconnection with other interexchange carriers and local exchange carriers so
that approximately 75% of the state's interstate direct dial and toll free (800
and 888) traffic is currently processed using SS7 signaling. The Company leases
and operates a toll tandem switch located in Anchorage that provides the
Company's first intelligent network service for routing of toll free calls.
The Company's future switched network plans call for consolidating its
network on new combined long distance and local switches. Such a switch (a
Lucent 5ESS switch) was installed in Anchorage for activation in April 1997 and
was interconnected with the incumbent LEC's network in May 1997 for the exchange
of local access traffic. Additional 5ESS combined long distance/local switches
are planned for installation in Fairbanks and Juneau in 1998 and in Seattle,
Washington in 2000. These new switching systems will enable the Company to offer
local and long distance traffic, as well as operator assisted calls, via a
single switching platform. The switches will be service switching point ("SSP")
functional, allowing the removal of the Company's current leased toll tandem
switch. In early 1998, the Company plans to add enhanced SS7 signaling
capabilities and to introduce advanced intelligent network switched services.
The Company plans to construct a state-of-the-art undersea fiber optic
network connecting Anchorage to Seattle, Washington, with a spur to Juneau and a
terrestrial connection to Fairbanks. The system will use optical amplifiers and
is designed to accommodate growth from an initial equipped capacity of OC-48 on
each city-pair segment to at least OC-192 by the addition of terminal equipment
at the landing stations. The physical configuration will include a cable
extending from the Seattle, Washington landing station to the Whittier, Alaska
landing station with an offshore branching unit connected to the Juneau landing
station. Redundant, ring-protected inland extensions will be constructed from
the Whittier and Seattle landing stations to their adjacent primary cities. At
Juneau, the Company's existing fiber network will provide the inland extension.
The submarine cable portion of the project will be constructed on a turn-key
basis by the Company's supplier. The Company has completed the necessary marine
survey and expects to enter into a supply contract in time to allow the
beginning of commercial service in late 1998. The anticipated service life of
the cable is 25 years.
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The traffic patterns experienced by the Company in the Alaskan market vary
by location. The majority of interstate traffic is carried to and from the lower
49 states by undersea fiber optic cable, with some traffic carried by leased
digital microwave facilities and satellite. In Anchorage, 98% of interstate long
distance traffic is routed to and from the lower 49 states via undersea fiber
and 2% of interstate traffic is routed via satellite. In Fairbanks, interstate
traffic is split 45% on a combined route of leased digital microwave facilities
and undersea fiber and 55% routed via satellite. Juneau's interstate traffic is
routed entirely by satellite. Anchorage's intrastate traffic to Fairbanks is
routed via leased digital microwave facilities and intrastate traffic to Juneau
is routed 48% by leased digital microwave facilities and 52% by satellite.
Intrastate traffic between Juneau and Fairbanks is carried by leased digital
microwave facilities. In addition, the Company carries some traffic between
Juneau and Ketchikan and Sitka via leased digital microwave facilities. All
other intrastate traffic is carried predominantly by satellite.
The Company recently installed a new network monitoring and control center
in Anchorage, Alaska. The new control center enables the Company to centralize
its network personnel and to remotely monitor and reconfigure the network as
needed. This capability will result in more efficient use of the Company's
personnel for maintenance of the Company's facilities.
CABLE TELEVISION
The Cable Systems serve 21 communities and areas in Alaska including
Anchorage, Fairbanks and Juneau, the state's three largest urban areas. As of
March 31, 1997, the Cable Systems passed 162,711 homes or approximately 70% of
all households in Alaska and served approximately 104,400 subscribers (92,940
equivalent basic subscribers), representing 64% of households passed by the
Cable Systems. As of March 31, 1997, the Cable Systems consisted of
approximately 1,765 miles of installed cable plant having between 300 and 450
MHz of channel capacity (or enough capacity to carry between 36 and 60
channels). On a pro forma basis, assuming the Cable Systems had been acquired by
the Company as of January 1, 1996, the Cable Systems generated pro forma
revenues for the year ended December 31, 1996 of approximately $55.3 million and
EBITDA before management fees of approximately $27.0 million, or 48.8% of pro
forma cable revenues. Pro forma revenues and EBITDA from cable services would
have represented 26.3% and 54.9%, respectively, of the Company's consolidated
revenues and EBITDA for 1996.
The following table sets forth selected combined operating data regarding
the Cable Systems as of December 31, 1994, 1995 and 1996. All data is
approximate and excludes data from two immaterial Cable Systems:
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
-------------------------------------------- ---------
1994 1995 1996 1997
----------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Homes passed............................ 157,278 159,486 162,395 162,711
Equivalent basic subscribers............ 92,623 94,502 93,391 92,940
Basic penetration....................... 58.9% 59.3% 57.5% 57.1%
Premium service units................... --(1) --(1) 77,609 75,521
Premium penetration..................... --(1) --(1) 83.1% 81.3%
Average monthly revenue per equivalent
basic subscriber...................... $ 45.16 $ 46.76 $ 50.73 $ 48.98
</TABLE>
- ------------------------
(1) Comparable information is not available.
REGIONAL CABLE SYSTEMS
For internal management purposes, the Company has recently divided its cable
television systems into five regions, the Anchorage, Arctic, Interior,
Southcentral and Southeast regions. Most of the
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subscribers of the Cable Systems are located in Anchorage, the largest of the
systems, the Interior region, which includes Fairbanks, and the Southeast
region, which includes Juneau.
ANCHORAGE REGION. The Anchorage Region includes cable systems serving
Anchorage and surrounding areas, including Eagle River, Chugiak, Fort Richardson
and Elmendorf Air Force Base. As of March 31, 1997, the Anchorage cable system
passed 100,926 homes and had 62,127 basic subscribers. The Anchorage cable
system offers basic service that includes 18 channels. In addition, subscribers
can subscribe to a cable programming service tier ("CPST")which includes 26
channels or a new product tier ("NP") which includes TNT, CNN, Discovery,
America's Talking, Outdoor Life and the Sci-/Fi Channel. Each optional tier is
available at additional cost. The Anchorage system is fully addressable, with
all optional services (other than broadcast basic) scrambled. Average monthly
revenues per subscriber in the region for 1996 were $45.60. The Anchorage system
currently has 885 miles of 450 MHz plant installed, of which 337 miles are
overhead and 548 miles are underground. The Company is upgrading the Anchorage
system to a 550/750 MHz hybrid fiber optic and coaxial cable network, including
the installation of approximately 130 miles of fiber optic cable. As of March
31, 1997, approximately 38 miles of fiber optic cable had been installed, with
completion expected in 1998. The fiber optic plant will originally support a 550
MHz analog platform with 200 MHz reserved for digital services. This fiber
network will also be used in conjunction with the Company's planned local
exchange and PCS operations in Anchorage.
SOUTHEAST REGION. The Southeast Region includes cable systems serving
Juneau, Sitka, Petersburg, Ketchikan and Wrangell. These systems passed 22,676
homes and had 18,416 basic subscribers as of March 31, 1997. The Juneau cable
system offers an 11-channel basic service package and two CPSTs, including CPST
1 that includes basic service plus an additional four channels and CPST 2 which
includes basic service plus an additional 34 channels. The Ketchikan cable
system offers an eight channel basic service and a CPST 1 which includes basic
service plus an additional 33 channels and a CPST 2 which includes basic
service, CPST 1 and an additional four channels. The Sitka cable system offers
an eight channel basic service and an expanded basic service which adds 38
additional channels to the basic service offering. The Petersburg and Wrangell
cable systems offer basic service which includes three channels, one of which is
a Public Broadcasting System ("PBS") channel. The CPST 1 includes basic service
and either 24 or 25 channels, and the CPST 2 adds an additional eight to 14
channels. In addition, both systems offer four to five channels of premium pay
service. Average monthly revenues per subscriber in the southeast region for
1996 were $44.97. The Juneau system was recently rebuilt to support a 450 MHz
platform using a fiber optic cable backbone. Sitka and Ketchikan are both also
at 450 MHz, and Petersburg and Wrangell are expected to be upgraded to 450 MHz
in 1997 from their current 300 and 330 MHz levels, respectively. Juneau is the
only cable system that is currently subject to rate regulation by the APUC; such
regulation extends only to the basic service tier.
INTERIOR REGION. The Interior Region includes cable systems serving
Fairbanks, Eielson Air Force Base, Fort Greeley, Fort Wainwright and the
community of North Pole. The Fairbanks cable system offers a "limited service"
tier which includes 12 channels and no pay-per-view service. In addition, a
"satellite service" option is available at additional cost which includes the
limited service options plus 24 additional channels. These systems passed 20,605
homes and had 9,901 basic subscribers as of March 31, 1997. Average monthly
revenues per subscriber in the region for 1996 were $40.24. Fairbanks will be
upgraded to a 450 MHz system in December 1997 and subsequently to 550 MHz, with
the four headends in the region slated to be interconnected with fiber optic
links and additional fiber optic cable to be deployed to give the primary
headend a direct link to local broadcasters. This will substantially improve
network feeds, especially for the area's military bases and the community of
North Pole.
SOUTHCENTRAL REGION. The Southcentral Region includes cable systems serving
Cordova, Homer Kenai, Kodiak, Seward, Soldotna and Valdez. The Kodiak, Valdez
and Cordova cable systems generally include basic service which includes three
channels, one of which is a PBS channel. The CPST 1 in these markets includes
basic service and either 24 or 25 channels and the CPST 2 adds an additional
eight to
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14 channels. In addition, the Valdez and Cordova systems offer four to five
channels of premium pay service and the Kodiak system is capable of eight
channels of premium pay services and three channels of pay-per-view programming.
In 1994, the Kodiak system was rebuilt to add addressability and the additional
channel capacity. The Kenai cable system offers a basic service including 32
channels as well as pay-per-view services. The Seward cable system includes 39
channels packaged into two levels of service. The basic service includes three
channels, one of which is a PBS channel. The CPST 1 includes basic service and
30 additional channels and five channels of premium pay services are also
offered. All of the channels, with the exception of local origination
programming, are received via satellite. In addition, the system provides 12
channels to 300 outlets in a State of Alaska correctional facility through a
separate receive and headend site. The Homer cable system offers a basic service
consisting of seven channels, including three local translator channels. A CPST
available at additional cost, adds an incremental 29 channels. All of the
channels, with the exception of the local translator channels and local
origination programming, are received via satellite. The Homer system is fully
addressable and five channels of premium pay services are available. These
systems passed 14,858 homes and had 10,992 basic subscribers as of March 31,
1997. Average monthly revenues per subscriber in the region for 1996 were
$43.01. Bandwidths for cable plant in the region vary from 300 to 450 MHz. The
Company plans to upgrade all cable plant in the region to 450 MHz during the
second half of 1998.
ARCTIC REGION. The Arctic Region includes cable systems serving Bethel,
Kotzebue and Nome. The Bethel cable system offers a basic service package
consisting of 14 channels and a CPST which adds 13 channels at an additional
cost per month. The Kotzebue and Nome cable systems offer basic service which
includes three channels, one of which is a PBS channel. The CPST 1, which
includes basic service, also includes either 22 or 24 channels and the CPST 2
provides an additional eight or nine channels. In addition, both systems offer
four to five channels of premium pay service. All of the channels, with the
exception of one local translator and the local origination programming, are
received via satellite. These systems passed 3,646 homes and had 2,987 basic
subscribers as of March 31, 1997. Average monthly revenues per subscriber in the
region for 1996 were $61.31. Bandwidths for cable plant in the region vary from
300 to 450 MHz. The Company plans to upgrade all cable plant in the region to
450 MHz during the second half of 1998.
INTEGRATION WITH TELECOMMUNICATIONS OPERATIONS
In early 1997, the Company began integrating various telecommunications and
cable functions, including sales and marketing, customer service, public
relations, MIS, accounting and finance, human resources, and purchasing. In
connection with this functional integration, the Company intends to create a
billing system which will provide customers the option of receiving a single
bill for all services provided by the Company and to provide a single point of
contact for customer service. The Company believes that integration of these
functions will help maintain consistent policies and procedures within the
Company, will increase efficiency by reducing duplicative effort and expense,
and will enhance the Company's ability to cooperatively brand, market and
promote its telecommunications and cable services. The Company estimates that
the essential elements of this integration will be completed by late 1997.
PRIME MANAGEMENT AGREEMENT
In connection with its acquisition of the Cable Systems, the Company entered
into the Prime Management Agreement with Prime Management to manage the Cable
Systems. Assuming the Stock Offering is completed, the Voting Prime Sellers will
own 18.0% of the total outstanding combined Common Stock and will control
nominations to two seats on the Board pursuant to the Voting Agreement. See
"Management -- Voting Agreement," and "Principal and Selling Shareholders."
Under the Prime Management Agreement, the Company will pay to Prime
Management a net annualized fee for managing the Cable Systems in the amount of
$1,000,000 for the year ending October 31, 1997, $750,000 for the year ending
October 31, 1998, and $500,000 for each year ending
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October 31 thereafter that the Prime Management Agreement is in effect. Any
portion of the management fee which is past due shall bear interest at a rate
per annum equal to 17.5% until paid. In addition, the Company is required to
reimburse Prime Management for any costs and expenses incurred by it in
connection with the Cable Systems, including travel and entertainment expenses.
The contract states that such costs and expenses are not anticipated to exceed
$200,000 on an annualized basis. The Prime Management Agreement has a term of
nine years but either party may terminate the agreement in its discretion after
October 31, 1998. In addition, the agreement may be terminated earlier under the
following circumstances: (i) with respect to the Cable Systems acquired from
Prime, by the Company upon the termination or revocation of the Company's cable
television certificate of public convenience and necessity or franchise for a
cable system; (ii) upon the sale of all or substantially all of the assets of
the Cable Systems or the sale of all of the equity interests in the Cable
Systems; (iii) upon Prime Management's material breach of the agreement and
failure to cure within 30 days; (iv) by Prime Management upon the Company's
material breach of the agreement and failure to cure within 30 days; or (v) by
either party upon 30 days written notice if the other party shall enter into
certain events involving bankruptcy, insolvency or reorganization.
LOCAL EXCHANGE SERVICES
The Company intends to offer local exchange services in Anchorage and other
major Alaskan population centers principally over its own network facilities and
resold local loops beginning in Anchorage in the second half of 1997. The
Company's entry into the local exchange services market will enable it to
cross-sell its long distance, wireless communications, cable and Internet
services. By offering cross-program discounts, the Company believes it can
attract a larger market share and improve customer retention rates. The Company
believes it can also save access costs it would otherwise pay to incumbent LECs.
The Company intends to provide a full-featured competitive local service,
including basic dialtone, custom local access signaling, centrex, voice mail,
ISDN, directory listing, directory assistance, inside wire and equipment
maintenance, and local private line services. The Company plans to offer local
exchange services initially in Anchorage to its existing long distance customers
and then to Internet service providers and other businesses, including large
business accounts.
The Company estimates that statewide 1996 local exchange service revenues
totaled approximately $320 million, inclusive of local access revenues of
approximately $174 million. The current local access market in Anchorage
comprises over 145,000 access lines. Fairbanks and Juneau have approximately
32,000 and 22,000 access lines, respectively. Total incumbent local exchange
revenues in Anchorage for 1995 were in excess of $102 million, including
approximately $28.9 million in dialtone, $12.5 million in enhanced services,
$27.5 million in access charges, $7.4 million in subscriber line charges, $17.5
million in yellow page revenue, and about $9 million in other revenues.
ATU, the incumbent LEC in Anchorage, and the Company have entered into an
interconnection agreement which was arbitrated and approved by the APUC. The
APUC, as part of the arbitration and approval process, established an immediate
effective date for the interconnection agreement, as of January 14, 1997. While
some initial delays have occurred due to differences in interpretation of the
agreement and unexpected delays may occur in the future, interconnection
implementation with ATU is currently proceeding. The interconnection agreement
provides for the interconnection and exchange of local traffic between the
Company and ATU under the provisions of the 1996 Telecom Act, and has set rates
for wholesale service, unbundled network element resale and colocation.
On May 20, 1997, the Company filed an action requesting preliminary and
permanent injunctive relief against ATU in the U.S. District Court at Anchorage.
The suit sought immediate implementation of transitional local number
portability. The Company believes that the obligation on the part of ATU to
provide number portability is explicit in Section 251(b)(2) of the 1996 Telecom
Act and the method for implementation is contained in the interconnection
agreement between the parties. The Company alleged that ATU repudiated its
obligation to immediately implement local number portability, citing the
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need for additional regulatory adjudication on an ancillary issue. The Company
contended that the technical solutions for implementing local number portability
and interconnections are currently in place and have been tested, and the suit
seeks immediate implementation. No damages were sought. The Company has
dismissed the suit without prejudice based upon ATU's verbal agreement to honor
the implementation schedule.
The Company plans to provide local exchange service through one or more of
loop resale, facilities-based service and total system resale. Loop resale would
involve the use by the Company of only the incumbent LEC's local loop, the
copper wire pair that interconnects the subscriber's telephone equipment to the
LEC's central office. In connection with loop resale, the Company would colocate
or virtually colocate switching equipment at the LEC's wire center to enable
interconnection of these local loops to the Company's switches and transmission
network. In this case, with the exception of the use of the passive copper loop,
the Company could then offer its own switch and network-based services
independently from the incumbent LEC. Facilities-based service would include
service provided over the Company's fiber optic metropolitan area network
("MAN") and microwave radio facilities, and potentially through the use of
wireless local loop equipment and the coaxial cable television network. Total
system resale would involve the purchase of discounted retail end-to-end service
from the incumbent LEC, which provides all physical facilities for switching and
transmission of the call.
In 1996, the Company commenced construction of its Anchorage MAN. The MAN
will enable the Company to provide facilities-based local exchange services to
the full range of the Company's customers in Anchorage as well as local access
services to AT&T Alascom or other interexchange carriers. The MAN will also
permit the Company to provide high speed data services for large commercial
customers. As of March 1997, the Company had installed approximately 38 miles of
fiber optic cable and expects to complete construction of the planned 130 mile
Anchorage MAN in 1998. The Company has installed a new host local switch, a
Lucent Technologies 5ESS, in Anchorage and expects to complete system acceptance
testing and interconnection of that switch to the Anchorage MAN during the
second quarter of 1997. The Company also plans to install six remote switches at
six of ATU's eight end-offices beginning in the second quarter of 1997, and
intends to complete these installations in the second half of 1997. At a seventh
ATU end-office, the Company intends to install subscriber line carrier (SLC)
equipment. As part of the MAN, the Company will extend new fiber optic cable
facilities into large multi-tenant commercial buildings and into Anchorage's
largest multiple dwelling residential units.
The Anchorage fiber optic MAN will benefit the Company's cable television
transmission infrastructure because it can be used to reduce the cascade depth
of a portion of the existing coaxial cable trunk plant between the cable headend
facilities and various neighborhood distribution feeder networks. This hybrid
fiber-coaxial architecture will provide increased bandwidth and improved noise
and distortion suppression in the trunk plant through the reduction of coaxial
cable trunk amplifier cascade depth. The system is being designed to provide up
to 750 MHz of usable bandwidth for a combination of 550 MHz analog and 200 MHz
digital cable video services.
The Company is currently planning the initial phase of construction for a
Fairbanks MAN, with construction of approximately 35 miles of fiber optic cable
expected to commence in late 1997. In connection with the acquisition of the
Cable Systems, the Company has also acquired fiber optic networks in Juneau and
Kodiak. These comprise an additional 52 miles of fiber optic cable plant. Plans
to interconnect long distance/local switches to the Fairbanks and Juneau MANs
are currently under development.
PCS
The Company plans to develop a wireless PCS network. PCS allows reception
and initiation of calls from any location within the area serviced by the PCS
network. The Company's PCS business segment will compete against traditional
cellular service providers and may, depending on the technology selected and
deployed, become an effective alternative to incumbent LEC facilities for local
exchange services in certain areas. The Company is reviewing various PCS
technologies and plans to settle on one
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technology by the end of 1997. The Company's planned MAN networks will provide
the fiber optic cable backbone to link PCS cell sites in major population
centers. The Company expects to launch its PCS service in Anchorage in 1999 and
in Fairbanks and Juneau in 2000.
In March 1995, the FCC completed a nationwide auction of A- and B-block PCS
licenses, each having 30 MHz of radio spectrum in the 1900 MHz band for private
development of PCS networks. In the FCC auction, Alaska was assigned two such 30
MHz bandwidths, designated statewide A-block PCS and statewide B-block PCS. The
A and B PCS licenses include build-out requirements which require that the
licensee provide service to one-third of licensed pops within five years (by
June 2000) and to two-thirds of licensed pops within ten years (by June 2005).
The FCC subsequently auctioned 30 MHz C-block licenses and 10 MHz D-, E- and
F-block licenses. The Company was the successful bidder for a 30 MHz statewide
B-block PCS license and paid approximately $1.65 million or about $3.00 per pop.
The small cell architecture of PCS systems and the nature of radio
propagation in PCS frequencies mean that PCS users will not be able to roam or
use their handsets outside of areas covered by PCS cells unless the PCS units
are also able to function as analog cellular handsets or consumers use a
separate analog handset when roaming. Although the Company is aware of several
suppliers with plans to manufacture such units, none are currently available. In
addition, the Company would be required to enter into interconnection agreements
with cellular suppliers or obtain licenses for use of cellular spectrum to
permit in-state roaming. Although the Company expects to enter into such
arrangements, none has as yet been made. The inability of PCS customers to use
their handsets outside of the areas covered by PCS cells may reduce the
attractiveness of PCS technology to potential customers. However, in Alaska, the
Company intends to cover all urban areas with PCS cells, reducing or eliminating
roaming for the vast majority of the population.
MARKETING AND SALES
The Company's marketing and sales strategy hinges on its ability to leverage
(i) its unique position as an integrated provider of multiple telecommunications
and cable services, (ii) its well-recognized and respected brand name in the
Alaskan marketplace and (iii) its leading market positions in long distance and
cable television services. By pursuing a marketing strategy that takes advantage
of these characteristics, the Company believes it can increase its market
penetration, improve customer retention rates, increase its share of its
customers' aggregate voice, video and data services expenditures and achieve
continued growth in revenues and operating cash flow.
The Company's marketing and sales organization is comprised of approximately
295 people. This organization is subdivided into four subsidiary marketing
groups, each having responsibility for marketing all relevant telecommunications
or cable services to the Company's four principal customer groups, which include
consumer, commercial, other common carrier and rural customers. The four
customer-group heads and the director, customer operations (customer service and
operator services) all report to the Senior Vice President--Sales and Marketing.
The Company's consumer marketing group consists of 24 employees. The
marketing team is supported by a customer service group staffed by approximately
129 sales or customer service representatives. The Company historically competed
in the residential market primarily on the basis of price. However, as price
competition intensified in recent years, the Company has shifted to a strategy
that places increased emphasis on strong customer service, that rewards
consumers for their loyalty to the Company and that focuses on the development
of value-added services. In this regard, the Company has expanded its customer
service group, adopted creative promotions that offer rebates to customers on
the basis of usage volumes and length of service with the Company, and
introduced innovative billing solutions. The Company further intends to provide
residential customers with a package of high-quality diversified
telecommunications and cable services that will entice consumers to purchase
multiple services from the Company by offering package discounts, and will offer
a single bill and point of contact for customer service. The Company's
advertising strategy for this segment has relied, and will continue to rely,
heavily on television, radio and print media.
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The Company's commercial marketing group consists of 71 employees.
Commercial customers for telecommunications services have a wide variety of
experiences and needs. Many smaller businesses do not have the staff or
technical expertise to select from among the many alternatives available to
them, and respond well to a consultative approach from telecommunications
providers. The Company believes that by offering customers such as these a
diversified package of services from a single source, along with the technical
expertise to help them evaluate which service combinations will best fit their
individual requirements, the Company can provide significant value added
resources in implementing their telecommunications decisions. Similarly, large
businesses which have the resources and volume of telecommunications usage to
justify in house expertise frequently outsource these functions as a means of
increasing productivity and reducing expenses. These functions can effectively
be addressed by the Company.
The Company's marketing and sales organization has five employees that focus
on other common carrier marketing and sales. The group is responsible for
managing the Company's business with MCI and Sprint as well as other common
carriers and resellers purchasing services from the Company.
The unique characteristics of communities in rural Alaska have led the
Company to designate a separate group of eight employees to focus exclusively on
marketing to this segment of the Alaskan population, which comprises
approximately 23.1% of Alaska's total population. Because the large number of
small communities in rural Alaska have relatively little exposure to mass media,
and because these communities tend to be very tight-knit, the Company's
marketing approach to these communities emphasizes the development of trust
between the Company and community members through direct personal involvement by
Company employees in local business or community organizations and events.
COMPETITION
TELECOMMUNICATIONS. The telecommunications industry is intensely
competitive, rapidly evolving and subject to constant technological change.
Competition is based upon pricing, customer service, billing services and
perceived quality. Certain of the Company's competitors are substantially larger
and have greater financial, technical and marketing resources than the Company.
Although the Company believes it has the human and technical resources to pursue
its strategy and compete effectively in this competitive environment, its
success will depend upon its continued ability to profitably provide high
quality, high value services at prices generally competitive with, or lower
than, those charged by its competitors.
The Company's principal competitor in long distance services, AT&T Alascom,
has substantially greater resources than the Company. This competitor's
interstate rates are integrated with those of AT&T Corp. and are regulated in
part by the FCC. While the Company initially competed based upon offering
substantial discounts, those discounts have been eroded in recent years due to
the lowering of prices by AT&T Alascom. Under the terms of AT&T's acquisition of
Alascom, AT&T Alascom rates and services must "mirror" those offered by AT&T, so
changes in AT&T prices indirectly affect the rates and services of the Company.
AT&T's and AT&T Alascom's prices are regulated under a price cap plan whereby
their rate of return is no longer directly regulated or restricted. AT&T and
AT&T Alascom are allowed to raise and lower prices for three groups of services
within pre-established floor and ceiling levels with little regulatory
oversight. These services include products offered to the following: (i) small
businesses or residential customers; (ii) users of 800 services; and (iii) large
business and governmental customers. Price increases by AT&T and AT&T Alascom
generally improve the Company's ability to raise its prices while price
decreases pressure the Company to follow. The Company has, so far, successfully
adjusted its pricing and marketing strategies to respond to AT&T pricing
practices. However, if AT&T Alascom significantly lowers its rates, the Company
may be forced to reduce its rates, which could have a material adverse effect on
the Company's financial condition and results of operations.
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In the local exchange market, the Company believes that the 1996 Telecom Act
and state legislative regulatory initiatives and developments, as well as a
recent series of transactions and proposed transactions between telephone
companies, long distance carriers and cable companies, increase the likelihood
that barriers to local exchange competition will be substantially reduced or
removed. These initiatives include requirements that LECs negotiate with
entities such as the Company to provide interconnection to the existing local
telephone network, to allow the purchase, at cost-based rates, of access to
unbundled network elements, to establish dialing parity, to obtain access to
rights-of-way and to resell services offered by the incumbent LECs. Certain
pricing provisions of the FCC's decision implementing the interconnection
portions of the 1996 Telecom Act (the "Interconnection Decision") have been
challenged and are currently stayed by the U.S. Court of Appeals for the Eighth
Circuit, on a jurisdictional basis. While the stay may affect the level of
prices in the near term, it does not appear that it will limit or delay the
development of competition in the Alaskan local exchange switched services
market. In addition, the 1996 Telecom Act expressly prohibits any legal barriers
to competition in intrastate or interstate communications service under state
and local laws. The 1996 Telecom Act further empowers the FCC, after notice and
an opportunity for comment, to preempt the enforcement of any statute,
regulation or legal requirement that prohibits, or has the effect of
prohibiting, the ability of any entity to provide any intrastate or interstate
telecommunications service. See "--Regulation."
The 1996 Telecom Act provides incumbent LECs with new competitive
opportunities. The 1996 Telecom Act removes previous restrictions concerning the
provision of long distance service by LECs and also provides them with increased
pricing flexibility. Under the 1996 Telecom Act, the RBOCs will, upon the
satisfaction of certain conditions, be able to offer long distance services that
would enable them to duplicate the "one-stop" integrated telecommunications
approach used by the Company. The Company believes that it has certain
advantages over these companies in providing its telecommunications services,
including the Company's brand awareness by Alaskan customers, its owned
telecommunications network, and management's prior experience in, and knowledge
of, the Alaskan market. The 1996 Telecom Act provides that rates charged by
incumbent LECs for interconnection to the incumbent carrier's network are to be
nondiscriminatory and based upon the cost of providing such interconnection, and
may include a "reasonable profit," which terms are subject to interpretation by
regulatory authorities. If the incumbent LECs charge alternative providers such
as the Company unreasonably high fees for interconnection to the LECs' networks,
or significantly lower their retail rates for local exchange services, the
Company's local service business could be placed at a significant competitive
disadvantage. See "--Regulation."
In May 1996, ATU filed an application with the APUC to provide long distance
telecommunications services as a reseller of intrastate telecommunications
services throughout the State of Alaska. The application was acted upon
favorably in September 1996 and ATU began in April 1997 offering interstate and
intrastate long distance services in the Anchorage area on a
non-facilities-based basis.
Competition for the Company's PCS services will come primarily from
traditional cellular providers and new PCS entrants. Anchorage has mature
cellular systems in both the wireline (ATU) and non-wireline (AT&T Wireless)
license blocks that together have achieved approximately 20% penetration of
potential subscribers based on the number of existing wireline access lines.
Cellular service has not penetrated Fairbanks and Juneau to the same degree as
Anchorage. Cellular pricing has been high in Alaska compared to the lower 48
states, but rates in Anchorage have become more competitive since the Company
entered the cellular resale market two years ago.
Of the five other Alaskan PCS licensees, none have announced plans for
service in Alaska. The high cost of a PCS system infrastructure may deter some
license owners from building a system. PCS has the potential disadvantage when
compared to cellular service of requiring the licensee to enter into
interconnection agreements with cellular providers in order to permit PCS
subscribers with dual-mode handsets to continue to receive service once they
stray from the PCS service area. However, the Company
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believes that the portion of the Alaskan population which will need to operate
outside the Company's planned PCS service areas is small.
CABLE COMPETITION. Cable television systems face competition from
alternative methods of receiving and distributing television signals and from
other sources of news, information and entertainment such as off-air television
broadcast programming, radio, newspapers, movie theaters, live sporting events,
interactive computer services and home video products, including videotape
cassettes and laser disks. The extent to which a cable television system is
competitive depends, in part, upon the cable system's ability to provide quality
programming and other services at competitive prices.
The 1996 Telecom Act authorizes LECs and others to provide a wide variety of
video services competitive with services provided by cable systems and to
provide cable services directly to subscribers. See "--Regulation." Certain LECs
in Alaska may seek to provide video services within their telephone service
areas through a variety of distribution methods. The Cable Systems could be
placed at a competitive disadvantage if the delivery of video services by LECs
becomes widespread since LECs may not be required, under certain circumstances,
to obtain local franchises to deliver such video services or to comply with the
variety of obligations imposed upon cable systems under such franchises. Issues
of cross-subsidization by LECs of video and telephony services also pose
strategic disadvantages for cable operators seeking to compete with LECs who
provide video services.
Cable television systems generally operate pursuant to franchises granted on
a non-exclusive basis. The 1992 Cable Act gives local franchising authorities
jurisdiction over basic cable service rates and equipment in the absence of
"effective competition," prohibits franchising authorities from unreasonably
denying requests for additional franchises and permits franchising authorities
to operate cable systems. Well-financed businesses from outside the cable
industry (such as the public utilities that own certain of the poles on which
cable is attached) may become competitors for franchises or providers of
competing services. See "--Regulation."
The Cable Systems face limited additional competition from private satellite
master antenna television ("SMATV") systems that serve condominiums, apartment
and office complexes and private residential developments. The operators of
these SMATV systems often enter into exclusive agreements with building owners
or homeowners' associations. Due to the widespread availability of reasonably-
priced earth stations, SMATV systems now can offer both improved reception of
local television stations and many of the same satellite-delivered program
services offered by franchised cable systems. The ability of the Cable Systems
to compete for subscribers in residential and commercial developments served by
SMATV operators is uncertain. The 1996 Telecom Act gives cable operators greater
flexibility with respect to pricing of cable television services provided to
subscribers in multi-dwelling unit residential and commercial developments.
However, it also broadens the definition of SMATV systems not subject to
regulation as a franchised cable television service.
The availability of reasonably-priced home satellite dish earth stations
("HSDs") enables individual households to receive many of the
satellite-delivered program services formerly available only to cable
subscribers. Furthermore, the 1992 Cable Act contains provisions, which the FCC
has implemented with regulations, to enhance the ability of cable competitors to
purchase and make available to HSD owners certain satellite-delivered cable
programs at competitive costs.
In recent years, the FCC and the Congress have adopted policies providing a
more favorable operating environment for new and existing technologies that
provide, or have the potential to provide, substantial competition to cable
systems. These technologies include, among others, DBS services which transmit
signals by satellite to receiving facilities located on the premises of
subscribers. Programming is currently available to the owners of HSDs through
conventional, medium and high-powered satellites. Primestar Partners L.P., a
consortium comprised of cable operators and a satellite company, commenced
operation in 1990 of a medium-power DBS satellite system using the Ku portion of
the frequency spectrum and, as of December 31, 1996, provided service consisting
of approximately 95
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channels of programming, including broadcast signals and pay-per-view services.
DirecTV, which has entered into a marketing alliance with AT&T, began offering
nationwide high-power DBS service in 1994 accompanied by extensive marketing
efforts. Several other major companies are preparing to develop and operate
high-power DBS systems, including MCI and News Corp. DBS systems use video
compression technology to increase the channel capacity of their systems to
provide movies, broadcast stations and other program services competitive with
those of cable systems. The extent to which DBS systems are competitive with the
service provided by cable systems depends, among other things, on the
availability of reception equipment at reasonable prices and on the ability of
DBS operators to provide competitive programming. DBS services generally do not
currently provide local programming and DBS signals are subject to degradation
from atmospheric conditions such as rain, snow and wind. The receipt of DBS
service in Alaska currently has the disadvantage of requiring subscribers to
install larger satellite dishes (generally three to six feet in diameter) than
are generally required in the lower 48 states because of the weaker satellite
signals available in northern latitudes. In addition, existing satellites have a
relatively low altitude above the horizon when viewed from Alaska, making their
signals subject to interference from mountains, buildings and other structures.
Recent published reports indicate that there has been a substantial increase in
the number of DBS subscribers in the United States in recent years. Thus,
although it is difficult to assess the ultimate impact that DBS will have on the
cable industry or the Company's financial condition and results of operations,
DBS services may pose a significant competitive threat to cable television
systems.
Cable television systems also compete with wireless program distribution
services such as MMDS providers which use low-power microwave frequencies to
transmit video programming over-the-air to subscribers. There are MMDS operators
who are authorized to provide or are providing broadcast and satellite
programming to subscribers in areas served by several of the Cable Systems,
including Anchorage and Fairbanks. ATU recently purchased a 30% interest in one
such wireless operator that operates in the Anchorage and Fairbanks areas.
Additionally, the FCC has allocated frequencies in the 28 GHz band for a new
multichannel wireless video service similar to MMDS. MMDS operations have the
disadvantage of requiring that customers' receiving antennas have line-of-sight
access to transmitting radio towers, making their signals subject to
interference from mountains, buildings and other structures, and are subject to
interference from rain, snow and wind. The Company is unable to predict whether
competition from wireless video services will have a material impact on its
financial condition or results of operations.
Other new technologies may become competitive with non-entertainment
services that cable television systems can offer. The FCC has authorized
television broadcast stations to transmit textual and graphic information useful
to both consumers and businesses. The FCC also permits commercial and
non-commercial FM stations to use their subcarrier frequencies to provide
non-broadcast services including data transmissions. The FCC established an
over-the-air interactive video and data service that will permit two-way
interaction with commercial and educational programming along with informational
and data services. LECs and other common carriers also provide facilities for
the transmission and distribution to homes and businesses of interactive
computer-based services, including the Internet, as well as data and other
non-video services. The FCC has conducted spectrum auctions for licenses to
provide PCS. PCS will enable license holders, including cable operators, to
provide voice and data services. The Company recently acquired a state-wide PCS
license. See "--PCS."
Advances in communications technology as well as changes in the marketplace
are constantly occurring. The Company cannot predict the effect that ongoing or
future developments might have on the telecommunications and cable television
industries or on the Company.
PROPERTIES
The Company's executive offices and operating facilities for its
telecommunications operations are located in leased office space in Anchorage,
Fairbanks and Juneau, Alaska, and Seattle, Washington.
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The facilities in Fairbanks and Juneau, Alaska, and Seattle, Washington are
occupied under short-term operating lease agreements while one of the Anchorage
properties is leased pursuant to a 15-year capital lease agreement that expires
in September, 2006. The Company also owns or leases various earth station,
microwave and distribution sites used in its telecommunications operations and
owns or leases various local office, headend and tower sites used in its cable
television operations.
The Company's other properties consist mainly of equipment, including a
portion of the undersea fiber optic cable linking Alaska and Oregon that is
owned subject to an outstanding mortgage, cable television plant, head-end
distribution equipment, switches, microwave facilities and other electronic
equipment. Substantially all of the Company's properties and equipment are
subject to a security interest in favor of the Company's lenders. The Company
believes that its properties and equipment are in good condition and are
adequate for the Company's present needs.
ALASKAN ECONOMY
The Company offers voice, video and data services to customers primarily
throughout Alaska. As a result of this geographic concentration, the Company's
growth and operations depend upon economic conditions in Alaska. Alaska has a
population of approximately 600,000 people, approximately one-half of whom are
located in the Anchorage area. The economy of Alaska is dependent upon the
natural resource industries, and in particular oil production, as well as
tourism, mining, government, and United States military spending. Any
deterioration in these markets could have an adverse impact on the Company's
financial condition and results of operations. The oil industry over the past
several years has contributed in excess of 75% of unrestricted State government
revenues received from all segments of the Alaskan economy and is believed to be
directly or indirectly responsible for over one-third of Alaska's economic base.
Unrestricted State revenues are available for any legitimate governmental
purpose. The volume of oil transported by the TransAlaska Oil Pipeline System
over the past 20 years has been as high as 2.0 million barrels per day in 1988.
Over the past several years, it has begun to decline and is expected to average
approximately 1.4 million barrels per day in 1997. The volume of oil transported
by that pipeline is expected to decrease to 1.0 million barrels per day in less
than ten years, based upon available data regarding presently developed oil
fields using the pipeline for transport. The two largest producers of oil in
Alaska independently have taken steps to significantly increase their
investments in new oil fields and enhanced recovery projects to slow the decline
of existing fields. Both companies have invested large sums of money in
developing and implementing enhanced oil recovery techniques at the Prudhoe Bay
field and other nearby fields. Effective March 1997, the State of Alaska passed
new legislation relaxing state oil royalties with respect to marginal oil fields
that the oil companies claim would not be economic to develop otherwise. No
assurance can be given that these two oil companies or other oil companies doing
business in Alaska will be successful in discovering new fields or further
developing existing fields which are economic to develop and produce oil with
access to the pipeline or other means of transport to market, even with the
reduced level of taxation. Should the oil companies not be successful in these
discoveries or developments, the trend of continued decline in oil production
from the Prudhoe Bay field area is inevitable with a corresponding adverse
impact on the economy of the State, in general, and on demand for
telecommunications and cable television services and, therefore, on the Company,
in particular.
The growth rate of the Alaskan economy was generally higher during the
11-year period of initial operation of the pipeline (1977-1988) both in the
private sector and in government spending as compared to the eight-year period
of operations since the downturn in oil throughput began in 1989. While other
Alaskan industries have experienced growth since 1988, including mining,
tourism, international air freight transportation, and retail sales, and while
state and federal government spending remain significant factors in the Alaskan
economy, revenues generated from oil production and oil support industry
operations have remained the most significant segments of the Alaskan economy.
As such, the Alaskan economy is closely tied to the price of oil in the
international marketplace.
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The Alaskan economy is also supported by the United States armed services
and the United States Coast Guard which maintain bases in Anchorage, Fairbanks,
Adak, Kodiak, and other communities in Alaska. The military presence in the
State of Alaska provides a significant source of revenues to the economy of the
State. The Company provides message toll services in a variety of ways to the
United States government and its armed forces personnel. The Company also
provides private lines for secured point-to-point data and voice transmission
services to military personnel. A reduction in federal military spending or
closure of a major facility in Alaska could have a substantial adverse impact on
the State and would both directly and indirectly affect the Company. Since 1994,
several minor military bases have closed or been scheduled for closure or are
operating at reduced strength. While troop strength in Alaska and the military's
share of the Alaskan labor force are at historically low levels, the military
remains one of the most significant contributors to Alaska's economy.
REGULATION
THE FOLLOWING SUMMARY OF REGULATORY DEVELOPMENTS AND LEGISLATION DOES NOT
PURPORT TO DESCRIBE ALL PRESENT AND PROPOSED FEDERAL, STATE, AND LOCAL
REGULATION AND LEGISLATION AFFECTING THE TELECOMMUNICATIONS AND CABLE TELEVISION
INDUSTRIES. OTHER EXISTING FEDERAL AND STATE REGULATIONS ARE CURRENTLY THE
SUBJECT OF JUDICIAL PROCEEDINGS, LEGISLATIVE HEARINGS AND ADMINISTRATIVE
PROPOSALS WHICH COULD CHANGE, IN VARYING DEGREES, THE MANNER IN WHICH THESE
INDUSTRIES OPERATE. NEITHER THE OUTCOME OF THESE PROCEEDINGS NOR THEIR IMPACT
UPON THE TELECOMMUNICATIONS AND CABLE TELEVISION INDUSTRIES OR THE COMPANY CAN
BE PREDICTED AT THIS TIME. THIS SECTION ALSO SETS FORTH A BRIEF DESCRIPTION OF
REGULATORY AND TARIFF ISSUES PERTAINING TO THE OPERATIONS OF THE COMPANY.
The federal government regulates interstate telecommunications through
various laws administered by the FCC. The 1996 Telecom Act, the most
comprehensive reform of the nation's telecommunications laws since the
Communications Act, was signed into law in February 1996. The 1996 Telecom Act
will result in changes in the marketplace for cable television, telephone and
other telecommunications services. In addition, cable television operators are
subject to the 1984 Cable Act, the 1992 Cable Act, and the 1996 Telecom Act, as
well as the rules and regulations of the FCC, and, where applicable, state and
local regulations.
FEDERAL REGULATION OF TELEPHONY. The 1996 Telecom Act promotes local
exchange competition as a national policy by eliminating legal barriers to
competition in the local telephone business and setting standards to govern the
relationships among telecommunications providers. The 1996 Telecom Act expressly
prohibits any legal barriers to competition in intrastate or interstate
communications service under state and local laws. The 1996 Telecom Act further
empowers the FCC, after notice and an opportunity for comment, to preempt the
enforcement of any statute, regulation or legal requirement that prohibits, or
has the effect of prohibiting, any entity from providing any intrastate or
interstate telecommunications service. Subject to this limitation, however, the
state and local governments retain a significant amount of their existing
regulatory authority. The 1996 Telecom Act imposes a variety of new duties on
incumbent local exchange carriers in order to promote competition in local
exchange and access services. Certain duties are also imposed on all LECs,
including new market entrants such as the Company. Some smaller telephone
companies may seek suspension or modification of these duties, and some
companies serving rural areas are exempt from these duties. The duties created
by the 1996 Telecom Act include the following:
<TABLE>
<S> <C>
Reciprocal Compensation Requires all LECs to complete calls originated by
competing carriers under reciprocal arrangements at
prices based on a reasonable approximation of long-run
incremental cost or through mutual exchange of traffic
without explicit payment.
</TABLE>
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<TABLE>
<S> <C>
Resale Requires all LECs to permit resale of their
telecommunications services without unreasonable
restrictions or conditions. In addition, incumbent LECs
are required to offer wholesale versions of all retail
services to other telecommunications carriers for resale
at discounted rates, based on the costs avoided by the
incumbent LEC in the wholesale offering.
Interconnection Requires incumbent LECs to permit all telecommunications
carriers including their competitors to interconnect
with their facilities. Such interconnection must be
provided to competitors at any technically feasible
point within their networks, on nondiscriminatory terms,
at prices based on cost (which may include a reasonable
profit). At the option of the carrier seeking
interconnection, physical colocation of the requesting
carrier's equipment in the incumbent LEC's premises must
be offered, except where the incumbent LEC can
demonstrate space limitations or other technical
impediments to colocation.
Unbundled Access Requires incumbent LECs to provide nondiscriminatory
access to unbundled network elements (including network
facilities, equipment, features, functions, and
capabilities) at any technically feasible point within
their networks, on reasonable, just and
nondiscriminatory rates, terms and conditions, at prices
based on long-run incremental cost (which may include a
reasonable profit). Such access must allow requesting
carriers to combine network elements to provide such
telecommunications services.
Number Portability Requires all LECs to permit users of telecommunications
services to retain existing telephone numbers without
impairment of quality, reliability or convenience when
switching from one telecommunications carrier to another
to the extent technically feasible.
Dialing Parity Requires all LECs to provide "1+" equal access to
competing providers of local exchange service and toll
service, and to provide nondiscriminatory access to
telephone numbers, operator services, directory
assistance, and directory listing, with no unreasonable
dialing delays.
Access to Rights-of-Way Requires all LECs to permit competing carriers access to
poles, ducts, conduits and rights-of-way at regulated
prices.
</TABLE>
Incumbent LECs are required to negotiate in good faith with
telecommunications carriers requesting any or all of the above arrangements.
Certain, but not all, FCC rules regarding pricing of interconnection agreements
have been stayed by the U.S. Court of Appeals for the Eighth Circuit in a case
challenging certain of the FCC's interconnection regulations. However, carriers
still may negotiate agreements, and if the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the relevant state regulatory commission.
The 1996 Telecom Act also eliminates previous prohibitions on the provision
of InterLATA long distance service by the RBOCs and the GTE Operating Companies
("GTEOCs"). The RBOCs are now permitted to provide InterLATA long distance
service outside those states in which they provide local
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exchange service ("out-of-region long distance service") upon receipt of any
necessary state or federal regulatory approvals that are otherwise applicable to
the provision of intrastate or interstate long distance service. Under the 1996
Telecom Act, the RBOCs will be allowed to provide long distance service within
the regions in which they also provide local exchange service ("in-region
service") upon specific approval of the FCC and satisfaction of other
conditions, including compliance with a checklist of regulations and policies,
including those pertaining to interconnection, designed to enhance competition
in the local marketplace. The GTEOCs are permitted to enter the long distance
market without regard to limitations by region, although regulatory approvals
otherwise applicable to the provision of long distance service will need to be
obtained. The GTEOCs are also subject to the provisions of the 1996 Telecom Act
that impose interconnection and other requirements on LECs.
The 1996 Telecom Act imposes certain restrictions on the RBOCs in connection
with the RBOCs' entry into long distance services. Among other things, the RBOCs
must pursue such activities only through separate subsidiaries with separate
books and records, financing, management and employees, and all affiliate
transactions must be conducted on an arm's length and nondiscriminatory basis.
The RBOCs are also prohibited from jointly marketing local and long distance
services, equipment and certain information services unless competitors are
permitted to offer similar packages of local and long distance services in their
market. Further, RBOCs must obtain in-region long distance authority before
jointly marketing local and long distance services in a particular state.
Additionally, AT&T and other major carriers serving more than 5% of the nation's
presubscribed long distance access lines are also restricted, under certain
conditions, from packaging their long distance services and local services
provided over RBOC facilities. These restrictions do not, however, apply to the
Company because it does not serve more than 5% of the nation's presubscribed
access lines.
Prior to passage of the 1996 Telecom Act, the FCC had already established
different levels of regulations for dominant and non-dominant carriers. For
purposes of domestic common carrier telecommunications regulation, large LECs
and the RBOCs are currently considered dominant carriers for the provision of
interstate access services, while other interstate services providers, such as
the Company, are considered non-dominant carriers. The FCC has recently proposed
that the RBOCs offering out-of-region interstate long distance services be
regulated as non-dominant carriers, as long as such services are offered by an
affiliate of the RBOC that complies with certain structural separation
requirements. The FCC regulates many of the rates, charges and services of
dominant carriers to a greater degree than non-dominant carriers.
As a non-dominant long distance carrier, the Company may install and operate
facilities for the transmission of domestic interstate communications without
prior FCC authorization, although FCC authorization is required for the
provision of international telecommunications by non-dominant carriers. Services
of non-dominant carriers are subject to relatively limited regulation by the
FCC. Non-dominant carriers currently are required to file tariffs listing the
rates, terms and conditions of interstate and international services provided by
the carrier. Periodic reports concerning the carrier's interstate circuits and
deployment of network facilities also are required to be filed. The FCC
generally does not exercise direct oversight over cost justification and the
level of charges for services of non-dominant carriers, although it has the
power to do so. Among other requirements pursuant to the Communications Act, the
Company must offer its interstate and international services on a
nondiscriminatory basis, at just and reasonable rates, and remains subject to
FCC complaint and enforcement procedures and private causes of action.
On October 29, 1996, the FCC adopted an order in which it eliminated the
requirement that non-dominant interstate carriers such as the Company maintain
tariffs on file with the FCC for domestic interstate services. The FCC's order
was issued pursuant to authority granted to the FCC in the 1996 Telecom Act to
"forbear" from regulating any telecommunications service provider if the FCC
determines that the public interest will be served. Pursuant to the order,
following a nine-month transition period, relationships between carriers and
their customers were to be set by contract and long distance
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companies were no longer to be required to file with the FCC tariffs for
interstate interexchange services. Carriers also have the option to immediately
cease filing tariffs. The FCC's order, however, has been stayed by a federal
court and carriers must currently continue to file interstate tariffs with the
FCC.
The FCC also imposes prior approval requirements on transfers of control and
assignments of operating authorizations. The FCC has the authority to generally
condition, modify, cancel, terminate or revoke operating authority for failure
to comply with federal laws or the rules, regulations and policies of the FCC.
Fines or other penalties also may be imposed for such violations. There can be
no assurance that the FCC or third parties will not raise issues with regard to
the Company's compliance with applicable laws and regulations. In addition, the
Company is subject to various regulatory fees and assessments, including an
obligation to contribute to the Universal Service Fund.
The FCC, through its proceedings implementing the interconnection provisions
of the 1996 Telecom Act, has ordered the RBOCs and all but one of the other LECs
having in excess of $100 million in gross annual revenue for regulated services
to provide expanded interconnection to LEC central offices to any competitive
access provider, interexchange carrier or end user seeking such interconnection
for the provision of interstate access services. The FCC has imposed mandatory
virtual colocation obligations on the LECs. Virtual colocation is a service in
which the LEC leases or purchases equipment designated by the interconnector and
exerts compete physical control over the equipment, including central office
installation, maintenance and repair. As noted above, the 1996 Telecom Act now
requires most incumbent LECs to offer physical colocation. As a result, the
Company is able to reach most business customers in its metropolitan service
areas and can expand its potential customer base. Subsequent to the enactment of
the 1996 Telecom Act, the FCC has begun a series of expedited rulemaking
proceedings to implement the requirements of the 1996 Telecom Act concerning
interconnection with LEC facilities and other essential terms of the
relationships between competing LECs. On August 8, 1996, the FCC adopted the
Interconnection Decision to implement the interconnection, resale, dialing
parity and numbering administration provisions of the 1996 Telecom Act. Certain
provisions of these rules have been appealed to various U.S. Courts of Appeals.
These appeals have been consolidated into proceedings currently pending before
the U.S. Court of Appeals for the Eighth Circuit. Applications for a stay of the
proposed rules were rejected by the FCC. However, the U.S. Court of Appeals for
the Eighth Circuit has granted a stay of certain provisions of the
Interconnection Decision, including the pricing rules and rules that would have
permitted telecommunications carriers to "pick and choose" among various
provisions of approved interconnection agreements. The FCC applied to the U.S.
Supreme Court to vacate the judicial stay, but the U.S. Supreme Court, on
November 23, 1996, refused to vacate the stay. All other provisions of the
Interconnection Decision remain in effect pending resolution of the consolidated
case on the merits. In a separate proceeding, the FCC implemented the number
portability requirements of the 1996 Telecom Act. These FCC rules are also the
subject of a court appeal.
When ordering interconnection, the FCC granted LECs additional flexibility
in pricing their interstate special and switched access services on a central
office specific basis. Under this pricing scheme, LECs may establish pricing
zones based on access traffic density and charge different prices for central
offices in each zone. Although no assurances are possible, the Company
anticipates that the FCC will grant LECs increasing pricing flexibility as the
number of interconnection agreements and competitors increases. In a concurrent
proceeding, the FCC enacted interim pricing rules that restructure LEC switched
transport rates in order to facilitate competition for switched access.
As a PCS licensee, the Company is subject to regulation by the FCC, and must
comply with certain buildout and other conditions of the license, as well as
with the FCC's regulations governing the PCS service. As a cellular reseller,
the Company is deemed to be a common carrier and is subject to the requirements
of Title II of the Communications Act. In light of the non-dominant market
position of resellers, many of the obligations traditionally imposed on common
carriers are relaxed with respect to resellers. Resellers are required to
contribute to the Telecommunications Relay Services Fund and to
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remit annual regulatory fees to the FCC. Cellular resellers may also be subject
to certain state requirements.
Pursuant to the Communications Act, the FCC has the authority to license the
use of electromagnetic spectrum for radio communication. The Company holds
various FCC licenses for its satellite and microwave transmission facilities
used in its provision of telecommunication services. These licenses generally
have expiration dates and require applications for renewal. Moreover, the
Company may require additional licenses in the future.
FEDERAL REGULATION OF CABLE TELEVISION. The operation of cable television
systems is extensively regulated by federal legislation, FCC regulations and by
Alaska's state government. The discussion below summarizes the 1996 Telecom Act
as it affects the cable television industry and reviews prior federal cable
television regulation as revised by the 1996 Telecom Act.
Rate regulation of the Company's cable television services is divided
between the FCC and the State of Alaska. The FCC's jurisdiction extends to the
CPST, which consists largely of satellite-delivered programming (excluding basic
tier programming and programming offered on a per-channel or per-program basis).
Depending on the regulatory schemes in the relevant states, state and local
franchising authorities ("LFAs"), I.E., in Alaska the APUC, are primarily
responsible for regulating rates for the basic tier of cable services ("BST"),
which will typically contain at least the local broadcast stations and Public
Access, Educational and Government ("PEG") channels. Equipment rates are also
regulated by LFAs. The FCC retains appeal jurisdiction from LFA decisions. Cable
services offered on a per-channel or per-program-only basis generally remain
unregulated.
The 1996 Telecom Act eliminates CPST rate regulation for all cable operators
as of March 31, 1999. In the interim, CPST rate regulation can be triggered only
by an LFA complaint to the FCC. An LFA complaint must be based upon more than
one subscriber complaint. Prior to the 1996 Telecom Act, an FCC review of CPST
rates could be occasioned by a single subscriber complaint to the FCC. The 1996
Telecom Act does not disturb existing or pending CPST rate settlements between
the Company and the FCC. The Company's BST rates remain subject to LFA
regulation under the 1996 Telecom Act, although Juneau is the only system that
is currently subject to rate regulation by the APUC.
Existing law precludes rate regulation wherever a cable operator faces
"effective competition." The 1996 Telecom Act expands the definition of
effective competition to include any franchise area where a local exchange
carrier (or affiliate) provides video programming services to subscribers by any
means other than through direct broadcast satellite. There is no statutory
penetration minimum for the LEC to qualify as an effective competitor, but it
must provide "comparable" programming services (12 channels including some
broadcast channels) in the franchise area. The Company believes it is in
compliance with all applicable regulations regarding rates for service, and such
regulations will not have a material adverse effect on the Company's cable
television operations.
Under the 1996 Telecom Act, the Company and all other cable operators will
be allowed to aggregate on a franchise system, regional or company level, its
equipment costs into broad categories, such as converter boxes, regardless of
the varying levels of functionality of the equipment within each such broad
category. The 1996 Telecom Act will allow the Company to average together costs
of different types of converters (including non-addressable, addressable, and
digital). The statutory changes will also facilitate the rationalizing of
equipment rates across jurisdictional boundaries. These cost-aggregation rules
do not apply to the limited equipment used by "BST-only" subscribers.
The 1996 Telecom Act immediately relaxes the "uniform rate" requirements of
the 1992 Cable Act (which required a cable operator to charge uniform rates
throughout its franchise areas) by specifying that such requirements do not
apply where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about "predatory"
pricing may be made
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to the FCC. Upon a prima facie showing that there are reasonable grounds to
believe that the discounted price is predatory, the cable system operator will
have the burden of proving otherwise.
Under the 1996 Telecom Act, investor-owned utilities must make poles and
conduits available to cable systems under delineated terms. Electric utilities
are given the right to deny access to particular poles on a nondiscriminatory
basis for lack of capacity, safety, reliability, and generally accepted
engineering purposes. The current method for determining rates charged by
telephone and utility companies for cable delivery of cable and non-cable
services will continue for five years. However, the FCC will establish a new
formula for poles used by cable operators for telecommunications services which
will result in higher pole rental rates for cable operators. Any increases
pursuant to this formula may not be made for five years and will be phased in
equal increments over years five though ten. This new FCC formula does not apply
in states which regulate pole rents. Pole owners must impute pole rentals to
themselves if they offer telecommunications or cable services. Cable operators
need not pay future "make-ready" on poles currently contracted if the make-ready
is required to accommodate the attachments of another user, including the pole
owner. The Company is still negotiating to obtain the consent to the assignment
of certain pole attachment agreements to the Company by the sellers of the Cable
Systems. However, the Company has been permitted to continue to use necessary
poles in the operation of the Cable Systems.
The 1996 Telecom Act declares that no state or local law or regulation may
prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized to
impose "competitively neutral" requirements regarding universal service, public
safety and welfare, service quality, and consumer protection. The 1996 Telecom
Act further provides that cable operators and affiliates providing
telecommunications services are not required to obtain a separate franchise from
LFAs for such services. The 1996 Telecom Act prohibits LFAs from requiring cable
operators to provide telecommunications service or facilities as a condition of
a grant of a franchise, franchise renewal, or franchise transfer, except that
LFAs can seek "institutional networks" as part of such franchise negotiations.
The 1996 Telecom Act allows telephone companies to compete directly with
cable operators by repealing the telephone company-cable cross-ownership ban and
the FCC's video dialtone regulations. This will allow LECs, including the RBOCs,
to compete with cable operators both inside and outside their telephone service
areas, with certain regulatory safeguards. If a LEC provides video via radio
waves, it is subject to broadcast jurisdiction. If a LEC provides common carrier
channel service it is subject to common carrier jurisdiction. A LEC providing
video programming to subscribers is otherwise regulated as a cable operator
(including franchising, leased access, and customer service requirements),
unless the LEC elects to provide its programming via an "open video system." LEC
owned programming services will also be fully subject to program access
requirements.
The 1996 Telecom Act replaces the FCC's video dialtone rules with an "open
video system" ("OVS") plan by which LECs can provide cable service in their
telephone service area. LECs complying with the FCC OVS regulations will receive
relaxed oversight. The 1996 Telecom Act requires the FCC to act on any OVS
certification within ten days of its filing. Only the program access, negative
option billing prohibition, subscriber privacy, Equal Employment Opportunity
("EEO"), PEG, must-carry and retransmission consent provisions of the
Communications Act will apply to LECs providing OVS. Franchising, rate
regulation, customer service provisions, leased access and equipment
compatibility rules will not apply. Cable copyright provisions will apply to
programmers using OVS. LFAs may require OVS operators to pay "franchise fees"
only to the extent that the OVS provider or its affiliates provide cable
services over the OVS. Such fees may not exceed the franchise fees charged to
cable operators in the area, and the OVS provider may pass through the fees as a
separate subscriber bill item. OVS operators will be subject to LFA general
right-of-way management regulations.
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The 1996 Telecom Act requires the FCC to adopt, within six months,
regulations prohibiting an OVS operator from discriminating among programmers,
and ensuring that OVS rates, terms, and conditions for service are reasonable
and nondiscriminatory. Further, the FCC is to adopt regulations prohibiting a
LEC-OVS operator, or its affiliates, from occupying more than one-third of the
system's activated channels when demand for channels exceeds supply, although
there are not numeric limits. The 1996 Telecom Act also mandates OVS regulations
governing channel sharing, extending the FCC's sports exclusivity, network
nonduplication, and syndex regulations, and controlling the positioning of
programmers on menus and program guides. The FCC has issued open video system
regulations. The 1996 Telecom Act does not require LECs to use separate
subsidiaries to provide incidental interLATA video or audio programming services
to subscribers or for their own programming ventures.
While there remains a general prohibition on LEC buyouts of cable systems
(any ownership interest exceeding 10%) within a LEC's telephone service area,
cable operator buyouts of LEC systems within a cable operator's service area,
and joint ventures between cable operators and LECs in the same market, the 1996
Telecom Act provides some exceptions. A rural exemption permits buyouts where
the purchased system serves an area with fewer than 35,000 inhabitants outside
an urban area. Where a LEC purchases a cable system, that system plus any other
system in which the LEC has an interest may not serve 10% or more of the LEC's
telephone service area. Additional exceptions are also provided for such
buyouts. The 1996 Telecom Act also provides the FCC with the power to grant
waivers of the buyout provisions in cases where (i) the cable operator or LEC
would be subject to undue economic distress, (ii) the system or facilities would
not be economically viable, or (iii) the anticompetitive effects of the proposed
transaction are clearly outweighed by the effect of the transaction in meeting
community needs. The LFA must approve any such waiver.
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
It is anticipated that large utility holding companies may become significant
competitors to both cable television and other telecommunications providers.
Several such utilities have been granted broad authority by the FCC to engage in
activities which could include the provision of video programming.
The 1996 Telecom Act eliminates broadcast/cable cross-ownership restrictions
(including the broadcast network/cable restriction), but leaves in place FCC
regulations prohibiting local cross-ownership between television stations and
cable systems. The FCC is empowered by the 1996 Telecom Act to adopt rules to
ensure carriage, channel positioning and nondiscriminatory treatment of
non-affiliated broadcast stations by cable systems affiliated with a broadcast
network. The SMATV and MMDS cable cross-ownership restrictions have been
eliminated for cable operators subject to effective competition.
The 1996 Telecom Act preserves must carry rights (which are described in
greater detail below) for local television broadcasters, and clarifies that the
geographic scope of must carry is to be based on commercial publications which
delineate television markets based on viewing patterns. The FCC is directed to
grant or deny must carry requests within 120 days of a complaint being filed
with the FCC.
The 1996 Telecom Act directs an FCC equipment comparability rulemaking
emphasizing that (i) narrow technical standards, mandating a minimum degree of
common design among televisions, VCRs, and cable systems, and relying heavily on
the open marketplace, should be pursued; (ii) competition for all converter
features unrelated to security descrambling should be maximized; and (iii)
adopted standards should not affect unrelated telephone and computer features.
The 1996 Telecom Act directs the FCC to adopt regulations which assure the
competitive availability of converters ("navigation devices") from vendors other
than cable operators. The 1996 Telecom Act provides that the FCC's rules may not
impinge upon signal security concerns of theft of service protections. Waivers
will be possible where the cable operator shows the waiver is necessary for the
introduction of new services. Once the equipment market becomes competitive, FCC
regulations in this area will be terminated.
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The 1996 Telecom Act requires cable operators, upon subscriber request, to
fully scramble or block at no charge the audio and video portion of any channel
not specifically subscribed to by a household. Further, the 1996 Telecom Act
provides that sexually explicit programming must be fully scrambled or blocked.
If the cable operator cannot fully scramble or block its signal, it must
restrict transmission to those hours of the day when children are unlikely to
view the programming. On March 24, 1997, the United States Supreme Court let
stand a lower court ruling that allows enforcement of this provision pending a
constitutional challenge. In response to this ruling, the FCC declared that its
rules implementing the scrambling provision would become effective on May 18,
1997. The scrambling provision may increase operating expenses for cable
television system operators, including the Company, and provide a competitive
advantage to less regulated providers of video programming services.
The 1984 Cable Act regulated to some degree and the 1992 Cable Act more
extensively regulated the cable television industry and the vast majority of
that regulation remains unchanged by the 1996 Telecom Act. Among other things,
the 1984 Cable Act (i) requires cable television systems with 36 or more
"activated" channels to reserve a percentage of such channels for commercial use
by unaffiliated third parties; (ii) permits franchise authorities to require the
cable operator to provide channel capacity, equipment and facilities for public
educational and governmental access; and (iii) regulates the renewal of
franchises.
The 1992 Cable Act greatly expanded federal and local regulation of the
cable television industry. The Company believes that the 1992 Cable Act taken as
a whole has had and will continue to have a material adverse impact upon the
cable industry in general and upon the Company's cable operations specifically.
See related discussion under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Certain of the more
significant areas of regulation imposed by the 1992 Cable Act are discussed
below.
The 1992 Cable Act directed the FCC to promulgate regulations regarding the
sale and acquisition of cable programming between multichannel video program
distributors (including cable operators) and programming services in which a
cable operator has an attributable interest. The legislation and the
implementation regulations adopted by the FCC preclude most exclusive
programming contracts (unless the FCC first determines the contract serves the
public interest) and generally prohibit a cable operator which has an
attributable interest in a programmer from improperly influencing the terms and
conditions of sale to unaffiliated multichannel video program distributors.
Further, the 1992 Cable Act
requires that such cable affiliated programmers make their programming services
available to cable operators and competing video technologies such as MMDS and
DBS, and to telephone company providers of video services, on terms and
conditions that do not unfairly discriminate among such competitors.
Under the 1992 Cable Act, the FCC adopted regulations prohibiting cable
operators from requiring a financial interest in a program service as a
condition to carriage of such service, coercing exclusive rights in a
programming service or favoring affiliated programmers so as to restrain
unreasonably the ability of unaffiliated programmers to compete.
The 1992 Cable Act subjected all cable systems, including the Cable Systems,
to rate regulation, except in those cases where they face "effective
competition." The FCC was required to establish standards and procedures
governing regulation of rates for basic cable service, equipment and
installation, which were then to be implemented by the pertinent state and local
franchising authorities. The 1992 Cable Act also required the FCC, upon
complaint from a franchising authority or a cable subscriber, to review the
"reasonableness" of rates for CPSTs. The 1996 Telecom Act circumscribed the
review of CPST rates of the Cable Systems by amending the 1992 Cable Act to
allow only LFAs to file complaints. Complaints by subscribers of the Cable
Systems regarding CPST rates were filed with and accepted by the FCC for certain
franchise areas. However, filings were made in response to those complaints
relating to the period prior to July 15, 1994, and the disputed rates were
approved by the FCC. Potential liability for CPST rate refunds for the Cable
Systems is limited to the period after July 15, 1994. Services offered
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on an individual basis, such as pay television and pay-per-view services, are
not generally subject to rate regulation.
On April 1, 1993, the FCC adopted rate regulations governing virtually all
cable systems. Such regulations were revised on February 22, 1994. Under such
regulations, existing basic and tier service rates typically are evaluated
against "benchmark" rates established by the FCC and are subject to mandatory
reductions. Equipment and installation charges are regulated based on "actual
costs." As noted above, the 1996 Telecom Act provides that rate regulation of
the CPST automatically sunsets on March 31, 1999.
The FCC also allowed cable operators to justify rates under "cost of
service" rules, which allow "high cost" systems to establish rates in excess of
the benchmark level. The FCC's interim cost of service rules allowed a cable
operator to recover through rates for regulated cable services its normal
operating expenses plus a rate of return equal to 11.25 percent on the rate
base. However, the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets. As a result,
the Company's predecessors with respect to the Cable Systems pursued cost of
service justifications in only a few cases. On December 15, 1995, the FCC
adopted slightly more favorable cost of service rules.
The FCC's rate regulations generally permit cable operators to adjust rates
to account for inflation and increases in certain external costs, including
programming costs, to the extent such increases exceed the rate of inflation.
However, a cable operator may pass through increases in the cost of programming
services affiliated with such cable operator to the extent such costs exceed the
rate of inflation only if the price charged by the programmer to the affiliated
cable operator reflects either prevailing prices offered in the marketplace by
the programmer to unaffiliated third parties or the fair market value of the
programming. The FCC's revised regulations confirm that increases in pole
attachment fees ordinarily will not be accorded external cost treatment. The FCC
recently adopted a method for recovering external costs and inflation on an
annual basis. The new method minimizes the need for frequent rate adjustments
and the regulatory lag problems associated with the previous rate adjustment
methodology.
The regulations also provide mechanisms for adjusting rates when regulated
tiers are affected by channel additions or deletions. Additional programming
costs resulting from channel additions can be accorded the same external
treatment as other program costs increases, and cable operators presently are
permitted to recover a mark-up on their programming expenses. Under one option,
operators were allowed a flat ($.20) fee increase per channel added to an
existing CPST, with an aggregate cap of such increases ($1.20) plus a license
fee reserve ($.30) through 1996. In 1997, an additional flat ($.20) fee increase
is available, and the license fees for additional channels and for increases in
existing channels are no longer be subject to the aggregate cap. This optional
approach for adding services is scheduled to expire on December 31, 1997.
The FCC adopted additional rules that permit channels of new programming
services to be added to cable systems in a separate new product tier which the
FCC has determined will not be rate regulated at this time. The FCC has also
adopted rules allowing operators to raise rates based on costs incurred in
connection with a substantial upgrade of the cable system.
From time to time the Company evaluates its rates in light of market
conditions. Past rate changes have not had a material adverse effect on the
operating income of the Cable Systems and the changes currently being
contemplated are not expected to have such an effect. Certain rate actions
previously taken by the Cable Systems are subject to modification or
reconsideration during the course of ongoing proceedings before the FCC.
As required by the 1992 Cable Act, the FCC has adopted comprehensive
regulations establishing minimum standards for customer service and technical
system performance. Franchising authorities are allowed to enforce customer
service requirements that are more strict than the FCC standards.
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The 1992 Cable Act granted broadcasters a choice of "must carry" rights or
"retransmission consent" rights. By October of 1993 and every three years
thereafter, cable operations were required to secure permission from
broadcasters that elected retransmission consent rights before retransmitting
the broadcasters' signals. Local and distant broadcasters can require cable
operators to make a payment as a condition to carriage of such broadcasters'
station on a cable system. Established "superstations" were not granted such
rights.
The 1992 Cable Act also imposed obligations to carry "local" broadcast
stations for such stations which chose a "must carry" right, as distinguished
from the "retransmission consent" right described above. The rules adopted by
the FCC generally provided for mandatory carriage by cable systems of all local
full-power commercial television broadcast signals selecting must carry,
including the signals of stations carrying home-shopping programming and,
depending on a cable system's channel capacity, non-commercial television
broadcast signals. The United States Supreme Court recently upheld the must
carry regulations on constitutional grounds.
The 1992 Cable Act required the FCC to (i) promulgate rules and regulations
establishing reasonable limits on the number of cable subscribers which may be
served by a single multiple system cable operator or entities in which it has an
attributable interest, (ii) prescribe rules and regulations establishing
reasonable limits on the number of channels on a cable system that will be
allowed to carry programming in which the owner of such cable system has an
attributable interest, and (iii) consider the necessity and appropriateness of
imposing limitations on the degree to which multichannel video programming
distributors (including cable operators) may engage in the creation or
production of video programming.
Under the 1992 Cable Act and the FCC's regulations, a cable operator may not
hold a license for a MMDS system within the same geographic area in which it
provides cable service. The 1996 Telecom Act allows such ownership if effective
competition exists in that geographic area.
The 1992 Cable Act anti-buy-through rules require cable systems to permit
subscribers to purchase video programming offered by the operator on a per
channel or a per program basis without the necessity of subscribing to any tier
of service, other than the basic cable service tier, unless the system's lack of
addressable converter boxes or other technological limitations does not permit
it to do so. The statutory exemption for cable systems that do not have the
technological capability to offer programming in the manner required by the
statute is available until a system obtains such capability, but not later than
December 2002. The FCC may waive such time periods, if deemed necessary. The
majority of the Company's subscribers are served by systems that have the
technological capability to comply with the anti-buy-through rules. The
contemplated upgrades of the Company's systems will enable all of the Cable
Systems to comply with such rules by 2002.
The 1996 Telecom Act and the 1992 Cable Act contain numerous other
provisions which, together with the 1984 Cable Act, create a comprehensive
regulatory framework. Violation by a cable operator of the statutory provisions
or the rules and regulations of the FCC can subject the operator to substantial
monetary penalties and other significant sanctions such as suspension of
licenses and authorizations, issuance of cease and desist orders, and imposition
of penalties that could be of severe consequence to the conduct of a cable
operator's business. Many of the specific obligations imposed on the operation
of cable television systems under these laws and regulations are complex and
burdensome and increase the Company's cost of doing business.
In the normal course of its business, the Company obtains licenses from the
FCC for two-way communications stations, and, in certain cases, microwave relay
stations and other facilities used in its cable television operation. Based upon
its experience with and knowledge of the renewal process, the Company has no
reason to believe that such licenses will not be renewed as they expire.
Pursuant to lease agreements with local public utilities, the cable
facilities in the Company's Cable Systems are generally attached to utility
poles or are in underground ducts controlled by the utility owners. The rates
and conditions imposed on the Company for such attachments or occupation of
utility
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space are generally subject to regulation by the FCC or, in some instances, by
state agencies, and are subject to change. As described above, the 1996 Telecom
Act significantly revises the regulation of pole attachment rates and access.
STATE REGULATION OF TELEPHONY AND CABLE. The State of Alaska has the
authority to regulate telecommunications services that originate and terminate
within the State, and it exercises that authority through the APUC. In 1990 the
Alaskan legislature introduced intrastate competition in Alaska, and the Company
through its subsidiary, GCI Communication Corp., began providing long distance
intrastate telecommunications services on May 15, 1991, on its own facilities in
the areas where it provided interstate service and through resale of others'
services where it had no facilities. The APUC developed regulations that allow
for the certification of additional carriers for such intrastate
telecommunications services and, to varying degrees, require filing of tariffs
and regulation of the rates for such services. Under the APUC's current policy
and regulations, all certified carriers are required to file tariffs for the
provision of intrastate services. When filing for a rate increase, the dominant
carrier is required to file an accompanying rate case. Non-dominant carriers
such as the Company are not rate regulated. Tariff revisions filed by
non-dominant carriers routinely become effective without intervention by the
APUC or third parties. Tariffs can be filed or revised on 30 days notice. The
APUC currently restricts the provision of facilities-based interexchange service
in certain thinly populated areas. The Company has obtained a limited waiver of
this rule to allow deployment of its DAMA facilities in 56 sites in rural Alaska
and has filed a petition with the APUC to preempt the rule under the 1996
Telecom Act.
In 1992, GCI Communication Corp. obtained a Certificate of Public
Convenience and Necessity from the APUC pursuant to which it provides telephone
relay services ("TRS") for the deaf, hard-of-hearing and speech impaired through
the Company's operator service center in Wasilla, Alaska. Intrastate TRS
operating costs, capital costs and a rate of return are being funded through a
universal access surcharge billed by all local telephone companies in Alaska.
Under an FCC decision, commencing in 1993, a portion of the TRS operating costs
have been recovered through an interstate pool administered by the National
Exchange Carrier Association.
The Company received approval from the APUC in February 1997 to provide
local exchange service in Anchorage and Hope, Alaska. As an authorized local
exchange service provider in parts of Alaska, the Company is regulated as a LEC
by the APUC. The APUC's February 1997 Order requires the Company to comply with
several regulatory requirements, including the filing of a local exchange
service tariff and the filing of certain annual and quarterly reports. The
Company intends to file an application with the APUC requesting approval for
provision of local exchange services in Fairbanks, Juneau and other areas of
Alaska. The Company intends to offer local services through its own facilities
or resale of LEC facilities.
As a PCS licensee, the Company is subject to limited regulatory oversight by
the APUC (E.G., in the areas of consumer protection and transfer of its
licenses), although pursuant to federal law states are not permitted to regulate
the rates of PCS and other commercial mobile service providers. PCS licensees
may also be subject to regulatory requirements of local jurisdictions pertaining
to, among other things, the selling of tower facilities.
Cable television systems generally are constructed and operated under the
authority of nonexclusive certificates, permits or "franchises" granted by local
or, as in Alaska, state governmental authorities. The Company's franchises
consist of 15 certificates of public convenience issued by the APUC for the
Cable Systems and several military franchise agreements required to provide
cable service on military bases. Operation of the Cable Systems also requires
several FCC radio-band frequency licenses.
Federal law limits the power of the franchising authorities to impose
obligations on cable television operators as a condition of the granting or
renewal of a franchise. Franchises contain varying provisions relating to
construction and operation of cable television systems, such as time limitations
on commencement or completion of construction; quality of service, including (in
certain circumstances) requirements as to the number of channels and broad
categories of programming offered to subscribers; rate regulation; provision of
service to certain institutions; provision of channels for public access
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and commercial leased-use; and maintenance of insurance and indemnity bonds.
Franchises usually require the consent of the franchising authority prior to a
transfer of the franchise or a transfer or change in ownership or operating
control of the franchisee.
Subject to applicable law, a cable television franchise may be terminated
prior to its expiration date if the operator fails to comply with the material
terms and conditions of the franchise. Under the 1984 Cable Act, if a franchise
is lawfully terminated, and if the franchising authority acquires ownership of
the cable television system or effects a transfer of ownership to a third party,
such acquisition or transfer must be at an equitable price or, in the case of a
franchise existing on the effective date of the 1984 Cable Act, at a price
determined in accordance with the terms of the franchise, if any.
The 1984 Cable Act, as supplemented by the renewal provisions of the 1992
Cable Act, establishes an orderly process for franchise renewal which protects
cable operators against unfair denials of renewals when the operator's past
performance and proposal for future performance meet the standards established
by the 1984 Cable Act. These provisions are not generally relevant in Alaska
where the certificates of public convenience granted by the APUC to operate
cable systems are perpetual in duration, subject to revocation for cause.
Franchises issued by the U.S. government to provide cable television service on
military bases are subject to the renewal provisions of the 1992 Cable Act.
In order for the APUC to exercise rate regulation authority over a cable
system's basic service rates, 25% of a cable system's subscribers must request
such regulation by filing a petition with the APUC. In July 1990, the APUC
instituted rate regulation over the Company's Juneau operations pertaining to
basic cable service and installation. The State of Alaska does not currently
exercise rate regulation authority over the Company's other Cable Systems.
Therefore, as of March 31, 1997, there was no refund liability for basic service
at those other locations. Since rate regulation over the Company's Juneau
operations began in 1990 and through March 31, 1997, no refund liability has
existed for this location. Refund liability for cable programming service rates
may be calculated from the date a complaint alleging an unreasonable rate for
cable programming service is filed with the FCC until the rate reduction is
implemented.
EMPLOYEES
As of June 30, 1997, the Company employed a total of 861 employees,
including employees involved with the operation of the Cable Systems. The
Company believes that its future success will depend upon its continued ability
to attract and retain highly skilled and qualified employees. The Company
believes that its relations with its employees are satisfactory.
LEGAL PROCEEDINGS
Except as set forth in this section, the Company is not a party to or
subject to, and none of its properties are subject to, any material pending
legal proceedings. The Company is a party to various claims and pending
litigation as part of the normal course of its business. The Company is also
involved in several administrative proceedings (including informal complaint
proceedings) and filings with the FCC and state regulatory authorities. In the
opinion of management, the nature and disposition of these matters are
considered routine and arise in the ordinary course of business. Management
believes that, even if these matters were to be resolved unfavorably to the
Company, they would not have a materially adverse effect on the Company's
financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about each of Parent's
and the Issuer's directors and executive officers as of the date of this
Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ------------------------------------------------------------------------------
<S> <C> <C>
Carter F. Page(1)(2) 65 Chairman and Director of Parent
Ronald A. Duncan(1) 45 President, Chief Executive Officer and Director of Parent;
President and Director of Issuer
Robert M. Walp(1) 69 Vice Chairman and Director of Parent
John M. Lowber(2) 47 Senior Vice President, Chief Financial Officer, Secretary and Treasurer of
Parent; Chief Financial Officer, Secretary, Treasurer and Director of Issuer
G. Wilson Hughes 51 Executive Vice President and General Manager of Parent;
Director and Vice President of Issuer
William C. Behnke 39 Senior Vice President-Marketing and Sales of Parent
Richard P. Dowling 53 Senior Vice President-Corporate Development of Parent
Dana L. Tindall 35 Senior Vice President-Regulatory Affairs of Parent
Donne F. Fisher(1)(2) 59 Director of Parent
Jeffery C. Garvey(1) 48 Director of Parent
John W. Gerdelman(1) 44 Director of Parent
William P. Glasgow(1) 39 Director of Parent
Donald Lynch(1) 49 Director of Parent
Larry E. Romrell(1) 57 Director of Parent
James M. Schneider(1) 44 Director of Parent
</TABLE>
- ------------------------
(1) Member of Audit Committee and Compensation Committee of Parent.
(2) Member of Finance Committee of Parent.
CARTER F. PAGE. Mr. Page has served as Chairman and a director of Parent
since 1980. His term as director of Parent expires in 1999. From December 1987
to December 1989, he served as a consultant to WestMarc in matters related to
the Company. Mr. Page served as President and director of WestMarc from 1972 to
December 1987. Since then and to the present, he has been managing general
partner of Semaphore Partners, a general partnership and investment vehicle in
the communications industry.
RONALD A. DUNCAN. Mr. Duncan is a co-founder of Parent and has been a
director of Parent since 1979. His term as director of Parent expires in 1997.
Mr. Duncan is his own nominee to the Board pursuant to the Voting Agreement. Mr.
Duncan has served as President and Chief Executive Officer of Parent since
January 1, 1989. From 1979 through December 1988 he was the Executive Vice
President of Parent. Mr. Duncan is also the President and a director of the
Issuer. His term as director of the Issuer expires in 1998.
ROBERT M. WALP. Mr. Walp is a co-founder of Parent. He has been a director
of Parent since 1979, has served as Vice Chairman of Parent since January 1,
1989 and is also an employee of Parent. Mr. Walp is his own nominee to the Board
pursuant to the Voting Agreement. His term as director of
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Parent expires in 1999. From 1979 through 1988, Mr. Walp served as President and
Chief Executive Officer of Parent.
JOHN M. LOWBER. Mr. Lowber has served as Chief Financial Officer of Parent
since January 1987, as Secretary and Treasurer since July 1988 and as Senior
Vice President-Administration since December 1989. Mr. Lowber was Vice
President-Administration of Parent from 1985 to December 1989. Prior to joining
Parent, Mr. Lowber was a senior manager at KPMG Peat Marwick. Mr. Lowber is also
the Chief Financial Officer, Secretary and Treasurer and a director of the
Issuer. His term as director of the Issuer expires in 1998.
G. WILSON HUGHES. Mr. Hughes has served as Executive Vice President and
General Manager of Parent since June 1991. Mr. Hughes was President and a member
of the board of directors of Northern Air Cargo, Inc. from March 1989 to June
1991. From June 1984 to December 1988 he was President and a member of the board
of directors of Enserch Alaska Services, Inc. Mr. Hughes is also a director and
Vice President of the Issuer, and his term as director expires in 1998.
WILLIAM C. BEHNKE. Mr. Behnke has served as Senior Vice President-Marketing
and Sales of Parent since January 1994. Mr. Behnke was Vice President of Parent
and President of GCI Network Systems, Inc., a former subsidiary of Parent, from
February 1992 to January 1994. From June 1989 to February 1992 he was Vice
President of Parent and General Manager of GCI Network Systems, Inc. From August
1984 to June 1989 Mr. Behnke was Senior Vice President of TransAlaska Data
Systems, Inc.
RICHARD P. DOWLING. Mr. Dowling has served as Senior Vice
President-Corporate Development of Parent since December 1990. Mr. Dowling was
Senior Vice President-Operations and Engineering of Parent from December 1989 to
December 1990. From 1981 to December 1989 he served as Vice President-Operations
and Engineering of Parent.
DANA L. TINDALL. Ms. Tindall has served as Senior Vice President-Regulatory
Affairs since January 1994. Ms. Tindall was Vice President-Regulatory Affairs of
Parent from January 1991 to January 1994. From October 1989 through December
1990, Ms. Tindall was Director of Regulatory Affairs of Parent and she served as
Manager of Regulatory Affairs of Parent from 1985 to October 1989. In addition,
Ms. Tindall was an adjunct professor of Telecommunications Economics at Alaska
Pacific University from September through December 1995.
DONNE F. FISHER. Mr. Fisher has served as a director of Parent since 1980
and is one of TCI's nominees to the Board pursuant to the Voting Agreement. His
term as director of Parent expires in 1998. Mr. Fisher has been a consultant to
TCI since January 1996 and a director of TCI since 1980. From 1982 until 1996,
he held various executive officer positions with TCI and its subsidiaries. Mr.
Fisher serves on the boards of directors of most of TCI's subsidiaries and the
boards of directors of DMX, Inc. and United Video Satellite Group, Inc. Mr.
Fisher also acts as executor of the Estate of Bob Magness, one of the Company's
principal shareholders.
JEFFERY C. GARVEY. Mr. Garvey has served as a director of Parent since his
appointment by the Board in December 1996 to fill a new seat created in the
expansion of the Board from seven to ten members and is one of the Voting Prime
Sellers' nominees to the Board pursuant to the Voting Agreement. His term as
director of Parent expires in 1997. Since June 1989, Mr. Garvey has been General
Partner of Austin Ventures, L.P., a shareholder of Alaska Cable, Inc. (one of
the entities merged into a subsidiary of the Company as a part of the
acquisition of the Cable Systems). Mr. Garvey joined Austin Ventures in 1979,
and prior to that he was Senior Vice President in charge of the National and
Specialized Lending Divisions of PNC Bank (formerly Provident National Bank) in
Philadelphia, Pennsylvania. From 1971 to 1976 he held several positions with
Pittsburgh National Bank focusing on broadcast communications.
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JOHN W. GERDELMAN. Mr. Gerdelman has served as a director of Parent since
July 1994 and is one of MCI's nominees to the Board pursuant to the Voting
Agreement. His term as director of Parent expires in 1999. Mr. Gerdelman has
been President, Network Services, of MCI, a wholly owned subsidiary of MCI
Communications Corporation, since September 1994. He was Senior Vice President
of MCI from July 1992 to September 1994. From July 1989 to July 1992 Mr.
Gerdelman was President of MCI Services, Inc., a subsidiary of MCI.
WILLIAM P. GLASGOW. Mr. Glasgow has served as a director of Parent since
his appointment by the Board in December 1996 to fill a new seat created in the
expansion of the Board from seven to ten members and is one of the Voting Prime
Sellers' nominees to the Board pursuant to the Voting Agreement. His term as
director of Parent expires in 1998. Mr. Glasgow has been President of Prime II
Management, Inc., a Delaware corporation, and sole general partner of Prime
Management since July 1996. Mr. Glasgow was President of Prime Cable Fund I,
Inc., a Delaware corporation and the sole general partner of Prime from July
1996 to the merger of the corporation with a subsidiary of the Company as a part
of the acquisition of the Cable Systems. Prior to that he was Senior Vice
President-Finance of both corporations from September 1991 and Vice
President-Finance of Prime Cable Fund I, Inc. from February 1989 to September
1991. Mr. Glasgow joined Prime Cable Corp. (an affiliate of Prime II Management,
Inc.) in 1983 and served in various capacities until that corporation was
liquidated in 1987.
DONALD LYNCH. Mr. Lynch has served as a director of Parent since his
appointment by the Board in December 1996 to fill a new seat created in the
expansion of the Board from seven to ten members and is one of MCI's nominees to
the Board pursuant to the Voting Agreement. His term as director of Parent
expires in 1997. Mr. Lynch is a Senior Vice President of MCI and has been with
MCI for over 15 years in various executive positions.
LARRY E. ROMRELL. Mr. Romrell has served as a director of Parent since 1980
and is one of TCI's nominees to the Board pursuant to the Voting Agreement. His
term as director of Parent expires in 1997. Since 1994, Mr. Romrell has been an
Executive Vice President of TCI and the President and a director of TCI
Technology Ventures, Inc. From 1991 to 1994, Mr. Romrell was a Senior Vice
President of TCI. Mr. Romrell is also a director of Teleport Communications
Group, Inc. and of United Video Satellite Group. He serves on the compensation
committee of United Video Satellite Group.
JAMES M. SCHNEIDER. Mr. Schneider has served as a director of Parent since
July 1994. His term as director of Parent expires in 1998. Mr. Schneider has
been the Vice President Finance for Dell Computer Corporation since September
1996. Prior to that he was Senior Vice President Finance for MCI Communications
Corporation in Washington, D.C. since September 1993. Mr. Schneider was with the
accounting firm of Price Waterhouse from 1973 to September 1993 and was a
partner in that firm from October 1983 to September 1993.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Parent's Board currently consists of ten directors, divided into three
classes of directors serving staggered three-year terms. The Issuer's board of
directors currently consists of three directors. Directors of Parent and Issuer
are elected at their respective annual meetings of shareholders and serve until
they resign or are removed or until their successors are elected and qualified.
Executive officers of Parent and the Issuer generally are appointed at their
respective boards of directors first meetings after each annual meeting of
shareholders and serve at the discretion of the Board.
VOTING AGREEMENT
Eight of the ten directors of Parent are nominated by certain shareholders
(the "Voting Shareholders") of the Company who are party to the Voting Agreement
that was entered into on October 31, 1996,
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in connection with the Company's acquisition of Prime. Pursuant to the Voting
Agreement, each Voting Shareholder will vote its stock and take all actions
within its power to maintain the size of the Board at eight or more directors
and to cause to be elected to the Board (i) two directors nominated by MCI; (ii)
one director nominated by Mr. Duncan; (iii) one director nominated by Mr. Walp;
(iv) two directors nominated by TCI; and (v) two directors nominated by the
Voting Prime Sellers, for so long as (1) the Voting Prime Sellers (and their
distributees who agree in writing to be bound by the terms of the Voting
Agreement) collectively own at least 10% of the then issued and outstanding
shares of Class A Common Stock and (2) the Prime Management Agreement is in full
force and effect; however, if only one of these two conditions is met, the
Voting Prime Sellers are entitled to nominate only one director, and if neither
of these conditions is met, the Voting Prime Sellers are not entitled to
nominate any directors. The obligation of the Voting Shareholders to vote for
the Voting Prime Sellers' nominees and maintain the Board at eight or more
directors exists for so long as the Voting Prime Sellers collectively own 10% of
the issued and then-outstanding shares of Class A Common Stock or so long as the
Prime Management Agreement is in effect. The Voting Agreement states that the
shares subject to it are also to be voted on other matters to which the parties
unanimously agree, but, as of the date of this Prospectus, no other matters are
subject to the Voting Agreement.
If any Voting Shareholder (other than the Voting Prime Sellers) disposes of
more than 25% of the votes represented by its holdings of the Common Stock of
Parent, such Voting Shareholder will cease to be subject to the Voting Agreement
and such disposition triggers on behalf of each other Voting Shareholder the
right to withdraw from the Voting Agreement. Unless earlier terminated, the
Voting Agreement will continue until the earlier of completion of the annual
shareholder meeting of the Company in June 2001 or until there is only one party
to the Voting Agreement.
TCI expects to sell all of its shares of Parent's Common Stock in the Stock
Offering. If TCI does so, it will no longer be subject to the Voting Agreement
and each other party to the agreement will have the right to withdraw from the
Voting Agreement by giving written notice to the other parties. The Company
currently expects that TCI's nominees to the Board will continue as directors of
Parent and that the other parties will not terminate their rights and
obligations under the Voting Agreement.
COMMITTEES OF THE BOARD
The Board currently has three Committees: the Audit Committee, the
Compensation Committee, and the Finance Committee. The Audit Committee is
composed of all members of the Board. The Audit Committee's duties include (i)
making recommendations to the Board on conducting the annual audit of the
Company and its subsidiaries, including the selection of an external auditor to
conduct the annual audit and such other audits or accounting reviews of those
entities as the Audit Committee deems necessary, (ii) reviewing the plan or
scope of an audit or review and the results of such audit or review, and (iii)
carrying out other duties as delegated in writing by the Board.
The Compensation Committee is composed of all members of the Board. The
Compensation Committee establishes compensation policies regarding executive
officers and directors and makes recommendations to the Board regarding such
compensation, including establishing an overall cap on executive compensation
and setting performance standards for executive officer compensation.
The Finance Committee is composed of Messrs. Fisher, Page and Lowber. Its
duties are to review Company finance matters from time to time and provide
guidance to the Chief Financial Officer regarding these matters.
DIRECTOR COMPENSATION
In December 1996, each person who was then a director of the Company (other
than the MCI representatives) received $2,000 in director fees for the period
from July 1996 to June 1997. It is MCI's policy that its directors not accept
remuneration for serving on a board of directors other than those of
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MCI and its subsidiaries. The non-MCI directors who joined the Company in
December will receive a prorated fee for the July 1996 to July 1997 period.
During the year ended December 31, 1996, the directors on the Board received no
other direct compensation for serving on the Board, but were reimbursed for
travel and out-of-pocket expenses incurred in connection with attendance at
meetings of the Board.
During February 1997, Parent made a contingent grant of 25,000 options to
each of Messrs. Fisher, Schneider and Page with an exercise price of $7.50 per
share, such options to vest in 25% increments for each year that the optionee
participates in at least 50% of Board meetings. The options were granted
subject, among other things, to Parent obtaining shareholder approval to
increase the number of shares of Class A Common Stock that it is authorized to
issue.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth certain information
concerning the cash and non-cash compensation earned during fiscal years 1994,
1995 and 1996 by the Company's Chief Executive Officer and by each of the four
other most highly compensated executive officers of the Company or its
subsidiaries whose individual combined salary and bonus exceeded $100,000 during
the fiscal year ended December 31, 1996 (collectively, the "Named Executive
Officers"). The Issuer's officers are not separately compensated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------
----------------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) ($)(1)(2)
- ------------------------------ ---- ------------ -------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ronald A. Duncan 1996 120,000(3) 3,000 -0- -0- 178,633
President and Chief 1995 119,550(4) -0- -0- -0- 159,206
Executive Officer 1994 89,550(4) 99,960 -0- -0- 121,747
William C. Behnke 1996 110,000 5,363 -0- -0- 22,066
Senior Vice President- 1995 110,002 -0- -0- 50,000 20,066
Marketing and Sales 1994 109,168 136,194 -0- -0- 66
G. Wilson Hughes 1996 150,000 6,040 -0- -0- 100,920
Executive Vice President 1995 150,002 -0- -0- 260,000 91,046
and General Manager 1994 150,003 89,698 -0- -0- 75,686
John M. Lowber 1996 125,000 5,860 -0- -0- 78,842
Senior Vice President- 1995 125,000 -0- -0- 100,000 80,321
Administration, Chief 1994 125,514 117,757 -0- -0- 77,814
Financial Officer,
Secretary/Treasurer
Dana L. Tindall 1996 110,000 34,630 -0- -0- 10,203
Senior Vice President- 1995 103,699 24,000 -0- -0- 14,949
Regulatory Affairs 1994 93,555 99,082 -0- -0- 63,241(5)
</TABLE>
- ------------------------------
(1) The amounts reflected in this column include accruals under deferred
compensation agreements between the Company and the named individuals as
follows: Mr. Duncan, $161,551, $144,470 and $110,425 in 1996, 1995 and 1994,
respectively; Mr. Behnke, $22,000 and $20,000 in 1996 and 1995,
respectively; Mr. Hughes, $85,128, $74,741 and $59,843 in 1996, 1995 and
1994, respectively and Mr. Lowber, $65,000 in each of 1996, 1995 and 1994.
See "--Employment and Deferred Compensation Agreements."
(2) The amounts reflected in this column also include matching contributions by
the Company under the Stock Purchase Plan as follows: Mr. Duncan, $15,000,
$10,756, and $9,240 in 1996, 1995 and 1994, respectively; Mr. Hughes,
$14,475, $12,750, and
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$15,000 in 1996, 1995 and 1994, respectively; Mr. Lowber, $12,857, $12,852,
and $11,844 in 1996, 1995 and 1994, respectively; and Ms. Tindall, $10,137,
$12,802, and $13,190 in 1996, 1995 and 1994, respectively. Amounts shown for
Mr. Duncan include premiums of $82 under a term life insurance policy paid
in each of 1996, 1995 and 1994; $2,000 paid to Mr. Duncan in each of 1996,
1995 and 1994 for serving on the Board; and $1,898 paid to Mr. Duncan in
1995 in lieu of a contribution by the Company to the Stock Purchase Plan.
Amounts shown for Mr. Behnke include premiums of $66 under a term life
insurance policy paid in each of 1996, 1995 and 1994. Amounts shown for Mr.
Hughes include premiums of $1,317, $1,305 and $843 under life insurance
policies paid in each of 1996, 1995 and 1994, respectively; and $2,250 paid
to Mr. Hughes in 1995 in lieu of a contribution by the Company to the Stock
Purchase Plan. Amounts shown for Mr. Lowber include premiums of $985, $980
and $970 under life insurance policies paid in each of 1996, 1995 and 1994,
respectively; and $1,489 paid to Mr. Lowber in 1995 in lieu of a
contribution by the Company to the Stock Purchase Plan. Amounts shown for
Ms. Tindall include premiums of $66, $54 and $51 under a term life insurance
policy paid in 1996, 1995 and 1994, respectively; and $2,093 paid to Ms.
Tindall in 1995 in lieu of a contribution by the Company to the Stock
Purchase Plan.
(3) Does not include $50,000 of Mr. Duncan's 1997 salary that was paid in
advance during 1996.
(4) Mr. Duncan received $30,000 of his 1995 salary as an advance in 1994. The
$30,000 advance payment is included in his 1995 salary.
(5) The Company and Ms. Tindall entered into a deferred compensation agreement
dated August 15, 1994, which provides that, in the event Ms. Tindall
exercises stock options pursuant to the Stock Option Agreement between the
Company and Ms. Tindall dated June 2, 1993, the Company will pay to Ms.
Tindall $1.00 per share so exercised, up to a maximum of $50,000.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning each exercise of stock
options during the year ended December 31, 1996 by each of the Named Executive
Officers and the fiscal year-end value of unexercised options held by each of
the Named Executive Officers.
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE- MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald A. Duncan................... -0- $ -0- 140,000 60,000 $ 717,500 $ 307,500
William C. Behnke.................. -0- -0- 185,190 50,000 1,204,584 206,250
G. Wilson Hughes................... -0- -0- 250,000 260,000 1,593,750 1,072,500
John M. Lowber..................... -0- -0- 205,000 145,000 1,275,625 643,125
Dana L. Tindall.................... 9,517(2) 16,357(2) 106,400 50,000 528,100 236,250
</TABLE>
- ------------------------------
(1) Represents the difference between the fair market value of the securities
underlying the options and the exercise price of the options based on the
last trading price on December 31, 1996.
(2) The Company paid $16,357 to Ms. Tindall for cancellation of options to
purchase 9,517 shares of Class A Common Stock with an exercise price per
share of $2.25. The payment amount was calculated by multiplying the number
of shares by the difference between the market price of the Class A Common
Stock on the date of such cancellation and the exercise price of the options
canceled.
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EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS
The Company entered into a Deferred Bonus Agreement with Mr. Duncan in June
1989 (the "First Duncan Agreement"). Under the First Duncan Agreement, the
Company credited $325,000 to Mr. Duncan as of June 12, 1989 as a deferred bonus
for Mr. Duncan's past service to the Company. Amounts in the account were to
accrue interest at 10% per annum unless there was an irrevocable investment
election by Mr. Duncan to have the balance in the account treated as though it
were invested in the Common Stock of Parent. In July 1989, Mr. Duncan made such
election, and the Company purchased a total of 105,111 shares of Class A Common
Stock in its name for the benefit of Mr. Duncan, which are held in treasury and
are not voted. The full amount of the deferred bonus, including the distribution
of any stock, will be due and payable to Mr. Duncan upon the termination of his
employment with the Company.
The Company entered into a Deferred Compensation Agreement with Mr. Duncan
in August 1993 (as amended, the "Second Duncan Agreement"), under which the
Company will pay to Mr. Duncan deferred compensation in an amount not to exceed
$625,000, plus interest at the rate paid by the Company under the Telephony
Credit Facility, in addition to his regular compensation. This deferred
compensation is to be credited to Mr. Duncan each July 1 that he is employed by
the Company in amounts as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------- -----------
<S> <C>
1993......................................................... $ 100,000
1994......................................................... 100,000
1995......................................................... 125,000
1996......................................................... 150,000
1997......................................................... 150,000
-----------
Total........................................................ $ 625,000
-----------
-----------
</TABLE>
All deferred compensation (including the present value of any uncredited
amounts) plus accrued interest will be due and payable in ten equal annual
payments to Mr. Duncan upon the termination of his employment with the Company;
provided that, should he voluntarily terminate his employment or if his
employment is terminated for cause, only that portion (with interest) of the
deferred compensation credited as of the December 31 immediately preceding his
termination will be due and payable, and the remainder of the deferred
compensation will be forfeited. In September 1995, the Company agreed with Mr.
Duncan that the vested and unvested portions of his deferred compensation under
the Second Duncan Agreement would be payable in shares of Class A Common Stock
in lieu of cash. To fund this obligation, the Company bought a total of 13,750
shares in the open market during September 1995 and October 1995 at a weighted
average price of $3.48 per share. In July 1996, the Company purchased from Mr.
Duncan an additional 76,470 shares of Class A Common Stock at the then market
price of $8.125 per share. In lieu of the amount to be credited in 1997, Mr.
Duncan's deferred compensation account will receive credit for 18,372 shares of
Class A Common Stock. Accordingly, the balance owed Mr. Duncan pursuant to the
Second Duncan Agreement is denominated in 90,220 shares of Class A Common Stock.
The Company is holding the shares in treasury until the shares are distributed
to Mr. Duncan. The shares are not voted and may not be disposed of by the
Company or Mr. Duncan.
On April 30, 1991, the Company entered into a deferred compensation
agreement with Mr. Hughes (as amended in 1996, the "Hughes Agreement"). Under
the terms of the Hughes Agreement, Mr. Hughes is entitled to an annual base
salary of $150,000 and customary benefits. Pursuant to the agreement, Mr. Hughes
was granted stock options in 1991 for 250,000 shares of Class A Common Stock at
an exercise price of $1.75 per share, all of which are fully vested and
exercisable. The Hughes Agreement also provides for Mr. Hughes to receive
deferred compensation, with interest compounded annually at 10%, of $50,000 in
each of 1992, 1993 and 1994, $65,000 in 1995 and $75,000 in 1996 and each year
thereafter, to accrue on December 31 of each year. Each contribution by the
Company is
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accrued at the end of the year in which the contribution is made. Upon
termination, Mr. Hughes may elect to have the full balance of the deferred
compensation paid in cash, in a lump sum or in monthly installments for up to
ten years. If the monthly installment method is chosen, the unpaid balance will
continue to accrue interest at 10%. Interest accrued under the Hughes Agreement
in the amounts of $9,843, $9,741 and $10,128 during the years ended December 31,
1994, 1995 and 1996, respectively. In September 1995, the Company bought 3,750
shares of Class A Common Stock in the public market at a purchase price of
$3.375 per share to fund certain of the vested portions of Mr. Hughes' deferred
compensation. In March 1997, the Company bought 3,687 shares of Class A Common
Stock from Mr. Hughes at a purchase price of $7.75 per share, again to fund
certain of the vested portions of Mr. Hughes' deferred compensation. The stock
is held in treasury by the Company for the benefit of Mr. Hughes, is not voted
and may not be disposed of by the Company or Mr. Hughes.
The Company entered into an employment and deferred compensation agreement
with Mr. Lowber in July 1992. Under the terms of the agreement, Mr. Lowber is
entitled to an annual base salary of $125,000 and customary benefits. In
addition, Mr. Lowber is eligible to receive an annual cash bonus of up to
$30,000 based upon the Company's and his performance. The agreement also
provides for Mr. Lowber to receive deferred compensation of $450,000 ($65,000
per year from July 1992 through July 1999). If Mr. Lowber's employment or
position with the Company is terminated, or if he dies, the entire $450,000 will
be immediately payable. If Mr. Lowber voluntarily resigns, he will lose the
unvested portion of his deferred compensation. The deferred compensation has
been used to purchase a life insurance policy which has been collaterally
assigned to the Company to the extent of premiums paid by the Company. The
Company's deferred compensation contributions will be made each July 1 through
1999 and are fully vested when made. At the earlier of termination of employment
or upon election by Mr. Lowber subsequent to the end of the seven year term of
the agreement, the collateral assignment of the insurance policy will be
terminated.
In February 1995, the Company agreed to pay deferred compensation to Mr.
Behnke in the amount of $20,000 per year for each of 1995 and 1996, each
contribution by the Company to vest at the end of the calendar year during which
the allocation was made, and accruing interest at 10% per annum. The first
allocation under the plan was made in December 1995. Effective January 1, 1997,
the Company and Mr. Behnke entered into a compensation agreement (the "Behnke
Agreement") which provides for compensation through December 31, 2001. The
Behnke Agreement provides for base compensation of $150,000 per year, increasing
$5,000 annually for the years ending December 31, 1999, 2000 and 2001. The
Behnke Agreement provides for target incentive compensation of $45,000 per year
of which 78% will be deferred. Pursuant to the Behnke Agreement, the Company
agreed to grant Mr. Behnke an option to purchase 100,000 shares of Class A
Common Stock at an exercise price of $7.00 per share, which will vest in equal
amounts on January 1 of 2000, 2001 and 2002, the grant of such options being
contingent on, among other things, Parent obtaining shareholder approval to
increase the number of shares of Class A Common Stock that it is authorized to
issue. Pursuant to the Behnke Agreement, the Company will create a deferred
compensation account for Mr. Behnke in the amount of $285,000, of which $40,000
was vested December 31, 1996 and the rest of which will vest as earned under the
incentive compensation provision of the Behnke Agreement. Mr. Behnke may direct
the Company to invest the entire $285,000 in Parent's Common Stock. The vested
portions of the deferred compensation account will be paid to Mr. Behnke upon
termination of his employment with the Company. The Company also agreed to
cooperate with Mr. Behnke to sell in the Stock Offering 35,000 shares of Class A
Common Stock that he will receive upon exercise of vested stock options.
In February 1995, the Company established a non-qualified, unfunded deferred
compensation plan to provide a means by which certain employees of the Company
may elect to defer receipt of designated percentages or amounts of their
compensation and to provide a means for certain other deferrals of compensation.
Employees eligible to participate in the plan are determined by the Board. The
Company may, at its discretion, contribute matching deferrals in amounts
selected by the Company. Participants
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immediately vest in all elective deferrals and all income and gain attributable
to that participation. Matching contributions and all income and gain
attributable to them vest on a case-by-case basis as determined by the Company.
Participants may elect to be paid in either a single lump-sum payment or annual
installments over a period not to exceed 10 years. Vested balances are payable
upon termination of employment, unforeseen emergencies, death or total
disability and change of control or insolvency of the Company. Participants are
general unsecured creditors of the Company with respect to deferred compensation
benefits of the plan. Mr. Lowber participated in the plan with respect to a
deferral of $56,000 earned in 1995 which was paid in 1996. As of the date of
this Prospectus, Mr. Lowber is the only Named Executive Officer to participate
in the plan.
1997 STOCK OPTION GRANTS
During February 1997, Parent made a contingent grant under the 1986 Stock
Option Plan of options to purchase Class A Common Stock to certain executive
officers and non-employee directors of Parent, subject, among other things, to
Parent obtaining shareholder approval to increase the number of shares of Class
A Common Stock that Parent is authorized to issue. The approved contingent
options include 25,000 options to each of Mr. Fisher, Mr. Schneider and Mr. Page
with an exercise price of $7.50 per share, such options to vest in 25%
increments for each year that the optionee participates in at least 50% of Board
meetings. The contingent grant of 100,000 options at an exercise price of $7.00
per share to each of Mr. Lowber, Mr. Behnke and Ms. Tindall was also approved.
Mr. Lowber's options vest ratably over a three-year period beginning in December
1999, Mr. Behnke's options vest ratably over a three-year period beginning in
January 2000 and Ms. Tindall's options vest ratably over a three-year period
beginning in June 1999.
STOCK OPTION PLAN
Under the Company's 1986 Stock Option Plan, as amended (the "Stock Option
Plan"), the Company is authorized to grant non-qualified options to purchase up
to 3,200,000 shares of Class A Common Stock to officers, employees, non-employee
directors and other key employees of the Company. The number of shares for which
options may be granted is subject to adjustment upon the occurrence of stock
dividends, stock splits, mergers, consolidations and certain other changes in
corporate structure or capitalization. As of May 15, 1997, 2,408,600 shares were
subject to outstanding options, 683,062 shares had been issued upon the exercise
of options under the Stock Option Plan, and 108,338 shares remained available
for additional grants under the Stock Option Plan. Shares of Class A Common
Stock issued under the Stock Option Plan have been registered under the
Securities Act on Form S-8. The Company intends to seek shareholder approval to
increase the number of options available for grant under the Stock Option Plan
by 2.5 million.
The Stock Option Plan is administered by the Board or, in certain instances,
by a committee of disinterested persons which selects optionees and determines
the terms of each option, including the number of shares covered by each option,
the exercise price and the option exercise period which, under the Stock Option
Plan, may be from six months through up to ten years from the date of grant.
Options granted that have not become exercisable terminate upon the termination
of the employment or directorship of the optionholder, and exercisable options
terminate from one month to one year after such termination, depending on the
cause of such termination. If an option expires or terminates, the shares
subject to such option become available for additional grants under the Stock
Option Plan.
STOCK PURCHASE PLAN
In December 1986, the Company adopted an Employee Stock Purchase Plan (as
amended, the "Stock Purchase Plan"), that is qualified under Section 401 of the
Internal Revenue Code of 1986, as amended. All employees of the Company who have
completed at least one year of service are eligible to
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<PAGE>
participate in the Stock Purchase Plan. Eligible employees may elect to reduce
their taxable compensation in any even dollar amount up to 10% of such
compensation up to a maximum per employee of $9,500 for 1997. Employees may
contribute up to an additional 10% of their compensation with after-tax dollars.
Subject to certain limitations, the Company may make matching contributions of
Common Stock for the benefit of employees, which contributions vest over six
years. No more than 10% of any one employee's compensation will be matched in
any year. In addition, the combination of salary reductions, after-tax
contributions and Company matching contributions for any employee cannot exceed
the lesser of $30,000 or 25% of such employee's compensation (determined after
salary reduction) for any year.
Prior to July 1, 1995, employee and Company contributions were invested in
Common Stock. On and after that date, employees could direct their contributions
to be invested in Common Stock, MCI common stock, TCI common stock or various
identified mutual funds. Employee contributions invested in Common Stock are
eligible to receive up to 100% Company matching contributions in Common Stock as
determined by the Company each year. Employee contributions that are directed
into investments other than Common Stock are eligible to receive Company
matching contributions of up to 50%, as determined by the Company each year. All
contributions are invested in the name of the plan for the benefit of the
respective participants in the plan. The participants generally do not have
voting or disposition power with respect to the Company shares allocated to
their accounts; such shares are voted by the plan committee. However, pursuant
to the Stock Purchase Plan the Company offered all participants the opportunity
to include in the Stock Offering up to 50% of the Common Stock allocated to them
under the Stock Purchase Plan.
The Stock Purchase Plan is administered through a plan administrator
(currently Alfred J. Walker) and a plan committee appointed by the Board. The
assets of the plan are invested from time to time by the trustee at the
direction of the plan committee, except that participants have the right to
direct the investment of their contributions to the Stock Purchase Plan
(although an election to invest in Common Stock is generally irrevocable). The
plan administrator and members of the plan committee are all employees of the
Company or its subsidiaries. The plan committee has broad administrative
discretion under the terms of the plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of all members of the Board. Two
Board members, Mr. Walp and Mr. Duncan, are officers of the Company. During the
year ended December 31, 1996, Messrs. Walp and Duncan, both Named Executive
Officers, participated in deliberations of the Compensation Committee concerning
executive officer compensation other than deliberations concerning their own
compensation. No executive officer of the Company served as a member of a
compensation committee or board of directors of any other entity, one of whose
executive officers served as a director of the Company.
The Company entered into a long-term capital lease agreement (the "Lease")
in 1991 with a partnership in which Mr. Duncan, the President, CEO and a
director of the Company, held a 50% ownership interest. Mr. Duncan sold his
interest in the partnership in 1992 to Dani Bowman, who later became Mr.
Duncan's spouse, but remained a guarantor on the note issued by National Bank of
Alaska that was used to finance the acquisition of the property subject to the
Lease. The property under the Lease consists of a building presently occupied by
the Company (the "Property"). The Lease term is 15 years with monthly payments
of $14,400, increasing in $800 increments at each two year anniversary of the
Lease, beginning in 1993. If the partnership sells the Property prior to the end
of the tenth year of the Lease, the partnership will pay to the Company one-half
of the net proceeds in excess of $900,000. If the Property is not sold prior to
the end of the tenth year of the Lease, the partnership will pay to the Company
the greater of (i) one-half of the appreciated value of the Property over
$900,000 and (ii) $500,000. The Property was capitalized in 1991 at the
partnership's cost of $900,000 and the Lease
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obligation was recorded in the consolidated financial statements of the Company
located elsewhere in this Prospectus.
In July 1996, the Company purchased 76,470 shares of Class A Common Stock
from Mr. Duncan at the then market price of $8.125 per share. The shares were
purchased for the purpose of funding Mr. Duncan's deferred compensation account
under the Second Duncan Agreement, following his election to have the balance
owed to him denominated in Class A Common Stock in lieu of cash. The Company is
holding the shares in treasury until the shares are distributed to Mr. Duncan.
The shares are not voted and may not be disposed of by the Company or Mr.
Duncan. See "Management--Executive Compensation" and "--Employment and Deferred
Compensation Agreements."
As of June 30, 1997, Mr. Duncan was indebted to the Company in the aggregate
principal amount of $700,000 plus accrued interest of $149,453 (the "Outstanding
Duncan Loans"). Mr. Duncan borrowed $500,000 of the Outstanding Duncan Loans
from the Company in August 1993 to repay a portion of indebtedness to WestMarc
that he assumed from others. The $500,000 loan accrues interest at the Company's
variable rate under the Telephony Credit Facility and is secured by 223,000
shares of Class A Common Stock owned by Mr. Duncan pursuant to the Pledge
Agreement between Mr. Duncan and the Company dated August 13, 1993. The
principal becomes due and payable, together with accrued interest, on the
earlier of 90 days after the termination of Mr. Duncan's employment with the
Company and July 30, 1998. This note is nonrecourse to Mr. Duncan.
The Company loaned $150,000 of the Outstanding Duncan Loans to Mr. Duncan in
December 1996 and an additional $50,000 in January 1997 for his personal
requirements. These loans accrue interest at the Company's variable rate under
the Telephony Credit Facility, are unsecured and become due and payable,
together with accrued interest, on December 31, 2001.
The largest aggregate principal amount of indebtedness owed by Mr. Duncan to
the Company at any time since January 1, 1996 was $710,000, $700,000 of which
remained outstanding at June 30, 1997. During 1996, Mr. Duncan borrowed from and
repaid to the Company the principal amount of $210,000 for his personal
requirements. The $210,000 loan accrued interest at the Company's variable rate
under the Telephony Credit Facility and was secured by Class A Common Stock
owned by Mr. Duncan. During 1996, Mr. Duncan also repaid the Company for $1,638
of payments made by the Company to others on behalf of Mr. Duncan during 1995.
Such amounts did not accrue interest and were unsecured.
CERTAIN TRANSACTIONS
MCI AGREEMENTS
As of June 30, 1997, MCI owned 22.6% of the outstanding combined Common
Stock, representing 26.6% of the total voting power of the Common Stock. After
giving effect to the Stock Offering, MCI will own 19.4% of the outstanding
combined Common Stock, representing 24.5% of the total voting power. In 1993,
MCI entered into a significant business relationship with the Company which
includes the following agreements: (i) under the MCI Traffic Carriage Agreement,
the Company agreed to terminate all Alaska-bound MCI long distance traffic and
MCI agreed to terminate all of the Company's long distance traffic terminating
in the lower 49 states, excluding Washington, Oregon and Hawaii; (ii) MCI
licensed certain service marks to the Company for use in Alaska; (iii) MCI, in
connection with providing to the Company credit enhancement to permit the
Company to purchase a portion of an undersea cable linking Seward, Alaska, with
Pacific City, Oregon, leased from the Company all of the capacity owned by the
Company on the undersea fiber optic cable and the Company leased such capacity
back from MCI; (iv) MCI purchased certain service marks of the Company; and (v)
the parties agreed to share some communications network resources and various
marketing, engineering and operating resources. The Company also handles MCI's
800 traffic originating in Alaska and terminating in the lower 49 states and
handles traffic for MCI's calling card customers when they are in Alaska, while
MCI originates calls for the
83
<PAGE>
Company's calling card customers when they are in the lower 49 states. Revenues
attributed to these agreements in 1994, 1995 and 1996 were approximately $19.5
million, $23.9 million and $29.2 million, respectively. Pursuant to these
agreements, the Company paid MCI $12.7 million, $13.0 million and $12.8 million
in 1994, 1995 and 1996, respectively. The Company believes that the terms of
these agreements are at least as favorable to the Company as could be obtained
from a non-affiliate. Concurrently with entering into the MCI Traffic Carriage
Agreement, MCI purchased approximately 31% of the then outstanding Class A
Common Stock and approximately 31% of the then outstanding Class B Common Stock
and presently controls nominations to two seats on the Board pursuant to the
Voting Agreement. MCI's current nominees are Mr. Gerdelman, the President of
Network Services for MCI, and Mr. Lynch, a Senior Vice President of MCI.
Concurrently with the Company's acquisition of the Cable Systems effective
October 31, 1996, MCI purchased an additional 2.0 million shares of Class A
Common Stock for $13.0 million or $6.50 per share, a 30% premium to the $5.00
per share market price immediately preceding the announcement of the Company's
acquisition of the Cable Systems.
WESTMARC AGREEMENTS
The Company purchased services and used certain facilities of WestMarc, a
wholly owned subsidiary of TCI, to allow the Company to provide its
telecommunications services in certain of the lower 49 states. The total of such
purchases from WestMarc by the Company during the years ended December 31, 1995
and 1996 were approximately $245,000 and $244,000, respectively. The Company
expects to continue purchasing services from WestMarc at levels comparable to
past purchases. TCI controls nominations to two seats on the Board pursuant to
the Voting Agreement. Its current nominees are Mr. Fisher and Mr. Romrell. TCI
expects to sell all of its shares of Common Stock in the Stock Offering. If it
does so, it will no longer be subject to the Voting Agreement and each other
party to the agreement will have the right to withdraw from the Voting Agreement
by giving written notice to the other parties. The Company currently expects
that TCI's nominees to the Board will continue as directors of Parent and that
the other parties will not terminate their rights and obligations under the
Voting Agreement.
PRIME MANAGEMENT AGREEMENT
In connection with its acquisition of the Cable Systems, the Company entered
into the Prime Management Agreement with Prime Management to manage the Cable
Systems. After giving effect to the Stock Offering, the Voting Prime Sellers
will own 18.0% of the total outstanding combined Common Stock, representing
10.3% of the total voting power, and will control nominations to two seats on
the Board pursuant to the Voting Agreement.
Under the Prime Management Agreement, the Company will pay to Prime
Management a net annualized fee for managing the Cable Systems in the amount of
$1,000,000 for the year ending October 31, 1997, $750,000 for the year ending
October 31, 1998, and $500,000 for each year ending October 31 thereafter that
the Prime Management Agreement is in effect. Any portion of the management fee
which is past due shall bear interest at a rate per annum equal to 17.5% until
paid. In addition, the Company is required to reimburse Prime Management for any
costs and expenses incurred by it in connection with the Cable Systems,
including travel and entertainment expenses (the contract states that such costs
and expenses are not anticipated to exceed $200,000 on an annualized basis). The
Prime Management Agreement has a term of nine years but either party may
terminate the agreement in its discretion after October 31, 1998.
DUNCAN LEASE
The Company entered into a long-term capital lease agreement in 1991 with a
partnership in which Mr. Duncan, the President, Chief Executive Officer and a
director of the Company, held a 50% ownership interest. See
"Management--Compensation Committee Interlocks and Insider Participation."
84
<PAGE>
DUNCAN AND HUGHES STOCK SALES
In July 1996, the Company purchased 76,470 shares of Class A Common Stock
from Mr. Duncan at the then market price of $8.125 per share. See
"Management--Compensation Committee Interlocks and Insider Participation." In
March 1997, the Company purchased 3,687 shares of Class A Common Stock from Mr.
Hughes at the then market price of $7.75 per share. The shares were purchased
for the purpose of funding Mr. Hughes's deferred compensation account under the
Hughes Agreement. The Company is holding the shares in treasury until they are
distributed to Mr. Hughes. The shares are not voted and may not be disposed of
by the Company or Mr. Hughes. See "Management--Executive Compensation" and
"--Employment and Deferred Compensation Agreements."
INDEBTEDNESS OF MANAGEMENT
A significant portion of the compensation paid to executive officers of the
Company is in the form of stock options. Because insider sales of capital stock
of Parent upon exercise of such options may have a negative impact on the price
of Common Stock, the Board has encouraged executive officers of the Company not
to exercise stock options and sell the underlying stock to meet personal
financial requirements, and has instead extended loans to such executive
officers secured by their shares or options. Total indebtedness of management at
June 30, 1997 was $1,777,941 (including accrued interest of $274,582),
$1,073,359 in principal amount of which was secured by shares or options,
$185,000 in principal amount of which was otherwise secured by collateral of the
borrowers and $20,000 in principal amount of which was unsecured.
As of June 30, 1997, Mr. Duncan was indebted to the Company in the aggregate
principal amount of $700,000 plus accrued interest of $149,453. See
"Management--Compensation Committee Interlocks and Insider Participation." As of
June 30, 1997, Mr. Behnke, Mr. Dowling and Ms. Tindall were indebted to the
Company in the respective principal amounts of $148,000, $330,359 and $70,000,
plus accrued interest of $26,441, $82,997 and $7,590, respectively. The $148,000
owed by Mr. Behnke is secured by options to purchase 85,190 shares of Class A
Common Stock (the "Behnke Collateral"), is due and payable, together with
accrued interest, on June 30, 1997, and consists of (i) $48,000 borrowed in
April 1993 for his personal requirements, which amount bears interest at 9% per
annum, (ii) $50,000 borrowed in September 1995 for his personal requirements,
which amount bears interest at the Company's variable rate under the Telephony
Credit Facility and (iii) $50,000 borrowed in January 1997 for his personal
requirements, which amount bears interest at the Company's variable rate under
the Telephony Credit Facility. The $310,359 principal amount owed by Mr. Dowling
bears interest at the rate of 10% per annum, is secured by 160,297 shares of
Class A Common Stock and 74,028 shares of Class B Common Stock and consists of
$224,359 borrowed in August 1994 and $86,000 borrowed in April 1995, each to pay
income taxes due upon exercise of stock options. Mr. Dowling's loans are payable
in equal installments of principal and interest each year for ten years
beginning in August 1995. Payment has not yet been made on the notes, and Mr.
Dowling is currently negotiating extensions of the notes with the Company. An
additional $20,000 was advanced to Mr. Dowling in June 1997, bearing interest at
9% per annum, is unsecured and is payable upon demand. The Company loaned Ms.
Tindall $70,000 for her personal requirements in January 1996, which amount
bears interest at the Company's variable rate under the Telephony Credit
Facility, is secured by options to purchase 156,400 shares of Class A Common
Stock and is due and payable, together with accrued interest, on January 16,
1999. Ms. Tindall is required to make prepayments on the note equal to 20% of
the gross amount of any incentive compensation earned by her. The largest
aggregate principal amount of indebtedness owed by each of Mr. Behnke, Mr.
Dowling and Ms. Tindall to the Company at any time since January 1, 1996 was
$148,000, $330,359 and $70,000, respectively.
The Company loaned $45,000 to Mr. Hughes in December 1995 for his personal
requirements. The principal under the promissory note bears interest at the
Company's variable rate under the Telephony
85
<PAGE>
Credit Facility, is secured by options to purchase 250,000 shares of Class A
Common Stock and by 3,000 shares of Class A Common Stock owned by Mr. Hughes
(the "Hughes Collateral") and is due, together with accrued interest, on March
31, 1997. Mr. Hughes is currently negotiating an extension of the note with the
Company. Accrued interest under the note totaled $5,371 at June 30, 1997. In
August 1996, Mr. Hughes received an advance of $25,000 from the Company. This
indebtedness does not bear interest, is secured by the Hughes Collateral and is
to be repaid from future incentive compensation payments earned by Mr. Hughes.
The Company loaned $185,000 to Mr. Lowber during April 1997 to purchase real
property. The promissory note will be secured by a deed of trust for such
property, bears interest at 6.49% and will be due and payable, together with
accrued interest, in three equal annual installments beginning June 30, 2000.
Accured interest under the note totaled $2,730 at June 30, 1997.
AGREEMENT NOT TO EXERCISE OPTIONS
The number of authorized but unissued shares of Class A Common Stock as of
the date of this Prospectus, net of shares reserved for issuance upon exercise
of options and conversion of outstanding shares of Class B Common Stock, is
approximately 5.2 million. Upon consummation of the Stock Offering, Parent will
be required to issue approximately 7.0 million shares of Class A Common Stock.
In order to make available for issuance an additional 1.8 million shares of
Class A Common Stock in addition to the 5.2 million currently available, certain
holders of options to acquire an aggregate of approximately 1.8 million shares
of Class A Common Stock have agreed not to exercise those options until such
time as Parent's shareholders have approved an increase in the amount of
authorized but unissued Class A Common Stock. The foregoing agreements require
Parent to use its best efforts to obtain shareholder approval to increase its
authorized Class A Common Stock as promptly as practicable, but not before its
next annual meeting.
REGISTRATION RIGHTS AGREEMENTS
The Company has entered into registration rights agreements (the
"Registration Rights Agreements") with TCI, MCI and the former owners of Prime,
Alaskan Cable and Alaska Cablevision. Approximately 24,315,082 shares of Class A
Common Stock and 1,865,834 shares of Class B Common Stock were subject to the
Registration Rights Agreements as of May 15, 1997. After giving effect to the
Stock Offering, 19,022,388 shares of Class A Common Stock and 1,275,791 shares
of Class B Common Stock will be subject to the Registration Rights Agreements.
The terms of the Registration Rights Agreements vary although they generally
share several common terms.
If the Company proposes to register any of its securities under the
Securities Act for its own account or for the account of other shareholders, the
Company must notify all of the holders under the Registration Rights Agreements
of the Company's intent to register such common stock and allow the holders an
opportunity to include their shares ("Registrable Shares") in the Company's
registration. Each holder also has the right under certain circumstances to
require the Company to register all or any portion of such holder's Registrable
Shares under the Securities Act. The Registration Rights Agreements are subject
to certain limitations and restrictions including the right of the Company to
limit the number of Registrable Shares included in the registration. Generally,
the Company is required to pay all registration expenses in connection with each
registration of Registrable Shares pursuant to the Registration Rights
Agreements.
The Registration Rights Agreements between the Company and the Prime Sellers
and between the Company and Alaskan Cable require the Company to effect no more
than two registrations at the request of each holder; provided that each
registration request by the Prime Sellers or Alaskan Cable must include
Registrable Shares having an aggregate market value of not less than $2.5
million. The first demand registration under the Prime and Alaskan Cable
Registration Rights Agreements may be requested only by the holders of a minimum
of 25% of the Registrable Shares.
86
<PAGE>
The Registration Rights Agreement between the Company and the shareholders
of Alaska Cablevision requires the Company to effect no more than 10
registrations at the request of such shareholders; provided, that each
registration request must include at least 150,000 Registrable Shares. The first
demand registration under the Alaska Cablevision Registration Rights Agreement
may be requested only by the holders of a minimum of 10% of the Registrable
Shares.
The Registration Rights Agreement between the Company and MCI dated March
31, 1993 requires the Company to effect no more than two registrations at the
request of MCI; provided, that each registration request by MCI must include
Registrable Shares having an aggregate market value of more than $500,000. MCI
executed a second Registration Rights Agreement with the Company dated October
31, 1996, pursuant to which the Company is required to effect no more than two
registrations at the request of MCI, each request to cover Registrable Shares
having an aggregate market value of at least $1.5 million.
Under the Registration Rights Agreement between the Company and TCI
(originally with WestMarc but transferred to TCI when the Registrable Shares
were transferred by WestMarc), the Company is required, subject to specified
limitations, to effect no more than two registrations at the request of TCI, so
long as the request relates to Registrable Shares having an aggregate market
value of more than $500,000.
87
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Class A Common Stock and Class B Common Stock as of June 30, 1997,
before and after giving effect to the Stock Offering, by (i) each person known
by the Company to beneficially own 5% or more of the outstanding shares of Class
A Common Stock or Class B Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers, and (iv) all current executive officers
and directors of the Company as a group. The table also reflects the number of
shares to be sold by each of the selling shareholders in the Stock Offering. All
information with respect to beneficial ownership has been furnished to the
Company by the respective shareholders of the Company. One hundred percent of
the Issuer's outstanding capital stock is owned by Parent.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE STOCK OFFERING
-----------------------------------------------------
PERCENT OF
AMOUNT AND NATURE TOTAL COMBINED
NAME AND ADDRESS OF BENEFICIAL TITLE OF OF BENEFICIAL PERCENT SHARES VOTING
OWNER (2) CLASS OWNERSHIP OF CLASS OUTSTANDING POWER
- ------------------------------ -------- ----------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
PARTIES TO VOTING AGREEMENT:
MCI Telecommunications Class A 8,251,509(3) 21.6% 22.6% 26.6%
Corporation Class B 1,275,791(3) 31.4%
1801 Pennsylvania Ave., N.W.
Washington, D.C. 20006
Ronald A. Duncan Class A 1,011,988(3)(5) 2.6% 3.0% 4.3%
Class B 239,929(3)(5) 5.9%
Robert M. Walp Class A 572,845(3)(6) 1.5% 2.1% 4.6%
Class B 303,457(3)(6) 7.5%
Tele-Communications, Inc. Class A -- -- 1.4% 7.5%
5619 DTC Parkway Class B 590,043(3) 14.5%
Englewood, CO 80111
Voting Prime Sellers:
Prime Cable Growth Partners, Class A 7,423,569(3) 19.5% 17.6% 9.4%
L.P. and its affiliates (4) Class B -- --
3000 One American Center
600 Congress Avenue
Austin, TX 78701
William Blair Venture Partners Class A 1,237,262(3) 3.2% 2.9% 1.6%
III Limited Partnership Class B -- --
222 West Adams Street
Chicago, IL 60606
Austin Ventures, L.P. Class A 791,848(3) 2.1% 1.9% 1.0%
114 West 7th Street Class B -- --
Suite 1300
Austin, TX 78701
Centennial Fund III, L.P. Class A 742,357(3) 1.9% 1.8% *
1428 15th Street Class B -- --
Denver, CO 80202
BancBoston Capital, Inc. Class A 332,323(3) * * *
175 Federal Street, 10th Floor Class B -- --
Boston, MA 02110
First Chicago Investment Class A 301,407(3) * * *
Corporation Class B -- --
One First National Plaza
Chicago, IL 60670
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE STOCK OFFERING (1)
--------------------------------------------------------
NUMBER OF PERCENT OF
CLASS A TOTAL COMBINED
NAME AND ADDRESS OF BENEFICIAL SHARES AMOUNT AND NATURE OF PERCENT SHARES VOTING
OWNER (2) OFFERED BENEFICIAL OWNERSHIP OF CLASS OUTSTANDING POWER
- ------------------------------ ------------- -------------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
PARTIES TO VOTING AGREEMENT:
MCI Telecommunications -- 8,251,509(3) 18.3% 19.4% 24.5%
Corporation 1,275,791(3) 31.4%
1801 Pennsylvania Ave., N.W.
Washington, D.C. 20006
Ronald A. Duncan -- 791,945(3)(5)(18) 1.8% 2.5% 6.3%
459,972(3)(5)(18) 11.3%
Robert M. Walp 200,000(6) 372,845(3)(6) * 1.4% 4.0%
303,457(3)(6) 7.5%
Tele-Communications, Inc. 590,043(18) -- -- -- --
5619 DTC Parkway -- --
Englewood, CO 80111
Voting Prime Sellers:
Prime Cable Growth Partners, 1,484,713(17) 5,938,856(3)(4) 13.2%(4) 12.1%(4) 6.9%(4)
L.P. and its affiliates (4) -- --
3000 One American Center
600 Congress Avenue
Austin, TX 78701
William Blair Venture Partners -- 1,237,262(3) 2.7% 2.5% 1.4%
III Limited Partnership -- --
222 West Adams Street
Chicago, IL 60606
Austin Ventures, L.P. -- 791,848(3) 1.8% 1.6% *
114 West 7th Street -- --
Suite 1300
Austin, TX 78701
Centennial Fund III, L.P. -- 742,357(3) 1.6% 1.5% *
1428 15th Street -- --
Denver, CO 80202
BancBoston Capital, Inc. 257,793 74,530(3) * * *
175 Federal Street, 10th Floor -- --
Boston, MA 02110
First Chicago Investment 233,810 67,597(3) * * *
Corporation -- --
One First National Plaza
Chicago, IL 60670
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE STOCK OFFERING
-----------------------------------------------------
PERCENT OF
AMOUNT AND NATURE TOTAL COMBINED
NAME AND ADDRESS OF BENEFICIAL TITLE OF OF BENEFICIAL PERCENT SHARES VOTING
OWNER (2) CLASS OWNERSHIP OF CLASS OUTSTANDING POWER
- ------------------------------ -------- ----------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Madison Dearborn Partners V Class A 30,916(3) * * *
Three First National Plaza Class B -- --
Suite 1330
Chicago, IL 60602
Aggregate Voting Prime Sellers Class A 10,859,682 28.5% 25.7% 13.8%
Class B -- --
AGGREGATE SHARES SUBJECT TO Class A 20,422,112(7) 53.5% 54.0% 56.3%
VOTING AGREEMENT Class B 2,400,591(7) 59.0%
Jack Kent Cooke Incorporated Class A 2,923,077 7.7% 6.9% 3.7%
Kent Farms Route 713 Class B -- --
Middleburg, VA 20117
Kearns-Tribune Corporation Class A 300,200 * 1.2% 3.2%
400 Tribune Building Class B 225,000 5.5%
Salt Lake City, UT 84111
General Communication, Inc. Class A 2,001,566 5.2% 5.1% 4.4%
Employee Stock Purchase Plan Class B 145,147 3.6%
(8)
2550 Denali Street,
Suite 1000
Anchorage, AK 99503
William C. Behnke Class A 185,274(9) * * *
Class B -- --
Donne F. Fisher (individually Class A 287,975(10) * 2.2% 8.6%
and as Co-Personal Class B 648,491(10) 15.9%
Representative to the Estate
of Bob Magness)
Jeffery C. Garvey Class A 8,246(11) * * *
Class B -- --
John W. Gerdelman Class A -- -- -- --
Class B -- --
William P. Glasgow Class A -- -- -- --
Class B -- --
G. Wilson Hughes Class A 341,670(12) * * *
Class B 2,735(12) *
John M. Lowber Class A 271,762(13) * * *
Class B 6,266(13) *
Donald Lynch Class A -- -- -- --
Class B -- --
Carter F. Page Class A 197,487(14) * * *
Class B 25,246 *
Larry E. Romrell Class A -- -- * *
Class B 328 *
James M. Schneider Class A -- -- -- --
Class B -- --
Dana L. Tindall Class A 153,905(15) * * *
Class B 3,792(15) *
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE STOCK OFFERING (1)
--------------------------------------------------------
NUMBER OF PERCENT OF
CLASS A TOTAL COMBINED
NAME AND ADDRESS OF BENEFICIAL SHARES AMOUNT AND NATURE OF PERCENT SHARES VOTING
OWNER (2) OFFERED BENEFICIAL OWNERSHIP OF CLASS OUTSTANDING POWER
- ------------------------------ ------------- -------------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Madison Dearborn Partners V 23,982 6,934(3) * * *
Three First National Plaza -- --
Suite 1330
Chicago, IL 60602
Aggregate Voting Prime Sellers 2,000,298(20) 8,859,384(20) 19.6%(20) 18.0%(20) 10.3%(20)
-- --
AGGREGATE SHARES SUBJECT TO 2,200,298(7) 18,001,771(7)(18) 39.9%(7) 40.7%(7) 44.6%(7)
VOTING AGREEMENT 590,043(18) 2,030,591(7)(18) 49.9%
Jack Kent Cooke Incorporated 2,923,077 -- -- -- --
Kent Farms Route 713 -- --
Middleburg, VA 20117
Kearns-Tribune Corporation -- 300,200 * 1.1% 3.0%
400 Tribune Building 225,000 5.5%
Salt Lake City, UT 84111
General Communication, Inc. 682,263 1,319,303 2.9% 3.0 3.2%
Employee Stock Purchase Plan 145,147 3.6%
(8)
2550 Denali Street,
Suite 1000
Anchorage, AK 99503
William C. Behnke 35,000(9) 150,274(9) * * *
-- --
Donne F. Fisher (individually -- 102,975(10)(18) * 1.9% 9.8%
and as Co-Personal 833,491(10)(18) 20.5%
Representative to the Estate
of Bob Magness)
Jeffery C. Garvey -- 8,246(11) * * *
-- --
John W. Gerdelman -- -- -- -- --
-- --
William P. Glasgow -- -- -- -- --
-- --
G. Wilson Hughes -- 341,670(12) * * *
2,735(12) *
John M. Lowber 32,557(13) 239,205(13) * * *
6,266(13) *
Donald Lynch -- -- -- -- --
-- --
Carter F. Page -- 12,487(14)(18) * * 2.5%
210,246(18) 5.2%
Larry E. Romrell -- -- -- * *
328 *
James M. Schneider -- -- -- -- --
-- --
Dana L. Tindall -- 153,905(15) * * *
3,792(15) *
</TABLE>
89
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE STOCK OFFERING
-----------------------------------------------------
PERCENT OF
AMOUNT AND NATURE TOTAL COMBINED
NAME AND ADDRESS OF BENEFICIAL TITLE OF OF BENEFICIAL PERCENT SHARES VOTING
OWNER (2) CLASS OWNERSHIP OF CLASS OUTSTANDING POWER
- ------------------------------ -------- ----------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
All Directors and Executive Class A 3,334,552(16) 8.5% 10.7% 20.5%
Officers As a Group (15 Class B 1,307,420(16) 32.1%
Persons)
Ameritas Life Insurance Class A 4,784 * * *
Corp. (19)
KLANS Associates (19) Class A 1,557 * * *
Pillsbury Master Retirement Class A 14,333 * * *
Trust (19)
Tribune Company Master Trust Class A 7,107 * * *
for Pension Plans (19)
K.D.F., a Massachusetts Class A 17,968 * * *
general partnership (19)
Fidelity Pension Trust (19) Class A 7,167 * * *
Commerce BancShares, Inc. (19) Class A 10,802 * * *
Robert G. Holman (19) Class A 144 * * *
Equitable Life Assurance Class A 9,561 * * *
Society of the United
States (19)
Donald Adams (19) Class A 107,226 * * *
Karen Evans (19) Class A 106,153 * * *
Samuel Evans (19) Class A 129,743 * * *
-----
TOTAL SHARES OFFERED BY
SELLING SHAREHOLDERS
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE STOCK OFFERING (1)
--------------------------------------------------------
NUMBER OF PERCENT OF
CLASS A TOTAL COMBINED
NAME AND ADDRESS OF BENEFICIAL SHARES AMOUNT AND NATURE OF PERCENT SHARES VOTING
OWNER (2) OFFERED BENEFICIAL OWNERSHIP OF CLASS OUTSTANDING POWER
- ------------------------------ ------------- -------------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
All Directors and Executive 267,557 2,476,952(16)(18) 5.5% 8.7% 25.0%
Officers As a Group (15 1,897,463(16)(18) 46.6%
Persons)
Ameritas Life Insurance 4,784 -- -- -- --
Corp. (19)
KLANS Associates (19) 1,557 -- -- -- --
Pillsbury Master Retirement 14,333 -- -- -- --
Trust (19)
Tribune Company Master Trust 7,107 -- -- -- --
for Pension Plans (19)
K.D.F., a Massachusetts 17,968 -- -- -- --
general partnership (19)
Fidelity Pension Trust (19) 7,167 -- -- -- --
Commerce BancShares, Inc. (19) 10,802 -- -- -- --
Robert G. Holman (19) 144 -- -- -- --
Equitable Life Assurance 9,561 -- -- -- --
Society of the United
States (19)
Donald Adams (19) 60,000 47,226 * * *
Karen Evans (19) 106,153 -- -- -- --
Samuel Evans (19) 129,743 -- -- -- --
TOTAL SHARES OFFERED BY 6,800,000(21)
SELLING SHAREHOLDERS
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1% of the corresponding class
of common stock.
(1) Based upon the sale of all shares offered in the Stock Offering assuming no
exercise of the Underwriters' over-allotment option in the Stock Offering.
(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Exchange Act. Shares of Common Stock that a person has the right to acquire
within 60 days of June 30, 1997 are deemed to be beneficially owned by such
person and are included in the computation of the ownership and voting
percentages only of such person. Each person has sole voting and investment
power with respect to the shares indicated except as otherwise stated in the
footnotes to the table.
(3) Each of these persons is party to a Voting Agreement dated as of October
31, 1996 (the "Voting Agreement") and may be deemed to be the beneficial
owner of all of the 20,442,112 shares of Class A Common Stock (18,001,771
shares after the Stock Offering) and 2,400,591 shares of Class B Common
Stock (2,030,591 shares after the Stock Offering) that are subject to the
Voting Agreement. See "--Changes in Control." MCI and Centennial report
shared voting and investment power with respect to shares held by them that
are subject to the Voting Agreement. BancBoston and Madison Dearborn report
shared voting power with respect to shares held by them that are subject to
the Voting Agreement. Prime, Austin Ventures, William Blair and Messrs.
Duncan and Walp report shared voting power with respect to shares held by
them that are subject to the Voting Agreement and shares held by other
parties to the Voting Agreement. Prime also reports shared investment power
with respect to shares held by it.
(4) Represents the aggregate number of shares reported by the following group
members in a Schedule 13D filed with the Securities and Exchange Commission
on November 12, 1996: Prime Cable G.P., Inc., Prime Cable Growth Partners,
L.P., Prime Cable Limited Partnership, Prime II Management Group, Inc.,
Prime II Management, Inc., Prime II Management L.P., Prime Investors, L.P.,
Prime Venture I Holdings, L.P., Prime Venture I, Inc. and Prime Venture II,
L.P. Collectively, Prime Cable Growth Partners, L.P. and its affiliates have
granted to the Underwriters an option to purchase up to 2,070,000 additional
shares of Class A Common Stock solely to cover over-allotments, if any. If
the entire over-allotment option is exercised, the shares of Class A Common
Stock held by such selling shareholders will decrease to 3,868,856 (8.6% of
the then-outstanding
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Class A Common Stock, representing 7.9% of the total shares outstanding and
4.5% of the combined voting power of the then-outstanding Common Stock).
(5) Includes 140,000 shares of Class A Common Stock which Mr. Duncan has the
right to acquire within 60 days of June 30, 1997 by the exercise of vested
stock options. Includes 95,683 shares of Class A Common Stock and 6,221
shares of Class B Common Stock allocated to Mr. Duncan under the Stock
Purchase Plan. Does not include 105,111 or 90,220 shares of Class A Common
Stock held by the Company in treasury pursuant to the First Duncan Agreement
and the Second Duncan Agreement, respectively. See "Management--Executive
Compensation" and "--Employment and Deferred Compensation Agreements." Does
not include 18,560 shares of Class A Common Stock or 8,242 shares of Class B
Common Stock held by the Amanda Miller Trust, with respect to which Mr.
Duncan has no voting or investment power. Does not include 5,760 shares of
Class A Common Stock or 27,020 shares of Class B Common Stock held by Dani
Bowman, Mr. Duncan's wife, of which Mr. Duncan disclaims beneficial
ownership.
(6) Includes 38,229 shares of Class A Common Stock and 2,408 shares of Class B
Common Stock allocated to Mr. Walp under the Stock Purchase Plan. Includes
200,000 shares of Class A Common Stock held by a charitable remainder unit
trust of which Mr. Walp is trustee, which shares will be sold in the Stock
Offering.
(7) Does not include shares allocated to Messrs. Duncan and Walp under the
Stock Purchase Plan or shares that Mr. Duncan has the right to acquire by
exercise of vested stock options. Prime Cable Growth Partners, L.P. and its
affiliates have collectively granted to the Underwriters an option to
purchase up to 2,070,000 additional shares of Class A Common Stock solely to
cover over-allotments, if any. If the entire over-allotment option is
exercised, the number of shares of Class A Common Stock held by the parties
to the Voting Agreement will decrease to 15,931,771 (35.2% of the
then-outstanding Class A Common Stock, representing 36.4% of the total
shares outstanding and 42.1% of the combined voting power of the
then-outstanding Common Stock).
(8) Voting and investment power with respect to shares held by the Stock
Purchase Plan are exercised by the plan committee comprised of Manuel
Hernandez, Valerie Longeski, Jimmy Sipes and Tami Graff, each of whom is an
employee of the Company.
(9) Includes 185,190 shares (150,190 shares after the Stock Offering) which Mr.
Behnke has the right to acquire within 60 days of June 30, 1997 by the
exercise of vested stock options. Mr. Behnke will exercise options to
purchase 35,000 shares of Class A Common Stock immediately prior to the
Stock Offering, which shares will be sold in the Stock Offering.
(10) Includes 76,668 shares of Class A Common Stock and 620,803 shares of Class
B Common Stock held by the Estate of Bob Magness, to which Mr. Fisher is
Co-Personal Representative.
(11) Mr. Garvey is a general partner of Austin Ventures, L.P. and disclaims
beneficial ownership of the shares held by that partnership and other
general partners of that partnership.
(12) Includes 310,000 shares of Class A Common Stock which Mr. Hughes has the
right to acquire within 60 days of June 30, 1997 by the exercise of vested
stock options. Includes 28,670 shares of Class A Common Stock and 2,735
shares of Class B Common Stock allocated to Mr. Hughes under the Stock
Purchase Plan. Does not include 7,437 shares of Class A Common Stock held in
treasury by the Company pursuant to the Hughes Agreement. See
"Management--Employment and Deferred Compensation Agreements."
(13) Includes 205,000 shares which Mr. Lowber has the right to acquire within 60
days of June 30, 1997 by the exercise of vested stock options. Includes
59,117 shares of Class A Common Stock (25,560 shares after the Stock
Offering) and 5,996 shares of Class B Common Stock allocated to Mr. Lowber
under the Stock Purchase Plan. The 32,557 shares to be sold in the Stock
Offering are beneficially owned by Mr. Lowber through participation in the
Employee Stock Purchase Plan.
(14) Does not include 8,550 shares of Class A Common Stock held in trust for the
benefit of Mr. Page's grandchildren of which Mr. Page disclaims beneficial
ownership. The trustee of the trust is Keith Page, Mr. Page's son.
(15) Includes 116,400 shares which Ms. Tindall has the right to acquire within
60 days of June 30, 1997 by the exercise of vested stock options. Includes
37,246 shares of Class A Common Stock and 3,792 shares of Class B Common
Stock allocated to Ms. Tindall under the Stock Purchase Plan.
(16) Includes 1,061,590 shares of Class A Common Stock (1,026,590 shares after
the Stock Offering) which such persons have the right to acquire within 60
days of June 30, 1997 through exercise of vested stock options. Includes
281,583 shares of Class A Common Stock (249,026 shares after the Stock
Offering) and 24,300 shares of Class B Common Stock allocated to such
persons under the Stock Purchase Plan. Does not include ownership of parties
to the Voting Agreement other than Messrs. Duncan and Walp.
(17) Of the shares offered, 247,452 are offered by Prime Venture I Holdings,
L.P., 544,395 are offered by Prime Cable Growth Partners, L.P., 445,414
shares are offered by Prime Cable Limited Partnership and 247,452 shares are
offered by Prime
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Venture II, L.P. Prime Cable Growth Partners, L.P. and its affiliates have
collectively granted to the Underwriters an option to purchase up to
2,070,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any.
(18) Immediately prior to the Stock Offering, TCI will exchange its Class B
Common Stock for Class A Common Stock with existing holders as follows: Mr.
Duncan, 220,043 shares; Mr. Fisher, 185,000 shares; and Mr. Page, 185,000
shares. As a result, TCI will not be a party to the Voting Agreement after
the Stock Offering.
(19) Each of these shareholders acquired his or her shares of Class A Common
Stock in connection with the Company's acquisition of the Cable Systems. See
"The Company--Recent Acquisition of Cable Systems."
(20) Prime Cable Growth Partners, L.P. and its affiliates have collectively
granted to the Underwriters an option to purchase up to 2,070,000 additional
shares of Class A Common Stock solely to cover over-allotments, if any. If
the entire over-allotment option is exercised, the number of shares of Class
A Common Stock held by the Voting Prime Sellers will decrease to 6,789,384
(15.0% of the then-outstanding Class A Common Stock, representing 13.8% of
the total shares outstanding and 7.9% of the combined voting power of the
then outstanding Common Stock).
(21) The 32,557 shares to be sold by Mr. Lowber are beneficially owned by him
through participation in the Employee Stock Purchase Plan and are also
included in the 682,263 shares to be sold by the Employee Stock Purchase
Plan.
CHANGES IN CONTROL
VOTING AGREEMENT. As of October 31, 1996, four principal shareholders,
including two officers and directors of the Company (Messrs. Duncan and Walp,
TCI and MCI) entered into the Voting Agreement with the Voting Prime Sellers
through their designated agent, Prime Management. The Voting Agreement replaced
a previous voting agreement among Messrs. Duncan and Walp, TCI and MCI. The
Voting Agreement provides, in part, that the voting stock of the parties will be
voted at shareholder meetings as a block in favor of two nominees proposed by
each of MCI, TCI and the Voting Prime Sellers, and one nominee proposed by each
of Messrs. Duncan and Walp. TCI expects to sell all of its shares of Common
Stock in the Stock Offering. If it does so, it will no longer be subject to the
Voting Agreement and each other party to the agreement will have the right to
withdraw from the Voting Agreement by giving written notice to the other
parties. The Company currently expects that TCI's nominees to the Board will
continue as directors and that the other parties will not terminate their rights
and obligations under the Voting Agreement. See "Management--Voting Agreement."
PLEDGED ASSETS AND SECURITIES. The obligations of the Company under the
Credit Facility, are secured by substantially all of the assets of the Company.
Upon a default by the Company under such agreements, the Company's lenders could
gain control of the assets of the Company, including the capital stock of the
Company's subsidiaries.
DESCRIPTION OF CREDIT FACILITIES
THE CREDIT FACILITY
The Company's Existing Credit Facilities consist of the $62.5 million
Telephony Credit Facility, under which $29.0 million was available for borrowing
as of March 31, 1997, and the $205.0 million Cable Credit Facility, under which
$39.1 million was available for borrowing as of March 31, 1997. The Debt
Offering is contingent on the Company refinancing its Existing Credit Facilities
with the Credit Facility on or before closing of the Debt Offering. The Company
has formed a new subsidiary, Holdings, to be the obligor under the Credit
Facility and expects that the Company will guarantee the obligations of Holdings
on a PARI PASSU basis with the Notes. The Company expects that the aggregate
principal amount available to be borrowed under the Credit Facility will be up
to $275.0 million (a portion of which is a separate $50 million tranche which
will cease to be available to the extent not borrowed within one year). In
addition, at the sole discretion of the lenders, an additional $100 million may
be available. Advances under the Credit Facility will accrue interest at the
Company's option at either LIBOR plus a margin of up to 2.5% based on the
leverage ratio of Holdings and its Restricted Subsidiaries (as defined) or at
the greater of the prime rate or the federal funds effective rate (as defined)
plus 0.50%, and an additional margin of up to 1.375% based on the leverage ratio
of Holdings and its Restricted Subsidiaries if the leverage ratio is equal to or
greater than 7.5 to 1.0, subject to certain reductions if the leverage ratio
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is lower. In addition, if the ratio of senior debt to annualized operating cash
flow of Holdings and its Restricted Subsidiaries is greater than or equal to 3.5
to 1.0, the foregoing interest rates would be increased by .125% per annum. In
addition, Holdings would be required to pay commitment fees based on the unused
portion of the commitments and customary facility fees on the total amount of
the commitments. Holdings' obligations under the Credit Facility are secured by
a lien on substantially all assets of Holdings and its Restricted Subsidiaries,
including the stock of those subsidiaries, subject to the existing lien securing
the Existing Fiber Lease Facility (as defined below).
The Credit Facility will mature on June 30, 2005, subject to annual
percentage reductions in the commitment amount commencing September 30, 2000 as
follows:
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE REDUCTION
SEPTEMBER 30, OF COMMITMENT
- ------------------------------------------- -----------------------------
<S> <C>
1997 0.00%
1998 0.00%
1999 0.00%
2000 7.50%
2001 15.00%
2002 20.00%
2003 20.00%
2004 22.50%
2005 15.00%
</TABLE>
The Credit Facility will prohibit Holdings and its restricted subsidiaries
from, among other things: (i) having a senior leverage ratio at closing in
excess of 3.5 to 1.0 (or 4.5 to 1.0 if the Stock Offering is not consummated),
declining as follows: 3.0 to 1.0 after March 31, 1999; 2.5 to 1.0 after December
31,1999; and 2.0 to 1.0 after December 31, 2000 (or 4.0, 3.5 and 3.0 to 1.0 if
the Stock Offering is not consummated, and 2.0 to 1.0 after December 31, 2001);
(ii) having a total leverage ratio at closing in excess of 7.0 to 1.0 (or 7.75
to 1.0 if the Stock Offering is not consummated), declining as follows: 6.5 to
1.0 after March 31, 1998; 6.0 to 1.0 after March 31, 1999; and 5.5 to 1.0 after
December 31, 1999 (or 7.5, 7.0 and 6.0 to 1.0 if the Stock Offering is not
consummated, and 5.5 to 1.0 after December 31, 1999). The Credit Facility also
requires the Company to maintain an annualized operating cash flow to interest
expense ratio of at least 1.5 to 1.0 through December 31, 1998, and 2.0 to 1.0
thereafter (or 1.4 to 1.0 and 2.0 to 1.0 if the Stock Offering is not
consummated) and to maintain an annualized operating cash flow to pro forma debt
service ratio of at least 1.25 to 1.0 if the Stock Offering is consummated. If
the Stock Offering is not consummated, such ratio would be required to be at
least 1.05 to 1.0 through March 31, 1998, 1.15 to 1.0 thereafter through
December 31, 1998, and 1.25 to 1.0 from January 1, 1999 and thereafter. Holdings
is also required to maintain a ratio of annualized operating cash flow to fixed
charges of at least 1.0 to 1.0 through March 31, 2003, and 1.05 to 1.0
thereafter, or 1.0 to 1.0 if the Stock Offering is not consummated. Holdings and
its restricted subsidiaries will also be prohibited from making capital
expenditures of more than $55 million from the date of completion of the
Offerings through December 31, 1997, $90 million during calendar 1998, and $65
million during calendar 1999.
In addition, the Credit Facility will contain certain restrictions on
Holdings and its Restricted Subsidiaries, including limitations on liens, loans,
indebtedness, investments, change of management, change of control, transactions
with affiliates, stock repurchases, material agreements, mergers, asset sales
and changes in business. The Credit Facility will also contain restrictions on
the ability of Holdings to pay dividends or make distributions to the Issuer.
Because the Issuer has no operations or revenues other than such distributions,
such limitations could affect the ability of the Issuer to generate funds
necessary to make required payments on the Notes. The Credit Facility will
permit payment of distributions by Holdings only out of excess cash flow (as
defined) after September 30, 2000 if the leverage ratio is less than 5.0 to 1.0,
and not in excess of $15.0 million over the term of the Credit Facility, or only
in the form of dividends to make required interest payments on the Notes so long
as there exists no event of default
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before or after giving effect to such dividend, provided, however, that such
dividend payments may not be prohibited for more than 180 days in any year
unless there is a payment default or an acceleration under the Credit Facility.
THE FIBER FACILITY
Subsidiaries of Holdings which are designated as Unrestricted Subsidiaries
(as defined) under the Indenture also plan to incur up to $75 million in
additional indebtedness to finance the construction of an undersea fiber optic
cable (the "Fiber Facility"). Indebtedness incurred under the Fiber Facility is
expected to mature approximately ten years after the initial borrowing under the
Fiber Facility (subject to extension for an additional two years if certain
conditions are met) and to accrue interest at rates equal to LIBOR plus 3.0% or
the prime rate plus 1.75%. The borrower under the Fiber Facility would be an
indirect wholly-owned subsidiary of Holdings and an Unrestricted Subsidiary
under the Indenture (the "Fiber Facility Borrower"), and indebtedness under the
Fiber Facility would be secured by the stock or other equity interests in the
Fiber Facility Borrower and substantially all of its assets. Various Restricted
Subsidiaries of the Company, including Holdings, would enter into agreements
intended to assure the ability of the Fiber Facility Borrower to meet its
obligations under the Fiber Facility, including leases of capacity, keep-well
agreements, and a completion guaranty. The capacity lease would obligate
Holdings and its Restricted Subsidiaries to make annual lease payments of at
least approximately $4.0 million, and would contain various events of default,
including defaults under any indebtedness of $15 million or more, and senior
leverage in excess of 5.0 to 1.0 on or before December 31, 1999, and 3.75 to 1.0
at any time thereafter. A keep-well agreement between Holdings and its
Restricted Subsidiaries on the one hand and the Fiber Facility Borrower on the
other would require payments to the Fiber Facility Borrower to the extent that
GCI Transport Company had insufficient cash to meet its obligations under its
separate keep-well agreement with the Fiber Facility Borrower, which include the
obligation to pay all of the operating expenses of the Fiber Facility Borrower,
including interest and principal, and the entire amount, if any, which remains
unpaid after the maturity (by acceleration or otherwise) of the Fiber Facility.
The completion guaranty would require Holdings and its Restricted Subsidiaries
to guarantee completion of the construction of the fiber project. Holdings' and
its Restricted Subsidiaries' obligations in respect of their keep-well agreement
and the completion guarantee will be limited to amounts, if any, permitted to be
paid as "Restricted Payments" under the Indenture. The Fiber Facility also
contemplates that an operating subsidiary of the Company which is a Restricted
Subsidiary would enter into a maintenance contract with the Fiber Facility
Borrower. The Fiber Facility, subject to certain exceptions, is also expected to
restrict distributions of cash by the Fiber Facility Borrower to the Company and
its Restricted Subsidiaries. Although the Company has received executed
commitments from lenders to provide the Fiber Facility and is currently
negotiating a modification of the Fiber Facility commitments concerning a
covenant for third party capacity purchase arrangements, there can be no
assurance that the Fiber Facility will be consummated on the foregoing terms or
at all. See "Risk Factors--Potential Adverse Effect on the Company in the Event
the Fiber Facility is Not Consummated."
THE EXISTING FIBER LEASE FACILITY
On December 31, 1992, Leasing Company entered into a $12,000,000 loan
agreement (the "Existing Fiber Lease Facility"), of which approximately
$9,000,000 of the proceeds were used to acquire capacity on the undersea fiber
optic cable linking Seward, Alaska and Pacific City, Oregon. Concurrently,
Leasing Company leased the capacity under a ten year all events, take or pay,
contract to MCI, who subleased the capacity back to the Company. The lease and
sublease agreements provide for equivalent terms of 10 years and identical
monthly payments of $200,000. The proceeds of the lease agreement with MCI were
pledged as primary security for the financing. The Existing Fiber Lease Facility
provides for monthly payments of $170,000 including principal and interest
though the earlier of January 1, 2003, or until repaid. The Existing Fiber Lease
Facility provides for interest at the prime rate plus one-quarter percent.
Additional collateral includes substantially all of the assets of Leasing
Company including the fiber capacity and a security interest in all of its
outstanding stock. MCI has a second position security interest in the assets of
Leasing Company.
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DESCRIPTION OF NOTES
THE NOTES WILL BE ISSUED UNDER AN INDENTURE (THE "INDENTURE") TO BE DATED AS
OF , 1997 BETWEEN THE ISSUER AND THE BANK OF NEW YORK, AS TRUSTEE
(THE "TRUSTEE"). A COPY OF THE INDENTURE HAS BEEN FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. THE INDENTURE IS
SUBJECT TO AND IS GOVERNED BY THE TRUST INDENTURE ACT OF 1939, AS AMENDED (THE
"TRUST INDENTURE ACT"). THE FOLLOWING SUMMARIES OF CERTAIN PROVISIONS OF THE
INDENTURE DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT, AND ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE, TO THE TRUST INDENTURE ACT AND TO ALL THE
PROVISIONS OF THE NOTES AND THE INDENTURE, INCLUDING DEFINITIONS IN THE
INDENTURE OF CERTAIN TERMS. WHEREVER PARTICULAR SECTIONS OR DEFINED TERMS OF THE
INDENTURE ARE REFERRED TO IN THIS PROSPECTUS, SUCH SECTIONS OR DEFINED TERMS ARE
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. CERTAIN TERMS USED IN THIS
SECTION ARE DEFINED UNDER "--CERTAIN DEFINITIONS."
GENERAL
The Notes will mature on , 2007, and will be limited to an
aggregate principal amount of $150 million. The Notes will bear interest at the
rate set forth on the cover page of this Prospectus from , 1997, or
from the most recent interest payment date to which interest has been paid,
payable semiannually on and of each year, beginning on
, 1998, to the persons who are registered holders of the Notes at
the close of business on the preceding or , as the
case may be.
Principal of, premium, if any, and interest on the Notes will be payable in
immediately available funds, and the Notes will be exchangeable and
transferable, at an office or agency of the Issuer, one of which will be
maintained for such purpose in The City of New York (which initially will be the
corporate trust office of the Trustee) or such other office or agency permitted
under the Indenture; PROVIDED, HOWEVER, that payment of interest may be made at
the option of the Issuer by check mailed to the person entitled thereto as shown
on the Security Register. The Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 or any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of
Notes, except for any tax or other governmental charge that may be imposed in
connection therewith.
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal to the Depositary will be made by the
Issuer in immediately available funds. The Notes will trade in The Depository
Trust Company's Same-Day Funds Settlement System until maturity, and secondary
market trading activity in the Notes will therefore settle in immediately
available funds.
RANKING
The Notes will be senior unsecured obligations of the Issuer, will rank PARI
PASSU in right of payment with all other existing and future senior indebtedness
of the Issuer and will be senior in right of payment to all future subordinated
indebtedness of the Issuer. As of March 31, 1997, on a pro forma basis after
giving effect to the Debt Offering and both the Debt Offering and the Stock
Offering, and the respective application of the net proceeds therefrom, the
total consolidated indebtedness of the Issuer would have been $268.5 million and
$216.1 million, respectively. At such date, the Issuer had no indebtedness
subordinated to the Notes.
In addition, all existing and future indebtedness and other liabilities and
obligations of the Issuer's Subsidiaries, including borrowings under the Credit
Facility, will be effectively senior in right of payment to the Notes and could
be material. The total balance sheet liabilities of the Issuer's Subsidiaries on
a pro forma basis after giving effect to the Debt Offering as of March 31, 1997,
would have been $188.8 million (or $136.4 million after giving effect to both
the Debt Offering and the Stock Offering), of which $118.5 million (or $66.1
million after giving effect to both the Debt Offering and the Stock Offering)
was indebtedness. The Issuer's Subsidiaries expect to incur significant
additional indebtedness and other liabilities in the future, including $75
million to be incurred by AULP (an Unrestricted Subsidiary) under
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the Fiber Construction Facility. Although the Indenture contains limitations on
the amount of additional Indebtedness which the Issuer and its Restricted
Subsidiaries may Incur, the amounts of such Indebtedness could be substantial
and, in any case, significant amounts of such Indebtedness may be Indebtedness
of Subsidiaries (which will be effectively senior in right of payment to the
Notes). See "--Certain Covenants." Moreover, claims of creditors of the Issuer's
Subsidiaries, including trade creditors, and holders of Preferred Stock of the
Issuer's Subsidiaries (if any), will generally have a priority as to the assets
of such Subsidiaries over the claims of the Issuer.
The Notes are obligations exclusively of the Issuer. Since the operations of
the Issuer are conducted through Subsidiaries, the Issuer's cash flow and the
consequent ability to service debt of the Issuer, including the Notes, are
dependent upon the earnings of its Subsidiaries and the distribution of those
earnings to, or upon loans or other payments of funds by those Subsidiaries to,
the Issuer. The payment of dividends and the making of loans and advances to the
Issuer by its Subsidiaries are subject to statutory and contractual
restrictions, are dependent upon the earnings of those Subsidiaries and are
subject to various business considerations. See "Risk Factors--Holding Company
Structure."
OPTIONAL REDEMPTION
The Notes are not redeemable prior to , 2002. At any time on or
after , 2002, the Notes are redeemable at the option of the Issuer,
in whole or in part, on not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of principal amount), plus
accrued and unpaid interest (if any) to the date of redemption:
If redeemed during the 12-month period commencing of the year
indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -------------
<S> <C>
2002............................................................................ %
2003............................................................................ %
2004............................................................................ %
</TABLE>
and thereafter, beginning , 2005 at 100% of the principal
amount of the Notes.
Notwithstanding the foregoing, on or prior to , 2000, the
Issuer may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to a maximum of 33 1/3% of the
initially outstanding aggregate principal amount of Notes at a redemption price
equal to % of the principal amount of the Notes (determined at the
redemption date), together with accrued and unpaid interest thereon to the date
of redemption; PROVIDED that not less than $100 million aggregate principal
amount of the Notes are outstanding following any such redemption.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Stock of Parent or the Issuer, that
generates in the aggregate gross proceeds of at least $50 million, pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act; PROVIDED that, the Stock Offering (including any over-allotment
option in respect thereof) shall be excluded from the definition of Public
Equity Offerings; PROVIDED FURTHER, that in the event of a Public Equity
Offering by Parent, Parent contributes to the capital of the Issuer the portion
of the net cash proceeds of such Public Equity Offering necessary to pay the
aggregate redemption price (plus accrued and unpaid interest thereon to the
redemption date) of the Notes to be redeemed pursuant to the preceding
paragraph.
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a national
securities exchange, on a PRO RATA basis, by lot or by such method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; PROVIDED, FURTHER,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee
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only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable
(subject to procedures of the Depository Trust Company "DTC"), unless such
method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that related to
such Notes shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Issuer
has deposited with the Paying Agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
MANDATORY OFFER TO PURCHASE UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes shall have
the right to require the Issuer to purchase all or any part (equal to $1,000 or
an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the purchase date (the "Change of Control Payment"). A Change of
Control will not occur if the persons obtaining control of the Company are one
or more of the Permitted Holders.
Within 30 days following any Change of Control, the Issuer shall (i) cause a
notice of the Change of Control Offer to be sent at least once to the Dow Jones
News Service or similar business news service in the United States and (ii) mail
a notice to each holder of Notes stating: (1) that a Change of Control has
occurred and a Change of Control Offer is being made pursuant to the covenant
entitled "Mandatory Offer to Purchase Upon a Change of Control" and that all
Notes timely tendered will be accepted for payment; (2) the purchase price and
the purchase date, which shall be, subject to any contrary requirements of
applicable law, no earlier than 30 days nor later than 60 days from the date
such notice is mailed ("the Change of Control Payment Date"); (3) that any Note
(or portion thereof) accepted for payment (and duly paid on the Change of
Control Payment Date) pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date; (4) that any Notes (or
portions thereof) not tendered will continue to accrue interest; (5) a
description of the transaction or transactions constituting the Change of
Control; and (6) the procedures that holders of Notes must follow in order to
tender their Notes (or portions thereof) for payment and the procedures that
holders of Notes must follow in order to withdraw an election to tender Notes
(or portions thereof) for payment.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act, and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Notes in connection with a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
relating to the "Change of Control" provisions of the Indenture, the Issuer will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the "Change of Control" provisions
of the Indenture by virtue thereof.
Except as described above with respect to a Change of Control, the Indenture
does not contain any provisions that permit the holders of the Notes to require
that the Issuer purchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Change of Control purchase feature is a result of negotiations between
the Issuer and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that the
Issuer would decide to do so in the future. Subject to the limitations discussed
below, the Issuer could, in the future, enter into certain transactions,
including
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acquisitions, refinancings or other recapitalizations, that would not constitute
a Change of Control under the Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect the Issuer's capital
structure or credit ratings. Restrictions on the ability of the Issuer to Incur
additional Indebtedness are contained in the covenants described under
"--Certain Covenants-- Limitation on Indebtedness" and "--Certain
Covenants--Limitation on Liens." Such restrictions can only be waived with the
consent of the registered holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenants,
however, the Indenture will not contain any covenants or provisions that may
afford holders of the Notes protection in the event of a highly leveraged
transaction.
The Credit Facility imposes restrictions on the ability of the Issuer's
Subsidiaries to pay dividends or make distributions to the Issuer. Such
restrictions may limit the ability of the Issuer to fund any purchase of the
Notes upon a Change of Control. There can be no assurance that the Issuer will
be able to fund any purchase of the Notes upon a Change of Control.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of one or more Global
Securities (as defined in the Indenture). Accordingly, DTC or its nominee will
initially be the sole registered holder of the Notes for all purposes under the
Indenture.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of persons holding through it with the respective principal amounts of
the Notes represented by such Global Security purchased by such persons in the
Offering. Such accounts shall be designated by the Underwriters with respect to
Notes placed by the Underwriters for the Issuer. Ownership of beneficial
interests in a Global Security will be limited to persons that have accounts
with DTC ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in a Global
Security will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by DTC for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal and interest on Notes represented by any such Global
Security will be made to DTC or its nominee, as the case may be, as the sole
registered owner and the sole holder of the Notes represented thereby for all
purposes under the Indenture. None of the Issuer, the Trustee, any agent of the
Issuer, or the Underwriters will have any responsibility or liability for any
aspect of DTC's records relating to or payments made on account of beneficial
ownership interests in a Global Security representing any Notes or for
maintaining, supervising, or reviewing any of DTC's records relating to such
beneficial ownership interests.
The Issuer has been advised by DTC that upon receipt of any payment of
principal of, or interest on, any Global Security, DTC will immediately credit,
on its book-entry registration and transfer system, the accounts of participants
with payments in amounts proportionate to their respective beneficial interests
in the principal or face amount of such Global Security as shown on the records
of DTC. Payments by participants to owners of beneficial interests in a Global
Security held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
customer accounts registered in "street name" and will be the sole
responsibility of such participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC. A Global Security is exchangeable for
certified Notes only if (i) DTC notifies the Issuer that it is unwilling or
unable to continue as a depositary for such Global Security or if at any time
DTC ceases to be a clearing agency registered under the Exchange Act, (ii) the
Issuer executes and delivers
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to the Trustee a notice that such Global Security shall be so transferable,
registrable, and exchangeable, and such transfers shall be registrable or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Notes represented by such Global Security. Any Global
Security that is exchangeable for certificated Notes pursuant to the preceding
sentence will be transferred to, and registered and exchanged for, certificated
Notes in authorized denominations and registered in such names as DTC or any
successor depositary holding such Global Security may direct. Subject to the
foregoing, a Global Security is not exchangeable, except for a Global Security
of like denomination to be registered in the name of DTC or any successor
depositary or its nominee. In the event that a Global Security becomes
exchangeable for certificated Notes, (i) certificated Notes will be issued only
in fully registered form in denominations of $1,000 or integral multiples
thereof, (ii) payment of principal, any repurchase price, and interest on the
certificated Notes will be payable, and the transfer of the certificated Notes
will be registerable, at the office or agency of the Issuer maintained for such
purposes and (iii) no service charge will be made for any registration of
transfer or exchange of the certificated Notes, although the Issuer may require
payment of a sum sufficient to cover any tax or governmental charge imposed in
connection therewith.
So long as DTC or any successor depositary for a Global Security, or any
nominee, is the registered owner of such Global Security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such Global Security for the purposes of
receiving payment on the Notes, receiving notices, and for all other purposes
under the Indenture and the Notes. Beneficial interests in Notes will be
evidenced only by, and transfers thereof will be effected only through, records
maintained by DTC or any successor depositary and its participants. Cede & Co.
has been appointed as the nominee of DTC. Except as provided above, owners of
beneficial interests in a Global Security will not be entitled to and will not
be considered the holders thereof for any purposes under the Indenture.
Accordingly, each person owning a beneficial interest in a Global Security must
rely on the procedures of DTC or any successor depositary, and, if such person
is not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder under the
Indenture. The Issuer understands that under existing industry practices, in the
event that the Issuer requests any action of holders or that an owner of a
beneficial interest in a Global Security desires to give or take any action
which a holder is entitled to give or take under the Indenture, DTC or any
successor depositary would authorize the participants holding the relevant
beneficial interest to give or take such action and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
DTC has advised the Issuer that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations, and certain other organizations some of whom (and/or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers, and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness;
PROVIDED, HOWEVER, that (a) if after giving pro forma effect to the application
of the proceeds thereof, no Default or Event of Default would occur as a
consequence of such Incurrence or be continuing following such Incurrence, the
Issuer may Incur Indebtedness and
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Restricted Subsidiaries may borrow or Guarantee borrowings under the Credit
Facility and Incur Indebtedness that is Vendor Financing, in each case, if on
the date of the Incurrence of such Indebtedness, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Leverage Ratio of the Issuer and the Restricted Subsidiaries (on a
consolidated basis) would not exceed (i) 7.5 from the Issue Date until December
31, 1999 and (ii) 6.0 after December 31, 1999 and (b) Permitted Indebtedness may
be Incurred.
"Permitted Indebtedness" is defined to include any and all of the following:
(i) in addition to any amounts outstanding pursuant to clause (vii) below,
Indebtedness pursuant to the Credit Facility incurred under this clause (i) in
an aggregate amount outstanding at any time not to exceed $75 million; (ii)
Indebtedness of the Issuer evidenced by the Notes; (iii) Indebtedness of the
Issuer owing to and held by a Restricted Subsidiary and Indebtedness of a
Restricted Subsidiary owing to and held by the Issuer or any Restricted
Subsidiary; PROVIDED, HOWEVER, that any event that results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Issuer or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof; PROVIDED, FURTHER, that any Indebtedness of
the Issuer owing to and held by a Restricted Subsidiary shall be expressly
subordinated to the Notes; (iv) Indebtedness (other than Indebtedness permitted
by the immediately preceding paragraph or elsewhere in this paragraph) in an
aggregate principal amount outstanding at any time not to exceed $15 million;
(v) Indebtedness under Interest Rate Agreements entered into for the purpose of
limiting interest rate risks, PROVIDED, that the obligations under such
agreements are related to payment obligations on Indebtedness otherwise
permitted by the terms of this covenant; (vi) Indebtedness in connection with
one or more standby letters of credit or performance bonds issued in the
ordinary course of business or pursuant to self-insurance obligations and not in
connection with the borrowing of money or the obtaining of advances or credit;
(vii) Indebtedness outstanding on the Issue Date (after giving effect to the
application of the proceeds of the sale of the Debt Offering and the Stock
Offering); (viii) Permitted Refinancing Indebtedness Incurred in respect of
Indebtedness Incurred pursuant to clause (a) of the immediately preceding
paragraph and clauses (ii) and (vii) above; (ix) Indebtedness incurred solely as
a result of the execution by the Issuer or its Restricted Subsidiaries of the
Capacity Lease and (x) Indebtedness incurred solely as a result of the execution
by the Issuer or its Restricted Subsidiaries of the Operating Keep-Well
Agreement and the Completion Guarantee; PROVIDED, HOWEVER, that the foregoing
exception shall not be applicable to Indebtedness actually Incurred by the
Issuer or any of its Restricted Subsidiaries in order to fund the obligations of
the Issuer or its Restricted Subsidiaries to perform under the Operating
Keep-Well Agreement or the Completion Guarantee.
LIMITATION ON INDEBTEDNESS OF AULP. The Issuer shall not permit AULP or any
Subsidiary of AULP to, directly or indirectly, Incur any Indebtedness other than
(i) Indebtedness under the Fiber Construction Facility or any Permitted
Refinancing Indebtedness Incurred in respect of such Fiber Construction Facility
in an aggregate principal amount not to exceed $75 million, less any principal
payments made thereunder, (ii) Indebtedness owing to and held by GCI Transport,
the Issuer or any Restricted Subsidiary and evidencing amounts advanced pursuant
to the GCI Transport Keep-Well Agreement or the Operating Keep-Well Agreement,
(iii) additional Indebtedness not to exceed $5 million in the aggregate at any
one time outstanding and (iv) Indebtedness (other than Indebtedness permitted
under the preceding clauses (i) through (iii)) in an aggregate principal amount
outstanding at any time not to exceed $10 million, but only if and to the extent
that (a) all principal, interest and other obligations of any kind under such
Indebtedness permitted under clause (iv) are excluded for all purposes in
determining amounts that may become due and owing pursuant to the GCI Transport
Keep-Well Agreement or the Operating Keep-Well Agreement and (b) such
Indebtedness permitted under clauses (iii) and (iv) is non-recourse to, and the
lender thereunder has waived all claims against, the Issuer and its Restricted
Subsidiaries and their respective Properties and assets with respect thereto.
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LIMITATION ON RESTRICTED PAYMENTS. The Issuer shall not make, and shall not
permit any Restricted Subsidiary to make, directly or indirectly, any Restricted
Payment if at the time of, and after giving effect to, such proposed Restricted
Payment, (a) a Default or an Event of Default shall have occurred and be
continuing, (b) the Issuer could not Incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of the first paragraph of "--Limitation on
Indebtedness" or (c) the aggregate amount of such Restricted Payment and all
other Restricted Payments made since the Issue Date (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of (i) the excess of (A)
Cumulative EBITDA over (B) the product of 1.5 and Cumulative Interest Expense,
(ii) Capital Stock Sale Proceeds, (iii) the amount by which Indebtedness of the
Issuer or any Restricted Subsidiary is reduced on the Issuer's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the Issuer)
subsequent to the Issue Date of any Indebtedness of the Issuer or any Restricted
Subsidiary convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Issuer (less the amount of any cash or other Property
distributed by the Issuer or any Restricted Subsidiary upon conversion or
exchange) and (iv) an amount equal to the net reduction in Investments made by
the Issuer and its Restricted Subsidiaries subsequent to the Issue Date in any
Person resulting from (A) dividends, repayment of loans or advances, or other
transfers or distributions of Property (but only to the extent the Issuer
excludes such transfers or distributions from the calculation of Cumulative
EBITDA for purposes of clause (c)(i)(A) above), in each case to the Issuer or
any Restricted Subsidiary from any Person or (B) the redesignation of any
Unrestricted Subsidiary as a Restricted Subsidiary, not to exceed, in the case
of (A) or (B) of this subclause (iv), the amount of such Investments previously
made by the Issuer and its Restricted Subsidiaries in such Person or such
Unrestricted Subsidiary, as the case may be, which were treated as Restricted
Payments.
Notwithstanding the foregoing limitation, the Issuer and, in the case of
clauses (d), (e), (f) and (h), its Restricted Subsidiaries, may (a) pay
dividends on its Capital Stock within 60 days of the declaration thereof if, on
the declaration date, such dividends could have been paid in compliance with the
Indenture, (b) redeem, repurchase, defease, acquire or retire for value, any
Indebtedness subordinate (whether pursuant to its terms or by operation of law)
in right of payment to the Notes with the proceeds of any Indebtedness that is
Permitted Refinancing Indebtedness in respect of such subordinated Indebtedness,
(c) acquire, redeem or retire Capital Stock of the Issuer or Indebtedness
subordinate (whether pursuant to its terms or by operation of law) in right of
payment to the Notes in exchange for, or in connection with a substantially
concurrent issuance of, Capital Stock of the Issuer (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of the Issuer
or an employee stock ownership plan or other trust established by the Issuer or
any Subsidiary of the Issuer), (d) make Investments in Persons the primary
businesses of which are Related Businesses (other than Investments in the
Capital Stock of the Issuer) in an amount at any time outstanding not to exceed
in the aggregate for all such Investments made in reliance upon this clause (d),
the sum of (i) $35 million and (ii) an amount equal to the net reduction in
Investments made by the Issuer and its Restricted Subsidiaries subsequent to the
Issue Date in any Person resulting from payments of dividends, repayment of
loans or advances, or other transfers or distributions of Property (to the
extent not included in EBITDA) to the Issuer or any Restricted Subsidiary from
any Person (but only to the extent such net reduction in Investments has not
been utilized to permit a Restricted Payment pursuant to clause (c)(i) or
(c)(iv) in the immediately preceding paragraph) not to exceed, in the case of
clause (d)(ii), the amount of such Investments previously made by the Issuer and
its Restricted Subsidiaries in such Person which were treated as Restricted
Payments, (e) execute the Completion Guarantee and the Operating Keep-Well
Agreement; PROVIDED, HOWEVER, any funding of the Completion Guarantee or the
Operating Keep-Well Agreement may only be made if it complies with the
immediately preceding paragraph or clause (d) in this paragraph and such funding
shall count as Restricted Payments for purposes of determining such compliance,
(f) execute the Operating and Maintenance Contract and make payments pursuant
thereto in an annual amount not to exceed the pro rata share of the annual
operating and maintenance costs of the System allocated to the output capacity
of the System leased and/or purchased by the Issuer and its
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Restricted Subsidiaries, (g) purchase or redeem Capital Stock in connection with
the repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees of Parent, the
Issuer or one of its Subsidiaries; PROVIDED, HOWEVER, that the amount paid in
connection with all such redemptions or repurchases pursuant to this clause (g)
shall not exceed in any fiscal year $2 million in the aggregate, and (h) assign
or otherwise transfer to GCI Transport, or any of its Subsidiaries the credit in
favor of the Issuer and all other related rights arising from the Issuer's $9.1
million deposit made in connection with the Galaxy X Agreement.
Any payments made pursuant to clauses (b), (c), (f) and (h) of the
immediately preceding paragraph shall be excluded from the calculation of the
aggregate amount of Restricted Payments made after the Issue Date; PROVIDED,
HOWEVER, that the proceeds from the issuance of Capital Stock pursuant to clause
(c) of the immediately preceding paragraph shall not constitute Capital Stock
Sale Proceeds for purposes of clause (c)(ii) of the first paragraph of this
covenant. The Issuer may, at the time of any Restricted Payment, designate, by
delivery to the Trustee of an Officers' Certificate referencing this covenant
and such designation, whether such Restricted Payment is being made in
accordance with the second preceding paragraph or, if applicable, the clause of
the preceding paragraph pursuant to which such Restricted Payment is being made.
LIMITATION ON LIENS. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property, whether now owned or
hereafter acquired, or any interest therein, or any income or profits therefrom,
unless (a) with respect to any Restricted Subsidiary, such Lien secures
Indebtedness other than Guarantees of Indebtedness of the Issuer or (b)
effective provision has been or will be made whereby the Notes will be secured
by such Lien equally and ratably with all other Indebtedness of the Issuer or
any Restricted Subsidiary secured by such Lien; PROVIDED, HOWEVER, that no Lien
may be granted with respect to Indebtedness of the Issuer that is subordinated
to the Notes.
LIMITATION ON ASSET SALES. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
after the Issue Date unless (i) the Issuer or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the Property subject to such Asset Sale and
(ii) (A) at least 80% of the consideration paid to the Issuer or such Restricted
Subsidiary in connection with such Asset Sale is in the form of cash or cash
equivalents or (B) the consideration paid to the Issuer or such Restricted
Subsidiary is determined in good faith by the Board of Directors of Parent and
the Issuer, as evidenced by a Board Resolution, to be substantially comparable
in type to the assets being sold; PROVIDED, HOWEVER, this clause (ii) shall not
apply to (1) any sales of property or equipment that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Issuer or any Restricted Subsidiary, as the case may be and (2)
any sales of Capital Stock of AULP on terms that are otherwise deemed fair to
the Issuer and its Subsidiaries in the reasonable business judgment of the Board
of Directors of Parent and the Issuer, as evidenced by a Board Resolution.
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Issuer or a Restricted Subsidiary, (A) to prepay, repay or
purchase Indebtedness under the Credit Facility or Indebtedness of a Restricted
Subsidiary (excluding Indebtedness owed to the Issuer or an Affiliate of the
Issuer); or (B) to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Issuer or another Restricted Subsidiary).
Any Net Available Cash from an Asset Sale not applied in accordance with the
preceding paragraph within one year from the date of such Asset Sale or the
receipt of such Net Available Cash shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million (taking into account
income earned on such Excess Proceeds), the Issuer will be required to make an
offer to purchase (the "Prepayment Offer") the Notes, and any other
Indebtedness, if any, that ranks PARI PASSU
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with the Notes and contains similar provisions requiring an Asset Sale
prepayment offer, on a pro rata basis, at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon (if any) to
the date of purchase in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture (or, in the event of
Indebtedness that is discounted, at a price of the then accreted value thereof);
PROVIDED, HOWEVER, if any other such Indebtedness that ranks PARI PASSU with the
Notes does not contain similar Asset Sale prepayment offer provisions with
regard to the pro rata repayment of such other Indebtedness and the Notes, the
Issuer will be required to purchase the Notes before purchasing any other such
Indebtedness from such Excess Proceeds. If the aggregate principal amount of
Notes surrendered for purchase by holders thereof exceeds the amount of Excess
Proceeds allocated to the Notes, then the Trustee shall select the Notes to be
purchased pro rata according to principal amount or by lot with such adjustments
as may be deemed appropriate by the Issuer so that only Notes in denominations
of $1,000, or integral multiples thereof, shall be purchased. To the extent that
any portion of the amount of Net Available Cash remains after compliance with
the preceding sentence and, PROVIDED that all holders of Notes have been given
the opportunity to tender their Notes for purchase as described in the following
paragraph in accordance with the Indenture, the Issuer or such Restricted
Subsidiary may use such remaining amount for general corporate purposes and the
amount of Excess Proceeds will be reset to zero.
Within five Business Days after one year from the date of an Asset Sale or
the receipt of Net Available Cash therefrom, the Issuer shall, if it is
obligated to make a Prepayment Offer, send a written notice, by first-class
mail, to the holders of the Notes (the "Prepayment Offer Notice"), accompanied
by such information regarding the Issuer and its Subsidiaries as the Issuer in
good faith believes will enable such holders of the Notes to make an informed
decision with respect to the Prepayment Offer. The Prepayment Offer Notice will
state, among other things, (a) that the Issuer is offering to purchase Notes
pursuant to the provisions of the Indenture described herein under "Limitation
on Asset Sales," (b) that any Note (or any portion thereof) accepted for payment
(and duly paid on the Purchase Date (defined below)) pursuant to the Prepayment
Offer shall cease to accrue interest after the Purchase Date, (c) the purchase
price and purchase date, which shall be, subject to any contrary requirements of
applicable law, no less than 30 days nor more than 60 days from the date the
Prepayment Offer Notice is mailed (the "Purchase Date"), (d) the aggregate
principal amount of Notes (or portions thereof) to be purchased and (e) a
description of the procedure which holders of Notes must follow in order to
tender their Notes (or portions thereof) and the procedures that holders of
Notes must follow in order to withdraw an election to tender their Notes (or
portions thereof) for payment.
The Issuer will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws or regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of Notes as described above. To the extent that the provisions
of any securities laws or regulations conflict with the provisions relating to
the Prepayment Offer, the Issuer will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Issuer shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, or enter into any agreement with any Person that
would cause to become effective, any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, or pay any Indebtedness or other obligation owed, to the Issuer or any
other Restricted Subsidiary, (b) make any loans or advances to the Issuer or any
other Restricted Subsidiary or (c) transfer any of its Property to the Issuer or
any other Restricted Subsidiary. Such limitation will not apply (1) with respect
to clauses (a), (b) and (c), to encumbrances and restrictions (i) in existence
under or by reason of any agreements (not otherwise described in clause (iii))
in effect on the Issue Date, (ii) relating to Indebtedness of a Restricted
Subsidiary and existing at such Restricted Subsidiary at the time it became a
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Restricted Subsidiary if such encumbrance or restriction was not created in
connection with or in anticipation of the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Issuer, (iii) any encumbrance or restriction
pursuant to (x) the Credit Facility as in effect on the Issue Date and (y) any
agreement which amends, extends, renews, refinances, replaces or refunds the
Credit Facility, PROVIDED, HOWEVER, that in the case of this subclause (y), such
restrictions or encumbrances are no less favorable to the holders of the Notes
than those restrictions or encumbrances pursuant to the Credit Facility as in
effect on the Issue Date; PROVIDED, FURTHER, HOWEVER, that in the case of
subclauses (x) and (y), the provisions of the Credit Facility (A) permit
(whether explicitly or as a result of the relative maturities of the Credit
Facility and the Notes) distributions to the Issuer for the purpose of, and in
an amount sufficient to fund, the payment of principal due at stated maturity
and interest in respect of the Notes (PROVIDED, in either case, that such
payment is due or to become due within 30 days from the date of such
distribution) at a time when there does not exist an event which after notice or
passage of time or both would permit the lenders under the Credit Facility to
declare all amounts thereunder due and payable, and (B) provide that in no event
shall any encumbrance or restriction pursuant to the Credit Facility prohibit
distributions for Indebtedness on the Notes for more than 180 days in any
consecutive 360 day period, unless (1) there exists a default under the Credit
Facility resulting from any payment default under the Credit Facility when due
or (2) the maturity of the Credit Facility has been accelerated, or (iv) which
result from the extension, renewal, refinancing, replacement, refunding or
amendment of an agreement referred to in the immediately preceding clauses
(1)(i) and (ii) above and in clauses (2)(i) and (ii) below, PROVIDED, such
encumbrance or restriction is no more restrictive to such Restricted Subsidiary
and is not materially less favorable to the holders of Notes than those under or
pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced, replaced, refunded or amended, and (2) with respect to clause (c)
only, to (i) any encumbrance or restriction relating to Indebtedness that is
permitted to be Incurred and secured pursuant to the provisions under
"--Limitation on Indebtedness" and "--Limitation on Liens" that limits the right
of the debtor to dispose of the assets or Property securing such Indebtedness,
(ii) any encumbrance or restriction in connection with an acquisition of
Property, so long as such encumbrance or restriction relates solely to the
Property so acquired and was not created in connection with or in anticipation
of such acquisition, (iii) customary provisions restricting subletting or
assignment of leases of the Issuer or any Restricted Subsidiary and customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder or (iv) customary restrictions contained in asset sale
agreements limiting the transfer of such assets pending the closing of such
sale.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Issuer shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, lease or exchange of any
Property or the rendering of any service) with, or for the benefit of, any
Affiliate of the Issuer (an "Affiliate Transaction") unless (a) the terms of
such Affiliate Transaction are (i) set forth in writing, (ii) in the best
interest of the Issuer or such Restricted Subsidiary, as the case may be, and
(iii) no less favorable to the Issuer or such Restricted Subsidiary, as the case
may be, than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Issuer or such
Restricted Subsidiary, (b) with respect to an Affiliate Transaction involving
aggregate payments or value in excess of $15 million, the Board of Directors of
Parent and the Issuer (including a majority of the disinterested members of the
Board of Directors of Parent and the Issuer) approves such Affiliate Transaction
and, in its good faith judgment, believes that such Affiliate Transaction
complies with clauses (a) (ii) and (iii) of this paragraph as evidenced by a
Board Resolution and (c) with respect to an Affiliate Transaction involving
aggregate payments or value in excess of $25 million, the Issuer obtains a
written opinion from an independent appraisal firm to the effect that such
Affiliate Transaction is fair, from a financial point of view to the Issuer or
such Restricted Subsidiary, as applicable.
Notwithstanding the foregoing limitation, the Issuer may enter into or
suffer to exist the following: (i) any transaction pursuant to any contract in
existence on the Issue Date on the terms of such contract
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as in effect on the Issue Date; (ii) any transaction or series of transactions
between the Issuer and one or more of its Restricted Subsidiaries or between two
or more of its Restricted Subsidiaries; (iii) any Restricted Payment permitted
to be made pursuant to "--Limitation on Restricted Payments"; (iv) the payment
of compensation (including, amounts paid pursuant to employee benefit plans) for
the personal services of officers, directors and employees of Parent, the Issuer
or any of its Restricted Subsidiaries, so long as the Board of Directors of
Parent and the Issuer in good faith shall have approved the terms thereof and
deemed the services theretofore or thereafter to be performed for such
compensation or fees to be fair consideration therefor; (v) loans and advances
to employees of Parent, the Issuer or a Restricted Subsidiary made in the
ordinary course of business and consistent with past practice of Parent, the
Issuer or such Restricted Subsidiary, as the case may be, provided, that such
loans and advances do not exceed in the aggregate $5 million at any one time
outstanding; (vi) any transaction pursuant to any Fiber Construction Agreement,
(vii) any transaction pursuant to the Galaxy X Agreement, (viii) the Permitted
Issue Date Transactions, and (ix) any transaction pursuant to any Fiber
Construction Agreement.
OWNERSHIP OF SIGNIFICANT SUBSIDIARIES. The Issuer will at all times
maintain, either directly or indirectly, 100% ownership of the Capital Stock of
any Person that is or becomes a Significant Subsidiary of the Issuer; PROVIDED,
HOWEVER, that (i) the Issuer may, directly or indirectly, acquire after the
Issue Date and thereafter maintain ownership comprising less than 100% of the
Capital Stock of such Person provided such acquisition is otherwise effected in
accordance with the terms of the Indenture and (ii) the Issuer may transfer,
convey, sell or otherwise dispose of all or substantially all of the assets of a
Significant Subsidiary as permitted pursuant to "--Limitation on Asset Sales."
FIBER CONSTRUCTION AGREEMENTS. The Issuer shall not, and shall not permit
any of its Restricted Subsidiaries to, directly or indirectly, Guarantee any
Indebtedness of any Unrestricted Subsidiary or enter into any keep-well, support
or other similar agreement with respect to any Unrestricted Subsidiary other
than pursuant to the Fiber Construction Agreements.
The Issuer and the Restricted Subsidiaries may, but shall not be required
to, directly or indirectly, purchase, lease or otherwise acquire output capacity
of the System other than pursuant to the Capacity Lease.
The Issuer shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, advance funds pursuant to the
Completion Guarantee and the Operating Keep-Well Agreement unless (i) such
advance is permitted by "Limitation on Restricted Payments" and (ii) in no event
shall the aggregate amount of such advances exceed $100 million.
The Fiber Construction Facility will provide that the obligation of the
Issuer and its Restricted Subsidiaries to advance funds pursuant to the
Completion Guarantee and the Operating Keep-Well Agreement will be limited to
the amount that is permitted to be distributed pursuant to "Limitation on
Restricted Payments."
The Operating Keep-Well Agreement will provide that no payments of the type
referred to in clause (i) under "Certain Definitions--Operating Keep-Well
Agreement" will be required to be made unless GCI Transport has failed to pay
such amount within 5 days after demand for such payment has been made pursuant
to the GCI Transport Keep-Well Agreement, and no payments of the type referred
to in clause (ii) under "Certain Definitions--Operating Keep-Well Agreement"
will be required unless the Fiber Construction Facility Banks have taken
commercially reasonable efforts to exhaust their remedies against all assets of
AULP, the Capital Stock of AULP, demand payment from GCI Transport under the GCI
Transport Keep-Well Agreement and file a claim for payment against GCI Transport
under the GCI Transport Keep-Well Agreement.
The Issuer shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, amend, supplement or otherwise modify any term or
condition of any Fiber Construction Agreement in any
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manner that, directly or indirectly, materially increases or adversely affects
in a material manner any obligation or contingent obligation of the Issuer or
any of its Restricted Subsidiaries under the Completion Guarantee, the Operating
Keep-Well Agreement, the Operating and Maintenance Contract, the Capacity Lease
or any other agreement or arrangement executed or delivered in connection with
the Fiber Construction Agreements or the transactions contemplated thereby.
OPERATION OF UNRESTRICTED SUBSIDIARIES. The Issuer shall cause each of its
Unrestricted Subsidiaries (i) to maintain continuously articles or a certificate
of incorporation or, in the case of a partnership, a partnership agreement,
providing that (a) such Unrestricted Subsidiary's purpose is limited and, in the
case of AULP, that such purpose is limited to conducting the business
contemplated by the Fiber Construction Agreements, (b) such Unrestricted
Subsidiary is prohibited from engaging in any dissolution, liquidation, merger,
consolidation or sale, transfer, assignment, lease, conveyance or other disposal
of all or substantially all of its Property in any one transaction or series of
transactions as long as any Indebtedness under the Fiber Construction Facility
remains outstanding, other than (1) any such transaction with or into the Issuer
or any of its Restricted Subsidiaries otherwise effected in accordance with the
terms of the Indenture, (2) any such transaction with or into another
Unrestricted Subsidiary and (3) any such transaction which, assuming for
purposes of this clause (3) only that such Unrestricted Subsidiary were a
Restricted Subsidiary, would comply with the covenant entitled "Limitation on
Asset Sales;" provided, however, that any Net Available Cash derived therefrom
may also be used to prepay, repay or purchase Indebtedness under the Fiber
Construction Facility and (c) the Board of Directors of such Unrestricted
Subsidiary or, in the case of a partnership, of the corporate general partner of
such partnership, shall consist of not less than one independent director; (ii)
to maintain separate books and records including, without limitation, separate
financial statements; (iii) not to commingle any of its properties or assets
with the properties or assets of the Issuer or any Restricted Subsidiary; (iv)
to pay its liabilities, the salaries of its employees and all consultant and
advisor fees and expenses directly out of funds that do not comprise in whole or
in part the funds of the Issuer or any of its Restricted Subsidiaries and (v)
otherwise to hold itself out as a separate entity.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Issuer will not merge or consolidate with or into any other entity
(other than a merger of a wholly owned Restricted Subsidiary into the Issuer) or
sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all of its Property in any one transaction or series of
transactions unless: (a) the entity formed by or surviving any such
consolidation or merger (if the Issuer is not the surviving entity) or the
Person to which such sale, transfer, assignment, lease, conveyance or other
disposition is made (the "Surviving Entity") shall be a corporation organized
and existing under the laws of the United States of America or a State thereof
or the District of Columbia and such corporation expressly assumes, by
supplemental indenture in form satisfactory to the Trustee, executed and
delivered to the Trustee by such corporation, the due and punctual payment of
the principal of, and interest on, all the Notes, according to their tenor, and
the due and punctual performance and observance of all the covenants and
conditions of the Indenture to be performed by the Issuer; (b) immediately
before and after giving effect to such transaction or series of transactions, no
Default or Event of Default shall have occurred and be continuing; (c)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (including, without limitation, any Indebtedness Incurred or
anticipated to be Incurred in connection with such transaction or series of
transactions), the Issuer or the Surviving Entity, as the case may be, would be
able to Incur at least $1.00 of additional Indebtedness under clause (a) of the
first paragraph of "--Certain Covenants--Limitation on Indebtedness;" and (d) in
the case of a sale, transfer, assignment, lease, conveyance or other disposition
of all or substantially all of the Issuer's Property, such Property shall have
been transferred as an entirety or virtually as an entirety to one Person.
In connection with any consolidation, merger or transfer contemplated by
this provision, the Issuer shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to
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the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, transfer, assignment, lease, conveyance or
other disposition and the supplemental indenture in respect thereof comply with
this provision and that all conditions precedent herein provided for relating to
such transaction or transactions have been complied with.
SEC REPORTS
Notwithstanding that the Issuer may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuer
shall file with the Commission and provide the Trustee and holders of the Notes
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections; such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections.
EVENTS OF DEFAULT
Events of Default in respect of the Notes as set forth in the Indenture
include: (i) failure to make any payment of any principal of any of the Notes
when the same becomes due and payable at maturity, upon acceleration,
redemption, optional redemption, required purchase or otherwise; (ii) failure to
make the payment of any interest on the Notes when the same becomes due and
payable, and such failure continues for a period of 30 days; (iii) failure to
comply with any other covenant or agreement in the Notes or in the Indenture and
such failure continues for 30 days after written notice from the Trustee or the
registered holders of not less than 25% in aggregate principal amount of the
Notes then outstanding; (iv) a default under any Indebtedness for borrowed money
by the Issuer or any Restricted Subsidiary which results in acceleration of the
maturity of such Indebtedness, or failure to pay any such Indebtedness when due
within any applicable grace period, in a total amount greater than $15 million
(the "Cross Acceleration Provisions"); (v) any judgment or judgments for the
payment of money in an uninsured aggregate amount in excess of $15 million shall
be rendered against the Issuer or any Restricted Subsidiary and shall not be
waived, satisfied or discharged for any period of 30 consecutive days during
which a stay of enforcement shall not be in effect (the "Judgment Default
Provisions"); and (vi) certain events involving bankruptcy, insolvency or
reorganization of the Issuer or any Restricted Subsidiary (the "Bankruptcy
Provisions"). The Indenture provides that the Trustee may withhold from the
holders of the Notes notice of any Default (other than payment Defaults) if the
Trustee considers it to be in the best interest of the holders of the Notes to
do so.
The Indenture will provide that if an Event of Default with respect to the
Notes (other than an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Issuer or any
Restricted Subsidiary) shall have occurred and be continuing, the Trustee or the
registered holders of not less than 25% in aggregate principal amount of the
Notes then outstanding may declare to be immediately due and payable the
principal amount of all the Notes then outstanding, plus accrued but unpaid
interest to the date of acceleration; PROVIDED, HOWEVER, that after such
acceleration but before a judgment or decree based on acceleration is obtained
by the Trustee, the registered holders of a majority in aggregate principal
amount of the Notes then outstanding, may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the nonpayment
of accelerated principal or interest, have been cured or waived as provided in
the Indenture. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Issuer or a
Restricted Subsidiary shall occur, such amount with respect to all of the Notes
shall be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of the Notes.
The registered holders of a majority in principal amount of the Notes then
outstanding shall have the right to waive any existing Default, other than
payment Defaults, with respect to the Notes or compliance
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with any provision of the Indenture and to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of the Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless (i) such holder
shall have previously given to the Trustee written notice of a continuing Event
of Default, (ii) the registered holders of at least 25% in aggregate principal
amount of the Notes then outstanding shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
(iii) the Trustee shall not have received from the registered holders of a
majority in aggregate principal amount of the Notes then outstanding a direction
inconsistent with such request, and (iv) the Trustee shall have failed to
institute such proceeding within 60 days; PROVIDED, HOWEVER, such limitations do
not apply to a suit instituted by a holder of any Note for enforcement of
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
AMENDMENTS AND WAIVERS
The Indenture may be amended with the consent of the registered holders of a
majority in principal amount of the Notes to be affected then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes) and any past Default, other than payment Defaults, or compliance
with any provisions may also be waived with the consent of the registered
holders of a majority in principal amount of the Notes to be affected then
outstanding; PROVIDED, HOWEVER, without the consent of each holder of an
outstanding Note to be affected, no amendment may, among other things, (i)
reduce the amount of Notes whose holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest on any Note, (iii)
reduce the principal of or extend the Stated Maturity of any Note, (iv) make any
Note payable in money other than that stated in the Note, (v) impair the right
of any holder of the Notes to receive payment of principal of and interest on
such holder's Notes on or after the due dates therefor or to institute suit for
the enforcement of any payment on or with respect to such holder's Notes, (vi)
modify or change any provision of the Indenture or the related definitions
affecting the ranking of the Notes in a manner which adversely affects the
holders of the Notes, (vii) make any change in the amendment provisions which
require each holder's consent or in the waiver provisions or (viii) reduce the
premium payable upon the redemption of any Note or change the time at which any
Note may or shall be redeemed as described under "Optional Redemption."
Without the consent of any holder of the Notes, the Issuer and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Issuer under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (PROVIDED that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Internal Revenue Code of 1986, as amended (the "Code"), or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add Guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Issuer for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Issuer, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to registered holders of the Notes affected a notice briefly
describing such amendment. However, the
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failure to give such notice to all holders of the Notes, or any defect therein,
will not impair or affect the validity of the amendment.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Notes and
the Indenture ("Legal Defeasance"), except for certain obligations, including
those respecting the Defeasance Trust (defined below) and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. The Issuer at any time may terminate its obligations under the
covenants described under "--Certain Covenants" (other than the covenant
described under "--Merger, Consolidation and Sale of Assets"), the operation of
the Cross Acceleration Provisions, the Bankruptcy Provisions with respect to
Restricted Subsidiaries and the Judgment Default Provisions described under
"--Events of Default" above and the limitations contained in clause (c) under
"--Certain Covenants--Merger, Consolidation and Sale of Assets" above ("Covenant
Defeasance").
The Issuer may exercise its Legal Defeasance option notwithstanding its
prior exercise of its Covenant Defeasance option. If the Issuer exercises its
Legal Defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuer exercises its Covenant
Defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii)(with respect to the covenants
described under "--Certain Covenants," other than the covenant described under
"--Merger, Consolidation and Sale of Assets" above), clause (iv), (v) or (vi)
(with respect only to Restricted Subsidiaries) under "--Events of Default" above
or because of the failure of the Issuer to comply with clause (c) under
"--Merger, Consolidation and Sale of Assets" above.
In order to exercise either its Legal Defeasance or Covenant Defeasance
option, the Issuer must irrevocably deposit in trust (the "Defeasance Trust")
with the Trustee money or U.S. Government Obligations for the payment of
principal and interest on the Notes to maturity or an earlier redemption in
accordance with the terms of the Indenture and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes of such series will not recognize income, gain
or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of Legal Defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Additional Assets" means (i) any Property (other than cash, cash
equivalents or securities) to be owned by the Issuer or a Restricted Subsidiary
and used in a Related Business, (ii) the costs of improving or developing any
Property owned by the Issuer or a Restricted Subsidiary which is used in a
Related Business and (iii) Investments in any other Person engaged primarily in
a Related Business (including the acquisition from third parties of Capital
Stock of such Person) as a result of which such other Person becomes a
Restricted Subsidiary or is merged or consolidated with or into the Issuer or
any Restricted Subsidiary.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director or
executive officer (a) of such specified Person, (b) of any Subsidiary of such
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specified Person or (c) of any Person described in clause (i) above. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. "Affiliate" shall also mean any beneficial owner
of shares representing 10% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Issuer or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger or a Sale and Leaseback Transaction) by
such Person or any of its Subsidiaries (or, in the case of the Issuer, its
Restricted Subsidiaries) in any single transaction or series of transactions of
(a) shares of Capital Stock or other ownership interests in another Person
(including, with respect to the Issuer and its Restricted Subsidiaries, Capital
Stock of Unrestricted Subsidiaries) or (b) any other Property of such Person or
any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that the term "Asset
Sale" shall not include: (i) the sale or transfer of Temporary Cash Investments,
inventory, accounts receivable or other Property (including, without limitation,
the sale or lease of excess satellite transponder capacity and the sale or lease
of excess fiber capacity) in the ordinary course of business; (ii) the
liquidation of Property received in settlement of debts owing to such Person or
any of its Restricted Subsidiaries as a result of foreclosure, perfection or
enforcement of any Lien or debt, which debts were owing to such Person or any of
its Restricted Subsidiaries in the ordinary course of business, (iii) when used
with respect to the Issuer, any asset disposition permitted pursuant to
"--Merger, Consolidation and Sale of Assets" which constitutes a disposition of
all or substantially all of the Issuer's Property; (iv) the sale or transfer of
any Property by such Person or any of its Restricted Subsidiaries to such Person
or any of its Restricted Subsidiaries; (v) a disposition in the form of a
Restricted Payment permitted to be made pursuant to "--Certain
Covenants--Limitation on Restricted Payments;" or (vi) a disposition (taken
together with any other dispositions in a single transaction or series of
related transactions) with a Fair Market Value and a sale price of less than $5
million.
"Attributable Indebtedness" means Indebtedness deemed to be incurred in
respect of a Sale and Leaseback Transaction and shall be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually), of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
security, the quotient obtained by dividing (i) the sum of the products of the
numbers of years (rounded to the nearest one-twelfth of one year) from the date
of determination to the dates of each successive scheduled principal or other
redemption payment of such security multiplied by the amount of such payment by
(ii) the sum of all such payments.
"AULP" means , an Alaska partnership that will be an Unrestricted
Subsidiary on the Issue Date.
"Board of Directors" of any Person means the Board of Directors of such
Person or any committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of Parent and the Issuer to have been duly adopted by
the Board of Directors of Parent and the Issuer, to be in full force and effect
on the date of such certification and delivered to the Trustee.
"Capacity Lease" means the Lease Contract and related guarantee by and among
GCI Communication Corp. (a Restricted Subsidiary) as lessee, GCI Holdings (a
Restricted Subsidiary) as guarantor of
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the lessee's obligations and AULP as lessor, on terms and conditions
substantially as outlined in and otherwise consistent with Exhibit A (Summary of
Terms and Conditions) attached to the Fiber Construction Facility Commitment
Letter pursuant to which GCI Communication Corp. agrees to lease up to 45% of
the output capacity of the System, as such lease contract may otherwise be
amended, supplemented or otherwise modified in accordance with the terms thereof
and of the Indenture.
"Capital Lease Obligations" means Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP and the amount of such Indebtedness shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of corporate stock, partnership interests
or any other participation, right, warrant, option or other interest in the
nature of an equity interest in such Person, but excluding any debt security
convertible or exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate Net Cash Proceeds received
by the Issuer from the issue or sale (other than to a Subsidiary of the Issuer
or an employee stock ownership plan or trust established by the Issuer or any
Subsidiary of the Issuer and other than pursuant to the Stock Offering) by the
Issuer of any class of its Capital Stock (other than Disqualified Stock) after
the Issue Date, provided, however, that exercise of the over-allotment option
with respect to the Stock Offering shall not constitute Capital Stock Sale
Proceeds.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b) (1) under the Exchange Act) other
than one or more of the Permitted Holders, or an entity or entities controlled
by one or more of the Permitted Holders, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
40% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of Parent or the Issuer, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of Parent or the Issuer (together with any new directors whose
election by the Board of Directors of Parent or the Issuer, as the case may be,
or whose nomination for election by the shareholders of Parent or the Issuer, as
the case may be, was approved by a majority vote of the directors of Parent or
the Issuer, as the case may be, then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of Parent or the Issuer, as the case may be, then in office,
(iii) the Issuer consolidates or merges with or into any other Person (other
than one or more Permitted Holders or an entity or entities controlled by one or
more Permitted Holders) or any other Person (other than one or more Permitted
Holders or an entity or entities controlled by one or more Permitted Holders)
consolidates or merges with or into the Issuer, in either case, other than (a) a
consolidation or merger with a wholly owned Restricted Subsidiary in which all
of the Voting Stock of the Issuer outstanding immediately prior to the
effectiveness thereof is changed into or exchanged for substantially the same
consideration or (b) a consolidation or merger with or into Parent or (iv) the
Issuer sells, conveys, transfers or leases, directly or indirectly, all or
substantially all of its assets (other than a transfer of such assets as an
entirety or virtually as an entirety to a wholly owned Restricted Subsidiary,
Parent, one or more Permitted Holders or an entity or entities controlled by one
or more Permitted Holders).
"Completion Guarantee" means the Completion Guarantee between GCI Holdings
and AULP on terms and conditions substantially as outlined in and otherwise
consistent with Exhibit A (Summary of Terms and Conditions) attached to the
Fiber Construction Facility Commitment Letter pursuant to which GCI Holdings
agrees, subject to certain limitations, to advance funds, directly or
indirectly, to a Fiber Construction Facility Obligor for, or otherwise cause,
the timely completion of construction of the System, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and of the Indenture.
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"Consolidated Interest Expense" means, for any Person, for any period, the
amount of interest in respect of Indebtedness (including amortization of
original issue discount, fees payable in connection with financings, including
commitment, availability and similar fees, and amortization of debt issuance
costs, non-cash interest payments on any Indebtedness and the interest portion
of any deferred payment obligation and after taking into account the effect of
elections made under, and the net costs associated with, any Interest Rate
Agreement, however denominated, with respect to such Indebtedness), the amount
of dividends in respect of Disqualified Stock paid by such person, the amount of
Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of
such Person held other than by such Person or a Subsidiary (other than any
Unrestricted Subsidiary) of such Person, commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, and the interest component of rentals in respect of any Capital Lease
Obligation or Sale and Leaseback Transaction paid, accrued or scheduled to be
paid or accrued by such Person during such period, determined on a consolidated
basis for such Person and its Subsidiaries (or, in the case of the Issuer, its
Restricted Subsidiaries) in accordance with GAAP consistently applied. For
purposes of this definition, interest on a Capital Lease Obligation or a Sale
and Leaseback Transaction shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capital Lease Obligation or Sale and Leaseback Transaction in accordance with
GAAP consistently applied.
"Consolidated Net Income" of a Person means for any period, the net income
(loss) of such Person and its Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income (i) with respect to the Issuer,
any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that (a) subject to the limitations contained in clause (iv)
below, the Issuer's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Issuer or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (b) the Issuer's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income, (ii) any
net income (loss) of any Person acquired by such Person or a Subsidiary of such
Person in a pooling of interests transaction for any period prior to the date of
such acquisition, (iii) with respect to the Issuer, any net income (loss) of any
Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Issuer, except that (a)
subject to the limitations contained in clause (iv) below, the Issuer's equity
in the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such period to
the Issuer or another Restricted Subsidiary as a dividend (subject, in the case
of a dividend to another Restricted Subsidiary, to the limitation contained in
this clause) and (b) the Issuer's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income, (iv) any gains or losses realized upon the sale or other disposition
of any Property of such Person or its consolidated Subsidiaries (including
pursuant to any Sale and Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business, (v) any extraordinary gain or
loss and (vi) the cumulative effect of a change in accounting principles.
Notwithstanding the provisions of clause (iii) in the preceding paragraph,
in the event that Consolidated Net Income is being calculated with respect to
the Issuer or any Surviving Entity (a) for purposes of determining whether the
Issuer or any Surviving Entity could incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of the first paragraph of "--Certain
Covenants--Limitation on Indebtedness" for purposes of (i) clause (b) of the
first sentence under "--Certain Covenants--Limitation on Restricted Payments,"
(ii) clause (c) under "--Merger, Consolidation and Sale of Assets" or (iii) the
definition of "Unrestricted Subsidiary" or (b) for purposes of calculating
Cumulative EBITDA pursuant to clause (c) of
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the first sentence of "--Certain Covenants--Limitation on Restricted Payments,"
restrictions on the payment of dividends or the making of distributions to the
Issuer by GCI Holdings referred to in clause (1)(iii) of the second sentence
under "--Certain Covenants--Limitation on Restrictions on Distributions From
Restricted Subsidiaries" shall be disregarded.
Notwithstanding the provisions of clause (iii) in the first paragraph of
this definition, in the event that Consolidated Net Income is being calculated
with respect to the Issuer for purposes of determining whether the Incurrence of
Indebtedness proposed to be Incurred is permissible under clause (a) of the
first paragraph of "--Certain Covenants--Limitation on Indebtedness," then (i)
if such proposed Indebtedness is proposed to be Incurred by GCI Holdings or any
Subsidiary thereof that is a Restricted Subsidiary, restrictions on the payment
of dividends or the making of distributions to the Issuer by GCI Holdings
referred to in clause (1)(iii) of the second sentence under "--Certain
Covenants--Limitation on Restrictions on Distributions From Restricted
Subsidiaries" shall be disregarded and (ii) if such proposed Indebtedness is
proposed to be Incurred by the Issuer or any Subsidiary of the Issuer (other
than GCI Holdings and its Subsidiaries) that is a Restricted Subsidiary,
restrictions on the payment of dividends or the making of distributions to the
Issuer by GCI Holdings referred to in clause (1)(iii) of the second sentence
under "--Certain Covenants--Limitation on Restrictions on Distributions From
Restricted Subsidiaries" shall be disregarded, PROVIDED that the lenders
pursuant to the Credit Facility modify the Credit Facility to (A) allow for the
payment of dividends or the making of distributions to the Issuer in amounts
sufficient to pay the scheduled principal and interest payments on such proposed
Indebtedness when due and payable or, in the case of a proposed Incurrence of
Indebtedness by a Subsidiary, in an amount sufficient to fund capital
contributions or other Investments to or in such Subsidiary in amounts
sufficient to pay the scheduled principal and interest payments on such proposed
Indebtedness when due and payable so long as there does not exist an event which
after notice or passage of time or both would permit the lenders under the
Credit Facility to declare all amounts thereunder due and payable, and (B)
provide that in no event shall any encumbrance or restriction pursuant to the
Credit Facility prohibit distributions to pay principal, premium, if any, and
interest on such proposed Indebtedness for more than 180 days in any consecutive
360 day period, unless the maturity of the Credit Facility has been accelerated.
"Credit Facility" means the $375 million credit facility pursuant to a
credit agreement, dated as of , 1997, among GCI Holdings, as
borrower, and NationsBank of Texas, N.A., Credit Lyonnais New York Branch and
Toronto Dominion (USA) Inc., as agents, and the lenders party thereto, as
amended or supplemented, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring all or any portion of the
Indebtedness under such agreement or any successor replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Cumulative EBITDA" means at any date of determination the cumulative EBITDA
of the Issuer from and after the last day of the fiscal quarter of the Issuer
immediately preceding the Issue Date to the end of the fiscal quarter
immediately preceding the date of determination or, if such cumulative EBITDA
for such period is negative, the amount (expressed as a negative number) by
which such cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued by the Issuer and its Restricted Subsidiaries from the last
day of the fiscal quarter of the Issuer immediately preceding the Issue Date to
the end of the fiscal quarter immediately preceding the date of determination.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or
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otherwise, or is exchangeable for Indebtedness at the option of the holder
thereof, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to the final maturity date of the Notes.
"EBITDA" means, for any Person, for any period, an amount equal to (A) the
sum of (i) Consolidated Net Income for such period, plus, to the extent deducted
in arriving at Consolidated Net Income for such period, (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, (iii) Consolidated
Interest Expense for such period, (iv) depreciation for such period on a
consolidated basis, (v) amortization of intangibles for such period on a
consolidated basis, and (vi) any other non-cash items reducing Consolidated Net
Income for such period, minus (B) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP consistently applied, except that with respect to the
Issuer each of the foregoing items shall be determined on a consolidated basis
with respect to the Issuer and its Restricted Subsidiaries only.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than or equal to $15 million, by any Officer of Parent
and the Issuer or (ii) if such property or asset has a Fair Market Value in
excess of $15 million, by a majority of the Board of Directors of Parent and the
Issuer and evidenced by a Board Resolution, dated within 30 days of the relevant
transaction.
"Fiber Construction Agreement" means each of the Fiber Construction
Facility, the Completion Guarantee, the GCI Transport Keep-Well Agreement, the
Operating Keep-Well Agreement, the Operating and Maintenance Contract and the
Capacity Lease.
"Fiber Construction Facility" means the Construction and Term Loan Facility
by and among Credit Lyonnais New York Branch, NationsBank of Texas, N.A. and
Toronto Dominion (USA) Inc. (collectively, the "Fiber Construction Facility
Banks") as agents, certain lenders and AULP on terms and conditions (i)
substantially as outlined in and otherwise consistent with Exhibit A (Summary of
Terms and Conditions) attached to the commitment letter for such facility
between Parent and the Fiber Construction Facility Banks dated July 3, 1997 (the
"Fiber Construction Facility Commitment Letter"), and (ii) which will include an
additional covenant requiring third party commitments (including for this
purpose bona fide purchases by the Issuer and its Restricted Subsidiaries) to
generate capacity purchase revenues or lease payments, pursuant to which the
Fiber Construction Facility Banks have agreed to provide financing to construct
and develop an undersea fiber optic cable connecting Anchorage, Fairbanks and
Juneau, Alaska with the continental United States, as such facility may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof and of the Indenture.
"Fiber Construction Facility Obligor" means each of AULP and one or more of
its Subsidiaries and their respective successors so long as it is a party to the
Fiber Construction Facility.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, unless stated otherwise.
"Galaxy X Agreement" means each of the Galaxy X Transponder Service
Agreement between Hughes Communications Satellite Services, Inc. and GCI
Communication Corp. and the Galaxy X Transponder Purchase Agreement, each of
which is dated August 24, 1995, as such agreements may be amended, supplemented
or otherwise modified from time to time in accordance with the terms thereof and
the terms of the Indenture.
"GCI" means General Communication, Inc., an Alaska corporation, and its
successors.
"GCI Holdings" means GCI Holdings, Inc., an Alaska corporation, and its
successors.
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"GCI Transport" means GCI Transport Company, an Alaska Corporation, and its
successors.
"GCI Transport Keep-Well Agreement" means the Operating Keep-Well Agreement
between GCI Transport and AULP on terms and conditions substantially as outlined
in and otherwise consistent with Exhibit A (Summary of Terms and Conditions)
attached to the Fiber Construction Facility Commitment Letter pursuant to which
GCI Transport agrees, subject to certain limitations, to advance funds, directly
or indirectly, to a Fiber Construction Facility Obligor to pay (i) any operating
expenses, including interest and principal payments on Indebtedness, in excess
of revenues of AULP and (ii) any unpaid amount on the Fiber Construction
Facility when due at Stated Maturity or upon acceleration, as such agreement may
be amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof and the terms of the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, foreign exchange contract, currency
swap agreement, currency option or any other similar agreement or arrangement.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness; PROVIDED FURTHER, that solely for
purposes of determining compliance with "Certain Covenants--Limitation on
Indebtedness," amortization of debt discount shall not be deemed to be the
Incurrence of Indebtedness, provided that in the case of Indebtedness sold at a
discount, the amount of such Indebtedness Incurred shall at all times be the
aggregate principal amount at Stated Maturity.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness, secured or unsecured, contingent or otherwise, which is for
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or representing the balance deferred
and unpaid of the purchase price of any property (excluding any balances that
constitute customer advance payments and deposits, accounts payable or trade
payables, and other accrued liabilities arising in the ordinary course of
business) if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and shall also include, to the extent not otherwise included (i) any
Capital Lease Obligations, (ii) Indebtedness of other Persons secured by a Lien
to which the Property owned or held by such first Person is subject, whether or
not the obligation or obligations secured thereby shall have been assumed (the
amount of such Indebtedness being deemed to be the lesser of the value of such
property or assets or the amount of the Indebtedness so secured), (iii)
Guarantees of Indebtedness of other Persons, (iv) any Disqualified Stock, (v)
any Attributable Indebtedness, (vi) all reimbursement obligations of such Person
in respect of letters of credit, bankers' acceptances or other similar
instruments or credit transactions issued for the account of
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such Person, (vii) in the case of the Issuer, Preferred Stock of its Restricted
Subsidiaries, and (viii) to the extent not otherwise included in clauses (i)
through (vii) of this paragraph, any payment obligations of any such Person at
the time of determination under any Hedging Obligation. For purposes of this
definition, the maximum fixed repurchase price of any Disqualified Stock that
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Stock as if such Disqualified Stock were
repurchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture; PROVIDED, HOWEVER, that if such Disqualified Stock is
not then permitted to be repurchased, the repurchase price shall be the book
value of such Disqualified Stock. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any contingent
obligations in respect thereof at such date. For purposes of this definition,
the amount of the payment obligation with respect to any Hedging Obligation
shall be an amount equal to (i) zero, if such obligation is an Interest Rate
Agreement permitted pursuant to clause (v) of the second paragraph of "--Certain
Covenants-- Limitation on Indebtedness" or (ii) the notional amount of such
Hedging Obligation, if such Hedging Obligation is not an Interest Rate Agreement
so permitted.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other Property to others or payments for Property or services for the account
or use of others, or otherwise) to, or Incurrence of a Guarantee of any
obligation of, or purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities or evidence of Indebtedness issued by, any other
Person. In determining the amount of any Investment made by transfer of any
Property other than cash, such Property shall be valued at its Fair Market Value
at the time of such Investment (it being understood that leasing output capacity
of the System under the Capacity Lease shall not be or be deemed an Investment).
"Issue Date" means the date on which the Notes are initially issued.
"Leverage Ratio" means the ratio of (i) the outstanding Indebtedness of a
Person and its Subsidiaries (or in the case of the Issuer, the outstanding
Indebtedness of the Issuer and its Restricted Subsidiaries) divided by (ii) the
Trailing Pro Forma EBITDA of such Person (or in the case of the Issuer, the
Trailing Pro Forma EBITDA of the Issuer and its Restricted Subsidiaries).
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority, or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Net Available Cash" from an Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to such Properties or assets or received in any other noncash form) in each case
net of all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of such
Asset Sale, and in each case net of all payments made on any Indebtedness (a)
which is secured by any assets subject to such Asset Sale, in accordance with
the terms of any Lien upon or other security agreement of any kind with respect
to such assets, or (b) which must (1) by its terms, or in order to obtain a
necessary consent to such Asset Sale (except, in the case of this clause (b),
Indebtedness that is PARI
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PASSU with or subordinated to the Notes), or (2) by applicable law be repaid out
of the proceeds from such Asset Sale, and net of all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Sale.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer and the Chief Accounting Officer of Parent and the Issuer.
"Officers' Certificate" means a certificate signed by two Officers of Parent
and the Issuer, at least one of whom shall be the principal executive officer or
principal financial officer of Parent and the Issuer, and delivered to the
Trustee.
"Operating and Maintenance Contract" means the Operating and Maintenance
Contract between GCI Communication Corporation (a Restricted Subsidiary) and
AULP on terms and conditions substantially as outlined in and otherwise
consistent with Exhibit A (Summary of Terms and Conditions) attached to the
Fiber Construction Facility Commitment Letter, pursuant to which GCI
Communication Corporation agrees, subject to certain limitations, to operate and
maintain the System and receive compensation for the actual services provided by
it, such compensation to be no less favorable to GCI Communication Corporation
than that which could be obtained in a comparable arms-length transaction, as
such agreement may be amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof and of the Indenture.
"Operating Keep-Well Agreement" means the Operating Keep-Well Agreement
between GCI Holdings and AULP on terms and conditions substantially as outlined
in and otherwise consistent with Exhibit A (Summary of Terms and Conditions)
attached to the Fiber Construction Facility Commitment Letter, pursuant to which
GCI Holdings agrees, subject to certain limitations, to advance funds, directly
or indirectly, to a Fiber Construction Facility Obligor to pay (i) any operating
expenses, including interest and principal payments on Indebtedness, in excess
of revenues of AULP and (ii) any unpaid amount on the Fiber Construction
Facility when due at Stated Maturity or upon acceleration, as such agreement may
be amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof and of the Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be counsel to Parent, the Issuer or
the Trustee.
"Parent" means GCI so long as it owns, and any other Person which acquires
or owns, directly or indirectly, 80% or more of the Voting Stock of the Issuer.
"Permitted Holders" means (i) Ronald Duncan and his estate, spouse,
ancestors, lineal descendants and the trustee of any bona fide trust of which
the foregoing are the sole beneficiaries, (ii) MCI Telecommunications
Corporation and its controlled Affiliates, (iii) Prime Cable Growth Partners,
L.P., Prime Venture I Holdings, L.P., Prime Venture II, L.P., Prime Cable
Limited Partnership and their respective controlled Affiliates, (iv) the General
Communication, Inc. Employee Stock Purchase Plan, and (v) the Estate of Bob
Magness so long as Donne Fisher is one of no more than two legal representatives
of such estate.
"Permitted Investment" means an Investment by the Issuer or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary, PROVIDED the primary
business of such Restricted Subsidiary is a Related Business; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to (after which such other Person shall cease to exist or shall remain a
"shell" corporation), the Issuer or a Restricted Subsidiary, PROVIDED such
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Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) accounts receivable owing to the Issuer or any Restricted
Subsidiary, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; (v) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (vi) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Issuer or any Restricted Subsidiary or in satisfaction
of judgments; and (vii) loans and advances to employees of Parent, the Issuer or
a Restricted Subsidiary made in the ordinary course of business consistent with
past practice of Parent, the Issuer or such Restricted Subsidiary, as the case
may be, PROVIDED, that such loans and advances do not exceed in the aggregate $5
million at any one time outstanding.
"Permitted Issue Date Transactions" means any transaction on or promptly
after the Issue Date relating to (i) the repayment in full of bank credit
facilities of the Issuer's Subsidiaries outstanding on the Issue Date before
giving effect to the Incurrence of Indebtedness under the Credit Facility and
(ii) the contribution or advancement by the Issuer or a Restricted Subsidiary of
an amount not in excess of $50 million to GCI Transport.
"Permitted Liens" means (i) Liens on the Property of the Issuer or any
Restricted Subsidiary existing on the Issue Date, (ii) Liens on all or
substantially all of the assets of the Restricted Subsidiaries and the Capital
Stock of GCI Holdings owned by the Issuer in favor of the lenders under the
Credit Facility; (iii) Liens on the Property of the Issuer or any Restricted
Subsidiary to secure any extension, renewal, refinancing, replacement or
refunding (or successive extensions, renewals, refinancings, replacements or
refundings), in whole or in part, of any Indebtedness secured by Liens referred
to in any of clauses (i), (ii), (vii) or (x); PROVIDED, HOWEVER, that any such
Lien will be limited to all or part of the same Property that secured the
original Lien (plus improvements on such Property) and the aggregate principal
amount of Indebtedness that is secured by such Lien will not be increased to an
amount greater than the sum of (A) the outstanding principal amount, or, if
greater, the committed amount, of the Indebtedness secured by Liens described
under clauses (i), (ii), (vii) or (x) , as applicable, at the time the original
Lien became a Permitted Lien under the Indenture and (B) an amount necessary to
pay any premiums, fees and other expenses incurred by the Issuer in connection
with such extension, renewal, refinancing, replacement or refunding; (iv) Liens
for taxes, assessments or governmental charges or levies on the Property of the
Issuer or any Restricted Subsidiary if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings; (v) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens and other similar Liens on the
Property of the Issuer or any Restricted Subsidiary arising in the ordinary
course of business and securing payment of obligations which are not more than
60 days past due or are being contested in good faith and by appropriate
proceedings; (vi) Liens on the Property of the Issuer or any Restricted
Subsidiary Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements, performance or
return-of-money bonds, surety bonds or other obligations of a like nature and
Incurred in a manner consistent with industry practice; (vii) Liens on Property
at the time the Issuer or any Restricted Subsidiary acquired such Property,
including any acquisition by means of a merger or consolidation with or into the
Issuer or any Restricted Subsidiary; provided such Lien shall not have been
Incurred in anticipation of or in connection with such transaction or series of
related transactions pursuant to which such Property was acquired by the Issuer
or any Restricted Subsidiary; (viii) other Liens on the Property of the Issuer
or any Restricted Subsidiary incidental to the conduct of their respective
businesses or the ownership of their respective Properties which were not
created in anticipation of or in connection with the Incurrence of Indebtedness
or the obtaining of advances or credit and which do not in the aggregate
materially detract from the value of their respective Properties or materially
impair the use thereof in the operation of their respective businesses; (ix)
pledges or deposits by the Issuer or any Restricted Subsidiary under worker's
compensation laws, unemployment insurance laws or similar legislation, or good
faith deposits in connection
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with bids, tenders, contracts (other than for the payment of Indebtedness) or
leases to which the Issuer or any Restricted Subsidiary is party, or deposits to
secure public or statutory obligations of the Issuer or any Restricted
Subsidiary, or deposits for the payment of rent, in each case Incurred in the
ordinary course of business; (x) Liens on the Property of a Person at the time
such Person becomes a Restricted Subsidiary; PROVIDED any such Lien does not
extend to any other Property of the Issuer or any Restricted Subsidiary; and
PROVIDED FURTHER that any such Lien was not Incurred in anticipation of or in
connection with the transaction or series of related transactions pursuant to
which such Person became a Restricted Subsidiary, and (xi) utility easements,
building restrictions and such other encumbrances or charges against real
property as are of a nature generally existing with respect to properties of a
similar character.
"Permitted Refinancing Indebtedness" means any extensions, renewals,
refinancings, replacements or refundings of any Indebtedness, including any
successive extensions, renewals, substitutions, refinancings, replacements or
refundings so long as (i) the aggregate amount of Indebtedness represented
thereby is not increased by such extension, renewal, refinancing, replacement or
refunding (other than to finance fees and expenses, including any premium and
defeasance costs, incurred in connection therewith), (ii) the Average Life of
such Indebtedness is equal to or greater than the Average Life of the
Indebtedness being extended, renewed, refinanced, replaced or refunded, (iii)
the Stated Maturity of such Indebtedness is no earlier than the Stated Maturity
of the Indebtedness being extended, renewed, refinanced, replaced or refunded
and (iv) the new Indebtedness shall not be senior in right of payment to the
Indebtedness that is being extended, renewed, refinanced, replaced or refunded;
PROVIDED, that Permitted Refinancing Indebtedness shall not include (a)
Indebtedness of a Subsidiary that extends, renews, refinances, replaces or
refunds, Indebtedness of the Issuer or (b) Indebtedness of the Issuer or a
Restricted Subsidiary that extends, renews, refinances, replaces or refunds
Indebtedness of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any limited
liability company), partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of such
Person as determined on a consolidated basis in accordance with GAAP
consistently applied after giving effect to the following: (i) if, during or
after such period, such Person or any of its Subsidiaries shall have made any
disposition of any Person or business, Pro Forma EBITDA of such Person and its
Subsidiaries shall be computed so as to give pro forma effect to such
disposition and (ii) if, during or after such period, such Person or any of its
Subsidiaries completes an acquisition of any Person or business which
immediately after such acquisition is a Subsidiary of such Person or whose
assets are held directly by such Person or a Subsidiary of such Person, Pro
Forma EBITDA shall be computed so as to give pro forma effect to the acquisition
of such Person or business; PROVIDED, HOWEVER, that, with respect to the Issuer,
all of the foregoing references to "Subsidiary or "Subsidiaries" shall be deemed
to refer only to the "Restricted Subsidiaries" of the Issuer.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including, without limitation, Capital Stock in, and other
securities of, any other Person (but excluding Capital Stock or other securities
issued by such first mentioned Person).
"Qualified Stock" means any Capital Stock that is not Disqualified Stock.
"Related Business" means the business of (i) transmitting, or providing
services related to the transmission of voice, video or data through owned or
leased wireline or wireless transmission facilities, (ii) creating, developing,
constructing, installing, repairing, maintaining or marketing communications-
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related systems, network equipment and facilities, software and other products
or (iii) pursuing any other business that is primarily related to those
identified in the foregoing clauses (i) or (ii).
"Restricted Payment" means (i) any dividend or distribution (whether made in
cash, Property or securities) declared or paid on or with respect to any shares
of Capital Stock of the Issuer or Capital Stock of any Restricted Subsidiary
except for any dividend or distribution which is made solely by a Restricted
Subsidiary to the Issuer or another Restricted Subsidiary (and, if such
Restricted Subsidiary is not wholly owned, to the other shareholders of such
Restricted Subsidiary on a pro rata basis) or dividends or distributions payable
solely in shares of Capital Stock (other than Disqualified Stock) of the Issuer;
(ii) a payment made by the Issuer or any Restricted Subsidiary to purchase,
redeem, acquire or retire any Capital Stock of the Issuer or Capital Stock of
any Affiliate of the Issuer (other than a Restricted Subsidiary) or any
warrants, rights or options to directly or indirectly purchase or acquire any
such Capital Stock or any securities exchangeable for or convertible into any
such Capital Stock; (iii) a payment made by the Issuer or any Restricted
Subsidiary to redeem, repurchase, defease or otherwise acquire or retire for
value, prior to any scheduled maturity, scheduled sinking fund or mandatory
redemption payment (other than the purchase, repurchase, or other acquisition of
any Indebtedness subordinate in right of payment to the Notes purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition),
Indebtedness of the Issuer which is subordinate (whether pursuant to its terms
or by operation of law) in right of payment to the Notes; or (iv) an Investment
(other than Permitted Investments) in any Person; provided, however, that the
term "Restricted Payment" shall not include any of the Permitted Issue Date
Transactions.
"Restricted Subsidiary" means (i) any Subsidiary of the Issuer on or after
the Issue Date unless such Subsidiary shall have been designated an Unrestricted
Subsidiary as permitted or required pursuant to the definition of "Unrestricted
Subsidiary" and (ii) an Unrestricted Subsidiary which is redesignated as a
Restricted Subsidiary as permitted pursuant to the definition of "Unrestricted
Subsidiary."
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Subsidiary of such Person (or, in the case of the Issuer,
its Restricted Subsidiaries) and is thereafter leased back from the purchaser or
transferee thereof by such Person or one of its Subsidiaries (or, in the case of
the Issuer, its Restricted Subsidiaries).
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act as in effect on the Issue Date;
provided, however, that for purposes of this definition only, (i) subclause (3)
of such Rule 1.02(w) shall be disregarded and (ii) "Significant Subsidiary"
shall include any Subsidiary (and its Subsidiaries) whose EBITDA comprises more
than 10% of the EBITDA of the Issuer for the most recently completed fiscal
year.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer thereof unless such contingency has
occurred).
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which at
least a majority of the total voting power of the Voting Stock is held by such
first-named Person or any of its Subsidiaries and such first-named Person or any
of its Subsidiaries has the power to direct the management, policies and affairs
thereof; or (ii) in the case of a partnership, joint venture, association, or
other business entity, with respect to which such first-named Person or any of
its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity
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by contract or otherwise if in accordance with generally accepted accounting
principles such entity is consolidated with the first-named Person for financial
statement purposes.
"System" has the meaning set forth in the Fiber Construction Facility.
"Temporary Cash Investments" means any of the following: (i) Investments in
U.S. Government Obligations maturing within 90 days of the date of acquisition
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 90 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America or any state thereof having capital, surplus and
undivided profits aggregating in excess of $500,000,000 and whose long-term debt
is rated "A-3" or "A-" or higher according to Moody's Investors Service, Inc. or
Standard & Poor's Ratings Group (or such similar equivalent rating by at least
one "nationally recognized statistical rating organization" (as defined in Rule
436 under the Securities Act)) and shall, in any event, include National Bank of
Alaska or First National Bank of Anchorage, (iii) repurchase obligations with a
term of not more than 7 days for underlying securities of the types described in
clause (i) entered into with a bank meeting the qualifications described in
clause (ii) above, and (iv) Investments in commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other than
the Issuer or an Affiliate of the Issuer) organized and in existence under the
laws of the United States of America with a rating at the time as of which any
Investment therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)).
"Trailing Pro Forma EBITDA" means, with respect to any Person, such Person's
Pro Forma EBITDA for the four most recent full fiscal quarters for which
financial statements are available.
"Unrestricted Subsidiary" means (a) GCI Transport, GCI Satellite Company,
GCI Fiber Company, Fiber Hold Company, and AULP and (b) any Subsidiary of an
Unrestricted Subsidiary. The Parent's and the Issuer's Board of Directors may
designate any Person that becomes a Subsidiary of the Issuer or any Restricted
Subsidiary to be an Unrestricted Subsidiary if (i) the Subsidiary to be so
designated does not own any Capital Stock or Indebtedness of, or own or hold any
Lien on any Property of, the Issuer or any other Restricted Subsidiary, (ii) the
Subsidiary to be so designated is not obligated under any Indebtedness or other
obligation that, if in default, would result (with the passage of time or notice
or otherwise) in a default on any Indebtedness of the Issuer or any Restricted
Subsidiary and (iii) either (A) the Subsidiary to be so designated has total
assets of $1,000 or less or (B) such designation is effective immediately upon
such entity becoming a Subsidiary of the Issuer or any Restricted Subsidiary.
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Issuer or of any Restricted Subsidiary will be classified as a
Restricted Subsidiary; PROVIDED, HOWEVER, that such Subsidiary shall not be
designated a Restricted Subsidiary and shall be automatically classified as an
Unrestricted Subsidiary if the Issuer would be unable to Incur at least $1.00 of
additional Indebtedness pursuant to clause (a) of the first paragraph of
"--Certain Covenants--Limitation on Indebtedness." Except as provided in the
second sentence of this paragraph, no Restricted Subsidiary may be redesignated
as an Unrestricted Subsidiary. Parent's and the Issuer's Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary if,
immediately after giving pro forma effect to such designation, (x) the Issuer
could Incur at least $1.00 of additional indebtedness pursuant to clause (a) of
the first paragraph of "--Certain Covenants--Limitation on Indebtedness" and (y)
no Default or Event of Default shall have occurred and be continuing or would
result therefrom. Any such designation by Parent's and the Issuer's Board of
Directors will be evidenced to the Trustee by filing with the Trustee a copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying (i) that such designation complies with the foregoing
provisions and (ii) giving the effective date of such designation, such filing
with the Trustee to occur within 75 days after the end of the fiscal quarter of
the Issuer in which such designation is made (or in the case of a designation
made during the last fiscal quarter of the Issuer's fiscal year, within 120 days
after the end of such fiscal year).
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"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Vendor Financing" means the financing entered into with any vendor or
supplier (or any financial institution acting on behalf of or for the purpose of
directly financing purchases from such vendor or supplier) to the extent the
Indebtedness thereunder is incurred for the purpose of financing the cost
(including the cost of design, development, site acquisition, construction,
integration, manufacture or acquisition) or maintenance of personal property
(tangible or intangible) used, or to be used, in a Related Business.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
NOTICES
Notices to holders of Notes will be sent by mail to the addresses of such
holders as they may appear in the Security Register.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the internal laws of the State of New York without reference to principles of
conflict of laws.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. The Bank of New
York is a lender pursuant to the Credit Facility.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Issuer has agreed to issue and sell to the
Underwriters listed below and each of the Underwriters has agreed to purchase,
the principal amount of Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
Salomon Brothers Inc............................................................................ $
Schroder & Co. Inc..............................................................................
NationsBanc Capital Markets, Inc................................................................
TD Securities (USA) Inc.........................................................................
----------------
$ 150,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions set forth therein. The Underwriters will be
obligated to purchase all the Notes offered hereby if any Notes are purchased.
The Underwriters have advised the Issuer that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of % of such principal amount to certain other dealers. After the initial
public offering, the public offering price and such concessions may be changed.
It is expected that delivery of the Notes will be made against payment
therefor on or about the fifth business day following the date of this
Prospectus. Under Rule 15c6-1 of the U.S. Securities and Exchange Commission
under the Exchange Act, trades in the secondary market generally are required to
settle in three business days, unless the parties to any such trade expressly
agree otherwise. Accordingly, purchasers who wish to trade Notes on the date
hereof or the next succeeding business day will be required, by virtue of the
fact that the Notes initially will settle in T+5, to specify an alternate
settlement cycle at the time of any such trade to prevent a failed settlement.
Purchasers of Notes who wish to trade Notes on the date hereof or the next
succeeding business day should consult their own advisor.
The Underwriting Agreement provides that the Issuer will indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, or contribute to payments the Underwriters may be
required to make in respect thereof.
The Issuer has been advised by the Underwriters that they presently intend
to make a market in the Notes, as permitted by applicable laws and regulations,
although they are under no obligation to do so. There is no existing market for
the Notes and there can be no assurance that a market will develop. See "Risk
Factors--Lack of Public Market for Notes."
Under the Conduct Rules of the National Association of Securities Dealers,
Inc. (the "NASD"), when more than 10% of the proceeds of a public offering of
debt securities, not including underwriting compensation, are to be paid to
members of the NASD participating in such public offering of debt securities or
affiliates of such members, the yield at which the debt securities are
distributed to the public must be no lower than that recommended by a qualified
independent underwriter meeting certain standards. Toronto Dominion Securities
(USA) Inc. and NationsBanc Capital Markets, Inc. are members of the NASD. TD
Securities (USA) Inc. is an affiliate of Toronto Dominion (Texas), Inc., the
Administrative Agent, a Managing Agent and a Lender under the Cable Credit
Facility and a Lender under the Telephony Credit Facility. NationsBanc Capital
Markets, Inc. is an affiliate of NationsBank of Texas, N.A.,
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a Managing Agent, the Syndication Agent and a Lender under the Cable Credit
Facility and the Administrative Agent and a Lender under the Telephony Credit
Facility. Toronto Dominion (Texas), Inc. and NationsBank of Texas, N.A. will
receive a portion of the proceeds of the Offering for the repayment of
borrowings under the credit facilities and fees related to the proposed
amendments to such facilities. Toronto Dominion (Texas), Inc. and NationsBank of
Texas, N.A., will receive more than 10% of the net proceeds from this Offering
as a result of the use of such proceeds to repay a portion of the borrowings
under the credit facilities. In connection with the Credit Facility, the Company
would be required to pay commitment fees on the unused portion of the
commitments and a nonrefundable facility fee not in excess of $3.05 million on
the total amount of the commitments. See "Use of Proceeds." As a result, this
Offering is being made in compliance with paragraph (8) of Rule 2710(c) the
Conduct Rules of the NASD which relates to offerings with respect to which net
proceeds are directed to members of the NASD. Salomon Brothers Inc will act as a
qualified independent underwriter in connection with the Offering and assume the
customary responsibilities of acting as a qualified independent underwriter in
pricing and conducting due diligence for this Offering. The Company has also
agreed to indemnify Salomon Brothers Inc against certain liabilities, including
liabilities under the Securities Act, and to afford Salomon Brothers Inc certain
rights of contribution.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain, or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M under the Securities Exchange Act of 1934, as amended,
pursuant to which such persons may bid for or purchase Notes for the purposes of
stabilizing their market price. The Underwriters also may create a short
position for their respective accounts by selling more Notes in connection with
this Offering than they are committed to purchase from the Issuer, and in such
case may purchase Notes in the open market following completion of this Offering
to cover all or a portion of such short position. In addition, Salomon Brothers
Inc, on behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements between the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in this Offering) for the account of the Underwriters,
the selling concession with respect to Notes that are distributed in this
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph are required, and, if they are undertaken, they may be discontinued at
any time.
LEGAL MATTERS
The validity of the Notes and certain other legal matters in connection with
the Notes offered hereby are being passed upon for the Company by Wohlforth,
Argetsinger, Johnson & Brecht, a Professional Corporation, Anchorage, Alaska,
and by Sherman & Howard L.L.C., Denver, Colorado, special counsels for the
Company. Paul, Hastings, Janofsky & Walker LLP, New York, New York has acted as
legal counsel to the Underwriters in connection with the Offerings.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been included in this Prospectus and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein which, as
to the year ended December 31, 1996, are based in part on the report of Ernst &
Young LLP, independent auditors (whose report covers the consolidated financial
statements of GCI Cable, Inc. (a subsidiary of the Company) and
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its subsidiaries, as of December 31, 1996 and for the period from inception
(April 12, 1996) to December 31, 1996, which are not included separately
herein), given upon the authority of said firms as experts in accounting and
auditing.
The financial statements of Prime Cable of Alaska, L.P. at December 31, 1995
and 1994 and for each of the two years in the period ended December 31, 1995,
and the combined financial statements of the Alaskan Cable Network at December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The audited financial statements of Alaska Cablevision at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Carl & Carlsen, independent auditors, as set forth in their report appearing
elsewhere herein and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act") and in accordance therewith is
required to file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at the following Regional Offices of the
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information filed electronically by the
Company, and can be found at http:\\www.sec.gov.
The Class A Common Stock is designated a national market system stock on the
Nasdaq Stock Market. The Class B Common Stock is traded in the over-the-counter
market. Reports, proxy statements and other information concerning the Company
can be inspected at the offices of the Nasdaq Stock Market located at 1735 K
Street, N.W., Washington, D.C. 20006.
The Issuer has filed a Registration Statement with the Commission with
respect to the Notes offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not include all of the information set forth
in the Registration Statement and the exhibits and schedules thereto, as
permitted by the rules and regulations of the Commission. For further
information with respect to the Issuer and the Notes, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
The Registration Statement, including any amendments, schedules and exhibits
filed or incorporated by reference as a part of it, is available for inspection
and copying as set forth above. Statements contained in this Prospectus about
the contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in its entirety by such reference.
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GLOSSARY
APUC -- The Alaska Public Utilities Commission.
ATU -- The Anchorage Telephone Utility, a public utility and local telephone
exchange owned by the Municipality of Anchorage and the largest
municipally-owned LEC in the country.
AVERAGE MONTHLY REVENUE PER EQUIVALENT BASIC SUBSCRIBER -- Total subscriber
revenues for the year from the sale of cable television services divided by
average total equivalent basic subscribers divided by 12.
BASIC PENETRATION -- Equivalent basic subscribers divided by homes passed.
BST -- Basic tier of cable services.
CAP (COMPETITIVE ACCESS PROVIDER) -- A company that provides its customers
with an alternative to the local exchange company for local transport of private
line and special access telecommunications services.
CENTRAL OFFICES -- The switching centers or central switching facilities of
the local exchange companies.
COLOCATION -- The ability of a CAP such as the Company to connect its
network to the LEC's central offices. Physical colocation occurs when a CAP
places its network connection equipment inside the local exchange company's
central offices. Virtual colocation is an alternative to physical colocation
pursuant to which the LEC permits a CAP to connect its network to the LEC's
central offices on comparable terms, even though the CAP's network connection
equipment is not physically located inside the central offices.
CPST -- Cable programming service tier.
DAMA -- Demand assigned multiple access.
DBS -- Direct broadcast satellite television.
DEDICATED -- Telecommunications lines reserved for use by particular
customers.
DIALING PARITY -- The ability of a competing local or toll service provider
to provide telecommunications services in such a manner that customers have the
ability to route automatically, without the use of any access code, their
telecommunications to the service provider of the customer's designation and the
ability of customers to dial the same number of digits on a competitor's network
as on the LEC's network.
DIGITAL -- A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies employ a
sequence of these pulses to represent information as opposed to the continuously
viable analog signal. The precise digital numbers minimize distortion in the
case of audio transmission.
DS3 -- Digital signal level 3, a 44.736 megabits per second digital
transmission facility.
EBITDA -- Consists of earnings before interest (net), income taxes,
depreciation, amortization, and other income (expense). EBITDA is a measure
commonly used in the telecommunications and cable television industries to
analyze companies on the basis of operating performance. It is not a measure of
financial performance under GAAP and should not be considered as an alternative
to net income as a measure of performance nor as an alternative to cash flow as
a measure of liquidity.
EQUIVALENT BASIC SUBSCRIBERS -- A number representing the sum of (a)
residential customers receiving at least the entry level of cable television
service offered by a system ("Basic Service") at the
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system's standard residential rate for Basic Service plus (b) for customers
receiving Basic Service under bulk billing arrangements at a rate less than the
system's standard residential rate for Basic Service (including multi-unit
residential complexes, hotels, motels and hospitals), the number derived by
dividing the monthly amount billed to all such subscribers for Basic Service by
the monthly standard residential rate for Basic Service.
GTEOC -- GTE Operating Companies.
HOMES PASSED -- Dwellings and commercial establishments that are or can be
connected to the distribution system of a cable system without further extension
of the transmission lines of that cable system.
HSD -- Home satellite dish earth stations.
INTERCONNECTION -- Interconnection of facilities between or among local
exchange carriers, including potential physical colocation of one carrier's
equipment in the other carrier's premises to facilitate such interconnection.
INTERLATA -- Telecommunications services originating in a LATA and
terminating outside of that LATA.
INTRALATA -- Telecommunications services originating and terminating within
the same LATA.
ISDN -- Integrated services digital network.
LATA (LOCAL ACCESS AND TRANSPORT AREA) -- A geographic area composed of
contiguous local exchanges, usually but not always within a single state.
LFA -- Local franchising authority.
LOCAL EXCHANGE -- A geographic area determined by the appropriate state
regulatory authority in which calls generally are transmitted without toll
charges to the calling or called party.
LEC (LOCAL EXCHANGE CARRIER) -- A company providing local telephone
services.
LONG DISTANCE CARRIERS (INTEREXCHANGE CARRIERS) -- Long distance carriers
provide services between local exchanges on an interstate or intrastate basis. A
long distance carrier may offer services over its own or another carrier's
facilities.
MAN -- Metropolitan area network.
MMDS -- Multichannel, multipoint distribution service.
MTS -- Message toll service.
NPT -- New product tier.
OVS -- Open video system.
PACS -- Personal access communications system.
PCS (PERSONAL COMMUNICATION SERVICE) -- A telephone service with respect to
which a telephone number or numbers are assigned to a person rather than to a
fixed location thereby allowing that person to receive and make calls from any
location within the area serviced by the personal communication service.
PEG -- Public access, educational and government.
POP -- The estimates of the 1995 population of a Metropolitan Statistics
Area for which the FCC licensed communications systems or a Rural Service Area
for which the FCC licensed communications systems, as derived from the 1995
population estimates prepared by Strategic Mapping, Inc.
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PREMIUM PENETRATION -- Premium service units divided by equivalent basic
subscribers.
PREMIUM SERVICE UNITS -- Premium programming services selected by and sold
to subscribers on an la carte or packaged basis for monthly fees in addition to
the fee for Basic Service.
SMATV -- Satellite master antenna television.
SS7 -- Signaling system number 7.
SSP -- Service switching point, an SS7 network element.
SWITCH -- A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
SWITCHED ACCESS TRANSPORT SERVICES -- Transportation of switched traffic
along dedicated lines between the local exchange company central offices and
long distance carrier pop.
SWITCHED TRAFFIC -- Telecommunications traffic along the public switched
network. This traffic is generally switched at the LEC's central offices.
TRS -- Telephone relay services.
UNBUNDLED ACCESS -- Access to unbundled elements of a telecommunications
services provider's network, including network facilities, equipment, features,
functions and capabilities, at any technically feasible point within such
network.
VSAT -- Very small aperture terminal.
128
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COMPANY
Independent Auditors' Report--KPMG Peat Marwick LLP...................................................... F-3
Report of Independent Auditors--Ernst & Young LLP........................................................ F-5
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited).............. F-6
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996 and the
three-month periods ended March 31, 1996 and 1997 (unaudited).......................................... F-8
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996 and
the three-month periods ended March 31, 1996 and 1997 (unaudited)...................................... F-9
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for the
three-month periods ended March 31, 1996 and 1997 (unaudited).......................................... F-10
Notes to Consolidated Financial Statements............................................................... F-11
PRIME CABLE
Report of Independent Auditors--Ernst & Young LLP........................................................ F-35
Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (unaudited) and June 30, 1996
(unaudited)............................................................................................ F-36
Statements of Operations for the years ended December 31, 1994 and 1995 and for the nine-month periods
ended September 30, 1995 and 1996 (unaudited), and for the six-month periods ended June 30, 1995 and
1996 (unaudited)....................................................................................... F-37
Statements of Changes in Partners' Capital Deficiency for the years ended December 31, 1994 and 1995..... F-38
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the nine-month periods
ended September 30, 1995 and 1996 (unaudited), and for the six-month periods ended June 30, 1995 and
1996 (unaudited)....................................................................................... F-39
Notes to Financial Statements............................................................................ F-40
MD&A Discussion regarding Prime Cable.................................................................... F-48
ALASKAN CABLE NETWORK (Combined for Alaskan Cable/Fairbanks, Alaskan Cable/Juneau, and Alaskan
Cable/Ketchikan)
Report of Independent Auditors--Ernst & Young LLP........................................................ F-51
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)................... F-52
Combined Statements of Income for the years ended December 31, 1993, 1994 and 1995 and for the six-month
periods ended June 30, 1995 and 1996 (unaudited)....................................................... F-53
Combined Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and 1995......... F-54
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for the
six-month periods ended June 30, 1995 and 1996 (unaudited)............................................. F-55
Notes to Combined Financial Statements................................................................... F-56
MD&A Discussion regarding Alaskan Cable Network.......................................................... F-64
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ALASKA CABLEVISION
Report of Independent Auditors--Carl & Carlsen........................................................... F-67
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)............................ F-68
Statements of Income for the years ended December 31, 1993, 1994 and 1995 and for the six-month periods
ended June 30, 1995 and 1996 (unaudited)............................................................... F-69
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995.................. F-70
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for the six-month
periods ended June 30, 1995 and 1996 (unaudited)....................................................... F-71
Notes to Financial Statements............................................................................ F-72
MD&A Discussion regarding Alaska Cablevision............................................................. F-75
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS OF THE COMPANY........................................ F-78
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
General Communication, Inc.:
We have audited the accompanying consolidated balance sheets of General
Communication, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of GCI Cable, Inc., a wholly owned subsidiary, which 1996 statements
reflect total assets of $310 million and total revenues of $9.5 million of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for GCI Cable, Inc., is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of General Communication, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Anchorage, Alaska
February 21, 1997
F-3
<PAGE>
(This page has been left blank intentionally.)
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GCI Cable, Inc. and Subsidiaries
We have audited the consolidated balance sheet of GCI Cable, Inc. and
Subsidiaries as of December 31, 1996 and the related consolidated statements of
operations, shareholder's equity and cash flows for the period from inception
(April 12, 1996) to December 31, 1996 (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GCI Cable, Inc.
and Subsidiaries at December 31, 1996, and the consolidated results of their
operations and their cash flows for the period from inception (April 12, 1996)
to December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Austin, Texas
February 14, 1997
F-5
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1997 1996 1995
----------- ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 4,730 13,349 4,017
----------- ----------- ---------
Receivables:
Trade............................................................... 27,815 27,953 21,737
Other............................................................... 1,803 1,412 253
----------- ----------- ---------
29,618 29,365 21,990
Less allowance for doubtful receivables............................... 776 597 295
----------- ----------- ---------
Net receivables..................................................... 28,842 28,768 21,695
----------- ----------- ---------
Prepaid and other current assets...................................... 2,288 2,236 1,566
Deferred income taxes, net (note 7)................................... 871 835 746
Inventories........................................................... 1,666 1,589 991
Notes receivable (note 4)............................................. 330 325 167
----------- ----------- ---------
Total current assets................................................ 38,727 47,102 29,182
----------- ----------- ---------
Property and equipment, at cost (notes 6, 9, 10 and 11)
Land and buildings.................................................... 692 692 73
Telephony distribution systems........................................ 90,256 81,414 67,434
Cable television distribution systems................................. 53,250 52,284 0
Transportation equipment.............................................. 1,072 1,064 0
Support equipment..................................................... 20,559 19,994 11,610
Property and equipment under capital leases........................... 2,030 2,030 2,030
----------- ----------- ---------
167,859 157,478 81,147
Less amortization and accumulated depreciation........................ 45,770 41,497 33,789
----------- ----------- ---------
Net property and equipment in service............................... 122,089 115,981 47,358
Construction in progress.............................................. 19,901 20,770 3,096
----------- ----------- ---------
Net property and equipment.......................................... 141,990 136,751 50,454
Notes receivable (note 4)............................................... 1,344 1,016 904
Intangible assets, net of amortization (notes 2 and 5).................. 249,243 250,920 3,125
Transponder deposit (note 13)........................................... 9,100 9,100 0
Deferred loan costs, net of amortization................................ 759 900 110
Other assets, at cost, net of amortization.............................. 1,715 1,546 990
----------- ----------- ---------
Total assets........................................................ $ 442,878 447,335 84,765
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
MARCH 31, DECEMBER 31,
1997 1996 1995
----------- ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 6)......................... $ 31,938 31,969 1,689
Current maturities of obligations under capital leases (note 11)...... 74 71 282
Accounts payable...................................................... 22,320 23,677 16,861
Accrued payroll and payroll related obligations....................... 3,679 3,830 2,108
Accrued liabilities................................................... 4,269 4,173 1,134
Accrued income taxes (note 7)......................................... 0 0 547
Accrued interest...................................................... 351 2,708 132
Subscriber deposits and deferred revenues............................. 3,444 3,449 1,317
----------- ----------- ---------
Total current liabilities........................................... 66,075 69,877 24,070
Long-term debt, excluding current maturities (note 6)................. 180,873 191,273 8,291
Obligations under capital leases, excluding current maturities (note
11)................................................................. 0 0 26
Obligations under capital leases due to related parties, excluding
current maturities (notes 10 and 11)................................ 655 675 739
Deferred income taxes, net (note 7)................................... 34,020 33,720 7,004
Other liabilities..................................................... 2,160 2,236 1,619
----------- ----------- ---------
Total liabilities................................................... 283,783 297,781 41,749
----------- ----------- ---------
Stockholders' equity (notes 2, 3, 6, 7 and 8):
Common stock (no par):
Class A. Authorized 50,000,000 shares; issued and outstanding
36,586,973 and 19,680,199 shares at December 31, 1996 and 1995,
respectively........................................................ 123,498 113,421 13,912
Class B. Authorized 10,000,000 shares; issued and outstanding
4,074,028 and 4,175,434 shares at December 31, 1996 and 1995,
respectively; convertible on a share-per-share basis into Class A
common stock........................................................ 3,432 3,432 3,432
Less cost of 199,081 and 122,611 Class A common shares held in
treasury at December 31, 1996 and 1995, respectively................ (1,039) (1,010) (389)
Paid-in capital......................................................... 4,247 4,229 4,041
Retained earnings....................................................... 28,957 29,482 22,020
----------- ----------- ---------
Total stockholders' equity.......................................... 159,095 149,554 43,016
----------- ----------- ---------
Commitments and contingencies (notes 11 and 13).........................
Total liabilities and stockholders' equity........................ $ 442,878 447,335 84,765
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED YEARS ENDED
-------------------- -------------------------------------
MARCH 31, DECEMBER 31,
1997 1996 1996 1995 1994
--------- --------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues (notes 9 and 10):
Telecommunication services....................... $ 39,225 37,969 155,419 129,279 116,981
Cable services................................... 13,656 -- 9,475 0 0
--------- --------- ----------- ----------- -----------
Total revenues................................. 52,881 37,969 164,894 129,279 116,981
Cost of sales and services......................... 27,168 21,302 92,664 72,091 63,877
Operating, selling, general and administrative
expenses......................................... 16,301 10,833 46,412 37,691 33,468
Depreciation and amortization...................... 6,120 1,887 9,409 5,993 6,639
--------- --------- ----------- ----------- -----------
Operating income (note 9)...................... 3,292 3,947 16,409 13,504 12,997
Interest expense, net (notes 3 and 6).............. 3,949 260 3,719 903 1,316
--------- --------- ----------- ----------- -----------
Net earnings before income taxes............... (657) 3,687 12,690 12,601 11,681
Income tax expense (notes 3 and 7)................. (132) 1,550 5,228 5,099 4,547
--------- --------- ----------- ----------- -----------
Net earnings................................... $ (525) 2,137 7,462 7,502 7,134
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Net earnings per common share.................. $ (0.01) 0.09 0.27 0.31 0.30
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Weighted average number of shares of common stock
equivalents outstanding.......................... 43,167 24,854 27,668 24,426 24,083
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF CLASS A
COMMON STOCK CLASS A CLASS B SHARES
------------------------ COMMON COMMON HELD IN
(AMOUNTS IN THOUSANDS) CLASS A CLASS B STOCK STOCK TREASURY
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993................................. 19,001 4,114 $ 13,470 3,432 (328)
Net earnings.................................................. -- -- -- -- --
Class B shares converted to Class A........................... 9 (9) -- -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... -- -- -- -- --
Shares issued under stock option plan......................... 72 -- 96 -- --
Shares issued under warrant agreement, net.................... 254 -- 185 -- --
Shares issued and issuable under officer stock option
agreements.................................................. 281 74 79 -- --
----------- ----- ----------- ----- -----------
Balances at December 31, 1994................................. 19,617 4,179 13,830 3,432 (328)
Net earnings.................................................. -- -- -- -- --
Class B shares converted to Class A........................... 3 (3) -- -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... -- -- -- -- --
Shares purchased and held in Treasury......................... -- -- -- -- (61)
Shares issued under stock option plan......................... 40 -- 82 -- --
Shares issued and issuable under officer stock option
agreements.................................................. 20 -- -- -- --
----------- ----- ----------- ----- -----------
Balances at December 31, 1995................................. 19,680 4,176 13,912 3,432 (389)
Net earnings.................................................. -- -- -- -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... -- -- -- -- --
Shares issued under stock option plan......................... 1 -- 1 -- --
Shares issued and issuable under officer stock option
agreements.................................................. -- -- -- -- --
----------- ----- ----------- ----- -----------
Balances at March 31, 1996 (unaudited)........................ 19,681 4,176 13,913 3,432 (389)
Net earnings (unaudited)...................................... -- -- -- -- --
Class B shares converted to Class A........................... 102 (102) -- -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... -- -- -- -- --
Shares issued to MCI.......................................... 2,000 -- 13,000 -- --
Shares issued pursuant to acquisitions, net of costs totaling
$432........................................................ 14,723 -- 86,278 -- --
Shares purchased and held in Treasury......................... -- -- -- -- (621)
Shares issued under stock option plan......................... 81 -- 230 -- --
----------- ----- ----------- ----- -----------
Balances at December 31, 1996................................. 36,587 4,074 113,421 3,432 (1,010)
Net Loss (unaudited).......................................... -- -- -- -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... -- -- -- -- --
Class B shares converted to Class A........................... 3 (3) -- -- --
Shares issued upon conversion of convertible note............. 1,538 -- 9,983 -- --
Shares purchased and held in Treasury......................... -- -- -- -- (29)
Shares issued under stock option plan......................... 31 -- 94 -- --
----------- ----- ----------- ----- -----------
Balances at March 31, 1997 (unaudited)........................ 38,159 4,071 $ 123,498 3,432 (1,039)
----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- -----------
<CAPTION>
PAID-IN RETAINED
(AMOUNTS IN THOUSANDS) CAPITAL EARNINGS
----------- -----------
<S> <C> <C>
Balances at December 31, 1993................................. 3,252 7,384
Net earnings.................................................. -- 7,134
Class B shares converted to Class A........................... -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... 371 --
Shares issued under stock option plan......................... -- --
Shares issued under warrant agreement, net.................... -- --
Shares issued and issuable under officer stock option
agreements.................................................. 18 --
----- -----------
Balances at December 31, 1994................................. 3,641 14,518
Net earnings.................................................. -- 7,502
Class B shares converted to Class A........................... -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... 397 --
Shares purchased and held in Treasury......................... -- --
Shares issued under stock option plan......................... -- --
Shares issued and issuable under officer stock option
agreements.................................................. 3 --
----- -----------
Balances at December 31, 1995................................. 4,041 22,020
Net earnings.................................................. -- 2,137
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... 16 --
Shares issued under stock option plan......................... -- --
Shares issued and issuable under officer stock option
agreements.................................................. 1 --
----- -----------
Balances at March 31, 1996 (unaudited)........................ 4,058 24,157
Net earnings (unaudited)...................................... -- 5,325
Class B shares converted to Class A........................... -- --
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... 171 --
Shares issued to MCI.......................................... -- --
Shares issued pursuant to acquisitions, net of costs totaling
$432........................................................ -- --
Shares purchased and held in Treasury......................... -- --
Shares issued under stock option plan......................... -- --
----- -----------
Balances at December 31, 1996................................. 4,229 29,482
Net Loss (unaudited).......................................... -- (525)
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial reporting
purposes.................................................... 18 --
Class B shares converted to Class A........................... -- --
Shares issued upon conversion of convertible note............. -- --
Shares purchased and held in Treasury......................... -- --
Shares issued under stock option plan......................... -- --
----- -----------
Balances at March 31, 1997 (unaudited)........................ 4,247 28,957
----- -----------
----- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- -----------------------------------
1997 1996 1996 1995 1994
---------- --------- ------------ --------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.................................... $ (525) 2,137 7,462 7,502 7,134
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization................. 5,979 1,887 9,409 5,993 6,639
Amortization of deferred loan costs........... 141 0 63 230 100
Deferred income tax expense................... 264 13 2,252 1,017 1,588
Deferred compensation and
compensatory stock options.................. (18) 143 619 433 343
Disposals of property and equipment........... 0 0 30 170 0
Bad debt expense, net of write-offs........... 179 (37) (34) (114) (312)
Other noncash income and expense items........ 16 (11) (42) 354 (36)
Change in operating assets and liabilities
(note 3).................................... (4,196) (1,773) 2,612 (1,307) 3,063
---------- --------- ------------ --------- ----------
Net cash provided by operating activities......... 1,840 2,359 22,371 14,278 18,519
---------- --------- ------------ --------- ----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired
(notes 2 and 3)............................... 0 0 (72,818) 0 0
Purchases of property and equipment............. (9,529) (6,950) (38,642) (8,938) (10,604)
Purchases of other assets including long-term
deposits...................................... (197) (45) (10,959) (510) (1,110)
Proceeds from the sale of investment security... 0 0 0 832 0
Notes receivable issued......................... (337) (130) (515) (251) (339)
Payments received on notes receivable........... 4 2 288 184 10
Restricted cash investments..................... 0 0 0 0 684
---------- --------- ------------ --------- ----------
Net cash used in investing activities............. (10,059) (7,123) (122,646) (8,683) (11,359)
---------- --------- ------------ --------- ----------
Cash flows from financing activities:
Long-term borrowings............................ 10,000 3,300 208,000 0 0
Repayments of long-term borrowings and capital
lease obligations............................. (10,448) (485) (5,039) (2,824) (8,494)
Proceeds from common stock issuance............. 77 1 13,231 82 360
Purchase of treasury stock...................... (29) 0 (621) (61) 0
Retirement of bank debt assumed................. 0 0 (105,200) 0 0
Payment of deferred loan costs.................. 0 0 (764) (424) 0
---------- --------- ------------ --------- ----------
Net cash provided (used) by financing
activities.................................... (400) 2,816 109,607 (3,227) (8,134)
---------- --------- ------------ --------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... (8,619) (1,948) 9,332 2,368 (974)
Cash and cash equivalents at beginning of
period.......................................... 13,349 4,017 4,017 1,649 2,623
---------- --------- ------------ --------- ----------
Cash and cash equivalents at end of period...... $ 4,730 2,069 13,349 4,017 1,649
---------- --------- ------------ --------- ----------
---------- --------- ------------ --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(a) ORGANIZATION
General Communication, Inc. ("GCI"), an Alaska corporation, was incorporated
in 1979. GCI Communication Corp. ("GCC"), an Alaska corporation, is a wholly
owned subsidiary of GCI and was incorporated in 1990. GCI Communication
Services, Inc. ("Communication Services"), an Alaska corporation, is a wholly
owned subsidiary of GCI and was incorporated in 1992. GCI Leasing Co., Inc.
("Leasing Company"), an Alaska corporation, is a wholly owned subsidiary of
Communication Services and was incorporated in 1992. GCI and GCC are engaged in
the transmission of interstate and intrastate private line and switched message
long distance telephone service between Anchorage, Fairbanks, Juneau, and other
communities in Alaska and the remaining United States and foreign countries. GCC
also provides northbound services to certain common carriers terminating traffic
in Alaska and sells and services dedicated communications systems and related
equipment. Communication Services provides private network point-to-point data
and voice transmission services between Alaska, Hawaii and the western
contiguous United States. Leasing Company owns and leases capacity on an
undersea fiber optic cable used in the transmission of interstate private line
and switched message long distance services between Alaska and the remaining
United States and foreign countries.
Cable television services are provided through GCI Cable, Inc. and through
its ownership in Prime Cable of Alaska L.P. ("Prime"), and through GCI Cable,
Inc.'s wholly owned subsidiaries GCI Cable/ Fairbanks, Inc., and GCI
Cable/Juneau, Inc. (collectively "GCI Cable" or "Cable Companies"). GCI Cable,
Inc. and its subsidiaries are Alaska corporations and were incorporated in 1996.
GCI Cable, Inc. is a wholly owned subsidiary of GCI. Prime is a limited
partnership organized under the laws of the state of Delaware whose partnership
interests are wholly owned by GCI Cable, Inc.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of GCI, its
wholly owned subsidiaries GCC, Communication Services, GCI Cable, and
Communication Services' wholly owned subsidiary Leasing Company (collectively
"the Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) NET EARNINGS PER COMMON SHARE
Primary earnings per common share are determined by dividing net earnings by
the weighted number of common and common equivalent shares outstanding:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average common shares outstanding..................... 26,498 23,723 23,199
Common equivalent shares outstanding........................... 1,170 703 884
--------- --------- ---------
27,668 24,426 24,083
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between shares for primary and fully diluted earnings per
share was not significant in any period presented.
(d) CASH AND CASH EQUIVALENTS
F-11
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Cash equivalents consist of short-term, highly liquid investments which are
readily convertible into cash.
(e) INVENTORIES
Inventory of merchandise for resale and parts is stated at the lower of cost
or market. Cost is determined using the first-in, first-out method for parts and
the specific identification method for equipment held for resale.
Cable television inventories are carried at the lower of cost (weighted
average unit cost) or market.
(f) PROPERTY AND EQUIPMENT
TELECOMMUNICATIONS PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Construction costs of transmission
facilities are capitalized. Equipment financed under capital leases is recorded
at the lower of fair market value or the present value of future minimum lease
payments. Construction in progress represents distribution systems and support
equipment not placed in service on December 31, 1996; management intends to
place this equipment in service during 1997.
The Company's investment in jointly owned earth station assets on Adak
Island, Alaska is stated at cost and is depreciated on a straight-line basis
over lives ranging from 10 to 12 years. Revenues derived from customers whose
service transits the joint facilities are recognized based upon the level of
service and supporting facilities that are provided by each owner.
Depreciation and amortization is computed on a straight-line basis based
upon the shorter of the lease term or the estimated useful lives of the assets
ranging from 3 to 20 years for distribution systems and 5 to 10 years for
support equipment. Amortization of equipment financed under capitalized leases
is included in depreciation expense.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. Gains or losses are recognized at the time of
ordinary retirements, sales or other dispositions of property.
CABLE TELEVISION PROPERTY AND EQUIPMENT
Cable television equipment depreciation is computed by the straight-line
method over the estimated useful lives of the assets. The composite method and a
10 year life are used for cable television distribution systems. Under the
composite method, proceeds from the retirement of cable television distribution
system assets are credited to the allowance for depreciation. Gains or losses on
disposition of property, plant and equipment (other than cable television
distribution systems) are credited or charged to income. Maintenance and repairs
are charged to expense as incurred. Expenditures for major renewals and
betterments are capitalized.
(g) OTHER ASSETS
Intangible assets are valued at the lower of unamortized cost or fair value.
Management reviews the valuation and amortization of intangible assets on a
periodic basis, taking into consideration any events or circumstances which
might result in diminished fair value.
F-12
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Goodwill represents the excess of cost over fair value of net assets
acquired and is being amortized on a straight-line basis over periods of 20 to
40 years. Goodwill and certificates of operating rights arising from the 1996
acquisition of the Cable Companies are amortized using the straight line method
over forty years.
Other assets, excluding deferred loan costs, certificates of operating
rights and goodwill, are recorded at cost and are amortized on a straight-line
basis over 2 to 15 years.
The cost of the Company's PCS license and related financing costs have been
capitalized as a long-term other asset. Once the associated assets are placed
into service, the recorded cost of the license will begin being amortized over a
40 year period using the straight line method.
(h) DEFERRED LOAN COSTS
Debt issuance costs are deferred and amortized using the straight-line
method, which approximates the interest method, over the term of the related
debt.
(i) REVENUE FROM SERVICES AND PRODUCTS
Revenues generated from long distance telecommunication services are
recognized when the services are provided. Revenues from the sale of equipment
are recognized at the time the equipment is delivered or installed. Service
revenues are derived primarily from maintenance contracts on equipment and are
recognized on a prorated basis over the term of the contract.
Cable television and private line telecommunication revenues are generally
billed in advance and are recognized as the associated service is provided.
Other revenues are recognized when the service is provided.
(j) ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expenses
were approximately $3,061,000, $1,924,000 and $796,000 for 1996, 1995 and 1994,
respectively.
(k) INTEREST EXPENSE
Interest costs incurred during the construction period of significant
capital projects are capitalized. Interest capitalized by the Company totaled
$1,034,000, $112,000, and $0 during the years ended December 31, 1996, 1995, and
1994.
(l) INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities be recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable earnings in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recognized to the extent that the benefits are more likely to be realized than
not.
(m) STOCK OPTION PLAN
F-13
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(n) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(o) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, temporary investments, and
accounts receivable. Excess cash is invested in high quality short-term liquid
money instruments issued by highly-rated financial institutions. At December 31,
1996, substantially all of the Company's cash balances were invested in
short-term liquid money instruments. Though limited to one geographical area,
the concentration of credit risk with respect to the Company's receivables is
minimized due to the large number of customers, individually small balances,
short payment terms and required deposits.
(p) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(q) RECLASSIFICATIONS
Reclassifications have been made to the 1994 and 1995 financial statements
to make them comparable with the 1996 presentation.
F-14
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
(r) UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the quarter ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
(2) ACQUISITION OF CABLE TELEVISION SYSTEMS
Effective October 31, 1996, following shareholder and regulatory approvals,
the Company completed the acquisition of seven Alaska cable television companies
("Cable Systems"). Under the terms of the transactions, accounted for using the
purchase method, the final purchase price was $280.1 million, which was the
aggregate value for all the Cable Systems and included certain transaction and
financing costs. The purchase price included issuance of 14.7 million shares of
GCI's class A common stock and cash, debt assumption and issuance of
subordinated notes. Financing for the transactions resulted from borrowings
under a new $205 million bank credit facility and from additional capital
provided from the sale of two million shares of GCI's Class A common stock to
MCI Telecommunications Corporation for $6.50 per share.
Acquisition costs totaling $304.4 million were allocated to tangible and
identifiable intangible assets and liabilities based upon fair market values.
Approximately $206.5 million was allocated to the certificate of operating
rights and approximately $42.4 was allocated to goodwill.
Various tax attributes of Prime gave rise to a deferred tax liability (see
Note 7) of $24.4 million recorded by the Company as a result of the acquisition.
During January 1997, holders of the GCI subordinated notes exercised a
conversion option which allowed them to exchange their notes for GCI Class A
common shares at a predetermined conversion price of $6.50 per share. As a
result, the note holders will receive a total of 1,538,457 shares of GCI Class A
common stock. As of January 1997, 1,415,385 shares were issued for the converted
notes. The remaining shares will be issued upon release of the related notes
still held in escrow (see below).
The final closing required approval of the Alaska Public Utilities
Commission (APUC), which was granted on September 23, 1996. The APUC approval
included several conditions placed on the transfer, such as continuing the
existing conditions requiring provision of public access channels and requiring
the cable operations to file annual income and operating statements.
In connection with the Acquisitions, GCI placed 1,093,750 shares of GCI
Class A common stock, $800,000 of GCI subordinated notes, and $150,000 cash into
an indemnity escrow account. The various selling entities collectively placed
the same amounts in escrow. Upon satisfactory completion of the indemnity period
(180 days after each closing), the escrowed amounts will be returned to GCI and
the various sellers.
The following table sets forth for the periods indicated, in comparative
columnar form, unaudited pro forma operating data and pro forma per-share data
for the Company including operating data for Prime Cable of Alaska L.P., Alaska
Cablevision, Inc., and Alaskan Cable companies. Results of operations and per
share data, where applicable, is provided for the following items: (1) total
revenues;
F-15
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(2) ACQUISITION OF CABLE TELEVISION SYSTEMS (CONTINUED)
(2) earnings before extraordinary items; (3) cumulative effect of accounting
changes; and (4) net earnings. The pro forma information shown gives effect to
the cable company acquisitions as if they had occurred as of the beginning of
the periods presented. Company common stock issued pursuant to the cable company
acquisitions is valued at approximately $5.89 per share (the trading price for
the shares on the dates surrounding the announcement of the transactions) for
purposes of the pro forma presentation below.
The pro forma financial data are unaudited and are not necessarily
indicative of the results of operations of the Company that would have occurred
had the cable company acquisitions been completed as of the beginning of the
earliest periods presented or of the future results of operations of the
Company.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
----------- ---------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Total revenues................................................... $ 210,762 182,308
Net earnings..................................................... $ 6,700 5,918
Net earnings per common share.................................... $ 0.16 0.14
Shares used in computation....................................... 41,604 41,149
</TABLE>
F-16
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(3) CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Changes in operating assets and liabilities consist of (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
(Increase) decrease in trade receivables.... $ 138 (2,089) (4,604) (4,701) 63
(Increase) decrease in other receivables.... (391) 20 (134) (32) (91)
(Increase) decrease in prepaid and other
current assets............................. (52) (374) (467) (222) 312
(Increase) decrease in inventory............ (77) (34) 412 (317) (38)
(Increase) in income taxes receivable....... 0 0 (1,026) 0 0
Increase (decrease) in accounts payable..... (1,357) (22) 5,517 5,020 1,434
Increase (decrease) in accrued
liabilities................................ 96 (69) 914 423 195
Increase (decrease) in accrued payroll and
payroll related obligations................ (151) 73 1,723 (1,928) 1,238
Increase (decrease) in accrued income
taxes...................................... 0 917 (547) 330 163
Increase in accrued interest................ (2,357) 10 2,188 31 14
Increase (decrease) in deferred revenues.... (5) (120) (4) 220 (90)
(Decrease) in components of other
liabilities................................ (40) (85) (1,360) (131) (137)
--------- --------- --------- --------- ---------
$ (4,196) (1,773) 2,612 (1,307) 3,063
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Acquisitions of businesses, net of cash acquired for the year ended December
31, 1996 consists of (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired................................... $ 304,441
Bank debt and net working capital deficit assumed............... (110,538)
Common stock issued to sellers.................................. (86,710)
Convertible, subordinated debt issued to sellers................ (10,000)
Net deferred income tax liability............................... (24,375)
---------
Net cash used to acquire business............................... $ 72,818
---------
---------
</TABLE>
Income taxes paid totaled $0 and $633,000 for the three months ended March
31, 1997 and 1996, respectively, (unaudited) and $4,361,000, $3,752,000 and
$2,796,000 during 1996, 1995 and 1994, respectively.
F-17
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(3) CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES (CONTINUED)
Interest paid totaled approximately $6,300,000 and $407,000 for the three
months ended March 31, 1997 and 1996, respectively, (unaudited) and ($2,657,000,
$1,227,000 and $1,525,000 during 1996, 1995 and 1994, respectively.
The Company recorded $18,000 and $16,000 for the three months ended March
31, 1997 and 1996, respectively, (unaudited) and $187,000, $397,000 and $371,000
in 1996, 1995 and 1994, respectively, in paid-in capital in recognition of the
income tax effect of excess stock compensation expense for tax purposes over
amounts recognized for financial reporting purposes.
The holders of $10 million of convertible notes exercised their conversion
rights in January 1997 resulting in the exchange of such notes for 1,538,457
shares of the Company's Class A common stock.
(4) NOTES RECEIVABLE
A summary of notes receivable follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Note receivable from officer bearing interest at the rate paid by the
Company on its senior indebtedness, secured by GCI Class A common stock,
due on the 90th day after termination of employment or July 30, 1998,
whichever is earlier...................................................... $ 500 500
Note receivable from officer bearing interest at 10%, secured by Company
stock; payable in equal annual installments of $36,513 through August 26,
2004...................................................................... 224 224
Notes receivable from officers and others bearing interest at 7% to 10%,
unsecured and secured by Company common stock, shares of other common
stock and equipment; due on demand and through August 26, 2004............ 488 261
--------- ---------
Total notes receivable..................................................... 1,212 985
Less current portion....................................................... (325) (167)
Plus long-term accrued interest............................................ 129 86
--------- ---------
$ 1,016 904
--------- ---------
--------- ---------
</TABLE>
F-18
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(5) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Certificates of operating rights........................................ $ 206,492 0
Goodwill................................................................ 44,347 1,983
PCS license and related costs........................................... 1,913 1,802
Other intangibles....................................................... 121 439
----------- ---------
252,873 4,224
Less amortization....................................................... 1,953 1,099
----------- ---------
Intangible assets, net.................................................. $ 250,920 3,125
----------- ---------
----------- ---------
</TABLE>
(6) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Senior loan (a)...................................................... $ 175,900 $ 0
Credit Agreement (b)................................................. 30,100 1,000
Convertible, subordinated notes (c).................................. 10,000 0
Undersea Fiber and Equipment Loan Agreement (d)...................... 6,886 8,271
Financing Obligation (e)............................................. 356 709
----------- ---------
223,242 9,980
Less current maturities.............................................. 31,969 1,689
----------- ---------
Long-term debt, excluding current maturities......................... $ 191,273 $ 8,291
----------- ---------
----------- ---------
</TABLE>
(a) GCI Cable entered into a credit facility totaling $205 million ("Senior
Loan") effective October 31, 1996, associated with the acquisition of the
cable companies. Loans (advances) made pursuant to the Senior Loan mature
on September 30, 2005 or such earlier date as payment of the loans are
due, whether by acceleration or otherwise.
The Senior Loan provides for interest at the bank's prime rate plus
1.875%. At GCI Cable's option, interest on all or a specified portion of
the indebtedness may be fixed for periods ranging from one to six months
based on Eurodollar rates plus 2.875%. Upon the request of GCI Cable and
the approval of the banks, the period of a Eurodollar advance can be
extended beyond six months. The interest rates under the new agreement
are subject to reductions of up to 1.75% per annum if certain financial
tests are met. GCI Cable is required to pay a commitment fee equal to
0.50% per annum on the unused portion of the commitment. In addition, if
the obligations under the Senior Loan are not repaid in full on or before
September 30, 1997, GCI Cable has agreed to pay an additional fee of
$712,500. Interest and fees are payable quarterly.
F-19
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(6) LONG-TERM DEBT (CONTINUED)
The Senior Loan facility contains, among others, covenants requiring
maintenance of specific levels of operating cash flow to indebtedness and
to interest expense. The Senior Loan facility includes limitations on
acquisitions and additional indebtedness, and prohibits any direct or
indirect distribution, dividend, redemption or other payment to any
person on account of any general or limited partnership interest in, or
shares of capital stock or other securities of GCI Cable or any of its
subsidiaries. GCI Cable was in compliance with all credit agreement
covenants during the period commencing October 31, 1996 (date of the
Senior Loan) through December 31, 1996.
While GCI Cable may elect at any time to reduce amounts due and available
under the loan agreement, a mandatory prepayment is required each May,
beginning in May 2000, if, for the prior year ended December 31, GCI
Cable's Operating Cash Flow (defined as net income before extraordinary
items and gains and losses on asset sales, plus interest expense,
depreciation, amortization, bank fees, deferred management fees, expenses
and other amounts deferred under the management agreement, income tax
expense and other non-cash expenses) exceeds payments made for cash
interest expense, permanent prepayments of principal amounts outstanding
under the loan agreement, bank fees, cash income tax payments, capital
expenditures, amounts previously deferred under the management agreement
and capital lease obligations. GCI Cable is required to make a prepayment
in the amount of 50% of such excess. Additionally, a mandatory prepayment
may be required in the event of asset sales (other than dispositions of
obsolete inventory and equipment in the ordinary course of business) or
the issuance of capital stock or other debt or equity securities. All
such mandatory prepayments permanently reduce the amounts due and
available under the loan commitment.
The loan agreement is collateralized by essentially all of GCI Cable
Inc.'s assets as well as a pledge of GCI Cable's stock by GCI.
In connection with the funding of the loan agreement, GCI Cable Inc. paid
bank fees and other expenses of approximately $764,000, which will be
amortized to interest expense over the life of the agreement.
(b) GCI entered into a new $62.5 million interim telephony credit facility
with its senior lender during April 1996. The interim facility replaced
in its entirety the prior senior facility described in the Company's
December 31, 1995 Form 10-K. The new facility allows the Company to
invest up to $60 million in capital expenditures through the first
quarter of 1997. The Company plans to restructure the facility prior to
its maturity on April 25, 1997. Since the entire facility matures within
the twelve-month period ending December 31, 1997, the outstanding balance
at December 31, 1996 is included in current maturities of long-term debt.
The interim facility provides for interest (7.33% weighted average
interest rate at December 31, 1996), among other options, at LIBOR plus
1.75% to 2.25%, depending on the Company's leverage ratio as defined in
the agreement. A fee of 0.50% per annum is assessed on the unused portion
of the facility.
F-20
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(6) LONG-TERM DEBT (CONTINUED)
$3.4 million of the facility has been used to provide a letter of credit
to secure payment of certain access charges associated with the Company's
provision of telecommunications services within the state of Alaska.
The interim facility contains, among others, covenants requiring
maintenance of specific levels of operating cash flow to indebtedness and
to interest expense. The credit agreement includes limitations on
acquisitions and additional indebtedness, and prohibits payment of
dividends, other than stock dividends. The Company was in compliance with
all credit agreement covenants during the period commencing April (date
of the new interim credit facility) through December 31, 1996.
Security for the credit agreement includes a pledge of the stock of GCC
and Communication Services, and a first lien on substantially all of
GCC's assets. GCI and its subsidiaries, Communication Services and
Leasing Company, are liable as guarantors.
The Company extended the maturity date of its $62.5 million interim
telephony credit facility during April 1997. The interim facility matures
in July 1997 and is expected to be extended further or refinanced prior
to that time. Since the facility matures within the twelve-month period
ending March 31, 1998, the outstanding balance at March 31, 1997 is
included in current maturities of long-term debt (unaudited).
In June, 1993, the Company entered into a two-year interest rate swap
agreement with a bank whereby the rate on $18,200,000 of debt (reduced by
$422,500 per quarter beginning July 1, 1993) was fixed at 4.45% plus
applicable margins. The interest effect of the difference between the
fixed rate and the three-month LIBOR rate was either added to or served
to reduce interest expense depending on the relative interest rates. The
agreement expired June 30, 1995.
(c) GCI issued subordinated notes totaling $10 million in connection with
the acquisitions described in Note 2. The notes bear simple, non
compounding interest at the lowest allowable rate of the Internal Revenue
Service under imputed interest rules in effect at closing. The notes are
subordinated to all of the Company's senior indebtedness. During January
1997, the holders of the GCI subordinated notes exercised a conversion
option which allowed them to exchange their notes for GCI Class A common
shares at a predetermined conversion price of $6.50 per share. As a
result, the former note holders received 1,538,457 shares of GCI Class A
common stock.
(d) On December 31, 1992, Leasing Company entered into a $12,000,000 loan
agreement, of which approximately $9,000,000 of the proceeds were used to
acquire capacity on the undersea fiber optic cable linking Seward, Alaska
and Pacific City, Oregon. Concurrently, Leasing Company leased the
capacity under a ten year all events, take or pay, contract to MCI, who
subleased the capacity back to the Company. The lease and sublease
agreements provide for equivalent terms of 10 years and identical monthly
payments of $200,000. The proceeds of the lease agreement with MCI were
pledged as primary security for the financing. The loan agreement
provides for monthly payments of $170,000 including principal and
interest through the earlier of January 1, 2003, or until repaid. The
loan agreement provides for interest at the prime rate plus one-quarter
percent. Additional collateral includes substantially all of the assets
of
F-21
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(6) LONG-TERM DEBT (CONTINUED)
Leasing Company including the fiber capacity and a security interest in
all of its outstanding stock. MCI has a second position security interest
in the assets of Leasing Company.
(e) As consideration for MCI's role in enabling Leasing Company to finance
and acquire the undersea fiber optic cable capacity described at note
6(d) above, Leasing Company agreed to pay MCI $2,040,000 in 60 monthly
payments of $34,000. For financial statement reporting purposes, the
obligation has been recorded at its remaining present value, using a
discount rate of 10% per annum. The agreement is secured by a second
position security interest in the assets of Leasing Company.
As of December 31, 1996 maturities of long-term debt including mandatory
reductions of loan commitments pursuant to the Company's Senior Loan were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1997............................................................................. $ 31,969
1998............................................................................. 1,647
1999............................................................................. 6,917
2000............................................................................. 4,497
2001............................................................................. 5,125
2002 and thereafter.............................................................. 163,087
-----------
213,242
Subordinated debt converted into GCI Class A common stock in January 1997........ 10,000
-----------
$ 223,242
-----------
-----------
</TABLE>
(7) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1996,
1995 and 1994 were allocated as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Earnings from continuing operations............................ $ 5,228 $ 5,099 $ 4,547
Stockholders' equity, for stock option compensation expense for
tax purposes in excess of amounts recognized for financial
reporting purposes............................................ (187) (397) (371)
--------- --------- ---------
$ 5,041 $ 4,702 $ 4,176
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-22
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(7) INCOME TAXES (CONTINUED)
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal taxes................................................ $ 2,292 $ 3,077 $ 2,604
State taxes.................................................. 684 1,005 355
--------- --------- ---------
2,976 4,082 2,959
--------- --------- ---------
Deferred tax expense:
Federal taxes................................................ 1,734 780 816
State taxes.................................................. 518 237 772
--------- --------- ---------
2,252 1,017 1,588
--------- --------- ---------
$ 5,228 $ 5,099 $ 4,547
--------- --------- ---------
--------- --------- ---------
</TABLE>
Total income tax expense differed from the "expected" income tax expense
determined by applying the statutory federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Expected statutory tax expense.................................... $ 4,314 4,284 3,971
State income taxes, net of federal benefit........................ 793 820 742
Income tax effect of goodwill amortization, nondeductible
expenditures and other items, net............................... 55 41 0
Change in valuation allowance..................................... (225) (200) 0
Other............................................................. 291 154 (166)
--------- --------- ---------
$ 5,228 5,099 4,547
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-23
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax
assets and deferred tax liabilities at December 31, 1996 and 1995 are presented
below.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Net current deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts............................................................. $ 98 119
Compensated absences, accrued for financial reporting purposes......... 380 400
Workers compensation and self insurance health reserves, principally
due to accrual for financial reporting purposes...................... 243 183
Other.................................................................. 114 133
--------- ---------
Total gross current deferred tax assets.............................. 835 835
Less valuation allowance............................................. 0 89
--------- ---------
Net current deferred tax assets...................................... $ 835 746
--------- ---------
--------- ---------
Net long-term deferred tax assets:
Net operating loss carryforwards....................................... $ 23,507 0
Deferred compensation expense for financial reporting purposes in
excess of amounts recognized for tax purposes........................ 617 587
Employee stock option compensation expense for financial reporting
purposes in excess of amounts recognized for tax purposes............ 198 206
Sweepstakes award in excess of amounts recognized for tax purposes..... 211 215
Other.................................................................. 197 261
--------- ---------
Total gross long-term deferred tax assets............................ 24,730 1,269
Less valuation allowance............................................. 8,129 136
--------- ---------
Net long-term deferred tax assets.................................... 16,601 1,133
--------- ---------
Net long-term deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation.... 50,163 7,997
Other.................................................................. 158 140
--------- ---------
Total gross long-term deferred tax liabilities....................... 50,321 8,137
--------- ---------
Net combined long-term deferred tax liabilities........................ $ 33,720 7,004
--------- ---------
--------- ---------
</TABLE>
In conjunction with the acquisition of the Cable Companies the Company
incurred a net deferred income tax liability of $24,375,000 which is net of
gross deferred tax assets of $23,253,000 and a valuation allowance of
$8,129,000.
F-24
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
The valuation allowance for deferred tax assets was $8,129,000, $225,000 and
$425,000 as of December 31, 1996, 1995 and 1994, respectively.
Tax benefits associated with recorded deferred tax assets, net of valuation
allowances, are considered to be more likely than not realizable through taxable
income earned in carryback years, future reversals of existing taxable temporary
differences, and future taxable income exclusive of reversing temporary
differences and carryforwards. The amount of deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
At December 31, 1996, the Company has tax net operating loss carryforwards
of approximately $58,475,000 which will begin expiring in 2004 if not utilized.
The Company's utilization of these carryforwards is subject to certain
limitations pursuant to section 382 of the Internal Revenue Code. A valuation
allowance of $8,129,000 was recognized to offset the deferred tax assets related
to these carryforwards due to uncertainty regarding realizability. If realized,
the tax benefit for the carryforwards offset by the valuation allowance will be
applied to reduce goodwill and other non-current intangibles, and then applied
to reduce income tax expense.
The Company's U.S. income tax return for 1993 was selected for examination
by the Internal Revenue Service during 1995. The examination commenced during
the fourth quarter of 1995 and was completed during the second quarter of 1996.
The Company received a no change letter upon completion of the examination.
(8) STOCKHOLDERS' EQUITY
COMMON STOCK
GCI's Class A common stock and Class B common stock are identical in all
respects, except that each share of Class A common stock has one vote per share
and each share of Class B common stock has ten votes per share. In addition,
each share of Class B common stock outstanding is convertible, at the option of
the holder, into one share of Class A common stock.
After the transaction described in Note 2, MCI owns a total of 8,251,509
shares of GCI's Class A and 1,275,791 shares of GCI's Class B common stock which
on a fully diluted basis represented approximately 23% and 31% of the issued and
outstanding shares of the respective class at December 31, 1996.
After the transaction described in Note 2, the owners of the cable
television properties acquired in 1996 own a total of 14,723,077 shares of GCI's
Class A common stock which on a fully diluted basis represented approximately
40% of the issued and outstanding Class A common shares at December 31, 1996.
STOCK WARRANTS
On May 18, 1994 an officer of the Company exercised warrants. In exchange
for $114, the Company issued 160,297 and 74,028 shares of GCI Class A and Class
B common stock, respectively.
Pursuant to the terms of a stock appreciation right granted in 1988, the
Company issued to its former senior lender warrants to acquire 1,021,373 shares
of GCI Class A common stock for $.85669 per share. Warrants to purchase 600,000
shares of Class A common stock were exercised in April and May, 1991, an
additional 168,085 were exercised in September, 1991 and the remaining warrants
to purchase 253,288 shares were exercised in September and October, 1994.
F-25
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(8) STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN
In December 1986, GCI adopted a Stock Option Plan (the "Option Plan") in
order to provide a special incentive to officers, non-employee directors, and
employees by offering them an opportunity to acquire an equity interest in GCI.
The Option Plan provides for the grant of options for a maximum of 3,200,000
shares of GCI Class A common stock, subject to adjustment upon the occurrence of
stock dividends, stock splits, mergers, consolidations or certain other changes
in corporate structure or capitalization. If an option expires or terminates,
the shares subject to the option will be available for further grants of options
under the Option Plan. The Option Plan is administered by GCI's Board of
Directors or a committee of disinterested persons.
The Option Plan provides that all options granted under the Option Plan must
expire not later than ten years after the date of grant. If at the time an
option is granted the exercise price is less than the market value of the
underlying common stock, the "in the money" amount at the time of grant is
expensed ratably over the vesting period of the option. Options granted pursuant
to the Option Plan are only exercisable if at the time of exercise the option
holder is an employee or non-employee director of GCI.
Information for the years 1994, 1995 and 1996 with respect to the Plan
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RANGE OF
EXERCISE EXERCISE
SHARES PRICE PRICES
----------- ----------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1993.................... 1,823,658 $ 2.87 $0.75-$4.00
-----------
Granted........................................... -- --
Exercised......................................... (72,459) $ 2.39 $0.75-$3.00
Forfeited......................................... (21,500) $4.00
-----------
Outstanding at December 31, 1994.................... 1,729,699 $ 2.88 $0.75-$4.00
-----------
Granted........................................... 610,000 $4.00
Exercised......................................... (40,000) $ 2.06 $1.87-$2.25
Forfeited......................................... (11,500) $4.00
-----------
Outstanding at December 31, 1995.................... 2,288,199 $ 3.19 $0.75-$4.00
-----------
Granted........................................... 321,000 $ 5.79 $3.75-$6.50
Exercised......................................... (82,291) $ 2.80 $0.75-$4.00
Forfeited......................................... (79,785) $ 3.11 $0.75-$4.50
-----------
Outstanding at December 31, 1996.................... 2,447,123 $ 3.54 $0.75-$6.50
-----------
-----------
Available for grant at December 31, 1996............ 108,338
-----------
-----------
</TABLE>
The options expire at various dates through December 2006. At December 31,
1996 and 1995, the weighted-average remaining contractual lives of options
outstanding were 6.73 and 7.15 years, respectively.
F-26
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(8) STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1996 and 1995, the number of options exercisable was
1,275,903 and 986,999, respectively, and the weighted-average exercise price of
those options was $2.85 and $2.56, respectively.
The per share weighted-average fair value of stock options granted during
1996 was $3.50 for compensatory options and $2.28 for non-compensatory options;
for 1995, the per share weighted-average fair value of non-compensatory stock
options granted was $1.62. The amounts were determined as of the options' grant
dates using a qualified binomial option-pricing model with the following
weighted-average assumptions: 1996--risk-free interest rate of 6.3% and an
expected life of eight years; 1995--risk-free interest rate of 6.25% and an
expected life of eight years.
Had compensation cost for the Company's 1995 and 1996 grants for stock-based
compensation plans been determined consistent with SFAS 123, the Company's net
income and net income per common share would approximate the pro forma amounts
below (in millions except per share data):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
1995:
Net earnings........................................................ $ 7,502 $ 7,438
Net earnings per common share....................................... $ 0.31 $ 0.30
1996:
Net earnings........................................................ $ 7,462 $ 7,322
Net earnings per common share....................................... $ 0.27 $ 0.26
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period of
5 years and compensation cost for options granted prior to January 1, 1995 is
not considered.
STOCK OPTIONS NOT PURSUANT TO A PLAN
In June 1989, an officer was granted options to acquire 100,000 Class A
common shares at $.75 per share. The options vested in equal annual increments
over a five-year period and expire February, 1999.
The Company entered into an incentive agreement in June 1989 with an officer
providing for the acquisition of 85,190 remaining shares of Class A common stock
of the Company for $.001 per share exercisable through June 16, 1997. The shares
under the incentive agreement vested in equal annual increments over a
three-year period.
CLASS A COMMON SHARES HELD IN TREASURY
The Company acquired 105,111 shares of its Class A common stock in 1989 for
approximately $328,000 to fund a deferred bonus agreement with an officer of the
Company. The agreement provides that the balance is payable after the later of
a) termination of employment or b) six months after the effective date of the
agreement. In September 1995 and July 1996, the Company acquired a total of
93,970 additional shares of Class A common stock for approximately $672,000 to
fund additional deferred compensation agreements for two of its officers.
F-27
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(8) STOCKHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In December 1986, GCI adopted an Employee Stock Purchase Plan (the "Plan")
qualified under Section 401 of the Internal Revenue Code of 1986 (the "Code").
The Plan provides for acquisition of the Company's Class A and Class B common
stock at market value. The Plan permits each employee of GCI and affiliated
companies who has completed one year of service to elect to participate in the
Plan. Eligible employees may elect to reduce their compensation in any even
dollar amount up to 10% of such compensation up to a maximum of $9,500 in 1996;
they may contribute up to 10% of their compensation with after-tax dollars, or
they may elect a combination of salary reductions and after-tax contributions.
GCI may match employee salary reductions and after tax contributions in any
amount, elected by GCI each year, but not more than 10% of any one employee's
compensation will be matched in any year. The combination of salary reductions,
after tax contributions and GCI matching contributions cannot exceed 25% of any
employee's compensation (determined after salary reduction) for any year. GCI's
contributions vest over six years. Prior to July 1, 1995 employee and GCI
contributions were invested in GCI common stock and employee contributions
received up to 100% matching, as determined by the Company each year, in GCI
common stock. Beginning July 1, 1995 employee contributions may be invested in
GCI common stock, MCI common stock, Tele-Communications, Inc. common stock or
various mutual funds. Such employee contributions invested in GCI common stock
receive up to 100% matching, as determined by the Company each year, in GCI
common stock. Employee contributions invested in other than GCI common stock
receive up to 50% matching, as determined by the Company each year, in GCI
common stock. The Company's matching contributions allocated to participant
accounts totaled approximately $1,013,000, $864,000 and $792,000 for the years
ended December 31, 1996, 1995, and 1994, respectively. The Plan may, at its
discretion, purchase shares of common stock from the Company at market value or
may purchase GCI common stock on the open market.
(9) INDUSTRY SEGMENTS DATA
The Company is engaged in the provision or sale of services and products in
three principal industries: (1) long-distance telecommunication services
("long-distance services"), (2) cable television services, and, on a
pre-operating basis, (3) local telecommunication services ("local services").
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
----------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net sales
Long-distance services................................. $ 155,419 129,279 116,981
Cable television services.............................. 9,475 0 0
----------- --------- ---------
Total net sales...................................... $ 164,894 129,279 116,981
----------- --------- ---------
----------- --------- ---------
Operating income
Long-distance services................................. $ 15,083 13,504 12,997
Cable television services.............................. 2,196 0 0
Local services......................................... (870) 0 0
----------- --------- ---------
Total operating income............................... $ 16,409 13,504 12,997
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-28
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(9) INDUSTRY SEGMENTS DATA (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Identifiable assets
Long-distance services................................. $ 133,780 81,377 72,744
Cable television services.............................. 62,039 0 0
----------- --------- ---------
Total identifiable assets............................ $ 195,819 81,377 72,744
----------- --------- ---------
----------- --------- ---------
Capital expenditures
Long-distance services................................. $ 37,793 8,938 10,604
Cable television services.............................. 849 0 0
----------- --------- ---------
Total capital expenditures........................... $ 38,642 8,938 10,604
----------- --------- ---------
----------- --------- ---------
Depreciation and amortization expense
Long-distance services................................. $ 7,189 5,993 6,639
Cable television services.............................. 2,220 0 0
----------- --------- ---------
Total depreciation and amortization expense.......... $ 9,409 5,993 6,639
----------- --------- ---------
----------- --------- ---------
</TABLE>
Reclassifications have been made to 1995 and 1994 data to make them
comparable with the 1996 presentation. Intersegment sales approximate market and
are not significant. Identifiable assets are assets associated with a specific
industry segment. Revenues derived from leasing operations are allocated to the
message and data transmission services segment. Long-distance services includes
equipment sales and service which were previously reported as a separate
segment.
The Company provides message telephone service to MCI and Sprint, major
customers (see Note 10). The Company earned revenues pursuant to a contract with
Sprint totaling approximately $18,781,000, $14,885,000 and $12,412,000 for the
years ended December 31, 1996, 1995 and 1994 respectively. Amounts receivable
from Sprint totaled $1,683,000 and $2,362,000 at December 31, 1996 and 1995,
respectively.
(10) RELATED PARTY TRANSACTIONS
Pursuant to the terms of a contract with MCI, a major shareholder of the
Company (see note 8), the Company earned revenues of approximately $29,208,000,
$23,939,000 and $19,512,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Amounts receivable from MCI totaled $5,252,000 and
$4,256,000 at December 31, 1996 and 1995, respectively. The Company paid MCI for
distribution of its traffic in the lower 49 states totaling approximately
$12,224,000, $12,556,000 and $10,252,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company entered into a long-term capital lease agreement in 1991 with
the wife of the Company's president for property occupied by the Company. The
lease is guaranteed by the Company. The lease term is 15 years with monthly
payments increasing in $800 increments at each two year anniversary of the
lease. Monthly lease costs will increase to $16,800 effective October 1997. If
the owner sells the premises prior to the end of the tenth year of the lease,
the owner will rebate to the Company one-half of the net sales price received in
excess of $900,000. If the property is not sold prior to the tenth year of the
lease, the owner will pay the Company the greater of one-half of the appreciated
value of the property over $900,000, or $500,000. The leased asset was
capitalized in 1991 at the owner's cost of $900,000 and the related obligation
was recorded in the accompanying financial statements.
F-29
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(10) RELATED PARTY TRANSACTIONS (CONTINUED)
The Cable Company is a party to a Management Agreement with Prime II
Management, L.P. ("PMLP"). Certain of the Prime sellers are affiliated with
PMLP. The Management Agreement expires on October 31, 2005, however, it will be
terminated earlier upon loss of a license to operate the systems, sale of the
systems, breach of contract, or upon exercise of an option to terminate the
Management Agreement by PMLP or GCI Cable any time after October 31, 1998. Under
the terms of the Management Agreement, PMLP manages the operations of the
acquired cable television systems for fees of $1,000,000 in the first year,
$750,000 in the second year, and $500,000 thereafter (unless the agreement is
terminated as outlined above) and reimbursement for certain expenses. The fees
and reimbursed expenses are payable on a monthly basis. Under the terms of the
bank loan agreement (Note 6), the Cable Company must defer payment of management
fees if it fails to meet certain financial ratio covenants. Any deferred fees
bear interest at a rate of 17.5% per annum. In connection with the agreement,
the Cable Company incurred approximately $197,000 in management fees and
reimbursable expenses for the period ended December 31, 1996.
(11) LEASES
The Company leases business offices, has entered into site lease agreements
and uses certain equipment and satellite transponder capacity pursuant to
operating lease arrangements. Rental costs under such arrangements amounted to
approximately $7,364,000, $4,353,000 and $4,258,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
A summary of future minimum lease payments for all leases as of December 31,
1996 follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: OPERATING CAPITAL
- ----------------------------------------------------------------------- ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
1997................................................................... $ 10,772 $ 194
1998................................................................... 8,211 202
1999................................................................... 4,990 204
2000................................................................... 3,283 211
2001................................................................... 1,870 214
2002 and thereafter.................................................... 2,568 1,265
----------- ---------
Total minimum lease payments......................................... $ 31,694 $ 2,290
----------- ---------
----------- ---------
Less amount representing interest.................................... (1,544)
Less current maturities of obligations under capital leases............ (71)
---------
Subtotal--long-term obligations under capital leases................... 675
Less long-term obligations under capital leases due to related parties,
excluding current maturities......................................... (675)
---------
Long-term obligations under capital leases, excluding current
maturities........................................................... $ 0
---------
---------
</TABLE>
The leases generally provide that the Company pay the taxes, insurance and
maintenance expenses related to the leased assets.
It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties.
F-30
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(12) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("SFAS No. 107") requires disclosure of the fair value of
financial instruments for which it is practicable to estimate that value. SFAS
No. 107 specifically excludes certain items from its disclosure requirements.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. The carrying amounts at December 31, 1996 and
1995 for the Company's financial assets and liabilities approximate their fair
values.
(13) COMMITMENTS AND CONTINGENCIES
DEFERRED COMPENSATION PLAN
During 1995, the Company adopted a non-qualified, unfunded deferred
compensation plan to provide a means by which certain employees may elect to
defer receipt of designated percentages or amounts of their compensation and to
provide a means for certain other deferrals of compensation. The Company may, at
its discretion, contribute matching deferrals equal to the rate of matching
selected by the Company. Participants immediately vest in all elective deferrals
and all income and gain attributable thereto. Matching contributions and all
income and gain attributable thereto vest over a six-year period. Participants
may elect to be paid in either a single lump sum payment or annual installments
over a period not to exceed 10 years. Vested balances are payable upon
termination of employment, unforeseen emergencies, death and total disability.
Participants are general creditors of the Company with respect to deferred
compensation plan benefits. Participant elective deferrals attributed to current
services, interest earnings, vested Company Contributions and vested matching
contributions are accrued and are reflected in accrued payroll and payroll
related obligations. Compensation deferred pursuant to the plan totaled $222,000
and $340,000 as of December 31, 1996 and 1995, respectively.
SATELLITE TRANSPONDERS
The Company entered into a purchase and lease-purchase option agreement in
August 1995 for the acquisition of satellite transponders to meet its long-term
satellite capacity requirements. The balance payable upon expected delivery of
the transponders in 1998 is dependent upon a number of factors. The Company does
not expect the remaining balance payable at delivery to exceed $41 million.
SELF-INSURANCE
The Company is self-insured for losses and liabilities related primarily to
health and welfare claims up to predetermined amounts above which third party
insurance applies. A reserve of $450,000 was recorded at December 31, 1996 to
cover estimated reported losses, estimated unreported losses based on past
experience modified for current trends, and estimated expenses for investigating
and settling claims. Actual losses will vary from the recorded reserve. While
management uses what it believes is pertinent information and factors in
determining the amount of reserves, future additions to the reserves may be
necessary due to changes in the information and factors used.
LITIGATION
The Company is involved in various lawsuits and legal proceedings which have
arisen in the normal course of business. While the ultimate results of these
matters cannot be predicted with certainty,
F-31
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
management does not expect them to have a material adverse effect on the
Company's financial position, results of operations or liquidity.
CABLE SERVICE RATE REREGULATION
Beginning in April 1993, the Federal Communications Commission ("FCC")
adopted regulations implementing the Cable Television Consumer Protection and
Competition Act of 1992 ("The Cable Act of 1992"). Included are rules governing
rates charged by cable operators for the basic service tier, the installation,
lease and maintenance of equipment (such as converter boxes and remote control
units) used by subscribers to receive this tier and for cable programming
services other than programming offered on a per-channel or per-program basis
(the "regulated services"). Generally, the regulations require affected cable
systems to charge rates for regulated services that have been reduced to
prescribed benchmark levels, or alternatively, to support rates using
costs-of-service methodology.
The regulated services rates charged by the Company may be reviewed by the
State of Alaska, operating through the Alaska Public Utilities Commission
("APUC") for basic service, or by the FCC for cable programming service. Refund
liability for basic service rates is limited to a one year period. Refund
liability for cable programming service rates may be calculated from the date a
complaint is filed with the FCC until the rate reduction is implemented.
In order for the State of Alaska to exercise rate regulation authority over
the Company's basic service rates, 25% of a systems' subscribers must request
such regulation by filing a petition with the APUC. At December 31, 1996, the
State of Alaska has rate regulation authority over the Juneau system's basic
service rates. (The Juneau system serves 9% of the Company's total basic service
subscribers at December 31, 1996.) Juneau's current rates have been approved by
the APUC and there are no other pending filings with the APUC, therefore, there
is no refund liability for basic service at this time.
Complaints by subscribers relating to cable programming service rates were
filed with, and accepted by, the FCC for certain franchise areas, however,
PCOA's filings made in response to those complaints related to the period prior
to July 15, 1994 were approved by the FCC. Therefore, the potential liability
for cable programming service refunds would be limited to the period subsequent
to July 15, 1994 for these areas. Management of the Company believes that it has
complied in all material respects with the provisions of the FCC rules and
regulations and that the Company is, therefore, not liable for any refunds.
Accordingly, no provision has been made in the financial statements for any
potential refunds. The FCC rules and regulations are, however, subject to
judgmental interpretations, and the impact of potential rate changes or refunds
ordered by the FCC could cause the Company to make refunds and/or to be in
default of certain debt covenants.
In February 1996, a telecommunications bill was signed into federal law
which impacts the cable industry. Most notably, the bill allows cable system
operators to provide telephony services, allows telephone companies to offer
video services, and provides for deregulation of cable programming service rates
by 1999. Management of the Company believes the bill will not have a significant
adverse impact on the financial position or results of operations of the
Company.
F-32
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(14) SUPPLEMENTARY FINANCIAL DATA
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1996 QUARTER QUARTER QUARTER QUARTER YEAR
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenues............................................. $ 37,969 37,199 38,664 51,062 164,894
Net earnings............................................... $ 2,137 2,150 2,140 1,035 7,462
Net earnings per share..................................... $ 0.09 0.09 0.09 0.02 0.27
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1995 QUARTER QUARTER QUARTER QUARTER YEAR
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenues............................................. $ 29,693 31,860 33,363 34,363 129,279
Net earnings............................................... $ 1,607 1,836 2,252 1,807 7,502
Net earnings per share..................................... $ 0.07 0.08 0.09 0.07 0.31
</TABLE>
(15) SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE-MONTHS ENDED MARCH 31, 1997
-----------------------------------
LONG--
(UNAUDITED) DISTANCE CABLE LOCAL COMBINED
-------- ------ ----- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Telecommunication revenues............ $ 39,225 -- -- 39,225
Cable revenues........................ -- 13,656 -- 13,656
-------- ------ ----- --------
Total revenues.................... 39,225 13,656 -- 52,881
Cost of sales and services:
Distribution costs and costs of
services............................ 23,884 -- 118 24,002
Programming and copyright costs....... -- 3,166 -- 3,166
-------- ------ ----- --------
Total cost of sales and
services........................ 23,884 3,166 118 27,168
Selling, general and administrative
expenses:
Operating and engineering............. 2,792 -- -- 2,792
Cable television, including management
fees of $271........................ -- 4,368 -- 4,368
Sales and communications.............. 2,864 -- 50 2,914
General and administrative............ 4,887 -- 369 5,256
Legal and regulatory.................. 351 -- 97 448
Bad debts............................. 426 97 -- 523
Depreciation and amortization........... 2,623 3,497 -- 6,120
-------- ------ ----- --------
Operating income (loss)........... $ 1,398 2,528 (634) 3,292
-------- ------ ----- --------
-------- ------ ----- --------
</TABLE>
F-33
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO INTERIM PERIODS IS UNAUDITED)
(15) SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------- --------- ---------
LONG- LONG- LONG-
DISTANCE CABLE LOCAL COMBINED DISTANCE DISTANCE
--------- --------- ----------- ----------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Telecommunication revenues......... $ 155,419 0 0 155,419 129,279 116,981
Cable revenues..................... 0 9,475 0 9,475 0 0
--------- --------- --- ----------- --------- ---------
Total revenues................... 155,419 9,475 0 164,894 129,279 116,981
--------- --------- --- ----------- --------- ---------
Cost of sales and services:
Distribution costs and costs of
services......................... 90,597 0 0 90,597 72,091 63,877
Programming and copyright costs.... 0 2,067 0 2,067 0 0
--------- --------- --- ----------- --------- ---------
Total cost of sales and
services....................... 90,597 2,067 0 92,664 72,091 63,877
Selling, general and administrative
expenses:
Operating and engineering.......... 9,095 0 92 9,187 9,182 7,607
Cable television, including
management fees of $197.......... 0 2,992 0 2,992 0 0
Sales and communications........... 13,013 0 28 13,041 9,865 7,040
General and administrative......... 17,349 0 316 17,665 15,645 16,658
Legal and regulatory............... 1,357 0 434 1,791 1,540 1,334
Bad debts.......................... 1,736 0 0 1,736 1,459 829
Depreciation and amortization...... 7,189 2,220 0 9,409 5,993 6,639
--------- --------- --- ----------- --------- ---------
Operating income (loss).......... $ 15,083 2,196 (870) 16,409 13,504 12,997
--------- --------- --- ----------- --------- ---------
--------- --------- --- ----------- --------- ---------
</TABLE>
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Prime Cable of Alaska, L.P.
We have audited the accompanying balance sheets of Prime Cable of Alaska,
L.P. (the Partnership) as of December 31, 1995 and 1994, and the related
statements of operations, changes in partners' capital deficiency, and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prime Cable of Alaska, L.P.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Austin, Texas
March 18, 1996, except for the
last paragraph of Note 7, as to
which the date is September 9, 1996
F-35
<PAGE>
PRIME CABLE OF ALASKA, L.P.
BALANCE SHEETS
ASSETS (NOTE 6)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED) DECEMBER 31,
SEPTEMBER 30, JUNE 30, ------------------------
1996 1996 1995 1994
-------------- ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $ -- $ 803 $ 9,477 $ 8,375
Accounts receivable, net (Note 4)........................ 1,059 956 1,221 1,204
Prepaid expenses......................................... 142 196 166 227
Inventories.............................................. 815 854 833 324
Property, plant and equipment, at cost:
Cable television distribution systems.................. 72,578 69,695 68,090 63,819
Transportation equipment............................... 901 910 848 775
Furniture and fixtures................................. 2,372 2,306 1,864 1,760
Land and buildings..................................... 494 487 487 487
-------------- ------------ ----------- -----------
76,345 73,398 71,289 66,841
Less accumulated depreciation.......................... (47,612) (45,770) (42,114) (34,975)
-------------- ------------ ----------- -----------
Net property, plant and equipment.................... 28,733 27,628 29,175 31,866
Intangible assets, net (Note 5).......................... 26,055 28,397 33,080 42,447
Deferred debt issuance costs, net........................ 2,197 2,209 125 832
Other assets............................................. 349 181 64 28
-------------- ------------ ----------- -----------
Total assets......................................... $ 59,350 $ 61,224 $ 74,141 $ 85,303
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
Accounts payable......................................... $ 2,297 $ 583 $ 773 $ 809
Accounts payable, affiliates............................. 1,620 907 186 124
Accrued interest......................................... 2,217 2,061 1,368 1,311
Other accrued expenses................................... 1,764 2,086 1,639 1,656
Subscriber deposits and unearned income.................. 2,093 2,060 2,043 1,796
Term debt (Note 6)....................................... 102,000 103,000 82,565 84,065
Subordinated debt (Note 7)............................... 4,320 4,320 34,041 27,689
-------------- ------------ ----------- -----------
Total liabilities.................................... 116,311 115,017 122,615 117,450
-------------- ------------ ----------- -----------
Commitments and Contingencies (Notes 7 and 9)
Partners' capital deficiency (Note 7):
General partners....................................... 9,000 9,000 9,000 9,000
Limited partners....................................... 36,000 36,000 36,000 36,000
Accumulated deficit...................................... (101,961) (98,793) (93,474) (77,147)
-------------- ------------ ----------- -----------
Total partners' capital deficiency................... (56,961) (53,793) (48,474) (32,147)
-------------- ------------ ----------- -----------
Total liabilities and partners' capital deficiency... $ 59,350 $ 61,224 $ 74,141 $ 85,303
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-36
<PAGE>
PRIME CABLE OF ALASKA, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
NINE MONTHS SIX MONTHS YEARS
ENDED SEPTEMBER 30, ENDED JUNE 30, ENDED DECEMBER 31,
-------------------- -------------------- ----------------------
1996 1995 1996 1995 1995 1994
--------- --------- --------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $ 25,770 $ 24,223 $ 17,276 $ 16,100 $ 32,594 $ 30,599
Operating expenses:
Cable television system expenses....... 13,253 12,296 8,668 8,150 16,264 14,911
Management fees and expenses (Note
9)................................... 1,423 1,255 924 817 1,674 1,671
Depreciation and amortization.......... 12,637 12,353 8,410 8,208 16,487 16,944
Provision for inventory obsolescence... -- -- -- 35
--------- --------- --------- --------- ---------- ----------
Loss from operations..................... (1,543) (1,681) (726) (1,075) (1,831) (2,962)
Interest income.......................... 135 331 131 207 460 285
Interest expense......................... (7,106) (7,999) (4,736) (5,349) (14,960) (9,035)
Gain (loss) on disposal of assets........ 27 4 12 4 4 (15)
--------- --------- --------- --------- ---------- ----------
Net loss................................. $ (8,487) $ (9,345) $ (5,319) $ (6,213) $ (16,327) $ (11,727)
--------- --------- --------- --------- ---------- ----------
--------- --------- --------- --------- ---------- ----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-37
<PAGE>
PRIME CABLE OF ALASKA, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balances, January 1, 1994..................................................... $ (20,420) $ -- $ (20,420)
Net loss for the year ended December 31, 1994............................... (11,727) -- (11,727)
---------- ----- ----------
Balances, December 31, 1994................................................... (32,147) -- (32,147)
Net loss.................................................................... (16,327) -- (16,327)
---------- ----- ----------
Balances, December 31, 1995................................................... (48,474) -- (48,474)
Net loss (unaudited)........................................................ (8,487) -- (8,487)
---------- ----- ----------
Balances, September 30, 1996 (unaudited)...................................... $ (56,961) $ -- $ (56,961)
---------- ----- ----------
---------- ----- ----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-38
<PAGE>
PRIME CABLE OF ALASKA L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS (UNAUDITED) YEARS
ENDED SEPTEMBER 30, SIX MONTHS ENDED
ENDED JUNE 30, DECEMBER 31,
--------------------- --------------------- ----------------------
1996 1995 1996 1995 1995 1994
---------- --------- ---------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (8,487) $ (9,345) $ (5,319) $ (6,213) $ (16,327) $ (11,727)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 12,637 12,353 8,410 8,208 16,487 16,944
Amortization of deferred debt issuance costs..... 208 530 170 352 708 500
Deferred interest on subordinated debt........... 401 1,501 401 985 6,352 1,802
Provision for inventory obsolescence............. -- -- -- 35
(Gain) loss on disposal of assets................ (27) (4) (12) (4) (4) 15
---------- --------- ---------- --------- ---------- ----------
4,732 5,035 3,650 3,328 7,216 7,569
Net decrease (increase) in accounts receivable,
prepaid expenses and other assets................ (99) 221 118 338 8 (355)
Net increase (decrease) in accounts payable,
accounts payable-affiliates, accrued interest,
other accrued expenses, and subscriber deposits
and unearned income.............................. 3,982 (160) 1,688 (14) 313 1,236
---------- --------- ---------- --------- ---------- ----------
Net cash provided by operating activities.......... 8,615 5,096 5,456 3,652 7,537 8,450
---------- --------- ---------- --------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment and
inventories...................................... (5,154) (3,742) (2,201) (2,821) (4,988) (4,021)
Proceeds from sale of assets....................... 29 54 12 54 54 10
---------- --------- ---------- --------- ---------- ----------
Net cash used in investing activities.............. (5,125) (3,688) (2,189) (2,767) (4,934) (4,011)
---------- --------- ---------- --------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank debt borrowings................. 106,500 -- 105,000 -- -- --
Repayment of term debt............................. (87,065) (1,500) (84,565) -- (1,500) (4,330)
Prepayment of subordinated debt.................... (30,122) -- (30,122) -- -- --
Increase in deferred debt issuance cost............ (2,280) -- (2,254) -- (1) (646)
---------- --------- ---------- --------- ---------- ----------
Net cash used in financing activities.............. (12,967) (1,500) (11,941) -- (1,501) (4,976)
---------- --------- ---------- --------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ (9,477) (92) (8,674) 885 1,102 (537)
Cash and cash equivalents, beginning of period..... 9,477 8,375 9,477 8,375 8,375 8,912
---------- --------- ---------- --------- ---------- ----------
Cash and cash equivalents, end of period........... $ -- $ 8,283 $ 803 $ 9,260 $ 9,477 $ 8,375
---------- --------- ---------- --------- ---------- ----------
---------- --------- ---------- --------- ---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest paid................................. $ 5,648 $ 5,943 $ 3,472 $ 3,912 $ 7,843 $ 6,330
---------- --------- ---------- --------- ---------- ----------
---------- --------- ---------- --------- ---------- ----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-39
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Prime Cable of Alaska, L.P. (the "Partnership"), a Delaware limited
partnership, was formed on January 30, 1989 to acquire and operate cable
television systems serving the municipality of Anchorage and its environs, Fort
Richardson, Elmendorf Air Force Base, the city of Bethel and its environs, and
the city of Kenai and the Kenai Peninsula Borough, all in the state of Alaska
(the "Alaska Systems"). The Partnership was capitalized with contributions
totaling $9,000,000 from the general partners, Prime Cable Fund I, Inc., Prime
Cable Fund II, Inc. and Prime Cable Fund III, Inc., and contributions from the
limited partners, Alaska Cable Inc. ("Alaska Cable"), Prime Cable Growth
Partners, L.P. and Prime Venture I Holdings, L.P. in the amounts of $23,000,000,
$11,000,000 and $2,000,000, respectively.
The partnership agreement calls for losses to be allocated 97% to the
general partners and 3% to the limited partners until the general partners'
capital accounts have been reduced to zero. Thereafter, losses are allocated
entirely to the limited partners until sufficient losses have been allocated to
reduce limited partner capital accounts to zero. Finally, remaining losses are
allocated to the general partners.
Profits will be allocated first to those partners with capital account
deficits, in proportion to their respective deficit balances. Second, profits
will be allocated to all partners based on respective capital contributions
until the capital accounts have been restored to the amount of each partner's
capital contribution less any distributions. Profits in excess of capital
contributions less distributions remaining from the sale of all, or
substantially all, of the assets of the Partnership will be allocated to the
partners in proportion to their respective capital contributions after first
being reduced by amounts paid to the corporate limited partner and to the
subordinate debt holders as described in Note 7.
As of June 30, 1995 certain shareholders of Alaska Cable can require the
sale of the Partnership for any reason.
The Partnership has a $10 investment, representing a .165% limited
partnership capital interest in Prime Video, L.P. ("PVLP"). PVLP was organized
to acquire, develop and operate Blockbuster Video Superstores, and has 19 stores
in operation at December 31, 1995. The Partnership's investment is accounted for
using the cost method, the results of which do not differ significantly from the
equity method. Through December 1995, the Partnership has received distributions
totaling $7,000 from PVLP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are carried at the lower of cost (weighted average unit cost) or
market.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. The composite method and a ten year life are used
for cable television distribution systems. Under the composite method, proceeds
from the retirement of cable television distribution system assets are credited
to the allowance for depreciation. Gains or losses on disposition of property,
plant and equipment (other than cable television distribution systems) are
credited or charged to income. Maintenance and repairs are charged to expense as
incurred. Expenditures for major renewals and betterments are capitalized.
F-40
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Excess cost over net assets acquired arising from the acquisition of cable
television systems is being amortized by the straight line method over ten
years. Other intangible assets, including subscriber lists and a Certificate of
Operating Rights, are being amortized by the straight line method over their
useful lives ranging from ten to eleven years.
It is the Partnership's policy to value intangible assets at the lower of
unamortized cost or fair value. Management reviews the valuation and
amortization of intangible assets on a periodic basis, taking into consideration
any events or circumstances which might result in diminished fair value.
DEFERRED DEBT ISSUANCE COSTS
Debt issuance costs are deferred and amortized by the straight-line method,
which approximates the interest method, over the term of the related debt.
REVENUE RECOGNITION
Revenues are generally billed in advance and are recognized as the cable
service is provided.
ADVERTISING EXPENSE
The Partnership expenses advertising costs as incurred. Advertising
expenses, net of reimbursements, were approximately $660,000 and $674,000 for
1995 and 1994, respectively.
INCOME TAXES
The Partnership as an entity pays no income taxes, although it is required
to file federal and state income tax returns for informational purposes only.
All income or loss "flows through" to the individual partners in the manner
specified in the partnership agreement.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Partnership to
concentrations of credit risk are primarily cash, temporary investments, and
accounts receivable. Excess cash is invested in high quality short-term liquid
money instruments issued by highly-rated financial institutions. At December 31,
1995, substantially all of the Partnership's cash balances were invested in
short-term liquid money instruments. Though limited to one geographical area,
the concentration of credit risk with respect to the Partnership's receivables
is minimized due to the large number of customers, individually small balances,
short payment terms and required deposits.
STATEMENTS OF CASH FLOWS
For purposes of the Statements of Cash Flows, the Partnership considers all
highly liquid investments with a maturity of three months or less, when
acquired, to be cash equivalents.
F-41
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITION OF CABLE TELEVISION SYSTEMS
On June 30, 1989, the Partnership acquired the Alaska Systems for an
aggregate purchase price including acquisition expenses of $143,843,000. For
financial statement purposes, the acquisition was accounted for using the
purchase method with the acquisition cost allocated to the tangible and
identifiable intangible assets based upon current fair market values. The
allocation resulted in an excess of cost over net assets acquired of
$24,204,000.
On October 1, 1989, the cable television system in the Eaglewood subdivision
of Anchorage was acquired by the Partnership for $541,000, including acquisition
expenses. The acquisition was accounted for as a purchase transaction with the
acquisition cost allocated to the tangible and identifiable intangible assets of
the system based upon current fair market values. This allocation resulted in an
excess of cost over net assets acquired of $217,000.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Accounts receivable, trade............................................... $ 1,333 $ 1,402
Accounts receivable, other............................................... 117 69
Less allowance for doubtful accounts..................................... (229) (267)
--------- ---------
Accounts receivable, net of allowance.................................... $ 1,221 $ 1,204
--------- ---------
--------- ---------
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consisted of the following (thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Subscriber list...................................................... $ 34,821 $ 34,821
Certificate of Operating Rights...................................... 29,019 29,019
Excess of acquisition costs over net assets acquired................. 24,421 24,421
Other intangibles.................................................... 5,775 5,775
---------- ----------
94,036 94,036
Less accumulated amortization........................................ (60,956) (51,589)
---------- ----------
Intangible assets, net............................................... $ 33,080 $ 42,447
---------- ----------
---------- ----------
</TABLE>
F-42
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. BANK DEBT
Bank debt consisted of the following (thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Bank credit agreement:
Tranche A Note....................................................... $ 65,065 $ 66,565
Tranche B Note....................................................... 17,500 17,500
--------- ---------
$ 82,565 $ 84,065
--------- ---------
--------- ---------
</TABLE>
The rates of interest on amounts outstanding under the bank loan agreement
at December 31, 1995 were fixed under three-month Eurodollar contracts at 7.2%
and 7.9% for the Tranche A Note and the Tranche B Note, respectively.
On March 7, 1996, the Partnership consummated a new bank loan agreement
using the proceeds to pay off all amounts outstanding under the previous bank
credit agreement and subordinated notes (Note 7). The Partnership has
$125,000,000 available under the new loan agreement, with borrowings bearing
interest at the bank's prime rate plus 2%. At the Partnership's option, all or a
specified portion of the indebtedness may be fixed for periods ranging from one
month to one year based on Eurodollar rates plus 3%. The interest rates under
the new agreement are subject to reductions of up to 1.75% per annum if certain
financial tests are met. The Partnership is required to pay a commitment fee
equal to .5% per annum on the unused portion of the commitment, and an agency
fee of $50,000 per year. Interest and fees are payable quarterly.
Beginning June 30, 1998, the loan commitment is reduced at the end of each
calendar quarter through March 31, 2005 as follows:
<TABLE>
<CAPTION>
QUARTERLY REDUCTION
OF LOAN COMMITMENT
---------------------
<S> <C>
1998......................................................... $ 4,166,667
1999......................................................... $ 3,125,000
2000......................................................... $ 3,125,000
2001......................................................... $ 3,125,000
2002......................................................... $ 4,687,500
2003......................................................... $ 4,687,500
2004......................................................... $ 6,250,000
2005......................................................... $ 12,500,000
</TABLE>
While the Partnership may elect to reduce amounts due and available under
the loan agreement through prepayments of not less than $1,000,000, a mandatory
prepayment is required each May, beginning in May 1999, if, for the prior year
ended December 31, the Partnership's Operating Cash Flow (defined as net income
before extraordinary items and gains and losses on asset sales, plus interest
expense, depreciation, amortization, bank fees, deferred management fees,
expenses and other amounts deferred under the management agreement (Note 8),
income tax expense, partnership expenses not to exceed $75,000 per annum, and
other non-cash expenses) exceeds payments made for cash interest expense,
permanent prepayments of principal amounts outstanding under the loan
F-43
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. BANK DEBT (CONTINUED)
agreement, bank fees, cash income tax payments, capital expenditures, amounts
previously deferred under the management agreement, and capital lease
obligations. The Partnership is required to make a prepayment in the amount of
50% of such excess. Additionally, a mandatory prepayment may be required in the
event of asset sales (other than dispositions of obsolete inventory and
equipment in the ordinary course of business), the issuance of partnership
interests or other debt or equity securities, or in the event of certain changes
in ownership of the Partnership. All such mandatory prepayments permanently
reduce the amounts due and available under the loan commitment.
The loan agreement is collateralized by essentially all of the Partnership's
assets, the general partners' interests in the Partnership, and a pledge by PMLP
of its rights under the management agreement. The loan agreement imposes
numerous requirements and restrictions, including limitations on indebtedness,
payments, purchases and capital expenditures. In addition, certain financial
ratios must be maintained.
In connection with the initial funding under the March 7, 1996 loan
agreement, the Partnership paid bank fees of approximately $2,144,000, which
will be amortized to interest expense over the life of the agreement. Additional
bank fees equal to .5% of the commitment are due upon the occurrence of certain
changes in ownership of the Partnership, but in no event later than September 7,
1997.
7. SUBORDINATED DEBT
Subordinated debt consisted of the following (thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Subordinated notes:
Original principal amount outstanding.................................. $ 20,000 $ 20,000
Deferred interest...................................................... 14,041 7,689
--------- ---------
$ 34,041 $ 27,689
--------- ---------
--------- ---------
</TABLE>
On June 30, 1989, the Partnership entered into an investment agreement to
issue subordinated notes with an original principal amount of $20,000,000. The
notes bear interest at 12.25%, with 7.25% payable quarterly and the remainder
deferred. Interest deferred each quarter bears interest at 12.25% and is payable
at maturity.
On March 7, 1996, the Partnership used $30,387,000 in proceeds from the bank
loan agreement (Note 6) to prepay in full the amounts outstanding under the
subordinated notes. The investment agreement remained in force.
Under the investment agreement, the subordinated debt holders also were
issued profit participation rights entitling them to receive the Profit
Participation Amount (defined as 13.6284% multiplied by the excess of the fair
market value of the Partnership over the sum of (1) the $45,000,000 original
equity contributed to the Partnership, reduced by distributions, plus (2) the
amount of the tax allocation to the corporate limited partner which provides the
corporate limited partner an after-tax return equivalent to the other limited
partners). The holders of profit participation rights have right of first
refusal on a portion of the issuance of additional partnership interests by the
Partnership.
F-44
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBORDINATED DEBT (CONTINUED)
The holders of the profit participation rights may elect at any time to put
all or any portion of their rights to the Partnership. In the event that the
Partnership is unable to purchase their rights, the holders can require the
liquidation of the Partnership. At any time after June 30, 1996, but prior to
June 30, 1998, the Partnership may, by notice to the holders, require them to
sell all or any portion of their profit participation rights to the Partnership.
Under the put and call agreements, the purchase price of the rights shall be
based on the Profit Participation Amount multiplied by the percentage of rights
sold. Any payments to the holders of the profit participation rights are
subordinate to payment of amounts due under the new March 7, 1996 bank loan
agreement (Note 6).
At each balance sheet date, management of the Partnership estimates fair
market value of the Partnership to determine the Profit Participation Amount.
Based upon such estimates, the Partnership recorded a liability of $4,320,000 to
the holders of the profit participation rights in 1995. This amount was charged
to interest expense and recorded as additional deferred interest on the
subordinated debt in the financial statements for 1995, which have been restated
to include this expense and liability. Such amount will be paid upon the sale of
the partnership interests (see Note 9).
8. COMMITMENTS AND CONTINGENCIES
LEASE ARRANGEMENTS
The Partnership, as an integral part of its operations, has entered into
operating lease contracts for microwave service, pole use and office space. The
approximate minimum aggregate rentals under such leases (exclusive of minimum
pole rentals of approximately $142,000 per year) at December 31, 1995, are as
follows: 1996, $462,000; 1997, $454,000; 1998, $451,000; 1999, $471,000; 2000,
$486,000 and $332,000 thereafter. Rent expense was $571,000, $556,000, and
$460,000, for the years ended December 31, 1995, 1994 and 1993, respectively.
MANAGEMENT AGREEMENT
The Partnership is a party to a management agreement with PMLP, an affiliate
of the general partners. Under the terms of the management agreement, PMLP
manages all aspects of the daily operations of the cable television systems. In
consideration for its services to the Partnership, PMLP receives annual fees
equal to 5% of the gross revenues of the Partnership and is reimbursed for
certain expenses incurred in connection with the services provided. Under the
terms of the March 7, 1996 bank loan agreement (Note 6), the Partnership will
defer payment of the 5% fees until October 1, 1996. The deferred fees bear
interest at a rate of 17.5% per annum, and may be paid to PMLP upon the
achievement of certain financial ratios. In addition, the terms of the bank loan
agreement restrict payments to PMLP in the event of a default under the credit
agreement.
In connection with the agreement, the Partnership incurred $1,674,000,
$1,671,000, and $1,542,000, in management fees and reimbursable expenses for the
years ended December 31, 1995, 1994 and 1993, respectively.
EMPLOYEE BENEFIT PLAN
The Partnership participates with other affiliated entities in a defined
contribution pension plan covering substantially all full-time employees who
have completed one year of service. The plan is subject to the provisions of
Internal Revenue Code Sec. 401(k). Contributions by the Partnership are
F-45
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
determined as a percent of each participating employee's contributions and are
at the discretion of the plan's sponsor, PMLP. Partnership contributions totaled
$33,000, $29,000, and $21,000, for fiscal years 1995, 1994 and 1993,
respectively.
LITIGATION
The Partnership is involved in various lawsuits and legal proceedings which
have arisen in the normal course of business, including the following: Two
former employees filed separate lawsuits related to the Partnership's employment
practices, with claims for damages aggregating approximately $650,000, with one
action including an unspecified claim for punitive damages. Two suits have been
filed against the Partnership related to automobile accidents, one making damage
claims aggregating approximately $550,000, the other claiming damages in an
unspecified amount. However, any damages ultimately assessed or settlements
negotiated under these two automobile accident claims will be paid by the
Partnership's insurance carrier. While the ultimate results of these matters
cannot be predicted with certainty, management does not expect them to have a
material adverse effect on the financial position or results of operations of
the Partnership, and therefore no provision for liability has been made in the
financial statements.
CABLE SERVICE RATE REREGULATION
On April 1, 1993, the Federal Communications Commission ("FCC") adopted
rules governing rates charged by cable operators for the basic service tier of
channels, the installation, lease and maintenance of equipment (such as
converter boxes and remote control units) used by subscribers to receive this
tier, and for cable programming services other than programming offered on a
per-channel or per-program basis (the "regulated services"). To comply with the
regulations, the Partnership implemented various subscriber service and rate
changes effective September 1, 1993. These changes resulted in a reduction of
total monthly revenue of approximately 6%.
On March 30, 1994, the FCC released revisions to its April 1, 1993 rate
regulations. The revisions required cable operators to implement additional rate
rollbacks using complex benchmark calculations, or alternatively, to justify
higher rates based on a cost-of-service showing. The Partnership elected to file
cost-of-service showings with the FCC where required. Management of the
Partnership believes that rates in effect at March 1994 were supportable under
the cost-of-service rules, and therefore, no rate rollbacks were implemented in
connection with the 1994 FCC revisions. Subsequent rate adjustments have been
made utilizing cost-of-service methodology with adjustments as provided by FCC
rules.
The regulated services rates charged by the Partnership may be reviewed by
the State of Alaska under certain conditions (for basic service) or the FCC (for
cable programming service). Refund liability for basic service rates is limited
to a one-year period. In order for the State of Alaska to exercise rate
regulation authority over the Partnership's basic service rates, 25% of the
Alaska Systems' subscribers must request such regulation by filing a petition
with the State of Alaska. At December 31, 1995, the State of Alaska does not
have rate regulation authority over the Partnership's basic service rates, and
therefore there is no refund liability for basic service at this time. Refund
liability for cable programming service rates may be calculated from the date a
complaint alleging an unreasonable rate for cable programming service is filed
with the FCC until the rate reduction is implemented. Complaints by subscribers
have been filed with, and accepted by, the FCC for certain franchise areas.
However, the Partnership's filings made in response to those complaints related
to the period prior to July 15, 1994 have been approved by
F-46
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the FCC; therefore, the potential liability for cable programming service
refunds would be limited to the period subsequent to July 15, 1994 for these
areas. Management of the Partnership believes that the potential for any refund
liability for cable programming service is remote, and therefore no provision
has been made in the financial statements for such refunds.
Management of the Partnership believes that it has complied in all material
respects with the provisions of the FCC rules and regulations and that the
Partnership is, therefore, not liable for any refunds. Accordingly, no provision
has been made in the financial statements for any potential refunds. The FCC
rules and regulations are, however, subject to judgmental interpretations, and
the impact of potential rate changes or refunds ordered by the FCC could cause
the Partnership to make refunds and/ or to be in default on certain debt
covenants.
In February 1996, a telecommunications bill was signed into federal law
which significantly impacts the cable industry. Most notably, the bill allows
cable system operators to provide telephony services, allows telephone companies
to offer video services, and provides for deregulation of cable programming
service rates by 1999. The impact of the new bill cannot be determined at this
time, but it is not expected to have a significant adverse impact on the
financial position or results of operations of the Partnership.
9. SUBSEQUENT EVENT
The Partners of the Partnership have signed a letter of intent to sell the
Partnership to General Communication, Inc. (GCI). GCI is a telecommunications
company providing long distance services in Alaska. A definitive agreement is
expected to be signed in the second quarter of 1996. Under the terms of the
letter of intent, the non-corporate partners would sell their partnership
interests, the shareholders of the corporate partners would exchange their
corporate shares, and the holders of the profit participation rights (see Note
7) would receive settlement of the Profit Participation Amount, all for a total
consideration of 11.8 million shares of GCI common stock.
F-47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION FOR PRIME CABLE
Prime management's discussion of the financial condition of Prime must be
addressed in the context of regulatory changes in the form of the 1996 Telecom
Act, the 1992 Cable Act, and the Communications Act discussed elsewhere in this
Prospectus.
TWO YEARS ENDED DECEMBER 31, 1995
As of December 31, 1995, the Prime Cable passed more than 106,000 homes and
served more than 53,000 residential subscribers and 12,000 non-standard
residential and business connections, including individual dwelling units in
apartment complexes and hotels which are billed under bulk billing arrangements.
Prime had approximately 63,000 subscriptions to premium service units.
RESULTS OF OPERATIONS. Revenues totaled $32.6 million and $30.6 million
during the years ended December 31, 1995 and 1994 respectively. The 6.5% growth
in 1995 as compared to 1994 resulted primarily from increases in the number of
subscribers, primarily as a result of additional homes passed and increases in
the number of subscriptions for services. Approximately $356,000 of the growth
in 1995 revenues was due to increases in regulated service rates implemented in
January, 1995. Average monthly revenue per account was approximately $40.17 and
$39.92 in 1995 and 1994, respectively, representing an increase of approximately
0.6%. Revenues were primarily generated from subscription fees, installation
charges, and subscriber cable equipment rentals.
Cable television system expenses, representing costs directly attributable
to providing cable services to customers, increased 9.1% in 1995 as compared to
1994. The increases result from increased business activity resulting from the
growth in the number of subscribers and increased programming costs.
Prime pays management fees plus associated reimbursable expenses under the
present Prime management agreement with its manager. The management fee is based
on a percentage of gross revenues. Management fees and reimbursable expenses for
the each of the years ended December 31, 1995 and 1994 were $1.7 million.
EBITDA as a percentage of revenues decreased from 45.7% to 45.0% during the
year ended December 31, 1995 compared to the corresponding period of 1994. The
decrease was primarily caused by an increase in cable television system expenses
that on a percentage basis exceeded the corresponding increase in revenues.
Depreciation and amortization expense was $16.5 million and $16.9 million
for the years ended December 31, 1995 and 1994, respectively. The 1995 decrease
as compared to 1994 resulted from certain tangible and intangible assets
becoming fully amortized.
Interest expense was $15.0 million and $9.0 million for the years ended
December 31, 1995 and 1994, respectively. The increases, except for that
described below, were primarily attributable to increases in interest rates
throughout the period and amortization of additional deferred loan costs related
to amendments of Prime's prior agreement. Approximately $4.4 million of the 1995
increase results from accrual of the December 31, 1995 profit participation
amount (equity participation interest) as further described in Note 7 to Prime's
accompanying December 31, 1995 financial statements.
Prime, as a partnership entity, pays no income taxes, although it is
required to file federal and state income tax returns for informational purposes
only. All income or loss "flows through" to the individual partners.
Certain of Prime's expenses, such as those for wages and benefits, equipment
repair and replacement, and billing and marketing generally increase with
inflation.
F-48
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. Cash provided by operating activities
decreased $913,000 to $7.54 million for the year ended December 31, 1995
compared to the corresponding period of 1994 resulting primarily from increases
in interest expense.
Cash used in investing activities increased $923,000 to $4.93 million for
the year ended December 31, 1995 compared to the corresponding period of 1994,
primarily due to expenditures related to plant upgrades in 1995.
Cash used in financing activities decreased from $4.98 million to $1.5
million for the year ended December 31, 1995 compared to the corresponding
period of 1994 related primarily to reduced debt repayment in 1995 as compared
to 1994.
Prime's primary need for capital has been to finance plant extensions,
rebuilds and upgrades and to add addressable converters to certain cable
systems. Prime spent $5.0 million during 1995 on capital expenditures.
On March 7, 1996, Prime consummated the bank credit agreement using the
proceeds to pay off all amounts outstanding under the previous bank credit
agreement and subordinated notes. Prime has up to $125 million available under
the commitment in the new loan agreement, with available borrowing levels based
on debt to operating cash flow ratios as specified in the loan agreement.
Borrowings bear interest at the bank's prime rate plus 2%.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
As of June 30, 1996, the Prime Cable passed more than 107,000 homes and
served more than 52,000 residential subscribers and 12,000 non-standard
residential and business connections, including individual dwellings units in
apartment complexes and hotels which are billed under bulk billing arrangements.
Prime had approximately 51,000 subscriptions to premium service units.
RESULTS OF OPERATIONS. Revenues totaled $17.3 million for the six months
ended June 30, 1996, and $16.1 million for the six months ended June 30, 1995.
The 7.3% growth for the six months result primarily from increases in the number
of subscribers as a result of additional homes passed and increases in the
number of subscriptions for services as well as a rate increase implemented
effective December 15, 1995. Average monthly revenue per account was
approximately $42.17 and $40.67 for the six months ended June 30, 1996 and 1995,
respectively. This represents an increase of approximately 3.7% for the six
months ended June 30, 1996 compared to the corresponding periods of 1995.
Revenues were primarily generated from subscription fees, installation charges,
and subscriber cable equipment rentals.
Cable television system expenses, representing costs directly attributable
to providing cable services to customers, increased 6.4% for six months ended
June 30, 1996 compared to the corresponding periods of 1995. This resulted from
increased business activity attributed to growth in the number of subscribers
and increased programming costs.
Prime paid management fees plus associated reimbursable expenses under a
management agreement. Management fees and reimbursable expenses were $924,000
and $817,000 for the six months ended June 30, 1996 and 1995, respectively.
EBITDA increased to 44.5% from 44.3% for the 6 months ended June 30, 1996
compared to the corresponding period of 1995. The increases were primarily
caused by an increase in cable television system gross margin resulting from the
December 15, 1995 rate increase to subscribers.
Depreciation and amortization expense was $8.4 million and $8.2 million for
the six months ended June 30, 1996 and 1995, respectively. The increase results
from additional purchases of property, plant and equipment.
F-49
<PAGE>
Interest expense totaled $4.7 million and $5.4 million for the six months
ended June 30, 1996 and 1995, respectively. The 1996 decrease was primarily
attributable to lower total borrowings and lower effective interest rates in
1996 compared to 1995.
Prime, as a partnership entity, pays no income taxes although it is required
to file federal and state income tax returns for informational purposes only.
All income or loss "flow through" to the individual partners.
Certain of Prime's expenses, such as those for wages and benefits, equipment
repair and replacement and billing and marketing generally increase with
inflation.
LIQUIDITY AND CAPITAL RESOURCES. Cash provided by operating activities
increased $1.8 million for the six months ended June 30, 1996, compared to the
corresponding period of 1995. The increase results primarily from a timing
difference in the payment of interest expense, the deferral of payment of
management fees and from increased revenues attributable to increased subscriber
counts and a December 15, 1995 rate increase.
Cash used in investing activities decreased $578,000 to $2.2 million for the
six months ended June 30, 1996, compared to the corresponding period of 1995.
The decrease results primarily from decreased capital expenditures related to
improvements to the cable television system and decreases in the purchase of
addressable converters.
Cash used in financing activities totaled $11.9 million for the six months
ended June 30, 1996 resulting from the repayment of current debt and previously
outstanding debts and payments of deferred debt issuance costs in excess of the
initial draw on the Bank Credit Agreement.
Prime's primary need for capital has been to finance plant extensions,
rebuilds and upgrades and to add addressable converters to certain cable
systems. Prime spent $2.2 million during the first six months of 1996 on capital
expenditures.
The bank credit agreement was consummated in March, 1996. Prime has up to
$125 million available under the commitment in the new loan agreement, with
available borrowing levels based on debt to operating cash flow ratios as
specified in the loan agreement. Based on Prime's operating cash flow for the
quarter ending June 30, 1996, Prime could have borrowed up to approximately
$112.3 million without being in default at June 30, 1996. Borrowings bear
interest at the bank's prime rate plus 2%.
F-50
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Alaskan Cable Network
We have audited the accompanying combined balance sheets of the Alaskan
Cable Network (see Note 1) as of December 31, 1995 and 1994, and the related
combined statements of income, shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Alaskan Cable
Network at December 31, 1995 and 1994, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
February 9, 1996 except for
Note 13, as to which the date is
March 14, 1996
F-51
<PAGE>
ALASKAN CABLE NETWORK
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
JUNE 30, --------------------
1996 1995 1994
------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................................... $ 1,015 $ 3,905 $ 6,153
Trade accounts receivable, less allowance for doubtful accounts of $102 in
1996, $95 in 1995 and $82 in 1994......................................... 1,402 1,537 1,366
Property, plant and equipment, net.......................................... 10,909 12,144 14,161
Intangible assets, net...................................................... 5,244 6,908 10,027
Due from affiliates......................................................... 639 -- 1,673
------------ --------- ---------
Total Assets................................................................ $ 19,209 $ 24,494 $ 33,380
------------ --------- ---------
------------ --------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
Line of credit.............................................................. $ 3,000 $ 8,000 $ --
Accounts payable............................................................ 305 615 390
Accrued compensation and benefits........................................... 425 331 381
Other accrued liabilities................................................... 885 775 1,445
Deferred revenue............................................................ 1,152 1,211 1,128
Due to affiliates........................................................... -- 64 --
------------ --------- ---------
Total liabilities........................................................... 5,767 10,996 3,344
------------ --------- ---------
Commitments and contingencies
Shareholder's equity:
Common Stock.............................................................. 3 3 3
Additional paid-in-capital................................................ 14,458 14,478 31,936
Accumulated deficit....................................................... (1,019) (983) (1,903)
------------ --------- ---------
Total shareholder's equity.................................................. 13,442 13,498 30,036
------------ --------- ---------
Total liabilities and shareholder's equity.................................. $ 19,209 $ 24,494 $ 33,380
------------ --------- ---------
------------ --------- ---------
</TABLE>
See accompanying notes.
F-52
<PAGE>
ALASKAN CABLE NETWORK
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED YEARS ENDED,
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cable television service revenue.......................... $ 7,442 $ 7,224 $ 14,515 $ 13,883 $ 14,142
Operating expenses:
Cost of revenues........................................ 2,485 2,374 4,702 4,467 4,350
Selling, general and administrative..................... 1,515 1,450 3,005 2,808 3,063
Depreciation and amortization........................... 3,113 3,034 6,176 6,092 6,362
--------- --------- --------- --------- ---------
Income from operations.................................... 329 366 632 516 367
Other income (expense):
Loss on disposal of assets.............................. (6) (2) -- -- (2,687)
Interest income, net.................................... (374) 55 80 235 46
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative effect of
change in accounting principle.......................... (51) 419 712 751 (2,274)
Benefit (provision) for income taxes...................... 15 16 208 (9) 622
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of change in
accounting principle.................................... (36) 435 920 742 (1,652)
Cumulative effect of change in accounting principle....... -- -- -- -- (622)
--------- --------- --------- --------- ---------
Net income (loss)......................................... $ (36) $ 435 $ 920 $ 742 $ (2,274)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-53
<PAGE>
ALASKAN CABLE NETWORK
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at December 31, 1992.................................. $ 3 $ 32,161 $ (371) $ 31,793
Dividends paid................................................ -- (112) -- (112)
Net income, year ended December 31, 1993...................... -- -- (2,274) (2,274)
----- ---------- ------------- ----------
Balance at December 31, 1993.................................. 3 32,049 (2,645) 29,407
Decrease in paid-in-capital................................... -- (113) -- (113)
Net income, year ended December 31, 1994...................... -- -- 742 742
----- ---------- ------------- ----------
Balance at December 31, 1994.................................. 3 31,936 (1,903) 30,036
Dividend to JKCI.............................................. -- (18,195) -- (18,195)
Net income.................................................... -- -- 920 920
Capital Contribution by JKCI.................................. -- 737 -- 737
----- ---------- ------------- ----------
Balance at December 31, 1995.................................. 3 14,478 (983) 13,498
Net loss (unaudited).......................................... -- -- (36) (36)
Decrease in additional paid-in capital (unaudited)............ -- (20) -- (20)
----- ---------- ------------- ----------
Balance at June 30, 1996 (unaudited).......................... $ 3 $ 14,458 $ (1,019) $ 13,442
----- ---------- ------------- ----------
----- ---------- ------------- ----------
</TABLE>
See accompanying notes.
F-54
<PAGE>
ALASKAN CABLE NETWORK
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................... $ (36) $ 435 $ 920 $ 742 $ (2,274)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Provision (credit) for uncollectible
accounts receivable..................... 7 14 13 (13) 55
Loss on disposal of assets................ 6 2 20 39 2,687
Depreciation and amortization............. 3,113 3,034 6,176 6,092 6,362
Changes in operating assets and
liabilities:
Trade accounts receivable............... 128 13 (184) (11) 160
Intangible and other assets............. (4) 155 (146) (206) 3
Accounts payable........................ (310) (86) 225 (219) (44)
Accrued compensation and benefits and
other accrued
liabilities........................... 204 61 17 (156) 414
Deferred revenue........................ (59) 15 83 11 (36)
--------- --------- --------- --------- ---------
Net cash provided by operating activities... 3,049 3,643 7,124 6,279 7,327
INVESTING ACTIVITIES
Additions to property, plant and
equipment................................. (216) (275) (914) (1,170) (6,005)
--------- --------- --------- --------- ---------
Net cash used in investing activities....... (216) (275) (914) (1,170) (6,005)
FINANCING ACTIVITIES
Borrowings on line of credit................ 6,000 -- 8,000 -- --
Repayment of line of credit................. (11,000) -- -- -- --
Change in due from affiliates............... (703) 1,628 1,737 (1,673) --
Decrease in paid-in-capital................. (20) -- -- (113) --
Dividends paid to Jack Kent Cooke
Incorporated.............................. -- (9,700) (18,195) -- (112)
--------- --------- --------- --------- ---------
Net cash used in financing activities....... (5,723) (8,072) (8,458) (1,786) (112)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................... (2,890) (4,704) (2,248) 3,323 1,210
Cash and cash equivalents at beginning of
period.................................... 3,905 6,153 6,153 2,830 1,620
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period.................................... $ 1,015 $ 1,449 $ 3,905 $ 6,153 $ 2,830
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest................................ $ -- $ -- $ -- $ -- $ --
Income taxes............................ $ -- $ -- $ 3 $ 45 $ --
Supplemental disclosure of noncash financing
activities:
In 1995, JKCI forgave $737 of liabilities
owed by the Company
</TABLE>
See accompanying notes.
F-55
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements of the Alaskan Cable Network (ACN or the
Company) include the operations of cable television systems of Alaskan Cable
Network/Fairbanks, Inc., Alaskan Cable Network/Juneau, Inc. and Alaskan Cable
Network/Ketchikan, Sitka, Inc. for the years ended December 31, 1995, 1994 and
1993. Each of the entities comprising ACN is wholly owned by Jack Kent Cooke
Incorporated (JKCI). Prior to April 30, 1992, these companies were wholly owned
subsidiaries of Cooke Media Group Inc. (CMG), a wholly owned subsidiary of JKCI.
In connection with an agreement with an unrelated party for the sale of CMG and
certain other JKCI operations, the cable television systems comprising ACN were
transferred to JKCI. This transaction was accounted for as a transfer among
companies under common control, and therefore, was recorded at CMG's historical
cost basis.
Cable television operations generate revenue through the use of property and
equipment and, therefore, have few current assets, as the expression is defined
in terms of a one-year operating cycle. Accordingly, the Company does not
identify current assets and current liabilities separately in the accompanying
combined balance sheets.
The Company's operations are regulated by the Federal Communications
Commission and certain other state and local authorities.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes". The
Company adopted the provisions of the new standard in its financial statements
on January 1, 1993. The cumulative effect as of January 1, 1993, due to the
adoption of SFAS No. 109, was an expense for income taxes of $622,000 for the
year ended December 31, 1993.
Under SFAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts,
and the tax bases of existing assets and liabilities. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Prior to the adoption of SFAS No. 109,
income tax expense was determined using the deferred method. Under the deferred
method, deferred taxes were recognized using the tax rate applicable to the year
of calculation and were not adjusted for subsequent changes in tax rates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with initial maturities
of three months or less when acquired as cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company derives its revenues from thousands of customers located
principally in four cities in Alaska. None of the individual customer accounts
receivable balances are material. Customers are billed monthly, 15 days in
advance of the beginning of the service period. Invoices are generally due at
the
F-56
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
beginning of the service period. The Company generally does not require
collateral and losses on uncollectible receivables have been within management's
expectations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation and
amortization is provided on the straight-line method over the estimated useful
lives, which are generally as follows:
<TABLE>
<S> <C>
Buildings and improvements.......................... 19 to 40 years
Cable television systems............................ 8 to 10 years
Machinery and equipment............................. 8 to 10 years
</TABLE>
INTANGIBLE AND OTHER ASSETS
Intangible assets are recorded at cost and are amortized using the
straight-line method over their estimated useful lives, principally 7 to 12
years. The cost in excess of fair value of net assets of purchased businesses is
amortized using the straight-line method over forty years. The carrying value of
the cost in excess of fair value of net assets of purchased businesses is
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates the cost in excess of fair value of the net assets of purchased
businesses will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of this asset is reduced by the estimated shortfalls of
cash flows.
REVENUE RECOGNITION
Revenues are generally billed in advance and are deferred until cable
service is provided.
ESTIMATES USED IN THE PREPARATION OF THE COMBINED FINANCIAL STATEMENTS
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results inevitably will differ from those estimates
and such differences may be material to the financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
F-57
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Land................................................................ $ 20 $ 20
Buildings and improvements.......................................... 294 270
Cable television systems............................................ 27,354 26,743
Machinery and equipment............................................. 1,399 1,399
Construction in progress............................................ 637 441
----------- -----------
29,704 28,873
Less accumulated depreciation....................................... (17,560) (14,712)
----------- -----------
$ 12,144 $ 14,161
----------- -----------
----------- -----------
</TABLE>
The Company recorded depreciation expense of $2,911,000, $2,871,000 and
$3,040,000 in 1995, 1994 and 1993, respectively.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Subscriber lists..................................................... $ 26,666 $ 26,666
Franchise rights..................................................... 5,609 5,609
Cost in excess of fair value of purchased businesses (goodwill)...... 2,209 2,209
Other assets......................................................... 1,334 1,188
---------- ----------
35,818 35,672
Less accumulated amortization........................................ (28,910) (25,645)
---------- ----------
$ 6,908 $ 10,027
---------- ----------
---------- ----------
</TABLE>
5. LINE OF CREDIT
On June 27, 1995, the Company entered into a $30 million line of credit
agreement with a bank. Borrowings under the line of credit are collateralized by
all of the Company's common stock and bear interest, at the Company's option, at
the prime rate or the interbank offered rate plus 1% (7.5% at December 31,
1995). If the aggregated borrowings exceed $25 million, the interest rate, at
the Company's option, on the amount in excess of $25 million is based on the
prime rate plus .75% or the interbank offered rate plus 2%. The line of credit
agreement expires on June 30, 1997. There were $8 million in borrowings
outstanding under this agreement at December 31, 1995.
F-58
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. LINE OF CREDIT (CONTINUED)
The line of credit agreement places certain restrictions on the Company,
including limitations on liens, disposition of assets, loans, investments,
capital expenditures, and requires compliance with certain financial covenants.
6. INCOME TAXES
The Company utilizes the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Temporary differences arise primarily from differences in depreciation and
amortization for financial statement and income tax purposes, and unused net
operating loss carryforwards.
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization......................................... $ -- $ 377
Deferred tax assets:
Net operating loss carryforwards...................................... 2,085 2,679
Depreciation and amortization......................................... 434 --
Accrued sick leave pay................................................ 49 48
Accrued vacation pay.................................................. 39 37
Allowance for loss on receivables..................................... 35 35
Tax credit carryforward............................................... 19 19
--------- ---------
Total deferred tax assets............................................. 2,661 2,818
Valuation allowance for deferred tax assets........................... (2,661) (2,441)
--------- ---------
Net deferred tax assets................................................. -- 377
--------- ---------
Net deferred taxes...................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
Management has determined, based on the Company's historical operating
results, the potential impact of deregulation in the cable television industry,
and the ability of other JKCI entities to utilize the Company's net operating
loss carryforwards, that it is more likely than not that the deferred tax asset
will not be realized prior to expiration. The Company will continue to assess
the need for a valuation allowance based on future operating results and facts
and circumstances at the time.
F-59
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
6. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to the provision (benefit) for income taxes for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal income tax rate......................... 34.0% 34.0% (34.0)%
State income tax refunds, net of federal tax
benefit............................................ (29.0) -- --
Benefit of alternative minimum tax loss
carryforwards...................................... -- (36.0) --
Benefit of net operating loss carryforwards.......... (72.0) -- --
Forgiveness of debt income........................... 35.0 -- --
Amortization of cost in excess of fair value of net
assets of purchased businesses..................... 3.0 3.0 1.0
Alternative minimum tax.............................. -- (1.0) --
Reduction of taxes provided in prior years........... -- (1.0) --
Net operating losses not providing current tax
benefit............................................ -- -- 6.0
Other--net........................................... -- 2.0 --
----- ----- -----
(29.0)% 1.0% (27.0)%
----- ----- -----
----- ----- -----
</TABLE>
At December 31, 1995, the company has unused net operating loss
carryforwards for federal and state income tax purposes of approximately $4.5
million and $5.9 million, respectively. The federal and state net operating loss
carryforwards expire in years 2006 through 2009.
A consolidated federal tax return is filed by JKCI. The Company has a tax
sharing arrangement with JKCI requiring that the Company provide for income
taxes as if it were a separate taxable entity. Under the arrangement, the
Company will receive benefit for its operating losses only in years when it has
taxable income. Such benefit will be reduced to the extent that the Company's
operating losses have been utilized by affiliated companies in the consolidated
tax return. Management believes the recorded provision (benefit) for income
taxes is not materially different than the amounts that would be recorded if the
Company were a stand-alone entity.
7. RETIREMENT PLANS
An affiliate of the Company sponsors a 401(k) savings plan (the Plan) which
covers most non-union full-time employees of the Company, who may elect to
contribute from 2% to 16% of their compensation to the Plan. The Company
recognized expenses for matching contributions in the amount of $24,000, $16,000
and $18,000 in 1995, 1994 and 1993, respectively.
The company contributes to a union-sponsored defined benefit pension plan.
Such contribution expense totaled $130,000, $123,000 and $135,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
F-60
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
8. SHAREHOLDER'S EQUITY
Common Stock consists of the following:
<TABLE>
<S> <C>
$1.00 par value, shares authorized, issued and outstanding:
Alaskan Cable Network, Inc.................................. 200 shares
Alaskan Cable Network/Fairbanks, Inc........................ 1,000 shares
Alaskan Cable Network/Juneau Holdings, Inc.................. 200 shares
Alaskan Cable Network/Ketchikan-Sitka, Inc.................. 1,000 shares
Alaskan Cable Network/Juneau, Inc........................... 540.5 shares
</TABLE>
The accumulated deficit reflects the Company's operating results subsequent
to the sale of the cable television systems to JKCI discussed in Note 1.
9. ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising costs
were $113,000, $98,000 and $131,000 for the years ended December 31, 1995, 1994
and 1993, respectively, and were recorded as part of selling, general and
administrative expenses.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and equipment primarily under
operating leases which expire on various dates through 2001. Future minimum
rental payments as of December 31, 1995 under noncancellable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
1996......................................................... $ 127
1997......................................................... 99
1998......................................................... 71
1999......................................................... 64
2000......................................................... 21
Thereafter................................................... 9
---------
$ 391
---------
---------
</TABLE>
Rent expense was $433,000, $391,000 and $373,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
F-61
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CABLE SERVICE RATE REREGULATION
On April 1, 1993 the Federal Communications Commission ("FCC") adopted rules
governing rates charged by cable operators for the basic service tier of
channels, the installation, lease and maintenance of equipment (such as
converter boxes and remote control units) used by subscribers to receive this
tier, and for cable programming services other than programming offered on a
per-channel or per-program basis (the "regulated services"). To comply with the
regulations, the Company implemented various subscriber service and rate changes
effective September 1, 1993. These changes resulted in a reduction of total
monthly revenue of approximately 10.5%.
On March 30, 1994, the FCC released revisions to its April 1, 1993 rate
regulations. The revisions required cable operators to implement additional rate
rollbacks using complex benchmark calculations, or alternatively, to justify
higher rates based on a cost-of-service showing. The Company elected to file
cost-of-service showings with the FCC where required. Management of the Company
believes that rates in effect at March 1994 were supportable under the
cost-of-service rules, and therefore, no rate rollbacks were implemented in
connection with the 1994 FCC revisions. Subsequent rate adjustments have been
made utilizing cost-of-service methodology with adjustments as provided by FCC
rules.
The regulated service rates charged by the Company may be reviewed by the
State of Alaska under certain conditions (for basic service) or the FCC (for
cable programming service). Refund liability for basic service rates is limited
to a one-year period. In order for the State of Alaska to exercise rate
regulation authority over the Company's basic service rates, 25% of each
systems' subscribers must request such regulation by filing a petition with the
State of Alaska. In July 1990, the Alaskan Public Utilities Commission
instituted rate regulation over the Juneau operations for their basic cable
service and installation. At December 31, 1995, the State of Alaska does not
have rate regulation authority over the other three locations comprising the
Alaskan Cable Network over their basic service rates, and therefore there is no
refund liability for basic service at this time. Furthermore, since the rate
regulation at the Juneau facility began in 1990, no refund liability exists for
this location as of December 31, 1995. Refund liability for cable programming
service rates may be calculated from the date a complaint alleging an
unreasonable rate for cable programming service is filed with the FCC until the
rate reduction is implemented. There have been no complaints filed with the FCC
for these certain franchise areas.
Management of the Company believes that it has complied in all material
respects with the provisions of the FCC rules and regulations and that the
Company is, therefore, not liable for any refunds. Accordingly, no provision has
been made in the financial statements for any potential refunds. The FCC rules
and regulations are, however, subject to judgmental interpretations, and the
impact of potential rate changes or refunds ordered by the FCC could cause the
Company to make refunds.
In February 1996, a telecommunications bill was signed into federal law
which significantly impacts the cable industry. Most notably, the bill allows
cable system operators to provide telephony services, allows telephone companies
to offer video services, and provides for deregulation of cable programming
service rates by 1999. The impact of the new bill cannot be determined at this
time, but it is not expected to have a significant adverse impact on the
financial position or results of operations of the Company.
F-62
<PAGE>
ALASKAN CABLE NETWORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, based in part on
the opinion of the Company's legal counsel, the amount of ultimate liability
with respect to these actions will not materially affect the financial position
or results of operations of the Company.
11. RELATED PARTY TRANSACTION
The Company makes advances to/borrows from an affiliate at interest rates of
6.97% per annum during 1995, ranging from 3.91% to 5.49% per annum during 1994,
and ranging from 3.88% to 4.28% per annum during 1993. Net interest income
related to these advances was $7,000, $127,000 and $16,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. Such advances/borrowings are
payable on demand.
Certain executive officers of JKCI and Tower Media Inc., an affiliate of the
Company, perform services for the Company. No allocations to the Company were
made for such services performed by JKCI, as the amounts were immaterial, during
1995, 1994 and 1993. Management fees of $225,000, $233,000 and $202,000 for
1995, 1994 and 1993, respectively, were paid to Tower Media Inc. for accounting
and administrative services rendered on behalf of the Company. The Company
believes the management fees paid to Tower Media Inc. are at least as favorable
as the cost of similar services from unrelated third parties. JKCI administers a
health insurance plan for the Company's employees at JKCI's cost. The Company
then reimburses JKCI for the cost of the service provided.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS; The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
LINE OF CREDIT; The carrying amounts of the Company's borrowings under
its line of credit agreement approximate their fair value as a result of the
variable interest rate that is adjusted monthly.
DUE FROM AFFILIATES; The carrying amount of the due from (to)
affiliates approximates its fair value as a result of being payable on
demand and the immateriality of the outstanding borrowings.
13. SUBSEQUENT EVENT
On March 14, 1996, the Company signed a letter of intent to sell all of its
assets to General Communication, Inc. The selling price is in excess of the net
book value of the Company's assets at December 31, 1995. The closing of the sale
is subject to the execution of a definitive Asset Purchase Agreement and may be
subject to regulatory approval.
F-63
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION FOR ALASKAN CABLE
Alaskan Cable management's discussion of the financial condition of Alaskan
Cable must be addressed in the context of regulatory changes in the form of the
1996 Telecom Act, the 1992 Cable Act, and the Communications Act discussed
elsewhere in this Prospectus.
THREE YEARS ENDED DECEMBER 31, 1995
As of December 31, 1995, Alaskan Cable's cable systems passed more than
42,300 homes and served more than 25,900 residential subscribers. Alaskan Cable
had approximately 15,780 subscriptions to premium service units.
RESULTS OF OPERATIONS. Revenues totaled $14.5 million, $13.9 million and
$14.1 million during the years ended December 31, 1995,1994 and 1993,
respectively. The 4.6% growth in 1995 as compared to 1994 resulted primarily
from increases in regulated service rates implemented January 1, 1995. The 1.8%
decrease in 1994 as compared to 1993 resulted primarily from the subscriber rate
reductions implemented September 1, 1993. Average monthly revenue per account
was approximately $48.00, $45.75 and $47.75 in 1995, 1994 and 1993,
respectively, representing an increase (decrease) of approximately 4.9% and
(4.2%) in 1995 and 1994, respectively. Revenues were primarily generated from
subscription fees, installation charges, and subscriber cable equipment rentals.
Direct operating expenses, representing costs directly attributable to
providing cable services to customers, increased 5.3% in 1995 as compared to
1994 and increased 2.7% in 1994 as compared to 1993. The increases result from
increased business activity resulting from the growth in the number of
subscribers and increased programming costs.
EBITDA as a percentage of revenues decreased from 47.6% to 46.9% during the
year ended December 31, 1995 compared to the corresponding period of 1994. The
decrease was primarily caused by an increase in cost of revenues and selling,
general and administrative expenses that on a percentage basis exceeded the
corresponding increase in revenues. EBITDA as a percentage of revenues increased
from 28.6% to 47.6% during the year ended December 31, 1994 compared to the
corresponding period of 1993. The increase was primarily caused by a loss on
disposal of assets in 1993 offset by a net decrease in cost of revenues,
selling, general and administrative expenses, depreciation and amortization
expenses that on a percentage basis exceeded the corresponding decrease in
revenues as affected by the approximate 10.5% rate reduction described above.
Depreciation and amortization expense was $6.2 million, $6.1 million and
$6.4 million for the years ended December 31, 1995, 1994 and 1993, respectively.
The 1995 increase as compared to 1994 results from continued cable television
build-out expenditures, and the amortization of line of credit deferred loan
expenses. The 1994 decrease as compared to 1993 results from disposal of old
cable television systems in 1993 whose original construction costs were higher
than the expenditures made to rebuild the system.
Income tax (provision) benefit totaled $208,000, ($9,000) and $622,000 in
1995, 1994 and 1993, respectively, resulting from the application of statutory
income tax rates to net earnings or loss before income taxes. Alaskan Cable
experienced income (loss) before income taxes and cumulative effect of change in
accounting principle of $712,000, $751,000 and ($2,274,000) for the years ended
December 31, 1995, 1994, and 1993, respectively.
In light of Alaskan Cable's history of losses prior to 1994, the potential
negative impact of recent deregulation in the cable television industry, and the
ability of other Jack Kent Cooke Incorporated entities to utilize Alaskan
Cable's net operating loss carryforwards, management established a valuation
allowance for $2.7 million as of December 31, 1995.
F-64
<PAGE>
Alaskan Cable adopted Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), Accounting for Income Taxes on January 1, 1993. The cumulative
effect adjustment recorded in 1993 due to adoption of SFAS 109 totaled $622,000.
Certain of Alaskan Cable's expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally increase
with inflation.
LIQUIDITY AND CAPITAL RESOURCES. Cash provided by operating activities
increased $800,000 to $7.1 million for the year ended December 31, 1995 compared
to the corresponding period of 1994 resulting primarily from increased net
income of $178,000 and $444,000 resulting from a $225,000 increase in accounts
payable in 1995 compared to a $219,000 decrease in 1994. Cash provided by
operating activities decreased $1.0 million to $6.3 million for the year ended
December 31, 1994 compared to the corresponding period of 1993. The decrease
resulted primarily from cash used for the acquisition of other assets and
payments of accrued liabilities.
Cash used in investing activities decreased $256,000 to $914,000 for the
year ended December 31, 1995 compared to the corresponding period of 1994. Cash
used in investing activities decreased $4.8 million to $1.2 million for the year
ended December 31, 1994 compared to the corresponding period of 1993. Both
decreases result primarily from reduced capital expenditures related to
purchases of property, plant and equipment.
Cash used in financing activities increased from $1.8 million to $8.5
million for the year ended December 31, 1995 compared to the corresponding
period of 1994 related primarily to the excess of dividends paid over borrowings
in 1995 as compared to 1994. Cash used in financing activities increased from
$112,000 to $1.8 million for the year ended December 31, 1994 compared to the
corresponding period of 1993 primarily due to increased loans to affiliates.
Alaskan Cable's primary need for capital has been to finance plant
extensions, rebuilds and upgrades and to add addressable converters to certain
cable systems. Alaskan Cable spent $914,000 during 1995 on capital expenditures.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
As of June 30, 1996, Alaskan Cable's systems passed more than 42,720 homes
and served more than 25,426 residential subscribers. Alaskan Cable had
approximately 20,310 subscriptions to premium service units.
RESULTS OF OPERATIONS. Revenues totaled $7.4 million and $7.2 million
during the six-month periods ended June 30, 1996 and 1995, respectively. The
revenue growth in 1996 as compared to 1995 resulted primarily from rate
increases for services. Average monthly revenue per account for the six months
ended June 30, 1996 and 1995, was approximately $48.83 and $46.17, respectively,
representing increases of 5.8%. Revenues were primarily generated from
subscription fees, installation charges, and subscriber cable equipment rentals.
Direct operating expenses, representing costs directly attributable to
providing cable services to customers, increased 4.7% for the six-month period
ended June 30, 1996 compared to the corresponding period of 1995. 1996 increases
resulted from increased business activity from increased services and increased
programming costs. Selling, general and administrative operating expenses
increased 4.5% for the six-month period ended June 30, 1996 compared to the
corresponding period of 1995. 1996 increases resulted from increased business
activity from increased services.
Depreciation and amortization expense totaled $3.1 million and $3.0 million
for the six-month periods ended June 30, 1996 and 1995, respectively. The 1996
increases as compared to 1995 is primarily the result of the amortization of
deferred loan expenses pertaining to the line of credit reflected in the first
six months of 1996.
F-65
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. Cash provided by operating activities
decreased $594,000 to $3,049,000 for the six-month period ended June 30, 1996
compared to the corresponding period of 1995 resulting from decreased net income
of $471,000 and a net use of cash resulting from changes in operating assets and
liabilities in 1996 as compared to 1995.
Cash used in investing activities decreased from $275,000 to $216,000 for
the six-month period ended June 30, 1996 compared to the corresponding period of
1995 resulting from reduced capital expenditures for property, plant and
equipment in 1996 as compared to 1995.
Cash used in financing activities decreased from $8.1 million to $5.7
million for the six-month period ended June 30, 1996 compared to the
corresponding period of 1995. For 1996, increases in cash from line of credit
borrowings in 1996 totaling $6.0 million were offset by repayments of line of
credit borrowings totaling $11.0 million. For 1995, dividends paid of $9.7
million were offset by reduced loan repayments from affiliates of $2.3 million.
Alaskan Cable's primary need for capital has been to finance plant
extensions, rebuilds and upgrades and to add addressable converters to certain
cable systems.
EBITDA as a percentage of revenues decreased from 47.1% to 46.2% during the
six-month period ended June 30, 1996 compared to the corresponding period of
1995. The 1996 decrease was primarily caused by increases in cost of revenues
and selling, general and administrative expenses that on a percentage basis
exceeded the corresponding increase in revenues.
Income tax benefit totaled $15,000 for the six-month period ended June 30,
1996. Income tax benefit totaled $16,000 for the six-month periods ended June
30, 1995. The 1996 benefit resulted from the reversal of the tax provision
reported in the December 31, 1995 financial statements. This amount was reversed
due to the application of net operating loss carryforwards applied in 1995. The
1995 benefit resulted from the application of net operating loss carryforwards.
Certain of Alaskan Cable's expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally increase
with inflation.
F-66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Stockholders
Alaska Cablevision, Inc.
Kirkland, Washington
We have audited the accompanying balance sheets of Alaska Cablevision, Inc. as
of December 31, 1995 and 1994, and the related statements of income,
stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alaska Cablevision, Inc. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ CARL & CARLSEN
February 27, 1996
Seattle, Washington
F-67
<PAGE>
ALASKA CABLEVISION, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
JUNE 30, ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Cash............................................................ $ 614,411 $ 525,734 $ 118,856
Subscriber receivables.......................................... 100,157 113,651 102,740
Advances to affiliates.......................................... 70,650 5,846 1,475
Other receivables............................................... 3,443 8,406 127,381
Prepaid assets.................................................. 49,984 34,196 24,510
Property, plant and equipment, less accumulated depreciation of
$8,296,801 (1996), $8,635,146 (1995) and $8,464,628 (1994).... 2,496,739 2,493,956 2,138,843
Excess of cost over fair value of net tangible assets of systems
purchased, less amortization of $363,150 (1996), $401,602
(1995) and $388,785 (1994).................................... 111,110 123,927 149,562
-------------- -------------- --------------
$ 3,446,494 $ 3,305,716 $ 2,663,367
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable................................................ $ 205,737 $ 99,458 125,801
Accrued interest................................................ 57,810 53,659 37,718
Accrued taxes and expenses...................................... 191,404 320,755 246,517
Deferred revenues............................................... 23,882 27,193 26,999
Loans payable to bank........................................... 3,695,079 3,695,079 3,421,629
Note payable to stockholder..................................... 300,000 300,000 300,000
Notes payable to former stockholders............................ 1,563,887 1,673,155 1,879,888
-------------- -------------- --------------
Total liabilities............................................. 6,037,799 6,169,299 6,038,552
-------------- -------------- --------------
Stockholders' Deficit
Common stock ($1.00 par value), including consideration paid
in excess of stated value. Authorized 20,000 shares; issued
and outstanding 10,000 at June 30, 1996 and December 31,
1995, and 1994. ............................................ 12,624 12,624 12,624
Treasury stock, 3,400 and 3,000 shares at June 30, 1996 and
December 31, 1995, respectively............................. (4,500,000) (4,500,000) (4,500,000)
Retained earnings............................................. 1,896,071 1,623,793 1,112,191
-------------- -------------- --------------
Total stockholders' deficit................................... (2,591,305) (2,863,583) (3,375,185)
-------------- -------------- --------------
Commitments and contingencies
$ 3,446,494 $ 3,305,716 $ 2,663,367
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes.
F-68
<PAGE>
ALASKA CABLEVISION, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- -------------------------------------------
1996 1995 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Cable television fees............... $ 3,006,745 $ 2,969,030 $ 5,920,057 $ 5,708,842 $ 5,660,189
------------- ------------- ------------- ------------- -------------
Operating Expenses
Salaries and wages.................. 451,898 392,373 840,031 917,223 786,391
Payroll taxes and employee
benefits.......................... 102,658 97,656 216,597 210,962 181,521
Program fees........................ 491,789 475,923 950,778 908,770 821,037
Copyright fees...................... 20,818 22,845 40,345 38,874 28,515
Maintenance, parts and supplies..... 44,768 50,236 114,318 134,893 116,740
Bad debts........................... 23,115 12,461 45,201 33,376 32,320
Insurance........................... 18,320 16,589 34,175 27,258 29,867
Business and property taxes......... 15,876 24,479 25,481 24,511 8,567
Rentals............................. 84,921 72,126 144,292 135,674 129,521
Travel.............................. 8,026 23,433 54,505 82,790 42,161
Telephone and utilities............. 65,494 61,468 127,535 109,123 112,939
Vehicle expense..................... 22,002 18,915 44,322 40,433 40,858
Computer services................... 23,556 23,189 46,298 41,358 45,110
Postage and freight................. 21,701 22,055 47,543 42,259 46,551
Office expense...................... 28,480 27,463 58,200 56,611 49,013
Advertising and sales expense....... 34,679 21,948 66,262 63,306 56,276
Other operating expenses (net)...... 770 664 (2,906) 35,570 24,162
Depreciation and amortization....... 236,907 209,998 420,001 313,615 435,113
Corporate administration............ 239,413 246,295 483,801 276,190 291,454
Management fees (Note 6)............ 183,944 217,227 400,075 571,357 567,017
------------- ------------- ------------- ------------- -------------
2,119,135 2,037,343 4,156,854 4,064,153 3,845,133
------------- ------------- ------------- ------------- -------------
Operating income.................. 887,610 931,687 1,763,203 1,644,689 1,815,056
------------- ------------- ------------- ------------- -------------
Other Income (Expense)
Interest expense.................... (202,998) (269,923) (485,508) (418,301) (468,240)
Interest income..................... 3,372 22 -- 13,446 6,105
Income (loss) from disposition of
assets............................ -- -- 7,431 (47,532) (33,135)
Other (net)......................... (42,118) -- (79,475) -- (1,739)
------------- ------------- ------------- ------------- -------------
(241,744) (259,901) (557,552) (452,387) (497,009)
------------- ------------- ------------- ------------- -------------
Net income............................ $ 645,866 $ 661,786 $ 1,205,651 $ 1,192,302 $ 1,318,047
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income per common share........... $ 97.86 $ 94.54 $ 172.24 $ 170.33 $ 188.29
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-69
<PAGE>
ALASKA CABLEVISION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK TREASURY STOCK EARNINGS
--------- -------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1993............................................. 12,624 (4,500,000) 570,778
Net income, year ended December 31, 1994............................... -- -- 1,192,302
Distributions to stockholders.......................................... -- -- (650,889)
--------- -------------- -------------
Balance, December 31, 1994............................................. 12,624 (4,500,000) 1,112,191
Net income............................................................. -- -- 1,205,651
Distributions to stockholders.......................................... -- -- (694,049)
--------- -------------- -------------
Balance, December 31, 1995............................................. $ 12,624 $ (4,500,000) $ 1,623,793
Net income (unaudited)................................................. -- -- 645,866
Distributions to stockholders.......................................... -- -- (373,588)
--------- -------------- -------------
Balance, June 30, 1996 (unaudited)..................................... $ 12,624 $ (4,500,000) $ 1,896,071
--------- -------------- -------------
--------- -------------- -------------
</TABLE>
See accompanying notes.
F-70
<PAGE>
ALASKA CABLEVISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- ----------------------------------------------
1996 1995 1995 1994 1993
------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income............................... $ 645,866 $ 661,786 $ 1,205,651 $ 1,192,302 $ 1,318,047
Noncash items included in net income
Depreciation and amortization.......... 236,907 209,998 420,001 313,615 435,113
(Gain) loss from disposition of
assets............................... -- -- (7,431) 47,532 33,135
Net increase in advances to
affiliates........................... (64,804) (49,851) (4,371) 382,241 (267,771)
Net decrease in subscriber receivables,
other receivables and prepaid
assets............................... 2,669 105,827 98,378 (16,093) (13,965)
Net increase (decrease) in payables,
accrued expenses and deferred
revenues............................. (18,921) 36,452 64,030 56,365 (9,390)
------------ -------------- -------------- -------------- --------------
Net cash provided by operating
activities......................... 801,717 964,212 1,776,258 1,975,962 1,495,169
------------ -------------- -------------- -------------- --------------
Cash Flows From Investing Activities
Additions to property, plant and
equipment.............................. (226,872) (441,255) (757,062) (1,118,183) (337,164)
Proceeds from sale of assets............. -- -- 15,014 9,038 2,795
------------ -------------- -------------- -------------- --------------
Net cash used by investing
activities......................... (226,872) (441,255) (742,048) (1,109,145) (334,369)
------------ -------------- -------------- -------------- --------------
Cash Flows From Financing Activities
Proceeds from senior debt borrowings..... -- 3,695,079 3,695,079 -- --
Increase (decrease) in loans due to
affiliate.............................. -- (3,421,629) (3,421,629) 46,102 (256,923)
Repayment on notes due to former
stockholders........................... (109,269) (101,446) (206,733) (191,928) (178,184)
Repayment on other borrowings............ (3,311) (1,447) -- -- (1,932)
Distributions to stockholders............ (373,588) (348,027) (694,049) (650,889) (736,100)
------------ -------------- -------------- -------------- --------------
Net cash used by financing
activities......................... (486,168) (177,470) (627,332) (796,715) (1,173,139)
------------ -------------- -------------- -------------- --------------
Net increase in cash....................... 88,677 345,487 406,878 70,102 (12,339)
Cash Balance
Beginning of period...................... 525,734 118,856 118,856 48,754 61,093
------------ -------------- -------------- -------------- --------------
End of period............................ $ 614,411 $ 464,343 $ 525,734 $ 118,856 $ 48,754
------------ -------------- -------------- -------------- --------------
------------ -------------- -------------- -------------- --------------
Supplemental Information
Interest paid............................ $ 248,700 $ 288,544 $ 469,567 $ 421,793 $ 471,541
------------ -------------- -------------- -------------- --------------
------------ -------------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
F-71
<PAGE>
ALASKA CABLEVISION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) AFFILIATION--The Company is affiliated with Rock Associates, Inc.
through common ownership and management.
(b) FINANCIAL STATEMENT PRESENTATION--The accompanying balance sheet is
presented in an unclassified format as allowed in the Statement of Position on
Accounting by Cable Television Companies issued by the American Institute of
Certified Public Accountants. Revenues of cable television systems are derived
through use of plant and equipment and have few assets that can be defined in
terms of a one-year operating cycle. Management believes this format is the most
meaningful presentation of its financial position.
(c) OPERATIONS--The Company is engaged in providing cable television to
various communities located in the State of Alaska.
(d) REVENUE RECOGNITION--Revenues billed in advance for cable services are
deferred and recorded as income in the month in which the services are rendered.
(e) INCOME TAXES--The Company, with the consent of its shareholders, has
elected to have its income reported directly by the shareholders under
provisions of Sub-chapter S of the Internal Revenue Code.
(f) PLANT AND EQUIPMENT--Depreciation is computed substantially on the
straight-line basis for financial statement purposes over the estimated useful
lives of the assets:
<TABLE>
<S> <C>
Cable distribution systems........................ 7 - 10 years
Headend and satellite receiving equipment......... 7 - 10 years
Buildings......................................... 10 - 31 years
Transportation equipment.......................... 3 - 7 years
Other equipment and fixtures...................... 5 - 10 years
Maintenance and repairs are charged to expense as incurred.
</TABLE>
(g) INTANGIBLE ASSETS--The excess cost over fair value of net tangible
assets of systems acquired is primarily assignable as cost of franchise rights,
and is being amortized on a straight-line method over their respective expected
useful lives, but none in excess of twenty years. The carrying value of the cost
in excess of fair value of net assets of purchased business is reviewed if the
facts and circumstances suggest that it may be impaired. If this review
indicates the cost in excess of fair value of the net assets of purchased
businesses will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of this asset is reduced by the estimated shortfalls of
cash flows.
(h) EMPLOYEE BENEFITS PLAN--The Company has adopted a profit sharing and
employee savings plan under Section 401(K) of the Internal Revenue Code. This
plan allows eligible employees to defer up to 15% of their compensation on a
pre-tax basis through contributions to the savings plan. The Company contributed
$.50 in 1995, 1994 and 1993 for every dollar the employees contributed up to 5%
of compensation, which amounted to $14,117, $10,253 and $11,848 respectively.
(i) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
F-72
<PAGE>
ALASKA CABLEVISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, and categorized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Buildings, including leasehold improvements.................. $ 194,578 $ 157,778
Cable distribution systems, including connect drops and
converters................................................. 7,188,764 6,900,036
Headend and satellite equipment.............................. 2,734,119 2,649,779
Transportation equipment..................................... 346,507 322,047
Other equipment and fixtures................................. 494,616 406,010
-------------- --------------
$ 10,958,584 $ 10,435,650
-------------- --------------
-------------- --------------
</TABLE>
NOTE 3--LOANS PAYABLE TO BANK
Rock Associates, Inc. owed Provident National Bank and The Bank of
California, N.A. the combined amount of $36,260,000 as of December 31, 1994.
These combined borrowings, covered by a Term Loan Agreement, were collateralized
principally by the capital stock and assets of Rock Associates, Inc. and its
affiliates (see Note 1). Rock Associates, Inc. in turn loaned the Company
portions of the bank borrowings. Note payable to stockholder was also
subordinated in favor of Rock Associates, Inc.'s liability to the banks. This
debt was paid in full on February 28, 1995.
At December 31, 1995, loans payable to bank were covered by a Senior
Reducing Revolving Credit Loan Agreement between Rock Associates, Inc. and
Alaska Cablevision, Inc., co-borrowers, and PNC Bank, National Association.
Proceeds of the new loan agreement dated February 28, 1995, were used primarily
to refinance existing senior debt and to provide funds for cable plant
expansion.
Subject to various terms and conditions, including minimum required
quarterly annualized cash flow ratios to aggregate bank debt, the bank will lend
up to $6,400,000 on a revolving loan basis until December 31, 1997. Interest is
payable quarterly at either of two floating rates of interest. The first rate
will be the higher of the bank's prime rate or the Federal Funds rate plus 1/2%.
The second rate will be LIBOR rate plus 1 1/2%. The balance of loans payable to
bank is due at maturity, which is December 31, 1997.
Borrowings under the loan agreement are collateralized principally by the
capital stock and assets of the co-borrowers. Note payable to stockholder is
subordinated in favor of the Company's liability to the bank.
NOTE 4--NOTES PAYABLE TO FORMER STOCKHOLDERS
The notes due to former shareholders of Alaska Cablevision, Inc. originally
totaling $1,650,000 call for quarterly installments of $73,625 including
interest at 7 1/2% per annum. These notes are due in full on
F-73
<PAGE>
ALASKA CABLEVISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--NOTES PAYABLE TO FORMER STOCKHOLDERS (CONTINUED)
January 1, 1997. Notes totaling $600,000 are due August 30, 1996, repayable in
quarterly installments of interest only at 9% per annum. All notes are
subordinated to senior bank debt.
NOTE 5--NOTE PAYABLE TO STOCKHOLDER
The note due to stockholder is a demand note with interest payable quarterly
at a rate equal to the weighted average rate paid by Alaska Cablevision, Inc. on
its senior bank debt. The note is subordinated to senior bank debt.
NOTE 6--RELATED PARTY TRANSACTION
As described in Note 1, Rock Associates, Inc. provides significant services
to the Company. By agreement, the charge for overall management services is
presently based on a percentage of the Company's operating revenues. The
management fee percentage was 6%-10%, 10% and 10% for the year ended December
31, 1995, 1994 and 1993, respectively. In 1994 and 1993 Rock Associates, Inc.
also provided administration support to the Company. Corporate administration
charges are actual costs incurred. In 1995 all administration was performed by
the Company.
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. The fair value of the Company's
assets, which are primarily cash and accounts receivable, and the Company's
liabilities approximate their carrying value. The fair value of any off-balance
sheet commitments is immaterial.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Minimum annual rental commitments at December 31, 1995 under operating
leases are approximately as follows:
<TABLE>
<S> <C>
Year Ended December 31:
1996................................................... $ 99,000
1997................................................... $ 73,000
1998................................................... $ 45,000
1999................................................... $ 42,000
2000................................................... $ 43,000
Thereafter............................................. $ 160,000
</TABLE>
NOTE 9--SUBSEQUENT EVENT
On March 14, 1996, the Company entered into a letter of intent to sell its
operating assets to General Communication, Inc. The total sales price is
$26,650,000, of which $16,650,000 is payable in cash at closing and $10,000,000
is payable in convertible subordinated debt. The sale is expected to close by
the end of 1996.
F-74
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION FOR ALASKA CABLEVISION
Alaska Cablevision management's discussion of the financial condition of
Alaska Cablevision must be addressed in the context of regulatory changes in the
form of the 1996 Telecom Act, the 1992 Cable Act, and the Communications Act
discussed elsewhere in this Prospectus.
THREE YEARS ENDED DECEMBER 31, 1995
As of December 31, 1995, Alaska Cablevision's cable systems passed more than
10,860 homes and served more than 7,735 residential subscribers and over 100
business subscribers. Alaska Cablevision had approximately 7,875 residential
subscriptions to premium service units.
RESULTS OF OPERATIONS. Revenues totaled $5.9 million, $5.7 million and $5.7
million during the years ended December 31, 1995, 1994 and 1993, respectively.
The 3.7% growth in 1995 as compared to 1994 resulted primarily from modest
incremental growth in the number of subscribers and increases in regulated
service rates. Approximately $171,000 of the growth in 1995 revenues was due to
increases in regulated service rates implemented November 1, 1994 and November
1, 1995. The 0.9% increase in 1994 as compared to 1993 resulted primarily from
additional revenues resulting from a 4.6% increase in the number of subscribers
offset by the subscriber rate reductions implemented in September 1993 and July
1994. Average monthly revenue per account was approximately $60.83, $61.17 and
$64.75 in 1995, 1994 and 1993, respectively, representing decreases of
approximately 0.6% and 5.5% in 1995 and 1994, respectively. Revenues were
primarily generated from subscription fees, installation charges, and subscriber
cable equipment rentals and advertising revenues.
Programming and copyright costs directly attributable to providing cable
services to customers increased 4.6% in 1995 as compared to 1994 and increased
11.5% in 1994 as compared to 1993. The increases result from increased business
activity from growth in the number of subscribers, increased program offerings
and increased programming rates.
Depreciation and amortization expense was $420,000, $314,000 and $435,000
for the years ended December 31, 1995, 1994 and 1993, respectively. The 1995
increase as compared to 1994 results from additional depreciation resulting from
increased capital expenditures in 1995 and 1994. The 1994 decrease as compared
to 1993 result from certain tangible and intangible assets becoming fully
amortized.
EBITDA as a percentage of revenues increased from 34.3% to 36.9% during the
year ended December 31, 1995 compared to the corresponding period of 1994. The
increase is primarily a result of a reduction in management fees charged by Rock
Associates, Inc. from $571,000 to $400,000. EBITDA as a percentage of revenues
decreased from 39% to 34.3% during the year ended December 31, 1994 compared to
the corresponding period of 1993. The decrease was primarily caused by an
increase in programming costs and operating expenses that on a percentage basis
exceeded the corresponding increase in revenues.
Certain of Alaska Cablevision's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation.
LIQUIDITY AND CAPITAL RESOURCES. Cash provided by operating activities
decreased approximately $200,000 to $1.8 million for the year ended December 31,
1995 compared to the corresponding period of 1994 resulting primarily from the
net effect of the following: (1) the decrease (receipt) of advances to
affiliates in 1994; (2) the decrease (receipt) of other receivables in 1995; and
(3) the increase in operating income in 1995. Cash provided by operating
activities increased $500,000 to $2.0 million for the year ended December 31,
1994 compared to the corresponding period of 1993. The increase resulted
primarily from the net effect of the following: (1) a decrease in advances to
affiliates in 1994 as compared
F-75
<PAGE>
to an increase in 1993; (2) an increase in accounts payable and accrued expenses
in 1994 compared to 1993; and (3) a decrease in operating income from 1993 to
1994.
Cash used in investing activities decreased $367,000 to $742,000 for the
year ended December 31, 1995 compared to the corresponding period of 1994. The
1995 decrease results primarily from reduced capital expenditures related to
purchases of property, plant and equipment. Cash used in investing activities
increased $775,000 to $1.1 million for the year ended December 31, 1994 compared
to the corresponding period of 1993. The 1994 increase results primarily from
increased capital expenditures related to purchases of property, plant and
equipment.
Cash used in financing activities decreased from $797,000 to $627,000 for
the year ended December 31, 1995 compared to the corresponding period of 1994.
The 1995 decrease resulted from $3.7 million of borrowings from Alaska
Cablevision's new senior revolving credit loan agreement which was used to
payoff $3.6 million in loans from affiliates and notes due to former
stockholders. Cash used in financing activities decreased from $1.2 million to
$797,000 for the year ended December 31, 1994 compared to the corresponding
period of 1993 related primarily to a net decrease in the pay-down of loans from
affiliates and reduced stockholder distributions.
Alaska Cablevision's primary need for capital has been to finance plant
rebuilds and upgrades, channel additions and service vehicles. Alaska
Cablevision spent $757,000 during 1995 on capital expenditures. The recorded
cost of assets disposed of totaled approximately $234,000, $583,000 and $501,000
in 1995, 1994 and 1993, respectively. 1995 disposals resulted from the
replacement of vehicles and upgraded plant and headend equipment. 1994 and 1993
disposals resulted primarily from the write-off of converters and inside the
home cable wiring resulting from certain provisions of the 1992 Cable Act
affecting the pricing of converter rentals and ownership of inside the home
cable wiring.
On February 28, 1995, Alaska Cablevision and Rock Associates, Inc., as
co-borrowers, entered into a new $6.4 million senior reducing revolving credit
loan agreement with a bank. Borrowings under the agreement are collateralized by
all of Alaska Cablevision's common stock and assets and bear interest, at Alaska
Cablevision's option, at (1) the higher of the bank's prime rate or the federal
funds rate plus 1/2%, or (2) the LIBOR rate plus 1-1/2%. The agreement expires
December 31, 1997.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
As of June 30, 1996, Alaska Cablevision's cable systems passed more than
11,000 homes and served more than 7,500 residential subscribers and over 1,500
business subscribers. Alaska Cablevision had approximately 7,650 residential
subscriptions to premium service units.
RESULTS OF OPERATIONS. Revenues totaled $3.0 million during each of the
six-month periods ended June 30, 1996 and 1995. Average monthly revenue per
account was approximately $62.00 and $61.17 during the six-month periods ended
June 30, 1996 and 1995, respectively, representing an increase of approximately
1.4%. Revenues were primarily generated from subscription fees, installation
charges, and subscriber cable equipment rentals and advertising revenues.
Programming and copyright costs increased 2.5% during the six-month period
ended June 30, 1996 compared to the corresponding period of 1995 due to
increased business activity from growth in the number of subscribers, increased
program offerings and increased programming rates.
Depreciation and amortization expense was approximately $237,000 and
$210,000 for the six-month periods ended June 30, 1996 and 1995, respectively.
The increase in the six-month period ended June 30, 1996 as compared to the same
period of 1995 results from additional depreciation resulting from capital
expenditures during 1996 and a full year of depreciation in 1996 on 1995 capital
expenditures as compared to a partial year of depreciation in 1995.
EBITDA as a percentage of revenues decreased from 38.5% to 37.4% during the
six-month period ended June 30, 1996 compared to the corresponding period of
1995. The decrease is primarily a result
F-76
<PAGE>
of expenses associated with the sale of Alaska Cablevision's assets as described
below and an increase in programming costs and operating expenses that on a
percentage basis exceeded the corresponding increase in revenues.
Certain of Alaska Cablevision's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation.
LIQUIDITY AND CAPITAL RESOURCES. Sources of cash during the first six
months of 1996 included Alaska Cablevision's operating activities which
generated positive cash flow of $802,000 net of changes in the components of
working capital. Cash provided by operating activities decreased $162,000 for
the six-month period ended June 30, 1996 compared to the corresponding period of
1995 resulting primarily from the net effect of the decrease (receipt) of
subscriber receivables, other receivables and prepaid assets in 1995 and the
decrease (payment) of payables, accrued expenses and deferred revenues in 1996.
Cash used in investing activities decreased $214,000 to $227,000 for the
six-month period ended June 30, 1996 compared to the corresponding period of
1995. The 1995 decrease results primarily from reduced capital expenditures
related to purchases of property, plant and equipment.
Cash used in financing activities totaled $486,000 and $177,000 during the
six-month periods ended June 30, 1996 and 1995, respectively. Uses of cash in
1996 resulted primarily from repayment on notes due to former stockholders of
$109,000 and distributions to stockholders of $374,000. Uses of cash in 1995
resulted primarily from repayment on notes due to former stockholders of
$101,000 and distributions to stockholders of $348,000. Proceeds from a new
senior revolving credit loan agreement totaling $3.7 million were used in 1995
to payoff $3.4 million in loans from affiliates.
Alaska Cablevision's primary need for capital has been to finance plant
rebuilds and upgrades, channel additions and service vehicles. Alaska
Cablevision spent $227,000 during for the six-month period ended June 30, 1996
on capital expenditures. The recorded cost of assets disposed of totaled
approximately $54,000 for the six-month period ended June 30, 1996 resulting
from the replacement of vehicles and corporate office equipment.
On February 28, 1995, Alaska Cablevision and Rock Associates, Inc., as
co-borrowers, entered into a new $6.4 million senior reducing revolving credit
loan agreement with a bank. Borrowings under the agreement are collateralized by
all of Alaska Cablevision's common stock and assets and bear interest, at Alaska
Cablevision's option, at (1) the higher of the bank's prime rate or the federal
funds rate plus 1/2%, or (2) the LIBOR rate plus 1-1/2%. The agreement expires
December 31, 1997.
F-77
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
GENERAL. The following unaudited pro forma combined statement of operations
has been prepared to reflect the acquisition of the Cable Systems by the
Company. The results of operations for McCaw/Rock Homer and McCaw/Rock Seward
have not been included as they are not significant to the acquisition. The
acquisition was accounted for using the purchase method of accounting.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1996 gives effect to the acquisition as if it occurred as of the
beginning of the year presented and combines (1) the Company's historical income
for the year ended December 31, 1996; and (2) Cable operations which consist of
Prime's, Alaska Cablevision's and Alaskan Cable's historical statements of
operations for the ten months ended October 31, 1996.
The unaudited pro forma combined condensed statement of operations does not
purport to represent what the Company's results of operations would actually
have been had the acquisition occurred at the beginning of the year presented or
to project any future results of operations of the Company. The pro forma
adjustments are based on available information and upon assumptions that the
Company's management believes are reasonable under the circumstances. These
adjustments are directly attributable to the acquisition indicated and are
expected to have a continuing impact on the results of operations of the
Company.
The pro forma combined statement of operations should be read in conjunction
with the historical financial statements and notes thereto of the Company,
Prime, Alaska Cablevision, and Alaskan Cable.
F-78
<PAGE>
GENERAL COMMUNICATION, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
($ IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
CABLE
(10 MONTHS ENDED PRO FORMA PRO FORMA
COMPANY OCTOBER 31, 1996) ADJUSTMENTS AMOUNTS
--------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
Telecommunciation services....................... $ 155,419 0 0 155,419
Cable services................................... 9,475 45,868 0 55,343
--------------- ------- ------------- -----------
Total revenues............................... 164,894 45,868 0 210,762
Cost of sales and services....................... 92,664 11,516 0 104,180
Selling, general and administrative
expenses (1)................................... 46,412 14,106 (1,362) 59,156
Depreciation and amortization (2)................ 9,409 19,785 (8,641) 20,553
--------------- ------- ------------- -----------
Operating income............................. 16,409 461 10,003 26,873
Interest expense, net (3)........................ 3,719 8,422 3,370 15,511
Other income (expense)........................... 0 33 0 33
--------------- ------- ------------- -----------
Net earnings (loss) before income taxes...... 12,690 (7,928) 6,633 11,395
Income tax expense (4)........................... 5,228 27 (560) 4,695
--------------- ------- ------------- -----------
Net earnings (loss).......................... $ 7,462 (7,955) 7,193 6,700
--------------- ------- ------------- -----------
--------------- ------- ------------- -----------
Earnings per share common share.............. 0.16
-----------
-----------
Weighted average shares 41,604
-----------
-----------
EBITDA (5) 47,427
-----------
-----------
</TABLE>
ADJUSTMENTS.
The pro forma adjustments to the unaudited pro forma combined statement of
operations for the year ended December 31, 1996 are as follows:
(1) Pursuant to the Prime Management Agreement, Prime has agreed to oversee,
manage and supervise the development and operation of the Cable Systems. The
Company has agreed to pay Prime $1.0 million for these services in year one
of the agreement. Accordingly, the historical management fees are eliminated
from selling, general and administrative expenses and $1.0 million of
management fees included.
(2) Represents adjustments to depreciation and amortization expense resulting
from the adjusted carrying values, and lives of tangible and intangible
assets. Goodwill, certificates of operating rights and PCS license are being
amortized over 40 years.
(3) Elimination of historical interest expense incurred by the Cable Systems
with interest accrued on GCI Cable debt of $175.9 million as if it was
outstanding for the entire year at 8.12%.
(4) Income tax expense is computed using the Company's consolidated effective
tax rate for 1996 of 41.2%.
(5) EBITDA consists of earnings before interest (net), income taxes,
depreciation, amortization and other income (expense).
F-79
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS
OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 14
The Company...................................... 21
Use Of Proceeds.................................. 24
Capitalization................................... 25
Selected Consolidated Financial Data............. 26
Selected Cable Company Financial Data............ 28
Management's Discussion And
Analysis Of Financial Condition And
Results Of Operations.......................... 30
Business......................................... 41
Management....................................... 73
Certain Transactions............................. 83
Principal and Selling Shareholders............... 88
Description Of Credit Facilities................. 92
Description Of Notes............................. 95
Underwriting..................................... 123
Legal Matters.................................... 124
Experts.......................................... 124
Available Information............................ 125
Glossary......................................... 126
Index To Financial Statements.................... F-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$150,000,000
GCI, INC.
(A WHOLLY OWNED SUBSIDIARY OF
GENERAL COMMUNICATION, INC.)
% SENIOR NOTES DUE 2007
[LOGO]
SALOMON BROTHERS INC
SCHRODER & CO. INC.
NATIONSBANC CAPITAL MARKETS, INC.
TD SECURITIES
PROSPECTUS
DATED , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the offering of the Notes being
registered, all of which will be paid by the Issuer.
<TABLE>
<S> <C>
Accounting Fees*............................................... $
Costs of Printing*............................................. $
Legal Fees*.................................................... $
Registration/Filing Fees
Securities Act of 1933....................................... $45,454.55
Blue Sky Compliance*......................................... $
NASD Filing Fee................................................ $15,500.00
Trustee Fees................................................... $
Miscellaneous*................................................. $
----------
TOTAL...................................................... $
----------
----------
</TABLE>
- ------------------------
*Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Issuer's Bylaws provide for indemnification of directors and officers
(and their respective heirs and personal representatives) of the Issuer against
all losses, damages, costs and expenses incurred in connection with any action,
suit or proceeding (civil or criminal) brought against such person by reason of
the fact that he or she is or was a director or officer of the Issuer or served
any other enterprise in which the Issuer is a creditor as a director or officer
at the request of the Issuer. The Issuer will only indemnify an officer or
director upon a determination by a majority vote of the disinterested members of
the Board, by a majority vote of the shareholders of the Issuer or by
independent legal counsel that the person to be indemnified has met the
applicable standard of conduct. No indemnification will be made in respect of
any claim, issue or matter as to which the director or officer is adjudged to be
liable for negligence or misconduct.
The Articles of Incorporation of the Issuer provide that directors will not
be liable to the Issuer for monetary damages for breach of a fiduciary duty
unless such breach involves a breach of the duty of loyalty, bad faith,
intentional misconduct, a knowing violation of law or the derivation by such
director of an improper personal benefit. The Issuer's Bylaws further provide
that no officer or director will be liable to the Issuer for acts or omissions
in good faith, provided such person exercised the same degree of care and skill
that a prudent person would have exercised in the conduct of his or her own
affairs.
As of the date of this Registration Statement, the Issuer had not received
any notice or request regarding indemnification of any officer, director or
employee of the Issuer.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Issuer has not issued or sold any securities within the past three
years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. See Exhibit Index at end of this Registration Statement.
II-1
<PAGE>
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
Valuation and Qualifying Accounts..................................... S-1
<S> <C>
</TABLE>
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it
was declared effective.
(b) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the Municipality of
Anchorage, State of Alaska, on July 7, 1997.
GCI, INC.
(Registrant)
By: /s/ JOHN M. LOWBER
-----------------------------------------
John M. Lowber, CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
* Director and President
- ------------------------------ (Principal Executive July 7, 1997
Ronald A. Duncan Officer)
Director, Chief Financial
/s/ JOHN M. LOWBER Officer, Secretary and
- ------------------------------ Treasurer (Principal July 7, 1997
John M. Lowber Financial and Accounting
Officer)
*
- ------------------------------ Director July 7, 1997
G. Wilson Hughes
<TABLE>
<S> <C> <C>
* By: /s/ JOHN M. LOWBER
------------------------------------
John M. Lowber, ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
SCHEDULE VIII
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
-------------------------- -------------
BALANCE AT CHARGED TO WRITE-OFFS
BEGINNING OF PROFIT AND NET OF BALANCE AT
DESCRIPTION YEAR LOSS OTHER RECOVERIES END OF YEAR
- ---------------------------------------------------- ------------- ------------- ----------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful receivables................ $ 295 1,736 354(1) 1,788 597
----- ----- --- ----- ---
----- ----- --- ----- ---
Year ended December 31, 1995:
Allowance for doubtful receivables................ $ 409 1,459 -- 1,573 295
----- ----- --- ----- ---
----- ----- --- ----- ---
Year ended December 31, 1994:
Allowance for doubtful receivables................ $ 721 829 -- 1,141 409
----- ----- --- ----- ---
----- ----- --- ----- ---
</TABLE>
- ------------------------
(1) Allowance for doubtful receivables acquired pursuant to the Cable Company
acquisitions described in footnote (2) to the Company's consolidated
financial statements.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Underwriting Agreement
3.1 Articles of Incorporation of the Issuer**
3.2 Bylaws of the Issuer***
4.1 Form of Indenture relating to the Notes (including Form of Note)
5.1 Opinion of Wohlforth, Argetsinger, Johnson & Brecht, A Professional Corporation
9.1 Voting Agreement dated October 31, 1996, among Prime II Management L.P., as agent for the
Voting Prime Sellers, MCI Telecommunications Corporation, Ronald A. Duncan, Robert M. Walp
and TCI GCI, Inc.(12)
10.1 Credit Facility*
10.2 Registration Rights Agreement, dated as of January 18, 1991, between General Communication,
Inc. and WestMarc Communications, Inc(2)
10.3 Employee stock option agreements issued to individuals Spradling, O'Hara, Strid, Behnke,
Lewkowski and Snyder(3)
10.4 Registration Rights Agreement, dated October 31, 1996, between General Communication, Inc.
and the Prime Sellers(12)
10.5 Registration Rights Agreement, dated October 31, 1996, between General Communication, Inc.,
and Alaskan Cable Network/Fairbanks, Inc. ("ACNFI"), Alaskan Cable Network/Juneau, Inc.
("ACNJI"), Alaskan Cable Network/ Ketchikan-Sitka, Inc. ("ACNKSI") and Jack Kent Cooke,
Inc.(12)
10.6 Registration Rights Agreement, dated October 31, 1996, between General Communication, Inc.,
and the owners of Alaska Cablevision, Inc. ("ACI")(12)
10.7 Lease agreement between GCI Communication Services, Inc. and National Bank of Alaska Leasing
Corporation dated January 15, 1992(4)
10.8 Westin Building Lease(5)
10.9 Duncan and Hughes Deferred Bonus Agreements(6)
10.10 Compensation Agreement between General Communication, Inc. and William C. Behnke dated
January 1, 1997
10.11 Order approving Application for a Certificate of Public Convenience and Necessity to operate
as a Telecommunications (Intrastate Interexchange Carrier) Public Utility within Alaska(3)
10.12 1986 Stock Option Plan, as amended(14)
10.13 Loan agreement between National Bank of Alaska and GCI Leasing Co., Inc. dated December 31,
1992(4)
10.14 Pledge and Security Agreement between National Bank of Alaska and GCI Communication
Services, Inc. dated December 31, 1992(4)
10.15 Lease Agreement between MCI Telecommunications Corporation and GCI Leasing Co., Inc. dated
December 31, 1992(4)
10.16 Sublease Agreement between MCI Telecommunications Corporation and General Communication,
Inc. dated December 31, 1992(4)
10.17 Financial Assistance Agreement between MCI Telecommunications Corporation and GCI Leasing
Co., Inc. dated December 31, 1992(4)
10.18 Letter of intent between MCI Telecommunications Corporation and General Communication, Inc.
dated December 31, 1992(7)
10.19 MCI Carrier Agreement between MCI Telecommunications Corporation and General Communication,
Inc. dated January 1, 1993(8)
10.20 Contract for Alaska Access Services Agreement between MCI Telecommunications Corporation and
General Communication, Inc. dated January 1, 1993(8)
10.21 Promissory Note Agreement between General Communication, Inc. and Ronald A. Duncan, dated
August 13, 1993(9)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<C> <S> <C>
10.22 Deferred Compensation Agreement between General Communication, Inc. and Ronald A. Duncan,
dated August 13, 1993(9)
10.23 Pledge Agreement between General Communication, Inc. and Ronald A. Duncan, dated August 13,
1993(9)
10.24 Revised Qualified Employee Stock Purchase Plan of General Communication, Inc.(10)
10.25 Summary Plan Description pertaining to the Revised Qualified Employee Stock Purchase Plan of
General Communication, Inc.(10)
10.26 The GCI Special Non-Qualified Deferred Compensation Plan(11)
10.27 Transponder Purchase Agreement for Galaxy X between Hughes Communications Galaxy, Inc. and
GCI Communication Corp.(11)
10.28 Equipment Purchase Agreement between GCI Communication Corporation and Scientific-Atlanta,
Inc.(11)
10.29 Management Agreement, between Prime II Management, L.P., and GCI Cable, Inc., dated October
31, 1996(12)
10.30 Third Amended and Restated Credit Agreement, dated as of October 31, 1996, between GCI
Communication Corp., and NationsBank of Texas, N.A.(13)
10.31 Loan Agreement among GCI Cable, Inc., as Borrower and Toronto-Dominion (Texas), Inc., et
al., as of October 31, 1996(13)
10.32 Licenses(5)
214 Authorization
International Resale Authorization
Digital Electronic Message Service Authorization
Fairbanks Earth Station License
Fairbanks (Esro) Construction Permit for P-T-P Microwave Service
Fairbanks (Polaris) Construction Permit for P-T-P Microwave Service
Anchorage Earth Station Construction Permit
License for Eagle River P-T-P Microwave Service
License for Juneau Earth Station
Issaquah Earth Station Construction Permit
10.33 ATU Interconnection Agreement between GCI Communication Corp. and Municipality of Anchorage,
executed January 15, 1997
10.34 First Amendment to Third Amended and Restated Credit Agreement entered into among GCI
Communication Corp., NationsBank of Texas, N.A., Toronto Dominion (Texas), Inc., Credit
Lyonnais New York Branch, and National Bank of Alaska(15)
10.35 Second Amendment to Third Amended and Restated Credit Agreement entered into among GCI
Communication Corp., NationsBank of Texas, N.A., Toronto Dominion (Texas), Inc., Credit
Lyonnais New York Branch, and National Bank of Alaska*
10.36 Securities Purchase and Sale Agreement, dated May 2, 1996, among General Communication,
Inc., and the Prime Sellers(12)
10.37 Agreement and Plan of Merger of ACI with and into GCI Cable, Inc., dated October 31,
1996(12)
10.38 Certificate of Merger Merging ACI into GCI Cable, Inc. (filed in Delaware on October 31,
1996)(12)
10.39 Articles of Merger between GCI Cable Inc., and ACI (filed in Delaware on October 31,
1996)(12)
10.40 Agreement and Plan of Merger of PCFI with and into GCI Cable, Inc., dated October 31,
1996(12)
10.41 Certificate of Merger Merging PCFI into GCI Cable, Inc., (filed in Delaware on October 31,
1996)(12)
10.42 Articles of Merger between GCI Cable, Inc., and PCFI (for filing in Alaska)(12)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<C> <S> <C>
10.43 Asset Purchase Agreement, dated April 15, 1996, among General Communication, Inc., ACNFI,
ACNJI and ACNKSI(12)
10.44 Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and Alaska
Cablevision, Inc.(12)
10.45 Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and
McCaw/Rock Homer Cable System, J.V.(12)
10.46 Asset Purchase Agreement, dated May 10, 1996, between General Communication, Inc., and
McCaw/Rock Seward Cable System, J.V.(12)
10.47 Amendment No. 1 to Securities Purchase and Sale Agreement, dated October 31, 1996, among
General Communication, Inc., and the Prime Sellers Agent(13)
10.48 First Amendment to Asset Purchase Agreement, dated October 30, 1996, among General
Communication, Inc., ACNFI, ACNJI and ACNKSI(13)
10.49 Amendment to Revised Qualified Employee Stock Purchase Plan of General Communication, Inc.
10.50 Form of Agreement Waiving Right to Exercise Stock Options
10.51 Order Approving Arbitrated Interconnection Agreement as Resolved and Modified by Order
U-96-89(8) dated January 14, 1997
10.52 First Amendment to Loan Agreement among GCI Cable, Inc., as Borrower, and Toronto-Dominion
(Texas), Inc., et al., as of October 31, 1996*
10.53 Amendment to the MCI Carrier Agreement executed April 20, 1994
10.54 Amendment No. 1 to MCI Carrier Agreement executed July 26, 1994(16)
10.55 MCI Carrier Addendum--MCI 800 DAL Service effective February 1, 1994(16)
10.56 Third Amendment to MCI Carrier Agreement dated as of October 1, 1994(16)
10.57 Fourth Amendment to MCI Carrier Agreement dated as of September 25, 1995(16)
10.58 Fifth Amendment to the MCI Carrier Agreement executed April 19, 1996
10.59 Sixth Amendment to MCI Carrier Agreement dated as of March 1, 1996(16)
10.60 Seventh Amendment to MCI Carrier Agreement dated November 27, 1996*
10.61 First Amendment to Contract for Alaska Access Services between General Communication, Inc.
and MCI Telecommunications Corporation dated April 1, 1996*
10.62 Letter of Intent between General Communication, Inc. and MCI Telecorp dated August 6, 1993
10.63 Service Mark License Agreement between MCI Communications Corporation and General
Communication, Inc. dated April 13, 1994
10.64 Radio Station Authorization (Personal Communications Service License), Issue Date June 23,
1995
10.65 Framework Agreement between National Bank of Alaska (NBA) and General Communication, Inc.
dated October 31, 1995(17)
10.66 1997 Call-Off Contract between National Bank of Alaska (NBA) and General Communication, Inc.
(GCI) dated November 1, 1996*
10.67 Contract No. 92MR067A Telecommunications Services between BP Exploration (Alaska), Inc. and
GCI Network Systems dated April 1, 1992*
10.68 Amendment No. 01 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A*
10.69 Amendment No. 02 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A*
10.70 Amendment No. 03 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A effective August 1,
1996*
10.71 Lease Agreement dated September 30, 1991 between RDB Company and General Communication,
Inc.(3)
10.72 Certificate of Public Convenience and Necessity No. 436 for Telecommunications Service
(Relay Services)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<C> <S> <C>
10.73 Order Approving Transfer Upon Closing, Subject to Conditions, and Requiring Filings dated
September 23, 1996
10.74 Order Granting Extension of Time and Clarifying Order dated October 21, 1996
10.75 Contract for Alaska Access Services among General Communication, Inc. and GCI Communication
Corp., and Sprint Communications Company L.P. dated June 1, 1993*
10.76 First Amendment to Contract for Alaska Access Services between General Communication, Inc.
and Sprint Communications Company L.P. dated as of August 7, 1996*
10.77 Employment and Deferred Compensation Agreement between General Communication, Inc. and John
M. Lowber dated July 1992
10.78 Deferred Compensation Agreement between GCI Communication Corp. and Dana L. Tindall dated
August 15, 1994
10.79 Transponder Lease Agreement between General Communication Incorporated and Hughes
Communications Satellite Services, Inc., executed August 8, 1989(9)
10.80 Addendum to Galaxy X Transponder Purchase Agreement between GCI Communication Corp. and
Hughes Communications Galaxy, Inc. dated August 24, 1995
10.81 Order Approving Application, Subject to Conditions; Requiring Filing; and Approving Proposed
Tariff on an Inception Basis, dated February 4, 1997
10.82 Resale Solutions Switched Services Agreement between Sprint Communications Company L.P. and
GCI Communications, Inc. dated May 31, 1996*
10.83 Commitment Letter from Credit Lyonnais New York Branch, NationsBank of Texas, N.A. and TD
Securities (USA) Inc. for Fiber Facility dated as of July 3, 1997
10.84 Commitment Letter from NationsBank for Credit Facility dated July 2, 1997
11.1 Statement Re Computation of Earnings Per Share
12.1 Statement regarding computation of ratio of earnings to fixed charges**
21.1 Subsidiaries of the Registrant**
23.1 Consent of KPMG Peat Marwick LLP (Accountant for Company)
23.2 Consent of Ernst & Young LLP (Accountants for Prime for 1994 and 1995 and accountants for
Alaskan Cable for 1993, 1994 and 1995)
23.3 Consent of Carl & Carlsen (Accountant for Alaska Cablevision)
23.4 Consent of Wohlforth, Argetsinger, Johnson & Brecht, A Professional Corporation (included as
part of Exhibit 5.1)
23.5 Consent of Sherman & Howard L.L.C.
24.1 Power of Attorney (included with the signature page to the Registration Statement)
25.1 Statement of Eligibility of Trustee from Bank of New York
99.1 Additional Exhibits
The Articles of Incorporation of GCI Communication Corp.(2)
The By-laws of GCI Communication Corp.(2)
The Articles of Incorporation of GCI Communication Services, Inc.(4)
The By-laws of GCI Communication Services, Inc.(4)
The Articles of Incorporation of GCI Leasing Co., Inc.(4)
The By-laws of GCI Leasing Co., Inc.(4)
99.2 The By-laws of GCI Cable, Inc.(14)
99.3 The Articles of Incorporation of GCI Cable, Inc.(14)
99.4 The By-laws of GCI Cable / Fairbanks, Inc.(14)
99.5 The Articles of Incorporation of GCI Cable / Fairbanks, Inc.(14)
99.6 The By-laws of GCI Cable / Juneau, Inc.(14)
99.7 The Articles of Incorporation of GCI Cable / Juneau, Inc.(14)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<C> <S> <C>
99.8 The By-laws of GCI Cable Holdings, Inc.(14)
99.9 The Articles of Incorporation of GCI Cable Holdings, Inc.(14)
99.10 The By-laws of GCI Holdings, Inc.
99.11 The Articles of Incorporation of GCI Holdings, Inc.
</TABLE>
- ------------------------------
* To be filed by amendment.
** Previously filed.
*** Revised and Refiled Herewith.
1 Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1994
2 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990
3 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991
4 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992
5 Incorporated by reference to the Company's Registration Statement on Form 10
(File No. 0-15279), mailed to the Securities and Exchange Commission on
December 30, 1986
6 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
7 Incorporated by reference to the Company's Current Report on Form 8-K dated
January 13, 1993.
8 Incorporated by reference to the Company's Current Report on Form 8-K dated
June 4, 1993.
9 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.
10 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
11 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
12 Incorporated by reference to the Company's Form S-4 Registration Statement
dated October 4, 1996.
13 Incorporated by reference to the Company's Current Report on Form 8-K dated
November 13, 1996.
14 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
15 Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1997.
16 Incorporated by reference to the Company's Current Report on Form 8-K dated
March 14, 1996, filed March 28, 1996.
17 Incorporated by reference to the Company's Amendment to Annual Report on Form
10-K/A (Amendment No. 1) dated December 31, 1995.
<PAGE>
GENERAL COMMUNICATION, INC.
__% Senior Notes Due 2007
Underwriting Agreement
New York, New York
July __ , 1997
Salomon Brothers Inc
Schroder & Co. Inc.
NationsBanc Capital Markets, Inc.
TD Securities (USA) Inc.,
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
GCI, Inc., an Alaska corporation (the "Company") and a wholly owned
subsidiary of General Communication, Inc., proposes to sell to the underwriters
named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, $150,000,000 principal amount
of its ____% Senior Notes Due 2007 (the "Securities"), to be issued under an
indenture (the "Indenture") to be dated as of July __, 1997, between the Company
and The Bank of New York, as trustee (the "Trustee").
1. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to, and agrees with, each Underwriter as set forth below in this
Section 1. Certain terms used in this Section 1 are defined in paragraph (g)
hereof.
(a) The Company meets the requirements for use of Form S-1 under the
Securities Act of 1933, as amended (the "Act") and has filed with the
Securities and Exchange Commission (the "Commission") a registration
statement (file number 333-28005) on Form S-1, including a related
preliminary prospectus, for the registration under the Act, of the offering
and sale of the Securities. The Company may have filed one or more
amendments thereto, including the related preliminary prospectus, each of
which has previously been furnished to you. The Company will next file
with the Commission either: (A) prior to effectiveness of such registration
statement, a further amendment to such regis-
<PAGE>
tration statement (including the form of final prospectus) or (B) after
effectiveness of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b)(1) or (4). In the case of clause
(B), the Company has included in such registration statement, as amended
at the Effective Date, all information (other than Rule 430A Information)
required by the Act and the rules thereunder to be included in the
Prospectus with respect to the Securities and the offering thereof. As
filed, such amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information, together with all
other such required information, with respect to the Securities and the
offering thereof and, except to the extent the Representatives shall
agree in writing to a modification, shall be in all substantive respects
in the form furnished to you prior to the Execution Time or, to the
extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that contained
in the latest Preliminary Prospectus) as the Company has advised you,
prior to the Execution Time, will be included or made therein. Upon your
request, the Company also will file with the Commission a Rule 462(b)
Registration Statement in accordance with Rule 462(b).
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined herein), the Prospectus
(and any supplements thereto) will, comply in all material respects with
the applicable requirements of the Act, the Securities Exchange Act of 1934
(the "Exchange Act") and the Trust Indenture Act of 1939 (the "Trust
Indenture Act") and the respective rules and regulations thereunder; on the
Effective Date, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; on the Effective Date and on the Closing Date the
Indenture did or will comply in all material respects with the requirements
of the Trust Indenture Act and the rules thereunder; and, on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), did not or will
not, and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto) will
not, include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
-2-
<PAGE>
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the Company makes no representations or
warranties as to (i) that part of the Registration Statement which shall
constitute the Statement of Eligibility and Qualification (Form T-1) under
the Trust Indenture Act of the Trustee or (ii) the information contained in
or omitted from the Registration Statement or the Prospectus (or any
supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter
through the Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto).
(c) The Company and its subsidiaries (all of which are listed in
Schedule II attached hereto) (individually, a "Subsidiary" and
collectively, the "Subsidiaries") have in effect all the communications
regulatory licenses, permits, franchises, authorizations, registrations,
certifications, consents and approvals ("Communications Licenses")
necessary, including from the Federal Communications Commission ("FCC") and
the Alaska Public Utilities Commission ("APUC"), for the Company and its
Subsidiaries to conduct their respective businesses as presently conducted
or proposed to be conducted, except for Communications Licenses as to which
the failure to obtain, individually or in the aggregate, would not have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole. The Communications Licenses obtained by the Company or its
Subsidiaries have been duly and validly issued, are in full force and
effect and such Communications Licenses are not subject to any restrictions
or conditions which, individually or in the aggregate, would have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole. No proceedings to revoke, refuse to renew, modify or restrict such
Communications Licenses are pending or, to the best of the Company's
knowledge, threatened.
(d) The Company and its Subsidiaries are not in violation of any
applicable statute, law, ordinance, rule, regulation, policy, franchise or
any judgment, injunction, order or decree ("Governmental Laws") of any
court or governmental authority, including, but not limited to, the FCC or
of the communications regulatory authority of the State of Alaska or of any
other jurisdiction (domestic or foreign) in which the Company or its
Subsidiaries conduct business having jurisdiction over the Company or the
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Subsidiaries, or over their respective properties except for violations
which would not, individually or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries, taken as a whole. The Company
and its Subsidiaries have not received any notice of any violation of any
Governmental Laws (including, without limitation, the Communication Act of
1934, as amended, and the FCC's rules).
(e) There is no outstanding adverse judgment, injunction, decree or
order that has been issued by any court or governmental authority,
including, but not limited to, the FCC or the APUC, against the Company or
any of its Subsidiaries or any action, proceeding or investigation pending
before or, to the best of the Company's knowledge, threatened by any court
or governmental authority, including, but not limited to, the FCC or the
APUC against the Company or any of its Subsidiaries which would,
individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
(f) No consent, approval, authorization, license or order of, or
filing, registration or qualification with, any court or governmental
agency or body, domestic or foreign, is required, including, without
limitation, under the Federal Communications Act of 1934, as amended, the
Cable Communications Policy Act of 1984, the Cable Television Consumer
Protection and Competition Act of 1992 and the Telecommunications Act of
1996 (collectively, the "Telecommunications Acts") or any order, rule,
regulation or policy of the FCC or the APUC for the performance by the
Company of its obligations under this Agreement or for the consummation of
the transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters and such other approvals as have been
obtained.
(g) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term "the Effective Date" shall mean each date
that the Registration Statement and any post-effective amendment or
amendments thereto and any Rule 462(b) Registration Statement became or
become effective and each date after the date hereof on which a document
incorporated by reference in the Registration Statement is filed.
"Execution Time" shall
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mean the date and time that this Agreement is executed and delivered by the
parties hereto. "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in paragraph (a) above and any preliminary
prospectus included in the Registration Statement at the Effective Date
that omits Rule 430A Information. "Prospectus" shall mean the prospectus
relating to the Securities that is first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule 424(b) is
required, shall mean the form of final prospectus relating to the
Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to
in paragraph (a) above, including incorporated documents, exhibits and
financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment thereto or any
Rule 462(b) Registration Statement becomes effective prior to the Closing
Date, shall also mean such registration statement as so amended or such
Rule 462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A. "Rule 415," "Rule 424," "Rule
430A," "Rule 462" and "Regulation S-K" refer to such rules or regulation
under the Act. "Rule 430A Information" means information with respect to
the Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
Any reference herein to the Registration Statement, a Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-1
which were filed under the Exchange Act on or before the Effective Date of
the Registration Statement or the issue date of such Preliminary Prospectus
or the Prospectus, as the case may be; and any reference herein to the
terms "amend", "amendment" or "supplement" with respect to the Registration
Statement, any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include the filing of any document under the Exchange Act
after the Effective Date of the Registration Statement, or the issue date
of any Preliminary Prospectus or the Prospectus, as the case may be, deemed
to be incorporated therein by reference. "Rule 462(b) Registration
Statement" shall mean a registration statement and any amendments thereto
filed pursuant to Rule 462(b) relating to the
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offering covered by the initial registration statement (file number
333-28005).
2. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of ______% of the
principal amount thereof, plus accrued interest, if any, on the Securities from
July ___, 1997, to the Closing Date, the principal amount of the Securities set
forth opposite such Underwriter's name in Schedule I hereto.
3. DELIVERY AND PAYMENT. The Representatives and the Company agree
that the delivery of and payment for the Securities shall take place five
business days following the date of this Agreement. Delivery of and payment for
the Securities shall be made at 10:00 AM, New York City time, on July __, 1997,
or such later date (not later than ____________, 1997) as the Representatives
shall designate, which date and time may be postponed by agreement among the
Representatives and the Company or as provided in Section 9 hereof (such date
and time of delivery and payment for the Securities being herein called the
"Closing Date"). Delivery of the Securities shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by certified or official bank
check or checks drawn on or by a New York Clearing House bank and payable in
next day funds. Delivery of the Securities shall be made at such location as
the Representatives shall reasonably designate at least one business day in
advance of the Closing Date and payment for the Securities shall be made at the
office of Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New
York. Certificates for the Securities shall be registered in such names and in
such denominations as the Representatives may request not less than two full
business days in advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
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<PAGE>
5. AGREEMENTS. The Company agrees with the several Underwriters
that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of the
Registration Statement, supplement to the Prospectus or any Rule 462(b)
Registration Statement without your prior consent. Subject to the
foregoing sentence, if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Prospectus is otherwise
required under Rule 424(b), the Company will cause the Prospectus, properly
completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Representatives of
such timely filing. Upon your request, the Company will cause the Rule
462(b) Registration Statement, completed in compliance with the Act and the
applicable rules and regulations thereunder, to be filed with the
Commission pursuant to Rule 462(b) and will provide evidence satisfactory
to the Representatives of such filing. The Company will promptly advise
the Representatives (A) when the Registration Statement, if not effective
at the Execution Time, and any amendment thereto, shall have become
effective, (B) when the Prospectus, and any supplement thereto, or any Rule
462(b) Registration Statement, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (C) when, prior to termination of the
offering of the Securities, any amendment to the Registration Statement
shall have been filed or become effective, (D) of any request by the
Commission for any amendment of the Registration Statement, or any Rule
462(b) Registration Statement, or supplement to the Prospectus or for any
additional information, (E) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its reasonable best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
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<PAGE>
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act or the Exchange Act or the respective rules and regulations thereunder,
the Company promptly will (i) prepare and file with the Commission, subject
to the second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (ii) supply any amended or supplemented Prospectus to you in
such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to each of the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits thereto)
and, so long as delivery of a prospectus by an Underwriter or dealer may be
required by the Act or otherwise required, as many copies of each
Preliminary Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will pay the expenses
of printing or other production of all documents relating to the offering.
(e) The Company will arrange in cooperation with the Representatives
for the qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate, will maintain such
qualifications in effect so long as required for the distribution of the
Securities, will arrange for the determination of the legality of the
Securities for purchase by institutional investors and will pay the fee of
the
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<PAGE>
National Association of Securities Dealers, Inc., in connection with its
review of the offering.
(f) The Company will not, for a period of 180 days following the
Execution Time, without the prior written consent of Salomon Brothers Inc,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any debt securities, or securities
convertible into or exchangeable or exercisable for debt securities, issued
or guaranteed by the Company (other than the Securities).
(g) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 517.075, Florida Statutes,
relating to issuers doing business with the Government of Cuba or with any
person or affiliate located in Cuba, and the Company further agrees that if
it commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported in the Prospectus, if any,
concerning the Company's business with Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase the Securities shall be subject to
the accuracy of the representations and warranties on the part of the Company
contained herein as of the Execution Time and the Closing Date, to the accuracy
of the statements of the Company made in any certificates pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
5:30 PM, New York City time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM, New
York City time, on such date or (ii) 12:00 noon on the business day
following the day on which the public offering price was
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<PAGE>
determined, if such determination occurred after 3:00 PM, New York City
time, on such date; if filing of the Prospectus, or any supplement thereto,
is required pursuant to the applicable paragraph of Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and within
the time period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the Representatives the
opinion of Wohlforth, Arget, Singer, Johnson & Brecht, corporate counsel
for the Company, dated the Closing Date, to the effect that:
(i) each of the Company and each of its Subsidiaries has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with
full corporate power and authority to own its properties and conduct
its business as described in the Prospectus, and is duly qualified to
transact business as a foreign corporation and is in good standing
under the laws of each jurisdiction which requires such qualification
wherein it owns or leases material properties or conducts material
business;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through
wholly owned Subsidiaries, free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interests, claims, liens or encumbrances;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus; and the Securities conform to the description
thereof contained in the Prospectus;
(iv) the Indenture has been duly authorized, executed and
delivered, has been duly qualified under the Trust Indenture Act, and
constitutes a legal, valid and binding instrument enforceable against
the Company
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<PAGE>
in accordance with its terms (subject, as to enforcement of remedies,
to applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting creditors' rights generally from time to
time in effect); and the Securities have been duly authorized and,
when executed and authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the Underwriters
pursuant to this Agreement, will constitute legal, valid and binding
obligations of the Company entitled to the benefits of the Indenture;
(v) to the best knowledge of such counsel, there are no pending or
threatened actions, suits or proceedings before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its Subsidiaries of a character required to be
disclosed in the Registration Statement or the Prospectus which are
not adequately disclosed therein, and there are no franchises,
contracts or other documents of a character required to be described
in the Registration Statement or Prospectus, or to be filed as
exhibits, which are not described or filed as required; and the
statements included or incorporated in the Prospectus describing any
legal proceedings, regulatory matters, statutes, material contracts or
agreements relating to the Company fairly summarize such matters;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) no consent, approval, authorization, license or order of, or
filing, registration or qualification with, any court or governmental
agency or body, domestic or foreign, is required, including, without
limitation, under the Telecommunications Acts or any order, rule,
regulation or policy of the FCC or the APUC, for the performance by
the Company of its obligations under this Agreement or for the
consummation of the transactions contemplated herein, except such as
have been obtained under the Act and such as may be required under the
blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such other
approvals (specified in such opinion) as have been obtained;
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<PAGE>
(viii) neither the execution and delivery of the Indenture, the
issue and sale of the Securities, nor the consummation of any other of
the transactions herein contemplated nor the fulfillment of the terms
hereof will conflict with, result in a breach or violation of, or
constitute a default under any law or any Governmental Laws or the
certificate of incorporation or by-laws of the Company or the terms of
any indenture or other agreement or instrument known to such counsel
and to which the Company or any of its Subsidiaries is a party or
bound or any judgment, injunction, order or decree known to such
counsel to be applicable to the Company or any of its Subsidiaries of
any court, regulatory body, administrative agency, governmental body
or arbitrator;
(ix) except as set forth in the Registration Statement under the
section entitled "Certain Transactions--Registration Rights
Agreements," no holders of securities of the Company have rights to
the registration of such securities under the Registration Statement;
(x) the execution and delivery of this Agreement and the
issuance and sale of Securities by the Company, and the performance by
the Company of its obligations under this Agreement and the
Securities, do not violate the Telecommunications Acts or any rules,
regulations or policies thereunder binding on the Company or its
Subsidiaries or any order, writ, judgment, injunction, decree or award
of the FCC binding on the Company or its Subsidiaries; and
(xi) the Company and its Subsidiaries are not, nor with the
passage of time or the giving of notice or both would be, to the best
knowledge of such counsel, in violation of any Governmental Laws of
any court or any governmental authority, excluding the FCC or the
APUC, relating to the Company or its Subsidiaries or to any properties
of the Company or its Subsidiaries. The Company and its Subsidiaries
have not received any notice of any violation of any Governmental
Laws.
In addition, such counsel shall state that nothing has come to its
attention that leads it to believe that the Registration Statement at the time
the Registration Statement became effective or on the Closing Date (other than
the financial
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<PAGE>
statements and supporting notes and schedules and other financial and
statistical data contained therein, as to which such counsel need not comment)
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectuses at the time they
were delivered or on the Closing Date (other than the financial statements and
supporting notes and schedules and other financial and statistical data
contained therein, as to which such counsel need not comment) contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State of
Alaska [, Limited Partnership Law of the State of Delaware] or the United
States, to the extent such counsel deems proper and as specified in such
opinion, upon the opinion of other counsel of good standing whom such counsel
believes to be reliable and who are satisfactory to counsel for the Underwriters
and (B) as to matters of fact, to the extent deemed proper, on certificates of
responsible officers of the Company and public officials. References to the
Prospectus in this paragraph (b) include any supplements thereto at the Closing
Date.
(c) The Company shall have furnished to the Representatives the
opinion of Mark Moderow, counsel for the Company, dated the Closing Date,
to the effect that:
(i) the Company and its Subsidiaries have been granted and
presently hold all Communications Licenses necessary, including from
the FCC and the APUC, for the Company and its Subsidiaries to conduct
their respective businesses as presently conducted or proposed to be
conducted; to the best knowledge of such counsel such Communications
Licenses have been duly and validly issued, are in full force and
effect and are not subject to any restrictions or conditions which,
individually or in the aggregate, would have a material adverse effect
on the Company and its Subsidiaries, taken as a whole. No proceedings
to revoke, refuse to renew, modify or restrict such Communications
Licenses are pending or, to the best knowledge of such counsel,
threatened;
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<PAGE>
(ii) there is no proceeding pending before the FCC or the APUC,
or, to the best knowledge of such counsel, any investigation or
proceeding pending or threatened by the FCC or the APUC against the
Company or its Subsidiaries which, if adversely determined,
individually or in the aggregate, could have a material adverse effect
on the Company and its Subsidiaries taken as a whole; and
(iii) the Company and its Subsidiaries are not, nor with the
passage of time or the giving of notice or both would be, to the best
knowledge of such counsel, in violation of any Governmental Laws of
any court or any governmental authority, including, but not limited
to, the FCC or the APUC relating to the Company or its Subsidiaries or
to any properties of the Company or its Subsidiaries. The Company and
its Subsidiaries have not received any notice of any violation of any
Governmental Laws.
(d) The Company shall have furnished to the Representatives the
opinion of Sherman & Howard L.L.C., special counsel for the Company, dated
the Closing Date, to the effect that:
(i) each of the Company and each of its Subsidiaries has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with
full corporate power and authority to own its properties and conduct
its business as described in the Prospectus;
(ii) the Company's authorized equity capitalization is as set
forth in the Prospectus; and the Securities conform to the description
thereof contained in the Prospectus;
(iii) the Indenture has been duly authorized, executed and
delivered, has been duly qualified under the Trust Indenture Act, and
constitutes a legal, valid and binding instrument enforceable against
the Company in accordance with its terms (subject, as to enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally
from time to time in effect); and the Securities have been duly
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<PAGE>
authorized and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
Underwriters pursuant to this Agreement, will constitute legal, valid
and binding obligations of the Company entitled to the benefits of the
Indenture;
(iv) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the Prospectus (other than the financial statements and
other financial and statistical information contained therein as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act, the
Exchange Act and the Trust Indenture Act and the respective rules
thereunder;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) no consent, approval, authorization, license or order of, or
filing, registration or qualification with, any court or governmental
agency or body, domestic or foreign, is required, including, without
limitation, under the Telecommunications Acts or any order, rule,
regulation or policy of the FCC or the APUC for the performance by the
Company of its obligations under this Agreement or for the
consummation of the transactions contemplated herein, except such as
have been obtained under the Act and such as may be required under the
blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such other
approvals (specified in such opinion) as have been obtained; and
(vii) neither the execution and delivery of the Indenture, the
issue and sale of the Securities, nor the consummation of any other of
the transactions herein contemplated nor the fulfillment of the terms
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hereof will conflict with, result in a breach or violation of, or
constitute a default under any law or any Governmental Laws or the
certificate of incorporation or by-laws of the Company or the terms of
any agreement governing indebtedness for money borrowed or other
material agreement or instrument known to such counsel and to which
the Company or any of its Subsidiaries is a party or bound or any
judgment, injunction, order or decree known to such counsel to be
applicable to the Company or any of its Subsidiaries of any court,
regulatory body, administrative agency, governmental body or
arbitrator, except for such conflicts, breaches, violations or
defaults as would not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company,
representatives of the Representatives and counsel for the Representatives at
which the contents of the Registration Statement and related matters were
discussed and, although such counsel has not independently verified, are not
passing upon and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement, no facts have come to such counsel's attention that leads such
counsel to believe that the Registration Statement, as of the date it is
declared effective by the Commission or on the Closing Date contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectuses as of the Closing Date contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel does not comment as
to the financial statements (including supporting schedules), and other
financial data included in the Registration Statement, and the Prospectus or the
exhibits to the Registration Statement).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State of
[Colorado] [, the General Corporation/Limited Partnership Law of the State of
Delaware] or the United States, to the extent such counsel deems proper and as
specified in such opinion, upon the opinion of other counsel of
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good standing whom such counsel believes to be reliable and who are satisfactory
to counsel for the Underwriters and (B) as to matters of fact, to the extent
deemed proper, on certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (d) include any
supplements thereto at the Closing Date.
(e) The Representative shall have received from Paul, Hastings,
Janofsky & Walker LLP, counsel for the Underwriters, such opinion or
opinions, dated the Closing Date, with respect to the issuance and sale of
the Securities, the Indenture, the Registration Statement, the Prospectus
(together with any supplement thereto) and other related matters as the
Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(f) The Company shall have furnished to the Representatives a
certificate of the Company, signed by (1) the President and Chief Executive
Officer and (2) the Chief Financial Officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no material adverse change in the condition (financial
or other), earnings, business, properties or prospects of the Company
and its Subsidiaries, whether or not arising from transactions in the
ordinary course of business, except
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as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(g) At the Execution Time and at the Closing Date, KPMG Peat Marwick
LLP shall have furnished to the Representatives a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the Exchange Act
and the respective applicable published rules and regulations thereunder
and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements
included or incorporated in the Registration Statement and the
Prospectus and reported on by them comply in form in all material
respects with the applicable accounting requirements of the Act and
the Exchange Act and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its Subsidiaries; their
limited review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited
interim financial information as indicated in their reports
incorporated in the Registration Statement and the Prospectus;
carrying out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders, directors and executive, audit and
compensation committees of the Company and the Subsidiaries; and
inquiries of certain officials of the Company who have responsibility
for financial and accounting matters of the Company and its
Subsidiaries as to transactions and events subsequent to December 31,
1996, nothing came to their attention which caused them to believe
that:
(1) any unaudited financial statements included or
incorporated in the Registration Statement and the Prospectus do
not comply in form
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in all material respects with applicable accounting requirements
of the Act and the related published rules and regulations with
respect to financial statements included or incorporated in
quarterly reports on Form 10-Q under the Exchange Act; and said
unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included or incorporated in the Registration Statement
and the Prospectus;
(2) with respect to the period subsequent to December 31,
1996, audited or unaudited, in or incorporated in the Prospectus,
there was any change, at a specified date not more than five
business days prior to the date of the letter, in the capital
stock, increase in long-term debt or decrease in consolidated net
current assets or stockholders' equity of the Company and its
Subsidiaries as compared with the amounts shown on the
December 31, 1996 consolidated balance sheet included or
incorporated in the Registration Statement and the Prospectus, or
for the period from January 1, 1997 to such specified date there
were any decreases, as compared with the corresponding period in
the preceding year in consolidated net sales or in the total or
per share amounts of income before extraordinary items or net
income of the Company and its Subsidiaries, except in all
instances for changes, increases or decreases that the
Registration Statement and Prospectus discloses have occurred or
may occur, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the Representatives;
or
(3) the information included in the Registration Statement
and the Prospectus in response to Regulation S-K, Item 301
(Selected Financial Data), Item 302 (Supplementary Financial
Information) and Item 402 (Executive Compensation) is not in
conformity with the applicable disclosure requirements of
Regulation S-K;
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(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its Subsidiaries) set
forth in the Registration Statement and the Prospectus, including the
information set forth under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Capitalization," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," "Management," and
"Certain Transactions" in the Prospectus, the information included or
incorporated in Items [_____________] of the Company's Annual Report
on Form 10-K, incorporated in the Registration Statement and the
Prospectus, the information included in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
included or incorporated in the Company's Quarterly Reports on Form
10-Q, incorporated in the Registration Statement and the Prospectus,
and the information in the Company's Current Report on Form 8-K, if
any, incorporated in the Registration Statement and the Prospectus
agrees with the accounting records of the Company and its
Subsidiaries, excluding any questions of legal interpretation;
(iv) on the basis of a reading of the unaudited pro forma
financial statements included or incorporated in the Registration
Statement and the Prospectus (the "pro forma financial statements");
carrying out certain specified procedures; inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the pro forma financial statements, nothing came to their attention
which caused them to believe that the pro forma financial statements
do not comply in form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
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References to the Prospectus in this paragraph (f) include any
supplement thereto at the date of the letter.
The Representatives shall have also received from KPMG Peat Marwick
LLP a letter stating that the Company's system of internal accounting controls
taken as a whole is sufficient to meet the broad objectives of internal
accounting control insofar as those objectives pertain to the prevention or
detection of errors or irregularities in amounts that would be material in
relation to the financial statements of the Company and its Subsidiaries.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (f) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the business or properties of the Company and its Subsidiaries
the effect of which, in any case referred to in clause (i) or (ii) above,
is, in the judgment of the Representatives, so material and adverse as to
make it impractical or inadvisable to proceed with the offering or delivery
of the Securities as contemplated by the Registration Statement (exclusive
of any amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(i) Subsequent to Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended
or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(j) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as
the Representatives may reasonably request.
(k) At or prior to the Closing Date, the Company shall have entered
into a credit facility to refinance the Company's $205 million cable credit
facility and the Company's $62.5 million senior telephony credit facility.
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(l) Prior to the Closing Date, a commitment letter for a construction
and term loan facility shall have been entered into by and among Credit
Lyonnais and Alaska United Partnership, a subsidiary of the Company,
pursuant to which Credit Lyonnais shall have agreed to provide financing to
construct and develop an undersea fiber optic cable connecting Anchorage,
Fairbanks and Juneau, Alaska with the continental United States.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be cancelled at,
or at any time prior to, the Closing Date by the Representatives. Notice of
such cancellation shall be given to the Company in writing or by telephone or
facsimile and confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Paul, Hastings, Janofsky & Walker LLP, counsel for
the Underwriters, at 399 Park Avenue, New York, New York, on the Closing Date.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act
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or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration statement for
the registration of the Securities as originally filed or in any amendment
thereof, or in any Preliminary Prospectus or the Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the
statements set forth in the last paragraph of the cover page and under the
heading "Underwriting" in any Preliminary Prospectus and the Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus, and you, as the Representatives, confirm that such statements are
correct.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to
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be made against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the commencement thereof; but the failure so to
notify the indemnifying party (i) will not relieve it from liability under
paragraph (a) or (b) above unless and to the extent it did not otherwise learn
of such action and such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); PROVIDED, HOWEVER, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
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<PAGE>
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company and by the Underwriters from the
offering of the Securities; PROVIDED, HOWEVER, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company and
the Underwriters shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and of the Underwriters in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses), and
benefits received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or the Underwriters. The Company and the Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an Underwriter within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of an Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to
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<PAGE>
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) Without limitation of and in addition to its obligations under
the other paragraphs of this Section 8, the Company agrees to indemnify and hold
harmless Salomon Brothers Inc, its directors, officers, employees and agents and
each person who controls Salomon Brothers Inc within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject,
insofar as such losses, claims, damages or liabilities (or action in respect
thereof) arise out of or are based upon Salomon Brothers Inc's acting as a
"qualified independent underwriter" in connection with the offering contemplated
by this Agreement, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
results from the gross negligence or willful misconduct of Salomon Brothers Inc.
9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the principal amount of
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate principal amount of Securities set forth opposite the names of all the
remaining Underwriters) the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase; PROVIDED, HOWEVER, that in the event
that the aggregate principal amount of Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate principal amount of Securities set forth in Schedule I hereto, the
remaining Underwriters shall have the right to purchase all, but shall not be
under any obligation to purchase any, of the Securities, and if such
nondefaulting Underwriters do not purchase all the Securities, this Agreement
will terminate without liability to any nondefaulting Underwriter or the
Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives
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<PAGE>
shall determine in order that the required changes in the Registration Statement
and the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company and any nondefaulting Underwriter for
damages occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if prior to such time (i)
trading in General Communication, Inc.'s Class A Common Stock shall have been
suspended by the Commission or the Nasdaq National Market ("Nasdaq") or trading
in securities generally on the New York Stock Exchange or the Nasdaq shall have
been suspended or limited or minimum prices shall have been established on the
New York Stock Exchange or the Nasdaq, (ii) a banking moratorium shall have been
declared either by Federal or New York State authorities or (iii) there shall
have occurred any outbreak or escalation of hostilities, declaration by the
United States of a national emergency or war or other calamity or crisis the
effect of which on financial markets is such as to make it, in the judgment of
the Representatives, impracticable or inadvisable to proceed with the offering
or delivery of the Securities as contemplated by the Prospectus (exclusive of
any supplement thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telegraphed and confirmed to them, care of Salomon Brothers Inc,
Seven World Trade Center, New York, New York 10048, attention: Legal Department;
or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503-2781,
attention: John M. Lowber.
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<PAGE>
13. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
GCI, INC.
By: ________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written
SALOMON BROTHERS INC
SCHRODER & CO. INC.
NATIONSBANC CAPITAL MARKETS, INC.
TD SECURITIES (USA) INC.
By: SALOMON BROTHERS INC
By: _______________________
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
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SCHEDULE I
Principal Amount
of Securities to
Underwriters be Purchased
------------ -----------------
Salomon Brothers Inc
Schroder & Co. Inc.. . . . . . . . . . . . . . . . . . . .
NationsBanc Capital Markets, Inc.. . . . . . . . . . . . .
TD Securities (USA) Inc. . . . . . . . . . . . . . . . . .
-----------------
Total . . . . . . . . . . . . . . . . . . . . . . $
-----------------
-----------------
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SCHEDULE II
SUBSIDIARIES OF THE COMPANY
GCI Holdings, Inc., an Alaska corporation
GCI Communication Corp., an Alaska corporation
GCI Communication Services, Inc., an Alaska corporation
GCI Leasing Co., Inc., an Alaska corporation
GCI Cable, Inc., an Alaska corporation
GCI Cable/Fairbanks, Inc., an Alaska corporation
Prime Cable of Alaska, LP, a Delaware limited partnership
GCI Cable/Juneau, Inc., an Alaska corporation
GCI Transport Company, an Alaska corporation
GCI Satellite Company, an Alaska corporation
GCI Fiber Company, an Alaska corporation
Fiber Hold Company, an Alaska corporation
Alaska United Partnership, an Alaska partnership
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BYLAWS
OF
GCI, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I OFFICES............................................................1
ARTICLE II SHAREHOLDERS' MEETINGS.............................................1
Section 1. ANNUAL MEETING................................................1
Section 2. SPECIAL MEETINGS..............................................1
Section 3. PLACE OF MEETING..............................................2
Section 4. NOTICE OF MEETING.............................................2
Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE............2
Section 6. VOTING LISTS..................................................3
Section 7. QUORUM........................................................3
Section 8. PROXIES.......................................................3
Section 9. VOTING OF SHARES..............................................3
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS..........................4
Section 11. INFORMAL ACTION BY SHAREHOLDERS..............................4
ARTICLE III BOARD OF DIRECTORS.................................................4
Section 1. GENERAL POWERS................................................4
Section 2. NUMBER, TENURE AND QUALIFICATIONS.............................4
Section 3. REGULAR MEETINGS..............................................5
Section 4. SPECIAL MEETINGS..............................................5
Section 5. QUORUM........................................................5
Section 6. MANNER OF ACTING..............................................5
Section 7. ATTENDANCE AT MEETINGS........................................5
Section 8. VACANCIES.....................................................6
Section 9. COMPENSATION..................................................6
Section 10. PRESUMPTION OF ASSENT........................................6
Section 11. REMOVAL OF DIRECTORS.........................................6
Section 12. RESIGNATION..................................................6
Section 13. VOTING BY INTERESTED DIRECTORS...............................7
Section 14. ACTION BY DIRECTORS WITHOUT A MEETING........................7
ARTICLE IV OFFICERS...........................................................7
Section 1. NUMBER........................................................7
Section 2. ELECTION AND TERM OF OFFICE...................................7
Section 3. REMOVAL.......................................................7
Section 4. VACANCIES.....................................................7
Section 5. PRESIDENT.....................................................8
Section 6. VICE PRESIDENTS...............................................8
Section 7. THE SECRETARY.................................................8
Section 8. THE TREASURER.................................................9
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Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS................9
Section 10. SALARIES......................................................9
ARTICLE V LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS,
OFFICERS AND AGENTS OF THE CORPORATION.............................9
Section 1. LIMITATION OF LIABILITY.......................................9
Section 2. RIGHT OF INDEMNIFICATION.....................................10
Section 3. RIGHTS CUMULATIVE............................................10
ARTICLE VI CONTRACTS, LOANS, CHECKS, DEPOSITS AND COMPENSATION...............11
Section 1. CONTRACTS....................................................11
Section 2. LOANS........................................................11
Section 3. CHECKS, DRAFTS, ETC..........................................11
Section 4. DEPOSITS.....................................................11
ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER.....................11
Section 1. CERTIFICATES FOR SHARES......................................11
Section 2. TRANSFER OF SHARES...........................................12
ARTICLE VIII TAXABLE YEAR AND ACCOUNTING PERIOD.............................12
ARTICLE IX DIVIDENDS.........................................................12
ARTICLE X CORPORATE SEAL....................................................12
ARTICLE XI WAIVER OF NOTICE..................................................13
ARTICLE XII AMENDMENTS........................................................13
ARTICLE XIII EXECUTIVE COMMITTEE.............................................13
Section 1. APPOINTMENT..................................................13
Section 2. AUTHORITY....................................................13
Section 3. TENURE AND QUALIFICATIONS....................................13
Section 4. MEETINGS.....................................................13
Section 5. QUORUM.......................................................14
Section 6. ACTION WITHOUT A MEETING.....................................14
Section 7. VACANCIES....................................................14
Section 8. RESIGNATIONS AND REMOVAL.....................................14
Section 9. PROCEDURE....................................................14
ARTICLE XIV CONDUCT OF MEETINGS..............................................15
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ARTICLE I
OFFICES
The principal office of GCI, Inc. (the "Corporation") shall be located
in Anchorage, Alaska. The Corporation may have such other offices, either
within or without the State of Alaska, as the Board of Directors may
designate or as the business of the Corporation may require from time to time.
The registered office of the Corporation required by the Alaska
Corporations Code to be maintained in the State of Alaska may be, but need not
be, identical with the principal office in the State of Alaska, and the address
of the registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. ANNUAL MEETING. The annual meeting of the Shareholders shall
be held in the month of June of each year, for the purpose of electing Directors
and for the transaction of such other business as may come before the meeting.
If the election of Directors shall not be held on the day designated for the
annual meeting of the Shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
Shareholders as soon thereafter as it conveniently may be held.
(a) Meetings of the Shareholders shall be presided over by the
President or by any officer or Director or person selected at any time by the
President to act as Chairman, or if he is not present or available or makes no
selection, then by the Chairman of the Board of Directors. If neither the
President nor the Chairman of the Board of Directors is present and no selection
has been made, a Chairman should be chosen by a majority in interest of the
Shareholders present in person or by proxy at the meeting and entitled to vote
thereat.
(b) The Secretary of the meeting shall be the Secretary of the
Corporation or an Assistant Secretary, or if none of such officers is present,
any person appointed by the Chairman of the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the Shareholders for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or by the Board of Directors, and shall be called by the President
at the request of the holders of not less than one-tenth of all the outstanding
shares of the corporation entitled to vote at the meeting.
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<PAGE>
Section 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Alaska, as the place of meeting
called by the Board of Directors. A waiver of notice signed by all Shareholders
entitled to vote at a meeting may designate any place, either within or without
the State of Alaska, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the Corporation in the State of Alaska.
Section 4. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than twenty (20)
nor more than sixty (60) days before the date of the meeting, either personally
or by mail, by or at the direction of the President, or the Secretary, or the
persons calling the meeting, to each Shareholder of record entitled to vote at
such meeting. If mailed, the notice is considered delivered when deposited with
postage prepaid in the United States mail addressed to the shareholder at the
address of the shareholder as it appears on the stock transfer book of the
corporation, or, if the shareholder has filed with the secretary of the
corporation a written request that notice be mailed to a different address,
addressed to the shareholder at the new address.
Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled to
receive payment of a dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, seventy (70) days. If the stock
transfer books shall be closed for the purpose of determining Shareholders
entitled to notice of or to vote at a meeting of Shareholders, such books shall
be closed for at least twenty (20) days immediately preceding such meeting.
Instead of closing the stock transfer books, the Board of Directors may fix
a date as the record date for any such determination of Shareholders. This
record date shall be not more than sixty (60) days, and in case of a meeting of
Shareholders not less than twenty (20) days, prior to the date on which the
particular action requiring such determination of Shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of Shareholders entitled to notice of or to vote at a meeting of
Shareholders, or Shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring the dividend is adopted is, as
the case may be, the record date for the determination of Shareholders. When a
determination of Shareholders entitled to vote at any meeting of Shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof except where the determination has been made through the
closing of the stock transfer books and the stated period of closing has
expired.
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Section 6. VOTING LISTS. At least twenty (20) days before each meeting of
the Shareholders, the officer or agent having charge of the stock transfer books
for shares of the Corporation shall make a complete list of the Shareholders
entitled to vote at each meeting of Shareholders or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. The list shall be kept on file at the registered office of the
corporation and is subject to inspection by a Shareholder or the agent or
attorney of a Shareholder at any time during the usual business hours for a
period of twenty (20) days before the meeting. Such list shall be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any Shareholder during the whole time of the meeting.
Section 7. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders. If a quorum is present, the
affirmative vote of the majority of shares represented at the meeting and
entitled to vote on the subject matter is the act of the Shareholders unless the
vote of a greater number or voting by class is required by the articles of
incorporation, bylaws or the Alaska Corporations Code.
The Shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum, if any action taken other than
adjournment is approved by at least a majority of shares required to constitute
a quorum.
If less than a majority of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 8. PROXIES. At all meetings of Shareholders, a Shareholder may
vote in person or by proxy executed in writing by the Shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. A proxy continues in full
force and effect until revoked by the person executing it, however, no proxy
shall be valid after eleven (11) months from the date of its execution, unless
such proxy qualifies as an irrevocable proxy as defined within AS 10.06.418(e).
Section 9. VOTING OF SHARES. An outstanding share, regardless of class,
is entitled to one vote on each matter submitted to a vote at a meeting of
Shareholders, except as may be otherwise provided in the articles of
incorporation.
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Section 10. VOTING OF SHARES BY CERTAIN HOLDERS.
(a) Shares standing in the name of another corporation may be voted by
such officer, agent or proxy as the bylaws of such corporation may prescribe,
or, in the absence of such provisions, as the board of directors of such
corporation may determine.
(b) Shares held by an administrator, executor, guardian or conservator may
be voted by such person, either in person or by proxy, without a transfer of
such shares into his name. Shares standing in the name of a trustee may be
voted by the trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name.
(c) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer into his name if authority to transfer the
shares is contained in an appropriate order of the court by which such receiver
was appointed.
(d) A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Neither treasury shares, nor shares of its own stock held by the
Corporation in a fiduciary capacity, nor shares held by another corporation if a
majority of the shares entitled to vote for the election of directors of the
other corporation is held by the Corporation, may be voted at a meeting or
counted in determining the total number of outstanding shares.
Section 11. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the Shareholders, or any other action which may be taken
at a meeting of the Shareholders, may be taken without a meeting by written
consent, identical in content setting out the action taken, signed by all of the
Shareholders entitled to vote on the action.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of
the Corporation shall be not less than one (1) nor more than nine (9); unless
the Corporation, now or at any time in the future, has three (3) or more
Shareholders in which case the Corporation shall have not fewer than three (3)
directors; or unless the Corporation has
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only two (2) Shareholders, in which case the Corporation shall have at least two
(2) directors. Each Director shall hold office until the next annual meeting of
Shareholders and until his successor shall have been elected and qualified.
Directors need not be residents of the State of Alaska or Shareholders of the
Corporation. The initial number of Directors shall be five (5).
Section 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at the
same place as, the annual meeting of the Shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Alaska, for the holding of additional regular meetings without other
notice than such resolution.
Section 4. SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called by the
Chairman of the Board, the President, a Vice President, the Secretary, or a
Director or such person authorized to call the meeting may fix the time and
place for holding the meeting, either inside or outside the State of Alaska.
(b) Notice of any special meeting shall be given at least ten (10) days
prior thereto by written notice delivered personally or mailed to each Director
at his business address, or at least seventy-two (72) hours before the meeting
by electronic means, personal messenger, or comparable person-to-person
communication. If mailed by certified mail, such notice shall be deemed to be
delivered when deposited in the United States mail properly addressed, with
postage thereon prepaid. Any Director may waive notice of any meeting. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 5. QUORUM. A majority of the presently qualified Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than such majority is present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice; provided, further, that where there are only two Directors, both
shall be necessary to constitute a quorum.
Section 6. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 7. ATTENDANCE AT MEETINGS. The Board of Directors may conduct a
meeting of the Board by communicating simultaneously with each other by means of
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conference telephones or similar communications equipment and any action taken
at such meeting shall not be invalidated by reason of the fact that the
respective members of the Board were not assembled together in one place at the
time of taking such action or conducting such business.
Section 8. VACANCIES. Where a vacancy created by the removal of a
Director is pursuant to AS 10.06.460 or 10.06.463, such vacancies occurring on
the Board may be filled only by a vote of the Shareholders. Any other vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining Directors though less than a quorum of the Board of
Directors. A Director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled by
reason of an increase in the number of Directors may be filled by election by
the Board of Directors for a term of office continuing only until the next
election of Directors by the Shareholders. In no case may a vacancy continue
longer than six (6) months or until the next annual meeting, whichever occurs
first.
Section 9. COMPENSATION. By resolution of the Board of Directors, each
Director may be paid his or her expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a stated salary as Director or a
fixed sum for attendance at each meeting of the Board of Directors or both. No
such payment shall preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 10. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his/her dissent shall be entered in the minutes of the meeting or unless he/she
shall file a written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
Section 11. REMOVAL OF DIRECTORS. Any Director may be removed with or
without cause, at any time, by a vote of the Shareholders holding a majority of
the shares then issued and outstanding, at any special meeting called for that
purpose, or at the annual meeting. Except as otherwise prescribed by statute, a
Director may be removed for cause by a vote of the majority of the entire board.
Prior to vote by the Board on the question of removal of any Director for cause,
such Director must be given written notice of the reasons for such action.
Section 12. RESIGNATION. A Director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary, or
the Board of Directors of the Corporation, unless the notice specifies a later
time for the effectiveness of the resignation.
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If the resignation is effective at a future time, a successor may be elected to
take office when the resignation becomes effective.
Section 13. VOTING BY INTERESTED DIRECTORS. No Director may vote upon any
matter in which he has an adverse or personal interest, unless such interest has
been fully disclosed to the Board of Directors and the Board of Directors, by
majority of vote without the interested Director voting, permits such interested
Director to vote.
Section 14. ACTION BY DIRECTORS WITHOUT A MEETING. Action required or
permitted to be taken by the Board or a committee designated by the Board may be
taken without a meeting on written consents, identical in consent, setting out
the action taken and signed by all the members of the Board or the committee.
The written consents shall be filed with the minutes. The consents have the
same effect as an unanimous vote.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a President,
one or more Vice Presidents (the number thereof to be determined by the Board of
Directors), a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two (2) or
more offices may be held by the same person, except the offices of President and
Secretary.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the Shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
convenient. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, or until his death, or until he shall
resign or shall have been removed in the manner hereinafter provided.
Section 3. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
Section 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
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Section 5. PRESIDENT. The President shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. He shall, when present, preside at all meetings of
the Shareholders and of the Board of Directors. He may sign, with the Secretary
or any other proper officer of the Corporation authorized by the Board of
Directors, certificates for shares of the Corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors, or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 6. VICE PRESIDENTS. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the Corporation;
and shall perform such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
Section 7. THE SECRETARY. The Secretary shall:
(a) keep the minutes of the proceedings of the Shareholders and of the
Board of Directors in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions
of these Bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed to all documents
the execution of which on behalf of the Corporation under its seal is duly
authorized;
(d) keep a register of the post office address of each Shareholder which
shall be furnished to the Secretary by such Shareholder;
(e) sign with the President, or a Vice President, certificates for shares
of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors;
(f) have general charge of the stock transfer books of the Corporation; and
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(g) in general perform all duties incident to the office of the Secretary
and such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
Section 8. THE TREASURER. The Treasurer shall:
(a) have charge and custody of and be responsible for all funds and
securities of the Corporation;
(b) receive and give receipts for moneys due and payable to the Corporation
from any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected; and
(c) in general perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice President certificates for shares of the Corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President of the Board of Directors.
Section 10. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE V
LIMITATION OF LIABILITY AND
INDEMNIFICATION OF DIRECTORS, OFFICERS
AND AGENTS OF THE CORPORATION
Section 1. LIMITATION OF LIABILITY. No person shall be liable to the
Corporation for any loss or damage suffered by it on account of any action taken
or omitted to be taken in good faith, as a Director, member of a Committee or
Officer of the Corporation, if such person exercised or used the same degree of
care and skill, including reasonable inquiry, as a prudent person would have
exercised or used under the circumstances in the conduct
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of his/her own affairs. Without limitation on the foregoing, any such person
shall be deemed to have exercised or used such degree of care and skill if such
action were taken or omitted in reliance in good faith upon advice of counsel
for the Corporation, or the books of account or other records of the
Corporation, or reports or information made or furnished to the Corporation by
any officials, accountants, engineers, agents or employees of the Corporation,
or by an independent Certified Public Accountant or auditor, engineer,
appraiser, or other expert employed by the Corporation and selected with
reasonable care by the Board of Directors, by any such committee or by an
authorized officer of the Corporation.
Section 2. RIGHT OF INDEMNIFICATION. Each Director, member of a
Committee, Officer, Agent and Employee of the Corporation, and each former
director, member of a committee, officer, agent and employee of the Corporation,
and any person who may have served at its request as a director, officer, agent
or employee of another Corporation in which it is a creditor, and his heirs and
personal representative shall be indemnified by the Corporation against all loss
or damage suffered and all costs and expenses imposed upon or incurred by him in
connection with or arising out of any action, suit or proceedings (whether civil
or criminal in nature) in which he may be involved, to which he may be a party
by reason of being or having been (or his personal representative or estate
having been) such director, member of a committee, officer, agent or employee,
except in relation to matters as to which he shall be adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in performance of
his duty; provided, however, that the Corporation shall be given reasonable
notice of the institution of such action, suit or proceedings; and in the event
the same shall be settled in whole or in part, the Corporation or its counsel
shall consent to such settlement if it be determined by its counsel or found by
a majority of the Board of Directors then in office and not involved in such
controversy, that such settlement is to the best interest of the Corporation and
that the person to be indemnified was not guilty of negligence or misconduct in
performance of duty.
Indemnification (unless ordered by the court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the director, officer,
employee or committee member has met the applicable standard of conduct. This
determination shall be made (a) by the Board of Directors, by a majority vote of
a quorum consisting of directors who were not parties to the action or
proceeding; or (b) by independent legal counsel in a written opinion, either (i)
if such a quorum is not obtainable, or (ii) if a quorum of disinterested
directors so requests such a written opinion; or (c) by approval of the
outstanding shares.
Section 3. RIGHTS CUMULATIVE. The provisions of this Article V shall not
be deemed exclusive or in limitation of, but shall be cumulative of and in
addition to any other limitations of liability, indemnities, and rights to which
such Director, member of a Committee, Officer, Agent or other person may be
entitled under Alaska Statute, these
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Bylaws or pursuant to any agreement or resolution of the Board of Directors or
of the Shareholders, or otherwise.
ARTICLE VI
CONTRACTS, LOANS, CHECKS,
DEPOSITS AND COMPENSATION
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and sealed with the
corporate seal or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation itself or one of
its employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person or entity to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled; except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
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All shares issued by the Corporation shall contain a legend on the
certificates stating substantially the following:
The shares represented by this certificate have
not been registered under any federal or state
securities law. They have been acquired for
investment and may not be transferred without an
effective registration statement pursuant to such
laws or an opinion of counsel satisfactory to the
corporation that registration is not required.
Section 2. TRANSFER OF SHARES. Transfer of any shares of the Corporation
shall be done in compliance with all federal, state and local securities laws,
and any transfer of in violation thereof is void. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by its legal representative, who shall furnish
proper evidence of authority to transfer filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The entity or person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes.
ARTICLE VIII
TAXABLE YEAR AND ACCOUNTING PERIOD
The taxable year and accounting period of the Corporation shall begin on
January 1 and end on December 31, unless changed by resolution of the Board of
Directors.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in cash, property, or its own
shares, except when the Corporation is insolvent, or when the dividend would
render the Corporation insolvent, or when the dividend is contrary to
restrictions contained in the Articles of Incorporation.
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words "Corporate Seal."
ARTICLE XI
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WAIVER OF NOTICE
Whenever any notice is required to be given to any Shareholder or Director
of the Corporation under the provisions of these Bylaws or under the provisions
of the Articles of Incorporation or under the provisions of the Alaska
Corporation Code, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ARTICLE XII
AMENDMENTS
Except as may be provided in the Articles, these Bylaws may be altered,
amended or repealed and new Bylaws may be adopted by the Board of Directors at
any regular or special meeting of the Board of Directors.
ARTICLE XIII
EXECUTIVE COMMITTEE
Section 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the full board, may designate two (2) or more of its members to
constitute an Executive Committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
Section 2. AUTHORITY. Except as limited by the Articles or AS 10.06.468,
the Executive Committee, when the Board of Directors is not in session, shall
have and may exercise all of the authority of the Board of Directors except to
the extent, if any, that such authority shall be limited by the resolution
appointing the Executive Committee.
Section 3. TENURE AND QUALIFICATIONS. Each member of the Executive
Committee shall hold office until the next regular annual meeting of the Board
of Directors following his designation and until his successor is designated as
a member of the Executive Committee and is elected and qualified.
Section 4. MEETINGS. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time by resolution. Special meetings of the Executive Committee
may be called by any member thereof upon not less than five (5) days' notice,
stating the place, date and hour of the meeting, which notice may be written or
oral, and if mailed by certified mail, shall be deemed to be delivered when
deposited in the United States mail addressed to the member of the Executive
Committee at his business address, postage prepaid. Any member of the Executive
Committee may waive notice of any meeting, and no notice of any meeting need be
given to any member thereof who attends in person. The notice of
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a meeting of the Executive Committee need not state the business proposed to be
transacted at the meeting.
Section 5. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. ACTION WITHOUT A MEETING. Any action that may be taken by the
Executive Committee at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, shall be signed by all of the
members of the Executive Committee before such action be taken further. The
Executive Committee can validly conduct a meeting by communicating
simultaneously with each other by means of conference telephones or similar
communications equipment.
Section 7. VACANCIES. Any vacancy in the Executive Committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
Section 8. RESIGNATIONS AND REMOVAL. Any member of the Executive
Committee may be removed at any time, with or without cause, by resolution
adopted by a majority of the full Board of Directors. Any member of the
Executive Committee may resign from the Executive Committee at any time by
giving written notice to the President or Secretary of the Corporation and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 9. PROCEDURE. The Executive Committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting thereof held next after the proceedings shall have been taken.
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ARTICLE XIV
CONDUCT OF MEETINGS
All meetings conducted under these Bylaws shall be governed in accordance
with ROBERTS RULES OF ORDER.
We, the undersigned, hereby certify that the foregoing Bylaws for governing
the operation and management of GCI, Inc., were duly adopted by
the Directors by unanimous written consent, effective as of ________________,
1997.
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John M. Lowber, Secretary
APPROVED:
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Ronald A. Duncan, President
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GCI, INC.,
a wholly-owned subsidiary of
General Communication, Inc.,
Issuer
$150,000,000
% Senior Notes Due 2007
INDENTURE
Dated as of July __, 1997
THE BANK OF NEW YORK,
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02; 4.08;
10.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05, 10.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a) (last sentence) . . . . . . . . . . . . . . . . . . . . . 10.06
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
317 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.03
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TIA Indenture
Section Section
- ------- ---------
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
N.A. means Not Applicable.
- ---------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
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TABLE OF CONTENTS
ARTICLE 1 Definitions and Incorporation by Reference . . . . . . . . . . . . .1
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . 19
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. . . 19
SECTION 1.04. Rules of Construction. . . . . . . . . . . . . . . . . 20
ARTICLE 2 The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . . 20
SECTION 2.02. Execution and Authentication; Aggregate Principal
Amount . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . 21
SECTION 2.04. Paying Agent To Hold Money in Trust. . . . . . . . . . 21
SECTION 2.05. Noteholder Lists . . . . . . . . . . . . . . . . . . . 22
SECTION 2.06. Replacement Notes. . . . . . . . . . . . . . . . . . . 22
SECTION 2.07. Outstanding Notes. . . . . . . . . . . . . . . . . . . 22
SECTION 2.08. Temporary Notes. . . . . . . . . . . . . . . . . . . . 22
SECTION 2.09. Cancellation . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.10. Defaulted Interest . . . . . . . . . . . . . . . . . . 23
SECTION 2.11. Transfer and Exchange. . . . . . . . . . . . . . . . . 24
SECTION 2.12. CUSIP Number.. . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.13. Book-Entry Provisions for Global Notes.. . . . . . . . 25
ARTICLE 3 Redemption of Securities. . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.01. Right of Redemption. . . . . . . . . . . . . . . . . . 26
SECTION 3.02. Applicability of Article . . . . . . . . . . . . . . . 26
SECTION 3.03. Election to Redeem; Notice to Trustee. . . . . . . . . 26
SECTION 3.04. Selection by Trustee of Notes to be Redeemed . . . . . 26
SECTION 3.05. Notice of Redemption . . . . . . . . . . . . . . . . . 26
SECTION 3.06. Deposit of Redemption Price. . . . . . . . . . . . . . 27
SECTION 3.07. Notes Payable on Redemption Date . . . . . . . . . . . 28
SECTION 3.08. Notes Redeemed or Purchased in Part. . . . . . . . . . 28
ARTICLE 4 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . 28
SECTION 4.02. Maintenance of Office or Agency. . . . . . . . . . . . 28
SECTION 4.03. Money for Note Payments to Be Held in Trust. . . . . . 29
SECTION 4.04. Corporate Existence. . . . . . . . . . . . . . . . . . 30
SECTION 4.05. Payment of Taxes and Other Claims. . . . . . . . . . . 30
SECTION 4.06. Maintenance of Properties. . . . . . . . . . . . . . . 30
SECTION 4.07. Insurance. . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.08. Books and Records. . . . . . . . . . . . . . . . . . . 31
SECTION 4.09. Compliance Certificate . . . . . . . . . . . . . . . . 31
SECTION 4.10. SEC Reports. . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.11. Limitation on Indebtedness . . . . . . . . . . . . . . 31
SECTION 4.12. Limitation on Indebtedness of AULP. . . . . . . . . . 32
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Page
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SECTION 4.13. Limitation on Restricted Payments. . . . . . . . . . . 33
SECTION 4.14. Limitation on Transactions with Affiliates . . . . . . 34
SECTION 4.15. Change of Control Offer. . . . . . . . . . . . . . . . 35
SECTION 4.16. Limitation on Liens. . . . . . . . . . . . . . . . . . 36
SECTION 4.17. Limitation on Asset Sales. . . . . . . . . . . . . . . 37
SECTION 4.18. Limitation on Restrictions on Distributions From
Restricted Subsidiaries. . . . . . . . . . . . . . . . 39
SECTION 4.19. Ownership of Significant Subsidiaries. . . . . . . . . 40
SECTION 4.20. [Fiber Construction Agreements. . . . . . . . . . . . . 40
SECTION 4.21. Operation of Unrestricted Subsidiaries . . . . . . . . 41
ARTICLE 5 Successor Company . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.01. Merger, Consolidation and Sale of Assets . . . . . . . 41
ARTICLE 6 Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.01. Events of Default. . . . . . . . . . . . . . . . . . . 42
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.04. Waiver of Existing Defaults. . . . . . . . . . . . . . 44
SECTION 6.05. Control by Majority. . . . . . . . . . . . . . . . . . 45
SECTION 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . . 45
SECTION 6.07. Rights of Holders To Receive Payment . . . . . . . . . 45
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . 45
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . 46
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . . 46
SECTION 6.12. Waiver of Stay or Extension Laws . . . . . . . . . . . 46
ARTICLE 7 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . 47
SECTION 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . . 48
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . 48
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . 48
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . 48
SECTION 7.06. Reports by Trustee to Holders. . . . . . . . . . . . . 49
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . 49
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . 50
SECTION 7.09. Successor Trustee by Merger. . . . . . . . . . . . . . 50
SECTION 7.10. Eligibility; Disqualification. . . . . . . . . . . . . 51
SECTION 7.11. Preferential Collection of Claims Against Company. . . 51
ARTICLE 8 Discharge of Indenture; Defeasance. . . . . . . . . . . . . . . . 51
SECTION 8.01. Discharge of Liability on Notes; Defeasance. . . . . . 51
SECTION 8.02. Conditions to Defeasance . . . . . . . . . . . . . . . 52
SECTION 8.03. Application of Trust Money . . . . . . . . . . . . . . 53
SECTION 8.04. Repayment to Company . . . . . . . . . . . . . . . . . 53
SECTION 8.05. Indemnity for Government Obligations . . . . . . . . . 53
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Page
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SECTION 8.06. Reinstatement. . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 9 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . 54
SECTION 9.02. With Consent of Holders. . . . . . . . . . . . . . . . 54
SECTION 9.03. Compliance with Trust Indenture Act. . . . . . . . . . 55
SECTION 9.04. Revocation and Effect of Consents and Waivers. . . . . 55
SECTION 9.05. Notation on or Exchange of Notes . . . . . . . . . . . 56
SECTION 9.06. Trustee To Sign Amendments . . . . . . . . . . . . . . 56
SECTION 9.07. Payment for Consent. . . . . . . . . . . . . . . . . . 56
ARTICLE 10 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.01. Trust Indenture Act Controls. . . . . . . . . . . . . 56
SECTION 10.02. Notices . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.03. Communication by Holders with Other Holders . . . . . 57
SECTION 10.04. Certificate and Opinion as to Conditions Precedent. . 58
SECTION 10.05. Statements Required in Certificate or Opinion . . . . 58
SECTION 10.06. Rules by Trustee, Paying Agent and Registrar. . . . . 58
SECTION 10.07. Legal Holidays. . . . . . . . . . . . . . . . . . . . 58
SECTION 10.08. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.09. No Recourse Against Others. . . . . . . . . . . . . . 59
SECTION 10.10. Successors. . . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.11. Multiple Originals. . . . . . . . . . . . . . . . . . 59
SECTION 10.12. Table of Contents; Headings . . . . . . . . . . . . . 59
SECTION 10.13. Severability. . . . . . . . . . . . . . . . . . . . . 60
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<PAGE>
INDENTURE dated as of July __, 1997 between GCI, INC., an Alaska
corporation (the "Company"), a wholly owned subsidiary of General Communication,
Inc., and THE BANK OF NEW YORK, a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's _____% Senior
Notes Due 2007 (the "Notes"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Additional Assets" means (i) any Property (other than cash, cash
equivalents or securities) to be owned by the Company or a Restricted Subsidiary
and used in a Related Business, (ii) the costs of improving or developing any
Property owned by the Company or a Restricted Subsidiary which is used in a
Related Business and (iii) Investments in any other Person engaged primarily in
a Related Business (including the acquisition from third parties of Capital
Stock of such Person) as a result of which such other Person becomes a
Restricted Subsidiary or is merged or consolidated with or into the Company or
any Restricted Subsidiary.
"Affiliate" of any specified Person means (i) any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or executive officer (a) of such specified Person, (b) of any
Subsidiary of such specified Person or (c) of any Person described in clause (i)
above. For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Annualized Pro Forma EBITDA" means, with respect to any Person, the
product of such Person's Pro Forma EBITDA for the latest fiscal quarter for
which financial statements are available multiplied by four.
"Asset Sale" means, with respect to any Person, any transfer,
conveyance, sale, lease or other disposition (including, without limitation,
dispositions pursuant to any consolidation or merger or a Sale and Leaseback
Transaction) by such Person or any of its Subsidiaries (or, in the case of the
Company, its Restricted Subsidiaries) in any single transaction or series of
transactions
<PAGE>
of (a) shares of Capital Stock or other ownership interests in another Person
(including, with respect to the Company and its Restricted Subsidiaries, Capital
Stock of Unrestricted Subsidiaries) or (b) any other Property of such Person or
any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that the term "Asset
Sale" shall not include: (i) the sale or transfer of Temporary Cash Investments,
inventory, accounts receivable or other Property (including, without limitation,
the sale or lease of excess satellite transponder capacity and the sale or lease
of excess fiber capacity) in the ordinary course of business; (ii) the
liquidation of Property received in settlement of debts owing to such Person or
any of its Restricted Subsidiaries as a result of foreclosure, perfection or
enforcement of any Lien or debt, which debts were owing to such Person or any of
its Restricted Subsidiaries in the ordinary course of business, (iii) when used
with respect to the Company, any asset disposition permitted pursuant to Section
5.01 which constitutes a disposition of all or substantially all of the
Company's Property; (iv) the sale or transfer of any Property by such Person or
any of its Restricted Subsidiaries to such Person or any of its Restricted
Subsidiaries; (v) a disposition in the form of a Restricted Payment permitted to
be made pursuant to Section 4.13; or (vi) a disposition (taken together with any
other dispositions in a single transaction or series of related transactions)
with a Fair Market Value and a sale price of less than $5 million.
"Attributable Indebtedness" means Indebtedness deemed to be incurred
in respect of a Sale and Leaseback Transaction and shall be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually), of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended).
"AULP" means _________________________, an Alaska partnership that
will be an Unrestricted Subsidiary on the Issue Date.
"Average Life" means, as of the date of determination, with respect to
any security, the quotient obtained by dividing (i) the sum of the products of
the numbers of years (rounded to the nearest one-twelfth of one year) from the
date of determination to the dates of each successive scheduled principal or
other redemption payment of such security multiplied by the amount of such
payment by (ii) the sum of all such payments.
"Board of Directors" of any Person means the Board of Directors of
such Person or any committee thereof duly authorized to act on behalf of such
Board.
"Board Resolution" of any Person means a copy of a resolution
certified by the Secretary or an Assistant Secretary of Parent and the Company
to have been duly adopted by the Board of Directors of such Person, to be in
full force and effect on the date of such certification and delivered to the
Trustee.
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"Business Day" means each day which is not a Legal Holiday (as defined
in Section 10.07).
"Capacity Lease" means the Lease Contract and related guaranty by and
among GCI Communication Corporation (a Restricted Subsidiary) as lessee, GCI
Holdings (a Restricted Subsidiary) as guarantor of the lessee's obligations and
AULP as lessor, on terms and conditions substantially as outlined in and
otherwise consistent with Exhibit A (Summary of Terms and Conditions) attached
to the Fiber Construction Facility Commitment Letter pursuant to which GCI
Communication Corporation agrees to lease up to 45% of the output capacity of
the System, as such lease contract may otherwise be amended, supplemented or
otherwise modified in accordance with the terms thereof and of this Indenture.
"Capital Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares
or other equivalents (however designated) of corporate stock, partnership
interests or any other participation, right, warrant, option or other interest
in the nature of an equity interest in such Person, but excluding any debt
security convertible or exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate Net Cash Proceeds
received by the Company from the issue or sale (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any Subsidiary of the Company and other than pursuant to the Stock
Offering) by the Company of any class of its Capital Stock (other than
Disqualified Stock) after the Issue Date, provided, however, that exercise of
the over-allotment option with respect to the Stock Offering shall not
constitute Capital Stock Sale Proceeds.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (within the meaning and otherwise consistent
with Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group acting for the purpose
of acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b) (1) under the Exchange Act) other than one or more of the Permitted
Holders, or an entity or entities controlled by one or more of the Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 40% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of Parent or the Company,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Parent or the
Company (together with any new directors whose election by the Board of
Directors of Parent or the Company, as the case may be, or whose nomination for
election by the shareholders of Parent or the Company, as the case may be, was
approved by a majority vote of the directors of Parent or the Company, as the
case may be, then still in office who were either directors at the beginning of
such period or
3
<PAGE>
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of Parent or the
Company, as the case may be, then in office, (iii) the Company consolidates or
merges with or into any other Person (other than one or more Permitted Holders
or an entity or entities controlled by one or more Permitted Holders) or any
other Person (other than one or more Permitted Holders or an entity or entities
controlled by one or more Permitted Holders) consolidates or merges with or into
the Company, in either case, other than (a) a consolidation or merger with a
wholly owned Restricted Subsidiary in which all of the Voting Stock of the
Company outstanding immediately prior to the effectiveness thereof is changed
into or exchanged for substantially the same consideration or (b) a
consolidation or merger with or into Parent or (iv) the Company sells, conveys,
transfers or leases, directly or indirectly, all or substantially all of its
assets (other than a transfer of such assets as an entirety or virtually as an
entirety to a wholly owned Restricted Subsidiary, Parent, one or more Permitted
Holders or an entity or entities controlled by one or more Permitted Holders).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"Completion Guarantee" means the Completion Guarantee between GCI
Holdings and AULP in form and on terms and conditions substantially as outlined
in and otherwise consistent with Exhibit A (Summary of Terms and Conditions)
attached to the Fiber Construction Facility Commitment Letter pursuant to which
GCI Holdings agrees, subject to certain limitations, to advance funds, directly
or indirectly, to a Fiber Construction Facility Obligor for, or otherwise cause,
the timely completion of construction of the System, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and of this Indenture.
"Consolidated Interest Expense" means, for any Person, for any period,
the amount of interest in respect of Indebtedness (including amortization of
original issue discount, fees payable in connection with financings, including
commitment, availability and similar fees, and amortization of debt issuance
costs, non-cash interest payments on any Indebtedness and the interest portion
of any deferred payment obligation and after taking into account the effect of
elections made under, and the net costs associated with, any Interest Rate
Agreement, however denominated, with respect to such Indebtedness), the amount
of dividends in respect of Disqualified Stock paid by such Person, the amount of
Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of
such Person held other than by such Person or a Subsidiary (other than any
Unrestricted Subsidiary) of such Person, commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, and the interest component of rentals in respect of any Capital Lease
Obligation or Sale and Leaseback Transaction paid, accrued or scheduled to be
paid or accrued by such Person during such period, determined on a consolidated
basis for such Person and its Subsidiaries (or, in the case of the Company, its
Restricted Subsidiaries) in accordance with GAAP consistently applied. For
4
<PAGE>
purposes of this definition, interest on a Capital Lease Obligation or a Sale
and Leaseback Transaction shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capital Lease Obligation or Sale and Leaseback Transaction in accordance with
GAAP consistently applied.
"Consolidated Net Income" of a Person means for any period, the net
income (loss) of such Person and its Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income (i) with respect to the
Company, any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that (a) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (b) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income, (ii) any
net income (loss) of any Person acquired by such Person or a Subsidiary of such
Person in a pooling of interests transaction for any period prior to the date of
such acquisition, (iii) with respect to the Company, any net income (loss) of
any Restricted Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (a) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company or another Restricted Subsidiary as
a dividend (subject, in the case of a dividend to another Restricted Subsidiary,
to the limitation contained in this clause) and (b) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (iv) any gains or losses realized upon
the sale or other disposition of any Property of such Person or its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business, (v) any
extraordinary gain or loss and (vi) the cumulative effect of a change in
accounting principles.
Notwithstanding the provisions of clause (iii) in the preceding
paragraph, in the event that Consolidated Net Income is being calculated with
respect to the Company or any Surviving Entity (a) for purposes of determining
whether the Company or any Surviving Entity could incur at least $1.00 of
additional Indebtedness pursuant to clause (a) of the first paragraph of Section
4.11 for purposes of (i) clause (b) of the first sentence of Section 4.13, (ii)
clause (c) of Section 5.01 or (iii) the definition of "Unrestricted Subsidiary"
or (b) for purposes of calculating Cumulative EBITDA pursuant to clause (c) of
the first sentence of Section 4.13, restrictions on the payment of dividends or
the making of distributions to the Company by GCI Holdings referred to in clause
(1)(iii) of the second sentence under Section 4.18 shall be disregarded.
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Notwithstanding the provisions of clause (iii) in the first paragraph
of this definition, in the event that Consolidated Net Income is being
calculated with respect to the Company for purposes of determining whether the
Incurrence of Indebtedness proposed to be Incurred is permissible under clause
(a) of the first paragraph of Section 4.11, then (i) if such proposed
Indebtedness is proposed to be Incurred by GCI Holdings or any Subsidiary
thereof that is a Restricted Subsidiary, restrictions on the payment of
dividends or the making of distributions to the Company by GCI Holdings referred
to in clause (1)(iii) of the second sentence of Section 4.18 shall be
disregarded and (ii) if such proposed Indebtedness is proposed to be Incurred by
the Company or any Subsidiary of the Company (other than GCI Holdings and its
Subsidiaries) that is a Restricted Subsidiary, restrictions on the payment of
dividends or the making of distributions to the Company by GCI Holdings referred
to in clause (1)(iii) of the second sentence of Section 4.18 shall be
disregarded, PROVIDED that the lenders pursuant to the Credit Facility modify
the Credit Facility to (A) allow for the payment of dividends or the making of
distributions to the Company in amounts sufficient to pay the scheduled
principal and interest payments on such proposed Indebtedness when due and
payable or, in the case of a proposed Incurrence of Indebtedness by a
Subsidiary, in an amount sufficient to fund capital contributions or other
Investments to or in such Subsidiary in amounts sufficient to pay the scheduled
principal and interest payments on such proposed Indebtedness when due and
payable so long as there does not exist an event which after notice or passage
of time or both would permit the lenders under the Credit Facility to declare
all amounts thereunder due and payable, and (B) provide that in no event shall
any encumbrance or restriction pursuant to the Credit Facility prohibit
distributions to pay principal, premium, if any, and interest on such proposed
Indebtedness for more than 180 days in any consecutive 360 day period, unless
the maturity of the Credit Facility has been accelerated.
"Credit Facility" means the $375 million credit facility pursuant to a
credit agreement, dated as of ____________, 1997, among GCI Holdings, as
borrower, and NationsBank of Texas, N.A., Credit Lyonnais, New York Branch and
Toronto Dominion (USA) Inc., as agents, and the lenders party thereto, as
amended or supplemented, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring all or any portion of the
Indebtedness under such agreement or any successor replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Cumulative EBITDA" means at any date of determination the cumulative
EBITDA of the Company from and after the last day of the fiscal quarter of the
Company immediately preceding the Issue Date to the end of the fiscal quarter
immediately preceding the date of determination or, if such cumulative EBITDA
for such period is negative, the amount (expressed as a negative number) by
which such cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued by the Company and its Restricted Subsidiaries from the last
day of the fiscal quarter of the Company immediately preceding the Issue Date to
the end of the fiscal quarter immediately preceding the date of determination.
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"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default pursuant to Section 6.01.
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness at the option of
the holder thereof, or is redeemable at the option of the holder thereof, in
whole or in part, on or prior to the final maturity date of the Notes.
"EBITDA" means, for any Person, for any period, an amount equal to (A)
the sum of (i) Consolidated Net Income for such period, plus, to the extent
deducted in arriving at Consolidated Net Income for such period, (ii) (a) the
provision for taxes for such period based on income or profits to the extent
such income or profits were included in computing Consolidated Net Income and
any provision for taxes utilized in computing net loss under clause (i) hereof,
(b) Consolidated Interest Expense for such period, (c) depreciation for such
period on a consolidated basis, (d) amortization of intangibles for such period
on a consolidated basis, and (e) any other non-cash items reducing Consolidated
Net Income for such period, minus (B) all non-cash items increasing Consolidated
Net Income for such period, all for such Person and its Subsidiaries determined
in accordance with GAAP consistently applied, except that with respect to the
Company each of the foregoing items shall be determined on a consolidated basis
with respect to the Company and its Restricted Subsidiaries only.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than or equal to $15 million, by any Officer of Parent
and the Company or (ii) if such property or asset has a Fair Market Value in
excess of $15 million, by a majority of the Board of Directors of Parent and the
Company and evidenced by a Board Resolution, dated within 30 days of the
relevant transaction.
"Fiber Construction Agreement" means each of the Fiber Construction
Facility, the Completion Guarantee, the GCI Transport Keep-Well Agreement, the
Operating Keep-Well Agreement, the Operating and Maintenance Contract and the
Capacity Lease.
"Fiber Construction Facility" means the Construction and Term Loan
Facility by and among the Fiber Construction Facility Banks as agents, certain
lenders and AULP on terms and conditions (i) substantially as
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outlined in and otherwise consistent with Exhibit A (Summary of Terms and
Conditions) attached to the Fiber Construction Facility Commitment Letter, and
(ii) to include an additional covenant requiring third party commitments
(including for this purpose bona fide purchases by the Company and its
Restricted Subsidiaries) to generate capacity purchase revenues or lease
payments pursuant to which the Fiber Construction Facility Banks have agreed to
provide financing to construct and develop an undersea fiber optic cable
connecting Anchorage, Fairbanks and Juneau, Alaska with the continental United
States, as such facility may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof and of this Indenture.
"Fiber Construction Facility Banks" means Credit Lyonnais, New York
Branch, NationsBank of Texas, N.A. and Toronto Dominion (USA) Inc.
"Fiber Construction Facility Commitment Letter" means the commitment
letter dated July 3, 1997 for such facility between Parent and the Fiber
Construction Facility Banks.
"Fiber Construction Facility Obligor" means each of AULP and one or
more of its Subsidiaries and their respective successors so long as it is a
party to the Fiber Construction Facility.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, unless stated otherwise.
"Galaxy X Agreement" means each of the Galaxy X Transponder Service
Agreement between Hughes Communications Satellite Services, Inc. and GCI
Communication Corp. and the Galaxy X Transponder Purchase Agreement, each of
which is dated August 24, 1995, as such agreements may be amended, supplemented
or otherwise modified from time to time in accordance with the terms thereof and
the terms of this Indenture.
"GCI" means General Communication, Inc., an Alaska corporation, and
its successors.
"GCI Holdings" means GCI Holdings, Inc., an Alaska corporation, and
its successors.
"GCI Transport" means GCI Transport Company, an Alaska corporation,
and its successors.
"GCI Transport Keep-Well Agreement" means the Operating Keep-Well
Agreement dated ________, 1997 between GCI Transport and AULP in form and on
terms and conditions substantially as outlined in and otherwise consistent with
Exhibit A (Summary of Terms and Conditions) attached to the Fiber Construction
Facility Commitment Letter pursuant to which GCI Transport agrees, subject to
certain limitations, to advance funds, directly or indirectly to a Fiber
Construction Facility Obligor to pay (i) any operating expenses, including
interest and principal payments on indebtedness, in excess of revenues of AULP
and (ii) any unpaid amount on the Fiber Construction Facility when due at Stated
Maturity or upon acceleration, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
the terms of this Indenture.
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"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
condition or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, foreign exchange contract, currency
swap agreement, currency option or any other similar agreement or arrangement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by merger, conversion, exchange or
otherwise), extend, assume, Guarantee or become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing); PROVIDED, HOWEVER, that a change in
GAAP that results in an obligation of such Person that exists at such time, and
is not theretofore classified as Indebtedness, becoming Indebtedness shall not
be deemed an Incurrence of such Indebtedness; PROVIDED FURTHER, that solely for
purposes of determining compliance with Section 4.11, amortization of debt
discount shall not be deemed to be the Incurrence of Indebtedness, PROVIDED that
in the case of Indebtedness sold at a discount, the amount of such Indebtedness
Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Indebtedness" means (without duplication), with respect to any
Person, any indebtedness, secured or unsecured, contingent or otherwise, which
is for borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), or evidenced by
bonds, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding any
balances that constitute customer advance payments and deposits, accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capital Lease Obligations, (ii) Indebtedness of other Persons secured by a Lien
to which the Property owned or held by such first Person is subject, whether or
not the obligation or obligations secured thereby shall have been assumed (the
amount of such Indebtedness being
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deemed to be the lesser of the value of such property or assets or the amount of
the Indebtedness so secured), (iii) Guarantees of Indebtedness of other Persons,
(iv) any Disqualified Stock, (v) any Attributable Indebtedness, (vi) all
reimbursement obligations of such Person in respect of letters of credit,
bankers' acceptances or other similar instruments or credit transactions issued
for the account of such Person, (vii) in the case of the Company, Preferred
Stock of its Restricted Subsidiaries, and (viii) to the extent not otherwise
included in clauses (i) through (vii) of this paragraph, any payment obligations
of any such Person at the time of determination under any Hedging Obligation.
For purposes of this definition, the maximum fixed repurchase price of any
Disqualified Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to this Indenture; PROVIDED, HOWEVER, that if
such Disqualified Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Disqualified Stock. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any contingent obligations in respect thereof at such date. For
purposes of this definition, the amount of the payment obligation with respect
to any Hedging Obligation shall be an amount equal to (i) zero, if such
obligation is an Interest Rate Agreement permitted pursuant to clause (v) of the
second paragraph of Section 4.11 or (ii) the notional amount of such Hedging
Obligation, if such Hedging Obligation is not an Interest Rate Agreement so
permitted.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the TIA that are deemed to be a part of and govern
this instrument, and any such supplemental indenture, respectively.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement.
"Investment" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other Property to others or payments for Property or services for the
account or use of others, or otherwise) to, or Incurrence of a Guarantee of any
obligation of, or purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities or evidence of Indebtedness issued by, any other
Person. In determining the amount of any Investment made by transfer of any
Property other than cash, such Property shall be valued at its Fair Market Value
at the time of such Investment (it being understood that leasing output capacity
of the System under the Capacity Lease shall not be or be deemed an Investment).
"Issue Date" means the date on which the Notes are initially issued.
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"Leverage Ratio" means the ratio of (i) the outstanding Indebtedness
of a Person and its Subsidiaries (or in the case of the Company, the outstanding
Indebtedness of the Company and its Restricted Subsidiaries) divided by (ii) the
Trailing Pro Forma EBITDA of such Person (or in the case of the Company, the
Trailing Pro Forma EBITDA of the Company and its Restricted Subsidiaries).
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Net Available Cash" from an Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to such Properties or assets or received in any other noncash form) in each case
net of all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of such
Asset Sale, and in each case net of all payments made on any Indebtedness (a)
which is secured by any assets subject to such Asset Sale, in accordance with
the terms of any Lien upon or other security agreement of any kind with respect
to such assets, or (b) which must (1) by its terms, or in order to obtain a
necessary consent to such Asset Sale (except, in the case of this clause (b),
Indebtedness that is PARI PASSU with or subordinated to the Notes), or (2) by
applicable law be repaid out of the proceeds from such Asset Sale, and net of
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale.
"Net Cash Proceeds" with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Notes" means the Notes issued under this Indenture.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer and the Chief Accounting Officer of Parent and the Company.
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"Officers' Certificate" means a certificate signed by two Officers of
Parent and the Company, at least one of whom shall be the principal executive
officer or principal financial officer of Parent and the Company, and delivered
to the Trustee.
"Operating and Maintenance Contract" means the Operating and
Maintenance Contract between GCI Communication Corporation (a Restricted
Subsidiary) and AULP on terms and conditions substantially as outlined in and
otherwise consistent with Exhibit A (Summary of Terms and Conditions) attached
to the Fiber Construction Facility Commitment Letter, pursuant to which GCI
Communication Corporation agrees, subject to certain limitations, to operate
and maintain the system and receive compensation for the actual services
provided by it, as such agreement may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and of this
Indenture.
"Operating Keep-Well Agreement" means the Operating Keep-Well
Agreement between GCI Holdings and AULP on terms and conditions substantially as
outlined in and otherwise consistent with Exhibit A (Summary of Terms and
Conditions) attached to the Fiber Construction Facility Commitment Letter
pursuant to which such Restricted Subsidiary agrees, subject to certain
limitations, to advance funds, directly or indirectly, to a Fiber Construction
Facility Obligor to pay (i) any operating expenses, including interest and
principal payments on Indebtedness, in excess of revenues of AULP and (ii) any
unpaid amount on the Fiber Construction Facility when due at Stated Maturity or
upon acceleration, as such agreement may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and of this
Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be counsel to Parent, the Company or
the Trustee.
"Parent" means GCI so long as it owns, and any other Person which
acquires or owns, directly or indirectly, 80% or more of the Voting Stock of the
Company.
"pari passu" as applied to the ranking of any Indebtedness of a Person
in relation to other Indebtedness of such Person, means that each such
Indebtedness either (i) is not subordinate in right of payment to any
Indebtedness or (ii) is subordinate in right of payment to the same Indebtedness
as is the other, and is so subordinate to the same extent, and is not
subordinate in right of payment to each other or to any Indebtedness as to which
the other is not so subordinate.
"Permitted Holders" means (i) Ronald Duncan and his estate, spouse,
ancestors, lineal descendants and the trustee of any bona fide trust of which
the foregoing are the sole beneficiaries, (ii) MCI Telecommunications
Corporation and its controlled Affiliates, (iii) Prime Cable Growth Partners,
L.P., Prime Venture I Holdings, L.P., Prime Venture II, L.P., Prime Cable
Limited Partnership and their respective controlled Affiliates, (iv) the General
Communication, Inc. Employee Stock Purchase Plan, and (v) the Estate of Bob
Magness so long as Donne Fisher is one of no more than two legal representatives
of such estate.
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"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary, PROVIDED the
primary business of such Restricted Subsidiary is a Related Business; (ii)
another Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to (after which such other Person shall cease to exist or shall remain a
"shell" corporation), the Company or a Restricted Subsidiary, PROVIDED such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) accounts receivable owing to the Company or any Restricted
Subsidiary, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; (v) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (vi) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; and (vii) loans and advances to employees of Parent,
the Company or a Restricted Subsidiary made in the ordinary course of business
consistent with past practice of Parent, the Company or such Restricted
Subsidiary, as the case may be, PROVIDED, that such loans and advances do not
exceed in the aggregate $5 million at any one time outstanding.
"Permitted Issue Date Transactions" means any transaction on or
promptly after the Issue Date relating to (i) the repayment in full of bank
credit facilities of the Company's Subsidiaries outstanding on the Issue Date
before giving effect to the incurrence of Indebtedness under the Credit Facility
and (ii) the contribution or advancement by the Company or a Restricted
Subsidiary of an amount not in excess of $50 million to GCI Transport.
"Permitted Liens" means (i) Liens on the Property of the Company or
any Restricted Subsidiary existing on the Issue Date, (ii) Liens on all or
substantially all of the assets of the Restricted Subsidiaries and the Capital
Stock of any Restricted Subsidiary owned by the Issuer in favor of the lender
under the Credit Facility; (iii) Liens on the Property of the Company or any
Restricted Subsidiary to secure any extension, renewal, refinancing, replacement
or refunding (or successive extensions, renewals, refinancings, replacements or
refundings), in whole or in part, of any Indebtedness secured by Liens referred
to in any of clauses (i), (ii), (vii) or (x); PROVIDED, HOWEVER, that any such
Lien will be limited to all or part of the same Property that secured the
original Lien (plus improvements on such Property) and the aggregate principal
amount of Indebtedness that is secured by such Lien will not be increased to an
amount greater than the sum of (A) the outstanding principal amount, or, if
greater, the committed amount, of the Indebtedness secured by Liens described
under clauses (i), (ii), (vii) or (x), as applicable, at the time the original
Lien became a Permitted Lien under the Indenture and (B) an amount necessary to
pay any premiums, fees and other expenses incurred by the Company in connection
with such extension, renewal, refinancing, replacement or refunding; (iv) Liens
for taxes, assessments or governmental charges or levies on the Property of the
Company or any Restricted Subsidiary if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings; (v) Liens imposed by law, such as
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carriers', warehousemen's and mechanics' Liens and other similar Liens on the
Property of the Company or any Restricted Subsidiary arising in the ordinary
course of business and securing payment of obligations which are not more than
60 days past due or are being contested in good faith and by appropriate
proceedings; (vi) Liens on the Property of the Company or any Restricted
Subsidiary Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements, performance or
return-of-money bonds, surety bonds or other obligations of a like nature and
Incurred in a manner consistent with industry practice; (vii) Liens on Property
at the time the Company or any Restricted Subsidiary acquired such Property,
including any acquisition by means of a merger or consolidation with or into the
Company or any Restricted Subsidiary; PROVIDED such Lien shall not have been
Incurred in anticipation of or in connection with such transaction or series of
related transactions pursuant to which such Property was acquired by the Company
or any Restricted Subsidiary; (viii) other Liens on the Property of the Company
or any Restricted Subsidiary incidental to the conduct of their respective
businesses or the ownership of their respective Properties which were not
created in anticipation of or in connection with the Incurrence of Indebtedness
or the obtaining of advances or credit and which do not in the aggregate
materially detract from the value of their respective Properties or materially
impair the use thereof in the operation of their respective businesses; (ix)
pledges or deposits by the Company or any Restricted Subsidiary under worker's
compensation laws, unemployment insurance laws or similar legislation, or good
faith deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which the Company or any Restricted
Subsidiary is party, or deposits to secure public or statutory obligations of
the Company or any Restricted Subsidiary, or deposits for the payment of rent,
in each case Incurred in the ordinary course of business; (x) Liens on the
Property of a Person at the time such Person becomes a Restricted Subsidiary;
PROVIDED any such Lien does not extend to any other Property of the Company or
any Restricted Subsidiary; and PROVIDED FURTHER that any such Lien was not
Incurred in anticipation of or in connection with the transaction or series of
related transactions pursuant to which such Person became a Restricted
Subsidiary; and (xi) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character.
"Permitted Refinancing Indebtedness" means any extensions, renewals,
refinancings, replacements or refundings of any Indebtedness, including any
successive extensions, renewals, refinancings, replacements or refundings so
long as (i) the aggregate amount of Indebtedness represented thereby is not
increased by such extension, renewal, refinancing, replacement or refunding
(other than to finance fees and expenses, including any premium and defeasance
costs, incurred in connection therewith), (ii) the Average Life of such
Indebtedness is equal to or greater than the Average Life of the Indebtedness
being extended, renewed, refinanced, replaced or refunded, (iii) the Stated
Maturity of such Indebtedness is no earlier than the Stated Maturity of the
Indebtedness being refinanced and (iv) the new Indebtedness shall not be senior
in right of payment to the Indebtedness that is being extended, renewed,
refinanced, replaced or refunded; PROVIDED, that Permitted Refinancing
Indebtedness shall not include (a) Indebtedness of a Subsidiary that extends,
renews, refinances, replaces or refunds Indebtedness of the Company or
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(b) Indebtedness of the Company or a Restricted Subsidiary that extends, renews,
refinances replaces or refunds Indebtedness of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation in accordance with Article
11 of Regulation S-X promulgated under the Securities Act (to the extent
applicable), as interpreted in good faith by the Board of Directors after
consultation with the independent certified public accountants of the Company,
or otherwise a calculation made in good faith by the Board of Directors after
consultation with the independent certified public accountants of the Company,
as the case may be.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of
such Person as determined on a consolidated basis in accordance with GAAP
consistently applied after giving effect to the following: (i) if, during or
after such period, such Person or any of its Subsidiaries shall have made any
disposition of any Person or business, Pro Forma EBITDA of such Person and its
Subsidiaries shall be computed so as to give pro forma effect to such
disposition and (ii) if, during or after such period, such Person or any of its
Subsidiaries completes an acquisition of any Person or business which
immediately after such acquisition is a Subsidiary of such Person or whose
assets are held directly by such Person or a Subsidiary of such Person, Pro
Forma EBITDA shall be computed so as to give pro forma effect to the acquisition
of such Person or business; PROVIDED, HOWEVER, that, with respect to the
Company, all of the foregoing references to "Subsidiary or "Subsidiaries" shall
be deemed to refer only to the "Restricted Subsidiaries" of the Company.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in, and
other securities of, any other Person (but excluding Capital Stock or other
securities issued by such first mentioned Person).
"Public Equity Offerings" means an underwritten public offering of
Qualified Stock of Parent or the Company, that generates in the aggregate gross
proceeds of at least $50 million, pursuant to a registration statement filed
with the SEC in accordance with the Securities Act; PROVIDED that, the Stock
Offering (including any over-allotment option in respect thereof) shall be
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excluded from the definition of Public Equity Offerings; PROVIDED FURTHER, that
in the event of a Public Equity Offering by Parent, Parent contributes to the
capital of the Company the portion of the net cash proceeds of such Public
Equity Offering necessary to pay the aggregate redemption price (plus accrued
and unpaid interest thereon to the redemption date) of the Notes to be redeemed
pursuant to the Company's Optional Redemption or other Indebtedness of any
Restricted Subsidiary required to be paid out of such proceeds.
"Qualified Stock" means any Capital Stock that is not Disqualified
Stock.
"Redemption Date" means, with respect to any Note to be redeemed, any
date fixed for such redemption by or pursuant to this Indenture and the terms of
the Notes.
"Redemption Price" means, with respect to any Note to be redeemed, the
price at which it is to be redeemed pursuant to this Indenture and the terms of
the Notes.
"Related Business" means the business of (i) transmitting, or
providing services related to the transmission of voice, video or data through
owned or leased wireline or wireless transmission facilities, (ii) creating,
developing, constructing, installing, repairing, maintaining or marketing
communications-related systems, network equipment and facilities, software and
other products or (iii) pursuing any other business that is primarily related to
those identified in the foregoing clauses (i) or (ii).
"Restricted Payment" means (i) any dividend or distribution (whether
made in cash, Property or securities) declared or paid on or with respect to any
shares of Capital Stock of the Company or Capital Stock of any Restricted
Subsidiary except for any dividend or distribution which is made solely by a
Restricted Subsidiary to the Company or another Restricted Subsidiary (and, if
such Restricted Subsidiary is not wholly owned, to the other shareholders of
such Restricted Subsidiary on a pro rata basis) or dividends or distributions
payable solely in shares of Capital Stock (other than Disqualified Stock) of the
Company; (ii) a payment made by the Company or any Restricted Subsidiary to
purchase, redeem, acquire or retire any Capital Stock of the Company or Capital
Stock of any Affiliate of the Company (other than a Restricted Subsidiary) or
any warrants, rights or options to directly or indirectly purchase or acquire
any such Capital Stock or any securities exchangeable for or convertible into
any such Capital Stock; (iii) a payment made by the Company or any Restricted
Subsidiary to redeem, repurchase, defease or otherwise acquire or retire for
value, prior to any scheduled maturity, scheduled sinking fund or mandatory
redemption payment (other than the purchase, repurchase, or other acquisition of
any Indebtedness subordinate in right of payment to the Notes purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition),
Indebtedness of the Company which is subordinate (whether pursuant to its terms
or by operation of law) in right of payment to the Notes; or (iv) an Investment
(other than Permitted Investments) in any Person; PROVIDED, HOWEVER, that the
term "Restricted Payment" shall not include any of the Permitted Issue Date
Transactions.
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"Restricted Subsidiary" means (i) any Subsidiary of the Company on or
after the Issue Date unless such Subsidiary shall have been designated an
Unrestricted Subsidiary as permitted or required pursuant to the definition of
"Unrestricted Subsidiary" and (ii) an Unrestricted Subsidiary which is
redesignated as a Restricted Subsidiary as permitted pursuant to the definition
of "Unrestricted Subsidiary."
"Sale and Leaseback Transaction" means, with respect to any Person,
any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Subsidiary of such Person (or, in the case of
the Company, its Restricted Subsidiaries) and is thereafter leased back from the
purchaser or transferee thereof by such Person or one of its Subsidiaries (or,
in the case of the Company, its Restricted Subsidiaries).
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" shall have the meaning set forth in Rule
1.02(w) of Regulation S-X under the Securities Act as in effect on the Issue
Date; PROVIDED, HOWEVER, that for purposes of this definition only, (i)
subclause (3) of such Rule 1.02(w) shall be disregarded and (ii) "Significant
Subsidiary" shall include any Subsidiary (and its Subsidiaries) whose EBITDA
comprises more than 10% of the EBITDA of the Company for the most recently
completed fiscal year.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer thereof unless such contingency has
occurred).
"Stock Offering" means the offering of 13,800,000 shares of Class A
common stock of Parent, no par value per share, 7,000,000 shares of which were
sold by the Company pursuant to registration statement No. 333-28001, filed with
the SEC on May 27, 1997, as amended on July 7, 1997, plus any over-allotment
option exercised by the underwriters in connection therewith.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which at least a majority of the total voting power of the Voting Stock is
held by such first-named Person or any of its Subsidiaries and such first-named
Person or any of its Subsidiaries has the power to direct the management,
policies and affairs thereof; or (ii) in the case of a partnership, joint
venture, association, or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or cause
the
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direction of the management and policies of such entity by contract or otherwise
if in accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.
"System" has the meaning set forth in the Fiber Construction Facility
as in effect on the Issue Date.
"Temporary Cash Investments" means any of the following: (i)
Investments in U.S. Government Obligations maturing within 90 days of the date
of acquisition thereof, (ii) Investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 90 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America or any state thereof having capital,
surplus and undivided profits aggregating in excess of $500,000,000 and whose
long-term debt is rated "A-3" or "A-" or higher according to Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) and shall, in any event,
include National Bank of Alaska or First National Bank of Anchorage, (iii)
repurchase obligations with a term of not more than 7 days for underlying
securities of the types described in clause (i) entered into with a bank meeting
the qualifications described in clause (ii) above, and (iv) Investments in
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than the Company or an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard & Poor's Ratings Group (or such similar equivalent rating
by at least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act)).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture; PROVIDED, HOWEVER,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"TIA" means, to the extent required by any such amendment, the Trust Indenture
Act of 1939, as so amended.
"Trade Payables" means, with respect to any Person, any accounts
payable or any indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person arising in the ordinary course of business
of such Person in connection with the acquisition of goods or services.
"Trailing Pro Forma EBITDA" means, with respect to any Person, such
Person's Pro Forma EBITDA for the four most recent full fiscal quarters for
which financial statements are available.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and,
thereafter, means the successor.
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"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (a) GCI Transport, GCI Satellite
Company, GCI Fiber Company, Fiber Hold Company, and AULP and (b) any Subsidiary
of an Unrestricted Subsidiary. The Parent's and the Company's Board of
Directors may designate any Person that becomes a Subsidiary of the Company or
any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) the Subsidiary
to be so designated does not own any Capital Stock or Indebtedness of, or own or
hold any Lien on any Property of, the Company or any other Restricted
Subsidiary, (ii) the Subsidiary to be so designated is not obligated under any
Indebtedness or other obligation that, if in default, would result (with the
passage of time or notice or otherwise) in a default on any Indebtedness of the
Company or any Restricted Subsidiary and (iii) either (A) the Subsidiary to be
so designated has total assets of $1,000 or less or (B) such designation is
effective immediately upon such entity becoming a Subsidiary of the Company or
any Restricted Subsidiary. Unless so designated as an Unrestricted Subsidiary,
any Person that becomes a Subsidiary of the Company or of any Restricted
Subsidiary will be classified as a Restricted Subsidiary; PROVIDED, HOWEVER,
that such Subsidiary shall not be designated a Restricted Subsidiary and shall
be automatically classified as an Unrestricted Subsidiary if the Company would
be unable to Incur at least $1.00 of additional Indebtedness pursuant to clause
(a) of the first paragraph of Section 4.11. Except as provided in the second
sentence of this paragraph, no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary. Parent's and the Company's Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary if,
immediately after giving pro forma effect to such designation, (x) the Company
could Incur at least $1.00 of additional indebtedness pursuant to clause (a) of
the first paragraph of Section 4.11 and (y) no Default or Event of Default shall
have occurred and be continuing or would result therefrom. Any such designation
by Parent's and the Company's Board of Directors will be evidenced to the
Trustee by filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying (i) that such
designation complies with the foregoing provisions and (ii) giving the effective
date of such designation, such filing with the Trustee to occur within 75 days
after the end of the fiscal quarter of the Company in which such designation is
made (or in the case of a designation made during the last fiscal quarter of the
Company's fiscal year, within 120 days after the end of such fiscal year).
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Vendor Financing" means the financing entered into with any vendor or
supplier (or any financial institution acting on behalf of or for the purpose of
directly financing purchases from
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such vendor or supplier) to the extent the Indebtedness thereunder is incurred
for the purpose of financing the cost (including the cost of design,
development, site acquisition, construction, integration, manufacture or
acquisition) or maintenance of personal property (tangible or intangible) used,
or to be used, in a Related Business.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
SECTION 1.02. Other Definitions.
Term Defined in Section
---- ------------------
"Affiliate Transaction". . . . . . . . . . . 4.14
"Agent Members". . . . . . . . . . . . . . . 2.13
"Bankruptcy Law" . . . . . . . . . . . . . . 6.01
"Change of Control Offer". . . . . . . . . . 4.15
"Change of Control Payment Date" . . . . . . 4.15
"Change of Control Purchase Price" . . . . . 4.15
"covenant defeasance option" . . . . . . . . 8.01(b)
"Custodian". . . . . . . . . . . . . . . . . 6.01
"Defaulted Interest" . . . . . . . . . . . . 2.10
"Event of Default" . . . . . . . . . . . . . 6.01
"Global Notes. . . . . . . . . . . . . . . . 2.13
"incorporated provision" . . . . . . . . . . 10.01
"legal defeasance option". . . . . . . . . . 8.01(b)
"Legal Holiday". . . . . . . . . . . . . . . 10.07
"Notes Register" . . . . . . . . . . . . . . 2.11
"Notice of Default". . . . . . . . . . . . . 6.01
"Paying Agent" . . . . . . . . . . . . . . . 2.03
"Registrar". . . . . . . . . . . . . . . . . 2.03
"Surviving Entity" . . . . . . . . . . . . . 5.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
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"obligor" on the indenture securities means the Company and any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular; and
(6) "herein" and "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE 2
The Notes
SECTION 2.01. Form and Dating. The Notes and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A
attached hereto which is hereby incorporated in and expressly made a part of
this Indenture. The Notes may have notations, legends or endorsements required
by law, stock exchange rules, agreements to which the Company is subject, if
any, or usage (provided that any such notation, legend or endorsement is in a
form acceptable to the Company). Each Note shall be dated the date of its
authentication.
SECTION 2.02. Execution and Authentication; Aggregate Principal
Amount. Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be impressed, affixed, imprinted
or reproduced on the Notes and may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee authenticates the Note, the Note shall be valid
nevertheless.
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A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate the Notes for original issue in the
aggregate principal amount not to exceed $150,000,000 upon written orders of the
Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of the Notes to be authenticated and the date on which
the Notes are to be authenticated. The aggregate principal amount of the Notes
outstanding at any time may not exceed $150,000,000, except as provided in
Section 2.06.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
rights as any Registrar, Paying Agent or agent for service of notices and
demands.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
an office or agency (which shall be located in the Borough of Manhattan in the
City of New York, State of New York) where (a) Notes may be presented for
registration of transfer or for exchange (the "Registrar"), (b) Notes may be
presented for payment (the "Paying Agent") and (c) notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent. Neither
the Company nor any Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and
shall be entitled to appropriate compensation therefor pursuant to Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Notes.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
date of the principal and interest on any Note, the Company shall deposit with
the Paying Agent a sum sufficient to pay such principal and interest when so
becoming due. The Company shall require
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each Paying Agent (other than the Trustee) to agree in writing that the Paying
Agent shall hold in trust for the benefit of Noteholders or the Trustee all
money held by the Paying Agent for the payment of principal of and interest on
the Notes and shall notify the Trustee of any default by the Company in making
any such payment. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds disbursed by the
Paying Agent. Upon complying with this Section, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
SECTION 2.05. Noteholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Noteholders. If the Trustee is not the Registrar,
the Company shall furnish to the Trustee, in writing at least five Business Days
before each interest payment date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders.
SECTION 2.06. Replacement Notes. If a mutilated Note is surrendered
to the Registrar or if the Holder of a Note claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note if the requirements of Section 8-405 of the
Uniform Commercial Code are met and the Holder satisfies any other reasonable
requirements of the Trustee or the Company. Such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss which any of them may suffer if a Note is replaced.
The Company and the Trustee may charge the Holder for their expenses in
replacing a Note. Every replacement Note is an additional obligation of the
Company.
SECTION 2.07. Outstanding Notes. Notes outstanding at any time are
all Notes authenticated by the Trustee except for those canceled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. A Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.06, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Notes (or
portions thereof) to be redeemed or maturing, as the case may be, then on and
after that date such Notes (or portions thereof) cease to be outstanding and
interest on them ceases to accrue.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction or consent or any amendment, modification
or other change to this
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Indenture, Notes owned by the Company or by an Affiliate of the Company shall be
disregarded and treated as if they were not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent or any amendment, modification or other change
to the Indenture, only Notes which the Trustee actually knows are so owned shall
be so disregarded. Notes so owned which have been pledged in good faith shall
not be disregarded if the pledgee establishes to the satisfaction of the Trustee
the pledgee's right so to act with respect to the Notes and that the pledgee is
not the Company or an Affiliate of the Company.
SECTION 2.08. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for temporary
Notes. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate definitive Notes and deliver them in exchange for temporary
Notes.
SECTION 2.09. Cancellation. The Company at any time may deliver
Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Notes surrendered to them for registration of
transfer, exchange or payment. The Trustee shall cancel or destroy (subject to
the record retention requirements of the Exchange Act) all Notes surrendered for
registration of transfer, exchange, payment or cancellation and deliver a
certificate of such destruction to the Company unless the Company directs the
Trustee to deliver canceled Notes to the Company. The Trustee shall in no event
be required to destroy Notes. The Company may not issue new Notes to replace
Notes it has redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.10. Defaulted Interest. Any interest on any Note which is
payable, but is not punctually paid or duly provided for, on the dates and in
the manner provided in the Notes and this Indenture (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
record date by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in clause
(i) or (ii) below:
(i) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes are registered at the close of
business on a special record date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Note and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a special record
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date for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such special record date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be given to each Holder,
not less than 10 days prior to such special record date. Notice of the
proposed payment of such Defaulted Interest and the special record date
therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Notes are registered at the close of
business on such special record date.
(ii) The Company may make payment of any Defaulted Interest on the
Notes in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.10, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 2.11. Transfer and Exchange. The Company shall cause to be
kept at the Corporate Trust Office of the Trustee a register (the register
maintained in such office and in any other office or agency designated pursuant
to Section 4.02 being sometimes referred to herein as the "Notes Register") in
which, subject to such reasonable regulations as the Registrar may prescribe,
the Company shall provide for the registration of Notes and of transfers and
exchanges of Notes. The Trustee is hereby initially appointed Registrar for the
purpose of registering Notes and transfers of Notes as herein provided.
When Notes are presented to the Registrar or a co-Registrar with a
request from the Holder of such Notes to register the transfer or exchange for
an equal principal amount of Notes of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested;
provided that every Note presented or surrendered for registration of transfer
or exchange shall be duly endorsed or be accompanied by a written instrument of
transfer or exchange in form satisfactory to the Company and the Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
Whenever any Notes are so presented for exchange, the Company shall execute, and
the Trustee shall authenticate and deliver, the Notes which the Holder making
the exchange is entitled to receive. No service charge shall be made to the
Noteholder for any registration of transfer or exchange. The Company may
require from the Noteholder payment of a sum sufficient to cover any transfer
taxes or other governmental charge that may be imposed in relation to a transfer
or exchange, but this provision shall not apply to any exchange pursuant to
Section 2.09, 4.15 or 4.17 hereof (in which events the Company will
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be responsible for the payment of all such taxes which arise solely as a result
of the transfer or exchange and do not depend on the tax status of the Holder).
The Trustee shall not be required to exchange or register the transfer of any
Note for a period of 15 days immediately preceding the first mailing of notice
of redemption of Notes to be redeemed or of any Note selected, called or being
called for redemption except, in the case of any Note where public notice has
been given that such Note is to be redeemed in part, the portion thereof not to
be redeemed.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
SECTION 2.12. CUSIP Number. The Company in issuing the Notes may use
a "CUSIP" number (if then generally in use), and if so, the Trustee may use the
CUSIP numbers in notices of redemption or exchange as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
as to the correctness or accuracy of the CUSIP number printed in the notice or
on the Notes, and that reliance may be placed only on the other identification
numbers. The Company shall promptly notify the Trustee in writing of any change
in the CUSIP number of the Notes.
SECTION 2.13. Book-Entry Provisions for Global Notes.
(a) The Notes shall be issued initially in the form of one or more
permanent global Notes in the form as set forth in Exhibit A attached hereto
(the "Global Notes") and shall (i) be registered in the name of the Depository
or the nominee of such Depository, (ii) be delivered to the Trustee as custodian
for such Depository and (iii) bear a legend as set forth in Exhibit B attached
hereto.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note, and the Depository may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of the Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Notes.
(b) Transfers of Global Notes shall be limited to transfers in whole,
but not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in the Global Notes may be transferred or
exchanged for physical Notes in accordance with the rules and procedures of the
Depository. In addition, physical Notes shall be transferred to all beneficial
owners in exchange for their beneficial interests in Global Notes if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Note and a
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successor Depository is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository to issue physical
Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount at maturity of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more physical Notes of like tenor and principal amount of
authorized denominations.
(d) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Notes, an equal aggregate principal amount at maturity of physical Notes
of like tenor of authorized denominations.
(e) The Holder of any Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
ARTICLE 3
Redemption of Securities
SECTION 3.01. Right of Redemption. The Notes may be redeemed at the
option of the Company, in whole or in part, on the bases and at the Redemption
Prices specified in the form of Note, together with accrued but unpaid interest
to the Redemption Date.
SECTION 3.02. Applicability of Article. Redemption of Notes at the
election of the Company or otherwise, as permitted or required by any provision
of this Indenture, shall be made in accordance with such provision and this
Article.
SECTION 3.03. Election to Redeem; Notice to Trustee. The election of
the Company to redeem any Notes pursuant to Section 3.01 shall be evidenced by a
Board Resolution and an Officers' Certificate. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice period shall be
satisfactory to the Trustee), notify the Trustee in writing of such Redemption
Date and of the principal amount of Notes to be redeemed.
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SECTION 3.04. Selection by Trustee of Notes to be Redeemed. If less
than all the Notes are to be redeemed, the particular Notes or portions thereof
to be redeemed shall be selected not more than 60 days prior to the Redemption
Date by the Trustee, from the outstanding Notes not previously called for
redemption in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes being redeemed are listed, or,
if the Notes are not listed on a national exchange, by such method as the
Trustee shall deem fair and appropriate; provided that no Notes of a principal
amount of $1,000 or less will be redeemed in part; provided, further, that any
such redemption pursuant to the provisions relating to a Public Equity Offering
shall be made on a pro rata basis or on as nearly a pro rata basis as
practicable (subject to the procedures of the Depository or any other
depository).
The Trustee shall promptly notify the Company and each Note Registrar
in writing of the Notes selected for partial redemption and the principal amount
thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 3.05. Notice of Redemption. Notice of redemption will be
given by first-class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the Redemption Date, to each Holder of Notes to be
redeemed, at the address of such Holder appearing in the Note Register.
All notices of redemption will state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) if less than all outstanding Notes are to be redeemed, the
identification of the particular Notes to be redeemed;
(iv) in the case of a Note to be redeemed in part, the principal
amount of such Note to be redeemed and that after the Redemption Date upon
surrender of such Note, a new Note or Notes in the aggregate principal amount
equal to the unredeemed portion thereof shall be issued;
(v) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(vi) that on the Redemption Date the Redemption Price shall become
due and payable upon each such Note or portion thereof, and that (unless the
Company shall default in payment of the Redemption Price) interest thereon shall
cease to accrue on and after said date;
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(vii) the place or places where such Notes are to be surrendered for
payment of the Redemption Price;
(viii) the CUSIP number, relating to such Notes; and
(ix) the paragraph of the Notes pursuant to which the Notes are
being redeemed.
Notice of redemption of Notes to be redeemed at the election of the
Company will be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company.
The notice if mailed in the manner herein provided will be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Note designated for redemption as a whole or in
part will not affect the validity of the proceedings for the redemption of any
other Note.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company will deposit with the Trustee or with a Paying
Agent an amount of money in same day funds sufficient to pay the Redemption
Price of, and accrued interest on, all the Notes or portions thereof which are
to be redeemed on that date.
SECTION 3.07. Notes Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Notes so to be redeemed will, on the
Redemption Date, become due and payable at the Redemption Price therein
specified and from and after such date (unless the Company shall default in the
payment of the Redemption Price) such Notes will cease to bear interest and such
Notes will cease to be outstanding. Upon surrender of any such Note for
redemption in accordance with said notice, such Note will be paid by the Company
at the Redemption Price; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Notes, registered as such on the relevant regular record dates.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid,
bear interest from the Redemption Date at the rate then borne by such Note.
SECTION 3.08. Notes Redeemed or Purchased in Part. Any Note which is
to be redeemed or purchased only in part shall be surrendered to the Paying
Agent at the office or agency maintained for such purpose pursuant to Section
4.02 (with, if required by the Company, the Note Registrar or the Trustee, due
endorsement by, or a written instrument of transfer in form satisfactory to, the
Company, the Note Registrar or the Trustee duly executed by the Holder thereof
or such Holder's attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver (at the Company's
expense) to the Holder of such Note
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without service charge, a new Note or Notes, of any authorized denomination as
requested by such Holder in aggregate principal amount equal to, and in exchange
for, the unredeemed portion of the principal of the Note so surrendered that is
not redeemed or purchased.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Notes. The Company shall promptly pay the
principal of and interest on the Notes on the dates and in the manner provided
in the Notes and in this Indenture. Principal and interest shall be considered
paid on the date due if on such date the Trustee or the Paying Agent holds in
accordance with this Indenture money sufficient to pay all principal and
interest then due.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Notes, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan in The City of New York, State of New York,
an office or agency where Notes may be presented or surrendered for payment,
where Notes may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The office of the Trustee at its Corporate Trust
Office will be such office or agency of the Company, unless the Company shall
designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such required office or agency. If at any time
the Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York, State of New York)
where the Notes may be presented or surrendered for any or all such purposes,
and may from time to time rescind such designation; provided, however, that no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York, State of New
York for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and any change in the location of
any such other office or agency.
SECTION 4.03. Money for Note Payments to Be Held in Trust. The
Company will, on or before each due date of the principal of or interest on, any
Notes, deposit with a Paying
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Agent a sum in same day funds sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Holders
entitled to such principal or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act. The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent will agree with the Trustee, subject to the provisions of this Section
4.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of or
interest on Notes in trust for the benefit of the Holders entitled thereto
until such sums shall be paid to such Holders or otherwise disposed of as
herein provided;
(b) give the Trustee notice of any Default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal of
or interest on the Notes;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and liabilities
of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture for any other purpose, pay, or by
Company order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent will be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Note and remaining unclaimed for two years after such principal or interest has
become due and payable shall be paid to the Company upon receipt of a Company
request therefor, or (if then held by the Company) will be discharged from such
trust; and the Holder of such Note will thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, will thereupon cease; provided, however, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times and the Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to the Company.
SECTION 4.04. Corporate Existence. Subject to Article Four, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect the corporate
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existence, rights (charter and statutory), licenses and franchises of the
Company and each of the Restricted Subsidiaries; provided, however, that the
Company will not be required to preserve any such right, license or franchise if
the Board of Directors or Directors of Parent and the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and the Restricted Subsidiaries as a whole and that the
loss thereof is not adverse in any material respect to the Holders; provided,
further, that the foregoing will not prohibit a sale, transfer or conveyance of
a Subsidiary of the Company or any of its assets in compliance with the terms of
this Indenture.
SECTION 4.05. Payment of Taxes and Other Claims. The Company will
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges levied
or imposed (i) upon the Company or any of its Subsidiaries or (ii) upon the
income, profits or property of the Company or any of the Restricted Subsidiaries
and (b) all material lawful claims for labor, materials and supplies, which, if
unpaid, could reasonably be expected to become a Lien upon the property of the
Company or any of the Restricted Subsidiaries; provided, however, that the
Company will not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted.
SECTION 4.06. Maintenance of Properties. The Company will cause all
material properties owned by the Company or any of the Restricted Subsidiaries
or used or held for use in the conduct of their respective businesses to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section 4.06 will prevent the Company
from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable ln the conduct of
its business or the business of any of the Restricted Subsidiaries and is not
disadvantageous in any material respect to the Holders.
SECTION 4.07. Insurance. The Company will at all times keep all of
its and the Restricted Subsidiaries' properties which are of an insurable nature
insured, either with insurers believed by the Company in good faith to be
financially sound and responsible or by maintaining reserves in amounts
customarily maintained by corporations similarly situated, against loss or
damage to the extent that property of similar character is usually and
customarily so insured by corporations similarly situated and owning like
properties.
SECTION 4.08. Books and Records. The Company will, and will cause
each of the Restricted Subsidiaries to, keep proper books of record and account,
in which full and correct entries will be made of all financial transactions and
the assets and business of the Company and each Restricted Subsidiary of the
Company in accordance with GAAP, consistently applied.
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SECTION 4.09. Compliance Certificate. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA Section 314(a)(4).
SECTION 4.10. SEC Reports. The Company shall file with the Trustee
and provide Noteholders, within 15 days after it files them with the SEC, copies
of its annual report and the information, documents and other reports which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall continue to file with the SEC and provide the Trustee and
Noteholders with the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act at the
times specified for the filing of such information. The Company also shall
comply with the other provisions of TIA Section 314(a).
SECTION 4.11. Limitation on Indebtedness. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness; PROVIDED, HOWEVER, that (a) if after giving pro forma effect to
the application of the proceeds thereof, no Default or Event of Default would
occur as a consequence of such Incurrence or be continuing following such
Incurrence, the Company may Incur Indebtedness and Restricted Subsidiaries may
borrow or Guarantee borrowings under the Credit Facility and Incur Indebtedness
that is Vendor Financing, in each case, if on the date of the Incurrence of such
Indebtedness, after giving effect to the Incurrence of such Indebtedness and the
receipt and application of the proceeds thereof, the Leverage Ratio of the
Company and the Restricted Subsidiaries (on a consolidated basis) would not
exceed (i) 7.5 from the Issue Date until December 31, 1999 and (ii) 6.0 after
December 31, 1999 and (b) Permitted Indebtedness may be Incurred.
"Permitted Indebtedness" is defined to include any and all of the
following: (i) in addition to any amounts outstanding pursuant to clause (vii)
below, Indebtedness pursuant to the Credit Facility and this clause (i) in an
aggregate amount outstanding at any time not to exceed $75 million; (ii)
Indebtedness of the Company evidenced by the Notes; (iii) Indebtedness of the
Company owing to and held by a Restricted Subsidiary and Indebtedness of a
Restricted Subsidiary owing to and held by the Company or any Restricted
Subsidiary; PROVIDED, HOWEVER, that any event that results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof; PROVIDED, FURTHER, that any Indebtedness of
the Company owing to and held by a Restricted Subsidiary shall be expressly
subordinated to the Notes; (iv) Indebtedness (other than Indebtedness permitted
by the immediately preceding paragraph or elsewhere in this paragraph) in an
aggregate principal amount outstanding at any time not to exceed $15 million;
(v) Indebtedness under Interest Rate Agreements entered into for the purpose of
limiting interest rate
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risks, PROVIDED, that the obligations under such agreements are related to
payment obligations on Indebtedness otherwise permitted by the terms of this
Section 4.11; (vi) Indebtedness in connection with one or more standby letters
of credit or performance bonds issued in the ordinary course of business or
pursuant to self-insurance obligations and not in connection with the borrowing
of money or the obtaining of advances or credit; (vii) Indebtedness outstanding
on the Issue Date (after giving effect to the application of the proceeds of the
sale of the Notes and the Stock Offering); (viii) Permitted Refinancing
Indebtedness Incurred in respect of Indebtedness Incurred pursuant to clause (a)
of the immediately preceding paragraph and clauses (ii) and (vii) above; (ix)
Indebtedness incurred solely as a result of the execution by the Company or its
Restricted Subsidiaries of the Capacity Lease; and (x) Indebtedness incurred
solely as a result of the execution by the Company or its Restricted
Subsidiaries of the Operating Keep-Well Agreement and the Completion Guarantee;
PROVIDED, HOWEVER, that the foregoing exception shall not be applicable to
Indebtedness actually incurred by the Company or any of its Restricted
Subsidiaries in order to fund the obligations of the Company or its Restricted
Subsidiaries to perform under the Operating Keep-Well Agreement or the
Completion Guarantee.
SECTION 4.12. Limitation on Indebtedness of AULP. The Company shall
not permit AULP or any Subsidiary of AULP to, directly or indirectly, incur any
Indebtedness other than (i) Indebtedness under the Fiber Construction Facility
or any Permitted Refinancing Indebtedness incurred in respect of such Fiber
Construction Facility in an aggregate principal amount not to exceed $75
million, less any principal payments made thereunder, (ii) Indebtedness owing to
and held by GCI Transport, the Issuer or any Restricted Subsidiary and
evidencing amounts advanced pursuant to the GCI Transport Keep-Well Agreement or
the Operating Keep-Well Agreement, (iii) additional Indebtedness not to exceed
$5 million in the aggregate at any one time outstanding and (iv) Indebtedness
(other than Indebtedness permitted under the preceding clauses (i) through
(iii)) in an aggregate principal amount outstanding at any time not to exceed
$10 million, but only if and to the extent that (a) all principal, interest and
other obligations of any kind under such Indebtedness permitted under this
clause (iv) are excluded for all purposes in determining amounts that may become
due and owing pursuant to the GCI Transport Keep-Well Agreement or the Operating
Keep-Well Agreement and (b) such Indebtedness permitted under this clause (iv)
is non-recourse to, and the lender thereunder has waived all claims against, the
Company and its Restricted Subsidiaries and their respective Properties and
assets with respect thereto.
SECTION 4.13. Limitation on Restricted Payments. The Company shall
not make, and shall not permit any Restricted Subsidiary to make, directly or
indirectly, any Restricted Payment if at the time of, and after giving effect
to, such proposed Restricted Payment, (a) a Default or an Event of Default shall
have occurred and be continuing, (b) the Company could not Incur at least $1.00
of additional Indebtedness pursuant to clause (a) of the first paragraph of
Section 4.11 or (c) the aggregate amount of such Restricted Payment and all
other Restricted Payments made since the Issue Date (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of (i) the excess of (A)
Cumulative EBITDA over (B) the product of 1.5 and Cumulative Interest Expense,
(ii) Capital Stock Sale Proceeds, (iii) the amount by which Indebtedness of the
Company or any Restricted
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Subsidiary is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the Issue
Date of any Indebtedness of the Company or any Restricted Subsidiary convertible
or exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other Property distributed by the Company or any
Restricted Subsidiary upon conversion or exchange) and (iv) an amount equal to
the net reduction in Investments made by the Company and its Restricted
Subsidiaries subsequent to the Issue Date in any Person resulting from (A)
dividends, repayment of loans or advances, or other transfers or distributions
of Property (but only to the extent the Company excludes such transfers or
distributions from the calculation of Cumulative EBITDA for purposes of clause
(c)(i)(A) above), in each case to the Company or any Restricted Subsidiary from
any Person or (B) the redesignation of any Unrestricted Subsidiary as a
Restricted Subsidiary, not to exceed, in the case of (A) or (B) of this
subclause (iv), the amount of such Investments previously made by the Company
and its Restricted Subsidiaries in such Person or such Unrestricted Subsidiary,
as the case may be, which were treated as Restricted Payments.
Notwithstanding the foregoing limitation, the Company and, in the case
of clauses (e), (f) and (h), its Restricted Subsidiaries may (a) pay dividends
on its Capital Stock within 60 days of the declaration thereof if, on the
declaration date, such dividends could have been paid in compliance with this
Indenture, (b) redeem, repurchase, defease, acquire or retire for value, any
Indebtedness subordinate (whether pursuant to its terms or by operation of law)
in right of payment to the Notes with the proceeds of any Indebtedness that is
Permitted Refinancing Indebtedness in respect of such subordinated Indebtedness,
(c) acquire, redeem or retire Capital Stock of the Company or Indebtedness
subordinate (whether pursuant to its terms or by operation of law) in right of
payment to the Notes in exchange for, or in connection with a substantially
concurrent issuance of, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of the Company
or an employee stock ownership plan or other trust established by the Company or
any Subsidiary of the Company), (d) make Investments in Persons the primary
businesses of which are Related Businesses (other than Investments in the
Capital Stock of the Company) in an amount at any time outstanding not to exceed
in the aggregate for all such Investments made in reliance upon this clause (d),
the sum of (i) $35 million and (ii) an amount equal to the net reduction in
Investments made by the Company and its Restricted Subsidiaries subsequent to
the Issue Date in any Person resulting from payments of dividends, repayment of
loans or advances, or other transfers or distributions of Property (to the
extent not included in EBITDA) to the Company or any Restricted Subsidiary from
any Person (but only to the extent such net reduction in Investments has not
been utilized to permit a Restricted Payment pursuant to clause (c)(i) or
(c)(iv) in the immediately preceding paragraph) not to exceed, in the case of
clause (d)(ii), the amount of such Investments previously made by the Company
and its Restricted Subsidiaries in such Person which were treated as Restricted
Payments, (e) execute the Completion Guarantee and the Operating Keep-Well
Agreement; PROVIDED, HOWEVER, any funding of the Completion Guarantee or the
Operating Keep-Well Agreement may only be made if it complies with the
immediately preceding paragraph or clause (d) in this paragraph and such funding
or purchases shall count as Restricted Payments for purposes of determining such
compliance, (f) execute the Operating and Maintenance Contract and
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make payments pursuant thereto in an annual amount not to exceed the pro rata
share of the annual operating and maintenance costs of the system allocated to
the output capacity of the system leased and/or purchased by the Company and its
Restricted Subsidiaries, (g) purchase or redeem Capital Stock in connection with
the repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees of Parent, the
Company or one of its Subsidiaries; PROVIDED, HOWEVER, that the amount paid in
connection with all such redemptions or repurchases pursuant to this clause (g)
shall not exceed in any fiscal year $2 million in the aggregate, and (h) assign
or otherwise transfer to GCI Transport, or any of its Subsidiaries the credit in
favor of the Company and all other related rights arising from the Company's
$9.1 million deposit made in connection with the Galaxy X Agreement.
Any payments made pursuant to clauses (b), (c), (f) and (h) of the
immediately preceding paragraph shall be excluded from the calculation of the
aggregate amount of Restricted Payments made after the Issue Date; PROVIDED,
HOWEVER, that the proceeds from the issuance of Capital Stock pursuant to clause
(c) of the immediately preceding paragraph shall not constitute Capital Stock
Sale Proceeds for purposes of clause (c)(ii) of the first paragraph of this
Section 4.13. The Company may, at the time of any Restricted Payment,
designate, by delivery to the Trustee of an Officers' Certificate referencing
this covenant and such designation, whether such Restricted Payment is being
made in accordance with the second preceding paragraph or, if applicable, the
clause of the preceding paragraph pursuant to which such Restricted Payment is
being made.
SECTION 4.14. Limitation on Transactions with Affiliates. The
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, conduct any business or enter into or suffer to exist any
transaction or series of transactions (including the purchase, sale, transfer,
lease or exchange of any Property or the rendering of any service) with, or for
the benefit of, any Affiliate of the Company (an "Affiliate Transaction") unless
(a) the terms of such Affiliate Transaction are (i) set forth in writing, (ii)
in the best interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company or such Restricted Subsidiary, (b) with respect to an Affiliate
Transaction involving aggregate payments or value in excess of $15 million, the
Board of Directors of Parent and the Company (including a majority of the
disinterested members of the Board of Directors of Parent and the Company)
approves such Affiliate Transaction and, in its good faith judgment, believes
that such Affiliate Transaction complies with clauses (a)(ii) and (iii) of this
paragraph as evidenced by a Board Resolution and (c) with respect to an
Affiliate Transaction involving aggregate payments or value in excess of $25
million, the Company obtains a written opinion from an independent appraisal
firm to the effect that such Affiliate Transaction is fair, from a financial
point of view to the Company or such Restricted Subsidiary, as applicable.
Notwithstanding the foregoing limitation, the Company may enter into
or suffer to exist the following: (i) any transaction pursuant to any contract
in existence on the Issue Date on the terms of such contract as in effect on the
Issue Date; (ii) any transaction or series of transactions
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between the Company and one or more of its Restricted Subsidiaries or between
two or more of its Restricted Subsidiaries; (iii) any Restricted Payment
permitted to be made pursuant to Section 4.13; (iv) the payment of compensation
(including, amounts paid pursuant to employee benefit plans) for the personal
services of officers, directors and employees of Parent, the Company or any of
its Restricted Subsidiaries, so long as the Board of Directors of Parent and the
Company in good faith shall have approved the terms thereof and deemed the
services theretofore or thereafter to be performed for such compensation or fees
to be fair consideration therefor; (v) loans and advances to employees of
Parent, the Company or a Restricted Subsidiary made in the ordinary course of
business and consistent with past practice of Parent, the Company or such
Restricted Subsidiary, as the case may be, provided, that such loans and
advances do not exceed in the aggregate $5 million at any one time outstanding;
(vi) any transaction pursuant to any Fiber Construction Facility Agreement;
(vii) any transaction pursuant to the Galaxy X Agreement; and (viii) the
Permitted Issue Date Transactions and (ix) any transaction pursuant to any Fiber
Construction Agreement.
SECTION 4.15. Change of Control Offer. (a) Upon the occurrence of a
Change of Control, the Company shall notify the Trustee in writing of such
occurrence and shall make an offer to purchase (the "Change of Control Offer")
the Notes at a purchase price equal to 101% of the principal amount thereof,
plus any accrued and unpaid interest thereon to the Change of Control Payment
Date (as hereinafter defined) (the "Change of Control Purchase Price") in
accordance with the procedures set forth in this Section 4.15.
(b) Within 30 days of the occurrence of a Change of Control, with
respect to the Notes, the Company also shall (i) cause a notice of the Change of
Control Offer to be sent at least once to the Dow Jones News Service or similar
business news service in the United States and (ii) mail a notice by first class
mail, postage prepaid, to the Trustee and to each Holder of the Notes, at his
address appearing in the register of the Notes maintained by the Registrar,
stating:
(1) that a Change in Control has occurred and a Change of Control
Offer is being made pursuant to this Section 4.15 and that all such Notes
timely tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date, which
shall be a Business Day, no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date");
(3) that any Notes (or portions thereof) accepted for payment (and
duly paid on the Change of Control Payment Date) pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(4) that any Notes (or portions thereof) not tendered will continue
to accrue interest;
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(5) that Holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender such
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that Holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of such Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Notes purchased;
(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in a principal amount in denominations of $1,000 and
integral multiples thereof; and
(8) any other procedures that a Holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance.
(c) On the Change of Control Payment Date, the Company shall (a)
accept for payment the Notes or portions thereof tendered pursuant to the Change
of Control Offer, (b) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so tendered and (c) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate indicating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Trustee shall promptly authenticate and mail to such holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered;
provided that each such new Note shall be issued in an original principal amount
in denominations of $1,000 and integral multiples thereof.
(d) The Company shall comply, to the extent applicable, with the
requirements of Rule 14(e)-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the purchase of Notes in connection with a Change
of Control Offer made pursuant to this Section 4.15. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the covenant described hereunder, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.15 by virtue thereof.
SECTION 4.16. Limitation on Liens. The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer
to exist, any Lien (other than Permitted Liens) upon any of its Property,
whether now owned or hereafter acquired, or any interest therein, or any income
or profits therefrom, unless (a) with respect to any Restricted Subsidiary, such
Lien secures Indebtedness other than Guarantees of Indebtedness of the Company
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or (b) effective provision has been or will be made whereby the Notes will be
secured by such Lien equally and ratably with all other Indebtedness of the
Company or any Restricted Subsidiary secured by such Lien; PROVIDED, HOWEVER,
that no Lien may be granted with respect to Indebtedness of the Company that is
subordinated to the Notes.
SECTION 4.17. Limitation on Asset Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Sale after the Issue
Date unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale and (ii) (A) at least
80% of the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash or cash equivalents or
(B) the consideration paid to the Company or such Restricted Subsidiary is
determined in good faith by the Board of Directors of Parent and the Company, as
evidenced by a Board Resolution, to be substantially comparable in type to the
assets being sold; PROVIDED, HOWEVER, this clause (ii) shall not apply to (1)
any sales of property or equipment that have become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of the
Company or any Restricted Subsidiary, as the case may be and (2) any sales of
Capital Stock of AULP on terms that are otherwise deemed fair to the Company and
its Subsidiaries in the reasonable business judgment of the Board of Directors
of Parent and the Company, as evidenced by a Board Resolution.
The Net Available Cash (or any portion thereof) from Asset Sales may
be applied by the Company or a Restricted Subsidiary, (A) to prepay, repay or
purchase Indebtedness under the Credit Facility or Indebtedness of a Restricted
Subsidiary (excluding Indebtedness owed to the Company or an Affiliate of the
Company); or (B) to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary).
Any Net Available Cash from an Asset Sale not applied in accordance
with the preceding paragraph within one year from the date of such Asset Sale or
the receipt of such Net Available Cash shall constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10 million (taking into account
income earned on such Excess Proceeds), the Company will be required to make an
offer to purchase (the "Prepayment Offer") the Notes, and any other
Indebtedness, if any, that ranks PARI PASSU with the Notes and contains similar
provisions requiring an Asset Sale prepayment offer, on a pro rata basis, at a
purchase price equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon (if any) to the date of purchase in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
paragraph (b) below (or, in the event of Indebtedness that is discounted, at a
price of the then accreted value thereof); PROVIDED, HOWEVER, if any other such
Indebtedness that ranks PARI PASSU with the Notes does not contain similar Asset
Sale prepayment offer provisions with regard to the pro rata repayment of such
other Indebtedness and the Notes, the Company will be required to purchase the
Notes before purchasing any other such Indebtedness from such Excess Proceeds.
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If the aggregate principal amount of Notes surrendered for purchase by holders
thereof exceeds the amount of Excess Proceeds allocated to the Notes, then the
Trustee shall select the Notes to be purchased pro rata according to principal
amount or by lot with such adjustments as may be deemed appropriate by the
Company so that only Notes in denominations of $1,000, or integral multiples
thereof, shall be purchased. To the extent that any portion of the amount of
Net Available Cash remains after compliance with the preceding sentence and,
PROVIDED that all holders of Notes have been given the opportunity to tender
their Notes for purchase as described in the following paragraph in accordance
with this Indenture, the Company or such Restricted Subsidiary may use such
remaining amount for general corporate purposes and the amount of Excess
Proceeds will be reset to zero.
(b) Within five Business Days after one year from the date of an
Asset Sale or the receipt of Net Available Cash therefrom, the Company shall, if
it is obligated to make a Prepayment Offer, send a written notice, by first-
class mail, to the holders of the Notes (the "Prepayment Offer Notice"),
accompanied by such information regarding the Company and its Subsidiaries as
the Company in good faith believes will enable such holders of the Notes to make
an informed decision with respect to the Prepayment Offer. The Prepayment Offer
Notice shall state, among other things, (1) that the Company is offering to
purchase Notes pursuant to Section 4.17, (2) that any Note (or any portion
thereof) accepted for payment (and duly paid on the Purchase Date (defined
below)) pursuant to the Prepayment Offer shall cease to accrue interest after
the Purchase Date, (3) the purchase price and purchase date, which shall be,
subject to any contrary requirements of applicable law, no less than 30 days nor
more than 60 days from the date the Prepayment Offer Notice is mailed (the
"Purchase Date"), (4) the aggregate principal amount of Notes (or portions
thereof) to be purchased, (5) that Holders electing to have a Note purchased
pursuant to a Prepayment Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day prior to the Purchase Date, (6)
that Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than five Business Days prior to the Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes the Holder delivered for purchase and
a statement that such Holder is withdrawing his or her election to have such
Note purchased, and (7) that Holders whose Notes are purchased only in part will
be issued new Notes in a principal amount equal to the unpurchased portion of
the Notes surrendered; PROVIDED that each Note purchased and each new Note
issued shall be in an original principal amount of $1,000 or integral multiples
thereof.
On or before the Prepayment Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof tendered pursuant to the Prepayment
Offer, (ii) deposit with the Paying Agent sufficient money to pay the purchase
price plus accrued interest, if any, of all Notes to be purchased and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
stating the Notes or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to the Holders of Notes so accepted payment in
an amount equal to the purchase price plus accrued interest, if any. For
purposes of this Section 4.17, the Trustee shall act as the
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Paying Agent. Any amounts remaining after the purchase of Notes pursuant to a
Prepayment Offer shall be returned by the Trustee to the Company.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws or regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions relating to the
Prepayment Offer, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
SECTION 4.18. Limitation on Restrictions on Distributions From
Restricted Subsidiaries. The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective, or enter into any agreement with any Person
that would cause to become effective, any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, or pay any Indebtedness or other obligation owed, to the Company or any
other Restricted Subsidiary, (b) make any loans or advances to the Company or
any other Restricted Subsidiary or (c) transfer any of its Property to the
Company or any other Restricted Subsidiary. Such limitation will not apply (1)
with respect to clauses (a), (b) and (c), to encumbrances and restrictions (i)
in existence under or by reason of any agreements (not otherwise described in
clause (iii)) in effect on the Issue Date, (ii) relating to Indebtedness of a
Restricted Subsidiary and existing at such Restricted Subsidiary at the time it
became a Restricted Subsidiary if such encumbrance or restriction was not
created in connection with or in anticipation of the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company, (iii) any encumbrance or
restriction pursuant to (x) the Credit Facility as in effect on the Issue Date
and (y) any agreement which amends, extends, renews, refinances, replaces or
refunds the Credit Facility, PROVIDED, HOWEVER, that in the case of this
subclause (y), such restrictions or encumbrances are no less favorable to the
holders of the Notes than those restrictions or encumbrances pursuant to the
Credit Facility as in effect on the Issue Date; PROVIDED, FURTHER, HOWEVER, that
in the case of subclauses (x) and (y), the provisions of the Credit Facility (A)
permit (whether explicitly or as a result of the relative maturities of the
Credit Facility and the Notes) distributions to the Company for the purpose of,
and in an amount sufficient to fund, the payment of principal due at Stated
Maturity and interest in respect of the Notes (PROVIDED, in either case, that
such payment is due or to become due within 30 days from the date of such
distribution) at a time when there does not exist an event which after notice or
passage of time or both would permit the lenders under the Credit Facility to
declare all amounts thereunder due and payable, and (B) provide that in no event
shall any encumbrance or restriction pursuant to the Credit Facility prohibit
distributions for Indebtedness on the Notes for more than 180 days in any
consecutive 360 day period, unless (1) there exists a default under the Credit
Facility resulting from any payment default under the Credit Facility when due
or (2) the maturity of the Credit Facility has been accelerated, or (iv) which
result from the extension renewal, refinancing, replacement, refunding or
amendment of an agreement referred to in the immediately
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preceding clauses (1)(i) and (ii) above and in clauses (2)(i) and (ii) below,
PROVIDED, such encumbrance or restriction is no more restrictive to such
Restricted Subsidiary and is not materially less favorable to the holders of
Notes than those under or pursuant to the agreement evidencing the Indebtedness
so extended, renewed, refinanced, replaced, refunded or amended, and (2) with
respect to clause (c) only, to (i) any encumbrance or restriction relating to
Indebtedness that is permitted to be Incurred and secured pursuant to Sections
4.11 and 4.16 that limits the right of the debtor to dispose of the assets or
Property securing such Indebtedness, (ii) any encumbrance or restriction in
connection with an acquisition of Property, so long as such encumbrance or
restriction relates solely to the Property so acquired and was not created in
connection with or in anticipation of such acquisition, (iii) customary
provisions restricting subletting or assignment of leases of the Company or any
Restricted Subsidiary and customary provisions in other agreements that restrict
assignment of such agreements or rights thereunder or (iv) customary
restrictions contained in asset sale agreements limiting the transfer of such
assets pending the closing of such sale.
SECTION 4.19. Ownership of Significant Subsidiaries. The Company
will at all times maintain, either directly or indirectly, 100% ownership of the
Capital Stock of any Person that is or becomes a Significant Subsidiary of the
Company; PROVIDED, HOWEVER, that (i) the Company may, directly or indirectly,
acquire after the Issue Date and thereafter maintain ownership comprising less
than 100% of the Capital Stock of such Person provided such acquisition is
otherwise effected in accordance with the terms of this Indenture and (ii) the
Company may transfer, convey, sell or otherwise dispose of all or substantially
all of the assets of a Significant Subsidiary as permitted pursuant to Section
4.17.
SECTION 4.20. Fiber Construction Agreements. The Company shall not,
and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, Guarantee any Indebtedness of any Unrestricted Subsidiary or enter
into any keep-well, support or other similar agreement with respect to any
Unrestricted Subsidiary other than pursuant to the Fiber Construction
Agreements.
The Company and the Restricted Subsidiaries may, but shall not,
directly or indirectly, be required to purchase, lease or otherwise acquire
output capacity of the System other than pursuant to the Capacity Lease.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, advance Funds pursuant to the
Completion Guarantee and the Operating Keep-Well Agreement unless (i) such
advance is permitted by Section 4.13 and (ii) in no event shall the aggregate
amount of such advances exceed $100 million.
The Fiber Construction Facility will provide that the obligation of
the Company and its Restricted Subsidiaries to advance funds pursuant to the
Completion Guarantee and the Operating Keep-Well Agreement will be limited to
the amount that is permitted to be distributed pursuant to Section 4.13.
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The Operating Keep Well Agreement will provide that no payments of the
type referred to in clause (i) of the definition of "Operating Keep-Well
Agreement" will be required to be made unless GCI Transport has failed to pay
such amount within 5 days after demand for such payment pursuant to the GCI
Transport Keep-Well Agreement and no payments of the types referred to in clause
(ii) of the definition of "Operating Keep-Well Agreement" will be required
unless the Fiber Construction Facility Banks have taken commercially reasonable
efforts to exhaust their remedies against all assets of AULP, the Capital Stock
of AULP, and demand for payment against GCI Transport under the GCI Transport
Keep-Well Agreement and a filing of a claim for payment against GCI Transport
under the GCI Transport Keep-Well Agreement.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, amend, supplement or otherwise modify any term or
condition of any Fiber Construction Agreement in any manner that, directly or
indirectly, materially increases or adversely affects in a material manner any
obligation or contingent obligation of the Company or any of its Restricted
Subsidiaries under the Completion Guarantee, the Operating Keep-Well Agreement,
the Operating and Maintenance Contract, the Capacity Lease or any other
agreement or arrangement executed or delivered in connection with the Fiber
Construction Agreements or the transactions contemplated thereby.
SECTION 4.21. Operation of Unrestricted Subsidiaries. The Company
shall cause each of its Unrestricted Subsidiaries (i) to maintain continuously
articles or a certificate of incorporation or, in the case of a partnership, a
partnership agreement, providing that (a) such Unrestricted Subsidiary's purpose
is limited and, in the case of AULP, that such purpose is limited to conducting
the business contemplated by the Fiber Construction Agreements, (b) such
Unrestricted Subsidiary is prohibited from engaging in any dissolution,
liquidation, merger, consolidation or sale, transfer, assignment, lease,
conveyance or other disposal of all or substantially all of its Property in any
one transaction or series of transactions as long as any Indebtedness under the
Fiber Construction Facility remains outstanding, other than (1) any such
transaction with or into the Company or any of its Restricted Subsidiaries
otherwise effected and in accordance with the terms of this Indenture, (2) any
such transaction with or into another Unrestricted Subsidiary and (3) any such
transaction which, assuming for purposes of this clause (3) only that such
Unrestricted Subsidiary were a Restricted Subsidiary, would comply with Section
4.17; PROVIDED, HOWEVER, that any Net Available Cash derived therefrom may also
be used to prepay, repay or purchase Indebtedness under the Fiber Construction
Facility and (c) the Board of Directors of such Unrestricted Subsidiary or, in
the case of a partnership, of the corporate general partner of such partnership,
shall consist of not less than one independent director; (ii) to maintain
separate books and records including, without limitation, separate financial
statements; (iii) not to commingle any of its properties or assets with the
properties or assets of the Company or any Restricted Subsidiary; (iv) to pay
its liabilities, the salaries of its employees and all consultant and advisor
fees and expenses directly out of funds that do not comprise in whole or in part
the funds of the Company or any of its Restricted Subsidiaries and (v) otherwise
to hold itself out as a separate entity.
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ARTICLE 5
Successor Company
SECTION 5.01. Merger, Consolidation and Sale of Assets. The Company
shall not merge or consolidate with or into any other entity (other than a
merger of a wholly owned Restricted Subsidiary into the Company) or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all
of its Property in any one transaction or series of transactions unless: (a)
the entity formed by or surviving any such consolidation or merger (if the
Company is not the surviving entity) or the Person to which such sale, transfer,
assignment, lease, conveyance or other disposition is made (the "Surviving
Entity") shall be a corporation organized and existing under the laws of the
United States of America or a State thereof or the District of Columbia and such
corporation expressly assumes, by supplemental indenture in form satisfactory to
the Trustee, executed and delivered to the Trustee by such corporation, the due
and punctual payment of the principal of and interest on all the Notes,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of this Indenture to be performed by the
Company; (b) immediately before and after giving effect to such transaction or
series of transactions, no Default or Event of Default shall have occurred and
be continuing; (c) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), the Company or the Surviving Entity, as
the case may be, would be able to Incur at least $1.00 of additional
Indebtedness under clause (a) of the first paragraph of Section 4.11, and (d) in
the case of a sale, transfer, assignment, lease, conveyance or other disposition
of all or substantially all of the Company's Property, such Property shall have
been transferred as an entirety or virtually as an entirety to one Person.
In connection with any consolidation, merger or transfer contemplated
by this Section 5.01, the Company shall deliver, or cause to be delivered, to
the Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer, assignment, lease, conveyance or other
disposition and the supplemental indenture in respect thereof comply with this
Section 5.01, and that all conditions precedent herein provided for relating to
such transaction or transactions have been complied with.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Company fails to make any payment of interest on any Note
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such failure continues for a period of 30
days;
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(2) the Company (i) fails to make any payment of the principal of any
of the Notes, when the same becomes due and payable, upon acceleration,
redemption, optional redemption, required purchase or otherwise, or (ii)
fails to purchase Notes when required pursuant to this Indenture or the
Notes;
(3) the Company defaults in the observance or performance of any
other covenant or agreement contained in this Indenture and such default
continues for 30 days after written notice from the Trustee or the
registered holders of not less than 25% in aggregate principal amount of
the Notes then outstanding (except in the case of a default with respect to
Section 5.01, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(4) the Company or any Restricted Subsidiary defaults under any
Indebtedness for borrowed money which results in acceleration of the
maturity of such Indebtedness, or failure to pay any such Indebtedness when
due within any applicable grace period, in a total amount greater than
$15,000,000;
(5) the Company or any Restricted Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(6) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Restricted
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Restricted Subsidiary;
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or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days; or
(7) any judgment or judgments for the payment of money in an
uninsured aggregate amount in excess of $15,000,000 is rendered against the
Company or any Restricted Subsidiary and is not waived, satisfied or
discharged and for any period of 30 consecutive days following the entry of
such judgment during which a stay of enforcement shall not be in effect.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (3) (4) or (7) is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the Notes
notify the Company of the Default and the Company does not cure such Default
within the time specified after receipt of such notice. Such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default under clause (3), (4) or (7), its status and what action the
Company is taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default with respect to
the Notes (other than an Event of Default specified in Section 6.01(5) or (6))
occurs and is continuing, the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may declare to be
immediately due and payable the principal amount of all the Notes then
outstanding, plus accrued but unpaid interest to the date of acceleration;
PROVIDED, HOWEVER, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the Trustee, the Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may rescind and annul such acceleration if all Events of Default, other
than the nonpayment of accelerated principal or interest, have been cured or
waived as provided in this Indenture. No rescission shall affect any subsequent
Default or impair any right consequent thereto. In case an Event of Default
specified in Section 6.01(5) or (6) shall occur, such amount with respect to all
of the Notes shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of the Trustee or the holders of the
Notes.
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SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Existing Defaults. The registered holders of
a majority in principal amount of the Notes then outstanding by notice to the
Trustee may waive an existing Default and its consequences or compliance with
any provision of this Indenture, except (i) a Default in the payment of the
principal of or interest on a Note or (ii) a Default in respect of a provision
that under Section 9.02 cannot be amended without the consent of each Noteholder
affected. When a Default is waived, it is deemed cured, but such waiver shall
not extend to any subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of the Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Noteholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. No Holder will have any right to
institute any proceeding with respect to this Indenture or for any remedy
hereunder, unless:
(1) such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a
trustee;
(3) the Trustee shall not have received from the registered holders
of a majority in aggregate principal amount of the Notes then outstanding a
direction inconsistent with such request; and
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(4) the Trustee shall have failed to institute such proceeding within
60 days;
PROVIDED, HOWEVER, such limitations do not apply to a suit instituted by a
Holder for enforcement of payment of the principal of or interest on such Note
on or after the respective due dates expressed in such Note.
SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Notes held by such Holder, on or
after the respective due dates expressed in the Notes, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of interest or principal specified in Section 7.01(1) or (2) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid (together with interest on such unpaid interest to the
extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Holders allowed in
any judicial proceedings relative to the Company, its creditors or its property
and, unless prohibited by law or applicable regulations, may vote on behalf of
the Holders in any election of a trustee in bankruptcy or other Person
performing similar functions, and any Custodian in any such judicial proceeding
is hereby authorized by each Holder to make payments to the Trustee and, in the
event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section. At least 15 days before such record date,
the Company shall mail to each
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Noteholder and the Trustee a notice that states the record date, the payment
date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in principal amount of the Notes.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully refrain from doing so) shall not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and shall not hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise or use under the circumstances in
the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default: (1) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and (2) in the absence of
bad faith on its part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, in the case of any such certificates
or opinions which are required by this Indenture to be delivered to the Trustee,
the Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct
except that: (1) this paragraph does not limit
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the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable
for any error of judgment made in good faith by a Trust Officer unless it is
proved that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes or omits
to take in good faith in accordance with a direction received by it pursuant to
Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on an
Officers' Certificate or an Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect of any action taken, omitted or
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suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or
co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Noteholder notice of the Default within 90 days after it occurs. Except in the
case of a Default in payment of principal of or interest on any Note (including
payments pursuant to the mandatory redemption provisions of such Note, if any),
the Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Noteholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each August 15 beginning with the August 15 following the date
of this Indenture, and in any event prior to October 15 in each year, the
Trustee shall mail to each Noteholder a brief report dated as of August 15 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed with the SEC and each stock exchange (if any) on which the Notes are
listed. The Company agrees to notify promptly the Trustee whenever the Notes
become listed on any stock exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time such compensation as the Company and the Trustee
shall agree in writing for its services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Company shall indemnify
each of the Trustee and any predecessor Trustee against any and all loss,
liability, damage, claim or expense (including reasonable attorneys' fees and
expenses)
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incurred by it in connection with the acceptance of the administration of this
trust and the performance of its duties hereunder. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee may
have separate counsel and the Company shall pay the fees and expenses of such
counsel. The Trustee shall not settle any such claim without the written
consent (which shall not be unreasonably withheld) of the Company, provided that
the giving of such consent does not conflict with the provisions of this
Indenture or the TIA. The Company need not reimburse any expense or indemnify
against any loss, liability or expense incurred by the Trustee through the
Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of and interest on Notes under Article 8 or otherwise.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(5) or (6) with respect to
the Company, the expenses are intended to constitute expenses of administration
under Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Notes may remove the Trustee by so notifying the Trustee and may appoint
a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Notes and such Holders do not reasonably
promptly appoint a successor Trustee, or if a vacancy exists in the office of
Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the
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Trustee under this Indenture. The successor Trustee shall mail a notice of its
succession to Noteholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
25% in principal amount of the Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association without any further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee, and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. No obligor upon the Notes or
Person directly controlling, controlled by, or under common control with such
obligor shall serve as Trustee upon the Notes. The Trustee shall comply with
TIA Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311 (a), excluding any creditor
relationship listed in TIA Section 311 (b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311 (a) to the extent indicated.
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ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Notes; Defeasance. (a) When
(i) the Company delivers to the Trustee all outstanding Notes (other than Notes
replaced pursuant to Section 2.06) for cancellation or (ii) all outstanding
Notes have become due and payable and the Company irrevocably deposits with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Notes, including interest thereon (other than Notes replaced pursuant to Section
2.06), and if in either case the Company pays all other sums payable hereunder
by the Company, then this Indenture shall, subject to Sections 8.01(c) and 8.06,
cease to be of further effect. The Trustee shall acknowledge satisfaction and
discharge of this Indenture on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Company.
(b) Subject to Sections 8.01 (c), 8.02 and 8.06, the Company at any
time may terminate (i) all its obligations under the Notes and this Indenture
("legal defeasance option") or (ii) its obligations under any covenant under
Article 4 (other than Section 4.01) and 5.01(c) and the related operation of
Section 6.01(3) and the operation of Sections 6.01(4) and 6.01(5) (with respect
to Restricted Subsidiaries) ("covenant defeasance option"). The Company may
exercise its legal defeasance option notwithstanding its prior exercise of its
covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Notes may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in Sections 6.01 (3), 6.01
(4), 6.01 (5) (with respect to Restricted Subsidiaries), 6.01 (6) (with respect
to Restricted Subsidiaries) and 6.01 (7) (except to the extent covenants or
agreements referenced in such Sections remain applicable).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 7.07, 7.08, 8.04, 8.05 and 8.06
shall survive until the Notes have been paid in full. Thereafter, the Company's
obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
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(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal and interest on
the Notes to maturity or an earlier redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Notes to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(5) or (6) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from the Internal Revenue Service a ruling, or (ii)
since the date of this Indenture there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Noteholders will
not recognize income, gain or loss for Federal income tax purposes as a
result of such deposit and defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Noteholders will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes as contemplated by this Article 8
have been complied with.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the
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deposited money and the money from U.S. Government Obligations through the
Paying Agent and in accordance with this Indenture to the payment of principal
of and interest on the Notes.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Noteholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to this Article 8 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with this Article 8.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Company and the
Trustee may amend this Indenture or the Notes without notice to or consent of
any Noteholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes; provided, however, that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code or in
a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code;
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(4) to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture;
(5) to add guarantees with respect to the Notes or to secure the
Notes;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA; or
(8) to make any change that does not adversely affect the rights of
any Noteholder.
After an amendment under this Indenture becomes effective, the Company
is required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
SECTION 9.02. With Consent of Holders. The Company and the Trustee
may amend this Indenture or the Notes without notice to any Noteholder but with
the written consent of the Holders of at least a majority in principal amount of
the Notes. However, without the consent of each Noteholder affected, an
amendment may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
(3) reduce the principal of or extend the Stated Maturity of any
Note;
(4) make any Note payable in money other than that stated in the
Note;
(5) impair the right of any Noteholder to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes;
(6) make any change in Article 10 that adversely affects the rights
of any Noteholder under Article 10; or
(7) make any change in Section 6.04 or 6.07 or the second sentence of
this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
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An amendment under this Section that makes any change that adversely
affects the rights under Article 10 of any holder of senior Indebtedness then
outstanding shall not be effective as to such holder unless such holder (or any
group or representative thereof authorized to give a consent on such holder's
behalf) consents to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Noteholders a notice briefly describing such amendment. The
failure to give such notice to all Noteholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
to this Indenture or the Notes shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Note shall bind the Holder
and every subsequent Holder of that Note or portion of the Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
or waiver is not made on the Note. However, any such Holder or subsequent
Holder may revoke the consent or waiver as to such Holder's Note or portion of
the Note if the Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. After an amendment or waiver becomes
effective, it shall bind every Noteholder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Noteholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Noteholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Notes. If an amendment
changes the terms of a Note, the Trustee may require the Holder of the Note to
deliver it to the Trustee. The Trustee may place an appropriate notation on the
Note regarding the changed terms and return it to the Holder. Alternatively, if
the Company or the Trustee so determines, the Company in exchange for the Note
shall issue and the Trustee shall authenticate a new Note that reflects the
changed terms. Failure to make the appropriate notation or to issue a new Note
shall not affect the validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory
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to it and to receive, and (subject to Section 7.01) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such (i) amendment is authorized or permitted by this Indenture and that all
conditions precedent to the execution, delivery and performance of such
amendment have been satisfied; (ii) the Company has all necessary corporate
power and authority to execute and deliver the amendment and that the execution
delivery and performance of such amendment has been duly authorized by all
necessary corporate action; (iii) the execution, delivery and performance of the
amendment do not conflict with, or result in the breach of or constitute a
default under any of the terms, conditions or provisions of (a) the Indenture,
(b) the Certificate of Incorporation or By-Laws of the Company, (c) any law or
regulation applicable to the Company, (d) any material order, writ, injunction
or decree of any court or governmental instrumentality applicable to the Company
or (e) any material agreement or instrument to which the Company is subject;
(iv) such amendment has been duly and validly executed and delivered by the
Company, and the Indenture together with such amendment constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles; and (v) the
Indenture together with such amendment complies with the TIA.
SECTION 9.07. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Notes unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Miscellaneous
SECTION 10.01. Trust Indenture Act Controls. If and to the extent
that any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by, or with another provision (an "incorporated provision")
included in this Indenture by operation of, Sections 310 to 318, inclusive, of
the TIA, such imposed duties or incorporated provision shall control.
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SECTION 10.02. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company:
General Communication, Inc.
2550 Denali St.
Suite 1000
Anchorage, Alaska 99503
Phone: (907) 265-5600
Fax: (907) 265-5676
Attention: Chief Financial Officer
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 W
New York, N .Y. 10286
Phone: (212) 815-5741
Fax: (212) 815-5915
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
the Noteholder at the Noteholder's address as it appears in the Note Register
and shall be sufficiently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 10.03. Communication by Holders with Other Holders.
Noteholders may communicate pursuant to TIA Section 312(b) with other
Noteholders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
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SECTION 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 10.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 10.06. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Noteholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 10.07. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in the
State of New York. If a payment date is a Legal Holiday, payment shall be made
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period. If a regular record date is a Legal Holiday,
the record date shall not be affected.
SECTION 10.08. GOVERNING LAW. THIS INDENTURE AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
BUT WITHOUT GIVING EFFECT TO APPLICABLE
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PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 10.09. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Notes or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Note, each Noteholder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Notes.
SECTION 10.10. Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 10.11. Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 10.12. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
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SECTION 10.13. Severability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
GCI, INC.
By:
----------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By:
----------------------------------------
Name:
Title:
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EXHIBIT A
CUSIP No.
No.
GCI, INC.
% SENIOR NOTES DUE 2007
GCI, INC., an Alaska corporation, promises to pay to , or
registered assigns, the principal sum of dollars on , 2007.
Interest Payment Dates: and , commencing , 1997.
Record Dates: and .
Additional provisions of this Note are set forth on the other side of
this Note.
GCI, INC.
By:
-----------------------------------
Executive Vice President
--------------------------------------
Vice President
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION Dated: July __, 1997.
THE BANK OF NEW YORK, as
Trustee, certifies that
this is one of the Notes
referred to in the within-
mentioned Indenture.
By:
--------------------------------
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Authorized Signatory
65
<PAGE>
% SENIOR NOTES DUE 2007
1. Interest
GCI, Inc., an Alaska corporation (such corporation, and its successors
and assigns under the Indenture hereinafter referred to, being herein called the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. The Company will pay interest semiannually on
and of each year. Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from the Issue Date. Interest will be computed on the basis of a 360 day
year of twelve 30-day months. The Company shall pay interest on overdue
principal at the rate borne by the Notes plus 2% per annum, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
The Company will pay interest on the Notes (except defaulted interest)
to the Persons who are registered holders of Notes at the close of business on
the Record Date immediately preceding the interest payment date even if Notes
are canceled after the record date and on or before the interest payment date.
Holders must surrender Notes to a Paying Agent to collect principal payments.
The Company will pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts.
Payments in respect of the Notes represented by a Global Note (including
principal, premium and interest) will be made by wire transfer of immediately
available funds to the accounts specified by The Depository Trust Company. The
Company will make all payments in respect of a certificated Note (including
principal, premium and interest), by mailing a check to the registered address
of each Holder thereof; provided, however, that payments on the Notes may also
be made, in the case of a Holder of at least $ aggregate principal amount
of Notes, by wire transfer to a U.S. dollar account maintained by the payee with
a bank in the United States if such Holder elects payment by wire transfer by
giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice.
4. Indenture
The Company issued the Notes under an Indenture dated as of July ,
1997 ("Indenture"), between the Company and the Trustee. The terms of the Notes
include those stated
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in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed thereto in the Indenture. The Notes are
subject to all such terms, and Noteholders are referred to the Indenture and the
Act for a statement of those terms.
The Notes are general unsecured obligations of the Company limited to
$150,000,000 aggregate principal amount. The Indenture imposes certain
limitations on the Company and the Restricted Subsidiaries, including the
incurrence of Indebtedness and Liens, the payment of dividends on and
retirements of the Capital Stock of the Company and the Restricted Subsidiaries,
the sale of assets and transactions with Affiliates. In addition, the Indenture
limits the ability of the Company and its Restricted Subsidiaries to restrict
distributions and dividends from Restricted Subsidiaries.
5. Redemption
(a) Optional Redemption. The Notes are not redeemable prior to
_________, 2002. At any time on or after ___________, 2002, the Notes are
redeemable at the option of the Company, in whole or in part, on not less than
30 nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of principal amount), plus accrued and unpaid interest (if any)
to the date of redemption:
If redeemed during the 12-month period commencing _________ of the
year indicated:
REDEMPTION
YEAR PRICE
---- ----------
2002 . . . . . . . . . . . . . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . . . . . . . . . . . . . %
2004 . . . . . . . . . . . . . . . . . . . . . . . . . %
and thereafter, beginning ____________, 2005 at 100% of the principal
amount of the Notes.
(b) Optional Redemption Upon Public Equity Offerings. At any time,
or from time to time, on or prior to ___________, 2000, the Company may, at its
option, use the net cash proceeds of Public Equity Offerings to redeem up to a
maximum of 331/3% of the initially outstanding aggregate principal amount of
Notes at a redemption price equal to ___% of the principal amount of the Notes
(determined at the redemption date), together with accrued and unpaid interest
thereon to the date of redemption; PROVIDED that not less than $100 million
aggregate principal amount of the Notes are outstanding following any such
redemption.
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In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a national
securities exchange, on a PRO RATA basis, by lot or by such method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; PROVIDED, FURTHER,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as
is practicable (subject to procedures of the Depository Trust Company "DTC"),
unless such method is otherwise prohibited.
6. Notice of Redemption
Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that related to such Notes shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Issuer has deposited with the Paying Agent
funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
7. Offers to Purchase
Sections 3.15 and 3.17 of the Indenture provide that, after certain
Asset Sales (as defined in the Indenture) and upon the occurrence of a Change of
Control (as defined in the Indenture), and subject to further limitations
contained therein, the Company will make an offer to purchase certain amounts of
the Notes in accordance with the procedures set forth in the Indenture.
8. Denominations; Transfer; Exchange
The Notes are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. A Holder shall transfer or exchange
Notes in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
The Registrar need not register the transfer of or exchange of any Notes for a
period of 15 Business Days before the mailing of a notice of an offer to
repurchase Notes or 15 Business Days before an interest payment date.
9. Persons Deemed Owners
The registered Holder of this Note may be treated as the owner of it
for all purposes.
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10. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
11. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Notes and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Notes to redemption or maturity, as the case
may be.
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the Notes then outstanding, and any
past Default, other than payment Defaults, or noncompliance with any provision
may be waived with the written consent of the Holders of a majority in principal
amount of the Notes then outstanding. Subject to certain exceptions set forth in
the Indenture, without the consent of any Noteholder, the Company and the
Trustee may amend the Indenture or the Notes to, among other things, cure any
ambiguity, omission, defect or inconsistency, or to provide for the assumption
by a successor corporation of the obligations of the Company under this
Indenture, or to comply with Article 6 of the Indenture, or to provide for
uncertificated Notes in addition to or in place of certificated Notes, or to
make any other change that does not adversely affect in any material respect the
rights of any Noteholder.
13. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Notes; (ii) default in payment of principal of, or
premium, if any, on the Notes at maturity, upon acceleration, redemption, option
redemption or otherwise, or failure by the Company to purchase Notes when
required; (iii) failure by the Company or the Guarantor to comply with any other
covenant or agreement in the Indenture or in the Notes and such failure
continues for 30 days after written notice from the Trustee or the registered
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding; (iv) a default under any Indebtedness for borrowed money by the
Company or any Restricted Subsidiary which results in acceleration of the
maturity of such Indebtedness, or failure to pay any such Indebtedness when due
within any applicable grace period, in a total amount greater than $15 million;
(v) certain events involving bankruptcy, insolvency or reorganization of the
Company or any Restricted Subsidiary; and (vi) certain judgments or judgments
for the payment of money in an uninsured aggregate amount in excess of $15
million. If an Event of Default (other than an Event of Default
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<PAGE>
resulting from certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Restricted Subsidiary) occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the Notes may
declare all the Notes to be due and payable immediately. Certain events
involving bankruptcy, insolvency or reorganization are Events of Default which
will result in the Notes being due and payable immediately upon the occurrence
of such Events of Default.
Noteholders may not enforce the Indenture or the Note except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Noteholders notice of any continuing Default (except a Default in
payment of principal or interest) if it determines that withholding notice is in
the interest of the Holders.
14. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with and collect obligations owed to it
by the Company or its Affiliates and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee.
15. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Note, each
Noteholder waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Notes.
16. Authentication
This Note shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Note.
17. Abbreviations
Customary abbreviations may be used in the name of a Noteholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
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18. Indenture
Each Holder of a Note, by acceptance hereof, acknowledges and agrees
to be bound by the provisions of the Indenture, as the same may be amended from
time to time.
19. Governing Law
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Noteholder upon written request and
without charge to the Noteholder a copy of the Indenture which has in it the
text of this Note in larger type. Requests may be made to: General
Communication, Inc., 2550 Denali St., Suite 1000, Anchorage, Alaska 99503,
Attention: Chief Financial Officer.
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code and insert
assignee's social security or tax I.D. number)
and irrevocably appoint _____________________ agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him or her.
Date: Your Signature:
------------------------ ------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
-------------------------
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.15 or Section 4.17 of the Indenture, check the box:
Section 4.15 / /
Section 4.17 / /
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.17 of the Indenture, state the
amount in principal amount: $___________.
Date: Your Signature:
------------------------ ------------------------------
(Sign exactly as your name
appears on the other side of
this Note.)
Signature Guarantee:
-------------------------
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EXHIBIT B
GLOBAL NOTE LEGEND
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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EXHIBIT 5.1
Wohlforth, Argetsinger, Johnson & Brecht
900 West 5th Avenue, Suite 600
Anchorage, Alaska 99501
July ___, 1997
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
Re: Validity of Senior Notes due 2007
Gentlemen and Ladies,
We have acted as special counsel to GCI, Inc., an Alaska corporation (the
"Company") in connection with its Registration Statement on Form S-1 (File No.
333-29189) relating to $150,000,000 in principal amount of the Company's Senior
Notes due 2007 (the "Notes").
We have examined the Company's certificate of incorporation, bylaws and
minutes of the proceedings of the Company's board of directors authorizing the
issuance of the Notes and have considered such facts and examined such questions
of law as we have considered appropriate for purposes of rendering the opinion
expressed below.
Based on the foregoing examination, we advise you that in our opinion the
Notes being offered pursuant to the Registration Statement have been duly
authorized and when issued and sold as contemplated in the Registration
Statement, will be validly issued, binding obligations of the Company, subject
to the indenture governing the Notes.
We consent to the filing of this opinion as an exhibit to the Registration
Statement referred to above and to the reference to our firm under the heading
"Legal Matters" in the Registration Statement. In giving this consent, we do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Yours truly,
<PAGE>
CONFIDENTIAL
General Communication, Inc.
Compensation Agreement
William C. Behnke
January 1, 1997
Term:
This compensation agreement is effective January 1, 1997 through
December 31, 2001.
Base Compensation:
Behnke base compensation as of January 1, 1997 is $150,000 per year.
Behnke base compensation will be increased $5,000 annually on January 1,
1999, January 1, 2000 and January 1, 2001.
Incentive Compensation:
Behnke target incentive compensation will be $45,000 per year of which 22%
of actual amount accrued will be paid Behnke in cash and the remaining 78%
will be vested in Behnke's deferred compensation account.
Stock Options:
During 1Q97, GCI will grant Behnke an option to purchase 100,000 shares of
GCI stock at an exercise price of $7.00 per share. These stock options
will vest equally on January 1, 2000, January 1, 2001 and January 1, 2002.
Deferred Compensation:
A Deferred Compensation Account will be created for Behnke in the total
amount of $285,000. This amount shall be paid to Behnke following
termination of his employment. Forty thousand dollars ($40,000) of the
total shall be vested as of December 31,1996 and additional sums shall vest
as the deferred portion of Behnke's Incentive Compensation (described
above) is earned. At Behnke's option the entire amount of Behnke's
Deferred Compensation Account ($285,000) may be invested in GCI stock.
Behnke Outstanding Loan:
Behnke's outstanding loan will be repaid by July 1, 1997.
<PAGE>
CONFIDENTIAL
Behnke Stock Sales:
As a matter of information Behnke expects to sell approximately 56,000
shares of GCI stock. At Behnke's option a portion of this stock may be
sold to GCI (at the market price on the date of such sale) to fund an
election by Behnke to have his deferred compensation account invested in
GCI stock as provided above. GCI shall cooperate with Behnke to sell up to
35,000 shares of his stock in the anticipated public offering to be
undertaken by GCI in 1997. Behnke anticipates using the proceeds of such
sale to repay his debt to GCI, to pay the tax due on his option exercise
and to fund personal cash requirements of approximately $50,000.11(1)
The above is agreed to effective January 1, 1997 pending formal approval by
GCI's Board of Directors at the next scheduled meeting.
______________________________
William C. Behnke
______________________________
Ronald A. Duncan, President
Currently Option
Proposed Case Extension Case
(1) Estimated cash requirement:
Option shares exercised: 85,190.00 35,500.00
Times estimated price x $8.00 $8.00
----------- -----------
Estimated gain $681,520.00 $284,000.00
Times tax rate x .4 x .4
----------- -----------
Tax $272,608.00 $113,600.00
plus loan repayment 120,000.00 120,000.00
plus personal cash 50,000.00 50,000.00
----------- -----------
Total cash required $442,608.00 $283,600.00
Divided by estimated price 8.00 8.00
----------- -----------
Estimated shares to be sold 56,326.00 36,450.00
Total deferral would be (85,190 - 35,500 =) 49,690 @ $8.00 = $ 397,520.
<PAGE>
INTERCONNECTION AGREEMENT
This Interconnection Agreement ("Agreement") by and between GCI Communication
Corp. ("GCICC") and the Municipality of Anchorage, doing business as ATU
Telecommunications ("ATU") sets forth terms and conditions for interconnection
of GCICC's facilities and equipment and ATU's facilities and equipment.
The effective date of this agreement is the date it is approved by the Alaska
Public Utilities Commission ("APUC"), pursuant to 3 AAC 48.390 and/or
47 USC 252.
I. PURPOSE
(a) The purpose of this Agreement is to delineate:
(i) How interconnection will be accomplished.
(ii) The terms and conditions controlling interconnection.
(iii) The rates, charges, and payment terms for interconnection.
See Exhibit A.
(iv) Any general contractual conditions.
(b) ATU and GCICC further understand that the Agreement is, at all
times, subject to revisions by the APUC, FCC or other governmental
authority, provided however, that, neither party will unilaterally
seek to change the Agreement without also negotiating in good
faith with the other.
II. TYPE OF CONNECTION
(a) Interconnection and Reciprocal Compensation.
(i) Interconnection. GCICC will interconnect, for the
transmission and routing of telephone exchange service and
exchange access service at each ATU wire center, through
the use of standard inter-office trunking.
(ii) Reciprocal Compensation. Compensation arrangement between
GCICC and ATU for the exchange of telecommunications
services on a mutual and reciprocal basis. See Exhibit B.
(b) Resale Connection.
(i) Resale interconnection. The provision to GCICC at
wholesale rates of telecommunications services that ATU
provides at retail to subscribers who
<PAGE>
are not telecommunications carriers and that GCICC may
resell to subscribers. See Exhibit C.
(ii) Provisioning interconnection. GCICC/ATU customer
provisioning, billing and servicing standards.
See Exhibit D.
(c) Unbundled Network Element interconnections.
(i) Unbundled Loop Interconnection. GCICC's access to the
transmission path which provides the connection between an
end-user's premises and the central office subscriber main
distributing frame (or its equivalent). See Exhibit E.
(ii) Unbundled Transport interconnection. GCICC's access to the
physical facilities used to connect points on
telecommunications networks. See Exhibit F.
(iii) Unbundled Switching interconnection. GCICC's access to the
local switching and local tandem switching residing in a
central office switch and/or remote switching.
See Exhibit G.
(iv) Unbundled Directory Assistance interconnection. GCICC's
access to the necessary data bases, and data (including
subscriber list information) used to perform directory
services. See Exhibit H.
(v) Unbundled Operations Support interconnection. GCICCs
access to the systems, including the necessary hardware,
software and databases, used in the ordering, provisioning,
maintenance, testing, billing, and updating of other
network databases. See Exhibit I.
(d) Right-of-Way Access. GCICCs access to the poles, ducts, conduits,
and rights-of-way of ATU. See Exhibit J.
(e) Collocation. GCICC's access for the physical placement of GCICC
equipment necessary for interconnection or access to unbundled
network elements at the premises of ATU and/or virtual collocation
where ATU demonstrates that physical collocation is not practical
for technical reasons or due to space limitations. See Exhibit K.
(f) Number portability. Provides local subscribers with the ability
to change local service providers without changing their telephone
numbers. See Exhibit L.
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<PAGE>
(g) Dialing parity. Permits GCICC with nondiscriminatory access to
all local and other Service Codes and local and long distance NPAs
and NXXs, with no unreasonable dialing delays. See Exhibit M.
(h) Notice of changes. ATU shall provide GCICC with notice regarding
any network change that will affect GCICC's performance or ability
to provide service or will affect ATU's interoperability with
other service providers. Such notice shall be given to the
public, including GCICC, pursuant to the Regulations contained at
47 C.F.R. 51.325-335, and to GCICC individually at regularly
scheduled meetings between designated engineering representatives
of the parties. ATU shall give notice to GCICC of its initial
election of methods under 47 C.F.R. 51.329(a) and of any changes
in such method.
III. RATES AND CHARGES
(a) Interconnection and Reciprocal Compensation.
(i) Interconnection. Charges for interconnection shall be at
the rates set for unbundled transport, in subsection ii,
below.
(ii) Reciprocal Compensation. $0.006595 per minute (plus
transport).
(b) Resale Connection.
(i) Wholesale discount.
(A) January 1, 1997- December 31, 1997 8.7%
(B) January 1, 1998- December 31, 1998 17.4%
(C) January 1, 1999- December 31, 1999 26.1%
(ii) Provisioning interconnection. $10.00
(c) Unbundled Network Element interconnection rates:
(i) Unbundled Loop interconnection. $13.85 per month, unbundled
two-wire loop
(ii) Unbundled Transport interconnection. See Exhibit N.
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<PAGE>
(iii) Unbundled Switching Interconnection.
(A) Local switching.
(1) $0.006595 per originating minute.
(2) Line port charges (card and slot):
Res/Bus Simple $4.27
Business Complex $5.07
Centrex $5.07
ISDN $13.02
(B) Local tandem switching. $0.004712 per minute (plus
associated transport).
(iv) Unbundled Directory Assistance interconnection:
(A) First number (batch). $41.0600
(B) Subsequent numbers (batch). $0.0870
(v) Unbundled Operations Support interconnection. Actual
electronic interface access to ATU's operations support
systems (i.e. fax/printer or display/printer connectivity)
shall be at the rates set for unbundled transport, in
subsection ii, above.
(d) Right-of-Way Access Rates: Charges for right-of-way access shall
initially be set at those contained in the current agreements
between ATU and Municipal Light and Power and Chugach Electric
Association.
(e) Collocation Rates (see Exhibit K):
(i) Space, per square foot: $5.00 per month.
(ii) Power, per 15 amp unit: $71.00 per month.
(f) Number portability rates (see Exhibit M): $3.00 per ported
number/market share.
IV. PROPRIETARY INFORMATION
During the term of this Agreement, the parties may, but shall not
generally be obligated to, disclose information to each other which they
consider proprietary or confidential. Without specific prior written
consent, except when required by law or court order,
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<PAGE>
neither party shall disclose to any third party, including but not
limited to any competitors of GCICC or ATU, whether affiliated or
unaffiliated with GCICC or ATU, any information supplied to it by the
other which has been designated as confidential, and which is not
otherwise generally available to the public, or is not already known
to the other. This confidentiality requirement shall survive beyond the
term of this Agreement and for a period of two years.
V. FORCE MAJEURE
The parties performance under this Agreement (except where required by
Order of the APUC under Section 252(c)(3) of the Act) shall be excused if
such non-performance is due to labor difficulties, governmental orders,
equipment failure, inability or delay in securing equipment, civil
commotion, acts of nature, weather conditions and other circumstances
beyond the parties' reasonable control.
VI. AUDIT
Upon 30 days written notice (or such shorter period as the parties may
mutually agree upon), ATU and GCICC or their authorized representatives,
shall have the right to examine and audit each other, during normal
business hours and at reasonable intervals, as determined by the party
undergoing the audit, all such, records and accounts in the possession of
the other, which contain information bearing upon the determination of
the amounts payable under the rates established in Section III, above, to
either party. The maximum period of any audit shall encompass is 24
months, or the period from the most recent audit, whichever is less. Not
more than one audit shall be conducted in any twelve-month period during
the term of this Agreement or any renewal period.
No claim or demand with respect to any audit may be made by ATU or GCICC
more than two years after the date of the event which gave rise to the
claim or demand.
VII. NOTICES
Except as otherwise provided in this Agreement or in the event of
day-to-day operational issues set forth in the Exhibits hereto, all
notices required or permitted to be given shall be made in writing and
whether delivered in person, sent via facsimile ("FAX") or by certified
mail, return receipt requested, postage prepaid, in any post office in
the United States and addressed as set forth below. The addresses to
which notices or communications may be given to either party may be
changed by written notice given by such party to the other. A notice
sent via FAX is effective forty-eight (48) hours after the senders
receipt of a "good" transmission slip.
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<PAGE>
ATU Telecommunications
Attention: General Manager
600 Telephone Avenue
Mail Station 7
Anchorage, Alaska 99503
FAX: 907-563-2688
GCI Communication Corp.
Attention: General Manager
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
FAX: 907-265-5676
VIII. TERM
This Agreement shall continue in force from the date it is signed by both
parties and approved by the APUC, and thereafter until terminated by
Order of the APUC or FCC. Upon the termination as to any element herein,
the parties shall negotiate in good faith to agree to a replacement
agreement or agreements.
IX. APPLICABLE LAW
The validity, construction and performance of this Agreement shall be
governed by and interpreted in accordance with laws of the State of
Alaska.
X. LIABILITY
Each party agrees to reimburse the other party for damages to premises or
equipment resulting from a party's negligence in the installation,
maintenance or interconnection to or removal of facilities, services or
arrangements. Each party represents that its system is constructed in
accordance with all applicable laws, orders, rules and regulations, and
in accordance with all applicable technical standards and specifications.
Each party shall indemnify and hold the other harmless from any and all
claims which arise out of the interconnections provided under this
agreement, unless the claim arises out of negligent or wrongful conduct
of the other party.
XI. PATENTS
(a) With respect to claims and patent infringement made by third
persons, GCICC shall defend, indemnify, protect and save harmless
ATU from and against all claims arising out of or based on the use
of facilities and equipment or arrangements furnished under this
Agreement by GCICC or its Customers.
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<PAGE>
(b) With respect to claims of patent infringement made by third
persons, ATU will defend, indemnify, protect and save harmless
GCICC from and against all claims arising out of or based on the
use of facilities and equipment or arrangements furnished under
this Agreement by ATU or its Customers.
(c) Neither Party grants to the other any license under patents nor
shall any be implied or arise by estoppel in either Party's favor
with respect to any circuit, apparatus, system or method used by
the parties in connection with any channels, interconnection
types, or arrangement furnished under this Agreement.
(d) Notwithstanding any other provisions of this agreement, the
parties agree that neither party has made, and that there exists,
no warranty, express or implied, that the use by either party of
the other party's facilities, arrangements or services provided by
the other party under this agreement shall not give rise to a
claim by any third party for infringement, misuse or
misappropriation of any patent or other intellectual property
right of such third party.
XII. ALLOWANCE FOR INTERRUPTIONS
(a) When use of the channels, interconnection types of arrangements
furnished by ATU or GCICC in accordance with this Agreement is
interrupted due to trouble in such channels, interconnection types
or arrangements, and such interruption is not caused by (1) gross
negligence or willful misconduct of the furnishing party or its
Customer or (2) the fault of facilities or equipment provided by
the receiving party or its Customer, the receiving party shall,
upon request, be allowed a credit which shall be in an amount
equal to the pro rata monthly charges to be paid for such
arrangements or facilities, including both usage sensitive and
non-usage sensitive charges, specified in the body of this
Agreement and the attachments, for the period which the
interconnection affected by the interruption is out of service.
Except in the case of gross negligence or willful misconduct, such
allowance amount shall be the sole monetary remedy available for
such interruption.
(b) All credits for interruption shall begin from the time the
furnishing party becomes first aware of the interruption. No
credit shall be required for a total amount of less than fifty
dollars ($50.00), per interruption.
XIII. MISCELLANEOUS
(a) TARIFFS
In the event that any of the services provided hereunder or the
charges made therefor are currently subject, or at any time become
subject, to any federal, state or local regulation or tariff, then
the terms and conditions of this Agreement, including the charges
set forth in this Agreement and the attachments (as amended
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<PAGE>
from time to time) shall be deemed amended to conform to any
conflicting terms and conditions in effect under such regulation
or tariff, provided, however, that all non conflicting terms and
conditions of this Agreement shall remain valid and effective.
(b) NON-WAIVER
The waiver, express or implied, by either party hereto or any
rights hereunder or of any failure to perform or breach hereof by
the other party hereto shall not constitute or be deemed a waiver
of any right hereunder or any other. Failure to perform or breach
hereof by the other party, hereto, whether of a similar or
dissimilar nature.
(c) LIMITATIONS OF JOINT LIABILITY
The parties are, for purposes of this Agreement, independent
contractors and nothing herein shall be construed to imply that
they are partners, joint ventures or agents of one another.
(d) ASSIGNMENT
Unless allowed in writing by the other party, whose consent shall
not be unreasonably withheld, any assignment of a party of its
interest in any part of this Agreement or any delegation of duties
under this Agreement, to other than a wholly-owned subsidiary,
shall be void, and any attempt by a party to assign any part of
its interest or delegate duties under this Agreement shall give
the other the right immediately to request termination of this
Agreement.
(e) COMPLIANCE WITH LAWS
Nothing in this Agreement shall be deemed an admission by either
party hereto that any provision of state or federal law has been
complied with, nor shall such Agreement, or any portion thereof,
be deemed a waiver of any rights or remedies that either party may
have under the state or federal law.
(f) ENTIRE AGREEMENT
This Agreement and all appendices and amendments embody the entire
agreement of the parties. There are no promises, terms,
conditions or obligations other than those contained herein; and
this Agreement shall supersede all previous communications,
representatives or agreements, either oral or written, between the
parties.
(g) MODIFICATIONS
This Agreement shall only be amended, modified or changed in
writing, executed by an authorized representative of the parties,
with the same formality as this Agreement was executed, excluding
the provision set forth by an APUC order and such writing shall be
attached to this agreement as an appendix.
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<PAGE>
(h) AFFILIATE AGREEMENTS
In the event ATU enters into, or materially amends, any
interconnection agreement with any affiliate, ATU will provide
GCICC with a copy of the public notice of any such agreement or
amendment and will agree to re negotiate this Agreement in light
of such affiliate transaction, upon written request of GCICC.
IN WITNESS THEREOF, the undersigned have executed this Agreement.
ATU TELECOMMUNICATIONS GCI COMMUNICATION CORP.
Thomas C. Edrington G. Wilson Hughes
General Manager Executive Vice President &
General Manager
- -------------------------- ---------------------------
-9-
<PAGE>
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
The foregoing instrument was acknowledged before me on this 15th day of
January 1997 by Thomas C. Edrington, General Manager on behalf of ATU
Telecommunications.
------------------------------
Notary Public in and for Alaska
My Commission Expires 4/10/00
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
The foregoing instrument was acknowledged before me on this 14th day of
January 1997 by G. Wilson Hughes, Executive Vice President & General Manager on
behalf of GCI Communication Corp.
------------------------------
Notary Public in and for Alaska
My Commission Expires
--------
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<PAGE>
EXHIBIT A
CHARGES
1. ATU shall bill GCICC on a monthly basis for the services (such billings
may be on various monthly cycles) and shall include sufficient detail in
its invoices so that GCICC may reasonably verify the accuracy of the
charges. GCICC shall pay such invoices within thirty (30) days of the
statement. In the event of a dispute over the amount of the invoice,
GCICC shall pay the disputed amount into an escrow account pending
resolution of the dispute.
2. GCICC shall pay nonrecurring charges for interconnection services as set
forth on the second sheet of this Exhibit A.
3. The monthly charges for various services will be at the rates specified
in Section III. of this Agreement.
<PAGE>
EXHIBIT A
NON-RECURRING CHARGES
Loops
Cross Connect Charges $18.00 per loop
Plant Assignment Costs
Premise Visit $40.00 per visit
Service Order Charge* $20.00 per order
Interface Connection Charge $11.00 per loop
Local Transport / Entrance Facility
Voice Grade 2 Wire $150.05 per term
Voice Grade 4 Wire $150.05 per term
Hi Capacity DS1 $341.94 per term
Hi Capacity DS3 682.44 per term
Common Channel Signaling
Network Connection $191.06 per connection
Direct Trunked Transport Termination
Activation of up to 24 Trunks $61.14 per order
Other Switched Services
Interim 900 NXX Translation $87.92 per number
Auto. Testing/Transmission Path $2.89 per month
*Each Service Order may include up to fifty (50) loop/trunk individual orders
so long as all individual orders bear the same NXX.
<PAGE>
EXHIBIT B
Reciprocal Compensation:
Reciprocal compensation for the transport of telephone exchange service traffic
(but not interexchange traffic, or exchange access traffic forwarded through the
provision of interim number portability(1) will be at the rate established in
this Agreement or ATU's transport of such traffic from the interconnection point
between the two carriers to the ATU end office switch that directly serves the
called party (or equivalent facility provided by a non-incumbent carrier), and
such rate shall be charged by both GCICC and ATU on the other's traffic,
measured according to normal industry standards, flowing over the
interconnection between GCICC and ATU.
Reciprocal compensation for the termination of telephone exchange service
traffic (but not interexchange traffic, or exchange access traffic forwarded
through the provision of interim number portability) will be at the rate
established in this Agreement for the switching of traffic that is subject to
section 251(b)(5) at ATU's end office switch (or equivalent facility) and
delivery of that traffic from that switch to the called party's premises, and
such rate shall be charged by both GCICC and ATU on the other's traffic flowing
over the interconnection between GCICC and ATU.
_________________________
(1) "Meet-point" sharing of exchange access revenue is addressed in Exhibit L to
this Agreement, addressing Number Portability.
<PAGE>
EXHIBIT C
Resale Interconnection
GCICC shall receive, and ATU shall provide, for resale at wholesale rates any
local (but not exchange access) telecommunications service that ATU provides
at retail to customers who are not telecommunications carriers, including not
only current tariffed services, but also any promotional services offered for
a period of more than 90 days, discounted services, "grandfathered" services
still being provided, bundled service offerings and special contract services.
GCICC shall not resell residential services to nonresidential end users, nor
shall GCICC resell Lifeline or any other means-tested service to end users not
eligible to subscribe to such service offerings.
<PAGE>
EXHIBIT D
Provisioning interconnection
Services provided for resale shall be equal in quality, subject to the same
conditions, and provided within the same provisioning time intervals that ATU
provides these services to others, including end users. Support services
provided relating to unbundled network elements (i.e. assignment, installation
or repair) shall be equal in quality, subject to the same conditions, and
provided within the same provisioning time intervals that ATU provides these
services to itself or others, including end users.
ATU will furnish comparative quality of service and network performance data,
reporting ATU vs. CLEC performance (average installation time, average outages,
etc.) the same as or better than the information data that ATU provides to
itself.
<PAGE>
EXHIBIT E
Unbundled Loop Elements
Unbundled loops include any and all elements that provide the connection
between the end user customer's premises and the central office subscriber
main distributing frame (or its equivalent) serving the end user.(2)
Unbundled loops must be available to support Voice Grade subscriber services
and services such as ISDN, that require that facilities be free of intrusive
devices such as load coils or bridge taps.(3) Loop facilities at DSO, DS1,
and DS3 levels must also be made available.
1. Network Interface Device: The device used to establish connection between
the end user's inside wiring and the unbundled loop element.(4)
2. Loop: The physical facility connecting the Network Interface Device to
the central office subscriber main distributing frame (or its
equivalent). In cases where line concentration equipment is used, such
as Digital Loop Carrier (DLC) architecture, the loop is considered to be
the physical facility between the Network Interface Device and the MDF at
the central office (or its equivalent).(5) In cases where remote switching
equipment is used, and frame space or entrance facility are not
constrained, the loop is considered to be the physical facilities between
the Network Interface Device and the remote switching facility MDF (or
its equivalent).
3. Diagrams GCICC 1-4 (attached) depict the beginning and ending points for
an unbundled "local loop".(6)
________________________
(2) 247 C.F.R. 51.319(a): "Local Loop. The local loop network element is
defined as a transmission facility between a distribution frame (or its
equivalent) in an incumbent LEC central office and an end user customer
premises;"
(3) A requesting carrier will bear the additional cost for optional features and
functions to condition private line service/special access circuits.
(4) 47 C.F.R. 51.319(b)(1): "The network interface device network element is
defined as a crossconnect device used to connect loop facilities to inside
wiring."
(5) It is understood by and between GCICC and ATU, that access cannot be
provided for loops carried on ATU's two existing Fujitsu Digital Loop Carrier
systems, supporting approximately 960 lines. GCICC accepts this limitation as
to these lines. The existing technology is dated and further deployment of DLC
architecture with this limitation is not planned.
(6) Attached also is Diagram C (ATU), which depicts the situation described in
footnote 4, above.
<PAGE>
Diagrams of:
(1) Copper Pair Facilities
(2) Universal Digital Loop Carrier
(3) Integrated Digital Loop Carrier
(4) Romote Switching Center
<PAGE>
EXHIBIT F
Unbundled Transport Elements
Unbundled transport includes any and all physical facilities (dedicated or
shared), hardware and software used to connect central office switches, local
tandem switches, remote switches, and other networks in any combination
required to provide a requested service.(7) Such connection shall include
connection to equipment designated by the requesting telecommunications
carrier and the provision of requested services shall include obtaining the
functionality provided by digital cross-connect systems and multiplexing
systems in the same manner that the ILEC provides such functionality to
interexchange carriers. Transport elements include, but are not limited to,
rights-of-way, utilidors and utiliwalks, conduit, poles, physical strand
support, microwave dishes and towers, as well as all radio, fiber and copper
transport facilities. Such facilities may be "dark" or may include any
electronics employed, whether microwave, copper or fiber based, and employing
any multiplexing scheme or transmission protocol.
(7) 47 C.F.R. 51.319(d): "(1) Interoffice transmission facilities are
defined as incumbent LEC transmission facilities dedicated to a particular
customer or carrier, or shared by more than one customer or carrier, that
provide telecommunications between wire centers owned by incumbent LECs or
requesting telecommunications carriers, or between switches owned by
incumbent LECs or requesting telecommunications carriers.
(2) The incumbent LEC shall:
(i) provide a requesting telecommunications carrier exclusive use of
interoffice transmission facilities dedicated to a particular customer or
carrier, or use of the features, functions, and capabilities of interoffice
transmission facilities shared by more than one customer or carrier; (ii)
provide all technically feasible transmission facilities, features, functions,
and capabilities that the requesting telecommunications carrier could use to
provide telecommunications services;
(iii) permit, to the extent technically feasible, a requesting
telecommunications carrier to connect such interoffice facilities to equipment
designated by the requesting telecommunications carrier, including, but not
limited to, the requesting telecommunications carrier's collocated facilities;
and
(iv) permit, to the extent technically feasible, a requesting
telecommunications carrier to obtain the functionality provided by the
incumbent LEC's digital cross-connect systems in the same manner that the
incumbent LEC provides such functionality to interexchange carriers;"
<PAGE>
EXHIBIT G
Unbundled switching elements
Unbundled switching includes any and all elements of a central office switch
and/or remote switching systems through which an end user's loop is connected to
a network to create a desired communication path between the end user and
another point based on signals originated by the end user.
1. Local Switching: The hardware (trunk-side and line-side access) and
software necessary to create a desired communication path between the end
user and another point based on signals originated by the end user.(8)
Local Switching includes all features, functions, and capabilities of the
switch, which include, but are not limited to the basic switching
function of connecting lines to lines, lines to trunks, trunks to lines,
and trunks to trunks, as well as the same basic capabilities made
available to the ILEC's customers, such as a telephone number, white page
listing, and dial tone and all other features that the switch is capable
of providing, including but not limited to, the provision of billing
information (end user and access), custom calling, custom local area
signaling service features, and Centrex, as well as any technically
feasible customized routing functions provided by the switch.
2. Local Tandem Switching: The hardware and software necessary to connect a
central office switch to another central office switch or to another
point based on routing instructions received by the local tandem
switch.(9) Local Tandem Switching includes the basic switching function of
connecting trunks to trunks and all other functions that are centralized
in tandem switches (as distinguished from separate endoffice switches),
including but not limited to call recording, the routing of calls to
operator services, and signaling conversion features.
________________________
(8) 47 C.F.R. 51.319(c)(1)(i): The local switching capability network element
is defined as:
(A) line-side facilities, which include, but are not limited to, the connection
between a loop termination at a main distribution frame and a switch line card;
(B) trunk-side facilities, which include, but are not limited to, the connection
between trunk termination at a trunk-side cross-connect panel and a switch trunk
card; and
(C) all features, functions, and capabilities of the switch, which include, but
are not limited to:
(1) the basic switching function of connecting lines to lines, lines to trunks,
trunks to lines, and trunks to trunks, as well as the same basic capabilities
made available to the incumbent LEC's customers, such as a telephone number,
white page listing, and dial tone; and (2) all other features that the switch is
capable of providing, including but not limited to custom calling, custom local
area signaling service features, and Centrex, as well as any technically
feasible customized routing functions provided by the switch."
(9) 47 C.F.R. 51.319(c)(2): Tandem Switching Capability. The tandem switching
capability network element is defined as:
(i) trunk-connect facilities, including but not limited to the connection
between trunk termination at a cross-connect panel and a switch trunk card;
(ii) the basic switching function of connecting trunks to trunks; and
(iii) the functions that are centralized in tandem switches (as distinguished
from separate end-office switches), including but not limited to call recording,
the routing of calls to operator services, and signaling conversion features;
<PAGE>
EXHIBIT H
Unbundled Directory Assistance
Unbundled directory assistance includes the necessary hardware, software, and
databases to perform directory services, including the publication of
directories.(10)
1. Directory Platforms: The hardware and software used to provide directory
services. Access to the platform, including appropriate training materials,
will be provided in such a way so as to allow remote directory stations to be
connected to the platform.
2. Directory Databases: The databases (in electronic form; tape, disk, or
direct transfer port) with updates and input available daily with information on
individual telephone numbers including the name, address, zip code, city (or
other location identifier) and the ability to search for telephone numbers based
on a name, address, or other location identifier.
________________________
(10) 47 C.F.R. 51.319(g): "Operator Services and Directory Assistance. An
incumbent LEC shall provide access to operator service and directory assistance
facilities where technically feasible."
<PAGE>
EXHIBIT I
Unbundled Operations Support Elements
Operations support systems are each of the systems, including the necessary
hardware, software and databases (where appropriate and technically feasible),
used in the ordering, provisioning, maintenance, testing, billing, and updating
of network databases. As discussed below under quality of services, access to
each of the operations support systems shall be provided through the best means
practically available, leading to the use of an electronic interface. Each
operations support system must provide timely information the same as the
information ATU provides to itself. In all cases, ATU should discuss with GCICC
the steps necessary to, as soon as possible, provide access to electronic
databases on a dedicated port basis, facilitating remote (off-site) access to
said databases, where appropriate.
Definition of Ordering(11) and Provisioning:(12)
The systems, databases, and procedures in which the LEC establishes a
request for service, including all features and functions, assigns
telephone numbers, schedules a date and time for installation (if access
to a location is required or if a service call is required to activate..
service). This includes but is not limited to input to and appropriate
retrieval of data from the service order input system (DCRIS) plant
assignment records and the service order dispatch system, until actual
access is available. Where plant records are established and maintained
in paper format only (e.g. the cable records), access to current editions
of those records, on site or telephonically by GCICC, will also be
provided on a routine and scheduled basis. ATU will provide input into
other databases which establish directory listings, populate LIDB, and
update directory services databases upon provisioning of the end user's
service, until actual access by GCICC is available. Input into databases
to activate features and functions ordered by the end user must also be
provided to fully implement the end user's service request, until actual
access is available.
_______________________
(11) The FCC identified the functionality of the ordering element as
including the exchange of information between LECs about current or proposed
customer products and services or unbundled network elements or some
combination thereof, including such information as customer data on current
services, and credit and payment history. See also 4 7 C. F. R. 5/.5,
Pre-ordering and ordering.
(12) The FCC identified the functionality of the ordering element as
involving the exchange of information between LECs where one executes a
request for a set of products and services or unbundled network elements or
combination thereof from the other with attendant acknowledgments and status
reports. 47 C. F. R. 5 1. 5, Provisioning.
<PAGE>
EXHIBIT I
Definition of Billing:(13)
The information recorded by the central office, adjunct processor, or
centralized recording devices relating to calls from or to an end user's
loop. Billing information shall be furnished on request and shall
include all information necessary to bill the end user for calls it is
required to pay for and verify all information necessary to verify
charges for services that GCICC is required to pay for. ATU will provide
appropriate retrieval of data from the database in which the LEC stores
customer information used to generate a bill to the end user based on the
service and features and functions ordered by the end user, until actual
access is available. Billing information used to generate a bill for or
to GCICC would include, but not be limited to, data in the Automatic
Message Accounting (AMA) records and the Carrier Access Billing System
(CABS) databases.
Definition of Maintenance:(14)
The systems, databases, and procedures in which the LEC generates
customer reported troubles, schedules appointments for work at end user
premises, and schedules repair actions. Where trouble tickets are still
tracked manually, access to those records regarding CLEC end users should
also be provided. Access to appropriate data from databases which
monitor and report on the integrity of the LEC network and can be used to
inform end users of network problems impacting the end user's ability to
complete calls to specific locations. Maintenance systems, databases,
and procedures would include, but not be limited to, retrieval of
appropriate data from the CTS (Harris) 6000 system (actual access upon
partitionability), access to appropriate data from the trouble dispatch
system, and a link with appropriate access levels to facilitate real-time
display or printout of network conditions and fault isolation from ATU's
Network Operations Center (NOC)
Definition of Testing:
The systems used by the LEC to isolate troubles and direct repair
operations. The systems used by the LEC to routinely test individual
parts of the network (loops, switches, transmission, and other functional
parts of the network) and report on the performance of these individual
parts. This section should be interpreted to require access to the
systems, databases, and procedures listed above under maintenance. Line
and trunk testing for GCI facilities shall be
_______________________
(13) The FCC identified the functionality of the billing element as involving
the provision of appropriate usage data by one LEC to another to
facilitate customer billing with attendant acknowledgments and status
reports. It also involves the exchange of information between LECs to
process claims and adjustments. 47 C.F.R. 51.5, Billing.
(14) The FCC identified the functionality of the maintenance and repair
elements as involving the exchange of information between LECs where one
initiates a request for repair of existing products and services or
unbundled network elements or combination thereof from the other with
attendant acknowledgments and status reports. 47 C.F.R. 51.5.
<PAGE>
EXHIBIT I
furnished on request, along with testing for any module or bay housing
GCI lines and trunks, until partitioned access can be provided.
Definition of Quality of service:
Access to each of the operations support systems shall be provided
through the best means practically available, leading to the use of an
electronic interface. Each operations support system must provide timely
information the same as or better than the information ATU provides to
itself. In all cases, ATU should discuss with GCICC the steps necessary
to, as soon as possible, provide access to electronic databases on a
dedicated port basis, facilitating remote (off-site) access to said
databases.
Services provided for resale shall be equal in quality, subject to the
same conditions, and provided within the same provisioning time intervals
that ATU provides these services to others, including end users. Support
services provided relating to unbundled network elements (i.e.
assignment, installation or repair) shall be equal in quality, subject to
the same conditions, and provided within the same provisioning time
intervals that ATU provides these services to itself or others, including
end users.
ATU will furnish comparative quality of service and network performance
data, reporting ATU vs. CLEC performance (average installation time,
average outages, etc.) the same as or better than the information data
that ATU provides to itself.
<PAGE>
EXHIBIT J
Rights-of-Way
ATU shall provide GCICC with non-discriminatory access to any pole, duct,
conduit or rights-of -way (including fee property) owned or controlled by it.
Non-discriminatory access shall include any use to which ATU puts such
facilities or property, including the placement of remote terminals on property
owned or controlled by ATU. Access is limited to ATU's distribution networks,
as opposed to granting access to every piece of equipment or real property owned
or controlled by ATU.
<PAGE>
EXHIBIT K
Collocation
GCICC is entitled to physical collocation of GCICC equipment necessary for
interconnection or access to unbundled network elements within the existing
structures at the East, North, Rabbit Creek, South, West, Central and O'Malley
wire centers.
GCICC is entitled to virtual collocation to any remaining ATU wire centers for
interconnection and access to unbundled elements.
<PAGE>
EXHIBIT L
Number Portability
ATU and GCICC shall each provide the other with transitional number portability
through the use of a Direct Inward Dialing-type solution ("DID") upon entry by
GCICC into local competition in the ATU service area, until such time as the
parties implement a long-term database method for number portability in that
area. See explanation and diagram following.
Incremental costs of interim number portability will be computed for each local
carrier at the rate of $3.00 per month per "ported" line or PBX trunk port and
such rate shall be recovered from all relevant carriers based on each local
exchange carrier's relative number of active telephone lines in relation to the
number of active telephone lines in the market.
Interstate access charges due on traffic actually "ported" through the use of
interim number portability will be divided by the parties based upon the rate
component as follows: the forwarding carrier will share with the terminating
carrier one-half of all rate components with the exception of the Carrier Common
Line (CCL) charge which the terminating carrier will receive in full.
Intrastate access charges will also be split, with the exception that CCL (bulk
bill) will not be shared. The Traffic Sensitive split will be accomplished by
the forwarding carrier sharing with the terminating carrier one-half of the
following:
a. (AECA Switching & Information Surcharge Rates) x (GCICC Switched Minutes)
x (ATU Dist. %)
b. (AECA Dedicated Trunk Rate) x (Dedicated Trunks) x (ATU Dist. %)
<PAGE>
DID-TYPE INTERIM NUMBER PORTABILITY
SERVICE PROVIDER PORTABILITY
The attached network diagram depicts how local and message toll traffic would be
routed where DID-Type number portability is employed. The following examples
should provide a clear understanding of this method of number portability.
ATU ORIGINATED LOCAL CALL
A call originating in ATUs local network to 276-1111 would be routed to the ATU
local switch that is assigned the 907-276 NPA/NXX. Translations in that switch
would specify that calls to 276-1111 be completed over Route N which places the
call on the GCILOCAL trunk group. The digits sent to the GCI local switch would
be 276-1111. GCI would maintain the 276 NXX in its local switch in addition to
its own NXX code.
AT&T TERMINATING MTS CALL
An MTS call muted through AT&Ts network to 907-276-1111 would be routed to the
ATU local switch that is assigned the 907-276 NPA/NXX for termination.
Translations in that switch would specify that calls to 276-1111 be completed
over Route N which places the call on the GCILOCAL trunk group. The digits sent
to the GCI local switch would be 276-1111. GCI would maintain the 276 NXX in its
local switch in addition to its own NXX code.
An MTS call muted through AT&T`s network to 907-XXX (XXX is GCI's local code)
would be routed to the GCI local switch for termination.
GCI TERMINATING MTS CALL
An MTS call routed through GCI's network to 907-276-1111 would be routed to the
ATU local switch that is assigned the 907-276 NPA/NXX for termination.
Translations in that switch would specify that calls to 276-1111 be completed
over Route N which places the call on the GCILOCAL trunk group. The digits sent
to the GCI local switch would be 276-1111. GCI would maintain the 276 NXX in
its local switch in addition to its own NXX code.
An MTS call routed through GCI's network to 907-XXX (XXX is GCI's local code)
would be routed to the GCI local switch for termination.
EXHIBIT A
ATU OFFER ON ISSUES 10-13
DOCKET U-96-89/NOVEMBER 8, 1996
PAGE 1 OF 3 PAGES
<PAGE>
BENEFITS OF DID-TYPE NUMBER PORTABILITY
- - SUPPORTS IMPLEMENTATION OF LONG-TERM NUMBER PORTABILITY - Performance
criteria adopted by the FCC require, among other things, that any
long-term number portability method:
1. Efficiently use numbering resources - This method allows the
customer to change service providers and does not require a second
number in the GCI local switch.
2. Not require end users to change their telephone numbers - This
method allows the customer to change service providers and retain
their telephone number.
3. Not result in any degradation of service quality or reliability
when implemented - The quality and reliability of service under
this method will be no different than that enjoyed by customers
who receive local service from ATU.
This method will also minimize the amount of work required to undo
temporary, or interim, routing schemes when the long-term method of
portability is implemented (assumes a database methodology to determine
routing).
- - EASY TO ADMINISTER - Under this method, the translations for routing and
trunking are set up once. As customers choose to change service
provides, the activity required to effect the change is handled through
normal service order processing. A simple program change to delete the
line from the ATU switch and another to invoke the routing to GCI's
switch is all that is required.
- - CAN BE MEASURED - Under this method, AMA records can be generated for
billing purposes.
EXHIBIT A
ATU OFFER ON ISSUES 10-13
DOCKET U-96-89/NOVEMBER 8, 1996
PAGE 2 OF 3 PAGES
<PAGE>
Diagram of DID-Type Number Portability
<PAGE>
EXHIBIT M
Dialing Parity
Dialing parity. The term dialing parity means that a person that is not an
affiliate of a local exchange carrier is able to provide telecommunications
services in such a manner that customers have the ability to route
automatically, without the use of any access code, their telecommunications to
the telecommunications services provider of the customer's designation from
among two or more telecommunications services providers (including such local
exchange carrier.)
<PAGE>
EXHIBIT N
Unbundled Transport Rates
PRICES FOR TRANSPORT
Entrance Facility
2-Wire Voice Grade $22.49 per term
4-Wire Voice Grade $40.41 per term
Hi Capacity DS1 $107.80 per term
Three DS3's $1,030.33 per term
Channel Interface Connection $1,594.88 per term
Direct Trunked Transport - Facility
Voice Grade $1.15 per term
Hi Capacity DS1 $23.53 per term
Hi Capacity DS3 $225.92 per term
Directed Trunked Transport - Termination
Voice Grade $10.76 per mile/mo
Tandem Switched Termination $0.00416 per access min/term
Tandem Switching $0.004712 per access min/mile
Multiplexing
DS3 to DS1 $377.87 per arrngmnt
DS1 to Voice $365.68 per arrngmnt
Tandem Switched Transport
Tandem Switched Facility $0.000109 per access min/mile
Tandem Switched Termination $0.000416 per access min/term
Tandem Switching $0.004712 per access min/mile
Common Channel Signaling
Signaling Mileage Facility $2.31 per mile
Signaling Mileage Termination $21.48 per term
Signaling Entrance Facility $50.88 per facility
STP Port $500.54 per port
800 Query $0.008485 per query
<PAGE>
AMENDMENT NUMBER 6 TO THE
REVISED QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
OF
GENERAL COMMUNICATION, INC.
THIS AMENDMENT is made this _____ day of ________________, 1997, by General
Communication, Inc., a corporation having its principal place of business in
Anchorage, Alaska (the "Company").
RECITALS
A. The Company entered into and executed the Revised Qualified Employee
Stock Purchase Plan of General Communication, Inc. effective January 1, 1989,
and has previously amended such plan (the "Plan").
B. Section 11.6 of the Plan provides in part as follows:
"At any time the Company may amend this Plan and Trust by action of
its Board of Directors . . . ."
C. The Company now desires to amend the Plan.
AMENDMENT
NOW THEREFORE, the Company does amend the Plan as follows:
1. SECTION 10.1(d) OF THE PLAN HEREBY IS AMENDED BY THE ADDITION OF A NEW
PARAGRAPH (IX) WHICH WILL READ IN ITS ENTIRETY AS FOLLOWS:
10.1(d)(ix) SPECIAL 1997 PARTICIPANT ELECTION REGARDING QUALIFYING
EMPLOYER SECURITIES: Effective from January 27, 1997, until August
31, 1997, and only in connection with the public offering of common
stock of General Communications, Inc. that occurs during 1997 (the
"1997 Public Offering"), each Participant will be permitted to make a
one-time election to sell up to 50% of the Qualifying Employer
Securities held in such Participant's Account (including but not
limited to the Participant's elective deferral account and Company
contributions account). The election to sell such Qualifying Employer
Securities shall be made pursuant to procedures promulgated by the
Committee, which will be applied in a uniform and nondiscriminatory
manner. The sale price for such Qualifying Employer Securities will
be that price at which such common stock is offered to the general
public during the 1997 Public Offering. The
<PAGE>
proceeds from the sale of such Qualifying Employer Securities thereafter
may be invested as directed by such Participant pursuant to the provisions
of this Section 10.1, disregarding Section 10.1(d)(ii) to the extent
applicable to the Participant's special one-time election. Participant
Accounts which remain invested in Qualifying Employer Securities after the
1997 Public Offering and any new investments in Qualifying Employer
Securities (other than those described in the following sentence) will
remain subject to the restriction on such investments provided in Section
10.1(d)(vi). Notwithstanding the foregoing and restrictions provided in
Section 10.1(d)(vi), the proceeds of any sale of Qualifying Employer
Securities pursuant to this subjection (ix) may be reinvested in Qualifying
Employer Securities, and such restrictions will not apply to any such
reinvestment or successive investment of such proceeds in Qualifying
Employer Securities.
2. SECTION 10.1(d)(i) OF THE PLAN HEREBY IS DELETED IN ITS ENTIRETY AND
REPLACED BY THE ADDITION OF A NEW PARAGRAPH AS FOLLOWS:
10.1(d)(i) GENERAL RULES. Effective January 1, 1995, or such later date
as determined by the Plan Committee, in accordance with rules established
by the Plan Committee, each Participant shall have the right to designate
the investment of his Account attributable to salary reduction
contributions, voluntary contributions and rollover contributions and
transfers made to the Plan after such date, as provided below.
3. Any inconsistent provisions of the Plan shall be read consistent with
this Amendment.
4. Except as amended above, the Company hereby affirms and readopts each
and every other provision of the plan and trust.
5. Except as otherwise provided above, the effective date of this
Amendment shall be May 1, 1997.
-2-
<PAGE>
IN WITNESS WHEREOF, General Communication, Inc. has executed this Amendment
by its duly authorized officers as of the _____ day of _________________, 1997.
GENERAL COMMUNICATION, INC.
ATTEST: By:________________________________
President
By:_____________________________
Secretary
-3-
<PAGE>
AGREEMENT REGARDING OPTIONS
This Agreement Regarding Options (this "Agreement") is entered into as of
July __, 1997 by and between General Communication, Inc., an Alaska corporation
(the "Company") and ______________________, an individual ("Optionee").
RECITALS
This Agreement is entered into in connection with a public offering by the
Company of approximately 7,000,000 shares of its Class A common stock, no par
value ("Class A Common Stock"). In order to make available to the Company a
sufficient number of shares of Class A Common Stock to complete the planned
offering, Optionee desires to enter into this Agreement agreeing not to exercise
their rights under the option to acquire Class A Common Stock held by Optionee
included on the attached Schedule.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the Company and Optionee agree as follows:
1. Optionee agrees that it will not exercise any of the options to
acquire Class A Common Stock included on the attached Schedule unless and until
the Company has filed with the Alaska Secretary of State an amendment to the
Company's Articles of Incorporation which increases the number of shares of
Class A Common Stock that the Company is authorized to issue from 50,000,000 to
at least 52,000,000 (the "Amendment").
2. The Company agrees that it will use its best efforts to take all
action necessary to validly file the Amendment with the Alaska Secretary of
State as promptly as practicable following the execution of this Agreement,
including using its best efforts to obtain the requisite approval of the
Company's shareholders at its next annual meeting of shareholders, currently
scheduled to be held in September 1997.
3. This Agreement will terminate on November 1, 1997 if the Company has
not completed its planned public offering of approximately 7,000,000 shares of
Class A Common Stock on or before such date. This Agreement is governed and
interpreted by the laws of the State of Alaska, without regard to its conflict
of law rules.
[OPTIONEE] GENERAL COMMUNICATION, INC.
By:________________________________ By:________________________________
Name:______________________________ Name:_________________________
Title:_____________________________ Title:________________________
<PAGE>
STATE OF ALASKA
THE ALASKA PUBLIC UTILITIES COMMISSION
Before Commissioners: Sam Cotten, Chairman
Don Schroer
Alyce A. Hanley
Dwight D. Ornquist
Tim Cook
In the Matter of the Petition by GCI )
COMMUNICATION CORP. for Arbitration ) U-96-89
under Section 252 of the Telecom- )
munications Act of 1996 with the ) ORDER NO. 9
MUNICIPALITY OF ANCHORAGE d/b/a )
ANCHORAGE TELEPHONE UTILITY a/k/a )
ATU TELECOMMUNICATIONS for the )
Purpose of Instituting Local Exchange )
COMPETITION )
- ----------------------------------------
ORDER APPROVING ARBITRATED INTERCONNECTION
AGREEMENT AS RESOLVED AND MODIFIED BY ORDER U-96-89(8)
BY THE COMMISSION:
INTRODUCTION
By Order U-96-89(i) , dated September 17, 1996, the Commission established
arbitration procedures to consider the petition for arbitration filed by GCI
COMMUNICATION CORP. (GCICC) under Section 252 of the Telecommunications Act of
1996 (The Act).(1) In its petition, GCICC requested arbitration with the
MUNICIPALITY OF ANCHORAGE d/b/a ANCHORAGE TELEPHONE UTILITY a/k/a ATU
TELECOMMUNICATIONS (ATU) for the purpose of instituting local exchange
competition. In that Order the Commission also determined that the primary
arbitrator's recommended decision would be presented to the Commission by
December 1,
______________
(1) 47 U.S.C. 151 ET SEQ. as amended by The Act.
<PAGE>
1996. The Commission determined that it could accept, reject, or modify the
recommended decision as part of the arbitration process.
On December 16, 1996, the Commission issued Order U-96-89(8) (2) resolving
all open issues subject to arbitration.(3) On January 6, 1997, GCICC, ATU, and
AT&T Alascom filed comments on Order U-96-89(8).
DISCUSSION
Before this Commission is the issue of whether the arbitrated
interconnection agreement as decided in Order U-96-9(8) should be approved or
rejected. The limited grounds for rejection are clearly set out in Section
252(e) of The Act:
The State commission may only reject . . . an agreement (or any
portion thereof) adopted by arbitration . . . if it finds that the
agreement does not meet the requirements of section 251, including the
regulations prescribed by the Commission pursuant to section 251, or
the standards set forth in subsection (d) of this section.
47 U.S.C. 252(e)(2)(B).
The Commission observes that all issues addressed in the arbitrated
interconnection agreement, SUPRA, as resolved and accepted by Order U-96-89(8)
were open issues subject to arbitration by the Commission pursuant to the
standards and requirements of Sections 251 and 252
__________________
(2) The Commission notes that in Order U-96-89(8) at page 23, the reference
to the date that GCICC had filed its Intrastate Access Proposal was in error.
The Order stated that it was filed on December 21, 1996, but the actual filing
date was December 11, 1996.
(3) The Commission notes that an "Interconnection Agreement" was filed
December 3, 1996, by GCICC as an appendix to its Discussion of Identified
Issues. On December 12, 1996, GCICC filed an ERRATA AS TO INTERCONNECTION
AGREEMENT that made corrections to Exhibits A and N of the Interconnection
Agreement. GCICC represented that the corrected pages had been discussed with,
and reviewed by, ATU.
-2-
<PAGE>
of The Act. The Commission also observes that it has received no requests for
reconsideration of Order U-96-89(8).
In light of the comments filed January 6, 1997, as well as review of The
Act and the conclusions set out in Order U-96-89(8), the Commission finds no
reason to reconsider that decision. Therefore, the arbitrated interconnection
agreement in this proceeding, as modified and accepted by Order U-96-89(8), is
approved.(4)
The Commission finds that the arbitrated interconnection agreement, as
modified and accepted by Order U-96-89(8), is in compliance with Section 252(e)
of The Act, subject to the understanding that all prices in the arbitrated
interconnection agreement are temporary in nature and will require a full study
based upon a cost methodology to be determined by this Commission at a later
date.
_________________
(4) The parties were telephonically notified of this decision on
January 14, 1997.
-3-
<PAGE>
ORDER
THE COMMISSION FURTHER ORDERS, That, the arbitrated interconnection
agreement in this proceeding, modified and accepted by Order U-96-89(8), is
approved.(5)
DATED AND EFFECTIVE at Anchorage, Alaska, this 14th day of January, 1997.
BY DIRECTION OF THE COMMISSION
________________
(5) The Commission notes that GCICC's "Interconnection Agreement"
referenced above was not signed by the parties, nor does it contain the
amendments referenced by GCICC's ERRATA or the modifications articulated by the
Commission in Order U-96-89(8). The parties are required to submit a signed
interconnection agreement that reflects the ERRATA and the Commission's
decisions so that the interconnection agreement decided in this proceeding is
contained in a single document.
-4-
<PAGE>
AMENDMENT TO THE MCI CARRIER AGREEMENT
This Amendment to the MCI Carrier Agreement ("Amendment") is between MCI
TELECOMMUNICATIONS CORPORATION ("MCI") and GENERAL COMMUNICATIONS, INC.
("Customer") with offices located at 2550 Denali Street, Suite 1000, Anchorage,
Alaska 99503.
WHEREAS, MCI and Customer are parties to an MCI Carrier Agreement with an
Effective Date of January 1, 1993 ("Agreement"), and
WHEREAS, MCI and Customer desire to amend the Agreement,
NOW, THEREFORE, the parties agree as follows:
1. The first sentence of the first section of Paragraph 2 shall be deleted and
the following inserted in its place:
During each monthly billing period of the service term (as defined in
Paragraph 11 below), Customer's Monthly Usage shall be not less than
Five Hundred Fifty Thousand Dollars ($550,000) per month ("Monthly
Commitment").
2. Paragraph 3(c)(1) shall be deleted and the following inserted in its place:
1. (A) Customer agrees that during each monthly billing period of the
service term, Customer will purchase from MCI as a part of the overall
Monthly Commitment contained in Paragraph 2, at least Fifty Thousand
Dollars ($50,000) of domestic interstate MCI 800 DAL Service (net of
taxes and tax-related surcharges) (hereinafter "800 DAL
Subcommitment"). This 800 DAL Subcommitment shall be measured at the
postalized rate per minute of $0.0789.
(B) For domestic interstate inbound services terminating via dedicated
access to an MCI point of presence, Customer will pay, in addition to
all applicable taxes and tax-related surcharges, the following
applicable postalized rate per minute as determined by Customer's
Total Monthly Usage:
Total Monthly Usage Postalized Rate
------------------- ---------------
$ 0 to $ 550,000 Tariff
$ 550,000 to $ 750,000 $0.0789
$ 750,000 to $1,000,000 $0.0783
$1,000,000 and above $0.0778
(C) For any month that Customer fails to equal or exceed the 800 DAL
Subcommitment, Customer will pay an underutilization charge (which
Customer agrees is reasonable) equal to fifteen percent (15%) of the
difference between the 800 DAL Subcommitment and Customer's Monthly
Usage of MCI 800 DAL usage.
<PAGE>
3. Paragraph 3(c)(3) shall be deleted and the following inserted in its place:
At the end of the fourth year of the service term, MCI will adjust
Customer's MCI 800 DAL Service pricing to reflect the rate charged,
under the MCI Carrier Program in existence at that time, a Customer
who has a five (5) year, Five Hundred Fifty Thousand Dollar ($550,000)
contract commitment to MCI.
4. Paragraph 3(g) is added in its entirety as follows:
(g) INTERNATIONAL PRISM I SERVICE TERMINATING IN CANADA.
1) For Canadian traffic originating via dedicated access and
terminating in Canada, Customer will pay, in addition to all
applicable taxes and tax-related surcharges, the following postalized
rate per minute. The postalized rates provided in this Paragraph
shall only be applicable for traffic delivered by Customer to MCI in
Buffalo, New York; Seattle, Washington or Detroit, Michigan.
CANADIAN PRISM I RATE
$0.2300
5. The MCI Carrier Agreement MCI 800 DAL Addendum attached to this Amendment
is added to and made a part of the Agreement.
6. All other terms and conditions of the Agreement remain unchanged by this
Amendment and are in full force and effect.
7. If signed by Customer and returned to MCI on or before March 7, 1994, this
Amendment will be effective on February 1, 1994. If this Amendment is not
signed by Customer and received by MCI on or before March 7, 1994, this
Amendment will be effective on the first day of the first month following
execution of this Amendment by both parties.
8. This offer shall remain open and be capable of being accepted by Customer
until March 7, 1994. This Amendment together with the Agreement is the complete
agreement of the parties and supersedes all other prior agreements and
representations concerning its subject matter. Any further amendments must be
in writing and signed by both parties.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Amendment on the date indicated below.
MCI TELECOMMUNICATIONS GENERAL COMMUNICATIONS, INC.
CORPORATION
By: ________________________________ By: _______________________________
Its: ______________________________ Its: ______________________________
Date: ______________________________ Date: ______________________________
3
<PAGE>
FIFTH AMENDMENT TO THE
MCI CARRIER AGREEMENT
This FIFTH AMENDMENT TO THE MCI CARRIER SERVICES MCI CARRIER AGREEMENT ("Fifth
Amendment") is between MCI TELECOMMUNICATIONS CORPORATION ("MCI") and GENERAL
COMMUNICATIONS, INC. ("Customer"), with offices located at 2550 Denali Street,
Suite 1000, Anchorage, Alaska 99503.
WHEREAS, Customer and MCI are parties to an MCI Carrier Services MCI Carrier
Agreement with an Effective Date of January 1, 1993, which was subsequently
amended by (i) an Amendment to the MCI Carrier Agreement ("First Amendment"),
executed on April 20, 1994, (ii) an Amendment No. 1 ("Second Amendment"),
executed on July 26, 1994, (iii) a Third Amendment ("Third Amendment"), executed
on November 23, 1994, and (iv) a Fourth Amendment ("Fourth Amendment"), executed
by Customer on July 31, 1995, (collectively the "Original Agreement"), and
WHEREAS, the parties desire to amend the Original Agreement,
NOW, THEREFORE, the parties agree as follows:
1. Subparagraph 2(i) shall be deleted and replaced with the following:
(i) domestic interstate MCI PRISM I Service, MCI Remote Origination
Services, as defined below, MCI 800 DAL Service, MCI Connections Card
Service, MCI Carrier Operator Services, MCI Debit Card Service and MCI
Directory Assistance (hereinafter "MCI Services") at the rates set forth in
Paragraph 3 below, before application of discounts earned hereunder, but
not including any applicable taxes (and gross receipts taxes) and
tax-related surcharges on MCI Services;
2. The following shall be added as new Paragraph 3(j):
(j) MCI CARRIER DEBIT CARD.
1) Customer shall utilize MCI for the debit card platform and
transport of Customer's domestic interstate termination of debit card
traffic. Debit card units shall be as defined in the Tariff (hereinafter
"Debit Card Units"). The rate set forth herein shall include access to the
MCI debit card platform, transport, order entry and debit card activation.
Customer shall pay a $0.135 rate per Debit Card Unit. The rate set forth
herein includes customer services. Operator services are not included. If
Customer chooses to purchase MCI operator services pursuant to the terms
and conditions of the Tariff, an additional $0.01 per Debit Card Unit shall
be added to the rate set forth herein.
MCI CONFIDENTIAL
<PAGE>
2) Customer's Debit Card Units will only be reduced by the Debit
Card Units utilized by completed calls (calls that are answered at the
ultimate destination). Customer shall receive no refund or reimbursement
for unused Debit Card Units.
3) In addition to the above rates, Customer shall pay an additional
Six Hundred Dollar ($600.00) charge for each customized script identifying
Customer to its end user.
4) Customer shall be solely responsible for all card fulfillment and
any operator service if customer does not purchase from MCI.
5) Customer shall not include MCI's name or logo on any Customer
debit card.
6) Customer shall receive no refund or reimbursement for unused
Debit Card Units.
7) Upon batch activation of the Debit Card PIN's, invoicing of such
batch order will commence.
3. The typographical error in Amendment No. 1 ("Second Amendment"), executed
July 26, 1994 is corrected to read Paragraph "3(h)" rather than 3(g)". Said
Paragraph is not intended to replace Paragraph "3(g)" which was inserted as a
new Paragraph in the "First Amendment" executed April 20, 1994.
4. This Fifth amendment shall be effective on the first day of the next
billing cycle following Customer's signature below ("Effective Date").
Except as herein modified or amended, all of the terms, conditions and
provisions contained in the Original Agreement shall remain unchanged and in
full force and effect. This Fifth Amendment together with the Original
Agreement is the complete agreement of the parties and supersedes all other
prior agreements and representations concerning its subject matter.
This offer will remain open and be capable of being accepted by Customer until
April 1, 1996.
IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment on the
date indicated below.
MCI CONFIDENTIAL
-2-
<PAGE>
MCI TELECOMMUNICATIONS GENERAL
CORPORATION COMMUNICATIONS, INC.
BY: BY:
-------------------------- ---------------------------
PRINT: PRINT:
----------------------- ------------------------
TITLE: TITLE:
----------------------- ------------------------
DATE: DATE:
----------------------- -------------------------
MCI CONFIDENTIAL
-3-
<PAGE>
August 6, 1993
Mr. Ronald A. Duncan
President
General Communication Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
Dear Ron:
This letter confirms the basic terms of the agreement between MCI
Telecommunications Corporation ("MCI") and General Communication Inc. ("GCI") to
license GCI to use MCI's "1-800-COLLECT" servicemarks and product
functionalities for GCI collect calling originating in Alaska. We have agreed
to the following terms:
1. MCI will instruct the SMS (Service Management System) to deliver all
"1-800-COLLECT" traffic originating from Alaska to GCI using the GCI CIC
(carrier identification code). Except as noted below, GCI will carry this
traffic on its network and will provide all operator service support necessary
to deliver the service for interstate and intrastate calls originating in
Alaska.
a. GCI will route all "1-800-COLLECT" calls that originate in Alaska
and request an international termination to MCI's Tucson Operator Services
center for handling by MCI. Additionally, GCI will route all "1-800-COLLECT"
calls requesting foreign language assistance to MCI's Tucson center.
b. This Agreement modifies Sec. 2A(2) and implements in part Sec.
2A(4) of the Contract for Alaska Access Services made by the parties.
2. MCI will provide GCI with a non-transferrable, revokable license to
offer "1-800-COLLECT" calling for calls originating in Alaska. GCI acknowledges
MCI's ownership of all patent, trademark, copyright and other intellectual
property rights associated with "1-800-COLLECT" servicemarks and product
functionalities.
a. The license permits GCI to use the MCI-proprietary
"1-800-COLLECT" product functionalities, call flow, scripting and other unique
"1-800-COLLECT" operational features.
b. The license permits GCI to use the "1-800-COLLECT" and "America's
Least Expensive Way To Call Someone Collect" servicemarks in billing inserts,
advertising and other marketing efforts targeted at Alaska-based long distance
collect callers. All use by GCI of the "1-800-COLLECT" marks in any
advertising, press releases, marketing material, operator scripts and other
applications must receive MCI's prior approval, which shall not be unreasonably
withheld. MCI will approve or disapprove advertising and promotional materials
submitted by GCI to MCI within
<PAGE>
Mr. Ronald A. Duncan
July 4, 1997
Page 2
five business days of receipt by MCI. If MCI does not comment within the
prescribed period the materials will be deemed approved.
c. This license shall terminate upon the earlier of (i) twelve (12)
months after the date MCI no longer has an equity interest in GCI and, (ii) the
date GCI no longer utilizes MCI for the provision of message toll services to
GCI at prices and terms as favorable as the alternative GCI elects to utilize.
In addition, this license is revokable by MCI upon ninety (90) days notice in
the event that the "1-800-COLLECT" services and related support furnished by GCI
in connection with the "1-800-COLLECT" servicemark, are no longer substantially
similar or equivalent, in MCI's discretion, to MCI's "1-800-COLLECT" service and
support in terms of quality and technology.
3. GCI shall be responsible for billing and collection of all
"1-800-COLLECT" calls it carries that originate in Alaska. Additionally, GCI
agrees to bill and collect MCI's "1-800-COLLECT" calls originating from states
other than Alaska under terms of our existing billing and collection
relationships and/or under terms to be mutually agreed upon by the parties.
4. GCI agrees to utilize MCI's approved format for "1-800-COLLECT" call
flow, branding and scripting for all GCI "1-800-COLLECT" calls. MCI will work
closely with GCI to coordinate these efforts.
5. GCI shall be responsible for filing all tariffs necessary for it to
carry "1-800-COLLECT" traffic. GCI shall ensure that all intrastate and
interstate pricing for "1-800-COLLECT" calls originating in Alaska on GCI's
network shall provide callers with the least expensive collect call originating
from the applicable Alaska location. MCI shall use its best efforts to provide
GCI with adequate information, with due regard to normal tariff and regulatory
filing schedules, to allow GCI to fulfill its tariffing and regulatory
obligations.
6. GCI will provide MCI with weekly reporting on all "1-800-COLLECT"
traffic, including reports on call volumes, call completions, minutes, revenue,
and to the best of its ability traffic passed by GCI to MCI for international
completion or for language assistance, according to a mutually agreed-upon
format.
7. GCI will reimburse MCI for MCI's reasonable out-of-pocket costs and
expenses associated with implementing the terms of this agreement.
<PAGE>
Mr. Ronald A. Duncan
July 4, 1997
Page 3
8. Either party may terminate this Agreement upon forty-five (45) days
notice in the event that:
a. The other party violates any term of this Agreement and/or fails
to observe or perform according to any provision of this Agreement.
b. The other party terminates business, or admits its inability to
pay its debts as they become due, or if any bankruptcy, insolvency, dissolution
or other proceeding is instituted against it or if it makes any assignment for
the benefit of creditors or enters into any composition with creditors or takes
any action in furtherance of any of the foregoing.
Sincerely,
-----------------------
Gerald H. Taylor
AGREED:
- ---------------------------
Ronald A. Duncan
President
General Communication Inc.
<PAGE>
SERVICE MARK LICENSE AGREEMENT
THIS AGREEMENT, made as of the 13th day of April 1994 an effective as of
the date of the last signing Party hereto (the "Effective Date"), by and between
MCI Communications Corporation ("MCI"), a company incorporated in Delaware with
its principal place of business at 1801 Pennsylvania Avenue, NW, Washington, DC
20006, acting through the Consumer Markets Unit of its wholly owned subsidiary,
MCI Telecommunications Corporation ("MCIC"), located at 1200 South Hayes Street,
Arlington, VA 22202 (hereinafter the "Licensor"), and General Communication,
Inc. ("GCI"), an Alaska corporation with its principal place of business at 2550
Denali Street, Anchorage, AL 99503, (hereinafter the "Licensee").
WHEREAS, MCIC and GCI have entered into a Stock Purchase Agreement as of
March 31, 1993, under which MCIC has purchased an equity ownership interest in
GCI; and
WHEREAS, GCI wishes to have the right to use in Alaska in connection with
providing telecommunications services the service marks "Friends & Family" and
"Calling Circle," hereinafter known as "the Marks," which Marks are registered
by MCI, and MCI is willing to license GCI to use the Marks subject to the terms
of this Agreement.
NOW, THEREFORE, the Parties agree as follows:
1. Grant.
1.1 Licensor hereby grants to Licensee an exclusive, nontransferable
license to use the Marks within the State of Alaska, but not elsewhere, in
connection with the sale, provision or performance of services related to a
discount program that is the same as Licensor's "Friends & Family" program, but
for no other purpose, and Licensee accepts the said license subject to the
following terms and conditions.
1.2 This license does not include any right of the Licensee to
sublicense any of the rights granted herein to third parties or affiliates.
1.3 The license does not affect Licensor's continuing right to use,
in its sole discretion, the Marks in Alaska. Nor does it affect Licensor's
right to provide telecommunications service in Alaska should it become certified
to do so.
1.4 The license shall be used by Licensee in connection with a
program for residential customers only and not in connection with
telecommunication products sold primarily to businesses.
1.5 Licensee acknowledges that the Marks are owned by Licensor,
agrees that it will do nothing inconsistent with such ownership, and further
agrees that all use of the marks by Licensee shall inure to the benefit of and
be on behalf of Licensor. Licensee agrees that nothing in this license shall
give it any right, title or interest in the Marks other than the right to use
the Marks in accordance
<PAGE>
with this license, and Licensee agrees that it will not attack the title of
Licensor to the Marks or attack the validity of this license.
2. The Licensee Program.
2.1 Licensee will use the Marks in connection with its "Friends &
Family" program, which will be, to the extent possible, identical with
Licensor's "Friends & Family" program as it exists on the Effective Date and as
it may be modified by Licensor over time. Licensee agrees that the nature and
quality of all services provided by it in connection with the Marks shall
conform to the standards set by and be under the control of Licensor. Licensee
agrees to cooperate with Licensor in facilitating Licensor's control of such
nature and quality, to permit Licensor to make reasonable inspection of
Licensee's operations, and to supply Licensor with specimens of use of the Marks
promptly upon Licensor's request. Licensee shall comply with all applicable
laws and regulations and obtain all appropriate government approvals pertaining
to the provision of services under the Marks covered by this license.
2.2 Licensee agrees to use the Marks only in the form and manner
prescribed from time to time by Licensor, and not to use any other trademark or
service mark in combination with any of the Marks or that is similar to the
Marks without the prior written approval of Licensor.
2.3 Licensee will offer a 20 percent discount on calls originating in
Alaska and terminating in Alaska or in the rest of the United States to numbers
associated with customers who are members of the customer's Friends & Family
"Calling Circle." Customers may have up to twenty (20) persons on their Calling
Circles, who must be Licensee customers if resident in Alaska or Licensor
customers if resident in the remainder of the United States. In addition
Licensee's Friends & Family customers may name three foreign telephone numbers
on which the Licensee customer will receive a 20 percent discount. Licensee's
Friends & Family discounts need not be given in addition to other discount plans
Licensee may offer. Licensee will require no sign-up or monthly fees for its
program.
2.4 As the basic Licensor Friends & Family program changes over time,
Licensee will change its program so that the two Friends & Family programs
remain as identical as possible. For the purposes of this Agreement, the "Basic
Friends & Family Program" is the standalone "Friends & Family" program, as
described in MCI's FCC Tariff No. 1 as it may be amended, and does not include
ancillary programs, like "Friends & Family Days" or "Best Friends," that may
reference "Friends & Family" but which are not required or necessary elements of
the basic "Friends & Family" program described in Section 2.3, above. If,
however, Licensee does in the future wish to adapt any ancillary programs
corresponding to such programs as "Friends & Family Days" or "Best Friends," it
will first seek a license to do so from Licensor and, upon the grant of any such
license, adapt them to remain as identical as possible with the corresponding
Licensor programs. Thereafter, such additional licensed marks shall be deemed
licensed Marks under this Agreement, and shall be subject to the terms and
conditions of this Agreement except as may otherwise be specifically amended by
the Parties in writing.
-2-
<PAGE>
2.5 Licensee will identify in all of its marketing and advertising
materials using the Marks that the Marks are registered service marks owned by
Licensor, are being used under license from Licensor, and pertain to Licensor's
Friends & Family program which is being made available by Licensee to its
customers in Alaska.
2.6 Licensee will keep Licensor fully informed about its "Friends &
Family" program and will not change its program without prior Licensor approval.
2.7 Licensee will pay reasonable cost-based fees for information,
services, support and materials that it may request from MCIC and MCIC provides
in connection with Licensor's Friends & Family program including services
provided prior to the effective date of this Agreement. Licensor will provide
appropriate detail and documentation for all charges. Licensee will pay for
valid charges within thirty (30) days of receipt of Licensor's bill.
3. Control of the Use of the Marks
3.1 Licensee will submit all Licensee marketing materials, sales,
print and media communications, and promotions bearing one or more of the marks
to a designated point of contact at Licensor, as hereinafter provided, for
approval prior to use. If Licensor (through the designated point of contact in
Residential Product Marketing) does not disapprove Licensee's "Friends & Family"
materials by the fifth (5th) business day after receipt by the designated point
of contact such advertising and/or promotional materials will be deemed
approved.
3.2 Licensee understands that the Marks are extremely valuable assets
belonging to Licensor, and Licensee will not use or permit the use of the Marks
in any manner whatsoever which may jeopardize their significance,
distinctiveness cr validity.
4. Infringement
4.1 In the event that Licensee learns of any infringement, suspected
infringement or other unauthorized use or proposed use of the Marks, Licensee
shall immediately notify the Licensor who shall have the sole right and
discretion to bring infringement or unfair competition proceedings or take other
appropriate action involving the Marks. Licensee shall, however, take no action
on its own in connection with such infringement without the prior written
consent of the Licensor. Licensee agrees to give to the Licensor such
assistance as may be required in any proceedings or other actions taken or
instituted by the Licensor with respect to such infringement or unauthorized
use.
5. Termination
5.1 This license shall terminate upon the earlier of (i) twelve (12)
months after the date MCI no longer holds an equity interest in GCI or, (ii) the
date GCI no longer uses MCI for the provision of message toll services to GCI .
In addition, this license is revocable by MCI upon ninety (90) days written
notice if, in the sole determination by MCI, Friends & Family as offered by GCI
is
-3-
<PAGE>
no longer substantially similar to MCI's Friends & Family or if the related
support furnished by GCI in connection with Friends & Family is, as
determined solely by MCI, not substantially similar or equivalent to the
service and support in terms of quality and technology as that provided by
MCI for Friends Family.
5.2 Upon termination of the Agreement Licensee agrees (a) immediately
to discontinue the use of the marks and any terms confusingly similar thereto,
(b) to cooperate with Licensor or its appointed agent in applying to the
appropriate authorities to cancel recording of this Agreement from all
government records if the Agreement is so recorded, and (c) to destroy all
printed materials bearing any of the Marks thereon.
6. Provision of Data
6.1 Consistent with the requirements of the Communications Act of
1934 and all applicable governmental regulations regarding the acquisition, use
and dissemination of customer information, the Parties will provided each other
with customer data that is necessary and appropriate to operate the program.
Data provided to either party will be erased from tapes once it is loaded into a
party's system and tapes shall be returned to the sending party. At all times
the data will be kept secure from theft, unauthorized use, or unauthorized
copying. Each party may inspect the security arrangements of the other in this
regard and make reasonable requests to ensure data security. Neither Party will
use any data received from the other except as explicitly permitted by the
providing party and in connection with the Marks.
7. Confidentiality
7.1 Both Parties will (a) keep confidential all proprietary
information that may be supplied in connection with Licensee's use of the Marks
including, without limiting the generality of the foregoing, data provided under
Section 6.1, above, marketing plans, pricing change information, program change
information, promotions or any other aspect of either Party's programs using the
Marks, (b) protect such proprietary information from unauthorized disclosure
using the same degree of care that the Receiving Party uses with its proprietary
information of like importance, (c) not release or disclose such proprietary
information or data to any third party, nor (d) use such information and data
except as permitted under this Agreement or in a separate writing signed on
behalf of the disclosing party, without the prior written permission of the
other. Any violation of this Section 7.1 shall be deemed a material breach of
this Agreement.
7.2 Disclosure of proprietary information shall not be precluded if
such disclosure is: (a) in response to a valid order of a court or other
governmental body of the United States or any political subdivision thereof;
provided, however, that the Receiving Party shall first have given notice of
such order to the Disclosing Party, and the Receiving Party shall, to the extent
possible, make a reasonable effort to obtain a protective order requiring that
the information so disc1osed be used only for the purpose for which the order
was issued, or, (b) otherwise required by law or government
-4-
<PAGE>
regulation, or, (c) already in the possession of the Receiving Party without
obligation of confidence, or, (d) independently developed by the Receiving
Party without access to the Disclosing Party's confidential information, (e),
or becomes publicly available without breach of this Agreement, or, (f)
rightfully received by the Receiving Party from a third party under no
obligation of confidentiality, or, (g) released for disclosure by the
Disclosing Party with its written consent, or, (h) inherently disclosed in
the use of or otherwise publicly available in supporting documentation for
any present or future service of the Disclosing Party.
8. Indemnification
Licensee agrees, at its own expense, to defend, indemnify and hold
Licensor harmless from and against any and all claims, suits, actions,
proceedings, judgments, damages, liabilities, costs and expenses (including
attorneys' fees) arising from its use of the Marks and provision of
telecommunications services, other than .a claim based on an assertion by a
third party that Licensor does not own the Marks and/or does not have the right
to grant the license set forth in Section 1.1, above.
9. Period of License
9.1 This Agreement shall continue in force without limit subject to
the termination provisions contained in Section 5, above.
10. Notices
Any notice or other communications which are required or permitted
under this Agreement shall be in writing and shall be deemed given only when
received if delivered personally, or sent electronically or by registered or
certified mail, postage prepaid, as follows:
To Licensor:
Vice President Product Marketing
MCI Telecommunications Corporation
1200 S. Hayes Street
Arlington, VA 22202
To Licensee:
Senior Vice President, Marketing Sales
General Communication Inc.
2550 Denali Street, Suite 1000
Anchorage, AL 99503
11. Assignment
-5-
<PAGE>
11.1 This Agreement may not be assigned by the Licensee without the
prior written permission of Licensor.
12. Applicable Law
12.1 The construction of this Agreement and the enforcement of its
terms shall be made pursuant to the law of New York without regard to its choice
of law provisions.
13. Miscellaneous.
13.1 Neither Party is an agent of the other for any purpose. Neither
Party shall make any warranties or representations, or assume or create any
obligations on behalf of the other.
13.2 The title of this Agreement and the headings of its Sections are
inserted for convenience of reference only and shall not affect its meaning.
13.3 All obligations that by their nature survive the expiration,
cancellation or termination of this Agreement shall remain in effect after its
expiration, termination or cancellation.
13.4 The Parties do not intend to create an interest in any third
party by this Agreement except to the extent as may be expressly provided
herein.
13.5 This Agreement may only be changed or supplemented by a written
amendment, executed by authorized representatives of both Parties.
13.6 Each Party agrees not to use any service or trademark of the
other or of its affiliates except as provided herein, nor will either Party
refer to the other or its affiliates except as provided for herein or with the
prior written approval of such other Party.
13.7 If any provision of this Agreement is held to be illegal,
invalid or unenforceable, the remaining terms shall not be affected. The
Agreement shall be interpreted as if the illegal, invalid or unenforceable term
had not been included in it, and the invalid or unenforceable provision will be
replaced by a mutually acceptable provision which, being valid and enforceable,
comes closest to the intention of the Parties underlying the invalid or
unenforceable provision.
14. Entire Agreement.
14.1 The Parties agree that this Service Mark License Agreement is
the entire and complete understanding of the Parties with respect to the subject
matter hereof and supersedes all prior or contemporaneous representations,
understanding or agreements written or oral pertaining to its subject matter.
-6-
<PAGE>
IN WITNESS WHEREOF authorized agents of the Parties have executed this
Service Mark License Agreement.
MCI Communications Corporation
By:
---------------------------
James M. Schneider
Senior Vice President, Finance
Date: 5/3/94
General Communications. Inc.
By:
----------------------------
William Behnke
Senior Vice President, Marketing
Date: 5/3/94
<PAGE>
United States of America
Federal Communications Commission
RADIO STATION AUTHORIZATION
Commercial Mobile Radio Services
Personal Communications Service - Broadband
GCI COMMUNICATION CORPORATION Call Sign: KNLF298
2550 Denali Street, Suite 1000 Market: M049
Anchorage, AK 99503 2781 ALASKA
Channel Block: B
File Number: 00095-CW-L-95
................................................................................
The licensee hereof is authorized, for the period indicated, to construct and
operate radio transmitting facilities in accordance with the terms and
conditions hereinafter described. This authorization is subject to the
provisions of the Communications Act of 1934, as amended, subsequent Acts of
Congress, international treaties and agreements to which the United States is a
signatory; and all pertinent rules and regulations of the Federal Communications
Commission, contained in the Title 47 of the U.S. Code of Federal Regulations.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Initial Grant Date . . . . . . . . . . . .JUNE 23, 1995
Five-Year Build Out Date . . . . . . . . .JUNE 23, 2000
Expiration Date. . . . . . . . . . . . . .JUNE 23, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDITIONS:
Pursuant to Section 309(n) of the Communications Act of 1934, as amended,
(47 U.S.C. Section 309(h)), this license is subject to the following conditions:
This license does not vest in the licensee any right to operate a station nor
any right in the use of frequencies beyond the term thereof nor in any other
manner than authorized herein. Neither this license nor the right granted
thereunder shall be assigned or otherwise transferred in violation of the
Communications Act of 1934, to amended (47 U.S.C. Section 151, et seq.).
This license is subject in terms to the right of use or control conferred by
Section 706 of the Communications Act of 1934, as amended (47 U.S.C.
Section 606).
Conditions continued on Page 2.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WAIVERS:
No waivers associated with this authorization.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issue Date: June 23, 1995
FCC Form 463a Page 1 of 2
<PAGE>
CONDITIONS:
This authorization is subject to the condition that, in the event that systems
using the same frequencies as granted herein are authorized in an adjacent
foreign territory (Canada/United States), future coordination of any base
station transmitters within 72 km (45 miles) of the United States/Canada border
shall be required to eliminate any harmful interference to operations in the
adjacent foreign territory and to ensure continuance of equal access to the
frequencies by both countries.
This authorization is subject to the condition that the remaining balance of the
winning bid amount will be paid in accordance with Part 1 of the Commission's
rules. 47 C.F.R. Part 1.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issue Date: June 23, 1995
FCC Form 463a Page 1 of 2
<PAGE>
ALASKA PUBLIC UTILITIES COMMISSION
CERTIFICATE
OF
PUBLIC CONVENIENCE AND NECESSITY
NO. 436
HAVING FOUND THAT THE GRANTEE OF THIS CERTIFICATE IS FIT, WILLING, AND ABLE TO
PROVIDE THE UTILITY SERVICES APPLIED FOR AND THAT SUCH SERVICES ARE REQUIRED FOR
THE CONVENIENCE AND NECESSITY OF THE PUBLIC, THE ALASKA PUBLIC UTILITIES
COMMISSION, PURSUANT TO THE AUTHORITY VESTED IN IT BY AS 42.05, HEREBY ISSUES
THIS CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO
GCI COMMUNICATION CORP.
AUTHORIZING IT TO OPERATE A PUBLIC UTILITY, AS DEFINED BY AS 42.05.990(4)(B) FOR
THE PURPOSE OF FURNISHING
TELECOMMUNICATIONS SERVICE
(RELAY SERVICE)
<PAGE>
STATE OF ALASKA
THE ALASKA PUBLIC UTILITIES COMMISSION
Before Commissioners: Sam Cotten, Chairman
Don Schroer
Alyce A. Hanley
Dwight D. Ornquist
Tim Cook
In the Matter of the Application for )
Transfer to GCI CABLE, INC.; GCI ) U-96-43
CABLE/FAIRBANKS, INC.; and GCI )
CABLE/JUNEAU, INC., Certificate of ) ORDER NO. 1
Public Convenience and Necessity )
Nos. 143, 144, 156, 157, 158, 164, )
168, 191, 245, 246, 252, 261, 287, )
367, and 401(1) To Operate at Tele- )
communications (Cable Television) )
Public Utilities )
)
ORDER APPROVING TRANSFER UPON CLOSING, SUBJECT TO
CONDITIONS, AND REQUIRING FILINGS
BY THE COMMISSION:
__________________
(1) Certificate of Public Convenience and Necessity (Certificate) Nos. 143
and 144 are held by KETCHIKAN-SITKA CABLEVISION, INC. (KSCI); Certificate No.
156 is held by ALASKAN CABLE NETWORK/JUNEAU, INC. d/b/a ALASKAN CABLE NETWORK
(Alaskan Cable); Certificate Nos. 157, 158, 164, 168, 191, and 245 are held by
ALASKA CABLEVISION, INC. (ACVI); Certificate Nos. 246, 261, and 287 are held by
PRIME CABLE OF ALASKA, L.P. (Prime); see orig,[ ] Certificate No. 367 is held
by MCCAW/ROCK SEWARD CABLE SYSTEM d/b/a SEWARD CABLEVISION (MCCAW/RII); and
Certificate No. 401 is held by MCCAW/ROCK HOMER CABLE SYSTEM d/b/a HOMER
CABLEVISION (MCCAW/Rock).
<PAGE>
On May 23, 1996, GCI Cable, Inc. (GCICI); GCI Cable/Fairbanks, Inc.
(GCICF); and GCI Cable/Juneau, Inc. (GCICJ),(2) (collectively, GCI Cable) filed
a consolidated application to transfer to them the Certificates from the
existing Certificate holders shown below.
Certificate Number Area Served Transferor Transferee
- -------------------------------------------------------------------------
246 Bethel Prime GCICI
261 Anchorage
287 Kenai/Soldotna
144 Ketchikan KSCI
143 Sitka
158 Wrangell/Petersburg ACVI
157 Cordova
191 Valdez
168 Kodiak
164 Nome
245 Kotzebue
401 Homer McCaw/Rock
- -------------------------------------------------------------------------
367 Seward McCaw/RII
- -------------------------------------------------------------------------
252 Fairbanks ACNI GCICF
- -------------------------------------------------------------------------
156 Juneau Alaskan Cable GCICJ
- -------------------------------------------------------------------------
Notice of the application was issued on June 17, 1996, with a closing
date of July 18, 1996, for the submission of statements in favor of, or in
opposition to, the application. Responses to the notice were received from Dr.
Thomas Brewer, Provost, University of Alaska Anchorage; Robert P. Penzenik,
Chairman, Institutional Users Consortium and Supervisor, Audio Visual & Related
Services, Anchorage School District; Tom Mempton, Facility Manager, Anchorage
Municipal Libraries; and the Municipality of Anchorage d/b/a Anchorage Telephone
Utility a/k/a ATU Telecommunications.
_______________________
(2) GCICI, GCICF, and GCICJ are newly formed corporations wholly owned by
GCI Communication Corp. d/b/a General Communication, Inc., and GCI and "sister"
corporation GCI Communication Corp.
<PAGE>
On September 18, 1996, the Commission Staff (Staff) submitted its analysis
and recommendation (Report)(3) regarding the application and filings in this
proceeding. Staff's Report sets out in detail the history of the proceeding and
Staff's findings and recommendations regarding disposition of the
application.(4) A copy of Staff's Report is attached to this Order as an
Appendix.
Staff concluded that GCI Cable, based on its application, has demonstrated
that it is fit, willing, and able to operate the transferred cable television
systems and that the proposed transfers are affirmatively consistent with the
public interest. Thus, Staff recommended that the following transfers be
approved effective upon GCI Cable's final closing of the acquisitions:
1) Certificate No. 252 from ACNI to GCICF;
2) Certificate No. 156 from Alaskan Cable to GCICJ;
3) Certificate Nos. 246, 261, and 287 from Prime to GCICI;
4) Certificate Nos. 144 and 143 from KSCI to GCICI;
5) Certificate Nos. 157, 158, 164, 168, 191, and 242 from ACVI to GCICI;
6) Certificate No. 401 from McCaw/Rock to GCICI; and
7) Certificate No. 367 from McCaw/RII to GCICI.
In addition, Staff recommended that GCICJ be required to file an adoption notice
and, later, a separate tariff in its own name. Additionally, Staff recommended
that GCICI, GCICJ, and GCICF each file, by March 15th of every year, an income
statement and balance sheet for its respective operation.
DISCUSSION
Based on its review of the record in this proceedings, the Commission
concurs with Staff's recommendation that the proposed transfers are
affirmatively consistent with the public interest and that GCICI, GCICJ, and
GCICF are fit, willing, and able to operate the cable
____________________
(3) The Commission notes that n. 2 at p. 8 of Staff's Report contains an
incorrect cite. In Staff's Report, the cite to "47 U.S.C. 541(b)(3)(B)" should
be changed to "Sect. 303(a) of the telecommunications Act of 1996, Pub. L. No.
104-104, 56 Stat. 110, February 8, 1996."
(4) Staff's Report includes a detailed discussion of the comments received
in this proceeding and GCI Cable's response to those comments, and that
discussion will not be reiterated in this Order.
<PAGE>
television systems proposed to be transferred to each. In addition, the
Commission concurs with Staff's recommendation that GCICJ should be required
to file an adoption notice and, later, a separate tariff in its own name and
that GCICI, GCICJ, and GCICF should each be required to file annual income
and balance sheets for each respective telecommunications operation.
Accordingly, the Commission will grant GCI Cable's application for
transfer of the certificates effective upon the closing of the acquisitions.
The Commission will also require GCICJ to file an adoption notice and, later,
a separate tariff in its own name and will require GCICI, GCICJ, and GCICF to
each file annual income statements and balance sheets.
The Commission has further determined that as a condition of approval of
the transfers herein GCI Cable shall be obligated to terms and conditions
similar to those delineated in ordering Paragraphs G and H of Order
U-85-62-(3), dated March 26, 1986,(5)updated to include the current available
cable channels. Those Ordering Paragraphs defined the provision of channel
capacity for public, education, and governmental use in that proceeding.
While Order U-85-62(3) was directed only to Certificate Nos. 261 and 287, the
Commission will require GCI Cable to continue to provide the same level of
public, education, and governmental use required of each Certificate under
previous Commission orders.
Staff's Report is incorporated herein by reference and adopted as the
Commission's findings of fact and conclusions of law.
ORDER
THE COMMISSION FURTHER ORDERS:
1) The application by GCI Cable, Inc., GCI Cable/Fairbanks, Inc., and GCI
Cable/Juneau, Inc., to transfer Certificate of Public Convenience and Necessity
No. 252 from Alaskan Cable Network, Inc., to GCI Cable/Fairbanks, Inc.;
Certificate of Public Convenience and Necessity No. 156 from Alaskan Cable
Network/Juneau, Inc. to GCI Cable/Juneau, Inc.
__________________
(5) That Order was issued in the proceeding entitled: In the Matter of the
Application for Transfer of Certificates of Public Convenience and Necessity
Nos. 261 and 287 to Operate as a Telecommunications (Cable television) Public
Utility from MULTIVISIONS, LTD., and from INLETVISIONS, INC., to SONIC CABLE
TELEVISION OF ALASKA, INC.
<PAGE>
Certificate of Public Convenience and Necessity Nos. 246, 261 and 287 from Prime
Cable of Alaska, L.P., to GCI Cable, Inc.; Certificate of Public Convenience and
Necessity Nos. 143 and 144 from Ketchikan-Sitka Cablevision, Inc., to GCI Cable,
Inc.; Certificate of Public Convenience and Necessity Nos. 157, 158, 164, 168,
191, and 245 from Alaska Cablevision, Inc., to GCI Cable, Inc.; Certificate of
Public Convenience and Necessity No. 401 from McCaw/Rock Homer Cable system to
GCI Cable, Inc.; and Certificate of Public Convenience and Necessity No. 367
from McCaw/Rock Seward Cable System to GCI Cable, Inc., is approved effective
upon closing of the acquisitions.
2) The public, education, and governmental use obligations previously
imposed by the Commission upon the Certificates of Public Convenience and
Necessity delineated in Ordering Paragraph No. 1 of this Order are transferred
to GCI Cable, Inc., GCI Cable/Fairbanks, Inc., and GCI Cable/Juneau, Inc., and
those entities shall continue to provide service under the same conditions as
required by previous Commission Orders regarding those enumerated Certificates
of Public Convenience and Necessity.
3) Upon closing of the acquisition of Alaskan Cable Network/Juneau, Inc.,
GCI Cable/Juneau, Inc., shall file an adoption notice and, within ninety days
after filing that adoption notice, shall file a separate tariff in its own name.
4) GCI Cable, Inc.; GCI Cable/Fairbanks, Inc.; and GCI Cable/Juneau,
Inc.; each shall file by March 15, 1997, and by March 15th of each year
thereafter, its income statement and a balance sheet for its respective
telecommunications (cable television) public utility operations.
5) By 4 p.m., October 23, 1996, Ketchikan-Sitka Cablevision, Inc.;
Alaskan Cable Network/Juneau, Inc. d/b/a Alaskan Cable Network; Alaska
Cablevision, Inc.; Prime Cable of Alaska, L.P.; Alaskan Cable Network, Inc.;
McCaw/Rock Seward Cable System d/b/a Seward Cablevision; McCaw/Rock Home Cable
System d/b/a Homer Cablevision; each shall return to the Commission the
parchments of Certificate of Public Convenience and Necessity Nos. 143, 144,
156, 157, 158, 164, 168, 191, 245, 246, 261, 287, 252, 367, and 401,
respectively.
DATED AND EFFECTIVE at Anchorage, Alaska, this 23rd day of September, 1996.
<PAGE>
BY DIRECTION OF THE COMMISSION
(Commissioner Alyce A. Hanly,
not participating.)
<PAGE>
STATE OF ALASKA
THE ALASKA PUBLIC UTILITIES COMMISSION
Before Commissioners: Sam Cotten, Chairman
Don Schroer
Alyce A. Hanley
Dwight D. Ornquist
Tim Cook
In the Matter of the Application for )
Transfer to GCI Cable, Inc.: GCI ) U-96-43
CABLE/FAIRBANKS, INC.; and GCI )
CABLE/JUNEAU, INC., Certificate of ) ORDER NO. 2
Public Convenience and Necessity )
Nos. 143, 144, 156, 157, 158, 164, )
168, 191, 245, 246, 252, 261, 287, )
367, and 401(1) To Operate at Tele- )
communications (Cable Television) )
Public Utilities )
)
ORDER GRANTING EXTENSION OF TIME AND
CLARIFYING ORDER
BY THE COMMISSION:
On May 23, 1996, GCI Cable, Inc. (GCICI); GCI Cable/Fairbanks, Inc.
(GCICF); and GCI Cable/Juneau, Inc. (GCICJ),(2) (collectively, Applicants) filed
a consolidated application to transfer to them the Certificates from the
existing Certificate holders shown below.
________________________
(1) Certificate of Public Convenience and Necessity (Certificate) Nos.
143 and 144 are held by KETCHIKAN-SITKA CABLEVISION, INC. (KSCI); Certificate
No. 156 is held by ALASKAN CABLE NETWORK/JUNEAU, INC. d/b/a ALASKAN CABLE
NETWORK (Alaskan Cable); Certificate Nos. 157, 158, 164, 168, 191, and 245 are
held by ALASKA CABLEVISION, INC. (ACVI); Certificate Nos. 246, 261, and 287 are
held by PRIME CABLE OF ALASKA, L.P. (Prime); Certificate No. 367 is held by
MCCAW/ROCK SEWARD CABLE SYSTEM d/b/a SEWARD CABLEVISION (MCCAW/RII); and
Certificate No. 401 is held by MCCAW/ROCK HOMER CABLE SYSTEM d/b/a HOMER
CABLEVISION (MCCAW/Rock).
(2) GCICI, GCICF, and GCICJ are newly formed corporations wholly owned
by GCI Communication Corp. d/b/a General Communication, Inc., and d/b/a GCI and
"sister" corporation GCI Communication Corp.
Page 1 of 4
<PAGE>
Certificate Number Area Served Transferor Transferee
- -------------------------------------------------------------------------
246 Bethel Prime GCICI
261 Anchorage
287 Kenai/Soldotna
144 Ketchikan KSCI
143 Sitka
158 Wrangell/Petersburg ACVI
157 Cordova
191 Valdez
168 Kodiak
164 Nome
245 Kotzebue
401 Homer McCaw/Rock
- -------------------------------------------------------------------------
367 Seward McCaw/RII
- -------------------------------------------------------------------------
252 Fairbanks ACNI GCICF
- -------------------------------------------------------------------------
156 Juneau Alaskan Cable GCICJ
- -------------------------------------------------------------------------
By Order U-96-43(1), dated September 23, 1996, the Commission approved,
effective upon closing, the application to transfer the Certificates to
Applicants. That Order also included certain conditions on approval, including
the return by October 23, 1996, of the existing parchments or certificates held
by Prime, KSCI, ACVI, McCaw/Rock, McCaw/RII, ACNI, and Alaskan Cable.
On September 30, 1996, the applicants requested an extension of time for
the existing certificate holders to return the parchments of the respective
Certificates. Applicants stated that the extension was requested because
closing is scheduled for October 31, 1996, and the existing Certificate holders
did not wish to return the Certificates until after closing. Applicants
requested an extension of time until "30 days after closing" to return the
respective parchments.
Applicants also requested a clarification of Order U-96-43(1). Applicants
stated that the Order does not explicitly recognize that Prime will continue to
exist after closing and will continue to hold the same assets it now holds for
providing cable television service. Applicants further stated that GCICI will be
the 100 percent owner of Prime and that all aspects of the management and
operation of the cable system will be exactly as described in the application.
The
Page 2 of 4
<PAGE>
application stated that GCICI will be totally responsible for all
obligations of Prime. The Applicants also stated that GCICI intends to
eliminate Prime as an entity in the foreseeable future.
Applicants stated that either of two approaches is possible to recognize
the ownership structure. Applicants stated that Order U-96-43-(1) could be
clarified to recognize explicitly that the Certificates should be transferred to
GCICI, because of GCICI's 100 percent ownership of Prime. Alternatively,
applicants stated that Order U-96-43(1) could be clarified to authorize GCICI to
acquire a controlling interest in Prime with the Certificated remaining with
Prime.
DISCUSSION
The Commission has considered the request for an extension of time and
determined that it should be granted. The Commission's approval of the
application in Order U-96-43(1) is effective "upon closing." Until closing, it
is appropriate for the existing Certificate holders to retain the parchments
authorizing them to provide service. After closing, the existing Certificate
holders should have reasonable period within which to return the parchments.
Accordingly, the Commission will grant an extension of time until thirty days
after closing for return of the parchments.
The Commission has also considered the request for classification regarding
the ownership structure of Prime. The Commission recognizes that, after closing
of the transaction, Prime will continue to exist and hold the assets that are
used to provide cable television service and that GCICI will be the 100 percent
owner of Prime. Also, as the 100 percent owner of Prime, GCICI will be totally
responsible for all obligations of Prime. In addition, GCICI intends to
eliminate Prime as an entity in the foreseeable future. In view of GCICI's 100
percent ownership of Prime, the Commission believes that it is appropriate to
transfer the Certificates held by Prime to GCICI. Accordingly, Order U-96-43(1)
is clarified to recognize that Certificates 246, 261, and 287 are transferred to
GCICI, in light of its 100 percent ownership of Prime. In addition, the
Commission believes GCICI should inform the Commission when it eliminates Prime
as an entity and, if not done within one year of this Order, GCICI should inform
the Commission of the time frame that it plans to eliminate Prime as an entity.
Page 3 of 4
<PAGE>
ORDER
THE COMMISSION FURTHER ORDERS:
1. Within thirty days after closing of the acquisitions, Ketchikan-Sitka
Cablevision, Inc.; Alaskan Cable Network/Juneau, Inc. d/b/a Alaskan Cable
Network; Alaska Cablevision, Inc.; Prime Cable of Alaska, L.P.; Alaskan Cable
Network, Inc.; McCaw/Row Seward Cable System d/b/a Seward Cablevision; and
McCaw/Rock Homer Cable System d/b/a Homer Cablevision each shall return to the
Commission the parchments of Certificate of Public Convenience and Necessity
Nos. 143, 144, 156, 157, 158, 164, 168, 191, 245, 246, 252, 261, 287, 367, and
401, respectively.
2. The transfer of Certificate of Public Convenience and Necessity Nos.
246, 261, and 287 to GCI Cable, Inc., is affirmed in recognition of the
ownership structure described in the body of this Order.
3. GCI Cable, Inc., shall inform the Commission when it eliminates Prime
Cable of Alaska, L.P., as an entity and if it has not eliminated Prime Cable of
Alaska, L.P., as an entity by October 21, 1997, GCI Cable, Inc., shall file a
report by that date delineating its plans and time frame for eliminating Prime
Cable of Alaska, L.P., as an entity.
DATED AND EFFECTIVE at Anchorage, Alaska, this 21st day of October, 1996.
BY DIRECTION OF THE COMMISSION
Page 4 of 4
<PAGE>
John:
GCI needs to keep you. Try the following on for size. This would be in
addition to the promised options @ $3.
1. Base salary $125K - effective 7/1/92.
2. Annual cash bonus up to $30K based on company and individual performance.
$25K of 1992 bonus (to be paid in January '93) would be guaranteed if we
complete a refinancing and purchase the cable in 1992. Future performance
targets to be negotiated.
3. Deferred compensation package worth $450K to vest over 7 years ($65K/yr.).
Full face value to be paid immediately if:
(i) you die
(ii) your position is terminated
(iii) GCI terminates your employment.
If you leave voluntarily you lose unvested portion. I suggest you go talk
with Don Wilson or someone of his ilk about how to design an insurance
based deferred comp plan with $65K per year of funding. He can help set up
a structure that will have optimum tax consequences for both you and the
company.
4. Minimum 2-year commitment to GCI.
5. $100K cash signing bonus - paid at date of agreement.
6. Subject to board approval which I don't think is a problem.
7. Either way you keep your situation quiet for 60 days until I have time to
deal with other executive pay problems.
Let me know.
<PAGE>
DEFERRED COMPENSATION AGREEMENT
This Agreement entered into this 15TH day of August 1994, between GCI
Communication Corp. ("GCI") and DANA L. TINDALL ("Employee").
1. In consideration of the performance of the Employee for GC1, GCI
hereby agrees to pay Employee up to $50,000 as compensation in addition to the
current salary and benefits now paid contingent upon the Employee exercising
options as provided in the Stock Option Agreement dated June 2, 1993, between
General Communication, Inc. and Employee ("Stock Option Agreement").
2. GCI shall pay Employee One Dollar ($1.00) in compensation under this
Agreement for each share purchased by Employee pursuant to the Stock Option
Agreement payable at the time of Issuance of the Shares. All compensation shall
be subject to withholding and deductions as required by law or as established by
GCI.
3. The obligation to pay compensation hereunder or any portion thereof
shall terminate on the date the Stock Option Agreement terminates. In the event
of employee's death, the legal or personal representative of Employee's status
shall have the right to payment of the compensation hereunder on the same terms
and conditions as provided in Section 2(b) of the Stock Option Agreement.
GCI COMMUNICATION CORP.
By:________________________________
John M. Lowber
Senior Vice President
EMPLOYEE:
By:________________________________
Dana L. Tindall
<PAGE>
ADDENDUM TO GALAXY X
TRANSPONDER PURCHASE AGREEMENT
BETWEEN
GCI COMMUNICATION CORP.
AND
HUGHES COMMUNICATIONS GALAXY, INC.
This document shall constitute an Addendum to that certain Galaxy X
Transponder Purchase Agreement between GCI COMMUNICATION CORP. ("Buyer") and
HUGHES COMMUNICATIONS GALAXY, INC. ("HCG"), dated as of [_______________] (the
"Agreement"). This Addendum amends the Agreement as indicated herein. If there
is any inconsistency between this Addendum and the Agreement, then this Addendum
shall prevail. This Addendum is being executed concurrently and is dated as of
even date with, and is an integral part of, the Agreement. Any reference to the
"Agreement" shall refer collectively to the Agreement and this Addendum. Terms
not otherwise defined herein shall have the meanings set forth in the Agreement.
1. A NEW SECTION 22 IS ADDED HEREBY:
22. INTERIM CAPACITY: Buyer shall lease from HCG, and HCG shall lease to
Buyer, five (5) U.S.-Mode C-Band transponders on a satellite commonly known as
"Galaxy IX", which shall be located at 123DEG. West Longitude orbital location,
from the date on which transponder service on Galaxy IX shall commence (as
determined by HCG in its sole discretion) through the Delivery of Galaxy X, at a
Monthly Lease Rate of $65,000 per transponder per month, payable in advance on
the first day of each month. Provided that the Galaxy X Delivery has not
occurred on or before September 1, 1998, then HCG shall lease to Buyer, and
Buyer shall lease from HCG, another U.S.-Mode C-Band transponder on Galaxy IX
(thereby a total number of six (6) transponders) from September 1, 1998 through
the Galaxy X Delivery. Provided that the Galaxy X Delivery has not occurred on
or before September 1, 1999, HCG shall lease to Buyer, and Buyer shall lease
from HCG, another U.S.-Mode C-Band transponder on Galaxy IX (thereby a total
number of seven (7) transponders) from September 1, 1999 or September 1, 2000,
at Buyer's sole option, through the Galaxy X Delivery. Buyer may elect to take
Transponder Nos. 6 and 7 early with thirty (30) days advance notice to HCG. The
Monthly Lease Rate for the sixth and seventh Galaxy IX transponders shall be
$75,000 per transponder per month, payable in advance on the first day of each
month. Buyer shall notify HCG in writing of its decision to elect either
September 1, 1999 or September 1, 2000 as the start date for the lease of the
seventh (7th) transponder on or before March 1, 1999. If Buyer does not provide
HCG with such written notice, then Buyer shall be deemed to have elected the
September 1, 2000 date. If Buyer elects or is deemed to have elected the
September 1, 2000 date, then Buyer shall pay to HCG $500,000 either concurrently
with Buyer's written notice or on March 1, 1999, respectively. However, the
parties agree that the Monthly Lease Rate per each transponder shall increase to
$105,000 as of the date on which Galaxy X suffers a launch failure or March 1,
1998, whichever occurs first. The lease of the Galaxy IX transponders shall be
governed by the terms and conditions of the Agreement regarding use of the
Transponders, including Sections 7, 8, 9 and 10 and any other then-effective
HCG's standard provisions applicable to the lease or use
<PAGE>
of capacity on Galaxy IX. The condition precedent to the interim capacity on
Galaxy IX as set forth in this Section 22 shall be the successful launch and
operation of Galaxy IX.
In the event that Galaxy X is not Delivered into orbit on or before
December 31, 1998, or the launch thereof is a failure, AND NO REPLACEMENT IS
CONTEMPLATED, Buyer shall take all six of its Galaxy X C-Band Transponders on
Galaxy IX instead (all six (6) as a group in either U.S.-Mode or
Alaska-Mode), at the Monthly Lease Rate of $90,000 per Transponder per month,
for a Lease Term commencing on the date of such Delivery or launch failure
and terminating on the twelfth anniversary of the Delivery of Galaxy IX, and
the Capacity of Buyer on Galaxy IX shall continue as a Lease and not a
Purchase. In that event, Buyer agrees to execute any and all necessary
documents to convert the Purchase of Transponders on Galaxy X to a Lease of
the same amount of Capacity on Galaxy IX. Alternatively, Buyer shall have the
right to convert the lease of such Galaxy IX transponders to a purchase. The
purchase price shall be an amount representing $105,000 per month discounted
at 12% per annum, compounded monthly, based on the then-remaining life of
Galaxy IX. The TT&C fee and the in-orbit warranty fee shall be included in
the purchase price. The purchase of the Galaxy IX transponders shall be
governed by HCG's then-effective standard Galaxy IX purchase agreement.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Addendum.
GCI COMMUNICATION CORP. HUGHES COMMUNICATIONS GALAXY, INC.
By:________________________________ By:________________________________
Its: Sr. Vice President Its: Sr. Vice President
Date: 95 August 24 Date: 8/24/95
- 2 -
<PAGE>
STATE OF ALASKA
THE ALASKA PUBLIC UTILITIES COMMISSION
Before Commissioners: Sam Cotten, Chairman
Alyce A. Hanley
Dwight D. Ornquist
Tim Cook
James M. Posey
In the Matter of the Application by )
GCI COMMUNICATION CORP. d/b/a GENERAL ) U-96-24
COMMUNICATION, INC., and d/b/a GCI )
for a Certificate of Public Conven- ) ORDER NO. 1
ience and Necessity to Operate as a )
Telecommunications (Local Exchange) )
Public Utility Service in and around )
Anchorage and Hope, Alaska )
________________________________________)
ORDER APPROVING APPLICATION, SUBJECT TO CONDITIONS:
REQUIRING FILING: AND APPROVING PROPOSED
TARIFF ON AN INCEPTION BASIS
BY THE COMMISSION:
On March 15, 1996, GCI COMMUNICATION CORP. d/b/a GENERAL COMMUNICATION,
INC., and d/b/a GCI (GCI), a previously certificated intrastate interexchange
(IXC) telecommunications provider, filed an application for a certificate of
public convenience and necessity (certificate) to operate as a
telecommunications (local exchange) public utility in an around Anchorage and
Hope, Alaska. GCI's local exchange service would be in competition with that
of the Municipality of Anchorage d/b/a Anchorage Telephone Utility a/k/a ATU
Telecommunications (ATU) within ATU's local exchange service area.
U-96-24(1) - (2/4/97)
Page 1 of 11
<PAGE>
The application was noticed to the public on March 29, 1996, with a
closing date of May 6, 1996, for submission of statements in support of, or
in opposition to, the application. On May 5, 1996, the Alaska Telephone
Association (ATA) filed comments which, in part, stated that it did not
oppose GCI's application, but would oppose entry absent goals and policies
that protect the public interest and that are not consistent with the
Telecommunications Act of 1996 (the Act).(1) On May 6, 1996, ATU filed
comments stating that it conditionally supported GCI's application. ATU
stated that it did not oppose GCI's application subject to the Commission
establishing appropriate conditions that protect consumers and ATU.
On May 6, 1996, Matanuska Telephone Association, Inc. (MTA), filed
comments stating that it did not oppose GCI's application, but opposed GCI's
request for a waiver of the Commission's service standards, and supported
ATU's suggestion that the Commission develop specific goals and objectives to
guide the development of a competition marketplace. Also on May 6, 1996,
Alascom, Inc. d/b/a AT&T Alascom (AT&T Alascom) filed comments stating, in
part, that it did not oppose GCI's application.
On May 17, 1996, GCI filed its reply to the comments of ATA, ATU, MTA,
and AT&T Alascom. In its reply GCI requested early approval of its
application, stating that none of the commentors
- ---------------------
(1)47 U.S.C.A. 151 et seq. as amended by the Act.
U-96-24(1) - (2/4/97)
Page 2 of 11
<PAGE>
had raised any significant factual or legal objection to GCI's application.
The Commission Staff (Staff) reviewed the application and comments
received in this proceeding and on September 24, 1996, submitted its analysis
and recommendation (Report) thereon. A copy of Staff's Report is attached to
this Order as an Appendix.
Staff's Report sets out in detail the history of the proceeding, the
public noticing of and the responses to the application, and Staff's findings
and recommendations regarding disposition of the application. Among other
things, Staff concluded that GCI has demonstrated that it is fit, willing,
and able to provide local exchange services within the requested area. Staff
recommended that GCI's application for a certificate to furnish
telecommunications (local exchange) service be approved with conditions.
Additionally, Staff recommended that the tariff GCI filed September 13, 1996,
be approved on an inception basis. Staff's recommended conditions of
certification were that GCI:
1. be required to maintain separate records and books for its local
exchange operation;
2. inform the Commission when GCI begins providing local exchange
service;
3. inform the Commission prior to beginning service of the manner in
which number portability will be provided;
U-96-24(1) - (2/4/97)
Page 3 of 11
<PAGE>
4. provide local exchange service area wide, upon request and to the
extent technically feasible, to all customers in the same service
classification and within its authorized service area;
5. file quarterly reports containing: the number of its access lines,
classified by residential and business, a) that are provided over its local
exchange facilities, b) that are provided over the facilities of an affiliate
of the local operation, and c) that are provided over the facilities of other
carriers; a statement of revenues and operating expenses associated with the
local exchange services; and a progress report regarding the installation of
facilities used to furnish local exchange services; and
6. file annual reports for its local exchange operation as required by
AS 42.05.451(b).
DISCUSSION
Based on its review of the record in this proceeding the Commission
concurs with Staff's conclusion that the proposed service is required for the
public convenience and necessity and that GCI has made a showing that it is
fit, willing, and able to provide that service. Further, the Commission has
determined that GCI's proposed local exchange tariff filed September 13,
1996, should be approved on an inception basis. In addition, the
U-96-24(1) - (2/4/97)
Page 4 of 11
<PAGE>
Commission concurs with the conditions that Staff recommended be placed on
the certificate.
Accordingly, the Commission accepts Staff's recommendation to
approve GCI's application subject to the following conditions.
1. GCI must maintain separate records and books for its local
exchange operation.
2. GCI must inform the Commission when the utility begins
providing local exchange service.
3. GCI must inform the Commission prior to beginning service of
the method by which the utility will provide number portability.
4. GCI must provide local exchange service area wide, upon
request and to the extent technically feasible, to all customers in the
same service classification and within its authorized service area.
5. GCI must file quarterly reports containing:
a. the number of its access lines, classified by residential
and business, that are provided over its local exchange facilities;
b. the number of its access lines that are provided over the
facilities of an affiliate of the local operation;
U-96-24(1) - (2/4/97)
Page 5 of 11
<PAGE>
c. the number of its access lines that are provided over the
facilities of other carriers;
d. a statement of revenues and operating expenses associated
with the local exchange services; and
e. a progress report regarding the installation of facilities
used to furnish local exchange services.
6. GCI must file annual reports for its local exchange operations
as required be AS 42.05.451(b).
Before GCI may provide local exchange services, it must have on file
with the Commission an approved tariff for intrastate IXC access and, thus,
will be required to make that filing and gain Commission approval of the
access tariff before providing local exchange service. The Commission notes
that on December 11, 1996, GCI and ATU filed an intrastate access charge
proposal. The proposal contained the following agreements.
1. GCI agreed to accurately report all IXC conversation minutes to
the Alaska Exchange Carriers Association (AECA) Common Line Pool as if those
minutes originated or terminated on ATU.
2. GCI agreed to charge IXCs the AECA tariffed traffic sensitive
rates and pay all required revenues to the AECA. ATU would then
recompense GCI by paying to GCI the following, and pool participants other
that ATU would retain all distributions from the pools.
U-96-24(1) - (2/4/97)
Page 6 of 11
<PAGE>
a. (AECA Switching & Information Surcharge Rates)
X (GCI Switched Minutes) X (ATU Distribution Percentage);
and
b. (AECA Dedicated Trunk Rate) X (Dedicated
Trunks) X (ATU Distribution Percentage).
3. Terms of the proposal are to extend to the date of
state reform or December 31, 1997, whichever occurs first.
4. Number Portability: GCI also agreed to use the methodology
specified above to determine the traffic sensitive access revenue
for intrastate toll traffic for transiting both GCI and ATU
networks. The rate charged would be the same as in (2) (a) above,
except multiplied by 0.5. Nontraffic sensitive revenue would not
be shared.
By Order U-96-98 (i),(2) dated December 16, 1996, the Commission,
among other things, resolved arbitrated issues in that proceeding and
accepted the primary arbitrator's award in Issue No. 10 regarding intrastate
access charges, as refined by the Commission's adoption of GCI's intrastate
access charge proposal. The Commission stated in that Order that acceptance
of the proposal was subject to the express condition that, for the purpose of
_________________
(2)That Order was issued in the proceeding entitled: IN THE MATTER OF
THE PETITION BY GCI COMMUNICATION CORP. FOR ARBITRATION UNDER SECTION 252 OF
THE TELECOMMUNICATIONS ACT OF 1996 WITH THE MUNICIPALITY OF ANCHORAGE D/B/A
ANCHORAGE TELEPHONE UTILITY A/K/A ATU TELECOMMUNICATIONS FOR THE PURPOSE OF
INSTITUTING LOCAL EXCHANGE COMPETITION.
U-96-24(1) - (2/4/97)
Page 7 of 11
<PAGE>
establishing the services eligible for resale in the future, no issue should
be considered to have been finally determined or adjudicated by virtue of its
acceptance of the Proposal. Based on its review of the record in Docket
U-96-89, the Commission has determined that the access tariff GCI is required
to file in this proceeding should reflect the terms and conditions of the
intrastate access charge proposal referenced above.
Staff's Report is incorporated herein by reference and adopted as
the Commission's findings of fact and conclusions of law.
ORDER
THE COMMISSION FURTHER ORDERS:
1. The application filed by GCI Communication Corp. d/b/a General
Communication Inc., and d/b/a GCI for a certificate of public convenience and
necessity for authority to operate as a telecommunications (local exchange)
public utility within the specific service area described in Attachment WEM-1
of the Appendix attached hereto is approved, subject to the following
conditions.
a. GCI Communication Corp. d/b/a General Communication, Inc., and
d/b/a GCI shall maintain separate records and books for its local
exchange operation.
b. GCI Communication Corp. d/b/a General Communication, Inc., and
d/b/a GCI shall notify the Commission when the utility begins
providing local exchange service.
U-96-24 (1) - (2/4/97)
Page 8 of 11
<PAGE>
c. Prior to beginning service, GCI Communication Corp.
d/b/a General Communications, Inc., and d/b/a GCI shall notify
the Commission of the manner in which the utility will provide
number portability.
d. GCI Communication Corp. d/b/a General Communication,
Inc., and d/b/a GCI shall provide local exchange service area
wide, upon request and to the extent technically feasible, to
all customers in the dame service classification and within
its authorized service area.
e. GCI Communications Corp. d/b/a General Communication,
Inc., and d/b/a GCI shall file quarterly reports with the
Commission containing:
i. the number of its access lines, classified by
residential and business, that are provided over its
local exchange facilities;
ii. the number of its access liens that are
provided over the facilities of an affiliate of the local
operations;
iii. the number of its access lines that are
provided over the facilities of other carriers;
iv. a statement of revenues and operating expenses
associated with the local exchange services; and
v. a progress report regarding the installation of
facilities used to furnish local exchange services.
U-96-24(1) - (2/24/97)
Page 9 of 11
<PAGE>
f. GCI Communication Corp. d/b/a General Communication,
Inc., and d/b/a GCI shall file with the Commission annual
reports for the utility's local exchange operation as required
by AS 42.05.451(b).
2. By 4 p.m., March 6, 1997, GCI Communication Corp. d/b/a
General Communication, and d/b/a GCI shall file with the
Commission an access tariff that reflects the terms and conditions
of the intrastate access charge proposal filed by the parties in
Docket U-96-89, as refined by the Commission's adoption ot that
proposal in Order U-96-89(8) and as more fully delineated in the
body of the Order.
3. The proposed tariff filed by GCI Communication Corp.
d/b/a General Communications, Inc., and d/b/a GCI on September 13,
1996, is approved on an inception basis.(3)
DATED AND EFFECTIVE at Anchorage, Alaska, this 4th day of February,
1997.
BY DIRECTION OF THE COMMISSION
(Commissioner James M. Posey,
not participating.)
- -------------------
(3)A Validated copy of the approved tariff will be forwarded
to the utility by the Commission Staff under separate cover.
U-96-24(1) - (2/4/97)
Page 10 of 11
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
NATIONSBANK OF TEXAS, N.A.
TD SECURITIES (USA) INC.
as of July 3, 1997
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503-2781
Attention: John M. Lowber
Senior Vice President & Chief Financial Officer
Dear Sirs:
You have advised us that General Communication, Inc. ("GCI") proposes
to form a partnership to be known as the Alaska United Partnership (the
"Borrower"), whose purpose will be the construction, ownership and operation of
an undersea fiber optic telecommunications cable connecting Fairbanks, Anchorage
and Juneau, Alaska to the lower 48 states (the "Project"). You have also advised
us that in order to finance the Project, the Borrower, which initially will be a
wholly owned subsidiary of GCI, will require a construction and term loan
facility in the amount of $75 million (the "Facility").
We are pleased to advise you of the commitments of (i) Credit Lyonnais
New York Branch ("Credit Lyonnais") to act as Administrative Agent for the
Facility, (ii) NationsBank of Texas, N.A. ("NationsBank") to act as Syndication
Agent for the Facility, (iii) TD Securities (USA) Inc. ("Toronto Dominion") to
act as Documentation Agent for the Facility, and (iv) Credit Lyonnais,
NationsBank and Toronto Dominion (collectively, the "Banks") to each provide $25
million of the Facility (i.e. $75 million in the aggregate), subject to the
terms and conditions set forth or referred to herein and in the Summary of Terms
and Conditions attached hereto as Exhibit A (the "Term Sheet").
The Banks will manage and structure the Facility and arrange for the
syndication of the Facility. You agree to actively assist the Banks in achieving
a syndication (which may be
<PAGE>
completed before or after execution of the definitive documentation in respect
of the Facility) which is satisfactory to the Banks. This will be accomplished
by a variety of means, including (i) direct contact during the syndication
between you, your officers and representatives and the proposed syndicate
lenders, (ii) if deemed necessary by the Banks, your active participation in the
preparation of a syndication book satisfactory to the Banks and (iii) if deemed
necessary by the Banks, participation in one or more bank meetings. To assist
the Banks in the syndication efforts, you agree promptly to provide, and to
cause your advisors to provide, the Banks and the proposed syndicate lenders
upon request with all information deemed reasonably necessary by the Banks to
successfully complete the syndication, including but not limited to, all
information, projections and valuations prepared by you or your advisors, or
prepared on your or their behalf relating to the Borrower, the Project or the
transactions described herein. The parties hereto hereby agree that the
syndication of the Facility will not occur until after completion of the
syndication of the new bank credit facility for GCI Holdings, Inc. In addition,
you hereby agree that in the event syndication is completed after the execution
of the definitive documentation in respect of the Facility, you shall negotiate
in good faith, execute and deliver such amendments to the definitive
documentation as a lender may reasonably request.
It is understood and agreed that Credit Lyonnais as Administrative
Agent, NationsBank as Syndication Agent, and Toronto Dominion as Documentation
Agent, will be the only agents for the Facility and that no additional agents or
co-agents will be appointed unless agreed to by the Banks. You also agree that
to the extent any syndication prior to execution of definitive loan
documentation results in commitments in excess of the full amount of the
Facility, the Banks may reduce their commitments accordingly. It is understood
and agreed that the Banks will manage all aspects of the syndication, including
decisions as to when the Banks shall approach the proposed syndicate lenders and
when the Banks shall accept their commitments, and further including any naming
rights, lender selection and the final allocations of the commitments among the
syndicate lenders. It is understood that no proposed syndicate lender in the
Facility will receive compensation from the Borrower or its affiliates outside
of the terms contained herein in order to obtain its commitment to participate
in this financing.
No Bank shall be responsible for the failure of any other Bank to
honor its commitment set forth herein, nor shall the commitment of any Bank be
increased as a result of the failure of any such other Bank to honor its
commitment; PROVIDED that such failure (i) shall relieve the non-defaulting
Banks of all obligations with respect to the Facility, unless the non-defaulting
Banks shall in their sole discretion agree otherwise in writing following any
such default and (ii) shall not relieve the defaulting Bank of any of its
obligations with respect to its commitment for the Facility.
As consideration for the Banks' commitments hereunder and agreements
to manage, structure and syndicate the Facility and for their work in connection
with the Facility, you hereby agree to pay to each of the Banks (i) an upfront
fee of 1-1/8% of such Bank's commitment hereunder (i.e. an upfront fee of
$281,500 to each Bank), payable upon the execution of the definitive credit
agreement in respect of the Facility and (ii) the fees and other
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<PAGE>
consideration specified in the Term Sheet. In addition, you hereby agree to pay
to Credit Lyonnais the fees and other consideration specified in that certain
separate letter agreement dated the date hereof between Credit Lyonnais on the
one hand, and you on the other hand, concerning fees relating to the transaction
contemplated hereby (the "Fee Letter"). The fees and other consideration
specified in the Fee Letter shall be payable as set forth in the Fee Letter.
All of the fees and other consideration specified in this paragraph shall be
paid in immediately available funds, and once paid, shall not be refundable
under any circumstances.
The effectiveness of this letter agreement is subject to each of the
Banks executing this letter agreement or a counterpart hereof.
The Banks' commitments hereunder are subject to the negotiation,
execution and delivery of definitive documentation with respect to the Facility
in form and substance satisfactory to each of them and the other syndicate
lenders. The Banks' commitments hereunder are also subject to (x) there not
having occurred and continuing to exist (and there being no likelihood, in the
good faith judgment of the Banks, of the occurrence of) a material disruption or
a material adverse change in the financial or capital markets and (y) a material
adverse change not having occurred in the business, assets, property, condition,
financial or otherwise, or prospects of GCI or the Borrower. The terms and
conditions of the Banks' commitments hereunder and of the Facility are not
limited to the terms and conditions set forth herein and in the Term Sheet (such
additional terms and conditions to be in the nature of elaboration in
documentation and consistent with transactions of this type). Those matters
which are not covered by or made clear under the provisions hereof and of the
Term Sheet are subject to the mutual approval and agreement of the Banks and the
Borrower (it being understood that any terms and conditions reflecting such
matters shall not be inconsistent with the terms and conditions set forth herein
and in the Term Sheet).
Each of the Banks has reviewed certain information about GCI, the
Borrower and the Project which you have furnished to us. You agree promptly to
provide each of the Banks upon request with all additional information deemed
necessary by any of them, including but not limited to information prepared by
you or your advisors, or prepared on your or their behalf. If the Banks'
continuing review of materials about GCI, the Borrower and the Project discloses
information, or the Banks otherwise discover information not previously
disclosed to them, or any information previously disclosed to the Banks proves
to contain inaccuracies, any of which any of the Banks believes has a materially
adverse impact on its previous assessment of GCI, the Borrower or the Project,
or the financial condition, operations, assets and prospects of GCI, the
Borrower or the Project, or presents material tax or litigation exposure to GCI
or the Borrower, then any of the Banks may, in its sole discretion, suggest
alternative financing amounts or structures that ensure adequate protection for
the Banks and the other syndicate lenders or withdraw its commitment hereunder.
You hereby represent and covenant that, to the best of your knowledge,
(a) all written information and data (excluding financial projections)
concerning GCI, the Borrower and
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<PAGE>
the Project (the "Information"), which has been or is hereafter made available
to the Banks by you or on your behalf will be complete and correct in all
material respects and will not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which such
statements are made and (b) all financial projections concerning GCI, the
Borrower and the Project (the "Projections"), which are made available to the
Banks by you or on your behalf will, unless otherwise disclosed, be prepared in
good faith based upon assumptions believed by management to be reasonable. If,
subsequent to making any Information or Projections available to us, you become
aware of any facts which would cause the foregoing representation to no longer
be true, you will promptly so notify us. In extending their commitments
relating to the Facility and arranging, structuring and working with you to
syndicate the Facility, the Banks will be using and relying on the Information
and Projections without independent verification thereof.
By executing this letter agreement, you agree (i) to indemnify and
hold harmless each of the Banks and the other syndicate lenders and their
respective officers, directors, employees, agents and controlling persons from
and against any and all losses, claims, damages and liabilities to which any
such person may become subject arising out of or in connection with this letter
agreement, the Facility or the loans, the use of any proceeds of the loans, or
any related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing or the security given for the loans or
otherwise concerning the Borrower or the Project, whether or not any of such
indemnified parties is a party thereto, and to reimburse each of such
indemnified parties upon demand for any legal or other expenses incurred in
connection with investigating or defending any of the foregoing; PROVIDED that
the foregoing indemnification will not, as to any indemnified party, apply to
losses, claims, damages, liabilities or expenses to the extent arising from the
willful misconduct or gross negligence of such indemnified party; and (ii) to
reimburse Credit Lyonnais from time to time upon demand for all reasonable
out-of-pocket expenses (including expenses of Credit Lyonnais' due diligence
investigation, syndication expenses and fees and disbursements of counsel and
outside consultants) incurred in connection with the Facility and the
preparation of this letter agreement, the Term Sheet, the definitive
documentation for the Facility and the security arrangements in connection
therewith. The provisions contained in this paragraph shall remain in full
force and effect whether or not definitive financing documentation shall be
executed and delivered and notwithstanding the termination of this letter
agreement or the commitments hereunder.
The foregoing agreement shall be in addition to any rights that any
Bank or any other indemnified party may have at common law or otherwise,
including, but not limited to, any right to contribution.
If for any reason the foregoing indemnification is unavailable to any
party or insufficient to hold it harmless as and to the extent contemplated by
the preceding paragraphs, then you shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect the
relative benefits received by you, on the one hand, and each of the Banks, the
other indemnified parties and any other applicable indemnified party, as the
case may be, on the other hand, and also the relative fault of you and each of
the Banks, the other indemnified
-4-
<PAGE>
parties and any other applicable indemnified party, as the case may be, as well
as any other relevant equitable considerations.
You agree that this letter agreement is for your confidential use only
and will not be disclosed by you to any person other than your attorneys,
accountants, tax consultants and other advisors and as required by law or as
compelled by legal process (and then only after giving the Banks prior notice)
and on a confidential basis, except that, following your acceptance and return
hereof and of the Fee Letter, you may make public disclosure of the existence
and amount of the Banks' commitments and undertakings hereunder and may file a
copy of this letter agreement in any public record in which it is required by
law to be filed and may make such other public disclosures of the terms and
conditions hereof as are required by law.
This letter agreement shall not be assignable by you without the prior
written consent of the Banks, and may not be amended or any provision hereof
waived or modified except by an instrument in writing signed by you and each of
the Banks.
In the event that the definitive documentation relating to the
Facility has not been executed on or before August 31, 1997, then this letter
agreement and the commitments contained herein shall terminate, unless the Banks
shall, in their sole discretion, agree to an extension; provided that nothing
herein shall limit any of your rights with respect to a breach by any Bank of
its commitment contained herein. Notwithstanding the foregoing, the
reimbursement and indemnification provisions hereof shall survive any
termination hereof.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
This letter agreement may be executed in any number of counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute one and the same instrument.
Please indicate your acceptance of the terms hereof by signing in the
appropriate space below and returning to Credit Lyonnais the enclosed duplicate
original of this letter agreement and an accepted copy of the Fee Letter by
12:00 noon New York City time on July 7, 1997, at which time the Banks'
commitments and other agreements hereunder will expire in the event that Credit
Lyonnais shall not have received both of the foregoing.
Each of the Banks is pleased to have been given the opportunity to
assist you in connection with the transactions contemplated herein.
-5-
<PAGE>
Very truly yours,
CREDIT LYONNAIS NEW YORK BRANCH
By_____________________________
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By_____________________________
Name:
Title:
TD SECURITIES (USA) INC.
By_____________________________
Name:
Title:
Accepted and agreed to
as of the date first
written above:
GENERAL COMMUNICATION, INC.
By__________________________
Name:
Title:
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<PAGE>
EXHIBIT A
ALASKA UNITED LIMITED PARTNERSHIP
SUMMARY OF TERMS AND CONDITIONS
This Term Sheet is attached to and forms a part of that certain
Commitment Letter dated as of July 3, 1997 between General Communication, Inc.
on the one hand, and Credit Lyonnais New York Branch, NationsBank of Texas, N.A.
and TD Securities (USA) Inc., on the other hand.
PROJECT: Development, construction and operation of an undersea
fiber optic cable connecting Anchorage, Fairbanks and
Juneau, Alaska with the Continental United States.
SPONSOR: General Communication, Inc. ("GCI").
BORROWER: "Alaska United," a limited partnership formed for the
purpose of owning the Project.
CREDIT FACILITIES: A Construction and Term Loan Facility available for up
to ten (10) years from the Commencement Date, subject
to extension for a further two (2) years as set forth
below under Final Maturity Date. Periodic draws may be
made on the Credit Facilities until the Completion Date
(as defined below), after which any Construction Loans
outstanding are to be converted to a Term Loan of equal
amount. A final draw will be permitted on the
Completion Date for Project Costs incurred but not yet
due and payable, the proceeds of which will be held in
a segregated account pending disbursement. No further
draws will be permitted after the Completion Date.
COMMITMENT
AMOUNT: $75,000,000. The actual amount drawn under the Credit
Facilities shall be less than the Commitment Amount to
the extent costs paid by the Borrower to construct the
Project (the "Cost to Construct the Project") are less
than $125,000,000.
PURPOSE: To finance construction of the Project.
AGENT AND
ARRANGER: Credit Lyonnais New York Branch. Commitments under the
Credit Facilities shall be syndicated to institutions
hereinafter referred to as the
<PAGE>
"Lenders".
CLOSING DATE: The date on which all Conditions Precedent to Closing
are satisfied.
COMMENCEMENT
DATE: The earlier of the date occurring 6 months from the
Closing Date and the date on which the first draw is
made on the Credit Facilities, subject to satisfaction
of all Conditions Precedent to Initial Draw.
COMPLETION DATE: The earlier of (1) the date on which Commercial
Operations (to be defined) have first been achieved and
(2) January 1, 1999.
CONVERSION DATE: The date five years from the Commencement Date.
FINAL MATURITY
DATE: The date ten (10) years from the Commencement Date, on
which the unpaid balance under the Credit Facilities
shall become due and payable; PROVIDED, HOWEVER, that
the Final Maturity Date will be extended to the date
twelve (12) years from the Commencement Date if at any
time between the second and fifth anniversaries of the
Commencement Date, the Borrower is able to demonstrate
to the satisfaction of all the Lenders that it meets
the following test (the "Coverage Test"), i.e. that
projected revenues to be received by the Borrower
solely from "Satisfactory Capacity Commitments" will be
sufficient to pay all of the Borrower's anticipated
expenditures through such extended Final Maturity Date,
including without limitation, all operating expenses,
interest and scheduled principal installments (based on
the extended amortization schedule), as and when due.
The foregoing determination shall take into account any
voluntary loan prepayments actually made prior to such
date of determination.
SATISFACTORY
CAPACITY
COMMITMENTS: "Satisfactory Capacity Commitments" shall mean (i)
binding contractual commitments for the sale or lease
of Project capacity to third parties rated investment
grade or better or otherwise satisfactory to all the
Lenders, pursuant to which fixed minimum payments are
required to be made on or before dates certain, and
(ii) the Lease Contract between the Borrower and GCI's
wholly owned second-tier subsidiary GCI Holdings, Inc.
("Holdings") as described below under "Project
Agreements".
AMORTIZATION: The outstanding principal balance under the Credit
Facilities shall be repaid in equal quarterly
installments beginning on the Conversion Date
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<PAGE>
and continuing through the Final Maturity Date.
VOLUNTARY
PREPAYMENT: All or any portion of the outstanding loans may be
prepaid at any time in whole or in part at the
Borrower's option, subject to payment of breakage costs
for LIBOR Loans.
SPONSOR EQUITY: $50,000,000. All Sponsor Equity funds will be
contributed to and expended by the Borrower prior to
the disbursement of any proceeds from the Credit
Facilities.
PROJECT
AGREEMENTS: All agreements which pertain to the development,
construction, operation and/or maintenance of the
Project, including but not limited to:
1) The Lease Contract between the Borrower (as
lessor), GCI Communication Corporation (as lessee)
and Holdings (as guarantor of the lessee's
obligations) must be for a term of at least 11
years from the Completion Date, and provide for
annual rental payments to the Borrower of no less
than $3,900,000.
Events of default under the Lease Contract shall
include (i) failure to make any payment under the
Lease Contract within 30 days after its due date,
(ii) payment default or acceleration with respect
to other Indebtedness of the lessee or its parents
aggregating $15,000,000 or more, (iii) any merger
by Holdings with, or transfer of all or
substantially all its assets to, any person other
than one of its Restricted Subsidiaries, (iv)
incurrence of any indebtedness which results in
Senior Leverage at the time of such incurrence to
be in excess of 5 to 1 at any time on or before
December 31, 1999, or 3.75 to 1 at any time
thereafter, and (v) other customary provisions for
agreements of this type. "Senior Leverage" shall
mean the ratio of total debt of Holdings and its
Restricted Subsidiaries to their Consolidated
EBITDA.
The Lenders, as assignee of the Borrower, shall be
entitled to exercise all customary remedies upon
an event of default under the Lease Contract
including (i) the right to terminate the contract
and (ii) the right to require immediate payment of
an amount equal to the net present value of all
remaining lease payments.
2) The Operating Keep-Well Agreement of GCI Transport
Company, pursuant to which it shall be obligated
to pay or to make
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<PAGE>
subordinated loans or capital contributions, as
they may elect, to the Borrower to pay (i) all the
Borrower's operating expenses, including interest
and principal, in order to avoid a payment default
by the Borrower under any agreement to which the
Borrower is a party (i.e. GCI Transport Company
may be required to make immediate payment of any
such amount which is not paid when due) (each a
"Type I Payment") and (ii) the entire amount, if
any, which remains unpaid under the Credit
Facilities at the Final Maturity Date or upon any
acceleration by reason of the occurrence of an
Event of Default (the "Type II Payment"). This
Agreement will contain a restriction on the
ability of GCI Transport Company to pay dividends
or otherwise transfer cash to Holdings or any
other Affiliate (except the Borrower), except as
contemplated under "Flow of Funds" below. This
Agreement shall become effective on the Closing
Date with mandatory payments to begin after the
Completion Date.
3) The Operating Keep-Well Agreement of Holdings,
which shall be identical to the Operating
Keep-Well Agreement of GCI Transport Company,
except that no Type I Payment will be required to
be made under this agreement unless GCI Transport
Company has failed to pay such amount within five
(5) days after demand for such payment pursuant to
its Operating Keep-Well Agreement, and no Type II
Payment will be required to be made by Holdings
under this agreement until the earlier of (i)
exhaustion of all remedies of the Lenders against
the stock of the Borrower and all of its assets,
demand for payment against GCI Transport Company
under its Operating Keep-Well Agreement and the
filing of a claim for payment against GCI
Transport Company under such Agreement or (ii)
repayment in full of Holdings' Bank Credit
Facility, unless otherwise agreed to by the
lenders under Holdings' Bank Credit Facility. All
payments by Holdings under its Operating Keep-Well
Agreement will be made as subordinated loans to
the Borrower and will be subject to the Restricted
Payment Limitation/Investment Baskets under the
terms of the indenture relating to the Senior
Notes due 2007 of GCI, Inc. (as described in the
Registration Statement filed May 29, 1997) and
Holdings' Bank Credit Facility, so long as any of
the obligations thereunder are not paid in full.
4) A fixed price, Turnkey Construction Contract
between the Borrower and Tyco SSI for construction
of at least the entire undersea portion of the
Project. The Turnkey Construction Contract will be
negotiated on terms and conditions satisfactory to
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<PAGE>
the Agent, including provisions for payment of
damages for delay or non-performance; the amount
of the damages are to be per industry norms and
able to be confirmed by the Lenders' Independent
Engineer.
5) A Completion Guarantee by Holdings pursuant to
which it shall guarantee timely completion of
construction of the entire Project. The Completion
Guarantee will obligate Holdings (i) to advance
such funds (in excess of the Sponsor Equity
Commitment and advances under the Credit
Facilities) as may be necessary to pay all Project
Costs and (ii) to pay liquidated damages in
accordance with industry norms if the Project
fails to achieve Commercial Operations by January
1 ,1999. [ALL PAYMENTS BY HOLDINGS UNDER THE
COMPLETION GUARANTEE WILL BE MADE AS SUBORDINATED
LOANS TO THE BORROWER AND WILL BE SUBJECT TO THE
RESTRICTED PAYMENT LIMITATION/INVESTMENT BASKETS
UNDER THE TERMS OF THE INDENTURE RELATING TO THE
SENIOR NOTES DUE 2007 OF GCI, INC. (AS DESCRIBED
IN THE REGISTRATION STATEMENT FILED MAY 29, 1997)
AND HOLDINGS' BANK CREDIT FACILITY, SO LONG AS ANY
OF THE OBLIGATIONS THEREUNDER ARE NOT PAID IN
FULL.]
6) An Operation and Maintenance Contract between an
[OPERATING SUBSIDIARY OF THE SPONSOR] (the "O&M
Contractor"), which is capable of performing such
services and already engaged in similar
activities, and the Borrower pursuant to which the
O&M Contractor shall operate and maintain the
Project through the date on which final payment is
made on the Credit Facilities. This Contract is
effective on the Closing Date and may be enforced
at the Agent's reasonable discretion.
7) Any contract to which the Borrower is a party that
provides for aggregate payments of $1,000,000 or
more.
PRICING: MARGINS: LIBOR + 3.00%, Prime + 1.75%.
The LIBOR margin will be reduced to the extent that the
total debt of the Borrower is maintained at or below
certain levels, as indicated in the following table:
------------------------------------------
TOTAL DEBT OUTSTANDING LIBOR MARGIN
------------------------------------------
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<PAGE>
$60 million or less 2.75%
------------------------------------------
40 million or less 2.50
------------------------------------------
The Prime Rate Margin will be proportionally adjusted
in each of the above cases.
COMMITMENT FEE: 0.375% p.a. on the undrawn portion of
the Credit Facilities.
OTHER FEES: As per separate Commitment Letter and Fee
Letter.
INTEREST RATE
HEDGING: The Borrower shall enter into interest rate hedging
arrangements satisfactory to the Agent on at least 50%
of its debt through the first five years of the Credit
Facilities if at any time the yield on the U.S.
Treasury bond maturing closest to December 31, 2002 is
150 basis points higher than the yield on the same bond
measured as of the Closing Date. Any of the Lenders
may provide such facilities.
SECURITY STRUCTURE
AND SECURITY
INTEREST: The Lenders shall be granted a perfected first priority
lien and security interest in all assets of the
Borrower, a direct assignment of the rights of the
Borrower under all Project Agreements, and a first
pledge of the shares or partnership interests of the
Borrower held by the Borrower's owners, including the
shares of the general partner, if any.
FUNDING AND
YIELD PROTECTION: The usual, including, without limitation, in respect of
prepayments, changes in capital adequacy and capital
requirements or their interpretation, illegality,
reserves without proration or offset and other similar
provisions typically found in credit facilities of this
type; except that the Borrower shall only pay breakage
costs resulting from prepayments.
CONDITIONS
PRECEDENT
TO CLOSING: The Closing Date shall be deemed to have occurred once
the Conditions Precedent to Closing have been met,
including but not limited to:
1) Completion of satisfactory due diligence by the
Agent, including a review of the Project's assets
and contracts, consultants' reports,
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<PAGE>
proforma cash flow projections, major maintenance
budget, etc.;
2) Evidence satisfactory to the Agent that all
permits required for the construction, testing and
operation of the Project have been obtained or are
being applied for in a manner that will not hinder
the timely completion of the Project;
3) Delivery of the following: (i) a limited review,
performed by an independent consultant, of the
Alaskan communications market; (ii) a technical
feasibility study of the Project; and (iii) an
environmental study. Each of the above studies
must be satisfactory to the Agent;
4) Delivery of a construction budget listing all
costs ("Project Costs") budgeted to be incurred by
the Borrower in developing and building the
Project; the Agent acknowledges that costs of the
Anchorage to Fairbanks segment of the Project are
estimates only at this time;
5) No material adverse change shall have occurred in
the financial or legal status of the Sponsor;
6) Evidence satisfactory to the Agent of Sponsor's
ability to contribute Sponsor Equity as required;
7) Execution of Project Agreements and financing and
legal documentation satisfactory to the Agent and
the Borrower. This will also include, but not be
limited to, any subordination agreements for
permitted debt (as outlined in #2 of Covenants of
the Borrower) which are satisfactory to the Agent;
8) Others usual for facilities and transactions of
this type, such as, legal opinions, copies of
documents, receipt of lien searches and valid
security interests as contemplated hereby,
accuracy of representations and warranties,
absence of defaults, evidence of organization and
authority, and payment of fees.
ACCOUNTS: The following accounts shall be established with an
institution satisfactory to the Agent. The Lenders
shall maintain a first priority lien on these accounts
and shall receive regular reports of account activity.
1) A Construction Account into which shall be
deposited all draws on the Credit Facilities and
the Sponsor Equity and from which all
-7-
<PAGE>
budgeted and authorized Project Costs may be
withdrawn;
2) An Operating Account into which shall be deposited
all cash receipts of the Borrower and from which
withdrawals may be made by the Borrower according
to the Flow of Funds;
3) An Insurance Proceeds Account for the purpose of
segregating from other revenues the proceeds of
any insurance claims received by the Borrower.
All or a portion of such funds may be released to
the Operating Account at the Agent's reasoned
discretion.
CONDITIONS
PRECEDENT TO
DRAWS: From the Closing Date until the Completion Date, the
Borrower may draw on the Credit Facilities each month
to pay for budgeted Project Costs incurred during that
month subject to conditions that include, but are not
limited to, the following:
1) No default or Event of Default shall have occurred
within the terms of the Credit Facilities or any
Project Agreement;
2) Prior disbursement of all funds committed pursuant
to "Sponsor Equity," above;
3) Certification by the Lenders' Independent Engineer
that all Project Costs incurred to date are
reasonable, Substantial Completion and Final
Completion (as such terms will later be defined)
should be achieved by the dates required under
relevant agreements, and sufficient funds remain
funded and/or committed in order to pay all
remaining Project Costs;
4) No material adverse change shall have occurred in
the financial or legal status of the Borrower or
the Sponsor.
FLOW OF FUNDS: Withdrawals from the Operating Account shall be made by
the Borrower in the following order of priority,
subject to available funds:
1) Payment of budgeted and approved operating and
maintenance expenses;
2) Quarterly, interest and fees payable to the
Lenders under the terms of the Credit Facilities;
-8-
<PAGE>
3) Quarterly, payment of any scheduled amortization
payment then due to the Lenders under the terms of
the Credit Facilities;
4) The first $10,000,000 (determined on an aggregate
cumulative basis over the life of the Credit
Facilities) remaining after application to 1,2 and
3 above may be distributed by the Borrower if at
that time no default or event of default is then
continuing under the Credit Facilities and the
Borrower is able to demonstrate that it currently
meets the Coverage Test set forth above, such
amount to be distributed annually;
5) Quarterly, prepayment of up to the full amount
outstanding under the Credit Facilities; provided
however, that after the Conversion Date, up to 50%
of the amount remaining after application to 1,2,
3 and 4 above may be distributed by the Borrower
if at that time no default or event of default is
then continuing under the Credit Facilities and
the Borrower is able to demonstrate that it
currently meets the Coverage Test set forth above.
REPRESENTATIONS
AND WARRANTIES: Customary for project financings of this type.
COVENANTS OF THE
BORROWER: Covenants of the Borrower shall include, but shall not
be limited to, the following:
1) Delivery of quarterly financial statements and
audited annual financial statements of the
Borrower;
2) No additional debt, except for (i) purchase money
obligations aggregating, at any time, $2,000,000
in outstandings; (ii) fully subordinated loans
incurred under the Operating Keep-Well Agreements
and the Completion Guarantee, the terms of
subordination of which must be acceptable to the
Lenders.
3) No liens other than permitted liens (as such term
will be defined);
4) Maintenance of insurance policies in amount and
from providers satisfactory to the Agent in
consultation with its Insurance Consultant;
5) Maintenance of the enforceability of all Project
Contracts;
6) Project capacity to be sold at cost or higher,
i.e., K units of capacity
-9-
<PAGE>
in the Project may be sold, on a present value
basis, for no less than their ratable cost c,
given by the formula c = (C x k)/K, where C is the
Cost to Construct the Project and K is the total
number of units of capacity in the Project as of
the date of sale.
Reasonable exceptions shall be allowed under this
covenant for the purchase of large amounts of
capacity by third-parties acceptable to the Agent.
7) Other covenants customary for financings of this
type.
COVENANTS OF THE
SPONSOR: Covenants of the Sponsor shall include, but shall not
be limited to, the following:
1) Delivery of quarterly financial statements and
audited annual financial statements of the
Sponsor;
2) Maintenance of no less than a 50% voting interest
and a 25% equity interest in the Borrower and the
Project.
EVENTS OF DEFAULT: Events of Default shall include, but shall not be
limited to, the following:
1) Default in the payment of any installment of
interest or principal under the Credit Facilities
which default remains unremedied more than five
(5) days after demand for such payment has been
made to Holdings by the Agent or the Required
Lenders under the Operating Keep-Well Agreement of
Holdings.
2) Failure of the Borrower to achieve Commercial
Operations (to be defined) before January 1, 1999;
3) Breach of any covenant beyond that covenant's
respective cure period;
4) Default by the Borrower, Holdings, GCI
Communications Corporation or GCI Transport
Company under the Project Agreements above;
5) Bankruptcy of the Borrower, Holdings, GCI
Communications Corporation, GCI Transport Company
or the Sponsor or an entity required to provide
all or a portion of the Sponsor Equity.
-10-
<PAGE>
6) Any event or circumstance, including a government
act, natural disaster or change in the status of a
party to a Project Agreement, that could be deemed
to have a material adverse effect on the ability
of the Borrower to repay the loans outstanding
under the Credit Facilities.
7) Any change (made without the prior written consent
of the Lenders) to the documentation relating to
Holdings' Bank Credit Facility which would
materially adversely affect the ability of
Holdings or its Subsidiaries to fulfill their
obligations under the various Project Agreements
to which they are a party.
8) After the termination of Holdings' Bank Credit
Facility, any breach by Holdings of certain
covenants (to be specified, but specifically
excluding financial covenants) contained in the
credit agreement for Holdings' Bank Credit
Facility as in effect prior to termination (the
intention is to maintain certain affirmative and
negative covenants for Holdings including, without
limitation, the covenants relating to the
incurrence of indebtedness, liens, investments,
dividends and other similar covenants)..
REQUIRED LENDERS: 66 2/3%
GOVERNING LAW: New York State.
EXPENSES: The Borrower shall pay promptly upon notice from the
Agent all reasonable expenses incurred by the Agent,
its consultants and advisors in connection with the
closing and syndication of this financing, whether or
not closing is actually achieved. These shall include
travel and documentation expenses, and customary
syndication expenses. The fees of the Agent's legal
counsel, Independent Engineer, Market Consultant,
Environmental Consultant and Insurance Consultant are
also the responsibility of the Sponsor.
The Borrower will indemnify each of the Agent and each
Lender and hold it harmless from and against all costs,
expenses (including reasonable fees and disbursements
of counsel) and liabilities relating to or arising in
connection with any enforcement of the credit agreement
and any investigative, administrative or judicial
proceeding (regardless of whether the Agent or such
Lender is a party thereto) arising out of the proposed
transactions, including the financing contemplated
hereby or any transactions connected therewith,
provided that the Agent or a Lender will not be
indemnified for losses to the extent resulting from its
gross
-11-
<PAGE>
negligence or willful misconduct.
ASSIGNMENTS AND
PARTICIPATIONS: Lenders may participate or assign all or a part of
their interest under the Credit Facilities to eligible
assignees; provided that, unless otherwise consented to
by the Borrower and the Required Lenders, each
assignment, when taken together with all other
assignments with the same effective date, must result
in each Lender having a commitment of at least
$15,000,000.
Voting rights of participants will be limited to
changes in amount, collateral provisions relating to
release of all or substantially all of the collateral,
interest rates, fees and maturity date. Participants
will receive cost and yield protection (limited to the
cost and yield protection available to the Lenders).
Any assignment will be by novation and will be subject
to the approval of the Agent. Assignees will assume
all the rights and obligations of the assignor Lender.
Each assignment will be subject to the payment of a
service fee by the assigning Lender to the Agent.
LENDERS' COUNSEL: Morgan, Lewis & Bockius LLP
MARKETING
CONSULTANT: Arthur D. Little
INDEPENDENT
ENGINEER: Arthur D. Little
INSURANCE
CONSULTANT: Sedgwick James of Tennessee, Inc.
ENVIRONMENTAL
CONSULTANT: Brown & Root
-12-
<PAGE>
[LETTERHEAD]
NATIONSBANK
July 2, 1997
Mr. John Lowber
SVP and Chief Financial Officer
General Communications, Inc.
2550 Denali St., Suite 1000
Anchorage, Alaska 99503
Re: $275,000,000 of Credit Facilities for GCI Holdings, Inc.
Dear John:
NationsBank of Texas, N.A. ("NB") as Administrative Agent, TD Securities
as Syndication Agent and Credit Lyonnais New York Branch as Documentation
Agent, are pleased to offer to be the agents (in such capacity, the "AGENTS")
of $275,000,000 of senior credit facilities (the "FACILITIES") for GCI
Holdings, Inc. (the "BORROWER"), and to offer our commitment to lend all
$275,000,000 of the Facilities on a pro rata basis, upon and subject to the
terms and conditions of this letter and the Summary of Terms and Conditions
(herein so called) attached hereto as EXHIBIT A, and in reliance on oral and
written materials and other information which the Borrower has previously
provided to Agents (collectively, the "INFORMATION").
If the Borrower accepts this offer as hereinafter provided, the closing
of the Facilities will be conditioned upon (i) the preparation, negotiation,
execution and delivery of definitive credit documentation in form and
substance reasonably satisfactory to the Agents reflecting the Summary of
Terms and Conditions and containing such other terms and conditions as are
usual and customary for transactions of this nature and (ii) the absence of a
material adverse change in the financial condition, business operations or
properties of the Borrower and any guarantor, taken as a whole, since
December 31, 1996.
By acceptance of this offer, the Borrower represents and warrants that
(i) the Information is and will be complete and correct in all material
respects and does not and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained therein not materially misleading in light of the
circumstances under which such statements are or will be made and (ii) all
financial projections that have been or are hereafter prepared by the
Borrower and made available to the Agents have been or will be prepared in
good faith based on reasonable assumptions. The Borrower agrees to supplement
the Information and projections referred to in clauses (i) and (ii) above
from time to time until closing of the Facilities so that the representation
and warranty in the preceding sentence remains correct.
<PAGE>
GCI Holdings, Inc.
July 2, 1997
Page 2
In connection with the Facilities, the Agents and their affiliates, intend to
invite other Lenders to participate in the Facilities with a corresponding
reduction in the initial commitment of the Agents. The Agents will manage all
aspects of the syndication in consultation with Borrower, including the
selection of potential Lenders, the timing of all offers to potential Lenders
and the acceptance of commitments from Lenders, the amounts offered to
potential Lenders, the compensation provided to Lenders and the allocation of
titles to Lenders. In connection with such syndication, you consent to the
distribution by Agents on a confidential basis to potential Lenders of the
Information and other information including projections relating to Borrower,
its subsidiaries and the Facilities, and you agree to provide such
information and take such action as the Agents may reasonably request to
assist in syndicating the Facilities, including participating in the
preparation of an information memorandum and the holding of one or more
meetings of potential Lenders.
By acceptance of this letter, the Borrower represents and warrants to
the Agents that all historical financial statements and other information
regarding the Borrower and its subsidiaries, if any, or any guarantor
heretofore delivered to the Agents in connection with the Facilities are
true, correct, and not misleading in any material respect and that any
projections heretofore delivered to the Agents in connection with the
Facilities have been prepared in good faith and based on information believed
to be true, correct and not misleading in any material respect.
By acceptance of this offer, the Borrower agrees to pay the
out-of-pocket costs and expenses, including reasonable attorneys' fees and
expenses, incurred before or after the date hereof by the Agents in
connection with the Facilities whether or not the Facilities are ever closed
or a funding ever occurs under the Facilities, unless such failure to fund is
due to the default by the Agents.
IN ADDITION, THE BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS THE
AGENTS, AND THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND
ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, FEES AND DISBURSEMENTS OF COUNSEL) WHICH MAY BE INCURRED BY OR
ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT
OF OR IN CONNECTION WITH OR BY REASON OF, OR IN CONNECTION WITH THE
PREPARATION FOR A DEFENSE OF, ANY INVESTIGATION, LITIGATION OR PROCEEDING
ARISING OUT OF, RELATED TO OR IN CONNECTION WITH THE FACILITIES, INCLUDING,
WITHOUT LIMITATION, ANY TRANSACTION IN WHICH THE PROCEEDS OF ANY BORROWING
UNDER THE FACILITIES ARE OR ARE TO BE APPLIED, WHETHER OR NOT AN INDEMNIFIED
PARTY IS A PARTY THERETO, WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREIN
ARE CONSUMMATED, AND WHETHER OR NOT ARISING OUT OF THE NEGLIGENCE OF SUCH
INDEMNIFIED PARTY, EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY
OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT
<PAGE>
GCI Holdings, Inc.
July 2, 1997
Page 3
OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE BORROWER WILL NOT SETTLE OR
CONSENT TO JUDGMENT WITH RESPECT TO ANY SUCH INVESTIGATION, LITIGATION, OR
PROCEEDING WITHOUT THE PRIOR WRITTEN CONSENT OF THE AGENTS, UNLESS SUCH
SETTLEMENT OR CONSENT INCLUDES AN UNCONDITIONAL RELEASE OF EACH INDEMNIFIED
PARTY.
Neither this offer nor the undertaking and commitment contained herein
may be disclosed to or relied upon by any other person or entity other than
your accountants, investors, attorneys and other advisors, without the prior
written consent of the Agents, except that following your acceptance hereof
you may make public disclosure hereof as required by law.
This letter shall be governed by, and construed in accordance with, the
laws of the State of Texas without regard to the principles governing
conflicts of laws. This letter may be modified or amended only in writing and
signed by all parties hereto. This letter is not assignable by the Borrower
without the prior written consent of the Agents. This letter supersedes and
replaces any and all proposals or commitment letters previously delivered by
the Agents to the Borrower relating to the Facilities. This letter may be
executed in any number of counterparts, each of which shall be an original,
but all of which shall constitute one instrument.
This offer will automatically expire at the close of business, 5:00 p.m.
Eastern Standard Time, on July 8, 1997 unless the Borrower executes this
letter and returns it, together with $100,000 in immediately available funds
for each Agent as a non-refundable facility fee, to NB prior to that time
(which may be by facsimile transmission), whereupon this letter shall become
a binding undertaking and commitment. Thereafter, this undertaking and
commitment will automatically expire at the close of business, 5:00 p.m.
Eastern Standrd Time, on July 31, 1997 unless definitive credit documentation
is executed and delivered prior to that time.
<PAGE>
GCI Holdings, Inc.
July 2, 1997
Page 4
THIS WRITTEN AGREEMENT (WHICH INCLUDES THE SUMMARY OF TERMS AND
CONDITIONS) REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Very truly yours,
NATIONSBANK OF TEXAS, N.A.,
Individually and as Administrative Agent
By: /s/ HUTCH McCLENDON
-------------------------------------
Name: Hutch McClendon
Title: Senior Vice President
NATIONSBANK CAPITAL MARKETS, INC.
Individually and as Arranger
By: /s/ THOMAS OKEL
-------------------------------------
Name: Thomas Okel
Title: Director
TD SECURITIES
Individually and as Syndication Agent
By: /s/ DAVID McCANN
-------------------------------------
Name: David McCann
Title: Managing Director
<PAGE>
GCI Holdings, Inc.
July 2, 1997
Page 5
CREDIT LYONNAIS NEW YORK BRANCH
Individually and as Documentation Agent
By: /s/ MARK D. THORSHEIM
-------------------------------------
Name: Mark D. Thorsheim
Title: Vice President
Accepted and Agreed To:
GCI Holdings, Inc.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
Date of Return
to NationsBank:
-----------------------------
<PAGE>
July 5, 1997
SUMMARY OF TERMS AND CONDITIONS
RESTRICTED/UNRESTRICTED SUBSIDIARIES BORROWING STRUCTURE
EXHIBIT A
________________________________________________________________________________
SECTIONS MARKED BY *** DENOTE ALTERNATIVE PROVISIONS IF THE EQUITY IS NOT
RAISED.
BORROWER: GCI Holdings, Inc.
GUARANTORS: The Facilities will be guaranteed by General
Communication, Inc., GCI, Inc., GCI Communication
Corp., GCI Communication Services, Inc., GCI Leasing
Company, Inc., GCI Cable, Inc. and its subsidiaries,
and each subsequently acquired or created Restricted
Subsidiary of the Borrower.
ADMINISTRATIVE AGENT: NationsBank of Texas, N.A.
SYNDICATION AGENT: Toronto Dominion
DOCUMENTATION AGENT: Credit Lyonnais New York Branch
MANAGING AGENTS: Administrative Agent, Syndication Agent and
Documentation Agent. Each Managing Agent will commit
$91,666,666.
ARRANGER: NationsBanc Capital Markets, Inc.
CO-AGENTS/LENDERS: Institutions to be determined.
CLOSING: Concurrently with the closing of the $150MM of senior
subordinated notes issued by GCI, Inc. and equity
issuance by General Communication, Inc.
FACILITIES: Tranche A: An eight year reducing revolving credit
facility ("Tranche A Facility") under which Borrower
may borrow, repay and reborrow advances in an
aggregate outstanding principal amount up to
$225,000,000 (the "Tranche A Commitment"). The
Tranche A Commitment in effect on June 30, 2000, will
automatically reduce in equal quarterly amounts by the
following annual percentages of the Tranche A
Commitment beginning September 30, 2000 and will
reduce to zero on June 30, 2005:
________________________________________________________________________________
GCI HOLDINGS, INC. 1 NATIONSBANK
<PAGE>
Year Annual %
---- --------
1997 0.00%
1998 0.00%
1999 0.00%
2000 7.50%
2001 15.00%
2002 20.00%
2003 20.00%
2004 22.50%
2005 15.00%
Until June 30, 2000, the Borrower may increase the
Tranche A Commitment by up to $100,000,000 to
refinance GCI Transport Company, provided that 1) the
Borrower receives additional commitments from existing
Lenders or other Lenders acceptable to the Borrower
and Administrative Agent for such amount, 2) related
Unrestricted Subsidiaries become Restricted
Subsidiaries under the documentation for the
Facilities (and the Borrower is in full compliance
with all Facilities documentation both before and
after giving effect to such designation), 3) all
equity interests in all previously related
Unrestricted Subsidiaries are pledged to the
Administrative Agent to secure the Facilities, 4) all
assets owned by each of the previously related
Unrestricted Subsidiaries are pledged to the
Administrative Agent to secure the Facilities, and 5)
pro forma compliance with all covenants in the
documentation through the life of the Facilities is
demonstrated by financial projections for the
remaining term of the Facilities and a compliance
certificate in detail acceptable to the Managing
Agents.
Tranche B: A 364 day revolving credit facility (the
"Tranche B Facility") pursuant to which revolving
loans under the Tranche B Facility may be borrowed,
repaid and reborrowed up to a maximum amount
outstanding at any one time of $50,000,000 (the
"Tranche B Commitment") from Closing through the 364
day period subsequent to Closing (the "Conversion
Date") at which time i) no further borrowings may
occur, and ii) the then outstanding principal amount
of all loans made under the Tranche B Facility will
become a term loan (such aggregate amount of the
outstanding principal amount being herein referred to
as the "Tranche B Conversion Amount"). On and after
the Conversion Date, the Tranche B Facility will be
interest only until June 30, 2000, at which point the
Tranche B Facility will be due and payable in equal
quarterly installments equal to the following annual
percentages of the Tranche B Conversion Amount
beginning September 30, 2000 and will be due and
payable in full on June 30, 2005:
________________________________________________________________________________
GCI HOLDINGS, INC. 2 NATIONSBANK
<PAGE>
Year Annual %
---- --------
1997 0.00%
1998 0.00%
1999 0.00%
2000 7.50%
2001 15.00%
2002 20.00%
2003 20.00%
2004 22.50%
2005 15.00%
COMMITTED SUM: A maximum principal amount not to exceed $275,000,000
(the "Committed Sum") comprised of a $225,000,000
Tranche A Commitment and a $50,000,000 Tranche B
Commitment. Lenders shall commit to a pro rata share
of the Tranche A Commitment and Tranche B Commitment,
respectively.
PURPOSE: To refinance existing indebtedness, for working
capital and capital expenditures, up to $50,000,000
for the initial capitalization into AULP, and for
other lawful corporate purposes.
SECURITY: First perfected security interest in all existing and
future assets owned by the Borrower and Restricted
Subsidiaries, including a pledge of all intercompany
notes. Additionally, a first perfected security
interest in 100% of the stock, partnership interests
and other equity in and owned by the Borrower and
Restricted Subsidiaries. First perfected pledge of all
intercompany notes payable by AULP to the Borrower or
any Restricted Subsidiary. All interest rate hedging
instruments provided by the Lenders will be secured
pari passu with the Facilities.
FEES - CLUB DEAL OPTION: 1) Commencing at Closing, a .375% per annum Commitment
Fee on the unused portion of the Tranche A Commitment
shall be payable pro rata to the Lenders on the last
day of each calendar quarter, and continuing until the
Tranche A Commitment has been terminated.
2) Commencing at Closing, a .125% per annum Commitment
Fee on the unused portion of the Tranche B Commitment
shall be payable pro rata to the Lenders on the last
day of each calendar quarter and continuing until the
Conversion Date.
3) A non-refundable Facility Fee of 1.00% to be paid
at Closing on the Tranche A Commitment. A
non-refundable Facility Fee of .75% to be paid at
Closing on the Tranche B Commitment, with another .25%
on the Tranche B Commitment to be paid upon the
initial draw of the Tranche B Facility. $100,000 of
the above described Facility Fee will be due and
payable on the date the commitment letter is executed
by the Borrower and such fee is non-refundable.
________________________________________________________________________________
GCI HOLDINGS, INC. 3 NATIONSBANK
<PAGE>
INTEREST
AND PAYMENT DATES: At the Borrower's option, advances under the
Facilities shall bear interest at either LIBOR
(shall mean the Reserve Adjusted LIBOR rate as
determined by the Administrative Agent) or Base Rate
(shall mean the greater of the Federal Funds Effective
Rate plus 50 b.p.s. and the Prime Rate of NationsBank
of Texas, N.A.), plus their respective Applicable
Margins.
The Applicable Margin shall be based on the Borrower's
Total Debt/Annualized Operating Cash Flow as of the
end of the most recently completed fiscal quarter of
the Borrower as follows:
RATIO LIBOR BASE RATE
> 7.50x 2.500% 1.375%
< 7.50x > or = 7.00x 2.375% 1.250%
< 7.00x > or = 6.50x 2.250% 1.125%
< 6.50x > or = 6.00x 1.875% 0.750%
< 6.00x > or = 5.50x 1.625% 0.500%
< 5.50x > or = 5.00x 1.375% 0.250%
< 5.00x > or = 4.50x 1.125% 0.000%
< 4.50x > or = 4.00x 1.000% 0.000%
< 4.00x 0.750% 0.000%
If Senior Debt/Annualized Operating Cash Flow is
greater than or equal to 3.5x and for so long as it
remains greater than or equal to 3.5x, each of the
above listed interest rate margins will increase in
each case by .125% per annum.
Following the occurrence of and during the
continuation of an event of default, interest on the
outstanding principal balance of the loans shall be
2.00% over the rate otherwise applicable thereto
("Default Rate").
MANDATORY PREPAYMENTS/
COMMITMENT REDUCTIONS: VOLUNTARY:
COMMITMENT REDUCTIONS: Permitted without penalty or
premium, in amounts to be determined upon three
business day's prior written notice.
PREPAYMENTS: Permitted without penalty or premium
(except breakage), in agreed to minimum amounts (and
upon three business day's prior written notice for
LIBOR repayments.) Unless there exists no default or
event of default, voluntary prepayments will repay
outstanding amounts under the Tranche A Facility and
Tranche B Facility (if prior to the Conversion Date).
If there exists a default or event of default, all
voluntary prepayments will reduce the Tranche A
Commitment and either i) prior to the Conversion
Date, reduce the Tranche B Commitment, or ii) on and
after the Conversion Date, repay outstanding amounts
under the Tranche B Facility, pro rata, in the inverse
order of reductions or installments, as applicable.
________________________________________________________________________________
GCI HOLDINGS, INC. 4 NATIONSBANK
<PAGE>
MANDATORY:
1) OUTSTANDINGS IN EXCESS OF COMMITMENTS.
Borrower shall immediately prepay outstandings under
the Tranche A Facility to the extent such outstandings
exceed the Tranche A Commitment. Prior to the
Conversion Date, Borrower shall immediately prepay
outstandings under the Tranche B Facility to the
extent such outstandings exceed the Tranche B
Commitment.
2) ASSET SALES. 100% of the net proceeds from any
asset sale by the Borrower or any of its Restricted
Subsidiaries shall be applied as follows:
a) so long as there exists no default or event of
default, up to an agreed amount of net proceeds
from permitted and agreed to assets sales over the
life of the Facilities will reduce outstandings
only under the Tranche A Facility, and if prior to
the Conversion Date, reduce outstandings under the
Tranche B Facility.
b) up to an agreed amount of net proceeds from
permitted and agreed to assets sales over the life
of the Facilities (and, so long as there exists no
default or event of default, in excess of the net
proceeds used in a) above) will reduce the Tranche
A Commitment and either i) if prior to the
Conversion Date, reduce the Tranche B Commitment,
or ii) on and after the Conversion Date, repay
outstanding amounts under the Tranche B Facility,
pro rata, in the inverse order of reductions or
installments, as applicable.
3) ADDITIONAL INDEBTEDNESS. So long as there exists no
default or event of default, and if Total
Debt/Annualized Operating Cash Flow is less than
5.00x, 100% of net proceeds from the issuance of
permitted subordinated debt by the Borrower (this
provision not permitting the issuance of such
indebtedness) will be used to reduce outstandings
under the Tranche A Facility and, if prior to the
Conversion Date, reduce outstandings under the Tranche
B Facility. If Total Debt/Annualized Operating Cash
Flow is greater than or equal to 5.00x or if there
exists a default or event of default, 100% of net
proceeds from the issuance of permitted subordinated
debt by the Borrower will be used to reduce the
Tranche A Commitment and either i) if prior to the
Conversion Date, reduce the Tranche B Commitment, or
ii) on and after the Conversion Date, repay
outstanding amounts under the Tranche B Facility, pro
rata, in the inverse order of reductions or
installments, as applicable.
________________________________________________________________________________
GCI HOLDINGS, INC. 5 NATIONSBANK
<PAGE>
4) ADDITIONAL EQUITY ISSUANCES. So long as there
exists no default or event of default, 50% of the
proceeds from any equity issuances (excluding the
contemplated equity issuance that will be done
simultaneously with these Facilities) in excess of
$50,000,000 by the Borrower, any of its Restricted
Subsidiaries, GCI, Inc. or General Communication, Inc.
will reduce the outstandings under the Tranche A
Facility and, if prior to the Conversion Date, reduce
outstandings under the Tranche B Facility. If there
exists a default or event of default, 100% of the
proceeds from any additional equity issuances by the
Borrower, any of its Restricted Subsidiaries, GCI,
Inc. or General Communication, Inc. will reduce the
Tranche A Commitment and either i) if prior to the
Conversion Date, reduce the Tranche B Commitment, or
ii) on and after the Conversion Date, repay
outstanding amounts under the Tranche B Facility, pro
rata, in the inverse order of reductions or
installments, as applicable.
5) DISTRIBUTIONS FROM AULP. So long as there is no
default or event of default, any distribution from
AULP will reduce the outstandings under the Tranche A
Facility and, if prior to the Conversion Date, reduce
outstandings under the Tranche B Facility. If there
exists a default or event of default, 100% of any
distribution from AULP will reduce the Tranche A
Commitment and either i) if prior to the Conversion
Date, reduce the Tranche B Commitment, or ii) on and
after the Conversion Date, repay outstanding amounts
under the Tranche B Facility, pro rata, in the inverse
order of reductions or installments, as applicable.
REPRESENTATIONS AND
WARRANTIES: The definitive loan documentation shall contain
representations and warranties which are usual and
customary for transactions of this nature and similar
to existing loan documentation, for the Borrower, its
Restricted Subsidiaries, GCI, Inc. and General
Communication, Inc.
AFFIRMATIVE COVENANTS: The definitive loan documentation shall contain
affirmative covenants which are usual and customary
for transactions of this nature and similar to
existing loan documentation, for the Borrower, its
Restricted Subsidiaries, GCI, Inc. and General
Communication, Inc.
INTEREST RATE PROTECTION:Within 60 days of Closing, the Borrower shall be
required to enter into interest rate protection
agreements with a Lender in an amount not less than
50% of Total Debt on such date for a period of not
less than three years.
________________________________________________________________________________
GCI HOLDINGS, INC. 6 NATIONSBANK
<PAGE>
NEGATIVE COVENANTS: The definitive loan documentation shall contain
negative covenants which are usual and customary for
transactions of this nature and similar to existing
loan documentation for the Borrower and its Restricted
Subsidiaries, including limitations on liens, loans,
except with respect to AULP, as provided below,
indebtedness (other than an agreed upon basket of
indebtedness subordinated to the Facilities on terms
and conditions, and pursuant to documentation,
acceptable to the Administrative Agent and each Lender
and the AULP capital lease), investments except with
respect to AULP and as provided below, change of
management, change of control, transactions with
affiliates (all of which must be on an arms length
basis except with respect to AULP, as provided below),
dividends, distributions (refer to Restricted Payments
below) or stock repurchases, restrictive agreements,
material agreements except with respect to AULP, as
provided below, mergers and acquisitions, sale of
assets and changes in business.
RESTRICTED PAYMENTS/
INVESTMENTS: No dividends, distributions, payments to affiliates,
except with respect to: a) AULP, as provided below; b)
payments of principal or interest on any indebtedness
other than the Facilities may be made by the Borrower
or any of its Restricted Subsidiaries provided that,
if there exists no default or event of default both
before and after giving affect to any such payment,
the Borrower and its Restricted Subsidiaries may
declare and make dividends to the extent there is cash
interest due on the permitted senior subordinated
notes issued by GCI, Inc.; provided further that in no
event shall such dividend be prohibited in excess of
180 consecutive days in any one year period unless
there exists a payment default (whether by
acceleration or otherwise); and c) dividend,
distribution, payments made or investments in related
businesses by the Borrower and its Restricted
Subsidiaries from Excess Cash Flow, so long as i) it
is after 6/30/00, ii) there exists no default or event
of default both before and after giving affect to any
such dividend, distribution or payment or investment
and iii) Total Debt/Annualized Operating Cash Flow is
below 5.0x both before and after giving affect to any
such dividend, distribution or payment or investment,
in an aggregate amount of $15,000,000 over the term of
the Facilities.
________________________________________________________________________________
GCI HOLDINGS, INC. 7 NATIONSBANK
<PAGE>
PROJECT FINANCING: In connection with the Project Financing, the Borrower
or any of its Restricted Subsidiaries may enter into
the Project Agreements on terms and conditions, and
subject to documentation, acceptable to the Managing
Agents. All advances by the Borrower or any
Restricted Subsidiaries to AULP (other than actual
lease payments) shall be loans made pursuant to
intercompany promissory notes in the form satisfactory
to the Administrative Agent and such notes shall be
pledged to the Administrative Agent and the Lenders to
secure the Facilities pursuant to documentation
acceptable to the Administrative Agent. The maximum
amount of loans made pursuant to the Operating
Keep-Well Agreement (which includes coverage of
interest, principal, completion guarantee etc.) shall
not exceed $73,000,000 in the aggregate over the life
of the Facilities. The maximum amount of lease
payments made pursuant to the Lease Contract shall not
exceed $28,000,000 over the life of the Facilities.
The maximum amount of operating and maintenance
payments made pursuant to the Operating and
Maintenance Contract shall not exceed $17,000,000 over
the life of the Facilities. No other payments, loans,
distributions or amounts of any kind from the Borrower
or any Restricted Subsidiary to AULP shall be payable
at any time for any reason and no loan or advance (not
including lease payments) may be made to AULP if there
exists a default or event of default. Neither the
Borrower nor any Restricted Subsidiary shall enter
into any guaranty of the Project Financing, or enter
into any keepwell or other agreement which provides
for the payment by the Borrower and/or Restricted
Subsidiaries of any amount in excess of the three
maximum amounts set forth above. Neither the Borrower
nor any Restricted Subsidiary shall be obligated to
purchase any excess capacity under any lease with AULP
which would result in lease payments exceeding the
amount set forth above. Lenders under the Project
Financing must exhaust their remedies against all
assets of AULP, any other collateral, any guarantor,
and GCI Transport Company before pursuing any rights
or remedies against the Borrower, any Restricted
Subsidiary, or any of their assets under any Project
Agreement or otherwise. Upon the execution of the
initial documentation of the Project Financing, no
change or amendment, or any consent to, or waiver with
respect to any provision of any such documentation
which is material and adverse to the interests of the
Lenders, shall be made without the prior written
consent of the Majority Lenders. AULP shall not incur
any other indebtedness or liens other than Project
Financing except for purchase money obligations
aggregating $2,000,000, at any time, as permitted in
the Project Financing documents. AULP shall not make
any investment, any distribution or dividend, or any
loan or advance to any person except as permitted in
the AULP Summary of Terms and Conditions, dated June
{24}, 1997. The Borrower and/or its Restricted
Subsidiaries shall make the initial $50,000,000
investment in AULP at Closing. AULP shall provide the
Lenders with all financial information
________________________________________________________________________________
GCI HOLDINGS, INC. 8 NATIONSBANK
<PAGE>
provided to the Lenders under the Project Financing,
and all other information requested by the Lenders
from time to time. Administrative Agent shall receive
immediate notice of any breach, default or event of
default under the Project Financing, or any material
adverse change or other development under the Project
Financing. The lease agreement between AULP, the
Borrower and/or any Restricted Subsidiary, each
Project Agreement and all documentation relating to
the Project Financing must be pursuant to terms
negotiated at arms length and be customary and usual
for the industry. Other terms of the Project
Financing will be in accordance with that certain
Summary of Terms and Conditions, dated June {24},
1997. Other terms and conditions will be required
upon review of the Project Financing documentation.
FINANCIAL COVENANTS: SENIOR DEBT TO ANNUALIZED OPERATING CASH FLOW -
Borrower shall not permit the ratio of Senior Debt to
Annualized Operating Cash Flow to be greater than the
following ratios during the following periods:
Period Ratio
Closing through 3/31/99 3.50x
4/1/99 through 12/31/99 3.00x
1/1/00 through 12/31/00 2.50x
1/1/01 and thereafter 2.00x
TOTAL DEBT TO ANNUALIZED OPERATING CASH FLOW -
Borrower shall not permit the ratio of Total Debt to
Annualized Operating Cash Flow to be greater than the
following ratios during the following periods:
Period Ratio
Closing through 3/31/98 7.00x
4/1/98 through 3/31/99 6.50x
4/1/99 through 12/31/99 6.00x
1/1/00 and thereafter 5.50x
ANNUALIZED OPERATING CASH FLOW TO INTEREST EXPENSE -
Borrower shall maintain a ratio of Annualized
Operating Cash Flow to annualized trailing two quarter
Interest Expense which is greater than or equal to the
following schedule:
Period Ratio
------ -----
Closing through 12/31/98 1.50x
1/1/99 and thereafter 2.00x
ANNUALIZED OPERATING CASH FLOW TO PRO FORMA DEBT
SERVICE Borrower shall maintain a ratio of Annualized
Operating Cash Flow to Pro Forma Debt Service which is
greater than or equal to 1.25x.
ANNUALIZED OPERATING CASH FLOW TO FIXED CHARGES -
Commencing January 1, 2000, Borrower shall maintain a
________________________________________________________________________________
GCI HOLDINGS, INC. 9 NATIONSBANK
<PAGE>
ratio of Annualized Operating Cash Flow to Fixed
Charges which is greater than or equal to the
following schedule:
Period Ratio
------ -----
1/1/00 through 3/31/03 1.00x
4/1/03 and thereafter 1.05x
CAPITAL EXPENDITURES LIMITATION (will only apply for
the first three years after Closing)-
Period Ratio
1997 (Closing through 12/31/97) $55MM
1998 $90MM
1999 $65MM
Any unused amount of the capital expenditure
limitation may be carried over for one additional year
only.
***SENIOR DEBT TO ANNUALIZED OPERATING CASH FLOW -
Borrower shall not permit the ratio of Senior Debt to
Annualized Operating Cash Flow to be greater than the
following ratios during the following periods:
Period Ratio
------ -----
Closing through 3/31/99 4.50x
4/1/99 through 12/31/99 4.00x
1/1/00 through 12/31/00 3.50x
1/1/01 through 12/31/01 3.00x
1/1/02 and thereafter 2.00x
***TOTAL DEBT TO ANNUALIZED OPERATING CASH FLOW -
Borrower shall not permit the ratio of Total Debt to
Annualized Operating Cash Flow to be greater than the
following ratios during the following periods:
Period Ratio
------ -----
Closing through 3/31/98 7.75x
4/1/98 through 12/31/98 7.50x
1/1/99 through 6/30/99 7.00x
7/1/99 through 12/31/99 6.00x
1/1/00 and thereafter 5.50x
***ANNUALIZED OPERATING CASH FLOW TO INTEREST EXPENSE
- Borrower shall maintain a ratio of Annualized
Operating Cash Flow to annualized trailing two quarter
Interest Expense which is greater than or equal to the
following schedule:
Period Ratio
------ -----
Closing through 12/31/98 1.40x
1/1/99 and thereafter 2.00x
***ANNUALIZED OPERATING CASH FLOW TO PRO FORMA DEBT
SERVICE Borrower shall maintain a ratio of Annualized
________________________________________________________________________________
GCI HOLDINGS, INC. 10 NATIONSBANK
<PAGE>
Operating Cash Flow to Pro Forma Debt Service which is
greater than or equal to the following schedule:
Period Ratio
------ -----
Closing through 3/31/98 1.05x
4/1/98 through 12/31/98 1.15x
1/1/99 and thereafter 1.25x
***ANNUALIZED OPERATING CASH FLOW TO FIXED CHARGES -
Commencing January 1, 2000, Borrower shall maintain a
ratio of Annualized Operating Cash Flow to Fixed
Charges which is greater than or equal to 1.00x.
***CAPITAL EXPENDITURES LIMITATION (will only apply
for the first three years after Closing)-
Period Ratio
------ -----
1997 (Closing through 12/31/97) $55MM
1998 $90MM
1999 $65MM
Any unused amount of the capital expenditure
limitation may be carried over for one additional year
only.
MAJORITY LENDERS: Lenders holding at least 67% of all the Committed Sum.
EVENTS OF DEFAULT: The definitive loan documentation shall contain events
of default which are usual and customary for
transactions of this nature and similar to existing
loan documentation for the Borrower, its Restricted
Subsidiaries, GCI, Inc. and General Communication,
Inc. including nonpayment when due, breach of
representations, warranties or covenants, breach of
other material agreements, material undischarged
judgments, bankruptcy or insolvency, cross-default to
all other debt, change of control and/or management,
and any breach of any Project Agreement, including
each lease agreement, or intercompany note between the
Borrower, any Restricted Subsidiary and AULP.
________________________________________________________________________________
GCI HOLDINGS, INC. 11 NATIONSBANK
<PAGE>
CONDITIONS PRECEDENT: Lenders shall have no obligation to make any advance
unless and until Borrower has executed and delivered
to Administrative Agent definitive loan documentation
and supporting resolutions, incumbency certificates
and opinions of counsel in form and substance
satisfactory to Lenders reflecting this Summary of
Terms and Conditions; Borrower shall be in compliance
with all credit agreement covenants; no material
adverse change in the Borrower's and its Restricted
Subsidiaries' consolidated business, assets or
financial condition since December 31, 1996; GCI, Inc.
has issued $150MM of senior subordinated notes, the
terms of which must be satisfactory to the Lenders,
and the net proceeds of such debt issuance must be
downstreamed into GCI Holdings, Inc. as equity; any
proceeds raised by General Communications, Inc.'s
primary equity offering must be downstreamed to the
Borrower at Closing; any affiliate transactions with
Unrestricted Subsidiaries must be satisfactory to the
Administrative Agent, and containing such other terms
and conditions as are usual and customary for
transactions of this nature for the Borrower and its
Restricted Subsidiaries. Additionally, the Project
Financing must be consummated on terms and conditions,
and pursuant to documentation, acceptable to the
Managing Agents. The undersea fiber survey will be
sold to AULP for fair value.
GCI SATELLITE COMPANY: The Lenders will agree to negotiate in good faith with
the Borrower and its Restricted Subsidiaries when
presented with the proposed financing of GCI Satellite
Company.
EXPENSES: Whether or not the Facilities are closed, Borrower
shall reimburse the Administrative Agent and Arranger
for all costs and expenses, including reasonable
attorneys' fees and expenses, incurred by the
Administrative Agent and Arranger in connection with
the preparation, negotiation, execution, delivery,
syndication, and administration of the Facilities, and
Borrower shall reimburse each Lender for all costs and
expenses including reasonable attorneys' fees and
expenses, incurred by such Lender in connection with
the enforcement and collection of the obligations of
Borrower.
ASSIGNMENTS AND
PARTICIPATIONS: Borrower may not assign its rights or obligations
under the Facilities without the prior written consent
of the Lenders. Each Lender shall have the right to
sell participations in the Facilities. Subject to the
consent of Borrower and Administrative Agent, Lenders
may assign all or part of the Facilities in minimum
amounts of $10,000,000 to one or more financial
institutions. Administrative Agent shall be paid a
processing fee of $3,000 in connection with each
assignment.
________________________________________________________________________________
GCI HOLDINGS, INC. 12 NATIONSBANK
<PAGE>
AMENDMENTS AND WAIVERS: With the consent of Majority Lenders; provided that
amendments or waivers relating to interest rates,
fees, payment amounts and dates and collateral shall
require the consent of all Lenders.
WAIVERS AND CONSENTS: Borrower shall submit itself to the nonexclusive
jurisdiction of federal and state courts sitting in
Texas, and Borrower, Administrative Agent and Lenders
shall waive the right to a jury trial in any
proceeding relating to the Facilities.
GOVERNING LAW: Texas
________________________________________________________________________________
GCI HOLDINGS, INC. 13 NATIONSBANK
<PAGE>
DEFINITIONS:
"Annualized Operating Cash Flow" means Operating Cash Flow for the most recently
completed two fiscal quarters multiplied by two.
"AULP" means the Alaska United Limited Partnership.
"Excess Cash Flow" means Operating Cash Flow minus the sum of Interest Expense,
scheduled repayments of principal of Total Debt, restricted payments or loans to
AULP made with cash from operations, capital expenditures financed with cash
from operations, working capital and taxes paid or accrued.
"Fixed Charges" means the sum of cash Interest Expense, plus scheduled
repayments of principal of Total Debt, plus cash taxes paid, plus cash payments
(other than lease payments to AULP) made to Unrestricted Subsidiaries, plus
capital expenditures (capital expenditures will not be included in the covenant
while the maximum capital expenditure covenant is in effect), all during the
preceding fiscal quarters from the date of determination.
"Interest Expense" means for the period of determination, all interest expense
and commitment fees and other fees, except facility fees, incurred with respect
to Total Debt, whether accrued or paid, for the Borrower, its Restricted
Subsidiaries and GCI, Inc.
"Operating Cash Flow" means the net income of the Borrower and its Restricted
Subsidiaries (determined in accordance with GAAP), excluding extraordinary
gains/losses, plus the sum of depreciation and amortization, Interest Expense,
cash taxes, deferred taxes and any other non-cash charges for the period of
determination.
"Pro Forma Debt Service" means the sum of cash Interest Expense (using the
interest rate in effect on the date of determination to calculate), plus
scheduled repayments of principal of Total Debt, all during the four succeeding
fiscal quarters from the date of determination.
"Project Financing" means that certain construction and term loan financing
provided to AULP in an amount up to an aggregate amount of $75,000,000, by all
or any portion of the Lenders under the Facilities with Credit Lyonnais as the
agent, pursuant to which AULP will develop, construct and operate an undersea
fiber optic cable connecting Anchorage, Fairbanks and Juneau, Alaska with the
continental United States.
"Project Agreements" means those agreements defined as such in that certain
Alaska United Limited Partnership Summary of Terms and Conditions, dated June
{24}, 1997, including the Lease Contract, Operating and Maintenance Contract
and the Operating Keep-Well Agreement.
"Restricted Subsidiaries" include GCI Communication Corp., GCI Communication
Services, Inc., GCI Leasing Company, Inc., GCI Cable, Inc., and any other direct
or indirect subsidiary of any of the above, and any subsidiary of the Borrower
created after the date hereof, unless such subsidiary is an "Unrestricted
Subsidiary"
"Senior Debt" means all obligations which would be classified on a balance
sheet as debt for borrowed money or for the deferred purchase price of property
(including capital lease obligations and contingent obligations), and all
reimbursement obligations for standby letters of credit of the Borrower and its
Restricted Subsidiaries.
________________________________________________________________________________
GCI HOLDINGS, INC. 14 NATIONSBANK
<PAGE>
"Total Debt" means all obligations which would be classified on a balance sheet
as debt for borrowed money or for the deferred purchase price of property
(including capital lease obligations and contingent obligations), and all
reimbursement obligations for standby letters of credit of the Borrowers, its
Restricted Subsidiaries or GCI, Inc.
"Unrestricted Subsidiaries" means GCI Transport Company, GCI Satellite Company,
GCI Fiber Company, Fiber Hold Company, Alaska United Partnership, and any other
newly formed direct or indirect subsidiary of the Borrower that is either 1) a
wholly owned subsidiary of any of the preceding Unrestricted Subsidiaries, or 2)
agreed upon in writing to be designated as an Unrestricted Subsidiary by the
Borrower and the Majority Lenders.
________________________________________________________________________________
GCI HOLDINGS, INC. 15 NATIONSBANK
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF
EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Primary Earnings Per Share
Net earnings..................................................................... 7,462 7,502 7,134
--------- --------- ---------
--------- --------- ---------
Shares
Weighted average number of common shares outstanding............................. 26,498 23,723 23,199
Add-dilutive effect of options and warrants...................................... 1,170 703 884
--------- --------- ---------
Weighted average number of common and common equivalent shares outstanding....... 27,668 24,426 24,083
--------- --------- ---------
--------- --------- ---------
Net earnings per common share.................................................... 0.27 0.31 0.30
--------- --------- ---------
--------- --------- ---------
Fully Dilutive Earnings Per Share
Net Earnings..................................................................... 7,462 7,502 7,134
--------- --------- ---------
--------- --------- ---------
Shares
Weighted average number of common shares outstanding............................. 26,498 23,723 23,199
Add-dilutive effect of options and warrants...................................... 1,457 771 888
--------- --------- ---------
Weighted average number of common and common equivalent shares outstanding....... 27,955 24,494 24,807
--------- --------- ---------
--------- --------- ---------
Net earnings per common share...................................................... 0.27 0.31 0.30
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
General Communication, Inc.
The audits referred to in our report dated February 21, 1997 included the
related financial statement schedule as of December 31, 1996, and for each of
the years in the three-year period ended December 31, 1996, included in the
registration statement. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits. In our opinion, based on our
audits and the report of the other auditors, the financial statement schedule,
when considered in relation to the consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
Anchorage, Alaska
July 7, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 18, 1996 (except for the last paragraph of
Note 7, as to which the date is September 9, 1996) with respect to the financial
statements of Prime Cable of Alaska, L.P. and our report dated February 9, 1996
(except for Note 13, as to which the date is March 14, 1996) with respect to the
combined financial statements of the Alaskan Cable Network, both of which
reports are included in Amendment No. 1 to the Registration Statement (Form S-1
No. 333-29189) and related Prospectus of GCI, Inc. for the registration of
$150,000,000 par value Senior Notes Due 2007, and to the use of our report dated
February 14, 1997, with respect to the consolidated financial statements of GCI
Cable, Inc. and Subsidiaries (not presented separately herein).
/s/ ERNST & YOUNG, LLP
Austin, Texas
July 3, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
GCI, Inc.:
We hereby consent to the use of our report dated February 27, 1996,
regarding Alaska Cablevision, Inc., and to the reference to our Firm under the
heading "Experts" in the Registration Statement on Form S-1 for a debt offering
by GCI, Inc.
/s/ CARL & CARLSEN
--------------------------------------
CARL & CARLSEN
Edmonds, Washington
July 7, 1997
<PAGE>
EXHIBIT 23.5
Sherman & Howard, L.L.C.
633 Seventeenth St., Suite 3000
Denver, Colorado 80202
(303) 297-2900
July 7, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20540
Re: GCI, Inc.
Ladies and Gentlemen:
We consent to the use of our name under "Legal Matters" on page 124 of the
prospectus included in the Form S-1 Registration Statement of GCI, Inc.,
Registration No. 333-29189.
Very truly yours,
/s/ Sherman & Howard
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------
GCI, Inc.
(Exact name of obligor as specified in its charter)
Alaska To Be Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
(Address of principal executive offices) (Zip code)
--------------------
Debt Securities
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street,
New York New York, N.Y.
10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza,
New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1
to Form T-1 filed with Registration Statement No. 33-6215,
Exhibits 1a and 1b to Form T-1 filed with Registration Statement
No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 22nd day of May, 1997.
THE BANK OF NEW YORK
By: /S/ STEPHEN J. GIURLANDO
--------------------------------
Name: STEPHEN J. GIURLANDO
Title: ASSISTANT VICE PRESIDENT
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THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------
GCI, Inc.
(Exact name of obligor as specified in its charter)
Alaska To Be Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
(Address of principal executive offices) (Zip code)
--------------------
Debt Securities
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street,
New York New York, N.Y.
10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza,
New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1
to Form T-1 filed with Registration Statement No. 33-6215,
Exhibits 1a and 1b to Form T-1 filed with Registration Statement
No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
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6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 22nd day of May, 1997.
THE BANK OF NEW YORK
By: /S/ STEPHEN J. GIURLANDO
--------------------------------
Name: STEPHEN J. GIURLANDO
Title: ASSISTANT VICE PRESIDENT
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BYLAWS
OF
GCI HOLDINGS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I OFFICES............................................................1
ARTICLE II SHAREHOLDERS' MEETINGS.............................................1
Section 1. ANNUAL MEETING................................................1
Section 2. SPECIAL MEETINGS..............................................1
Section 3. PLACE OF MEETING..............................................2
Section 4. NOTICE OF MEETING.............................................2
Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE............2
Section 6. VOTING LISTS..................................................3
Section 7. QUORUM........................................................3
Section 8. PROXIES.......................................................3
Section 9. VOTING OF SHARES..............................................3
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS..........................4
Section 11. INFORMAL ACTION BY SHAREHOLDERS..............................4
ARTICLE III BOARD OF DIRECTORS................................................4
Section 1. GENERAL POWERS................................................4
Section 2. NUMBER, TENURE AND QUALIFICATIONS.............................4
Section 3. REGULAR MEETINGS..............................................5
Section 4. SPECIAL MEETINGS..............................................5
Section 5. QUORUM........................................................5
Section 6. MANNER OF ACTING..............................................5
Section 7. ATTENDANCE AT MEETINGS........................................5
Section 8. VACANCIES.....................................................6
Section 9. COMPENSATION..................................................6
Section 10. PRESUMPTION OF ASSENT........................................6
Section 11. REMOVAL OF DIRECTORS.........................................6
Section 12. RESIGNATION..................................................6
Section 13. VOTING BY INTERESTED DIRECTORS...............................7
Section 14. ACTION BY DIRECTORS WITHOUT A MEETING........................7
ARTICLE IV OFFICERS...........................................................7
Section 1. NUMBER........................................................7
Section 2. ELECTION AND TERM OF OFFICE...................................7
Section 3. REMOVAL.......................................................7
Section 4. VACANCIES.....................................................7
Section 5. PRESIDENT.....................................................8
Section 6. VICE PRESIDENTS...............................................8
Section 7. THE SECRETARY.................................................8
Section 8. THE TREASURER.................................................9
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Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS................9
Section 10. SALARIES......................................................9
ARTICLE V LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS,
OFFICERS AND AGENTS OF THE CORPORATION..............................9
Section 1. LIMITATION OF LIABILITY.......................................9
Section 2. RIGHT OF INDEMNIFICATION.....................................10
Section 3. RIGHTS CUMULATIVE............................................10
ARTICLE VI CONTRACTS, LOANS, CHECKS, DEPOSITS AND COMPENSATION................11
Section 1. CONTRACTS....................................................11
Section 2. LOANS........................................................11
Section 3. CHECKS, DRAFTS, ETC..........................................11
Section 4. DEPOSITS.....................................................11
ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER.....................11
Section 1. CERTIFICATES FOR SHARES......................................11
Section 2. TRANSFER OF SHARES...........................................12
ARTICLE VIII TAXABLE YEAR AND ACCOUNTING PERIOD.............................12
ARTICLE IX DIVIDENDS.........................................................12
ARTICLE X CORPORATE SEAL....................................................12
ARTICLE XI WAIVER OF NOTICE..................................................13
ARTICLE XII AMENDMENTS........................................................13
ARTICLE XIII EXECUTIVE COMMITTEE.............................................13
Section 1. APPOINTMENT..................................................13
Section 2. AUTHORITY....................................................13
Section 3. TENURE AND QUALIFICATIONS....................................13
Section 4. MEETINGS.....................................................13
Section 5. QUORUM.......................................................14
Section 6. ACTION WITHOUT A MEETING.....................................14
Section 7. VACANCIES....................................................14
Section 8. RESIGNATIONS AND REMOVAL.....................................14
Section 9. PROCEDURE....................................................14
ARTICLE XIV CONDUCT OF MEETINGS..............................................15
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ARTICLE I
OFFICES
The principal office of GCI Holdings, Inc. (the "Corporation") shall be
located in Anchorage, Alaska. The Corporation may have such other offices,
either within or without the State of Alaska, as the Board of Directors may
designate or as the business of the Corporation may require from time to time.
The registered office of the Corporation required by the Alaska
Corporations Code to be maintained in the State of Alaska may be, but need not
be, identical with the principal office in the State of Alaska, and the address
of the registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. ANNUAL MEETING. The annual meeting of the Shareholders shall
be held in the month of June of each year, for the purpose of electing Directors
and for the transaction of such other business as may come before the meeting.
If the election of Directors shall not be held on the day designated for the
annual meeting of the Shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
Shareholders as soon thereafter as it conveniently may be held.
(a) Meetings of the Shareholders shall be presided over by the
President or by any officer or Director or person selected at any time by the
President to act as Chairman, or if he is not present or available or makes no
selection, then by the Chairman of the Board of Directors. If neither the
President nor the Chairman of the Board of Directors is present and no selection
has been made, a Chairman should be chosen by a majority in interest of the
Shareholders present in person or by proxy at the meeting and entitled to vote
thereat.
(b) The Secretary of the meeting shall be the Secretary of the
Corporation or an Assistant Secretary, or if none of such officers is present,
any person appointed by the Chairman of the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the Shareholders for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or by the Board of Directors, and shall be called by the President
at the request of the holders of not less than one-tenth of all the outstanding
shares of the corporation entitled to vote at the meeting.
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Section 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Alaska, as the place of meeting
called by the Board of Directors. A waiver of notice signed by all Shareholders
entitled to vote at a meeting may designate any place, either within or without
the State of Alaska, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the Corporation in the State of Alaska.
Section 4. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than twenty (20)
nor more than sixty (60) days before the date of the meeting, either personally
or by mail, by or at the direction of the President, or the Secretary, or the
persons calling the meeting, to each Shareholder of record entitled to vote at
such meeting. If mailed, the notice is considered delivered when deposited with
postage prepaid in the United States mail addressed to the shareholder at the
address of the shareholder as it appears on the stock transfer book of the
corporation, or, if the shareholder has filed with the secretary of the
corporation a written request that notice be mailed to a different address,
addressed to the shareholder at the new address.
Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled to
receive payment of a dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, seventy (70) days. If the stock
transfer books shall be closed for the purpose of determining Shareholders
entitled to notice of or to vote at a meeting of Shareholders, such books shall
be closed for at least twenty (20) days immediately preceding such meeting.
Instead of closing the stock transfer books, the Board of Directors may fix
a date as the record date for any such determination of Shareholders. This
record date shall be not more than sixty (60) days, and in case of a meeting of
Shareholders not less than twenty (20) days, prior to the date on which the
particular action requiring such determination of Shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of Shareholders entitled to notice of or to vote at a meeting of
Shareholders, or Shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring the dividend is adopted is, as
the case may be, the record date for the determination of Shareholders. When a
determination of Shareholders entitled to vote at any meeting of Shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof except where the determination has been made through the
closing of the stock transfer books and the stated period of closing has
expired.
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Section 6. VOTING LISTS. At least twenty (20) days before each meeting of
the Shareholders, the officer or agent having charge of the stock transfer books
for shares of the Corporation shall make a complete list of the Shareholders
entitled to vote at each meeting of Shareholders or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. The list shall be kept on file at the registered office of the
corporation and is subject to inspection by a Shareholder or the agent or
attorney of a Shareholder at any time during the usual business hours for a
period of twenty (20) days before the meeting. Such list shall be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any Shareholder during the whole time of the meeting.
Section 7. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders. If a quorum is present, the
affirmative vote of the majority of shares represented at the meeting and
entitled to vote on the subject matter is the act of the Shareholders unless the
vote of a greater number or voting by class is required by the articles of
incorporation, bylaws or the Alaska Corporations Code.
The Shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum, if any action taken other than
adjournment is approved by at least a majority of shares required to constitute
a quorum.
If less than a majority of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 8. PROXIES. At all meetings of Shareholders, a Shareholder may
vote in person or by proxy executed in writing by the Shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. A proxy continues in full
force and effect until revoked by the person executing it, however, no proxy
shall be valid after eleven (11) months from the date of its execution, unless
such proxy qualifies as an irrevocable proxy as defined within AS 10.06.418(e).
Section 9. VOTING OF SHARES. An outstanding share, regardless of class,
is entitled to one vote on each matter submitted to a vote at a meeting of
Shareholders, except as may be otherwise provided in the articles of
incorporation.
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Section 10. VOTING OF SHARES BY CERTAIN HOLDERS.
(a) Shares standing in the name of another corporation may be voted by
such officer, agent or proxy as the bylaws of such corporation may prescribe,
or, in the absence of such provisions, as the board of directors of such
corporation may determine.
(b) Shares held by an administrator, executor, guardian or conservator may
be voted by such person, either in person or by proxy, without a transfer of
such shares into his name. Shares standing in the name of a trustee may be
voted by the trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name.
(c) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer into his name if authority to transfer the
shares is contained in an appropriate order of the court by which such receiver
was appointed.
(d) A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Neither treasury shares, nor shares of its own stock held by the
Corporation in a fiduciary capacity, nor shares held by another corporation if a
majority of the shares entitled to vote for the election of directors of the
other corporation is held by the Corporation, may be voted at a meeting or
counted in determining the total number of outstanding shares.
Section 11. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the Shareholders, or any other action which may be taken
at a meeting of the Shareholders, may be taken without a meeting by written
consent, identical in content setting out the action taken, signed by all of the
Shareholders entitled to vote on the action.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of
the Corporation shall be not less than one (1) nor more than nine (9); unless
the Corporation, now or at any time in the future, has three (3) or more
Shareholders in which case the Corporation shall have not fewer than three (3)
directors; or unless the Corporation has
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only two (2) Shareholders, in which case the Corporation shall have at least two
(2) directors. Each Director shall hold office until the next annual meeting of
Shareholders and until his successor shall have been elected and qualified.
Directors need not be residents of the State of Alaska or Shareholders of the
Corporation. The initial number of Directors shall be five (5).
Section 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at the
same place as, the annual meeting of the Shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Alaska, for the holding of additional regular meetings without other
notice than such resolution.
Section 4. SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called by the
Chairman of the Board, the President, a Vice President, the Secretary, or a
Director or such person authorized to call the meeting may fix the time and
place for holding the meeting, either inside or outside the State of Alaska.
(b) Notice of any special meeting shall be given at least ten (10) days
prior thereto by written notice delivered personally or mailed to each Director
at his business address, or at least seventy-two (72) hours before the meeting
by electronic means, personal messenger, or comparable person-to-person
communication. If mailed by certified mail, such notice shall be deemed to be
delivered when deposited in the United States mail properly addressed, with
postage thereon prepaid. Any Director may waive notice of any meeting. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 5. QUORUM. A majority of the presently qualified Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than such majority is present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice; provided, further, that where there are only two Directors, both
shall be necessary to constitute a quorum.
Section 6. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 7. ATTENDANCE AT MEETINGS. The Board of Directors may conduct a
meeting of the Board by communicating simultaneously with each other by means of
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conference telephones or similar communications equipment and any action taken
at such meeting shall not be invalidated by reason of the fact that the
respective members of the Board were not assembled together in one place at the
time of taking such action or conducting such business.
Section 8. VACANCIES. Where a vacancy created by the removal of a
Director is pursuant to AS 10.06.460 or 10.06.463, such vacancies occurring on
the Board may be filled only by a vote of the Shareholders. Any other vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining Directors though less than a quorum of the Board of
Directors. A Director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled by
reason of an increase in the number of Directors may be filled by election by
the Board of Directors for a term of office continuing only until the next
election of Directors by the Shareholders. In no case may a vacancy continue
longer than six (6) months or until the next annual meeting, whichever occurs
first.
Section 9. COMPENSATION. By resolution of the Board of Directors, each
Director may be paid his or her expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a stated salary as Director or a
fixed sum for attendance at each meeting of the Board of Directors or both. No
such payment shall preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 10. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his/her dissent shall be entered in the minutes of the meeting or unless he/she
shall file a written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
Section 11. REMOVAL OF DIRECTORS. Any Director may be removed with or
without cause, at any time, by a vote of the Shareholders holding a majority of
the shares then issued and outstanding, at any special meeting called for that
purpose, or at the annual meeting. Except as otherwise prescribed by statute, a
Director may be removed for cause by a vote of the majority of the entire board.
Prior to vote by the Board on the question of removal of any Director for cause,
such Director must be given written notice of the reasons for such action.
Section 12. RESIGNATION. A Director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary, or
the Board of Directors of the Corporation, unless the notice specifies a later
time for the effectiveness of the resignation.
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If the resignation is effective at a future time, a successor may be elected to
take office when the resignation becomes effective.
Section 13. VOTING BY INTERESTED DIRECTORS. No Director may vote upon any
matter in which he has an adverse or personal interest, unless such interest has
been fully disclosed to the Board of Directors and the Board of Directors, by
majority of vote without the interested Director voting, permits such interested
Director to vote.
Section 14. ACTION BY DIRECTORS WITHOUT A MEETING. Action required or
permitted to be taken by the Board or a committee designated by the Board may be
taken without a meeting on written consents, identical in consent, setting out
the action taken and signed by all the members of the Board or the committee.
The written consents shall be filed with the minutes. The consents have the
same effect as an unanimous vote.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a President,
one or more Vice Presidents (the number thereof to be determined by the Board of
Directors), a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two (2) or
more offices may be held by the same person, except the offices of President and
Secretary.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the Shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
convenient. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, or until his death, or until he shall
resign or shall have been removed in the manner hereinafter provided.
Section 3. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
Section 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
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Section 5. PRESIDENT. The President shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. He shall, when present, preside at all meetings of
the Shareholders and of the Board of Directors. He may sign, with the Secretary
or any other proper officer of the Corporation authorized by the Board of
Directors, certificates for shares of the Corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors, or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 6. VICE PRESIDENTS. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the Corporation;
and shall perform such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
Section 7. THE SECRETARY. The Secretary shall:
(a) keep the minutes of the proceedings of the Shareholders and of the
Board of Directors in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions
of these Bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed to all documents
the execution of which on behalf of the Corporation under its seal is duly
authorized;
(d) keep a register of the post office address of each Shareholder which
shall be furnished to the Secretary by such Shareholder;
(e) sign with the President, or a Vice President, certificates for shares
of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors;
(f) have general charge of the stock transfer books of the Corporation; and
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(g) in general perform all duties incident to the office of the Secretary
and such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
Section 8. THE TREASURER. The Treasurer shall:
(a) have charge and custody of and be responsible for all funds and
securities of the Corporation;
(b) receive and give receipts for moneys due and payable to the Corporation
from any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected; and
(c) in general perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice President certificates for shares of the Corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President of the Board of Directors.
Section 10. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE V
LIMITATION OF LIABILITY AND
INDEMNIFICATION OF DIRECTORS, OFFICERS
AND AGENTS OF THE CORPORATION
Section 1. LIMITATION OF LIABILITY. No person shall be liable to the
Corporation for any loss or damage suffered by it on account of any action taken
or omitted to be taken in good faith, as a Director, member of a Committee or
Officer of the Corporation, if such person exercised or used the same degree of
care and skill, including reasonable inquiry, as a prudent person would have
exercised or used under the circumstances in the conduct
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of his/her own affairs. Without limitation on the foregoing, any such person
shall be deemed to have exercised or used such degree of care and skill if such
action were taken or omitted in reliance in good faith upon advice of counsel
for the Corporation, or the books of account or other records of the
Corporation, or reports or information made or furnished to the Corporation by
any officials, accountants, engineers, agents or employees of the Corporation,
or by an independent Certified Public Accountant or auditor, engineer,
appraiser, or other expert employed by the Corporation and selected with
reasonable care by the Board of Directors, by any such committee or by an
authorized officer of the Corporation.
Section 2. RIGHT OF INDEMNIFICATION. Each Director, member of a
Committee, Officer, Agent and Employee of the Corporation, and each former
director, member of a committee, officer, agent and employee of the Corporation,
and any person who may have served at its request as a director, officer, agent
or employee of another Corporation in which it is a creditor, and his heirs and
personal representative shall be indemnified by the Corporation against all loss
or damage suffered and all costs and expenses imposed upon or incurred by him in
connection with or arising out of any action, suit or proceedings (whether civil
or criminal in nature) in which he may be involved, to which he may be a party
by reason of being or having been (or his personal representative or estate
having been) such director, member of a committee, officer, agent or employee,
except in relation to matters as to which he shall be adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in performance of
his duty; provided, however, that the Corporation shall be given reasonable
notice of the institution of such action, suit or proceedings; and in the event
the same shall be settled in whole or in part, the Corporation or its counsel
shall consent to such settlement if it be determined by its counsel or found by
a majority of the Board of Directors then in office and not involved in such
controversy, that such settlement is to the best interest of the Corporation and
that the person to be indemnified was not guilty of negligence or misconduct in
performance of duty.
Indemnification (unless ordered by the court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the director, officer,
employee or committee member has met the applicable standard of conduct. This
determination shall be made (a) by the Board of Directors, by a majority vote of
a quorum consisting of directors who were not parties to the action or
proceeding; or (b) by independent legal counsel in a written opinion, either (i)
if such a quorum is not obtainable, or (ii) if a quorum of disinterested
directors so requests such a written opinion; or (c) by approval of the
outstanding shares.
Section 3. RIGHTS CUMULATIVE. The provisions of this Article V shall not
be deemed exclusive or in limitation of, but shall be cumulative of and in
addition to any other limitations of liability, indemnities, and rights to which
such Director, member of a Committee, Officer, Agent or other person may be
entitled under Alaska Statute, these
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Bylaws or pursuant to any agreement or resolution of the Board of Directors or
of the Shareholders, or otherwise.
ARTICLE VI
CONTRACTS, LOANS, CHECKS,
DEPOSITS AND COMPENSATION
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and sealed with the
corporate seal or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation itself or one of
its employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person or entity to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled; except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
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All shares issued by the Corporation shall contain a legend on the
certificates stating substantially the following:
The shares represented by this certificate have
not been registered under any federal or state
securities law. They have been acquired for
investment and may not be transferred without an
effective registration statement pursuant to such
laws or an opinion of counsel satisfactory to the
corporation that registration is not required.
Section 2. TRANSFER OF SHARES. Transfer of any shares of the Corporation
shall be done in compliance with all federal, state and local securities laws,
and any transfer of in violation thereof is void. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by its legal representative, who shall furnish
proper evidence of authority to transfer filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The entity or person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes.
ARTICLE VIII
TAXABLE YEAR AND ACCOUNTING PERIOD
The taxable year and accounting period of the Corporation shall begin on
January 1 and end on December 31, unless changed by resolution of the Board of
Directors.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in cash, property, or its own
shares, except when the Corporation is insolvent, or when the dividend would
render the Corporation insolvent, or when the dividend is contrary to
restrictions contained in the Articles of Incorporation.
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words "Corporate Seal."
ARTICLE XI
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WAIVER OF NOTICE
Whenever any notice is required to be given to any Shareholder or Director
of the Corporation under the provisions of these Bylaws or under the provisions
of the Articles of Incorporation or under the provisions of the Alaska
Corporation Code, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ARTICLE XII
AMENDMENTS
Except as may be provided in the Articles, these Bylaws may be altered,
amended or repealed and new Bylaws may be adopted by the Board of Directors at
any regular or special meeting of the Board of Directors.
ARTICLE XIII
EXECUTIVE COMMITTEE
Section 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the full board, may designate two (2) or more of its members to
constitute an Executive Committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
Section 2. AUTHORITY. Except as limited by the Articles or AS 10.06.468,
the Executive Committee, when the Board of Directors is not in session, shall
have and may exercise all of the authority of the Board of Directors except to
the extent, if any, that such authority shall be limited by the resolution
appointing the Executive Committee.
Section 3. TENURE AND QUALIFICATIONS. Each member of the Executive
Committee shall hold office until the next regular annual meeting of the Board
of Directors following his designation and until his successor is designated as
a member of the Executive Committee and is elected and qualified.
Section 4. MEETINGS. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time by resolution. Special meetings of the Executive Committee
may be called by any member thereof upon not less than five (5) days' notice,
stating the place, date and hour of the meeting, which notice may be written or
oral, and if mailed by certified mail, shall be deemed to be delivered when
deposited in the United States mail addressed to the member of the Executive
Committee at his business address, postage prepaid. Any member of the Executive
Committee may waive notice of any meeting, and no notice of any meeting need be
given to any member thereof who attends in person. The notice of
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a meeting of the Executive Committee need not state the business proposed to be
transacted at the meeting.
Section 5. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. ACTION WITHOUT A MEETING. Any action that may be taken by the
Executive Committee at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, shall be signed by all of the
members of the Executive Committee before such action be taken further. The
Executive Committee can validly conduct a meeting by communicating
simultaneously with each other by means of conference telephones or similar
communications equipment.
Section 7. VACANCIES. Any vacancy in the Executive Committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
Section 8. RESIGNATIONS AND REMOVAL. Any member of the Executive
Committee may be removed at any time, with or without cause, by resolution
adopted by a majority of the full Board of Directors. Any member of the
Executive Committee may resign from the Executive Committee at any time by
giving written notice to the President or Secretary of the Corporation and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 9. PROCEDURE. The Executive Committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting thereof held next after the proceedings shall have been taken.
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ARTICLE XIV
CONDUCT OF MEETINGS
All meetings conducted under these Bylaws shall be governed in accordance
with ROBERTS RULES OF ORDER.
We, the undersigned, hereby certify that the foregoing Bylaws for governing
the operation and management of GCI Holdings, Inc., were duly adopted by the
Directors by unanimous written consent, effective as of ________________, 1997.
-------------------------------------
John M. Lowber, Secretary
APPROVED:
- ---------------------------
Ronald A. Duncan, President
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ARTICLES OF INCORPORATION
OF
GCI HOLDINGS, INC.
We, the undersigned natural persons over the age of eighteen (18) years,
acting as incorporators of a corporation under the Alaska Corporation Code, AS
10.06, do hereby adopt the following Articles of Incorporation for such
corporation.
ARTICLE I - NAME
The name of the corporation ("Corporation") is: GCI HOLDINGS, INC.
ARTICLE II - PURPOSES AND POWERS
The purpose for which the Corporation is organized is to provide
telecommunication and cable business services, and in general, to pursue any
lawful purpose authorized under the Alaska Corporations Code.
The Corporation shall have and may exercise all of the general powers of a
natural person, including those provided in AS 10.06.010, as amended, and may
transact any or all lawful business for which corporations may be incorporated
under the Alaska Corporations Code.
ARTICLE III - REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office and the name of its
registered agent is Hartig, Rhodes, Norman, Mahoney & Edwards, P.C., 717 "K"
Street, Anchorage, AK 99501.
ARTICLE IV - CAPITAL
The Corporation shall have the authority to issue ten thousand (10,000)
shares of no par value stock. These shares shall be common voting shares, each
share having one (1) vote.
ARTICLE V - NO PRESUMPTIVE RIGHTS
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Pursuant to AS 10.06.210(a)(1)(B), no holder of any stock of the
Corporation shall be entitled to purchase, subscribe for or otherwise acquire,
as a matter of right, any new or additional shares of stock, of any class, in
the Corporation, any options or warrants to purchase, subscribe for or otherwise
acquire any new or additional shares in the Corporation, or any shares, bonds,
notes, debentures, or other securities convertible into or carrying options or
warrants to purchase, subscribe for or otherwise acquire any such shares.
ARTICLE VI - NO CUMULATIVE VOTING
Pursuant to AS 10.06.420(d), shareholders shall not cumulate their votes,
but must vote shares held by them for as many persons as there are directors to
be elected.
ARTICLE VII - POWER TO REDEEM SHARES
Pursuant to AS 10.06.325, the Corporation has the power on majority vote of
the shareholders, to redeem, in whole or in part, any class of outstanding
shares.
ARTICLE VIII - QUORUM OF SHAREHOLDERS
A quorum for the conducting of any shareholder business shall be fifty-one
percent (51%) of all outstanding shares that are entitled to vote.
ARTICLE IX - INITIAL DIRECTORS
The initial number of directors of the Corporation shall be five (5). The
names and addresses of the initial directors, who shall serve until the first
annual meeting of shareholders or until their successors are elected and
qualified are as follows:
Ronald A. Duncan
2550 Denali Street, Suite 1000
Anchorage, AK 99503
Larry E. Romrell
4643 S. Ulster, Suite 400
Denver, CO 80237
Donne F. Fisher
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4643 S. Ulster, Suite 400
Denver, CO 80237
Robert M. Walp
2550 Denali Street, Suite 1000
Anchorage, AK 99503
Carter Page
c/o Semaphore Partners
8101 Prentice Plaza
Suite M-200
Englewood, CO 80111
The number of directors may be increased or decreased from time to time by
an amendment of the Bylaws; but no decrease shall have the effect of shortening
the term of any incumbent director. The directors may fill any vacancy on the
board created by reason of removal or retiring of any director.
ARTICLE X - ALIEN AFFILIATES
The Corporation is not affiliated with any nonresident alien or a
corporation whose place of incorporation is outside the United States (as
defined in AS 10.06.990(2) and (3)).
ARTICLE XI - LIABILITY OF DIRECTORS
The directors of the Corporation shall not be liable to the Corporation for
monetary damages for a breach of fiduciary duty except for:
(1) A breach of a director's duty of loyalty to the
Corporation;
(2) Acts or omissions not in good faith or that
involve intentional misconduct or a knowing
violation of law; or
(3) A transaction from which the director derives an
improper personal benefit.
ARTICLE XII - BYLAWS
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The initial Bylaws of the Corporation shall be adopted by the Board of
Directors, and the power to alter, amend or repeal the Bylaws shall be reserved
to the board. The Bylaws may contain any provision for the regulation and
management of the affairs of the Corporation not inconsistent with the Alaska
Corporation Code or with these Articles of Incorporation.
ARTICLE XIII - DURATION
The duration of the Corporation shall be perpetual.
ARTICLE XIV - EFFECTIVE DATE
These Articles will be effective upon filing.
IN WITNESS WHEREOF, I have signed these Articles this _____ day of May,
1997.
---------------------------------------
Robert B. Flint
IN WITNESS WHEREOF, I have signed these Articles this _____ day of May,
1997.
---------------------------------------
Bonnie J. Paskvan
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
ROBERT B. FLINT says on oath or affirms that he has read the foregoing
ARTICLES OF INCORPORATION OF GCI HOLDINGS, INC., and believes all statements
made in the document are true and correct.
---------------------------------------
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Notary Public in and for the State of Alaska
My commission expires:
----------------------
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
BONNIE J. PASKVAN says on oath or affirms that she has read the foregoing
ARTICLES OF INCORPORATION OF GCI HOLDINGS, INC., and believes all statements
made in the document are true and correct.
--------------------------------------------
Notary Public in and for the State of Alaska
My commission expires:
----------------------
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